UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012
COMMISSION FILE NUMBER 0-25779
THESTREET, INC.
(Exact name of Registrant as specified in its charter)
| Delaware | 06-1515824 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 14 Wall Street, 15th Floor | ||
| New York, New York | 10005 | |
| (Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code: (212) 321-5000
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of Each Exchange on Which the Securities are Registered | |
| Common Stock, par value $0.01 per share | Nasdaq Global Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £ No S
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes £ No S
Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant as required to submit and post such files). Yes S No £
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer £ | Accelerated filer £ | Non-accelerated filer £ | Smaller reporting company S |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes £ No S
The aggregate market value of the Registrant’s common stock held by non-affiliates of the Registrant (assuming, for the sole purpose of this calculation, that all directors and executive officers of the Registrant are “affiliates”), based upon the closing price of the Registrant’s common stock on June 30, 2012 as reported by Nasdaq, was approximately $45 million.
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.
| Title of Each Class | Number of Shares Outstanding as of February 19, 2013 | |
| Common Stock, par value $0.01 par value | 33,291,973 |
Documents Incorporated By Reference
Part III of this Form 10-K incorporates by reference certain information from the Registrant’s Definitive Proxy Statement for its 2013 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Report.
THESTREET, INC.
2012 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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THESTREET, INC.
2012 ANNUAL REPORT ON FORM 10-K
Special Note Regarding Forward-Looking Statements – all statements contained in this Report that are not descriptions of historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are inherently subject to risks and uncertainties, and actual results could differ materially from those reflected in the forward-looking statements due to a number of factors, which include, but are not limited to, the factors set forth under the heading “Risk Factors” and elsewhere in this Report, and in other documents we file with the Securities and Exchange Commission from time to time. Certain forward-looking statements may be identified by terms such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “forecasts,” “potential,” or “continue” or similar terms or the negative of these terms. All statements relating to our plans, strategies and objectives are deemed forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We have no obligation to update these forward-looking statements, whether as a result of new information, future developments or otherwise.
Overview
TheStreet, Inc., together with its wholly owned subsidiaries (“TheStreet”, “we”, “us” or the “Company”), is a leading digital media company focused on the financial and mergers and acquisitions environment. The Company’s collection of digital services provides users, subscribers and advertisers with a variety of content and tools through a range of online, social media, tablet and mobile channels. Our mission is to provide actionable ideas from the world of investing, finance, business and mergers and acquisitions in order to break down information barriers, level the playing field and help all individuals and organizations grow their wealth. With a robust suite of digital services, TheStreet offers the tools and insight needed to make informed decisions about earning, investing, saving and spending money.
Since its inception in 1996, TheStreet believes it has distinguished itself from other financial media companies with its journalistic excellence, unbiased approach and interactive multimedia coverage of the financial markets, economy, industry trends, investment and financial planning.
We pioneered online publishing of business and investment information through our creation of TheStreet, which launched in 1996 as a paid subscription financial news and commentary Web site. Today, TheStreet is our flagship advertising-supported property, a leading site in its category and a source of subscribers to a variety of our paid subscription products. Our subscription products, which include RealMoney, RealMoney Pro, Options Profits, Actions Alerts PLUS, Breakout Stocks, and Stocks Under $10 – are designed to address the needs of investors with various areas of interest and increasing levels of financial sophistication, including fledgling investors, long-term and short-term active investors, day and swing traders, and fundamental, technical and options traders. Our RateWatch business publishes bank rate market information on a subscription basis to financial institutions and government agencies. With our recent acquisition of The Deal, LLC, we now are able to provide dealmakers, advisers and institutional investors with sophisticated analysis of the mergers and acquisitions environment.
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Subscription Services
We believe we were one of the first companies to successfully create a large scale, consumer-focused, digital subscription services content business. We believe we have been able to successfully build our subscription services business because we have established a track record for over 16 years of providing high quality, independent investing ideas that have produced financial value for our readers. We believe our track record provides us with a competitive advantage and we will seek to enhance the value of our leading brand and our ability to monetize that value.
In addition to our consumer-focused subscription products, which include RealMoney, RealMoney Pro, Options Profits, Actions Alerts PLUS, Breakout Stocks, and Stocks Under $10, our subscription services business also includes information and transactional services revenue from RateWatch and The Deal.
RateWatch maintains a constantly-updated database of financial rate and fee data collected from more than 90,000 financial institutions (at the branch level), including certificate of deposit, money market account, savings account, checking account, home mortgage, home equity loan, credit card and auto loan rates. This information is licensed to financial institutions and government agencies on a subscription basis, in the form of standard and custom reports that outline the competitive landscape for our clients. The data collected by RateWatch also serves as the foundation for the information available on BankingMyWay, an advertising-supported Web site that enables consumers to search for the most competitive local and national rates.
On September 11, 2012, the Company acquired 100% of the equity of The Deal LLC (“The Deal”). Founded in 1999 as The Daily Deal print newspaper, The Deal transformed its business into a digital subscription platform that delivers sophisticated coverage of the mergers and acquisitions environment, primarily through The Deal Pipeline, a leading provider of transactional information services. The Deal Pipeline was created for organizations seeking to generate deal flow, improve client intelligence and enhance market knowledge. It provides full access to proprietary commentary, analysis and data produced every day by The Deal’s editors and journalists and can be customized based on each client’s job function, deal focus and workflow and delivered straight to a mobile device or existing corporate platform.
Our subscription services revenue also includes revenue generated from syndication and licensing of certain of our content, including data from TheStreet Ratings (“Ratings”), which tracks the risk-adjusted performance of more than 20,000 mutual funds and exchange-traded funds (ETFs) and more than 4,000 stocks. Subscription services contributed 75% of our total revenue in 2012, as compared to 68% in 2011 and 67% in 2010.
Advertising Supported Properties
Our advertising-supported properties, which include TheStreet, Stockpickr, MainStreet and BankingMyWay, attract one of the largest and most affluent audiences of any digital publisher in our content vertical. We believe our flagship site, TheStreet, with its enviable track record as a leading and distinctive digital voice in the financial category since the early days of the consumer Internet, is regarded as a must-buy for most of our core online brokerage advertisers and a highly effective means for other financial services companies and non-endemic advertisers to communicate with our engaged, affluent audience. During 2011, we launched our Business Desk™ service, which offers our award-winning business and financial content to enhance coverage of these areas by local media partners and offers the ability to apply our superior ability to monetize the consumption of this content. We sell banner, tile and
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sponsorship advertising primarily through our experienced direct sales force and also generate revenue from contextual and search-based advertising provided by third party technology providers.
We generate advertising revenue from our content through the sale of the following types of advertising placements:
| · | banner, tile, contextual, performance-based and interactive advertisement and sponsorship placements in our advertising-supported Web sites, as well as on select paid subscription sites; |
| · | advertisement placements in our free email newsletters and stand-alone emails sent on behalf of our advertisers to our registered users; and |
| · | advertisements in our video programming, TheStreet services for mobile and tablet devices, RSS feeds and webinars. |
We will seek to increase the traffic to our collection of Web sites both by expanding the range of content we offer (which may include repurposing content from one site to address the needs of another site) and by expanding our relationships with third parties having larger or complementary audiences. We believe our expertise at monetizing our content offerings through a variety of sources, and the value we have built in our brand over the past 16+ years as a leading voice in our content vertical – as well as our independence from any larger media organization – enables us to successfully partner with a variety of high-traffic Web sites and portals, providing expertise in our content category under arrangements that provide benefits to both our partners and ourselves.
Marketing
We pursue a variety of sales and marketing initiatives to sell subscriptions to our subscription services, increase traffic to our sites, license our content, expose our brands, and build our customer databases. These initiatives may include promoting our services through online, email, social, radio and television marketing, telemarketing and establishing content syndication and subscription distribution relationships with leading companies. Our in-house online marketing and creative design teams create a variety of marketing campaigns, which are then implemented by our technical and operations team and by third-party service providers. We also have a reporting and analysis group that analyzes traffic and subscription data to determine the effectiveness of the campaigns. We also sell our subscription services through a direct sales force to institutional clients.
We use content syndication and subscription distribution arrangements to capitalize on the cost efficiencies of online delivery and create additional value from content we already have produced for our own properties. By syndicating our content to other leading Web sites to host on their own sites, we expose our brands and top-quality writing to millions of potential users. In one type of syndication arrangement, we provide leading Web sites in our vertical, including Yahoo! Finance, MSN Money and CNN Money, with selected content to host along with additional article headlines that these partners display on their stock quote result pages, in both instances providing links back to our site. This type of arrangement exposes new audiences to our brands and content and generates additional traffic to our sites, creating the opportunity for us to increase our advertising revenue and subscription sales.
We are intensely focused on generating additional visitors to our sites through search engine optimization efforts, in order to increase the visibility of our content on search engines such as Google Search and Microsoft’s Bing, and through efforts to increase our presence on a variety of social media platforms, such as Facebook and Twitter. We have been active in developing and distributing mobile and tablet applications to deliver our content to new audiences, and we launched our Business Desk service,
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which distributes our content in conjunction with a nationwide collection of local media partners. Finally, we are focused on increasing the engagement our visitors have with our sites, measured by visits per visitor, page views per visit and by time spent on site, and we continuously seek to improve the experience our sites offer.
We also may use subscription distribution arrangements with online financial services firms and other companies. These agreements allow their customers to receive discounts on certain of our premium subscription services or to access our free and premium content, thereby exposing our brands and content to new audiences.
In addition, we obtain exposure through other media outlets who cite our writers and our stories or who invite our writers to appear on segments. In 2012, we were mentioned or featured in reports by major news/media outlets, including The Wall Street Journal, The New York Times, Yahoo! Finance and The Economist. Many of our writers and analysts provided key market commentary for CNBC, CNN, ABC and other news organizations. We also provided a regular weekly business segment on public television’s Nightly Business Report.
Competition
Our services face intense competition from other providers of business, personal finance, investing and ratings content, including:
| · | online services or Web sites focused on business, personal finance or investing, such as The Wall Street Journal Digital Network, CNN Money, Forbes.com, Reuters.com, Bloomberg.com and CNBC.com, as well as financial portals such as Yahoo! Finance, AOL Money & Finance and MSN Money; |
| · | publishers and distributors of traditional media focused on business, personal finance or investing, including print and radio, such as The Wall Street Journal and financial talk radio programs, and business television networks such as Bloomberg, CNBC and the Fox Business Channel; |
| · | investment newsletter publishers; |
| · | other providers of business intelligence on mergers and acquisitions, restructurings and financings, such as Bloomberg and Mergermarket Group; and |
| · | established ratings services, such as Standard & Poor’s, Morningstar and Lipper, with respect to our Ratings products, and rate database providers such as Informa and SNL Kagan, with respect to our RateWatch products. |
Many of these competitors have significantly greater scale and resources than we do. Additionally, advances in technology have reduced the cost of production and online distribution of written, audio and video content, which has resulted in the proliferation of small, often self-published providers of free content, such as bloggers.
According to a December 2012 survey by comScore, Inc., an independent Web measurement company (“comScore”), TheStreet ranks first among financial media Web sites for delivering the difficult-to-reach mass affluent demographic. TheStreet ranks:
| · | #1 in Household Income over $100,000; |
| · | #2 in Portfolio Value over $1 million; |
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| · | #1 in Trading Activity; |
| · | #1 in Checking Stock Quotes Multiple Times Each Day; and |
| · | #1 in Works in Finance. |
We believe that advertisers and agencies often look to independent measurement data such as that provided by comScore in order to gain a sense of the performance of various sites, in relation to their peer category, when determining where to allocate advertising dollars.
We compete with these other content providers for customers, including subscribers, readers and viewers of our video content, for advertising revenue, and for employees and contributors to our services. Our ability to compete successfully depends on many factors, including the quality, originality, timeliness, insightfulness and trustworthiness of our content and that of our competitors, the reputations of our contributors and our brands, the success of our recommendations and research, our ability to introduce products and services that keep pace with new investing trends, the experience we and our competitors offer our users and the effectiveness of our sales and marketing efforts.
Infrastructure, Operations and Technology
Our main technological infrastructure consists of proprietary and Drupal-based content management, subscription management, Ratings models, and e-commerce systems. We utilize the services of third-party cloud computing providers, more specifically Amazon Web Services, as well as content delivery networks such as Akamai Technologies, to help us efficiently distribute our content to our customers. Our RateWatch systems consist of proprietary and commercial software hosted internally. Our operations are dependent in part on our ability, and that of our third-party cloud computing providers, to keep our systems up to rapidly evolving modern standards and to protect our systems against damage from fire, earthquakes, power loss, telecommunications failure, break-ins, computer viruses, hacker attacks, terrorist attacks and other events beyond our control.
Our content-management systems are based on proprietary software and the Drupal Content Management System. They allow our stories, videos and data to be prepared for distribution online to a large audience. These systems enable us to distribute and syndicate our content economically and efficiently to multiple destinations in a variety of technical formats.
Our subscription-management system is based on proprietary software and allows us to communicate automatically with readers during their free-trial and subscription periods. The system is capable of yielding a variety of customized subscription offers to potential subscribers, using various communication methods and platforms.
Our e-commerce system is based on proprietary software and controls user access to a wide array of service offerings. The system automatically controls aspects of online daily credit card billing, based upon user-selected billing terms. All financial revenue-recognition reports are automatically generated, providing detailed reporting on all account subscriptions. This generally allows a user to sign up and pay for an online service for his or her selected subscription term (e.g., annual or monthly).
Our Ratings business is based on a set of proprietary statistical models that use key financial metrics and indicators to rate stocks, mutual funds and ETFs. The data and output from these models are managed and stored within a content management system and updated daily based on changes in markets. The system is capable of search-based syndication of customized ratings data that can be distributed in a variety of technical formats. Our RateWatch business uses proprietary software to input and extract from
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a commercial database platform financial rate data that we collect through the efforts of our large data collection team. The RateWatch proprietary software automatically generates and distributes customer reports based on our data.
Intellectual Property
To protect our rights to intellectual property, we rely on a combination of trademarks, copyrights, trade secret protection, confidentiality agreements and other contractual arrangements with our employees, affiliates, customers, strategic partners and others. We have registered certain of our trademarks in the United States and we have pending U.S. applications for other trademarks. Additionally, we police Internet message boards and other Web sites for copyrighted content of ours that has been republished without our permission and we may aggressively pursue the poster, the site hosting the content and any Internet service provider in order to protect our copyright. To protect our intellectual property rights as well as protect against infringement claims in our relationships with business partners, we generally look to incorporate contractual provisions protecting our intellectual property and seeking indemnification for any third-party infringement claims. However, the protective steps we have taken may be inadequate to deter misappropriation of our proprietary information. We may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Failure to adequately protect our intellectual property could harm our brand, devalue our proprietary content and affect our ability to compete effectively.
Some of our services incorporate licensed third-party technology. In these license agreements, the licensors have generally agreed to defend, indemnify and hold us harmless with respect to any claim by a third party that the licensed technology infringes any patent or other proprietary right. We cannot provide assurance that the foregoing provisions will be adequate to protect us from infringement claims. In addition, we may be accused of violating the intellectual property rights of others for reasons unrelated to any third-party technology we use. Any infringement claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources on our part, which could materially adversely affect our business, results of operations and financial condition.
Customers; Seasonality
In 2012, no customer accounted for 10% or more of our consolidated revenue. There does not tend to be significant seasonality to our subscription services revenue. Advertising spending by our customers generally tends to be higher in the fourth calendar quarter as compared to other quarters, and the first and third calendar quarters often are lower than the other quarters.
Working Capital
Our current assets at December 31, 2012 consisted primarily of cash and cash equivalents, marketable securities, and accounts receivable. We do not hold inventory. Our current liabilities at December 31, 2012 consisted primarily of deferred revenue, accrued expenses and accounts payable. At December 31, 2012, our current assets were approximately $50.3 million, 1.6 times greater than our current liabilities. With respect to most of our annual subscription products, we offer the ability to receive a refund during the first 30 days but none thereafter. We do not as a general matter offer refunds for advertising that has run.
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Geography
During 2012, 2011 and 2010, all of our long-lived assets were located in the United States. Substantially all of our revenue in 2012, 2011 and 2010 was generated from customers in the United States.
Employees
As of December 31, 2012, the Company had 273 employees. The Company has never had a work stoppage and none of its employees are represented under collective bargaining agreements. The Company considers its relations with its employees to be good.
Government Regulation
We are subject to government regulation in connection with securities laws and regulations applicable to all publicly-owned companies, as well as laws and regulations applicable to businesses generally. We are also increasingly subject to government regulation and legislation specifically targeting Internet companies, such as privacy regulations adopted at the local, state, national and international levels and taxes levied at the state level. Due to the increasing popularity and use of the Internet, enforcement of existing laws, such as consumer protection regulations, in connection with Web-based activities has become more aggressive, and we expect that new laws and regulations will continue to be enacted at the local, state, national and international levels. Such new legislation, alone or combined with increasingly aggressive enforcement of existing laws, could decrease the demand for our services or otherwise have a material adverse effect on our future operating performance and business.
Available Information
We were founded in 1996 as a limited liability company, and reorganized as a C corporation in 1998. We consummated our initial public offering in 1999 and we file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Our Corporate Web site is located at http://www.t.st. We make available free of charge, on or through our Web site, our annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the SEC. Information contained on our Web site is not part of this Report or any other report filed with the SEC.
You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NW, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
Investing in our Common Stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this Report, before deciding whether to invest in our Common Stock. Our business, prospects, financial condition or operating results could be materially adversely affected by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. The trading price of our Common Stock could decline as a result of any of these risks, and you could lose part or all of your investment in our Common Stock. When deciding whether to invest in our Common Stock, you should also refer to the other information in this Report, including our consolidated financial statements and related notes and the information contained in Part II, Item 7 of this Report entitled “Management’s Discussion and Analysis of Financial Condition and
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Results of Operations.” You should carefully consider the following material risks we face. If any of the following risks occur, our business, results of operations or financial condition could be materially adversely affected. Please also refer to the Special Note Regarding Forward-Looking Statements appearing in Part I, Item 1 of this Report.
Our quarterly financial results may fluctuate and our future revenue is difficult to forecast.
Our quarterly operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are outside our control, including:
| · | the level of interest and investment in the stock market by both individual and institutional investors which can impact our ability to sell subscriptions and to sell advertising; | |
| · | the number of individual and institutional investors investing in individual stocks versus index funds and exchange-traded funds (ETF), which would impact demand for our products; | |
| · | the willingness of investors to pay for content distributed over the Internet, where a large quantity of content is available for free; | |
| · | demand and pricing for advertising on our Web sites, which is affected by advertising budget cycles of our customers, general economic conditions, demand for advertising on the Internet generally, the supply of advertising inventory in the market and actions by our competitors; | |
| · | subscription price reductions attributable to decreased demand or increased competition; | |
| · | the value to investors of the investing ideas we offer in our subscription services and the performance of those ideas relative to appropriate benchmarks; | |
| · | new products or services introduced by our competitors; | |
| · | content distribution fees or other costs; | |
| · | for The Deal, the volatility in mergers and acquisitions, restructuring and financing activities; | |
| · | for our RateWatch business, the volatility of interest rates and bank fees and the underlying demand for banking products by consumers; | |
| · | costs or lost revenue associated with system downtime affecting the Internet generally or our Web sites in particular; and | |
| · | general economic and market conditions. |
We had a large net loss in fiscal year 2012 and have incurred net losses for most years of our history. We may not be cash-flow positive or generate net income in future periods. We forecast our current and future expense levels based on expected revenue and our operating plans. Because of the above factors, as well as other material risks we face, as described elsewhere in this Report, our operating results may be below the expectations of public market analysts and investors in some future quarters. In such an event, the price of our Common Stock is likely to decline.
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Key content contributors, particularly James J. Cramer, are essential sources of revenue.
Some of our products, particularly our editorial subscription products, reflect the talents, efforts, personalities, investing skills and portfolio returns, and reputations of their respective writers. As a result, the services of these key content contributors, including our co-founder James J. Cramer, form an essential element of our subscription revenue. In addition, Mr. Cramer’s popularity and visibility have provided public awareness of our services and introduced our content to new audiences. For example, Mr. Cramer hosts CNBC’s finance television show, Mad Money. If Mr. Cramer no longer appeared on the show or the program was cancelled for any reason, it could negatively impact his public profile and visibility, and in turn, our subscription products. We seek to compensate and provide incentives for these key content contributors through competitive salaries, stock ownership and bonus plans and/or royalty arrangements, and we have entered into employment or contributor agreements with certain of them, including Mr. Cramer. Mr. Cramer has a three-year employment agreement, which will expire on December 31, 2013, unless renewed. We can give no assurances that we will be able to retain key content contributors, or, should we lose the services of one or more of our key content contributors to death, disability, loss of reputation or other reason, or should their popularity diminish or their investing returns and investing ideas fail to meet or exceed benchmarks and investor expectations, to attract new content contributors acceptable to readers of our collection of Web sites and editorial subscription products. The loss of services of one or more of our key content contributors could have a material adverse effect on our business, results of operations and financial condition.
Our business depends on attracting and retaining capable management and operating personnel.
Our ability to compete in the marketplace depends upon our ability to recruit and retain other key employees, including executives to operate our business, technology personnel to run our publishing, commerce, communications, video and other systems, direct marketers to sell subscriptions to our premium services and salespersons to sell our advertising inventory and subscriptions. We have recently experienced significant management changes, including replacement of our Chief Executive Officer and General Counsel in 2012, and will be changing our Chief Financial Officer in the first quarter of 2013. We also implemented a targeted reduction in force during 2012 following review of our cost structure. Furthermore, as a result of our acquisition of The Deal, LLC in September 2012, we discontinued the use of The Deal’s office space and implemented a reduction in force to eliminate redundant positions. While we believe that this restructuring better aligns our cost structure with our revenue base and results in a more focused business, our future operations depend on the execution of our new management’s strategic initiatives.
Several, but not all, of our key employees are bound by agreements containing non-competition provisions. There can be no assurances that these arrangements with key employees will provide adequate protections to us or will not result in further management changes that would have material adverse impact on us. In addition, we may incur increased costs to continue to compensate our key executives, as well as other employees, through competitive salaries, stock ownership and bonus plans. Nevertheless, we can make no assurances that these programs will allow us to retain our new management or key employees or hire new employees. The loss of one or more of our key employees, or our inability to attract experienced and qualified replacements, could materially adversely affect our business, results of operations and financial condition.
If we are unable to execute cost-control measures successfully, our total operating costs may be greater than expected, which may adversely affect our financial results.
As part of our restructuring, we have significantly reduced operating costs by reducing staff and implementing general cost-control measures across the Company, including commitments to terminate use of certain vendor services and assets, and expect to continue these cost management efforts. If we do
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not achieve expected savings or our operating costs increase as a result of our strategic initiatives, our total operating costs may be greater than anticipated. In addition, if our cost-control strategy is not managed properly, such efforts may affect the quality of our products and our ability to generate future revenue. Reductions in staff and employee compensation could also adversely affect our ability to attract and retain key employees.
We may have difficulty maintaining or increasing our advertising revenue, a significant portion of which is concentrated among our top advertisers and subject to industry and other factors.
Our ability to maintain or increase our advertising revenue depends on a variety of factors. Such factors include general market conditions, seasonal fluctuations in financial news consumption and overall online usage, our ability to maintain or increase our unique visitors, page view inventory and user engagement, our ability to attract audiences possessing demographic characteristics most desired by our advertisers, and our ability to retain existing advertisers and win new advertisers in a number of advertising categories from other Web sites, television, newspapers, magazines, newsletters or other new media.
Recently, economic weakness and uncertainty in the United States, in the regions in which we operate and in key advertising categories, have adversely affected and may continue to adversely affect our advertising revenues. Media revenue for the year ended December 31, 2012 decreased by 31% when compared to the year ended December 31, 2011. Economic factors that have adversely affected advertising revenues include lower consumer and business spending, high unemployment, depressed home sales and other challenges affecting the economy. Our advertising revenues are particularly adversely affected if advertisers respond to weak and uneven economic conditions by reducing their budgets or shifting spending patterns or priorities, or if they are forced to consolidate or cease operations.
In addition to adverse economic conditions, the continued development and fragmentation of digital media has intensified competition for advertising revenues. Advertising revenue could decline if the relationships we have with portals and other high-traffic Web sites is adversely affected. In addition, our advertising revenue may decline as a result of pricing pressures on Internet advertising rates due to industry developments, changes in consumer interest in the financial media and other factors in and outside of our control, including in particular as a result of any significant or prolonged downturn in, or periods of extreme volatility of, the financial markets. While most of our users access our website and products through personal computers, the rate of mobile usage is increasing, where our ability to monetize is less proven and advertising revenues are lower. Also, our advertising revenue would be adversely affected if advertisers sought to use third-party networks to attempt to reach our audience while they visit third-party sites instead of purchasing advertising from us to reach our audience on our own sites. In addition, any advertising revenue that is performance-based may be adversely impacted by the foregoing and other factors. If our advertising revenue significantly decreases, our business, results of operations and financial condition could be materially adversely affected.
In 2012, our top five advertisers accounted for approximately 30% of our total advertising revenue, a decrease from 33% in 2011. Furthermore, although we have advertisers from outside the financial services industry, such as travel, automotive and technology, a large proportion of our top advertisers are concentrated in financial services, particularly in the online brokerage business. Recent consolidation of financial institutions and other factors could cause us to lose a number of our top advertisers, which could have a material adverse effect on our business, results of operations and financial condition. As is typical in the advertising industry, generally our advertising contracts have short notice cancellation provisions.
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Many individuals are using devices other than personal computers to access online services. If we are unable to effectively provide our content and subscription products to users of these devices, our business could be adversely affected.
The number of people who access online services through devices other than personal computers, including mobile telephones, personal digital assistants, smart phones and handheld tablets or computers, has increased dramatically in the past few years and is projected to continue to increase. If our members increasingly use mobile devices to access to our online services, and if we are unable to successfully implement monetization strategies for our content on mobile devices, if these strategies are not as successful as our offerings for personal computers, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected. Additionally, as new devices and new platforms are continually being released, it is difficult to predict the problems we may encounter in developing versions of our solutions for use on these alternative devices, and we may need to devote significant resources to the creation, support, and maintenance of such devices.
We have recorded impairments of goodwill and intangible assets and there can be no assurances that we will not have to record additional impairments in the future.
In 2009 we recorded impairments of goodwill and intangible assets that totaled approximately $22.6 million. The recorded impairments were the primarily the result of a reduction in our revenue, cash flows and enterprise value. In addition, we reduced the carrying value of a long-term investment, in the amount of approximately $0.6 million in 2010 and $1.5 million in 2009. We may have to record additional impairments in the future which may materially adversely affect our results of operations and financial condition.
We face intense competition.
Our services face intense competition from other providers of business, personal finance, investing and ratings content, including:
| · | online services or Web sites focused on business, personal finance or investing, such as The Wall Street Journal Digital Network, CNN Money, Forbes.com, Reuters.com, Bloomberg.com and CNBC.com, as well as financial portals such as Yahoo! Finance, AOL Money & Finance and MSN Money; |
| · | publishers and distributors of traditional media focused on business, personal finance or investing, including print and radio, such as The Wall Street Journal and financial talk radio programs, and business television networks such as Bloomberg, CNBC and the Fox Business Channel; |
| · | investment newsletter publishers; |
| · | providers of business intelligence on mergers and acquisitions, restructurings and financings, such as Bloomberg and Mergermarket Group; and |
| · | established ratings services, such as Standard & Poor’s, Morningstar and Lipper, with respect to our Ratings products, and rate database providers such as Informa and SNL Kagan, with respect to our RateWatch products. |
Additionally, advances in technology have reduced the cost of production and online distribution of print, audio and video content, which has resulted in the proliferation of small, often self-published providers of free content, such as bloggers. We compete with these other publications and services for
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customers, including subscribers, readers and viewers of our video content, for advertising revenue, and for employees and contributors to our services. Our ability to compete successfully depends on many factors, including the quality, originality, timeliness, insightfulness and trustworthiness of our content and that of our competitors, the popularity and performance of our contributors, the success of our recommendations and research, our ability to introduce products and services that keep pace with new investing trends, our ability to adopt and deploy new technologies for running our business, the ease of use of services developed either by us or our competitors and the effectiveness of our sales and marketing efforts. In addition, media technologies and platforms are rapidly evolving and the rate of consumption of media on various platforms may shift rapidly. If we fail to offer our content through the platforms in which our audience desires to consume it, or if we do not have offerings on such platforms that are as compelling as those of our competitors, our business, results of operations and financial condition may be materially adversely affected. In addition, the economics of distributing content through new platforms may be materially different from the economics of distributing content through our current platforms and any such difference may have a material adverse effect on our business, results of operations and financial condition.
Many of our competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we have. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could materially adversely affect our business, results of operations and financial condition. Accordingly, we cannot guarantee that we will be able to compete effectively with our current or future competitors or that this competition will not significantly harm our business.
Risks associated with our strategic acquisitions could adversely affect our business.
We have completed several acquisitions within recent years, and we expect to make additional acquisitions and strategic investments in the future. Acquisitions involve numerous risks, including difficulties in the assimilation of the operations and services of the acquired companies as well as the diversion of management’s attention from other business concerns. In addition, there may be expenses incurred in connection with the acquisition and subsequent assimilation of operations and services and the potential loss of key employees of the acquired company. There can be no assurance that our acquisitions will be successfully integrated into our operations or that we will be able to realize the benefits intended in such acquisitions. In addition, there can be no assurance that we will complete any future acquisitions or that acquisitions will contribute favorably to our operations and financial condition.
For example, in September 2012, we acquired The Deal, LLC, a digital platform that delivers sophisticated coverage of the deal economy, primarily through The Deal Pipeline, a leading provider of transactional information services. We believe this acquisition will advance our strategic objectives by increasing both subscribers and content and that The Deal will provide us with an additional source of predictable recurring revenue with high renewals at attractive margins. However, in order to fully recognize the anticipated benefits from the acquisition, we must successfully integrate The Deal into our existing business and be able to retain key employees. Following the closing of the acquisition, we discontinued the use of The Deal’s office space and implemented a reduction in force to eliminate redundant positions. As a result of these activities and other cost reduction measures, the Company incurred restructuring and other charges from continuing operations of approximately $3.5 million in 2012 related to this acquisition.
Although due diligence and detailed analysis is conducted before these acquisitions, there can be no assurance that such steps can or will fully expose all hidden problems that the acquired company may have. In addition, our valuations and analyses are based on numerous assumptions, and there can be no assurance that those assumptions will be proven correct or appropriate. Relevant facts and circumstances
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of our analyses could have changed over time, and new facts and circumstances may come to light as to render the previous assumptions and the valuations and analyses based thereon incorrect.
System failure or interruption may result in reduced traffic, reduced revenue and harm to our reputation.
Our ability to provide timely, updated information depends on the efficient and uninterrupted operation of our computer and communications hardware and software systems. Similarly, our ability to track, measure and report the delivery of advertisements on our Web sites depends on the efficient and uninterrupted operation of third-party systems. Our operations depend in part on the protection of our data systems and those of our third-party providers against damage from human error, natural disasters, fire, power loss, water damage, telecommunications failure, computer viruses, terrorist acts, vandalism, sabotage, and other adverse events. For example, our business operations were recently disrupted by Hurricane Sandy, which had a significant impact on the Northeast. Our headquarters are located on Wall Street in New York City and we were unable to access our offices for several days. The NYSE was closed for two full trading days due to the storm which also had an impact on other financial services companies located in the Northeast and elsewhere. Although we utilize the services of third-party cloud computing providers, specifically Amazon Web Services with procedural security systems and have put in place certain other disaster recovery measures, including offsite storage of backup data, these disaster recovery measures currently may not be comprehensive enough and there is no guarantee that our Internet access and other data operations will be uninterrupted, error-free or secure. Any system failure, including network, software or hardware failure, that causes an interruption in our service or a decrease in responsiveness of our Web sites could result in reduced traffic, reduced revenue and harm to our reputation, brand and relations with our advertisers and strategic partners. Our insurance policies may not adequately compensate us for such losses. In such event, our business, results of operations and financial condition could be materially adversely affected.
Our Ratings models, purchased from a third party, were written in legacy technologies that do not have robust backup or recovery provisions. The ongoing production of valid ratings data is based upon the successful continued migration of these legacy systems to more robust and current systems. The hardware platforms upon which these applications run have been migrated to more modern equipment within our multi-redundant hosting facilities; however, many of the core application code remains in production. Migration of such complex applications is time consuming, resource intensive and can pose considerable risk.
Disruptions to our third party technology providers and management systems could harm our business and lead to loss of customers and advertisers.
We depend on third party technology providers and management systems to distribute our content and process transactions. For example, we use Akamai Technologies, a content delivery network provider, to help us efficiently distribute our content to customers. We also use a third party vendor to process credit cards for our subscriptions. We exercise no control over our third-party vendors, which makes us vulnerable to any errors, interruptions, or delays in their operations. Any disruption in the services provided by these vendors could have significant adverse impacts on our business reputation, advertiser and customer relations and operating results. Upon expiration or termination of any of our agreements with third-party vendors, we may not be able to replace the services provided to us in a timely manner or on terms and conditions, including service levels and cost, that are favorable to us, and a transition from one vendor to another vendor could subject us to operational delays and inefficiencies until the transition is complete.
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We may face liability for, or incur costs to defend, information published in our services.
We may be subject to claims for defamation, libel, copyright or trademark infringement, fraud or negligence, or based on other theories of liability, in each case relating to the articles, commentary, investment recommendations, ratings, or other information we publish in our services. These types of claims have been brought, sometimes successfully, against media companies in the past, and we presently are defending against a suit alleging defamation, which suit we believe is without merit and in which we are vigorously defending ourselves. We also could be subject to claims based upon the content that is accessible from our Web sites through links to other Web sites. While we maintain insurance to provide coverage with respect to many such claims, our insurance may not adequately protect us against these claims.
Difficulties in new product development could harm our business.
In the past few years, we have introduced several new products and services, and expect to continue to do so. However, we may experience difficulties that could delay or prevent us from introducing new products and services in the future, or cause our costs to be higher than anticipated, which could materially adversely affect our business, results of operations and financial condition.
Failure to establish and maintain successful strategic relationships with other companies could decrease our subscriber and user base.
We rely in part on establishing and maintaining successful strategic relationships with other companies to attract and retain a portion of our current subscriber and reader base and to enhance public awareness of our brands. In particular, our relationships with Yahoo! Finance, MSN Money and CNN Money, which index our headlines and/or host our content including our video offerings, have been important components of our effort to enhance public awareness of our brands, which awareness we believe also is enhanced by the public appearances of James J. Cramer, in particular on his “Mad Money” television program telecast by CNBC. Additionally, we seek to generate a material amount of advertising inventory through our Business Desk™ initiative, in which we host business and finance content on Web pages that contain branding elements and/or other content of our partners, including large newspaper chains. There is intense competition for relationships with these firms for content placement on their Web sites, for distribution of our audio and video content, and for provision of services similar to our Business Desk, and we may have to pay significant fees, or be unable, to establish additional relationships with large, high-traffic partners or maintain existing relationships in the future. From time to time, we enter into agreements with advertisers that require us to exclusively feature these parties in sections of our Web sites. Existing and future exclusivity arrangements may prevent us from entering into other advertising or sponsorship arrangements or other strategic relationships. If we do not successfully establish and maintain our strategic relationships on commercially reasonable terms or if these relationships do not attract significant revenue, our business, results of operations and financial condition could be materially adversely affected.
Difficulties associated with our brand development may harm our ability to attract subscribers to our paid services and users to our advertising-supported services.
We believe that maintaining and growing awareness about our services is an important aspect of our efforts to continue to attract users. Our new services do not have widely recognized brands, and we will need to increase awareness of these brands among potential users. Our efforts to build brand awareness may not be cost effective or successful in reaching potential users, and some potential users may not be receptive to our marketing efforts or advertising campaigns. Accordingly, we can make no assurances that such efforts will be successful in raising awareness of our brands or in persuading potential users to subscribe to or use our services.
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Our ability to successfully attract and retain subscribers to our subscription services may be affected by the perceived quality of the content, including the performance of investment ideas we publish, as well as by any legal or practical limitations we may face on our ability to utilize a contributor’s name and likeness in promotional materials.
Our ability to successfully attract and retain subscribers to our subscription services depends in part on our ability to create compelling promotional materials related to those services, which in turn primarily depends upon the quality of the content of the services, including the performance of any investment ideas published in the services. Certain of our subscription services, most notably our Action Alerts PLUS service, publish specific investment ideas and maintain an actual or model portfolio of equity securities and cash that reflect activity based upon those investment ideas. To the extent the returns on such portfolios fail to meet or exceed the expectations of our subscribers or the performance of relevant benchmarks (as we experienced in 2011), our ability to create compelling promotional materials for such services, and to attract new subscribers or retain existing subscribers to such services, will be adversely affected. In addition, typically it is useful for us to be able to utilize the name and likeness of contributors to market our investment idea subscription services, particularly with respect to those services that have well-known contributors, such as our founder, James J. Cramer. We seek to obtain broad rights to utilize our contributors’ names and likenesses in promotional materials. There can be no assurance that we will be able to obtain the scope of such rights that we would prefer, or that in practice we will be able to utilize to the fullest extent any such rights that we have obtained. Any limitations on our ability to utilize the name and likeness of our contributors may have an adverse effect on our ability to promote our services, by limiting the content or distribution of our promotional materials or otherwise.
Failure to maintain our reputation for trustworthiness may harm our business.
Our brand is based upon the integrity of our editorial content. We are proud of the trust and reputation for quality we have developed over the course of more than 15 years and we seek to renew and deepen that trust continually. We require all of our content contributors, whether employees or outside contributors, to adhere to strict standards of integrity, including standards that are designed to prevent any actual or potential conflict of interest, and to comply with all applicable laws, including securities laws. The occurrence of events such as our misreporting a news story, the non-disclosure of a stock ownership position by one or more of our content contributors, the manipulation of a security by one or more of our content contributors, or any other breach of our compliance policies, could harm our reputation for trustworthiness and reduce readership. In addition, in the event the reputation of any of our directors, officers, key contributors, writers or editorial staff were harmed for any other reason, we could suffer as result of our association with the individual, and also could suffer if the quantity or value of future services we received from the individual was diminished. These events could materially adversely affect our business, results of operations and financial condition.
Our revenue could be adversely affected if the securities markets and/or mergers and acquisitions activity decline, are stagnant or experience extreme volatility.
Our results of operations, particularly related to subscription revenue, are affected by certain economic factors, including the performance of the securities markets and mergers and acquisitions activity. While we believe investors are seeking more information related to the financial markets and M&A deals from trusted sources, the existence of adverse or stagnant securities markets conditions and lack of investor confidence could result in investors decreasing their interest in investor-related publications, which could adversely affect the subscription revenue we derive from our subscription based Web sites and newsletters.
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We may not adequately protect our own intellectual property and may incur costs to defend against, or face liability for, intellectual property infringement claims of others.
To protect our rights to our intellectual property, we rely on a combination of trademark and copyright law, trade secret protection, confidentiality agreements and other contractual arrangements with our employees, affiliates, customers, strategic partners and others. We have registered certain of our trademarks in the United States and we have pending U.S. applications for other trademarks. Additionally, we police Internet message boards and other Web sites for copyrighted content of ours that has been republished without our permission and we may aggressively pursue the poster, the site hosting the content and any Internet service provider in order to protect our copyright. To protect our intellectual property rights as well as protect against infringement claims in our relationships with business partners, we generally look to incorporate contractual provisions protecting our intellectual property and seeking indemnification for any third-party infringement claims. Some of our services incorporate licensed third-party technology. In these license agreements, the licensors generally have agreed to defend, indemnify and hold us harmless with respect to any claim by a third party that the licensed technology infringes any patent or other proprietary right.
The protective steps we have taken may be inadequate to deter misappropriation of our proprietary information. We may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Failure to adequately protect our intellectual property could harm our brand, devalue our proprietary content and affect our ability to compete effectively. In addition, other parties may assert infringement claims against us or claim that we have violated a patent or infringed a copyright, trademark or other proprietary right belonging to them, whether on our own or by virtue of our use of certain third-party technology. We presently are defending against a suit alleging patent infringement, which suit we believe is without merit and in which we are vigorously defending ourselves. We cannot assure you that the steps we have taken will be adequate to protect us from other infringement claims. Protecting our intellectual property rights, or defending against infringement claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources on our part, which could materially adversely affect our business, results of operations and financial condition.
We face government regulation and legal uncertainties.
Internet Communications, Commerce and Privacy Regulation. The growth and development of the market for Internet commerce and communications has prompted both federal and state laws and regulations concerning the collection and use of personally identifiable information (including consumer credit and financial information), consumer protection, the content of online publications, the taxation of online transactions, the transmission of unsolicited commercial email, popularly known as “spam”, and telemarketing restrictions, such as Do-Not-Call registries. More laws and regulations are under consideration by various governments, agencies and industry self-regulatory groups. Although our compliance with applicable federal and state laws, regulations and industry guidelines has not had a material adverse effect on us, new laws and regulations may be introduced and modifications to existing laws may be enacted that require us to make changes to our business practices. Although we believe that our practices are in compliance with applicable laws, regulations and policies, if we were required to defend our practices against investigations of state or federal agencies or if our practices were deemed to be violative of applicable laws, regulations or policies, we could be penalized and some of our activities could be enjoined. Any of the foregoing could increase the cost of conducting online activities, decrease demand for our services, lessen our ability to effectively market our services, or otherwise materially adversely affect our business, financial condition and results of operations.
Securities Industry Regulation. Our activities include, among other things, the offering of stand-alone services providing stock recommendations and analysis to subscribers. The securities industry in
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the United States is subject to extensive regulation under both federal and state laws. A failure to comply with regulations applicable to securities industry participants could materially and adversely affect our business, results of operations and financial condition.
New regulation, changes in existing regulation, or changes in the interpretation or enforcement of existing laws and rules could have a material adverse effect on our business, results of operations and financial condition.
Regulation of Sweepstakes and Promotions. Our activities have included and from time to time may include, conducting online sweepstakes and contests for clients. We use best efforts to comply with all sweepstakes, contest and bonding requirements as specified under various state laws. In the event, however, that we were determined to have violated any applicable law or regulation, we could suffer a material adverse effect on our business, results of operations and financial condition.
Foreign Regulation. Although we do not actively seek customers and have no property outside the United States, regulatory entities of foreign governments could seek to exercise jurisdiction over our activities. If we were required to defend our practices against investigations of foreign regulatory agencies or if our practices were deemed to be violative of the laws, regulations or policies of such jurisdictions, we could be penalized and some of our activities could be enjoined. Any of the foregoing could materially adversely affect our business, financial condition and results of operations.
Any failure of our internal security measures or breach of our privacy protections could cause us to lose users and subject us to liability.
Users who subscribe to our paid subscription services are required to furnish certain personal information (including name, mailing address, phone number, email address and credit card information), which we use to administer our services. We also require users of some of our free services and features to provide us with some personal information during the membership registration process. Additionally, we rely on security and authentication technology licensed from third parties to perform real-time credit card authorization and verification, and at times rely on third parties, including technology consulting firms, to help protect our infrastructure from security threats. We may have to continue to expend capital and other resources on the hardware and software infrastructure that provides security for our processing, storage and transmission of personal information.
In this regard, our users depend on us to keep their personal information safe and private and not to disclose it to third parties or permit our security to be breached. However, advances in computer capabilities, new discoveries in the field of cryptography or other events or developments, including improper acts by third parties, may result in a compromise or breach of the security measures we use to protect the personal information of our users. If a party were to compromise or breach our information security measures or those of our agents, such party could misappropriate the personal information of our users, cause interruptions in our operations, expose us to significant liabilities and reporting obligations, damage our reputation and discourage potential users from registering to use our Web sites or other services, any of which could have a material adverse effect on our business, results of operations and financial condition.
We utilize various third parties to assist with various aspects of our business. Some of these partnerships require the exchange of user information. This is required because some features of our Web sites may be hosted by these third parties. While we take significant measures to guarantee the security of our customer data and require such third parties to comply with our privacy and security policies as well as generally be contractually bound to defend, indemnify and hold us harmless with respect to any claims related to any breach of relevant privacy laws related to the service provider, we are still at risk if any of
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these third-party systems are breached or compromised and may in such event suffer a material adverse effect to business, results of operations and financial condition.
Investment of our cash carries risks.
Financial instruments that subject us to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. We maintain all of our cash, cash equivalents and restricted cash in five financial institutions and perform periodic evaluations of the relative credit standing of these institutions. No assurances can be made that the third-party institutions will retain acceptable credit ratings or investment practices. Investment decisions of third parties and market conditions may adversely affect our cash balances and financial condition. While we believe our investment policy is conservative, there can be no assurance that we will not suffer losses on any of our investments.
Control by principal stockholders, officers and directors could adversely affect our stockholders, and the terms of our Series B Preferred Stock include significant control rights.
Our officers, directors and greater-than-five-percent stockholders (and their affiliates), acting together, may have the ability to control our management and affairs, and substantially all matters submitted to stockholders for approval (including the election of directors and any merger, consolidation or sale of all or substantially all of our assets). Some of these persons acting individually or together, even in the absence of control, may be able to exert a significant degree of influence over such matters. The interests of persons having this concentration of ownership may not always coincide with our interests or the interests of other stockholders. This concentration of ownership, for example, may have the effect of delaying, deferring or preventing a change in control of the Company, impeding a merger, consolidation, takeover or other business combination involving the Company or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company, which in turn could materially adversely affect the market price of our Common Stock.
TCV VI, L.P. and TCV Member Fund, L.P., hold 5,500 shares of our Series B Preferred Stock (“Series B Preferred Stock”), which are convertible into an aggregate of 3,856,942 shares of our Common Stock, at a conversion price of $14.26 per share. The holders of the Series B Preferred Stock have the right to vote on any matter submitted to a vote of the stockholders of the Company and are entitled to vote that number of votes equal to the aggregate number of shares of Common Stock issuable upon the conversion of such holders’ shares of Series B Preferred Stock. In addition, so long as 2,200 shares of Series B Preferred Stock remain outstanding, the holders of a majority of such shares will have the right to appoint one person to our board of directors.
So long as 1,650 shares of Series B Preferred Stock remain outstanding, the affirmative vote of the holders of a majority of such shares will be necessary to take any of the following actions: (i) authorize, create or issue any class or classes of our capital stock ranking senior to, or on a parity with (as to dividends or upon a liquidation event) the Series B Preferred Stock or any securities exercisable or exchangeable for, or convertible into, any now or hereafter authorized capital stock ranking senior to, or on a parity with (as to dividends or upon a liquidation event) the Series B Preferred Stock; (ii) any increase or decrease in the authorized number of shares of Series B Preferred Stock; (iii) any amendment, waiver, alteration or repeal of our certificate of incorporation or bylaws in a way that adversely affects the rights, preferences or privileges of the Series B Preferred Stock; (iv) the payment of any dividends (other than dividends paid in capital stock of us or any of our subsidiaries) in excess of $0.10 per share per annum of our Common Stock unless after the payment of such dividends we have unrestricted cash (net of all indebtedness for borrowed money, purchase money obligations, promissory notes or bonds) in an amount equal to at least two times the product obtained by multiplying the number of shares of Series B Preferred Stock outstanding at the time such dividend is paid by the liquidation preference; and (v) the purchase or redemption of: (A) any Common Stock (except for the purchase or redemption from
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employees, directors and consultants pursuant to agreements providing us with repurchase rights upon termination of their service with us) unless after such purchase or redemption we have unrestricted cash (net of all indebtedness for borrowed money, purchase money obligations, promissory notes or bonds) equal to at least two times the product obtained by multiplying the number of shares of Series B Preferred Stock outstanding at the time such dividend is paid by the liquidation preference; or (B) any class or series of now or hereafter authorized capital stock of ours that ranks junior to (upon a liquidation event) the Series B Preferred Stock.
As a result of the foregoing, the requisite holders of the Series B Preferred Stock may be able to block the proposed approval of any of the above actions, which blockage may prevent us from achieving strategic or other goals dependent on such actions, including without limitation additional capital raising, certain dividend increases and the redemption of outstanding Common Stock. All of the foregoing rights may limit our ability to take certain actions deemed in the interests of all of our stockholders but as to which the holders of the Series B Preferred Stock have control rights.
Our staggered board and certain other provisions in our certificate of incorporation, by-laws or Delaware law could prevent or delay a change of control.
Provisions of our restated certificate of incorporation and amended and restated bylaws and Delaware law – including without limitation the fact that we have a staggered board, with only approximately one-third of our directors standing for re-election each year – could make it more difficult for a third party to acquire the Company, even if doing so would be beneficial to our stockholders.
The utilization of tax operating loss carryforwards depends upon future income.
We have net operating loss carryforwards of approximately $150 million as of December 31, 2012, available to offset future taxable income through 2032. Our ability to fully utilize these net operating loss carryforwards is dependent upon the generation of future taxable income before the expiration of the carryforward period attributable to these net operating losses.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired and investors’ views of us could be harmed.
We have evaluated and tested our internal controls in order to allow management to report on our internal controls, as required by Section 404 of the Sarbanes-Oxley Act of 2002. If we are not able to meet the requirements of Section 404 in a timely manner or with adequate compliance, we would be required to disclose material weaknesses if they develop or are uncovered and we may be subject to sanctions or investigation by regulatory authorities, such as the Securities and Exchange Commission. Any such action could negatively impact the perception of us in the financial market and our business. For example, we determined that we had material weaknesses in our internal control over financial reporting as of December 31, 2009. While we remediated those material weaknesses, there can be no assurance that a material weakness will not arise in the future. As a smaller reporting company, we are exempt from any auditor attestation requirements regarding management’s reports on the effectiveness of internal controls over financial reporting. As a result, we may not discover any problems in a timely manner and current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our Common Stock.
In addition, our internal controls may not prevent or detect all errors and fraud. A control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable assurance that the objectives of the control system will be met.
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Our public common stock is listed on the Nasdaq Global Market and we may not be able to maintain that listing, which may make it more difficult for you to sell your shares.
Our public common stock is listed on the Nasdaq Global Market. The Nasdaq has several quantitative and qualitative requirements companies must comply with to maintain this listing, including a $1.00 minimum bid price. While we believe we are currently in compliance with all Nasdaq requirements, there can be no assurance we will continue to meet Nasdaq listing requirements including the minimum bid price, that Nasdaq will interpret these requirements in the same manner we do if we believe we meet the requirements, or that Nasdaq will not change such requirements or add new requirements to include requirements we do not meet in the future. If we are delisted from the Nasdaq Global Market, our public common stock may be considered a penny stock under the regulations of the SEC and would therefore be subject to rules that impose additional sales practice requirements on broker-dealers who sell our securities. The additional burdens imposed upon broker-dealers may discourage broker-dealers from effecting transactions in our public common stock, which could severely limit market liquidity of the public common stock and any stockholder’s ability to sell our securities in the secondary market. This lack of liquidity would also likely make it more difficult for us to raise capital in the future.
Item 1B. Unresolved Staff Comments.
None.
We do not own any real property and we lease all of our facilities. Our principal administrative, sales, marketing, and editorial facilities currently reside in a facility encompassing approximately 35,000 square feet of office space on one floor in an office building at 14 Wall Street in New York, New York. Bankers Financial Products Corporation (d/b/a RateWatch) occupies approximately 15,000 square feet of office space in Fort Atkinson, Wisconsin. We also remain responsible for a sublease of approximately 6,500 square feet of office space in an office building at 29 West 38th Street in New York, New York, which we in turn have sublet to another tenant, as well as approximately 21,500 square feet of office space in an office building at 20 Broad Street in New York, New York, which we are currently looking to sublet.
Our main technological infrastructure consists of proprietary and Drupal-based content-management, subscription management, Ratings models, and e-commerce systems. We utilize the services of a third-party cloud computing providers, more specifically, Amazon Web Services, as well as content delivery networks such as Akamai Technologies, to help us efficiently distribute our content to our customers.
As previously disclosed, the Company’s Audit Committee conducted a comprehensive review (including outside counsel and a forensic accountant) of the accounting of its former Promotions.com subsidiary, which subsidiary the Company sold in December 2009. As a result of this review, in February 2010, the Company promptly reported irregularities discovered in this review to the Securities and Exchange Commission (the “SEC”) and filed a Form 10-K/A for the year ended December 31, 2008 and a Form 10-Q/A for the quarter ended March 31, 2009, respectively, to restate and correct certain previously-reported financial information, as well as filed Forms 10-Q for the quarters ended June 30, 2009 and September 30, 2009, respectively. Thereafter, the New York Regional Office of the SEC Division of Enforcement conducted a formal investigation into the restatement. The Company cooperated with the SEC during the course of its investigation. We entered into a settlement with the SEC that fully
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resolves the SEC investigation against us. Under the settlement, we consented to the entry by the SEC of an administrative order (the “Order”), on December 21, 2012, directing us to cease and desist from committing or causing violations of the reporting, books and records and internal control provisions of the federal securities laws in Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and under Rules 12b-20, 13a-1 and 13a-13 promulgated under the Exchange Act. We consented to the entry of the Order without admitting or denying the Order’s assertions of factual findings. No monetary penalty or fine was imposed on us, and none of our current directors, officers or employees were charged.
In December 2010, the Company was named as one of several defendants in a lawsuit captioned EIT Holdings LLC v. WebMD, LLC et al. (U.S.D.C., D. Del.), on the same day that plaintiff filed a substantially identical suit against a different group of defendants in a lawsuit captioned EIT Holdings LLC v. Yelp!, Inc. et al. (U.S.D.C., N. D. Cal.). In February 2011, by agreement of plaintiff and the Company, the Company was dismissed from the Delaware action without prejudice and named as a defendant in the California action. In May 2011, the action against the Company and all but defendant Yelp! Inc. (“Yelp!”) were dismissed for misjoinder and plaintiff filed separate cases against the dismissed defendants; the action against the Company is captioned EIT Holdings LLC v. TheStreet.com, Inc. (U.S.D.C., N. D. Cal.). The complaints allege that defendants infringe U.S. Patent No. 5,828,837 (the “Patent”), putatively owned by plaintiff, related to a certain method of displaying information to an Internet-accessible device. In January 2012, the court in the case against Yelp! granted Yelp’s motion for summary judgment, finding the Patent to be invalid. EIT Holdings LLC appealed the summary judgment decision of the district court to the Federal Circuit Court of Appeal, which has affirmed the district court’s judgment. On February 8, 2013, EIT Holdings LLC filed a stipulation to dismiss all claims with prejudice. On February 11, 2013, the court accepted the stipulation, and the case was dismissed.
The Company is party to other legal proceedings arising in the ordinary course of business or otherwise, none of which other proceedings is deemed material.
Item 4. Mine Safety Disclosures
Not applicable.
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| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
We have been a Nasdaq-listed company since May 11, 1999 and our Common Stock currently is quoted on the Nasdaq Global Market under the symbol TST. The following table sets forth, for the periods indicated, the high and low closing sales prices per share of the Common Stock as reported on the Nasdaq Global Market.
| Low | High | |||||||
| 2011 | ||||||||
| First quarter | $ | 2.64 | $ | 3.40 | ||||
| Second quarter | $ | 2.96 | $ | 3.64 | ||||
| Third quarter | $ | 1.94 | $ | 3.04 | ||||
| Fourth quarter | $ | 1.57 | $ | 1.96 | ||||
| 2012 | ||||||||
| First quarter | $ | 1.70 | $ | 2.21 | ||||
| Second quarter | $ | 1.45 | $ | 2.17 | ||||
| Third quarter | $ | 1.34 | $ | 1.56 | ||||
| Fourth quarter | $ | 1.52 | $ | 1.68 | ||||
On February 19, 2013, the last reported sale price for our Common Stock was $1.79 per share.
Holders
The number of holders of record of our Common Stock on February 19, 2013 was 220, which does not include beneficial owners of our Common Stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.
Dividends
During the year ended December 31, 2012, the Company paid two quarterly cash dividends of $0.025 per share on its Common Stock and its Series B Preferred Stock on a converted common share basis. The Company’s Board of Directors suspended the payment of a dividend for the third and fourth quarters of 2012 but will continue to consider a future dividend payment each quarter. During the year ended December 31, 2011, the Company paid four quarterly cash dividends of $0.025 per share on its Common Stock and its Series B Preferred Stock on a converted common share basis. For the year ended December 31, 2012, dividends paid totaled approximately $1.8 million, as compared to approximately $3.8 million for the year ended December 31, 2011.
Issuer Purchases of Equity Securities
The following table presents information related to repurchases of its Common Stock made by the Company during the three months ended December 31, 2012.
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| Period | (a) Total Number of Shares (or Units) Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs* | ||||||||||||
| October 1 - 31, 2012 | — | $ | — | — | $ | 2,678,878 | ||||||||||
| November 1 - 30, 2012 | — | $ | — | — | $ | 2,678,878 | ||||||||||
| December 1 - 31, 2012 | — | $ | — | — | $ | 2,678,878 | ||||||||||
| Total | — | $ | — | — | $ | 2,678,878 | ||||||||||
| * | In December 2000, the Company’s Board of Directors authorized the repurchase of up to $10 million worth of the Company’s Common Stock, from time to time, in private purchases or in the open market. In February 2004, the Company’s Board approved the resumption of this program under new price and volume parameters, leaving unchanged the maximum amount available for repurchase under the program. The program does not have a specified expiration date and is subject to certain limitations. See “Risk Factors — Control by principal stockholders, officers and directors could adversely affect our stockholders, and the terms of our Series B Preferred Stock include significant control rights.” |
Item 6. Selected Financial Data.
The following selected financial data is qualified by reference to, and should be read in conjunction with, our audited consolidated financial statements and the notes to those statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere herein. The selected statement of operations data presented below for the years ended December 31, 2012, 2011 and 2010, and the balance sheet data as of December 31, 2012 and 2011, are derived from our audited consolidated financial statements included elsewhere herein. The selected statement of operations data presented below for the years ended December 31, 2009 and 2008 and the balance sheet data as of December 31, 2010, 2009 and 2008 have been derived from our audited consolidated financial statements, which are not included herein.
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| For the Year Ended December 31, | ||||||||||||||||||||
| 2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||
| Statement of Operations Data: | ||||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Subscription services | $ | 38,233 | $ | 39,514 | $ | 38,598 | $ | 37,989 | $ | 41,186 | ||||||||||
| Media | 12,488 | 18,246 | 18,588 | 22,251 | 29,662 | |||||||||||||||
| Total revenue | 50,721 | 57,760 | 57,186 | 60,240 | 70,848 | |||||||||||||||
| Operating expense: | ||||||||||||||||||||
| Cost of services | 24,886 | 26,499 | 25,557 | 29,100 | 31,985 | |||||||||||||||
| Sales and marketing | 13,396 | 16,682 | 15,841 | 12,078 | 14,263 | |||||||||||||||
| General and administrative | 13,638 | 15,811 | 18,053 | 18,916 | 17,521 | |||||||||||||||
| Asset impairments | — | — | 555 | 24,137 | 2,326 | |||||||||||||||
| Depreciation and amortization | 5,512 | 5,757 | 4,693 | 4,985 | 5,894 | |||||||||||||||
| Restructuring and other charges | 6,590 | 1,826 | — | 3,461 | — | |||||||||||||||
| (Gain) loss on disposition of assets | (233 | ) | — | (1,319 | ) | 530 | — | |||||||||||||
| Total operating expense | 63,789 | 66,575 | 63,380 | 93,207 | 71,989 | |||||||||||||||
| Operating loss | (13,068 | ) | (8,815 | ) | (6,194 | ) | (32,967 | ) | (1,141 | ) | ||||||||||
| Net interest income | 353 | 668 | 846 | 950 | 1,574 | |||||||||||||||
| (Loss) gain on sales of marketable securities | — | (35 | ) | — | 295 | 121 | ||||||||||||||
| Other income | — | — | 21 | 154 | — | |||||||||||||||
| (Loss) income from continuing operations before income taxes | (12,715 | ) | (8,182 | ) | (5,327 | ) | (31,568 | ) | 554 | |||||||||||
| Provision for income taxes | — | — | — | (16,134 | ) | (2 | ) | |||||||||||||
| (Loss) income from continuing operations | (12,715 | ) | (8,182 | ) | (5,327 | ) | (47,702 | ) | 552 | |||||||||||
| Discontinued operations: (*) | ||||||||||||||||||||
| Loss on disposal of discontinued operations | — | (2 | ) | (7 | ) | (15 | ) | (8 | ) | |||||||||||
| Loss from discontinued operations | — | (2 | ) | (7 | ) | (15 | ) | (8 | ) | |||||||||||
| Net (loss) income | (12,715 | ) | (8,184 | ) | (5,334 | ) | (47,717 | ) | 544 | |||||||||||
| Preferred stock cash dividends | 193 | 386 | 386 | 386 | 386 | |||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (12,908 | ) | $ | (8,570 | ) | $ | (5,720 | ) | $ | (48,103 | ) | $ | 158 | ||||||
| Cash dividends paid on common shares | $ | 1,636 | $ | 3,447 | $ | 3,350 | $ | 3,201 | $ | 3,093 | ||||||||||
| Basic net (loss) income per share: | ||||||||||||||||||||
| (Loss) income from continuing operations | $ | (0.38 | ) | $ | (0.26 | ) | $ | (0.17 | ) | $ | (1.56 | ) | $ | 0.02 | ||||||
| Loss from discontinued operations | — | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | |||||||||||
| Net (loss) income | (0.38 | ) | (0.26 | ) | (0.17 | ) | (1.56 | ) | 0.02 | |||||||||||
| Preferred stock dividends | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | ||||||||||
| Net (loss) income attributable to common stockholders | $ | (0.39 | ) | $ | (0.27 | ) | $ | (0.18 | ) | $ | (1.57 | ) | $ | 0.01 | ||||||
| Diluted net (loss) income per share: | ||||||||||||||||||||
| (Loss) income from continuing operations | $ | (0.38 | ) | $ | (0.26 | ) | $ | (0.17 | ) | $ | (1.56 | ) | $ | 0.02 | ||||||
| Loss from discontinued operations | — | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | |||||||||||
| Net (loss) income | (0.38 | ) | (0.26 | ) | (0.17 | ) | (1.56 | ) | 0.02 | |||||||||||
| Preferred stock dividends | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | ||||||||||
| Net (loss) income attributable to common stockholders | $ | (0.39 | ) | $ | (0.27 | ) | $ | (0.18 | ) | $ | (1.57 | ) | $ | 0.01 | ||||||
| Weighted average basic shares outstanding | 32,710 | 31,954 | 31,593 | 30,586 | 30,427 | |||||||||||||||
| Weighted average diluted shares outstanding | 32,710 | 31,954 | 31,593 | 30,586 | 30,835 | |||||||||||||||
| December 31, | ||||||||||||||||||||
| 2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Balance Sheet Data: | ||||||||||||||||||||
| Cash and cash equivalents, restricted cash, current and noncurrent marketable securities | $ | 60,541 | $ | 75,315 | $ | 78,555 | $ | 82,573 | $ | 76,379 | ||||||||||
| Working capital | 18,829 | 46,013 | 27,352 | 46,063 | 69,211 | |||||||||||||||
| Total assets | 111,535 | 121,413 | 129,542 | 133,714 | 171,687 | |||||||||||||||
| Long-term obligations, less current maturities | 4,629 | 4,857 | 3,236 | 1,519 | 80 | |||||||||||||||
| Total stockholders’ equity | 75,458 | 88,144 | 97,993 | 104,474 | 151,615 | |||||||||||||||
| (*) | In June 2005, the Company committed to a plan to discontinue the operations of its wholly owned subsidiary, Independent Research Group LLC, which operated the Company’s securities research and |
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| brokerage segment. Accordingly, the operating results relating to this segment have been segregated from continuing operations and reported as discontinued operations on a separate line item on the consolidated statements of operations. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Please refer to the Special Note Regarding Forward-Looking Statements appearing in Part I, Item 1 of this Report.
The following discussion and analysis should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto.
Overview
TheStreet, Inc., together with its wholly owned subsidiaries (“TheStreet”, “we”, “us” or the “Company”), is a leading digital media company focused on the financial and mergers and acquisitions environment. The Company’s collection of digital services provides users, subscribers and advertisers with a variety of content and tools through a range of online, social media, tablet and mobile channels. Our mission is to provide actionable ideas from the world of investing, finance, business and mergers and acquisitions in order to break down information barriers, level the playing field and help all individuals and organizations grow their wealth. With a robust suite of digital services, TheStreet offers the tools and insight needed to make informed decisions about earning, investing, saving and spending money.
Since its inception in 1996, TheStreet believes it has distinguished itself from other financial media companies with its journalistic excellence, unbiased approach and interactive multimedia coverage of the financial markets, economy, industry trends, investment and financial planning.
Subscription Services
We believe we were one of the first companies to successfully create a large scale, consumer-focused, digital subscription services content business. We believe we have been able to successfully build our subscription services business because we have established a track record for over 16 years of providing high quality, independent investing ideas that have produced financial value for our readers. We believe our track record provides us with a competitive advantage and we will seek to enhance the value of our leading brand and our ability to monetize that value.
In addition to our consumer-focused subscription products, which include RealMoney, RealMoney Pro, Options Profits, Actions Alerts PLUS, Breakout Stocks, and Stocks Under $10, our subscription services business also includes information and transactional services revenue from RateWatch and The Deal.
RateWatch maintains a constantly-updated database of financial rate and fee data collected from more than 90,000 financial institutions (at the branch level), including certificate of deposit, money market account, savings account, checking account, home mortgage, home equity loan, credit card and auto loan rates. This information is licensed to financial institutions and government agencies on a subscription basis, in the form of standard and custom reports that outline the competitive landscape for our clients. The data collected by RateWatch also serves as the foundation for the information available on BankingMyWay, an advertising-supported Web site that enables consumers to search for the most competitive local and national rates.
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On September 11, 2012, the Company acquired 100% of the equity of The Deal LLC (“The Deal”). Founded in 1999 as The Daily Deal print newspaper, The Deal transformed its business into a digital subscription platform that delivers sophisticated coverage of the mergers and acquisitions environment, primarily through The Deal Pipeline, a leading provider of transactional information services. The Deal Pipeline was created for organizations seeking to generate deal flow, improve client intelligence and enhance market knowledge. It provides full access to proprietary commentary, analysis and data produced every day by The Deal’s editors and journalists and can be customized based on each client’s job function, deal focus and workflow and delivered straight to a mobile device or existing corporate platform.
Our subscription services revenue also includes revenue generated from syndication and licensing of certain of our content, including data from TheStreet Ratings (“Ratings”), which tracks the risk-adjusted performance of more than 20,000 mutual funds and exchange-traded funds (ETFs) and more than 4,000 stocks. Subscription services contributed 75% of our total revenue in 2012, as compared to 68% in 2011 and 67% in 2010.
Advertising Supported Properties
Our advertising-supported properties, which include TheStreet, Stockpickr, MainStreet and BankingMyWay, attract one of the largest and most affluent audiences of any digital publisher in our content vertical. We believe our flagship site, TheStreet, with its enviable track record as a leading and distinctive digital voice in the financial category since the early days of the consumer Internet, is regarded as a must-buy for most of our core online brokerage advertisers and a highly effective means for other financial services companies and non-endemic advertisers to communicate with our engaged, affluent audience. During 2011, we launched our Business Desk™ service, which offers our award-winning business and financial content to enhance coverage of these areas by local media partners and offers the ability to apply our superior ability to monetize the consumption of this content. We sell banner, tile and sponsorship advertising primarily through our experienced direct sales force and also generate revenue from contextual and search-based advertising provided by third party technology providers.
We generate advertising revenue from our content through the sale of the following types of advertising placements:
| · | banner, tile, contextual, performance-based and interactive advertisement and sponsorship placements in our advertising-supported Web sites, as well as on select paid subscription sites; |
| · | advertisement placements in our free email newsletters and stand-alone emails sent on behalf of our advertisers to our registered users; and |
| · | advertisements in our video programming, TheStreet services for mobile and tablet devices, RSS feeds, and webinars. |
Critical Accounting Estimates
General
The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from
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those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed to be necessary. Significant estimates made in the accompanying consolidated financial statements include, but are not limited to, the following:
Revenue Recognition
We generate our revenue primarily from subscription services and media.
Subscription services include subscriptions, licenses and fees for access to securities investment information, stock market commentary, rate services and transactional information pertaining to the mergers and acquisitions environment. Subscriptions are generally charged to customers’ credit cards or are directly billed to corporate subscribers. These are generally billed in advance on a monthly or annual basis. We calculate net subscription revenue by deducting from gross revenue an estimate of potential refunds from cancelled subscriptions as well as chargebacks of disputed credit card charges. Net subscription revenue is recognized ratably over the subscription periods. Deferred revenue relates to subscription fees for which amounts have been collected but for which revenue has not been recognized because services have not yet been provided.
Subscription revenue is subject to estimation and variability due to the fact that, in the normal course of business, subscribers may for various reasons contact us or their credit card companies to request a refund or other adjustment for a previously purchased subscription. With respect to most of our annual subscription products, we offer the ability to receive a refund during the first 30 days but none thereafter. Accordingly, we maintain a provision for estimated future revenue reductions resulting from expected refunds and chargebacks related to subscriptions for which revenue was recognized in a prior period. The calculation of this provision is based upon historical trends and is reevaluated each quarter. The provision was not material for any of the three years ended December 31, 2012.
Media revenue includes advertising revenue, which is derived from the sale of Internet sponsorship arrangements and from the delivery of banner, tile, contextual, performance-based and interactive advertisement and sponsorship placements in our advertising-supported Web sites, and is recognized as the advertising is displayed, provided that collection of the resulting receivable is reasonably assured.
Capitalized Software and Web Site Development Costs
We expense all costs incurred in the preliminary project stage for software developed for internal use and capitalize all external direct costs of materials and services consumed in developing or obtaining internal-use computer software in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other (“ASC 350”). In addition, for employees who are directly associated with and who devote time to internal-use computer software projects, to the extent of the time spent directly on the project, we capitalize payroll and payroll-related costs of such employees incurred once the development has reached the applications development stage. For the years ended December 31, 2012, 2011 and 2010, we capitalized software development costs totaling approximately $0.4 million, $0.9 million and $0.8 million, respectively. All costs incurred for upgrades, maintenance and enhancements that do not result in additional functionality are expensed.
We also account for our Web site development costs under ASC 350, which provides guidance on the accounting for the costs of development of company Web sites, dividing the Web site development costs into five stages: (1) the planning stage, during which the business and/or project plan is formulated and functionalities, necessary hardware and technology are determined, (2) the Web site application and
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infrastructure development stage, which involves acquiring or developing hardware and software to operate the Web site, (3) the graphics development stage, during which the initial graphics and layout of each page are designed and coded, (4) the content development stage, during which the information to be presented on the Web site, which may be either textual or graphical in nature, is developed, and (5) the operating stage, during which training, administration, maintenance and other costs to operate the existing Web site are incurred. The costs incurred in the Web site application and infrastructure stage, the graphics development stage and the content development stage are capitalized; all other costs are expensed as incurred. Amortization of capitalized costs will not commence until the project is completed and placed into service. For the years ended December 31, 2012, 2011 and 2010, we capitalized Web site development costs totaling approximately $0.1 million, $0.4 million and $0.6 million, respectively.
Capitalized software and Web site development costs are amortized using the straight-line method over the estimated useful life of the software or Web site. During the year ended December 31, 2012, completed capitalized software and Web site development projects were deemed to primarily have a two- to three-year useful life. Total amortization expense was approximately $1.5 million, $2.2 million and $1.6 million, for the years ended December 31, 2012, 2011 and 2010, respectively.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price and related acquisition costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. Under the provisions of ASC 350, goodwill and indefinite-lived intangible assets are required to be tested for impairment on an annual basis and between annual tests whenever indications of impairment exist. Impairment exists when the carrying amount of goodwill and indefinite-lived intangible assets exceed their implied fair value, resulting in an impairment charge for this excess.
We evaluate goodwill and indefinite-lived intangible assets for impairment using a two-step impairment test approach at the Company level, as the Company is considered to operate as a single reporting unit. The first step compares the fair value of the Company with its book value, including goodwill. As outlined in ASC 350, if the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired and the second step of the impairment test is unnecessary. As the Company’s concluded that the Company’s goodwill was not impaired as of the valuation date, step two was not performed.
The Company performs annual impairment tests of goodwill and other intangible assets with indefinite lives as of September 30 each year or when circumstances arise that indicate a possible impairment might exist. In conducting our annual 2012 impairment test, the Company, through its independent appraisal firm, used the market approach for the valuation of our common stock and the income approach for our preferred shares. Based on these approaches, we determined the Company’s business enterprise value (common equity plus preferred equity) to be $94.0 million as of the Valuation Date. We calculated the common equity value using the midpoint of the Company’s high and low common stock prices on the Valuation Date, as shown in the following figure:
| AVERAGE STOCK PRICE | ||
| Low stock price | $1.50 | High stock price | $1.53 |
| Average stock price | $1.52 | |
We multiplied the average stock price of $1.52 by the 32,877,360 common shares outstanding, indicating a common equity value of $49.8 million on a non-controlling basis. In order to determine the value of the common equity on a controlling basis, a control premium was applied. We searched the FactSet MergerStat/BVR Control Premium Study for all transactions involving U.S. companies during the past 12 months, and for transactions involving U.S. companies with the same SIC code as the Company over various time periods. The data indicated a wide range of control premiums ranging from 13% to 44% for deals that have taken place in the last three years, and we conservatively selected 10 percent as an appropriate control premium. Applying a control premium of 10 percent resulted in a value of the common equity on a controlling basis of $54.8 million.
In addition to Common Stock, the Company has preferred stock with a liquidation value of $55.0 million. With the assistance of our third party valuation firm, we used the income approach to compute the fair value of the preferred stock to be $39.2 million and thus we added the $39.2 million value of the Company’s Preferred Stock to the fair value of the Common Stock. The resulting enterprise value of $94.0 million represents the value of the Company on a controlling basis. This value was greater than the carrying value of $82.2 million, indicating the Company’s goodwill was not impaired as of the September 30, 2012 valuation date.
The fair value of the Company’s outstanding preferred shares requires significant judgments, including the estimation of the amount of time until a liquidation event occurs as well as an appropriate cash flow discount rate. Further, in assigning a fair value to the Company’s preferred stock, the Company also considered that the preferred shareholders are entitled to receive a $55 million liquidation preference upon liquidation or dissolution of the Company or upon any change of control event (as defined in the Certificate of Designation of Series B Preferred Stock). Additionally, the holders of the preferred shares are entitled to receive dividends and to vote as a single class together with the holders of the Common Stock on an as-converted basis and provided certain preferred share ownership levels are maintained, are entitled to representation on the Company’s board of directors and may unilaterally block issuance of certain classes of capital stock, the purchase or redemption of certain classes of capital stock, including Common Stock (with certain exceptions) and any increases in the per-share amount of dividends payable to the holders of the Common Stock.
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The Company also performed, with the assistance of its appraisal firm, an income approach by using the discounted cash flow (“DCF”) method to confirm the reasonableness of the above calculated enterprise value. Under the DCF method, the calculated enterprise value also indicated that the Company’s goodwill was not impaired.
Determining the fair value of goodwill or an indefinite-lived intangible asset involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and appropriate market comparables. The Company bases its fair value estimates on assumptions believed to be reasonable. However, as these estimates and assumptions are unpredictable and inherently uncertain, actual future results may differ from these estimates.
As of December 31, 2012, the Company performed an interim impairment test of its goodwill due to certain potential impairment indicators, including the loss of certain key personnel. The fair value of the Company’s goodwill was estimated using a market approach, based upon actual prices of the Company’s Common Stock excluding any control premium, and the estimated fair value of the company’s outstanding preferred shares. As a result of this December 31, 2012 impairment test, the Company concluded that goodwill was not impaired.
A decrease in the price of the Company’s Common Stock, or changes in the estimated value of the Company’s preferred shares, could materially affect the determination of the fair value and could result in an impairment charge to reduce the carrying value of goodwill, which could be material to the Company’s financial position and results of operations.
Additionally, the Company evaluates the remaining useful lives of intangible assets each year to determine whether events or circumstances continue to support their useful life. There have been no changes in useful lives of intangible assets for each period presented.
Long-Lived Assets
The Company evaluates long-lived assets, including amortizable identifiable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets is measured by comparing the carrying amount of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
During 2012, the Company undertook certain significant actions to lower its overall cost structure and improve its cash flow in future periods. These actions include the hiring of a new management team, including a new CEO, CTO, Editor in Chief and General Counsel. Under this new management team, the Company has effected significant restructuring actions during 2012 designed to realign the overall cost structure of the Company. By implementing these restructuring actions, the Company has reduced full-time headcount (excluding acquisition-related headcount) by 31% from December 31, 2011 levels. Part of this headcount reduction resulted in a deliberate shift of our editorial/content creation from a full time employee model to an outsourced contributor model that will better align costs with revenue in the future. The Company also took actions to lower vendor-related costs; in particular we discontinued certain software as a service (SaaS), and consulting and data provider contracts. These actions were taken with the full understanding that they would have significant short-term costs such as severance costs and other write-offs, but were taken with the long-term view of positioning the Company to return to growth and profitability in future periods.
In addition to reducing overhead costs and creating a more stream-lined editorial process, the Company also considered areas where it could expand its business thru the offering of complementary services and products. As part of this growth strategy, in September 2012, the Company acquired The Deal as disclosed in the Form 10-Q for the quarter ended September 30, 2012. The Company believes that this acquisition will support the Company’s initiatives to expand our revenue product offerings into the institutional subscription space and upon the closing of this transaction we took immediate steps that we believe will lead to such acquisition being accretive to our 2013 results. These actions included the closing of the unprofitable print business and eliminating the related cost structure, as well as eliminating the majority of their overhead costs by leveraging the Company’s current infrastructure.
As a result of these restructuring actions and our acquisition of The Deal, the Company believes that its long-term business model and intangible assets will result in increased revenues and positive operating cash flows in future periods.
In looking to future periods, the Company’s current internal forecasts are favorable and reflect the full year impact of the 2012 actions described above. The Company’s internal forecasts for 2013 indicate a return to generating positive operating cash flows. This increase in our forecasted year-over-year operating cash flow is the result of the full year impact of our cost cutting measures, The Deal acquisition, as well as cost savings related to certain definitive actions that were recently implemented, in particular our move from a hosted IT infrastructure to the cloud. We believe that given our new cost structure and additional revenue stream from The Deal that positive operating cash flows will continue in future periods.
Notwithstanding our conclusion that we did not have a triggering event as described above, based upon the Company’s cash flow projections, there would have been no impairment to long-lived assets at December 31, 2012.
Investments
We believe that conservative investment policies are appropriate and we are not motivated to strive for aggressive spreads above Treasury rates. Preservation of capital is of foremost concern, and by
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restricting investments to investment grade securities of relatively short maturities, we believe that our capital will be largely protected from severe economic conditions or drastic shifts in interest rates. A high degree of diversification adds further controls over capital risk.
Financial instruments that subject us to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. We maintain all of our cash, cash equivalents and restricted cash in five domestic financial institutions and we perform periodic evaluations of the relative credit standing of these institutions. As of December 31, 2012, the Company’s cash, cash equivalents and restricted cash primarily consisted of money market funds and checking accounts.
Marketable securities consist of liquid short-term U.S. Treasuries, government agencies, certificates of deposit (insured up to FDIC limits), investment grade corporate and municipal bonds, corporate floating rate notes and two municipal auction rate securities (“ARS”) issued by the District of Columbia with a par value of approximately $1.9 million. The ARS pay interest in accordance with their terms at each respective auction date, typically every 35 days, and mature in the year 2038. As of December 31, 2012, the total fair value of these marketable securities was approximately $35.4 million and the total cost basis was approximately $35.5 million. With the exception of the ARS, the maximum maturity for any investment is three years. The Company accounts for its marketable securities in accordance with the provisions of ASC 320-10. The Company classifies these securities as available for sale and the securities are reported at fair value. Unrealized gains and losses are recorded as a component of accumulated other comprehensive income and excluded from net loss.
During 2008, the Company made an investment in Debtfolio, Inc., doing business as Geezeo, an online financial management solutions provider for banks and credit unions. The investment totaled approximately $1.9 million for an 18.5% ownership stake. Additionally, the Company incurred approximately $0.2 million of legal fees in connection with this investment. During the first quarter of 2009, the carrying value of the Company’s investment was written down to fair value based upon an estimate of the market value of the Company’s equity in light of Debtfolio’s efforts to raise capital at the time from third parties. The impairment charge approximated $1.5 million. The Company performed an additional impairment test as of December 31, 2009 and no additional impairment in value was noted. During the three months ended June 30, 2010, the Company determined it necessary to record a second impairment charge, writing the value of the investment to zero. This was deemed necessary by management based upon their consideration of Debtfolio, Inc.’s continued negative cash flow from operations, current financial position and lack of current liquidity. In October 2011, Debtfolio, Inc. repurchased the Company’s ownership stake in exchange for a subordinated promissory note in the aggregate principal amount of approximately $0.6 million payable on October 31, 2014. As of December 31, 2012, we maintain a full valuation allowance against our subordinated promissory note due to the uncertainty of eventual collection.
See Note 6 to Consolidated Financial Statements (Fair Value Measurements) for additional information about the investment of the Company’s cash.
Stock-Based Compensation
We account for stock-based compensation under ASC 718-10, Share Based Payment Transactions (“ASC 718-10”). This requires that the cost resulting from all share-based payment transactions be recognized in the financial statements based upon estimated fair values.
Stock-based compensation expense recognized for the years ended December 31, 2012, 2011 and 2010 was approximately $2.4 million, $3.4 million and $2.3 million, respectively. As of December 31,
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2012, there was approximately $2.5 million of unrecognized stock-based compensation expense remaining to be recognized over a weighted-average period of 2.4 years.
We estimate the fair value of share-based payment awards on the date of grant. The value of stock options granted to employees and directors is estimated using the Black-Scholes option-pricing model. The value of each restricted stock unit under the Company’s 2007 Performance Incentive Plan (the “2007 Plan”) is equal to the closing price per share of our Common Stock on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods.
Stock-based compensation expense recognized in our consolidated statements of operations for the years ended December 31, 2012, 2011 and 2010 includes compensation expense for all share-based payment awards based upon the estimated grant date fair value. We recognize compensation expense for share-based payment awards on a straight-line basis over the requisite service period of the award. As stock-based compensation expense recognized in the years ended December 31, 2012, 2011 and 2010 is based upon awards ultimately expected to vest, it has been reduced for estimated forfeitures. We estimate forfeitures at the time of grant which are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
We estimate the value of employee stock options on the date of grant using the Black-Scholes option-pricing model. This determination is affected by our stock price as well as assumptions regarding expected volatility, risk-free interest rate, and expected dividends. The amount of equity-based compensation expense recorded each period is net of estimated forfeitures. The weighted-average grant date fair value per share of employee stock options granted during the years ended December 31, 2012, 2011 and 2010 was $0.48, $0.89 and $1.15, respectively, using the Black-Scholes model with the weighted-average assumptions presented below. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. The assumptions presented in the table below represent the weighted-average value of the applicable assumption used to value stock options at their grant date. In determining the volatility assumption, we used a historical analysis of the volatility of our share price for the preceding period equal to the expected option lives. The expected option lives, which represent the period of time that options granted are expected to be outstanding, were estimated based upon the “simplified” method for “plain-vanilla” options. The risk-free interest rate assumption was based upon observed interest rates appropriate for the term of our employee stock options. The dividend yield assumption was based on the history and expectation of future dividend payouts. The Company’s estimate of pre-vesting forfeitures is primarily based on the Company’s historical experience and is adjusted to reflect actual forfeitures as the options vest.
| For the Year Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Expected option lives | 3.5 years | 3.5 years | 3.5 years | |||||||||
| Expected volatility | 50.67 | % | 54.86 | % | 56.97 | % | ||||||
| Risk-free interest rate | 0.56 | % | 1.20 | % | 1.67 | % | ||||||
| Expected dividends | 4.27 | % | 3.93 | % | 3.69 | % | ||||||
The impact of stock-based compensation expense has been significant to reported results of operations and per share amounts. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. For each 1% increase in the risk-free interest rate used in the Black-Scholes option-pricing model, the resulting estimated impact to our total operating expense for the year ended December 31, 2012 would have caused
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an increase of approximately $10,000. For each 10% increase in the expected volatility used in the Black-Scholes option-pricing model, the resulting estimated impact to our total operating expense for the year ended December 31, 2012 would have caused an increase of approximately $68,000. Because options are expensed over three to five years from the date of grant, the foregoing estimated increases include potential expense for options granted during the prior years. In calculating the amount of each variable that is included in the Black-Scholes options-pricing model (i.e., option exercise price, stock price, option term, risk free interest rate, annual dividend rate, and volatility), the weighted average of such variable for all grants issued in a given year was used.
If factors change and we employ different assumptions in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period.
Income Taxes
We account for our income taxes in accordance with ASC 740-10, Income Taxes (“ASC 740-10”). Under ASC 740-10, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. ASC 740-10 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized based on all available positive and negative evidence. As of December 31, 2012 and 2011, we maintain a full valuation allowance against our deferred tax assets due to our prior history of pre-tax losses and uncertainty about the timing of and ability to generate taxable income in the future and our assessment that the realization of the deferred tax assets did not meet the “more likely than not” criterion under ASC 740-10.
ASC 740-10 also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740-10. As of December 31, 2012 and 2011, no liability for unrecognized tax benefits was required to be recorded.
Deferred tax assets pertaining to windfall tax benefits on exercise of share awards and the corresponding credit to additional paid-in capital are recorded if the related tax deduction reduces tax payable. The Company has elected the “with-and-without approach” regarding ordering of windfall tax benefits to determine whether the windfall tax benefit did reduce taxes payable in the current year. Under this approach, the windfall tax benefits would be recognized in additional paid-in capital only if an incremental tax benefit is realized after considering all other tax benefits presently available to us.
Contingencies
Accounting for contingencies, including those matters described in the Commitments and Contingencies section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, is highly subjective and requires the use of judgments and estimates in assessing their magnitude and likely outcome. In many cases, the outcomes of such matters will be determined by third parties, including governmental or judicial bodies. The provisions made in the consolidated financial statements, as well as the related disclosures, represent management’s best estimate of the then current status of such matters and their potential outcome based on a review of the facts and in
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consultation with outside legal counsel where deemed appropriate. The Company would record a material loss contingency in its consolidated financial statements if the loss is both probable of occurring and reasonably estimated. The Company regularly reviews contingencies and as new information becomes available may, in the future, adjust its associated liabilities.
Results of Operations
Comparison of Fiscal Years Ended December 31, 2012 and 2011
Revenue
| For the Year Ended December 31, | ||||||||||||||||||||
| Revenue: | 2012 | Percent of Total Revenue | 2011 | Percent of Total Revenue | Percent Change | |||||||||||||||
| Subscription services | $ | 38,232,682 | 75 | % | $ | 39,514,153 | 68 | % | -3 | % | ||||||||||
| Media | 12,488,121 | 25 | % | 18,245,847 | 32 | % | -32 | % | ||||||||||||
| Total revenue | $ | 50,720,803 | 100 | % | $ | 57,760,000 | 100 | % | -12 | % | ||||||||||
Subscription services. Subscription services, previously referred to as premium services, revenue is comprised of subscriptions, licenses and fees for access to securities investment information, stock market commentary, rate services and transactional information pertaining to the mergers and acquisitions environment. Revenue is recognized ratably over the contract period.
Subscription services revenue for the year ended December 31, 2012 decreased by 3% when compared to the year ended December 31, 2011. This decrease was primarily the result of a 15% decrease in the weighted-average number of subscriptions during the year ended December 31, 2012 as compared to the year ended December 31, 2011, partially offset by a 6% increase in the average revenue recognized per subscription during the year ended December 31, 2012 as compared to the year ended December 31, 2011, combined with approximately $2.9 million of revenue related to the operations of The Deal since its acquisition in September 2012. The decrease in the weighted average number of subscriptions was primarily impacted by the trailing twelve month trends of 1) churn of our existing subscriber base and 2) our ability to acquire new subscribers. While our average monthly churn rates for the trailing twelve months ended December 31, 2012, as compared to the same period in the prior year, has remained relatively stable, we were unable to acquire a sufficient number of new subscribers in 2012 to offset the losses due to churn. The increase in the average revenue recognized per subscription during the period is primarily the result of the mix of products sold and higher product pricing.
Media. Media, previously referred to as marketing services, revenue is comprised of fees charged for the placement of advertising and sponsorships within our services.
Media revenue for the year ended December 31, 2012 decreased by 32% when compared to the year ended December 31, 2011. The decrease in media revenue was primarily the result of reduced demand from repeat advertisers, the movement of Internet usage from desktop to tablets and mobile devices, where advertising rates are lower, and our inability to attract a sufficient amount of advertising revenue from new advertisers in 2012 to offset the losses.
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Operating Expense
| For the Year Ended December 31, | ||||||||||||||||||||
| 2012 | Percent of Total Revenue | 2011 | Percent of Total Revenue | Percent Change | ||||||||||||||||
| Operating expense: | ||||||||||||||||||||
| Cost of services | $ | 24,886,142 | 49 | % | $ | 26,499,085 | 46 | % | -6 | % | ||||||||||
| Sales and marketing | 13,395,328 | 26 | % | 16,681,562 | 29 | % | -20 | % | ||||||||||||
| General and administrative | 13,637,895 | 27 | % | 15,810,994 | 27 | % | -14 | % | ||||||||||||
| Depreciation and amortization | 5,512,299 | 11 | % | 5,757,365 | 10 | % | -4 | % | ||||||||||||
| Restructuring and other charges | 6,589,792 | 13 | % | 1,825,799 | 3 | % | 261 | % | ||||||||||||
| Gain on disposition of assets | (232,989 | ) | 0 | % | — | N/A | N/A | |||||||||||||
| Total operating expense | $ | 63,788,467 | $ | 66,574,805 | -4 | % | ||||||||||||||
Cost of services. Cost of services expense includes compensation, benefits, outside contributor costs related to the creation of our content, licensed data and the technology required to publish our content.
Cost of services expense decreased by approximately $1.6 million, or 6%, over the periods. The decrease was primarily the result of reduced compensation expense due to a 25% decrease in average headcount (excluding the impact of acquired headcount of The Deal), combined with lower costs related to computer services and supplies and data used on the Company’s Web sites, the aggregate of which decreased by approximately $4.4 million. These cost decreases were partially offset by costs associated with the operations of The Deal since its acquisition, increased costs related to revenue share payments made to certain distribution partners, as well as the use of nonemployee content providers as the Company has shifted its strategy more towards a contributor/freelance model with fewer full time editorial staff, the aggregate of which increased by approximately $2.8 million. Although the dollar amount of cost of services expense decreased over the periods, cost of services expense as a percentage of revenue increased to 49% in the year ended December 31, 2012, from 46% in the prior year period, as our cost cutting initiatives did not completely keep pace with the decline in revenue.
Sales and marketing. Sales and marketing expense consists primarily of compensation expense for the direct sales force, marketing services, and customer service departments, advertising and promotion expenses and credit card processing fees.
Sales and marketing expense decreased by approximately $3.3 million, or 20%, over the periods. The decrease was primarily the result of reduced compensation expense due to a 22% decrease in average headcount (excluding the impact of headcount of The Deal), combined with reductions in advertising and promotion related spending, travel and entertainment costs, credit card processing fees, public relations costs and recruiting fees, the aggregate of which decreased by approximately $4.6 million. These cost decreases were partially offset by costs associated with the operations of The Deal since its acquisition as well as increased advertisement serving costs, the aggregate of which increased by approximately $1.3 million. Sales and marketing expense includes approximately $0.2 million and $0.3 million of barter expense in the years ended December 31, 2012 and 2011, respectively. Sales and marketing expense as a percentage of revenue decreased to 26% in the year ended December 31, 2012, from 29% in the prior year period resulting from our cost cutting initiatives.
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General and administrative. General and administrative expense consists primarily of compensation for general management, finance and administrative personnel, occupancy costs, professional fees, insurance and other office expenses.
General and administrative expense decreased by approximately $2.2 million, or 14%, over the periods. The decrease was primarily the result of reduced compensation expense due to a 15% decrease in average headcount (excluding the impact of headcount of The Deal), combined with lower professional fees (inclusive of those relating to a review of certain accounting matters in our former Promotions.com subsidiary), occupancy, training and insurance costs, the aggregate sum of which decreased by approximately $2.7 million. These cost decreases were partially offset by costs related to the Company’s acquisition and subsequent operation of The Deal since its acquisition combined with increased recruiting fees, the aggregate of which increased by approximately $0.7 million. General and administrative expense as a percentage of revenue approximated 27% in the year ended December 31, 2012, the same as in the prior year period, as our cost cutting initiatives were in line with the decline in revenue.
Depreciation and amortization. Depreciation and amortization expense decreased by approximately $0.2 million, or 4%, over the periods. Depreciation and amortization expense as a percentage of revenue approximated 11% in the year ended December 31, 2012, as compared to 10% in the prior year period.
Restructuring and other charges. During the year ended December 31, 2012, the Company implemented a targeted reduction in force. Additionally, in accessing the ongoing needs of the organization, the Company elected to discontinue using certain software as a service, consulting and data providers, and elected to write-off certain previously capitalized software development projects. The actions were taken after a review of the Company’s cost structure with the goal of better aligning the cost structure with the Company’s revenue base. These restructuring efforts resulted in restructuring and other charges from continuing operations of approximately $3.4 million during the year ended December 31, 2012. Additionally, as a result of the Company’s acquisition of The Deal, the Company discontinued the use of The Deal’s office space and implemented a reduction in force to eliminate redundant positions, resulting in restructuring and other charges from continuing operations of approximately $3.5 million during the year ended December 31, 2012. These activities were offset by a reduction to previously estimated restructuring and other charges resulting in a net credit of approximately $0.3 million.
Gain on disposition of assets. During the year ended December 31, 2012, the Company sold certain non-strategic assets resulting in a gain of approximately $0.2 million.
Net Interest Income
| For the Year Ended December 31, | ||||||||||||
| 2012 | 2011 | Percent Change | ||||||||||
| Net interest income | $ | 352,713 | $ | 667,822 | -47 | % | ||||||
The decrease in net interest income was primarily the result of lower interest rates on bank deposits combined with reduced cash balances.
Net Loss
Net loss for the year ended December 31, 2012 totaled $12.7 million, or $0.38 per basic and diluted share, compared to net loss totaling $8.2 million, or $0.26 per basic and diluted share, for the year ended December 31, 2011. The increase in the net loss was largely the result of restructuring and other
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charges recorded during the year ended December 31, 2012 that approximated $6.6 million combined with reduced revenue, partially offset by expense cost cutting measures. Net loss for the year ended December 31, 2012 also included a net loss of approximately $0.8 million related to the operations of The Deal since its acquisition. Excluding noncash charges related to depreciation, and amortization of acquired intangible assets, net loss for The Deal would have approximated $0.4 million.
Comparison of Fiscal Years Ended December 31, 2011 and 2010
Revenue
| For the Year Ended December 31, | ||||||||||||||||||||
| Revenue: | 2011 | Percent of Total Revenue | 2010 | Percent of Total Revenue | Percent Change | |||||||||||||||
| Subscription services | $ | 39,514,153 | 68 | % | $ | 38,597,877 | 67 | % | 2 | % | ||||||||||
| Media | 18,245,847 | 32 | % | 18,588,502 | 33 | % | -2 | % | ||||||||||||
| Total revenue | $ | 57,760,000 | 100 | % | $ | 57,186,379 | 100 | % | 1 | % | ||||||||||
Subscription services. Subscription services revenue for the year ended December 31, 2011 increased by 2% when compared to the year ended December 31, 2010. The increase was primarily attributable to an increase in revenue from subscriptions to our securities investment information and RateWatch products, offset in part by reduced revenue from our TheStreet Ratings products.
The increase in revenue from subscriptions to our securities investment information and RateWatch products of 4% was primarily the result of a 2% increase in the weighted-average number of subscriptions during the year ended December 31, 2011 as compared to the year ended December 31, 2010, combined with a 2% increase in the average revenue recognized per subscription during the same period. The increase in the weighted-average number of subscriptions during the year ended December 31, 2011 as compared to the year ended December 31, 2010 was primarily the result of improved subscriber retention efforts. The increase in the average revenue recognized per subscription during the period was primarily a result of higher average selling prices for a number of our subscription products.
The decline in revenue from our TheStreet Ratings products totaled approximately $0.5 million, or 51%, and was primarily related to the sale of certain assets of TheStreet Ratings business in May 2010 which reduced the revenue of the business for the year ended December 31, 2011 as compared to the prior year.
Media. Media revenue for the year ended December 31, 2011 decreased by 2% when compared to the year ended December 31, 2010. The decrease in media revenue was primarily the result of reduced demand from new advertisers. Media revenue includes approximately $0.4 million and $0.6 million of barter revenue in the year ended December 31, 2011 and 2010, respectively.
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Operating Expense
| For the Year Ended December 31, | ||||||||||||||||||||
| 2011 | Percent
of Total Revenue | 2010 | Percent
of Total Revenue | Percent Change | ||||||||||||||||
| Operating expense: | ||||||||||||||||||||
| Cost of services | $ | 26,499,085 | 46 | % | $ | 25,557,162 | 45 | % | 4 | % | ||||||||||
| Sales and marketing | 16,681,562 | 29 | % | 15,841,470 | 28 | % | 5 | % | ||||||||||||
| General and administrative | 15,810,994 | 27 | % | 18,052,633 | 32 | % | -12 | % | ||||||||||||
| Depreciation and amortization | 5,757,365 | 10 | % | 4,692,520 | 8 | % | 23 | % | ||||||||||||
| Restructuring and other charges | 1,825,799 | 3 | % | — | N/A | N/A | ||||||||||||||
| Asset impairments | — | N/A | 555,000 | 1 | % | -100 | % | |||||||||||||
| Gain on disposition of assets | — | N/A | (1,318,607 | ) | -2 | % | 100 | % | ||||||||||||
| Total operating expense | $ | 66,574,805 | $ | 63,380,178 | 5 | % | ||||||||||||||
Cost of services. Cost of services expense increased by approximately $0.9 million, or 4%, over the periods. The increase was primarily the result of higher base salary and stock-based compensation costs related to a 2% increase in headcount, combined with higher costs related to revenue share payments made to the Company’s Business Desk partners, computer services and supplies, consulting fees and data costs, the aggregate of which increased by approximately $2.4 million. These cost increases were partially offset by reduced incentive compensation expense, a higher amount of salaries capitalized for internal developed software and Web site development projects, reduced usage of temporary help and lower recruiting fees, the aggregate of which decreased by approximately $1.5 million. As a percentage of revenue, cost of services expense increased to 46% in the year ended December 31, 2011, from 45% in the prior year period.
Sales and marketing. Sales and marketing expense increased by approximately $0.8 million, or 5%, over the periods. The increase was primarily the result of an investment in the sales and marketing of our premium subscription-based products, including a 12% increase in headcount, as well as higher public relations, travel and entertainment, internet access and advertisement serving costs, the aggregate sum of which increased by approximately $1.7 million. These cost increases were partially offset by reduced advertising and promotion, sales commissions, incentive compensation and temporary help costs, the aggregate sum of which decreased by approximately $0.8 million. Sales and marketing expense includes approximately $0.3 million and $0.5 million of barter expense in the year ended December 31, 2011 and 2010, respectively. As a percentage of revenue, sales and marketing expense increased to 29% in the year ended December 31, 2011, from 28% in the prior year period.
General and administrative. General and administrative expense decreased by approximately $2.2 million, or 12%, over the periods. The decrease was primarily the result of reduced compensation related costs, expenses related to a review of certain accounting matters in our former Promotions.com subsidiary and lower consulting, professional, recruiting, tax and occupancy costs, the aggregate of which decreased by approximately $2.2 million. These cost decreases were partially offset by an increase in bad debt and internet access costs that approximated $0.2 million. As a percentage of revenue, general and administrative expense decreased to 27% in the year ended December 31, 2011, from 32% in the prior year period.
Depreciation and amortization. Depreciation and amortization expense increased by approximately $1.1 million, or 23%, over the periods. The increase was largely attributable to increased
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amortization expense resulting from a reduction to the estimated useful life of certain past capitalized Web site development projects together with increased leasehold improvement amortization related to a renovation of the Company’s corporate headquarters that was completed in late 2010. As a percentage of revenue, depreciation and amortization expense increased to 10% in the year ended December 31, 2011, from 8% in the prior year period.
Restructuring and other charges. In December 2011, the Company announced a management transition under which the Company’s chief executive officer would step down from his position. Additionally, in December 2011, a senior vice president separated from the Company. As a result of these activities, we incurred restructuring and other charges from continuing operations of approximately $1.8 million during the year ended December 31, 2011.
Asset impairments. During the three months ended June 30, 2010, the Company recorded an impairment charge to its long term investment of approximately $0.6 million based upon management’s consideration of Debtfolio, Inc.’s continued negative cash flow from operations, current financial position and lack of current liquidity.
Gain on disposition of assets. On May 4, 2010, the Company sold certain assets of TheStreet Ratings business (those pertaining to banking and insurance ratings) resulting in a gain of approximately $1.3 million.
Net Interest Income
| For the Year Ended December 31, | ||||||||||||
| 2011 | 2010 | Percent Change | ||||||||||
| Net interest income | $ | 667,822 | $ | 846,157 | -21 | % | ||||||
The decrease in net interest income was primarily the result of lower interest rates on bank deposits combined with reduced cash balances.
Net Loss
Net loss for the year ended December 31, 2011 totaled approximately $8.2 million, or $0.26 per basic and diluted share, compared to net loss totaling approximately $5.3 million, or $0.17 per basic and diluted share, for the year ended December 31, 2010.
Credit Risk of Customers and Business Concentrations
Our customers are primarily concentrated in the United States and we carry accounts receivable balances. We perform ongoing credit evaluations, generally do not require collateral, and establish an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information. To date, actual losses have been within management’s expectations.
For the years ended December 31, 2012, 2011 and 2010, no individual client accounted for 10% or more of consolidated revenue. As of December 31, 2012, 2011 and 2010, one client accounted for more than 10% of our gross accounts receivable balance in each period.
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Liquidity and Capital Resources
We generally have invested in money market funds and other short-term, investment grade instruments that are highly liquid and of high quality, with the intent that such funds are available for sale for operating purposes. As of December 31, 2012, our cash, cash equivalents, marketable securities and restricted cash amounted to approximately $60.5 million, representing 54% of total assets. Our cash and cash equivalents primarily consisted of money market funds and checking accounts. Our marketable securities consisted of approximately $35.4 million of liquid short-term U.S. Treasuries, government agencies, certificates of deposit (insured up to FDIC limits), investment grade corporate and municipal bonds and corporate floating rate notes, with a maximum maturity of three years, and two auction rate securities issued by the District of Columbia with a par value of approximately $1.9 million that mature in the year 2038. Our total cash-related position is as follows:
| December 31, 2012 | December 31, 2011 | |||||||
| Cash and cash equivalents | $ | 23,845,360 | $ | 44,865,191 | ||||
| Current and noncurrent marketable securities | 35,394,318 | 28,789,603 | ||||||
| Current and noncurrent restricted cash | 1,301,000 | 1,660,370 | ||||||
| Total cash and cash equivalents, current and noncurrent marketable securities and noncurrent restricted cash | $ | 60,540,678 | $ | 75,315,164 | ||||
Financial instruments that subject us to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. We maintain all of our cash, cash equivalents and restricted cash in five domestic financial institutions, and we perform periodic evaluations of the relative credit standing of these institutions.
Cash generated from operations was not sufficient to cover our expenses during the year ended December 31, 2012. Net cash used in operating activities totaled approximately $6.2 million for the year ended December 31, 2012, as compared to net cash provided by operating activities totaling approximately $3.6 million for the year ended December 31, 2011. The decline in net cash provided by operating activities is primarily related to the following:
| · | an increase in the net loss from continuing operations combined with reduced noncash expenses; |
| · | a decrease in the growth of deferred revenue resulting from reduced subscription sales; and |
| · | a net decrease in accrued expenses and accounts payable resulting from reduced incentive compensation accruals partially offset by increases resulting in the acquisition of The Deal. |
Included in cash used in operating activities totaling $6.2 million during the year ended December 31, 2012 was approximately $4.1 million related to the Company’s restructuring and other charges activity.
Net cash used in investing activities of approximately $12.8 million for the year ended December 31, 2012 was primarily the result of approximately $6.3 million of the net purchases of marketable securities, the purchase of The Deal, LLC of approximately $5.4 million, combined with approximately $1.3 million of capital expenditures, partially offset by the proceeds from the disposition of assets of approximately $0.2 million.
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Net cash used in financing activities of approximately $2.0 million for the year ended December 31, 2012 primarily consisted of cash dividends paid and the purchase of treasury stock by retaining shares issuable upon the vesting of restricted stock units in connection with minimum tax withholding requirements, partially offset by a decrease in restricted cash and cash received from the sale of the Company’s Common Stock.
We have a total of approximately $1.3 million of cash that serves as collateral for outstanding letters of credit, and which cash is therefore restricted. The letters of credit serve as a security deposits for our office space in New York City.
We believe that our current cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months. We are committed to cash expenditures in an aggregate amount of approximately $2.7 million through December 31, 2013, in respect of the contractual obligations set forth below under “Commitments and Contingencies.” Additionally, during both the first and second quarters of 2012, the Company paid a quarterly cash dividend of $0.025 per share on its Common Stock and its Series B Preferred Stock on a converted common share basis. These dividend payments totaled approximately $1.8 million. The Company’s Board of Directors suspended the payment of a dividend for the third and fourth quarter of 2012 but will continue to consider a future dividend payment each quarter.
As of December 31, 2012 and 2011, respectively, we had approximately $150 million and $139 million of federal and state net operating loss carryforwards. The Company has a full valuation allowance against its deferred tax assets as management concluded that it was more likely than not that the Company would not realize the benefit of its deferred tax assets by generating sufficient taxable income in future years. We expect to continue to provide a full valuation allowance until, or unless, we can sustain a level of profitability that demonstrates our ability to utilize these assets.
In accordance with Section 382 of the Internal Revenue Code, the ability to utilize our net operating loss carryforwards may be limited in the event of a change in ownership and as such a portion of the existing net operating loss carryforwards may be subject to limitation. Such an ownership change would create an annual limitation on the usage of our net operating loss carryforward. The ultimate realization of net operating loss carryforwards is dependent upon the generation of future taxable income during the periods following an ownership change. As such, a portion of the existing net operating loss carryforwards may be subject to limitation.
Treasury Stock
In December 2000, our Board of Directors authorized the repurchase of up to $10 million worth of our Common Stock, from time to time, in private purchases or in the open market. In February 2004, our Board of Directors approved the resumption of the stock repurchase program (the “Program”) under new price and volume parameters, leaving unchanged the maximum amount available for repurchase under the Program. However, the affirmative vote of the holders of a majority of the outstanding shares of Series B Preferred Stock, voting separately as a single class, is necessary in order for us to be able to repurchase our Common Stock (except for the purchase or redemption from employees, directors and consultants pursuant to agreements providing us with repurchase rights upon termination of their service with us), unless after such purchase we have unrestricted cash (net of all indebtedness for borrowed money, purchase money obligations, promissory notes or bonds) equal to at least two times the product obtained by multiplying the number of shares of Series B Preferred Stock outstanding at the time such dividend is paid by the liquidation preference. During the years ended December 31, 2012 and 2011, we did not purchase any shares of Common Stock under the Program. Since inception of the Program, we have purchased a total of 5,453,416 shares of Common Stock at an aggregate cost of approximately $7.3 million.
| 40 |
In addition, pursuant to the terms of our 1998 Stock Incentive Plan (the “1998 Plan”) and our 2007 Performance Incentive Plan (the “2007 Plan”), and certain procedures adopted by the Compensation Committee of our Board of Directors, in connection with the exercise of stock options by certain of our employees, and the issuance of shares of Common Stock in settlement of vested restricted stock units, we may withhold shares in lieu of payment of the exercise price and/or the minimum amount of applicable withholding taxes then due. Through December 31, 2012, we had withheld an aggregate of 1,162,692 shares which have been recorded as treasury stock. In addition, we received an aggregate of 208,270 shares as partial settlement of the working capital and debt adjustment from the acquisition of Corsis Technology Group II LLC, 104,055 of which were received in October 2008 and 104,215 of which were received in September 2009, and 3,338 shares as partial settlement of a working capital adjustment related to our acquisition of Kikucall, Inc., which shares we received in March 2011. These shares have been recorded as treasury stock.
Commitments and Contingencies
We are committed under operating leases, principally for office space, which expire at various dates through August 31, 2021. Certain leases contain escalation clauses relating to increases in property taxes and maintenance costs. Rent and equipment rental expenses were approximately $1.5 million, $1.7 million and $1.7 million for the years ended December 31, 2012, 2011 and 2010, respectively. Additionally, we have agreements with certain of our outside contributors, whose future minimum payments are dependent on the future fulfillment of their services thereunder. As of December 31, 2012, total future minimum cash payments are as follows:
| Payments Due by Year | ||||||||||||||||||||||||||||
| Contractual obligations: | Total | 2013 | 2014 | 2015 | 2016 | 2017 | After 2017 | |||||||||||||||||||||
| Operating leases | $ | 21,163,143 | $ | 2,550,825 | $ | 2,506,044 | $ | 2,539,137 | $ | 2,517,990 | $ | 2,557,338 | $ | 8,491,809 | ||||||||||||||
| Outside contributors | 145,833 | 145,833 | — | — | — | — | — | |||||||||||||||||||||
| Total contractual cash obligations | $ | 21,308,976 | $ | 2,696,658 | $ | 2,506,044 | $ | 2,539,137 | $ | 2,517,990 | $ | 2,557,338 | $ | 8,491,809 | ||||||||||||||
Future minimum cash payments for the year ended December 31, 2013 related to operating leases has been reduced by approximately $0.3 million related to payments to be received related to the sublease of office space.
See Note 12 (Commitments and Contingencies) in Notes to Consolidated Financial Statements for a discussion of contingencies.
New Accounting Pronouncements
See Note 1 in Notes to Consolidated Financial Statements for new accounting pronouncements impacting the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We believe that our market risk exposures are immaterial as we do not have instruments for trading purposes and reasonable possible near-term changes in market rates or prices will not result in material near-term losses in earnings, material changes in fair values or cash flows for all instruments.
We maintain all of our cash, cash equivalents and restricted cash in five domestic financial institutions, and we perform periodic evaluations of the relative credit standing of these institutions. However, no assurances can be given that the third party institutions will retain acceptable credit ratings
| 41 |
or investment practices.
Item 8. Financial Statements and Supplementary Data.
Our consolidated financial statements required by this item are included in Item 15 of this Report.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures. Our management, with the participation of our chief executive officer (our principal executive officer) and chief financial officer (our principal financial officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 131-15(e) and 15d-15(e)) as of December 31, 2012. Based on that evaluation, our management concluded that our disclosure controls and procedures were effective as of December 31, 2012.
(b) Management’s Annual Report on Internal Controls over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements in accordance with generally accepted accounting principles and includes those policies and procedures that:
| · | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
| · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. |
Internal control over financial reporting may not prevent or detect misstatements due to its inherent limitations. Management’s projections of any evaluation of the effectiveness of internal control over financial reporting as to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012 and in making this assessment used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework in
| 42 |
accordance with the standards of the Public Company Accounting Oversight Board (United States). Based on that evaluation, our management concluded that, as of December 31, 2012, our internal control over financial reporting was effective.
On February 19, 2013, Christopher Marshall notified the Company that he will resign from the Board of Directors (the “Board”) of the Company effective March 31, 2013. Mr. Marshall is a General Partner at Technology Crossover Ventures, a private equity and venture capital firm (“TCV”), the majority holder of the Company’s Series B Preferred Stock. TCV will continue to be entitled to elect one person to the Company’s Board pursuant to Section 5(b) of the Certification of Designation of Series B Preferred Stock so long as it holds at least 2,200 shares of Series B Preferred Stock. TCV has informed us that it does not currently intend to fill this board vacancy, but they may do so in the future.
| 43 |
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item is incorporated herein by reference to our definitive Proxy Statement for its 2013 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Report (the “Proxy Statement”).
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by reference to the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Other than the information provided below, the information required by this Item is incorporated herein by reference to the Proxy Statement.
Equity Compensation Plan Information
Under the terms of the 1998 Plan, 8,900,000 shares of Common Stock of the Company were reserved for awards of incentive stock options, nonqualified stock options, restricted stock, deferred stock, restricted stock units, or any combination thereof. Under the terms of the 2007 Plan, 4,250,000 shares of Common Stock of the Company were reserved for awards of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units or other stock-based awards. The 2007 Plan also authorized cash performance awards. Additionally, under the terms of the 2007 Plan, unused shares authorized for award under the 1998 Plan are available for issuance under the 2007 Plan. No further awards will be made under the 1998 Plan. Awards may be granted to such directors, employees and consultants of the Company as the Compensation Committee of the Board of Directors shall select in its discretion or delegate management to select. Only employees of the Company are eligible to receive incentive stock options. Awards generally vest over a three- to five-year period and stock options generally have terms of five years. The following table sets forth certain information, as of December 31, 2012, concerning shares of Common Stock authorized for issuance under the 2007 Plan.
| Number of securities
to be issued upon exercise of outstanding options, warrants and rights | Weighted-average
exercise price of outstanding options, warrants and rights | Number of securities
remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 2,539,516 | 1.94 | 546,212 | * | ||||||||
| Equity compensation plans not approved by security holders** | 1,625,360 | 1.42 | — | |||||||||
| Total | ||||||||||||
| * | Aggregate number of shares available for grant under the 2007 Plan, which grants may be in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units or other stock-based awards in the discretion of the Board of Directors, with respect to non-employee director grants, or the Compensation Committee, with respect to all other grants. The 2007 Plan also authorizes cash performance awards. |
| ** | Includes inducement option grants made pursuant to NASDAQ Listing Rule 5635(c) to Elisabeth DeMarse for 1,525,360 shares of the Company’s common stock and a non-executive officer for 100,000 shares of the Company’s common stock. |
| 44 |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated herein by reference to the Proxy Statement.
Item 14. Principal Accounting Fees and Services.
The information required by this Item is incorporated herein by reference to the Proxy Statement.
Item 15. Exhibits, Financial Statement Schedules.
| (a) | 1. | Consolidated Financial Statements: |
| See TheStreet, Inc. Index to Consolidated Financial Statements on page F-1. | ||
| 2. | Consolidated Financial Statement Schedules: | |
| See TheStreet, Inc. Index to Consolidated Financial Statements on page F-1. | ||
| 3. | Exhibits: |
The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Securities and Exchange Commission:
| Exhibit | Incorporated by Reference | |||||||||
| Number | Description | Form | File No. | Exhibit | Filing Date | |||||
| 3.1 | Restated Certificate of Incorporation of the Company. | 10-K | 000-25779 | 3.1 | March 14, 2011 | |||||
| 3.2 | Certificate of Amendment dated May 31, 2011 to Restated Certificate of Incorporation. | 8-K | 000-25779 | 99.1 | June 2, 2011 | |||||
| 3.3 | Certificate of Designation of the Company’s Series B Preferred Stock, as filed with the Secretary of State of Delaware on November 15, 2007. | 8-K | 000-25779 | 3.1 | November 20, 2007 | |||||
| 3.4 | Amended and Restated Bylaws of the Company. | 10-K | 000-25779 | 3.2 | March 30, 2000 | |||||
| 4.1 | Specimen certificate for the Company’s shares of Common Stock. | S-1/A | 333-72799 | 4.3 | April 19, 1999 | |||||
| 4.2 | Investor Rights Agreement dated November 15, 2007 by and among the Company, TCV VI, L.P. and TCV Member Fund, L.P. | 8-K | 000-25779 | 4.1 | November 20, 2007 | |||||
| 10.1+ | Form of Indemnification Agreement for directors and executive officers of the Company. | 10-K | 000-25779 | 10.26 | March 7, 2012 | |||||
| 10.2+ | Amended and Restated 2007 Performance Incentive Plan. | 14A | 000-25779 | April 16, 2010 | ||||||
| 10.3+ | Form of Stock Option Grant Agreement under the Company’s 2007 Performance Incentive Plan. | 10-Q | 000-25779 | 10.2 | August 9, 2007 | |||||
| 10.4+ | Form of Agreement of Restricted Stock Units Under the Company’s 2007 Performance Incentive Plan. | 10-Q | 000-25779 | 10.1 | February 8, 2010 (quarter ended September 30, 2009) | |||||
| 10.5 | Agreement of Lease, dated July 22, 1999, between 14 Wall Street Holdings 1, LLC (as successor to W12/14 Wall Acquisition Associates LLC) and the Company. | 10-Q | 000-25779 | 10.1 | August 16, 1999 | |||||
| 45 |
| 10.6 | Amendment of Lease dated October 31, 2001, between 14 Wall Street Holdings 1, LLC (as successor to W12/14 Wall Acquisition Associates LLC) and the Company. | 10-K | 000-25779 | 10.12 | March 16, 2005 | |||||
| 10.7 | Second Amendment of Lease dated March 21, 2007, between 14 Wall Street Holdings 1, LLC and the Company. | 10-K | 000-25779 | 10.24 | March 14, 2008 | |||||
| 10.8 | Third Amendment of Lease dated December 31, 2008, between CRP/Capstone 14W Property Owner, L.L.C. and the Company. | 10-K | 000-25779 | 10.22 | March 13, 2009 | |||||
| 10.9 | Stock Purchase Agreement dated November 1, 2007 by and among BFPC Newco LLC, Larry Starkweather, Kyle Selberg, Rachelle Zorn, Robert Quinn and Larry Starkweather as Agent. | 8-K | 000-25779 | 2.1 | November 6, 2007 | |||||
| 10.10 | Securities Purchase Agreement dated November 15, 2007 by and among the Company, TCV VI, L.P. and TCV Member Fund, L.P. | 8-K | 000-25779 | 10.1 | November 20, 2007 | |||||
| 10.11 | Equity Interest Purchase Agreement, dated as of September 11, 2012 between TheStreet, Inc. and WPPN, L.P. | 8-K | 000-25779 | 2.1 | September 12, 2012 | |||||
| 10.12+ | Employment Agreement dated as of December 10, 2010 between James J. Cramer and the Company. | 10-K/A | 000-25779 | 10.37 | August 12, 2011 | |||||
| 10.13+ | Amendment No. 1 dated December 16, 2010 to Employment Agreement between James J. Cramer and the Company. | 10-K | 000-25779 | 10.38 | March 14, 2011 | |||||
| 10.14+ | Employment Letter dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.1 | May 7, 2012 | |||||
| 10.15+ | Agreement for Grant of Incentive Stock Options dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.2 | May 7, 2012 | |||||
| 10.16+ | Agreement for Grant of Non-Qualified Stock Options dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.3 | May 7, 2012 | |||||
| 10.17+ | Stock Purchase Agreement dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.4 | May 7, 2012 | |||||
| 10.18+ | Severance Agreement dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.5 | May 7, 2012 | |||||
| 10.19+ | Severance Agreement dated as of September 7, 2010 between Thomas Etergino and the Company. | 10-K | 000-25779 | 10.36 | March 14, 2011 | |||||
| 10.20+ | Amendment No. 1 to Severance Agreement dated as of March 28, 2011 between the Company and Thomas Etergino. | 10-Q | 000-25779 | 10.5 | August 5, 2011 | |||||
| 10.21+ | Amendment No. 2 to Severance Agreement dated as of December 21, 2011 between the Company and Thomas Etergino. | 10-K | 000-25779 | 10.44 | March 7, 2012 | |||||
| 10.22+ | Separation Agreement and General Release dated as of December 31, 2012 between the Company and Thomas Etergino. | |||||||||
| 10.23+ | Employment Offer Letter dated as of August 13, 2012 between the Company and Erwin Eichmann. | |||||||||
| 10.24+ | Sign-On Bonus Offer Letter dated as of August 13, 2012 between the Company and Erwin Eichmann. |
| 46 |
| 10.25+ | Agreement for Grant of Incentive Stock Option dated as of August 17, 2012 between the Company and Erwin Eichmann | |||||||||
| 10.26+ | Employment Offer Letter dated as of February 1, 2013 between the Company and John C. Ferrara. | |||||||||
| 14.1 | Code of Business Conduct and Ethics. | 8-K | 000-25779 | 14.1 | January 31, 2005 | |||||
| 21.1 | Subsidiaries of the Company. | |||||||||
| 23.1 | Consent of KPMG LLP. | |||||||||
| 31.1 | Rule 13a-14(a) Certification of CEO. | |||||||||
| 31.2 | Rule 13a-14(a) Certification of CFO. | |||||||||
| 32.1 | Section 1350 Certification of CEO. | |||||||||
| 32.2 | Section 1350 Certification of CFO. | |||||||||
| 101.INS* | XBRL Instance Document | |||||||||
| 101.SCH* | XBRL Taxonomy Extension Schema Document | |||||||||
| 101.CAL* | XBRL Taxonomy Extension Calculation Document | |||||||||
| 101.DEF* | XBRL Taxonomy Extension Definitions Document | |||||||||
| 101.LAB* | XBRL Taxonomy Extension Labels Document | |||||||||
| 101.PRE* | XBRL Taxonomy Extension Presentation Document |
| + | Indicates management contract or compensatory plan or arrangement |
| * | Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections |
| 47 |
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 report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TheStreet, Inc. | ||||
| Date: February 22, 2013 | By: | /s/ Elisabeth DeMarse | ||
| Name: | Elisabeth DeMarse | |||
| Title: | Chairman and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
| Signature | Title | Date | ||
| /s/ Elisabeth DeMarse | Chairman and Chief Executive Officer |
February 22, 2013 | ||
| (Elisabeth DeMarse) | ||||
| /s/ Thomas Etergino | Chief Financial Officer | February 22, 2013 | ||
| (Thomas Etergino) | ||||
| /s/ Richard Broitman | Chief Accounting Officer | February 22, 2013 | ||
| (Richard Broitman) | ||||
| /s/ James J. Cramer | Director | February 22, 2013 | ||
| (James J. Cramer) | ||||
| /s/ Sarah Fay | Director | February 22, 2013 | ||
| (Sarah Fay) | ||||
| /s/ William R. Gruver | Director | February 22, 2013 | ||
| (William R. Gruver) | ||||
| /s/ Keith B. Hall | Director | February 22, 2013 | ||
| (Keith B. Hall) | ||||
| /s/ Christopher Marshall | Director | February 22, 2013 | ||
| (Christopher Marshall) | ||||
| /s/ Vivek Shah | Director | February 22, 2013 | ||
| (Vivek Shah) | ||||
| /s/ Mark Walsh | Director | February 22, 2013 | ||
| (Mark Walsh) |
| 48 |
THESTREET, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
TheStreet, Inc.:
We have audited the accompanying consolidated balance sheets of TheStreet, Inc. and subsidiaries (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2012. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedule II. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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 opinions.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TheStreet, Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
New York, New York
February 22, 2013
| F-2 |
THESTREET, INC.
| December 31, | ||||||||
| 2012 | 2011 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 23,845,360 | $ | 44,865,191 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $165,291 as of December 31, 2012 and $158,870 as of December 31, 2011 | 5,750,753 | 6,225,424 | ||||||
| Marketable securities | 18,096,091 | 20,895,238 | ||||||
| Other receivables | 1,134,142 | 356,219 | ||||||
| Prepaid expenses and other current assets | 1,450,742 | 1,421,955 | ||||||
| Restricted cash | — | 660,370 | ||||||
| Total current assets | 50,277,088 | 74,424,397 | ||||||
| Property and equipment, net of accumulated depreciation and amortization of $14,633,037 as of December 31, 2012 and $13,466,365 as of December 31, 2011 | 5,672,000 | 8,494,648 | ||||||
| Marketable securities | 17,298,227 | 7,894,365 | ||||||
| Other assets | 103,964 | 172,055 | ||||||
| Goodwill | 25,726,239 | 24,057,616 | ||||||
| Other intangibles, net of accumulated amortization of $6,570,315 as of December 31, 2012 and $5,529,730 as of December 31, 2011 | 11,156,550 | 5,370,135 | ||||||
| Restricted cash | 1,301,000 | 1,000,000 | ||||||
| Total assets | $ | 111,535,068 | $ | 121,413,216 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 3,813,955 | $ | 2,305,589 | ||||
| Accrued expenses | 5,921,152 | 7,970,802 | ||||||
| Deferred revenue | 21,080,759 | 17,625,666 | ||||||
| Other current liabilities | 632,618 | 509,214 | ||||||
| Total current liabilities | 31,448,484 | 28,411,271 | ||||||
| Deferred tax liability | 288,000 | 288,000 | ||||||
| Other liabilities | 4,340,749 | 4,569,497 | ||||||
| Total liabilities | 36,077,233 | 33,268,768 | ||||||
| Stockholders’ Equity | ||||||||
| Preferred stock; $0.01 par value; 10,000,000 shares authorized; 5,500 issued and outstanding as of December 31, 2012 and December 31, 2011; the aggregate liquidation preference as of December 31, 2012 and December 31, 2011 totals $55,000,000 | 55 | 55 | ||||||
| Common stock; $0.01 par value; 100,000,000 shares authorized; 39,855,468 shares issued and 33,027,752 shares outstanding as of December 31, 2012, and 38,461,595 shares issued and 32,131,188 shares outstanding as of December 31, 2011 | 398,555 | 384,616 | ||||||
| Additional paid-in capital | 270,943,151 | 270,230,246 | ||||||
| Accumulated other comprehensive loss | (128,994 | ) | (394,600 | ) | ||||
| Treasury stock at cost 6,827,716 shares as of December 31, 2012 and 6,330,407 shares as of December 31, 2011 | (11,974,261 | ) | (11,010,149 | ) | ||||
| Accumulated deficit | (183,780,671 | ) | (171,065,720 | ) | ||||
| Total stockholders’ equity | 75,457,835 | 88,144,448 | ||||||
| Total liabilities and stockholders’ equity | $ | 111,535,068 | $ | 121,413,216 | ||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements
| F-3 |
THESTREET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Years Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Net revenue: | ||||||||||||
| Subscription services | $ | 38,232,682 | $ | 39,514,153 | $ | 38,597,877 | ||||||
| Media | 12,488,121 | 18,245,847 | 18,588,502 | |||||||||
| Total net revenue | 50,720,803 | 57,760,000 | 57,186,379 | |||||||||
| Operating expense: | ||||||||||||
| Cost of services | 24,886,142 | 26,499,085 | 25,557,162 | |||||||||
| Sales and marketing | 13,395,328 | 16,681,562 | 15,841,470 | |||||||||
| General and administrative | 13,637,895 | 15,810,994 | 18,052,633 | |||||||||
| Depreciation and amortization | 5,512,299 | 5,757,365 | 4,692,520 | |||||||||
| Asset impairments | — | — | 555,000 | |||||||||
| Restructuring and other charges | 6,589,792 | 1,825,799 | — | |||||||||
| Gain on disposition of assets | (232,989 | ) | — | (1,318,607 | ) | |||||||
| Total operating expense | 63,788,467 | 66,574,805 | 63,380,178 | |||||||||
| Operating loss | (13,067,664 | ) | (8,814,805 | ) | (6,193,799 | ) | ||||||
| Net interest income | 352,713 | 667,822 | 846,157 | |||||||||
| Loss on sales of marketable securities | — | (35,340 | ) | — | ||||||||
| Other income | — | — | 20,374 | |||||||||
| Loss from continuing operations before income taxes | (12,714,951 | ) | (8,182,323 | ) | (5,327,268 | ) | ||||||
| Provision for income taxes | — | — | — | |||||||||
| Loss from continuing operations | (12,714,951 | ) | (8,182,323 | ) | (5,327,268 | ) | ||||||
| Discontinued operations: | ||||||||||||
| Loss from discontinued operations | — | (1,798 | ) | (7,339 | ) | |||||||
| Net loss | (12,714,951 | ) | (8,184,121 | ) | (5,334,607 | ) | ||||||
| Preferred stock cash dividends | 192,848 | 385,696 | 385,696 | |||||||||
| Net loss attributable to common stockholders | $ | (12,907,799 | ) | $ | (8,569,817 | ) | $ | (5,720,303 | ) | |||
| Basic and diluted net loss per share: | ||||||||||||
| Loss from continuing operations | $ | (0.38 | ) | $ | (0.26 | ) | $ | (0.17 | ) | |||
| Loss from discontinued operations | — | (0.00 | ) | (0.00 | ) | |||||||
| Net loss | (0.38 | ) | (0.26 | ) | (0.17 | ) | ||||||
| Preferred stock dividends | (0.01 | ) | (0.01 | ) | (0.01 | ) | ||||||
| Net loss attributable to common stockholders | $ | (0.39 | ) | $ | (0.27 | ) | $ | (0.18 | ) | |||
| Weighted average basic and diluted shares outstanding | 32,710,018 | 31,953,683 | 31,593,341 | |||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements
| F-4 |
THESTREET, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
| For the Years Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Net loss | $ | (12,714,951 | ) | $ | (8,184,121 | ) | $ | (5,334,607 | ) | |||
| Unrealized gain (loss) on marketable securities | 265,606 | (725,911 | ) | (13,061 | ) | |||||||
| Comprehensive loss | $ | (12,449,345 | ) | $ | (8,910,032 | ) | $ | (5,347,668 | ) | |||
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements
| F-5 |
THESTREET, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011, AND 2010
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||||||||||
| Common Stock | Series B Preferred Stock | Paid in | Comprehensive | Treasury Stock | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Capital | Income | Shares | Cost | Deficit | Equity | |||||||||||||||||||||||||||||||
| Balance at December 31, 2009 | 37,246,362 | $ | 372,464 | 5,500 | $ | 55 | $ | 271,715,956 | $ | 344,372 | (6,081,734 | ) | $ | (10,411,952 | ) | $ | (157,546,992 | ) | $ | 104,473,903 | ||||||||||||||||||||
| Unrealized loss on marketable securities | — | — | — | — | — | (13,061 | ) | — | — | — | (13,061 | ) | ||||||||||||||||||||||||||||
| Exercise and issuance of equity grants | 529,019 | 5,290 | — | — | (5,290 | ) | — | (26,047 | ) | (66,886 | ) | — | (66,886 | ) | ||||||||||||||||||||||||||
| Stock-based consideration for services | — | — | — | — | 2,669,443 | — | — | — | — | 2,669,443 | ||||||||||||||||||||||||||||||
| Common stock
cash dividends | — | — | — | — | (3,349,755 | ) | — | — | — | — | (3,349,755 | ) | ||||||||||||||||||||||||||||
| Preferred stock cash dividends | — | — | — | — | (385,696 | ) | — | — | — | — | (385,696 | ) | ||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | (5,334,607 | ) | (5,334,607 | ) | ||||||||||||||||||||||||||||
| Balance at December 31, 2010 | 37,775,381 | 377,754 | 5,500 | 55 | 270,644,658 | 331,311 | (6,107,781 | ) | (10,478,838 | ) | (162,881,599 | ) | 97,993,341 | |||||||||||||||||||||||||||
| Unrealized loss on marketable securities | — | — | — | — | — | (725,911 | ) | — | — | — | (725,911 | ) | ||||||||||||||||||||||||||||
| Exercise and issuance of equity grants | 686,214 | 6,862 | — | — | (6,862 | ) | — | (222,626 | ) | (531,311 | ) | — | (531,311 | ) | ||||||||||||||||||||||||||
| Stock-based consideration for services | — | — | — | — | 3,425,038 | — | — | — | — | 3,425,038 | ||||||||||||||||||||||||||||||
| Common stock cash dividends | — | — | — | — | (3,446,892 | ) | — | — | — | — | (3,446,892 | ) | ||||||||||||||||||||||||||||
| Preferred stock cash dividends | — | — | — | — | (385,696 | ) | — | — | — | — | (385,696 | ) | ||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | (8,184,121 | ) | (8,184,121 | ) | ||||||||||||||||||||||||||||
| Balance at December 31, 2011 | 38,461,595 | 384,616 | 5,500 | 55 | 270,230,246 | (394,600 | ) | (6,330,407 | ) | (11,010,149 | ) | (171,065,720 | ) | 88,144,448 | ||||||||||||||||||||||||||
| Unrealized gain on marketable securities | — | — | — | — | — | 265,606 | — | — | — | 265,606 | ||||||||||||||||||||||||||||||
| Exercise and issuance of equity grants | 1,318,873 | 13,189 | — | — | (13,189 | ) | — | (497,309 | ) | (964,112 | ) | — | (964,112 | ) | ||||||||||||||||||||||||||
| Issuance of Common Stock | 75,000 | 750 | — | — | 134,250 | — | — | — | — | 135,000 | ||||||||||||||||||||||||||||||
| Stock-based consideration for services | — | — | — | — | 2,420,928 | — | — | — | — | 2,420,928 | ||||||||||||||||||||||||||||||
| Common stock cash dividends | — | — | — | — | (1,636,236 | ) | — | — | — | — | (1,636,236 | ) | ||||||||||||||||||||||||||||
| Preferred stock cash dividends | — | — | — | — | (192,848 | ) | — | — | — | — | (192,848 | ) | ||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | (12,714,951 | ) | (12,714,951 | ) | ||||||||||||||||||||||||||||
| Balance at December 31, 2012 | 39,855,468 | $ | 398,555 | 5,500 | $ | 55 | $ | 270,943,151 | $ | (128,994 | ) | (6,827,716 | ) | $ | (11,974,261 | ) | $ | (183,780,671 | ) | $ | 75,457,835 | |||||||||||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements
| F-6 |
THESTREET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Cash Flows from Operating Activities: | ||||||||||||
| Net loss | $ | (12,714,951 | ) | $ | (8,184,121 | ) | $ | (5,334,607 | ) | |||
| Loss from discontinued operations | — | 1,798 | 7,339 | |||||||||
| Loss from continuing operations | (12,714,951 | ) | (8,182,323 | ) | (5,327,268 | ) | ||||||
| Adjustments to reconcile loss from continuing operations to net cash provided by operating activities: | ||||||||||||
| Stock-based compensation expense | 2,198,713 | 2,777,886 | 2,336,443 | |||||||||
| Provision for doubtful accounts | 329,870 | 150,825 | 62,559 | |||||||||
| Depreciation and amortization | 5,512,299 | 5,757,365 | 4,692,520 | |||||||||
| Impairment charges | — | — | 555,000 | |||||||||
| Restructuring and other charges | 1,396,695 | 647,152 | — | |||||||||
| Deferred rent | (319,958 | ) | 663,020 | 1,703,614 | ||||||||
| Gain on disposition of assets | (232,989 | ) | — | (1,318,607 | ) | |||||||
| Gain on disposal of equipment | — | — | (20,600 | ) | ||||||||
| Noncash barter activity | 183,270 | (107,210 | ) | (76,060 | ) | |||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | 1,125,158 | 214,891 | (672,611 | ) | ||||||||
| Other receivables | (677,601 | ) | 74,870 | 314,054 | ||||||||
| Prepaid expenses and other current assets | (294,567 | ) | 469,366 | (53,061 | ) | |||||||
| Other assets | 39,556 | 37,904 | (97,115 | ) | ||||||||
| Accounts payable | 1,116,374 | (150,305 | ) | 292,477 | ||||||||
| Accrued expenses | (2,519,154 | ) | (69,262 | ) | 659,907 | |||||||
| Deferred revenue | (1,100,272 | ) | 1,272,137 | 488,571 | ||||||||
| Other current liabilities | (240,830 | ) | 6,330 | 50,455 | ||||||||
| Other liabilities | 24,000 | — | 15,167 | |||||||||
| Net cash (used in) provided by continuing operations | (6,174,387 | ) | 3,562,646 | 3,605,445 | ||||||||
| Net cash used in discontinued operations | — | (3,669 | ) | (228,633 | ) | |||||||
| Net cash (used in) provided by operating activities | (6,174,387 | ) | 3,558,977 | 3,376,812 | ||||||||
| Cash Flows from Investing Activities: | ||||||||||||
| Purchase of marketable securities | (41,151,130 | ) | (24,854,469 | ) | (130,963,472 | ) | ||||||
| Sale of marketable securities | 34,812,021 | 52,144,328 | 94,473,125 | |||||||||
| Purchase of The Deal, LLC | (5,430,063 | ) | — | — | ||||||||
| Sale of Promotions.com | — | 265,000 | 1,746,876 | |||||||||
| Sale of certain assets of TheStreet Ratings | — | — | 1,348,902 | |||||||||
| Capital expenditures | (1,327,746 | ) | (1,974,406 | ) | (6,717,749 | ) | ||||||
| Proceeds from the sale of fixed assets | 249,300 | — | 43,300 | |||||||||
| Net cash (used in) provided by investing activities | (12,847,618 | ) | 25,580,453 | (40,069,018 | ) | |||||||
| Cash Flows from Financing Activities: | ||||||||||||
| Cash dividends paid on common stock | (1,636,236 | ) | (3,446,892 | ) | (3,349,755 | ) | ||||||
| Cash dividends paid on preferred stock | (192,848 | ) | (385,696 | ) | (385,696 | ) | ||||||
| Restricted cash | 660,370 | — | 41,709 | |||||||||
| Proceeds from the sale of common stock | 135,000 | — | — | |||||||||
| Purchase of treasury stock | (964,112 | ) | (531,311 | ) | (66,886 | ) | ||||||
| Net cash used in financing activities | (1,997,826 | ) | (4,363,899 | ) | (3,760,628 | ) | ||||||
| Net (decrease) increase in cash and cash equivalents | (21,019,831 | ) | 24,775,531 | (40,452,834 | ) | |||||||
| Cash and cash equivalents, beginning of period | 44,865,191 | 20,089,660 | 60,542,494 | |||||||||
| Cash and cash equivalents, end of period | $ | 23,845,360 | $ | 44,865,191 | $ | 20,089,660 | ||||||
| Supplemental disclosures of cash flow information: | ||||||||||||
| Cash payments made for interest | $ | 30,028 | $ | — | $ | 1,720 | ||||||
| Cash payments made for income taxes | $ | — | $ | — | $ | — | ||||||
| Noncash investing and financing activities: | ||||||||||||
| Stock issued for business combinations | $ | — | $ | — | $ | — | ||||||
| Notes received for sale of Promotions.com | $ | — | $ | — | $ | — | ||||||
| Treasury shares received in settlement of Promotions.com working capital and debt adjustment | $ | — | $ | — | $ | — | ||||||
| Treasury shares received in settlement of Kikucall, Inc. working capital adjustment | $ | 10,748 | $ | 10,748 | $ | — | ||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements
| F-7 |
THESTREET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012
(1) Organization, Nature of Business and Summary of Operations and Significant Accounting Policies
Organization and Nature of Business
TheStreet, Inc. together with its wholly owned subsidiaries ( “TheStreet”, “we”, “us” or the “Company”), is a leading digital media company focused on the financial and mergers and acquisitions environment. The Company’s collection of digital services provides users, subscribers and advertisers with a variety of content and tools through a range of online, social media, tablet and mobile channels. Our mission is to provide actionable ideas from the world of investing, finance, business and mergers and acquisitions in order to break down information barriers, level the playing field and help all individuals and organizations grow their wealth. With a robust suite of digital services, TheStreet offers the tools and insight needed to make informed decisions about earning, investing, saving and spending money.
In June 2005, the Company committed to a plan to discontinue the operations of its wholly-owned subsidiary, Independent Research Group LLC, which operated the Company’s securities research and brokerage segment. Accordingly, the operating results relating to this segment have been segregated from continuing operations and reported as a separate line item on the consolidated statements of operations. See Note 2 to Consolidated Financial Statements (Discontinued Operations). Since that time the Company has only had one reportable operating segment.
Substantially all of the Company’s revenue in 2012, 2011 and 2010 was generated from customers in the United States. During 2012, 2011 and 2010, all of the Company’s long-lived assets were located in the United States.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions. Significant estimates include the allowance for doubtful accounts receivable, valuation allowance of deferred taxes, the useful lives of long-lived and intangible assets, the valuation of goodwill and intangible assets, the carrying value of marketable securities, as well as accrued expense estimates including income tax liabilities and certain estimates and assumptions used in the calculation of the fair value of equity compensation issued to employees, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.
Consolidation
The consolidated financial statements have been prepared in accordance with GAAP and include the accounts of TheStreet, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition
The Company generates its revenue primarily from subscription services and media.
| F-8 |
Subscription services, previously referred to as premium services, is comprised of subscriptions, licenses and fees for access to securities investment information, rate services and transactional information pertaining to the mergers and acquisitions environment. Subscriptions are generally charged to customers’ credit cards or are directly billed to corporate subscribers. These are generally billed in advance on a monthly or annual basis. The Company calculates net subscription revenue by deducting from gross revenue an estimate of potential refunds from cancelled subscriptions as well as chargebacks of disputed credit card charges. Net subscription revenue is recognized ratably over the subscription periods. Deferred revenue relates to subscription fees for which amounts have been collected but for which revenue has not been recognized because services have not yet been provided.
Subscription revenue is subject to estimation and variability due to the fact that, in the normal course of business, subscribers may, for various reasons contact us or their credit card companies to request a refund or other adjustment for a previously purchased subscription. With respect to most of our annual subscription products, we offer the ability to receive a refund during the first 30 days but none thereafter. Accordingly, we maintain a provision for estimated future revenue reductions resulting from expected refunds and chargebacks related to subscriptions for which revenue was recognized in a prior period. The calculation of this provision is based upon historical trends and is reevaluated each quarter. The provision was not material for the three years ended December 31, 2012.
Media, previously referred to as marketing services, is comprised of fees charged for the placement of advertising and sponsorships within our services, and is recognized as the advertising or sponsorship is displayed, provided that collection of the resulting receivable is reasonably assured.
Cash, Cash Equivalents and Restricted Cash
The Company considers all short-term investment-grade securities with original maturities of three months or less from the date of purchase to be cash equivalents. The Company has a total of approximately $1.3 million of cash that serves as collateral for outstanding letters of credit, and which cash is therefore restricted. The letters of credit serve as security deposits for the Company’s office space in New York City.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets. The estimated useful life of computer equipment, computer software and telephone equipment is three years; of furniture and fixtures is five years; and of capitalized software and Web site development costs is variable based upon the applicable project. During the year ended December 31, 2012, completed capitalized software and Web site development projects were deemed to have a two to three year useful life. Leasehold improvements are amortized on a straight-line basis over the shorter of the respective lease term or the estimated useful life of the asset.
Capitalized Software and Web Site Development Costs
The Company expenses all costs incurred in the preliminary project stage for software developed for internal use and capitalizes all external direct costs of materials and services consumed in developing or obtaining internal-use computer software in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other (“ASC 350”). In addition, for employees who are directly associated with and who devote time to internal-use computer software projects, to the extent of the time spent directly on the project, the Company capitalizes payroll and payroll-related costs of such employees incurred once the development has reached the applications development stage. For the years
| F-9 |
ended December 31, 2012, 2011 and 2010, the Company capitalized software development costs totaling approximately $0.4 million, $0.9 million and $0.8 million, respectively. All costs incurred for upgrades, maintenance and enhancements that do not result in additional functionality are expensed.
The Company also accounts for its Web site development costs under ASC 350, which provides guidance on the accounting for the costs of development of company Web sites, dividing the Web site development costs into five stages: (1) the planning stage, during which the business and/or project plan is formulated and functionalities, necessary hardware and technology are determined, (2) the Web site application and infrastructure development stage, which involves acquiring or developing hardware and software to operate the Web site, (3) the graphics development stage, during which the initial graphics and layout of each page are designed and coded, (4) the content development stage, during which the information to be presented on the Web site, which may be either textual or graphical in nature, is developed, and (5) the operating stage, during which training, administration, maintenance and other costs to operate the existing Web site are incurred. The costs incurred in the Web site application and infrastructure stage, the graphics development stage and the content development stage are capitalized; all other costs are expensed as incurred. Amortization of capitalized costs will not commence until the project is completed and placed into service. For the years ended December 31, 2012, 2011 and 2010, the Company capitalized Web site development costs totaling approximately $0.1 million, $0.4 million and $0.6 million, respectively.
Capitalized software and Web site development costs are amortized using the straight-line method over the estimated useful life of the software or Web site. Total amortization expense was approximately $1.5 million, $2.2 million and $1.6 million, for the years ended December 31, 2012, 2011 and 2010, respectively.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price and related acquisition costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. Under the provisions of ASC 350, goodwill and indefinite-lived intangible assets are required to be tested for impairment on an annual basis and between annual tests whenever indications of impairment exist. Impairment exists when the carrying amount of goodwill and indefinite-lived intangible assets exceed their implied fair value, resulting in an impairment charge for this excess.
The Company evaluates goodwill and indefinite-lived intangible assets for impairment using a two-step impairment test approach at the Company level as the company is considered to operate as a single reporting unit. In the first step, the fair value of the Company is compared to its book value, including goodwill and indefinite-lived intangible assets. If the fair value of the Company is less than the book value, a second step is performed that compares the implied fair value of the Company’s goodwill and indefinite-lived intangible assets to the book value of the goodwill and indefinite-lived intangible assets. The fair value for the goodwill and indefinite-lived intangible assets is determined based on the difference between the fair value of the Company and the net fair values of identifiable assets and liabilities. If the fair value of the goodwill and indefinite-lived intangible assets is less than the book value, the difference is recognized as impairment. We test for goodwill impairment at the enterprise level as the Company is considered to operate as a single reporting unit.
In September 2011, the FASB issued ASU 2011-08, Testing for Goodwill Impairment (“ASU 2011-08”). ASU 2011-08 permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it need not perform the two-step impairment test. During
| F-10 |
2012, the Company elected not to apply the qualitative assessment under this new guidance and continued to apply the quantitative assessment in its evaluating of goodwill for impairment.
The Company performs annual impairment tests of goodwill and other intangible assets with indefinite lives as of September 30 each year or when circumstances arise that indicate a possible impairment might exist. Based upon its annual impairment test performed as of September 30, 2012, no impairment was indicated as the Company’s fair value, inclusive of a control premium, exceeded its book value by approximately 13%. The fair value of the Company’s goodwill was estimated using a market approach, based upon actual prices of the Company’s Common Stock and the estimated fair value of the Company’s outstanding Preferred Shares. The fair value of the Company’s outstanding Preferred Shares requires significant judgments, including the estimation of the amount of time until a liquidation event occurs as well as an appropriate cash flow discount rate. Further, in assigning a fair value to the Company’s Preferred Stock, the Company also considered that the preferred shareholders are entitled to receive a $55 million liquidation preference upon liquidation or dissolution of the Company or upon any change of control event. Additionally, the holders of the Preferred Shares are entitled to receive dividends and to vote as a single class together with the holders of the Common Stock on an as-converted basis and provided certain preferred share ownership levels are maintained, are entitled to representation on the Company’s board of directors and may unilaterally block issuance of certain classes of capital stock, the purchase or redemption of certain classes of capital stock, including Common Stock (with certain exceptions) and any increases in the per-share amount of dividends payable to the holders of the Common Stock.
As of December 31, 2012, the Company performed an interim impairment test of its goodwill due to certain potential impairment indicators, including the loss of certain key personnel. The fair value of the Company’s goodwill was estimated using a market approach, based upon actual prices of the Company’s Common Stock excluding any control premium, and the estimated fair value of the company’s outstanding preferred shares. As a result of this December 31, 2012 impairment test, the Company concluded that goodwill was not impaired.
A decrease in the price of the Company’s Common Stock, or changes in the estimated value of the Company’s preferred shares, could materially affect the determination of the fair value and could result in an impairment charge to reduce the carrying value of goodwill, which could be material to the Company’s financial position and results of operations.
Additionally, the Company evaluates the remaining useful lives of intangible assets each year to determine whether events or circumstances continue to support their useful life. There have been no changes in useful lives of intangible assets for each period presented.
| F-11 |
Long-Lived Assets
The Company evaluates long-lived assets, including amortizable identifiable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets is measured by comparing the carrying amount of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Management does not believe that there is any impairment of long-lived assets at December 31, 2012.
Income Taxes
The Company accounts for its income taxes in accordance with ASC 740-10, Income Taxes (“ASC 740-10”). Under ASC 740-10, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. ASC 740-10 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized based on all available positive and negative evidence. As of December 31, 2012 and 2011, we maintained a full valuation allowance against our deferred tax assets due to our prior history of pre-tax losses and uncertainty about the timing of and ability to generate taxable income in the future and our assessment that the realization of the deferred tax assets did not meet the “more likely than not” criterion under ASC 740-10.
ASC 740-10 also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740-10. As of December 31, 2012 and 2011, no liability for unrecognized tax benefits was required to be recorded. Interest costs related to unrecognized tax benefits would be classified within “Net interest income” in the consolidated statements of operations. Penalties would be recognized as a component of “General and administrative” expenses. There is no interest expense or penalty related to tax uncertainties reported in the consolidated statements of operations.
Deferred tax assets pertaining to windfall tax benefits on exercise of share awards and the corresponding credit to additional paid-in capital are recorded if the related tax deduction reduces tax payable. The Company has elected the “with-and-without approach” regarding ordering of windfall tax benefits to determine whether the windfall tax benefit did reduce taxes payable in the current year. Under this approach, the windfall tax benefits would be recognized in additional paid-in capital only if an incremental tax benefit is realized after considering all other tax benefits presently available to the Company.
The Company files income tax returns in the United States (federal) and in various state and local jurisdictions. In most instances, the Company is no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2009, and is not currently under examination by any federal, state or local jurisdiction. It is not anticipated that unrecognized tax benefits will significantly change in the next twelve months.
| F-12 |
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable, accrued expenses and deferred revenue approximate fair value due to the short-term maturities of these instruments.
Business Concentrations and Credit Risk
Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company maintains all of its cash, cash equivalents and restricted cash in five domestic financial institutions, and performs periodic evaluations of the relative credit standing of these institutions. As of December 31, 2012, the Company’s cash and cash equivalents primarily consisted of money market funds and checking accounts.
For the years ending December 31, 2012, 2011 and 2010, no individual client accounted for 10% or more of consolidated revenue. As of December 31, 2012, 2011 and 2010, one client accounted for more than 10% of our gross accounts receivable balance in each period.
The Company’s customers are primarily concentrated in the United States and we carry accounts receivable balances. The Company performs ongoing credit evaluations, generally does not require collateral and establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information. To date, actual losses have been within management’s expectations.
Other Comprehensive (Loss) Income
Comprehensive (loss) income is a measure which includes both net loss and other comprehensive (loss) income. Other comprehensive (loss) income results from items deferred from recognition into the statement of operations. Accumulated other comprehensive (loss) income is separately presented on the consolidated statement of comprehensive loss and on both the Company’s consolidated balance sheet and as part of the consolidated statement of stockholders’ equity.
Net Loss Per Share of Common Stock
Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of restricted stock units (using the treasury stock method), the incremental common shares issuable upon the exercise of stock options (using the treasury stock method), and the conversion of the Company’s convertible preferred stock and warrants (using the if-converted method). For the years ended December 31, 2012 and 2011, approximately 3.3 million and 4.5 million, respectively, unvested restricted stock units, vested and unvested options and warrants to purchase Common Stock were excluded from the calculation, as their effect would be anti-dilutive because the exercise prices were greater than the average market price of the Common Stock during the respective periods and because the Company recorded a net loss.
Advertising Costs
Advertising costs are expensed as incurred. For the years ended December 31, 2012, 2011 and 2010, advertising expense totaled approximately $2.9 million, $3.7 million and $4.1 million, respectively.
| F-13 |
Stock-Based Compensation
We account for stock-based compensation under ASC 718-10, Share Based Payment Transactions (“ASC 718-10”). This requires that the cost resulting from all share-based payment transactions be recognized in the financial statements based upon estimated fair values.
Stock-based compensation expense recognized for the years ended December 31, 2012, 2011 and 2010 was approximately $2.4 million, $3.4 million and $2.3 million, respectively. As of December 31, 2012, there was approximately $2.5 million of unrecognized stock-based compensation expense remaining to be recognized over a weighted-average period of 2.4 years.
The Company estimates the fair value of share-based payment awards on the date of grant. The value of stock options granted to employees and directors is estimated using the Black-Scholes option-pricing model. The value of each restricted stock unit under the Company’s 2007 Performance Incentive Plan (the “2007 Plan”) is equal to the closing price per share of the Company’s Common Stock on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods.
Stock-based compensation expense recognized in the Company’s consolidated statements of operations for the years ended December 31, 2012, 2011 and 2010 includes compensation expense for all share-based payment awards based upon the estimated grant date fair value. The Company recognizes compensation expense for share-based payment awards on a straight-line basis over the requisite service period of the award. As stock-based compensation expense recognized in the years ended December 31, 2012, 2011 and 2010 is based upon awards ultimately expected to vest, it has been reduced for estimated forfeitures. The Company estimates forfeitures at the time of grant which are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The Company estimates the value of employee stock options on the date of grant using the Black-Scholes option-pricing model. This determination is affected by the Company’s stock price as well as assumptions regarding expected volatility, risk-free interest rate, and expected dividends. The amount of equity-based compensation expense recorded each period is net of estimated forfeitures. The weighted-average grant date fair value of employee stock options granted during the years ended December 31, 2012, 2011 and 2010 was $0.48, $0.89 and $1.15, respectively, using the Black-Scholes model with the weighted-average assumptions presented below. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. The assumptions presented in the table below represent the weighted-average value of the applicable assumption used to value stock options at their grant date. In determining the volatility assumption, the Company used a historical analysis of the volatility of the Company’s share price for the preceding period equal to the expected option lives. The expected option lives, which represent the period of time that options granted are expected to be outstanding, were estimated based upon the “simplified” method for “plain-vanilla” options. The risk-free interest rate assumption was based upon observed interest rates appropriate for the term of the Company’s employee stock options. The dividend yield assumption was based on the history and expectation of future dividend payouts. The periodic expense is determined based on the valuation of the options, and at that time an estimated forfeiture rate is used to reduce the expense recorded. The Company’s estimate of pre-vesting forfeitures is primarily based on the Company’s historical experience and is adjusted to reflect actual forfeitures as the options vest.
| F-14 |
| For the Year Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Expected option lives | 3.5 years | 3.5 years | 3.5 years | |||||||||
| Expected volatility | 50.67 | % | 54.86 | % | 56.97 | % | ||||||
| Risk-free interest rate | 0.56 | % | 1.20 | % | 1.67 | % | ||||||
| Expected dividends | 4.27 | % | 3.93 | % | 3.69 | % | ||||||
The Company utilizes the alternative transition method for calculating the tax effects of stock-based compensation. Under the alternative transition method the Company established the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation and then determines the subsequent impact on the APIC pool and cash flows of the tax effects of employee stock-based compensation awards that are outstanding.
2007 Performance Incentive Plan
In 2007, the Company adopted the 2007 Plan, whereby executive officers, directors, employees and consultants may be eligible to receive cash or equity-based performance awards based on set performance criteria.
In 2012, 2011 and 2010, the Compensation Committee granted short-term cash performance awards, payable to certain officers upon the Company’s achievement of specified performance goals for such year. The target short-term cash bonus opportunities for officers reflected a percentage of the officer’s base salary. The short-term cash incentives were based upon achievement of certain financial targets (which, depending upon the year, related to revenue, expense, Adjusted EBITDA or free cash flow, as defined by the Compensation Committee). Potential payout with respect to each measure was zero if a threshold percentage of the target was not achieved and a sliding scale thereafter, subject to a cap, starting at a figure less than 100% if the threshold was achieved but the target was not met and ending at a figure above 100% if the target was exceeded. Short-term incentives of approximately $0.6 million, $1.1 million and $2.2 million were deemed earned with respect to the years ended December 31, 2012, 2011 and 2010, respectively.
Services Agreement
On November 13, 2012, the Company entered into a Services Agreement (the “Agreement”) in which a third party granted TheStreet an exclusive right to sell and serve advertisement and e-commerce on certain of their personal finance web sites. TheStreet will support the web sites by providing personal finance content, various promotion and advertisements on TheStreet’s web sites, and marketing and accounting support. Under the Agreement, the Company will reimburse this third party for certain expenses, subject to specified limits. Both parties will share in the profits generated by the partnership, after TheStreet recoups the aggregate amount paid to to the third party in addition to certain sales, marketing, editorial and operational costs incurred by the Company. For the period ended December 31, 2012 the company recognized $0.2 million in net expenses reflected in cost of sales on the consolidated statement of operations related to the reimbursement of costs owed to the third party in excess of the Company’s share of revenue.
In accordance with the ASC 808, “Accounting for Collaborative Agreement,” a participant in a collaborative arrangement must report the costs incurred and revenues generated on sales to third parties at gross or net amounts, depending on whether the participant is the principal or the agent in the transaction. Based on the facts and circumstances with regards to the Agreement, the Company has determined that it is the Principal in this Agreement for all advertising sold by the Company. With
| F-15 |
respect to the advertising and e-commerce revenue generated by the third party, the Company treats this as a reimbursement of expenses paid.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815.
ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional.
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with ASC 815. Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying Common Stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
The Company evaluated the conversion option embedded in the Series B Convertible Preferred Stock that it issued during the year ended December 31, 2007 and determined that such conversion option does not meet the criteria requiring bifurcation of these instruments. The characteristics of the Common Stock that is issuable upon a holder’s exercise of the conversion option embedded in the Series B Convertible Preferred Stock are deemed to be clearly related to the characteristics of the preferred shares. Additionally, the Company’s conversion options, if free standing, would not be considered derivatives.
Preferred Stock
The Company applies the guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) when determining the classification and measurement of its convertible preferred shares. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. Accordingly the Company classifies conditionally redeemable preferred shares (if any), which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, as temporary equity. At all other times, the Company classifies its preferred shares as a component of stockholders’ equity.
The Company’s Series B Convertible Preferred Stock does not feature any redemption rights within the holders’ control or conditional redemption features not solely within the Company’s control as
| F-16 |
of December 31, 2012. Accordingly, the Series B Convertible Preferred Stock is presented as a component of stockholders’ equity.
Subsequent Events
The Company has evaluated subsequent events for recognition or disclosure.
New Accounting Pronouncements
In May 2011, the FASB issued FASB Accounting Standards Update (“ASU”) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“ASU 2011-04”). ASU 2011-04 provided new guidance for fair value measurements intended to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. The amended guidance provided a consistent definition of fair value to ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. The amended guidance changed certain fair value measurement principles and enhanced the disclosure requirements, particularly for Level 3 fair value measurements. The amended guidance was effective for interim and annual periods beginning after December 15, 2011. Early adoption was not permitted. The Company conformed to the new presentation required in ASU 2011-04 beginning with Form 10-Q for the three months ended March 31, 2012.
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminated the option to present the components of other comprehensive income as part of the statement of equity. The standard did not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. This standard was effective for interim and annual periods beginning after December 15, 2011 and is applied retrospectively. The FASB has deferred the requirement to present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income. Companies are required to either present amounts reclassified out of other comprehensive income on the face of the financial statements or disclose those amounts in the notes to the financial statements. During the deferral period, there was no requirement to separately present or disclose the reclassification adjustments into net income. The effective date of this deferral will be consistent with the effective date of the ASU 2011-05. The Company adopted ASU 2011-05 as of January 1, 2012 and has presented the components of net income and the components of of other comprehensive income in two separate but consecutive statements. This guidance affects financial statement presentation only and has no impact on our results.
In September 2011, the FASB issued ASU 2011-08, Testing for Goodwill Impairment (“ASU 2011-08”). ASU 2011-08 permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it need not perform the two-step impairment test. ASU 2011-08 was effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 31, 2011. Early adoption was permitted. The implementation of ASU 2011-08 did not have a material impact on the Company’s consolidated financial statements.
In July 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”). The guidance gives companies the option to first perform a qualitative
| F-17 |
assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If the qualitative assessment supports that it is more likely than not that the fair value of the asset exceeds its carrying amount, the company would not be required to perform a quantitative impairment test. If the qualitative assessment does not support the fair value of the assets, then a quantitative assessment is performed. ASU 2012-02 applies to public entities for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. We do not expect the adoption of ASU 2012-02 to have a material impact on the Company’s consolidated financial statements.
Reclassifications
Certain prior period amounts have been reclassified to conform to current year presentation.
(2) Discontinued Operations
In June 2005, the Company committed to a plan to discontinue the operations of the Company’s securities research and brokerage segment. Accordingly, the operating results relating to this segment have been segregated from continuing operations and reported as a separate line item in the accompanying consolidated statements of operations. Activity related to the discontinued operation was concluded during the year ended December 31, 2011 and there is no further activity to be reported.
For the years ended December 31, 2011 and 2010, there was no net revenue from discontinued operations. Loss from discontinued operations was immaterial during the same periods.
The following table displays the net activity and balances of the provisions related to discontinued operations:
| Initial Charge | Year 2005 Activity | Year 2006 Activity | Year 2007 Activity | Year 2008 Activity | Year 2009 Activity | Year 2010 Activity | Year 2011 Activity | Balance 12/31/2011 | ||||||||||||||||||||||||||||
| Net asset write-off | $ | 666,546 | $ | (666,546 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||
| Severance payments | 1,134,323 | (905,566 | ) | (6,332 | ) | — | — | — | (222,425 | ) | — | — | ||||||||||||||||||||||||
| Extinguishment of lease and other obligations | 582,483 | (531,310 | ) | (51,173 | ) | 9,817 | (6,317 | ) | (2,760 | ) | 1,131 | (1,871 | ) | — | ||||||||||||||||||||||
| $ | 2,383,352 | $ | (2,103,422 | ) | $ | (57,505 | ) | $ | 9,817 | $ | (6,317 | ) | $ | (2,760 | ) | $ | (221,294 | ) | $ | (1,871 | ) | $ | — | |||||||||||||
(3) Acquisitions and Divestures
TheStreet Ratings
On May 4, 2010, the Company sold certain assets of TheStreet Ratings business (those pertaining to banking and insurance ratings) for an aggregate price of approximately $1.7 million, subject to adjustment as provided in the agreement. The purchaser is an entity under the same control as was the entity from which the Company had purchased TheStreet Ratings business in August 2006. In connection with the sale, the purchaser assumed a net $0.3 million of liabilities ($0.4 million of deferred revenue liabilities offset in part by working capital items) and paid the Company $1.3 million in cash, subject to adjustment. Gain on disposition of assets approximated $1.3 million.
The Deal, LLC
On September 11, 2012, the Company acquired 100% of the equity of The Deal, LLC (“The Deal”). The Deal is a digital platform that delivers sophisticated coverage of the mergers and acquisitions environment, primarily through The Deal Pipeline, a leading provider of transactional information services. The purchase price of the acquisition was approximately $5.8 million, of which $0.6 million was placed in escrow pursuant to the terms of an escrow agreement which will be used to secure indemnity obligations for a period of 18 months. Additionally, the Company assumed net liabilities
| F-18 |
approximating $5.0 million. The Company believes that the acquisition of The Deal will advance its strategic objectives by increasing both subscribers and content. The Deal’s customer base of professionals, including senior-level bankers, law firm partners, private equity partners and hedge fund notables is expected to provide an additional source of recurring revenue with high renewals and attractive margins. These factors contributed to a purchase price in excess of the fair value of net tangible and intangible assets acquired from The Deal, and as a result, the Company recorded $1.7 million of goodwill in connection with this transaction. The goodwill is expected to be deductible over 15 years for income tax purposes.
The results of operations of The Deal were included in the condensed consolidated financial statements for the year ended December 31, 2012 from September 11, 2012, the date of the acquisition. The following table summarizes the consideration paid and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date. The preliminary fair value estimates for the assets and liabilities were based upon preliminary calculations and valuations and our estimates and assumptions for each of these acquisitions are subject to change as we obtain additional information for our estimates during the measurement period, a period not to exceed 12 months from the acquisition date. Changes to amounts recorded as assets or liabilities may result in a corresponding adjustment to goodwill.
| Amortization Life | ||||||||
| (in years) | Amount | |||||||
| Accounts receivable, net | $ | 765,357 | ||||||
| Other receivables | 315,322 | |||||||
| Prepaid expenses and other current assets | 168,492 | |||||||
| Property and equipment, net | 729,400 | |||||||
| Identifiable intangible assets: | ||||||||
| - Subscriber relationships | 10 | 2,960,000 | ||||||
| - Client data base | 10 | 3,170,000 | ||||||
| - Software | 5 | 685,000 | ||||||
| - Trade name | 10 | 480,000 | ||||||
| - Advertiser relationships | 6 | 70,000 | ||||||
| Restricted cash | 301,000 | |||||||
| Accounts payable | (391,992 | ) | ||||||
| Accrued expenses | (1,368,270 | ) | ||||||
| Deferred revenue | (3,761,210 | ) | ||||||
| Other current liabilities | (361,659 | ) | ||||||
| Total identifiable net assets | 3,761,440 | |||||||
| Goodwill | 1,668,623 | |||||||
| Total consideration | $ | 5,430,063 | ||||||
Acquisition related costs totaling $0.4 million are included in general and administrative expenses in the Company’s condensed consolidated statement of operations for the year ended December 31, 2012.
Unaudited pro forma consolidated financial information is presented below as if the acquisition of The Deal had occurred on January 1, 2011. The results have been adjusted to account for the amortization of acquired intangible assets and to eliminate interest expense related to short term notes payable to related parties of The Deal, which liabilities were not assumed by the Company, and deal acquisition costs. The proforma information presented below does not purport to present what actual
| F-19 |
results would have been if the acquisitions had occurred at the beginning of such periods, nor does the information project results for any future period. The unaudited pro forma consolidated financial information should be read in conjunction with the historical financial information of the Company included in this report, as well as the historical financial information included in other reports and documents filed with the Securities and Exchange Commission. The unaudited pro forma consolidated financial information for the years ended December 31, 2012 and 2011 is as follows:
| For the Year Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Total revenue | $ | 58,191,117 | $ | 69,254,368 | $ | 68,066,760 | ||||||
| Net loss | $ | 16,140,048 | $ | 13,543,809 | $ | 11,495,893 | ||||||
| Basic and diluted net loss per share | $ | 0.50 | $ | 0.42 | $ | 0.36 | ||||||
(4) Net Loss Per Share
Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of restricted stock units (using the treasury stock method), the incremental common shares issuable upon the exercise of stock options (using the treasury stock method), and the conversion of the Company’s convertible preferred stock and warrants (using the if-converted method). For the years ended December 31, 2012 and 2011, respectively, approximately 3.3 million and 4.5 million unvested restricted stock units, vested and unvested options and warrants to purchase Common Stock were excluded from the calculation, as their effect would be anti-dilutive because the exercise prices were greater than the average market price of the Common Stock during the respective periods and because the Company recorded a net loss.
The following table reconciles the numerator and denominator for the calculation.
| For the Years Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Basic and diluted net loss per share | ||||||||||||
| Numerator: | ||||||||||||
| Loss from continuing operations | $ | 12,714,951 | $ | 8,182,323 | $ | 5,327,268 | ||||||
| Loss from discontinued operations | — | 1,798 | 7,339 | |||||||||
| Preferred stock cash dividends | 192,848 | 385,696 | 385,696 | |||||||||
| Numerator for basic and diluted earnings per share – Net loss attributable to common stockholders | $ | 12,907,799 | $ | 8,569,817 | $ | 5,720,303 | ||||||
| Denominator: | ||||||||||||
| Weighted average basic and diluted shares outstanding | 32,710,018 | 31,953,683 | 31,593,341 | |||||||||
| Basic and diluted net loss per share: | ||||||||||||
| Loss from continuing operations | $ | 0.38 | $ | 0.26 | $ | 0.17 | ||||||
| Loss from discontinued operations | — | 0.00 | 0.00 | |||||||||
| Preferred stock cash dividends | 0.01 | 0.01 | 0.01 | |||||||||
| Net loss attributable to common stockholders | $ | 0.39 | $ | 0.27 | $ | 0.18 |
| F-20 |
(5) Cash and Cash Equivalents, Marketable Securities and Restricted Cash
The Company’s cash and cash equivalents primarily consist of money market funds and checking accounts totaling approximately $23.8 million. Marketable securities consist of liquid short-term U.S. Treasuries, government agencies, certificates of deposit (insured up to FDIC limits), investment grade corporate and municipal bonds, corporate floating rate notes, and two municipal auction rate securities (“ARS”) issued by the District of Columbia with a par value of approximately $1.9 million. As of December 31, 2012, the total fair value of these marketable securities was approximately $35.4 million and the total cost basis was approximately $35.5 million. With the exception of the ARS, the maximum maturity for any investment is three years. The ARS pay interest in accordance with their terms at each respective auction date, typically every 35 days, and mature in the year 2038. The Company accounts for its marketable securities in accordance with the provisions of ASC 320-10. The Company classifies these securities as available for sale and the securities are reported at fair value. Unrealized gains and losses are recorded as a component of accumulated other comprehensive income and excluded from net loss. Additionally, the Company has a total of approximately $1.3 million of cash that serves as collateral for outstanding letters of credit, and which cash is therefore restricted. The letters of credit serve as security deposits for the Company’s office space in New York City.
| As of December 31, | ||||||||
| 2012 | 2011 | |||||||
| Cash and cash equivalents | $ | 23,845,360 | $ | 44,865,191 | ||||
| Current and noncurrent marketable securities | 35,394,318 | 28,789,603 | ||||||
| Restricted cash | 1,301,000 | 1,660,370 | ||||||
| Total cash and cash equivalents, current and noncurrent marketable securities and restricted cash | $ | 60,540,678 | $ | 75,315,164 | ||||
(6) Fair Value Measurements
The Company measures the fair value of its financial instruments in accordance with ASC 820-10, which refines the definition of fair value, provides a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The statement establishes consistency and comparability by providing a fair value hierarchy that prioritizes the inputs to valuation techniques into three broad levels, which are described below:
| · | Level 1: Inputs are quoted market prices in active markets for identical assets or liabilities (these are observable market inputs). |
| · | Level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability (includes quoted market prices for similar assets or identical or similar assets in markets in which there are few transactions, prices that are not current or vary substantially). |
| · | Level 3: Inputs are unobservable inputs that reflect the entity’s own assumptions in pricing the asset or liability (used when little or no market data is available). |
Financial assets and liabilities included in our financial statements and measured at fair value as of December 31, 2012 are classified based on the valuation technique level in the table below:
| F-21 |
| Description: | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| Cash and cash equivalents (1) | $ | 23,845,360 | $ | 23,845,360 | $ | — | $ | — | ||||||||
| Marketable securities (2) | 35,394,318 | 33,854,318 | — | 1,540,000 | ||||||||||||
| Total at fair value | $ | 59,239,678 | $ | 57,699,678 | $ | — | $ | 1,540,000 | ||||||||
(1) Cash and cash equivalents, totaling approximately $23.8 million, consists primarily of money market funds and checking accounts for which we determine fair value through quoted market prices.
(2) Marketable securities consist of liquid short-term U.S. Treasuries, government agencies, certificates of deposit (insured up to FDIC limits), investment grade corporate and municipal bonds and corporate floating rate notes for which we determine fair value through quoted market prices. Marketable securities also consist of two municipal ARS issued by the District of Columbia having a fair value totaling approximately $1.5 million as of December 31, 2012. Historically, the fair value of ARS investments approximated par value due to the frequent resets through the auction process. Due to events in credit markets, the auction events, which historically have provided liquidity for these securities, have been unsuccessful. The result of a failed auction is that these ARS holdings will continue to pay interest in accordance with their terms at each respective auction date; however, liquidity of the securities will be limited until there is a successful auction, the issuer redeems the securities, the securities mature or until such time as other markets for these ARS holdings develop. For each of our ARS, we evaluate the risks related to the structure, collateral and liquidity of the investment, and forecast the probability of issuer default, auction failure and a successful auction at par, or a redemption at par, for each future auction period. Temporary impairment charges are recorded in accumulated other comprehensive income, whereas other-than-temporary impairment charges are recorded in our consolidated statement of operations. As of December 31, 2012, the Company determined there was a decline in the fair value of its ARS investments of $0.3 million from its cost basis, which was deemed temporary and was included within accumulated other comprehensive (loss) income. The Company used a discounted cash flow model to determine the estimated fair value of its investment in ARS. The assumptions used in preparing the discounted cash flow model include estimates for interest rate, timing and amount of cash flows and expected holding period of ARS. |
The following table provides a reconciliation of the beginning and ending balance for the Company’s marketable securities measured at fair value using significant unobservable inputs (Level 3):
| Marketable Securities | ||||
| Balance at December 31, 2011 | $ | 1,410,000 | ||
| Increase in fair value of investment | 130,000 | |||
| Balance at December 31, 2012 | $ | 1,540,000 | ||
(7) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets. The estimated useful life of computer equipment, computer software and telephone equipment is three years; of furniture and fixtures is five years; and of capitalized software and Web site development costs is variable based upon the applicable project. Leasehold improvements are amortized on a straight-line basis over the shorter of the respective lease term or the estimated useful life of the asset. If the useful lives of the assets differ materially from the estimates contained herein, additional costs could be incurred, which could have an adverse impact on our expenses.
| F-22 |
Property and equipment as of December 31, 2012 and 2011 consists of the following:
| As of December 31, | ||||||||
| 2012 | 2011 | |||||||
| Computer equipment | $ | 14,210,373 | $ | 16,430,436 | ||||
| Furniture and fixtures | 2,740,089 | 2,456,085 | ||||||
| Leasehold improvements | 3,354,575 | 3,074,492 | ||||||
| 20,305,037 | 21,961,013 | |||||||
| Less accumulated depreciation and amortization | 14,633,037 | 13,466,365 | ||||||
| Property and equipment, net | $ | 5,672,000 | $ | 8,494,648 | ||||
Included in computer equipment are capitalized software and Web site development costs of approximately $7.7 million and $8.1 million at December 31, 2012 and 2011, respectively. A summary of the activity of capitalized software and Web site development costs is as follows:
| Balance December 31, 2011 | $ | 8,115,917 | |||
| Additions | 500,731 | ||||
| Deletions | (925,057 | ) | |||
| Balance December 31, 2012 | $ | 7,691,591 |
Depreciation and amortization expense for the above noted property and equipment aggregated approximately $4.1 million, $4.4 million and $3.3 million for the years ended December 31, 2012, 2011 and 2010, respectively. The Company does not include depreciation and amortization expense in cost of services.
(8) Goodwill and Other Intangible Assets
The Company’s goodwill and other intangible assets and related accumulated amortization as of December 31, 2012 and 2011 consist of the following:
| As of December 31, | ||||||||
| 2012 | 2011 | |||||||
| Total goodwill not subject to amortization | $ | 25,726,239 | $ | 24,057,616 | ||||
| Other intangible assets not subject to amortization: | ||||||||
| Trade name | $ | 720,000 | $ | 720,000 | ||||
| Total other intangible assets not subject to amortization | 720,000 | 720,000 | ||||||
| Other intangible assets subject to amortization: | ||||||||
| Customer relationships | 9,892,136 | 6,862,136 | ||||||
| Software models | 1,988,194 | 1,841,194 | ||||||
| Noncompete agreements | 1,339,535 | 1,339,535 | ||||||
| Products database | 3,307,000 | 137,000 | ||||||
| Trade name | 480,000 | — | ||||||
| Total other intangible assets subject to amortization | 17,006,865 | 10,179,865 | ||||||
| Less accumulated amortization | (6,570,315 | ) | (5,529,730 | ) | ||||
| Net other intangible assets subject to amortization | 10,436,550 | 4,650,135 | ||||||
| Total other intangible assets | $ | 11,156,550 | $ | 5,370,135 | ||||
| F-23 |
Amortization expense totaled approximately $1.3 million, $1.4 million and $1.4 million for the years ended December 31, 2012, 2011 and 2010, respectively. The estimated amortization expense for the next five years is as follows:
| For the Years Ended | ||||||
| December 31, | Amount | |||||
| 2013 | $ | 1,495,880 | ||||
| 2014 | 1,495,880 | |||||
| 2015 | 1,495,880 | |||||
| 2016 | 1,495,880 | |||||
| 2017 | 1,340,031 | |||||
| Thereafter | 3,112,999 | |||||
| Total | $ | 10,436,550 | ||||
(9) Accrued Expenses
Accrued expenses as of December 31, 2012 and 2011 consists of the following:
| As of December 31, | ||||||||
| 2012 | 2011 | |||||||
| Payroll and related costs | $ | 1,861,066 | $ | 3,095,130 | ||||
| Restructuring and other charges (see Note 15) | 1,838,904 | 1,654,012 | ||||||
| Professional fees | 463,603 | 648,342 | ||||||
| Business development | 306,764 | 355,392 | ||||||
| Data related costs | 271,727 | 327,886 | ||||||
| Other liabilities | 1,179,088 | 1,890,040 | ||||||
| Total accrued expenses | $ | 5,921,152 | $ | 7,970,802 | ||||
(10) Income Taxes
The Company accounts for its income taxes in accordance with ASC 740-10. Under ASC 740-10, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. ASC 740-10 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized based on all available positive and negative evidence.
As of December 31, 2012 and 2011, respectively, the Company had approximately $150 million and $139 million of federal and state net operating loss carryforwards. The Company has a full valuation allowance against its deferred tax assets as management concluded that it was more likely than not that the Company would not realize the benefit of its deferred tax assets by generating sufficient taxable income in future years. The Company expects to continue to provide a full valuation allowance until, or unless, it can sustain a level of profitability that demonstrates its ability to utilize these assets.
Subject to potential Section 382 limitations as discussed below, the federal losses are available to offset future taxable income through 2032 and expire from 2021 through 2032. Since the Company does business in various states and each state has its own rules with respect to the number of years losses may be carried forward, the state net operating loss carryforwards expire from 2013 through 2032. The net operating loss carryforwards as of December 31, 2012 and 2011 include approximately $16 million and
| F-24 |
$17 million, respectively, related to windfall tax benefits for which a benefit would be recorded to additional paid in capital when realized.
In accordance with Section 382 of the Internal Revenue code, the ability to utilize the Company’s net operating loss carryforwards could be limited in the event of a change in ownership and as such a portion of the existing net operating loss carryforwards may be subject to limitation. Such an ownership change would create an annual limitation on the usage of the Company’s net operating loss carryforward. As such, a portion of the existing net operating loss carryforwards may be subject to limitation. During the year ended December 31, 2009, the Company acquired approximately $3 million of net operating loss carryforwards when it acquired the stock of Kikucall, Inc.
The Company is subject to federal, state and local corporate income taxes. The components of the provision for income taxes reflected on the consolidated statements of operations from continuing operations are set forth below:
| For the Years Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| (in thousands) | ||||||||||||
| Current taxes: | ||||||||||||
| U.S. federal | $ | — | $ | — | $ | — | ||||||
| State and local | — | — | — | |||||||||
| Total current tax benefit | $ | — | $ | — | $ | — | ||||||
| Deferred taxes: | ||||||||||||
| U.S. federal | $ | — | $ | — | $ | — | ||||||
| State and local | — | — | — | |||||||||
| Total deferred tax expense | $ | — | $ | — | $ | — | ||||||
| Total tax expense | $ | — | $ | — | $ | — | ||||||
A reconciliation of the statutory U.S. federal income tax rate to the Company’s effective income tax rate is set forth below:
| For the Years Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| U.S. statutory federal income tax rate | 34.0 | % | 34.0 | % | 34.0 | % | ||||||
| State income taxes, net of federal tax benefit | 6.3 | 6.0 | 6.0 | |||||||||
| Effect of permanent differences | (0.8 | ) | (1.6 | ) | (2.3 | ) | ||||||
| Change to valuation allowance | (39.7 | ) | (38.4 | ) | (42.3 | ) | ||||||
| Other | 0.2 | 0.0 | 4.6 | |||||||||
| Effective income tax rate | 0.0 | % | 0.0 | % | 0.0 | % | ||||||
Deferred income taxes reflect the net tax effects of temporary difference between the 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 such differences are expected to reverse. Significant components of the Company’s net deferred tax assets and liabilities are set forth below:
| F-25 |
| As of December 31, | ||||||||
| 2012 | 2011 | |||||||
| (in thousands) | ||||||||
| Deferred tax assets: | ||||||||
| Operating loss carryforward | $ | 60,801 | $ | 56,397 | ||||
| Windfall tax benefit carryforward | (5,498 | ) | (5,724 | ) | ||||
| Goodwill | 833 | 1,494 | ||||||
| Intangible assets | 1,215 | 968 | ||||||
| Accrued expenses | 2,456 | 2,493 | ||||||
| Depreciation | 509 | — | ||||||
| Other | 2,178 | 2,307 | ||||||
| Total deferred tax assets | 62,494 | 57,935 | ||||||
| Deferred tax liabilities: | ||||||||
| Depreciation | — | (374 | ) | |||||
| Trademarks/goodwill | (288 | ) | (288 | ) | ||||
| Total deferred tax liabilities | (288 | ) | (662 | ) | ||||
| Less: valuation allowance | (62,494 | ) | (57,561 | ) | ||||
| Net deferred tax liability | $ | (288 | ) | $ | (288 | ) | ||
The implementation of ASC 740-10 regarding uncertain tax positions, did not result in any current adjustment or any cumulative effect, and therefore, no adjustment was recorded to retained earnings upon adoption. For the years ended December 31, 2012, 2011 and 2010, the Company performed a tax analysis in accordance with ASC 740-10. Based upon such analysis the Company was not required to accrue any liabilities for uncertain tax positions pursuant to ASC 740-10 for the years ended December 31, 2012, 2011 and 2010, respectively.
(11) Stockholders’ Equity
Preferred Stock
Securities Purchase Agreement
On November 15, 2007, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with TCV VI, L.P., a Delaware limited partnership, and TCV Member Fund, L.P., a Delaware limited partnership (collectively, the “Purchasers”).
Pursuant to the Purchase Agreement, the Company sold the Purchasers an aggregate of 5,500 shares of its newly-created Series B convertible preferred stock, par value $0.01 per share (“Series B Preferred Stock”), that are immediately convertible into an aggregate of 3,856,942 shares of its Common Stock at a conversion price of $14.26 per share, and warrants (the “Warrants”) to purchase an aggregate of 1,157,083 shares of Common Stock for $15.69 per share. The consideration paid for the Series B Preferred Stock and the Warrants was $55 million. As of December 31, 2012, no Series B Preferred Stock has been converted and the warrants have expired without any shares having been purchased. The Series B Preferred Stock has not been registered and the Company has not registered the shares of Common Stock issuable upon the conversion of the Series B Preferred Stock.
| F-26 |
Investor Rights Agreement
On November 15, 2007, the Company also entered into an Investor Rights Agreement with the Purchasers (the “Investor Rights Agreement”) pursuant to which, among other things, the Company agreed to grant the Purchasers certain registration rights including the right to require the Company to file a registration statement within 30 days to register the Common Stock issuable upon conversion of the Series B Preferred Stock and upon exercise of the Warrants and to use its reasonable best efforts to cause the registration to be declared effective within 90 days after the date the registration is filed. To date, no such request has been made.
Certificate of Designation
Pursuant to a Certificate of Designation for the Series B Preferred Stock (the “Certificate of Designation”) filed by the Company with the Secretary of State of the State of Delaware on November 15, 2007: (i) the Series B Preferred Stock has a purchase price per share equal to $10,000 (the “Original Issue Price”); (ii) in the event of any Liquidation Event (as defined in the Certificate of Designation), the holders of shares of Series B Preferred Stock are entitled to receive, prior to any distribution to the holders of the Common Stock, an amount per share equal to the Original Issue Price, plus any declared and unpaid dividends; (iii) the holders of the Series B Preferred Stock have the right to vote on any matter submitted to a vote of the stockholders of the Company and are entitled to vote that number of votes equal to the aggregate number of shares of Common Stock issuable upon the conversion of such holders’ shares of Series B Preferred Stock; (iv) for so long as 40% of the shares of Series B Preferred Stock remain outstanding, the holders of a majority of such shares will have the right to elect one person to the Company’s board of directors; (v) the Series B Preferred Stock automatically converts into an aggregate of 3,856,942 shares of Common Stock in the event that the Common Stock trades on a trading market at or above a closing price equal to $28.52 per share for 90 consecutive trading days and any demand registration previously requested by the holders of the Series B Preferred Stock has become effective; and (vi) so long as 30% of the shares of the currently-outstanding Series B Preferred Stock remain outstanding, the affirmative vote of the holders of a majority of such shares will be necessary to take any of the following actions: (a) authorize, create or issue any class or classes of our capital stock ranking senior to, or on a parity with (as to dividends or upon a liquidation event) the Series B Preferred Stock or any securities exercisable or exchangeable for, or convertible into, any now or hereafter authorized capital stock ranking senior to, or on a parity with (as to dividends or upon a liquidation event) the Series B Preferred Stock (including, without limitation, the issuance of any shares of Series B Preferred Stock (other than shares of Series B Preferred Stock issued as a stock dividend or in a stock split)); (b) any increase or decrease in the authorized number of shares of Series B Preferred Stock; (c) any amendment, waiver, alteration or repeal of our certificate of incorporation or bylaws in a way that adversely affects the rights, preferences or privileges of the Series B Preferred Stock; (d) the payment of any dividends (other than dividends paid in the capital stock of the Company or any of its subsidiaries) in excess of $0.10 per share per annum on the Common Stock unless after the payment of such dividends we have unrestricted cash (net of all indebtedness for borrowed money, purchase money obligations, promissory notes or bonds) in an amount equal to at least two times the product obtained by multiplying the number of shares of Series B Preferred Stock outstanding at the time such dividend is paid by the liquidation preference; and (e) the purchase or redemption of: (1) any Common Stock (except for the purchase or redemption from employees, directors and consultants pursuant to agreements providing us with repurchase rights upon termination of their service with us) unless after such purchase or redemption we have unrestricted cash (net of all indebtedness for borrowed money, purchase money obligations, promissory notes or bonds) equal to at least two times the product obtained by multiplying the number of shares of Series B Preferred Stock outstanding at the time such dividend is paid by the liquidation preference; or (2) any class or series of now or hereafter of our authorized stock that ranks junior to (upon a liquidation event) the Series B Preferred Stock.
| F-27 |
Treasury Stock
In December 2000, the Company’s Board of Directors authorized the repurchase of up to $10 million worth of the Company’s Common Stock, from time to time, in private purchases or in the open market. In February 2004, the Company’s Board of Directors approved the resumption of the stock repurchase program (the “Program”) under new price and volume parameters, leaving unchanged the maximum amount available for repurchase under the Program. However, the affirmative vote of the holders of a majority of the outstanding shares of Series B Preferred Stock, voting separately as a single class, is necessary for the Company to repurchase its Common Stock (except as described above). During the years ended December 31, 2012 and 2011, the Company did not purchase any shares of Common Stock under the Program. Since inception of the Program, the Company has purchased a total of 5,453,416 shares of Common Stock at an aggregate cost of approximately $7.3 million. In addition, pursuant to the terms of the Company’s 1998 Stock Incentive Plan (the “1998 Plan”) and 2007 Plan, and certain procedures adopted by the Compensation Committee of the Board of Directors, in connection with the exercise of stock options by certain of the Company’s employees, and the issuance of shares of Common Stock in settlement of vested restricted stock units, the Company may withhold shares in lieu of payment of the exercise price and/or the minimum amount of applicable withholding taxes then due. Through December 31, 2012, the Company had withheld an aggregate of 1,162,692 shares which have been recorded as treasury stock. In addition, the Company received an aggregate of 208,270 shares as partial settlement of the working capital and debt adjustment from the acquisition of Corsis Technology Group II LLC, 104,055 of which were received in December 2008 and 104,215 of which were received in September 2009, and 3,338 shares as partial settlement of the working capital adjustment from the acquisition of Kikucall, Inc., which were received in March 2011. These shares have been recorded as treasury stock.
Dividends
During the year ended December 31, 2012, the Company paid two quarterly cash dividends of $0.025 per share on its Common Stock and its Series B Preferred Stock on a converted common share basis. For the year ended December 31, 2012, dividends paid totaled approximately $1.8 million, as compared to approximately $3.8 million for the year ended December 31, 2011 when four quarterly dividends were paid. The Company’s Board of Directors suspended the payment of a dividend for the third and fourth quarters of 2012 but will continue to consider a future dividend payment each quarter.
Stock Options
Under the terms of the 1998 Plan, 8,900,000 shares of Common Stock of the Company were reserved for awards of incentive stock options, nonqualified stock options, restricted stock, deferred stock, restricted stock units, or any combination thereof. Under the terms of the 2007 Plan, 4,250,000 shares of Common Stock of the Company were reserved for awards of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units or other stock-based awards. The 2007 Plan also authorized cash performance awards. Additionally, under the terms of the 2007 Plan, unused shares authorized for award under the 1998 Plan are available for issuance under the 2007 Plan. No further awards will be made under the 1998 Plan. Awards may be granted to such directors, employees and consultants of the Company as the Compensation Committee of the Board of Directors shall select in its discretion or delegate to management to select. Only employees of the Company are eligible to receive grants of incentive stock options. Awards generally vest over a three- to five-year period and stock options generally have terms of five years. As of December 31, 2012, there remained 546,212 shares available for future awards under the 2007 Plan. Stock-based compensation expense for the years ended December 31, 2012, 2011 and 2010 was approximately $2.4 million, $3.4 million and $2.3 million, respectively.
| F-28 |
A stock option represents the right, once the option has vested and become exercisable, to purchase a share of the Company’s Common Stock at a particular exercise price set at the time of the grant. A restricted stock unit (“RSU”) represents the right to receive one share of the Company’s Common Stock (or, if provided in the award, the fair market value of a share in cash) on the applicable vesting date for such RSU. Until the stock certificate for a share of Common Stock represented by an RSU is delivered, the holder of an RSU does not have any of the rights of a stockholder with respect to the Common Stock. However, the grant of an RSU includes the grant of dividend equivalents with respect to such RSU. The Company records cash dividends for RSUs to be paid in the future at an amount equal to the rate paid on a share of Common Stock for each then-outstanding RSU granted. The accumulated dividend equivalents related to outstanding grants vest on the applicable vesting date for the RSU with respect to which such dividend equivalents were credited, and are paid in cash at the time a stock certificate evidencing the shares represented by such vested RSU is delivered.
A summary of the activity of the 1998 and 2007 Plans and awards issued outside of the Plan pertaining to stock option grants is as follows:
| Shares Underlying Awards | Weighted Average Exercise Price | Aggregate Intrinsic Value ($000) | Weighted Average Remaining Contractual Life (In Years) | |||||||||||||
| Awards outstanding, December 31, 2011 | 1,008,544 | $ | 4.63 | |||||||||||||
| Options granted | 2,826,639 | $ | 1.73 | |||||||||||||
| Options cancelled | (327,679 | ) | $ | 2.37 | ||||||||||||
| Options expired | (255,655 | ) | $ | 6.09 | ||||||||||||
| Awards outstanding, December 31, 2012 | 3,251,849 | $ | 2.22 | $ | 157 | 5.01 | ||||||||||
| Awards vested and expected to vest at December 31, 2012 | 2,865,457 | $ | 2.28 | $ | 131 | 4.95 | ||||||||||
| Awards exercisable at December 31, 2012 | 328,270 | $ | 5.94 | $ | — | 1.23 | ||||||||||
A summary of the activity of the 1998 and 2007 Plans pertaining to grants of restricted stock units is as follows:
| F-29 |
| Shares Underlying Awards | Weighted Average Exercise Price | Aggregate Intrinsic Value ($000) | Weighted Average Remaining Contractual Life (In Years) | |||||||||||||
| Awards outstanding, December 31, 2011 | 2,448,376 | $ | — | |||||||||||||
| Restricted stock units granted | 248,946 | $ | — | |||||||||||||
| Restricted stock units settled by delivery of Common Stock upon vesting | (1,318,873 | ) | $ | — | ||||||||||||
| Restricted stock units cancelled | (465,422 | ) | $ | — | ||||||||||||
| Awards outstanding, December 31, 2012 | 913,027 | $ | — | $ | 1,525 | 1.66 | ||||||||||
| Awards vested and expected to vest at December 31, 2012 | 783,465 | $ | — | $ | 1,308 | 0.98 | ||||||||||
| Awards exercisable at December 31, 2012 | — | $ | — | $ | — | — | ||||||||||
A summary of the status of the Company’s unvested share-based payment awards as of December 31, 2011 and changes in the year then ended is as follows:
| Unvested Awards | Awards | Weighted Average Grant Date Fair Value | ||||||
| Shares underlying awards unvested at December 31, 2011 | 3,095,801 | $ | 2.39 | |||||
| Shares underlying options granted | 2,826,639 | $ | 0.48 | |||||
| Shares underlying restricted stock units granted | 248,946 | $ | 1.77 | |||||
| Shares underlying options vested | (224,806 | ) | $ | 0.95 | ||||
| Shares underlying restricted stock units issued | (1,318,873 | ) | $ | 2.69 | ||||
| Shares underlying unvested options cancelled | (327,679 | ) | $ | 0.69 | ||||
| Shares underlying unvested restricted stock units cancelled | (465,422 | ) | $ | 2.53 | ||||
| Shares underlying awards unvested at December 31, 2012 | 3,834,606 | $ | 1.05 | |||||
The number of employee stock options granted during the years ended December 31, 2012, 2011 and 2010 were 2,826,639, 730,250 and 348,500, respectively. The weighted-average fair value of employee stock options granted during the years ended December 31, 2012 and 2011 was $0.48 and $0.89, respectively. For the years ended December 31, 2012, 2011 and 2010, the total fair value of share-based awards vested was approximately $2.7 million, $1.9 million and $1.3 million, respectively. There were no employee stock options exercised during the years ended December 31, 2012, 2011 and 2010. As of December 31, 2012, there was approximately $2.5 million of unrecognized stock-based compensation expense remaining to be recognized over a weighted-average period of 2.4 years.
(12) Commitments and Contingencies
Operating Leases and Employment Agreements
The Company is committed under operating leases, principally for office space, which expire at various dates through August 31, 2021. Certain leases contain escalation clauses relating to increases in property taxes and maintenance costs. Rent and equipment rental expenses were approximately $1.5
| F-30 |
million, $1.7 million and $1.7 million for the years ended December 31, 2012, 2011 and 2010, respectively. Additionally, the Company has agreements with certain of its outside contributors, whose future minimum payments are dependent on the future fulfillment of their services thereunder. As of December 31, 2012, total future minimum cash payments are as follows:
| Payments Due by Year | ||||||||||||||||||||||||||||
| Contractual obligations: | Total | 2013 | 2014 | 2015 | 2016 | 2017 | After 2017 | |||||||||||||||||||||
| Operating leases | $ | 21,163,143 | $ | 2,550,825 | $ | 2,506,044 | $ | 2,539,137 | $ | 2,517,990 | $ | 2,557,338 | $ | 8,491,809 | ||||||||||||||
| Outside contributors | 145,833 | 145,833 | — | — | — | — | — | |||||||||||||||||||||
| Total contractual cash obligations | $ | 21,308,976 | $ | 2,696,658 | $ | 2,506,044 | $ | 2,539,137 | $ | 2,517,990 | $ | 2,557,338 | $ | 8,491,809 | ||||||||||||||
Future minimum cash payments for the year ended December 31, 2013 related to operating leases has been reduced by approximately $0.3 million related to payments to be received related to the sublease of office space.
Legal Proceedings
As previously disclosed, the Company’s Audit Committee conducted a comprehensive review (including outside counsel and a forensic accountant) of the accounting of its former Promotions.com subsidiary, which subsidiary the Company sold in December 2009. As a result of this review, in February 2010, the Company promptly reported irregularities discovered in this review to the Securities and Exchange Commission (the “SEC”) and filed a Form 10-K/A for the year ended December 31, 2008 and a Form 10-Q/A for the quarter ended March 31, 2009, respectively, to restate and correct certain previously-reported financial information, as well as filed Forms 10-Q for the quarters ended June 30, 2009 and September 30, 2009, respectively. Thereafter, the New York Regional Office of the SEC Division of Enforcement conducted a formal investigation into the restatement. The Company cooperated with the SEC during the course of its investigation. We entered into a settlement with the SEC that fully resolves the SEC investigation against us. Under the settlement, we consented to the entry by the SEC of an administrative order (the “Order”), on December 21, 2012, directing us to cease and desist from committing or causing violations of the reporting, books and records and internal control provisions of the federal securities laws in Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and under Rules 12b-20, 13a-1 and 13a-13 promulgated under the Exchange Act. We consented to the entry of the Order without admitting or denying the Order’s assertions of factual findings. No monetary penalty or fine was imposed on us, and none of our current directors, officers or employees were charged.
In December 2010, the Company was named as one of several defendants in a lawsuit captioned EIT Holdings LLC v. WebMD, LLC et al. (U.S.D.C., D. Del.), on the same day that plaintiff filed a substantially identical suit against a different group of defendants in a lawsuit captioned EIT Holdings LLC v. Yelp!, Inc. et al. (U.S.D.C., N. D. Cal.). In February 2011, by agreement of plaintiff and the Company, the Company was dismissed from the Delaware action without prejudice and named as a defendant in the California action. In May 2011, the action against the Company and all but defendant Yelp! Inc. (“Yelp!”) were dismissed for misjoinder and plaintiff filed separate cases against the dismissed defendants; the action against the Company is captioned EIT Holdings LLC v. TheStreet.com, Inc. (U.S.D.C., N. D. Cal.). The complaints allege that defendants infringe U.S. Patent No. 5,828,837 (the “Patent”), putatively owned by plaintiff, related to a certain method of displaying information to an Internet-accessible device. In January 2012, the court in the case against Yelp! granted Yelp’s motion for summary judgment, finding the Patent to be invalid. EIT Holdings LLC appealed the summary judgment decision of the district court to the Federal Circuit Court of Appeal, which has affirmed the district court’s judgment. On February 8, 2013, EIT Holdings LLC filed a stipulation to dismiss all claims with prejudice. On February 11, 2013, the court accepted the stipulation, and the case was dismissed.
| F-31 |
The Company is party to other legal proceedings arising in the ordinary course of business or otherwise, none of which other proceedings is deemed material.
(13) Long Term Investment
During 2008, the Company made an investment in Debtfolio, Inc., doing business as Geezeo, an online financial management solutions provider for banks and credit unions. The investment totaled approximately $1.9 million for an 18.5% ownership stake. Additionally, the Company incurred approximately $0.2 million of legal fees in connection with this investment. The Company retained the option to purchase the company based on an equity value of $12 million at any point prior to April 23, 2009, but did not exercise the option. During the first quarter of 2009, the carrying value of the Company’s investment was written down to fair value based upon an estimate of the market value of the Company’s equity in light of Debtfolio’s efforts to raise capital at the time from third parties. The impairment charge approximated $1.5 million. The Company performed an additional impairment test as of December 31, 2009 and no additional impairment in value was noted. During the three months ended June 30, 2010, the Company determined it necessary to record a second impairment charge totaling approximately $0.6 million, writing the value of the investment to zero. This was deemed necessary by management based upon their consideration of Debtfolio, Inc.’s continued negative cash flow from operations, current financial position and lack of current liquidity. In October 2011, Debtfolio, Inc. repurchased the Company’s ownership stake in exchange for a subordinated promissory note in the aggregate principal amount of approximately $0.6 million payable on October 31, 2014. As of December 31, 2012, we maintain a full valuation allowance against our subordinated promissory note due to the uncertainty of eventual collection.
(14) Impairment Charge
During 2008, the Company made an investment in Debtfolio, Inc., doing business as Geezeo, an online financial management solutions provider for banks and credit unions. During the first quarter of 2009, the carrying value of the Company’s investment was written down to fair value based upon an estimate of the market value of the Company’s equity in light of Debtfolio’s efforts to raise capital at the time from third parties. The impairment charge approximated $1.5 million. The Company performed an additional impairment test as of December 31, 2009 and no additional impairment in value was noted. During the three months ended June 30, 2010, the Company determined it necessary to record a second impairment charge totaling approximately $0.6 million, writing the value of the investment to zero. This was deemed necessary by management based upon their consideration of Debtfolio, Inc.’s continued negative cash flow from operations, current financial position and lack of current liquidity.
(15) Restructuring and Other Charges
In March 2009, the Company announced and implemented a reorganization plan, including an approximate 8% reduction in the Company’s workforce, to align the Company’s resources with its strategic business objectives. Additionally, effective March 21, 2009 the Company’s then chief executive officer tendered his resignation, effective May 8, 2009 the Company’s then chief financial officer tendered his resignation, and in December 2009 the Company sold its Promotions.com subsidiary and entered into negotiations to sublease certain office space maintained by Promotions.com. As a result of these activities, the Company incurred restructuring and other charges from continuing operations of approximately $3.5 million during the year ended December 31, 2009 (the “2009 Restructuring”). During the year ended December 31, 2012, the Company recorded a reduction to previously estimated charges resulting in a net credit of approximately $0.3 million.
| F-32 |
The following table displays the activity of the 2009 Restructuring reserve account from the initial charges during the first quarter 2009 through December 31, 2012:
| Workforce Reduction | Lease Terminations | Asset Write-Off | Total | |||||||||||||
| Initial charge | $ | 1,741,752 | $ | — | $ | 242,777 | $ | 1,984,529 | ||||||||
| Additions | 726,385 | 750,000 | — | 1,476,385 | ||||||||||||
| Noncash charges | (208,918 | ) | — | (242,777 | ) | (451,695 | ) | |||||||||
| Payments | (1,779,163 | ) | — | — | (1,779,163 | ) | ||||||||||
| Balance December 31, 2009 | 480,056 | 750,000 | — | 1,230,056 | ||||||||||||
| Payments | (152,634 | ) | (232,661 | ) | — | (385,295 | ) | |||||||||
| Balance December 31, 2010 | 327,422 | 517,339 | — | 844,761 | ||||||||||||
| Payments | — | (170,396 | ) | — | (170,396 | ) | ||||||||||
| Balance December 31, 2011 | 327,422 | 346,943 | — | 674,365 | ||||||||||||
| Payments | (38,755 | ) | (126,646 | ) | — | (165,401 | ) | |||||||||
| Reduction to prior estimate | (288,667 | ) | — | — | (288,667 | ) | ||||||||||
| Balance December 31, 2012 | $ | — | $ | 220,297 | $ | — | $ | 220,297 | ||||||||
In December 2011, the Company announced a management transition under which the Company’s chief executive officer would step down from his position by March 31, 2012. Additionally, in December 2011, a senior vice president separated from the Company. As a result of these activities, the Company incurred restructuring and other charges from continuing operations of approximately $1.8 million during the year ended December 31, 2011 (the “2011 Restructuring”).
The following table displays the activity of the 2011 Restructuring reserve account from the initial charges during the fourth quarter 2011 through December 31, 2012:
| Initial charge | $ | 1,178,647 | ||
| Payments | — | |||
| Balance December 31, 2011 | 1,178,647 | |||
| Payments | (1,177,106 | ) | ||
| Balance December 31, 2012 | $ | 1,541 |
During the year ended December 31, 2012, the Company implemented a targeted reduction in force. Additionally, in accessing the ongoing needs of the organization, the Company elected to discontinue using certain software as a service, consulting and data providers, and elected to write-off certain previously capitalized software development projects. The actions were taken after a review of the Company’s cost structure with the goal of better aligning the cost structure with the Company’s revenue base. These restructuring efforts resulted in restructuring and other charges from continuing operations of approximately $3.4 million during the year ended December31, 2012. Additionally, as a result of the Company’s acquisition of The Deal in September 2012, the Company discontinued the use of The Deal’s office space and implemented a reduction in force to eliminate redundant positions, resulting in restructuring and other charges from continuing operations of approximately $3.5 million during the year ended December 31, 2012. Collectively, these activities are referred to as the “2012 Restructuring”.
| F-33 |
The following table displays the activity of the 2012 Restructuring reserve account during the year ended December 31, 2012:
| Workforce Reduction | Asset Write-Off | Termination of Vendor Services | Lease Termination | Total | ||||||||||||||||
| Restructuring charge | $ | 3,307,330 | $ | 954,302 | $ | 531,828 | $ | 2,085,000 | $ | 6,878,460 | ||||||||||
| Noncash charges | (222,215 | ) | (954,302 | ) | (220,178 | ) | — | (1,396,695 | ) | |||||||||||
| Payments | (2,462,425 | ) | — | (148,816 | ) | (190,518 | ) | (2,801,759 | ) | |||||||||||
| Balance December 31, 2012 | $ | 622,690 | $ | — | $ | 162,834 | $ | 1,894,482 | $ | 2,680,006 | ||||||||||
(16) Other Liabilities
Other liabilities consist of the following:
| As of December 31, | ||||||||
| 2012 | 2011 | |||||||
| Deferred rent | $ | 2,954,944 | $ | 3,277,478 | ||||
| Noncurrent restructuring charge | 1,062,940 | 199,000 | ||||||
| Deferred revenue | 283,698 | 1,077,852 | ||||||
| Other liabilities | 39,167 | 15,167 | ||||||
| $ | 4,340,749 | $ | 4,569,497 | |||||
(17) Employee Benefit Plan
The Company maintains a noncontributory savings plan in accordance with Section 401(k) of the Internal Revenue Code. The 401(k) plan covers all eligible employees and through December 31, 2012 provided an employer match of 50% of employee contributions, up to a maximum of 4% of each employee’s total compensation within statutory limits. Effective January 1, 2013, the Company will be increasing its matching contribution to 100% of employee contributions, up to a maximum of 6% of each employee’s total compensation within statutory limits. The Company’s matching contribution totaled approximately $0.1 million, $0.3 million and $0.3 million for the years ended December 31, 2012, 2011 and 2010, respectively.
(18) Selected Quarterly Financial Data (Unaudited)
| For the Year Ended December 31, 2012 | ||||||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| Total revenue | $ | 12,816 | $ | 12,481 | $ | 11,598 | $ | 13,826 | ||||||||
| Total operating expense | 17,349 | 14,464 | 15,916 | 16,131 | ||||||||||||
| Loss from continuing operations before income taxes | (4,437 | ) | (1,875 | ) | (4,227 | ) | (2,176 | ) | ||||||||
| Provision for income tax | — | — | — | — | ||||||||||||
| Loss from continuing operations | (4,437 | ) | (1,875 | ) | (4,227 | ) | (2,176 | ) | ||||||||
| Loss from discontinued operations | — | — | — | — | ||||||||||||
| Net loss | (4,437 | ) | (1,875 | ) | (4,227 | ) | (2,176 | ) | ||||||||
| Preferred stock dividends | 96 | 97 | — | — | ||||||||||||
| Net loss attributable to common stockholders | $ | (4,533 | ) | $ | (1,972 | ) | $ | (4,227 | ) | $ | (2,176 | ) | ||||
| Basic and diluted net loss per share: | ||||||||||||||||
| Loss from continuing operations | $ | (0.14 | ) | $ | (0.06 | ) | $ | (0.13 | ) | $ | (0.07 | ) | ||||
| Loss from discontinued operations | — | — | — | — | ||||||||||||
| Net loss | (0.14 | ) | (0.06 | ) | (0.13 | ) | (0.07 | ) | ||||||||
| Preferred stock dividends | (0.00 | ) | (0.00 | ) | — | — | ||||||||||
| Net loss attributable to common stockholders | $ | (0.14 | ) | $ | (0.06 | ) | $ | (0.13 | ) | $ | (0.07 | ) | ||||
| F-34 |
| For the Year Ended December 31, 2011 | ||||||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| Total revenue | $ | 14,121 | $ | 15,029 | $ | 14,341 | $ | 14,269 | ||||||||
| Total operating expense | 16,959 | 16,859 | 15,993 | 16,764 | ||||||||||||
| Loss from continuing operations before income taxes | (2,640 | ) | (1,653 | ) | (1,497 | ) | (2,392 | ) | ||||||||
| Provision for income tax | — | — | — | — | ||||||||||||
| Loss from continuing operations | (2,640 | ) | (1,653 | ) | (1,497 | ) | (2,392 | ) | ||||||||
| (Loss) income from discontinued operations | (2 | ) | — | — | — | |||||||||||
| Net loss | (2,642 | ) | (1,653 | ) | (1,497 | ) | (2,392 | ) | ||||||||
| Preferred stock dividends | 96 | 97 | 96 | 97 | ||||||||||||
| Net loss attributable to common stockholders | $ | (2,738 | ) | $ | (1,750 | ) | $ | (1,593 | ) | $ | (2,489 | ) | ||||
| Basic and diluted net loss per share: | ||||||||||||||||
| Loss from continuing operations | $ | (0.09 | ) | $ | (0.05 | ) | $ | (0.05 | ) | $ | (0.08 | ) | ||||
| (Loss) income from discontinued operations | (0.00 | ) | — | — | — | |||||||||||
| Net loss | (0.09 | ) | (0.05 | ) | (0.05 | ) | (0.08 | ) | ||||||||
| Preferred stock dividends | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||
| Net loss attributable to common stockholders | $ | (0.09 | ) | $ | (0.05 | ) | $ | (0.05 | ) | $ | (0.08 | ) | ||||
| F-35 |
SCHEDULE
II—VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2012, 2011 and 2010
| Allowance for Doubtful Accounts | Balance at Beginning of Period | Provisions Charged to Expense | Write- offs | Balance at End of Period | ||||||||||||
| For the year ended December 31, 2012 | $ | 158,870 | $ | 114,870 | $ | 108,449 | $ | 165,291 | ||||||||
| For the year ended December 31, 2011 | $ | 238,228 | $ | 182,946 | $ | 262,304 | $ | 158,870 | ||||||||
| For the year ended December 31, 2010 | $ | 276,668 | $ | 12,559 | $ | 50,999 | $ | 238,228 | ||||||||
| Deferred Tax Asset Valuation Allowance | Balance at Beginning of Period | Provisions Charged to Expense | Write- offs | Balance at end of Period | ||||||||||||
| For the year ended December 31, 2012 | $ | 57,560,365 | $ | 4,933,593 | $ | — | $ | 62,493,958 | ||||||||
| For the year ended December 31, 2011 | $ | 52,803,494 | $ | 4,756,871 | $ | — | $ | 57,560,365 | ||||||||
| For the year ended December 31, 2010 | $ | 49,851,039 | $ | 2,952,455 | $ | — | $ | 52,803,494 | ||||||||
| F-36 |
EXHIBIT INDEX
| Exhibit | Incorporated by Reference | |||||||||
| Number | Description | Form | File No. | Exhibit | Filing Date | |||||
| 3.1 | Restated Certificate of Incorporation of the Company. | 10-K | 000-25779 | 3.1 | March 14, 2011 | |||||
| 3.2 | Certificate of Amendment dated May 31, 2011 to Restated Certificate of Incorporation. | 8-K | 000-25779 | 99.1 | June 2, 2011 | |||||
| 3.3 | Certificate of Designation of the Company’s Series B Preferred Stock, as filed with the Secretary of State of Delaware on November 15, 2007. | 8-K | 000-25779 | 3.1 | November 20, 2007 | |||||
| 3.4 | Amended and Restated Bylaws of the Company. | 10-K | 000-25779 | 3.2 | March 30, 2000 | |||||
| 4.1 | Specimen certificate for the Company’s shares of Common Stock. | S-1/A | 333-72799 | 4.3 | April 19, 1999 | |||||
| 4.2 | Investor Rights Agreement dated November 15, 2007 by and among the Company, TCV VI, L.P. and TCV Member Fund, L.P. | 8-K | 000-25779 | 4.1 | November 20, 2007 | |||||
| 10.1+ | Form of Indemnification Agreement for directors and executive officers of the Company. | 10-K | 000-25779 | 10.26 | March 7, 2012 | |||||
| 10.2+ | Amended and Restated 2007 Performance Incentive Plan. | 14A | 000-25779 | April 16, 2010 | ||||||
| 10.3+ | Form of Stock Option Grant Agreement under the Company’s 2007 Performance Incentive Plan. | 10-Q | 000-25779 | 10.2 | August 9, 2007 | |||||
| 10.4+ | Form of Agreement of Restricted Stock Units Under the Company’s 2007 Performance Incentive Plan. | 10-Q | 000-25779 | 10.1 | February 8, 2010 (quarter ended September 30, 2009) | |||||
| 10.5 | Agreement of Lease, dated July 22, 1999, between 14 Wall Street Holdings 1, LLC (as successor to W12/14 Wall Acquisition Associates LLC) and the Company. | 10-Q | 000-25779 | 10.1 | August 16, 1999 | |||||
| 10.6 | Amendment of Lease dated October 31, 2001, between 14 Wall Street Holdings 1, LLC (as successor to W12/14 Wall Acquisition Associates LLC) and the Company. | 10-K | 000-25779 | 10.12 | March 16, 2005 | |||||
| 10.7 | Second Amendment of Lease dated March 21, 2007, between 14 Wall Street Holdings 1, LLC and the Company. | 10-K | 000-25779 | 10.24 | March 14, 2008 | |||||
| 10.8 | Third Amendment of Lease dated December 31, 2008, between CRP/Capstone 14W Property Owner, L.L.C. and the Company. | 10-K | 000-25779 | 10.22 | March 13, 2009 | |||||
| 10.9 | Stock Purchase Agreement dated November 1, 2007 by and among BFPC Newco LLC, Larry Starkweather, Kyle Selberg, Rachelle Zorn, Robert Quinn and Larry Starkweather as Agent. | 8-K | 000-25779 | 2.1 | November 6, 2007 | |||||
| 10.10 | Securities Purchase Agreement dated November 15, 2007 by and among the Company, TCV VI, L.P. and TCV Member Fund, L.P. | 8-K | 000-25779 | 10.1 | November 20, 2007 | |||||
| 10.11 | Equity Interest Purchase Agreement, dated as of September 11, 2012 between TheStreet, Inc. and WPPN, L.P. | 8-K | 000-25779 | 2.1 | September 12, 2012 | |||||
| 10.12+ | Employment Agreement dated as of December 10, 2010 between James J. Cramer and the Company. | 10-K/A | 000-25779 | 10.37 | August 12, 2011 | |||||
| 10.13+ | Amendment No. 1 dated December 16, 2010 to Employment Agreement between James J. Cramer and the Company. | 10-K | 000-25779 | 10.38 | March 14, 2011 | |||||
| 10.14+ | Employment Letter dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.1 | May 7, 2012 | |||||
| 10.15+ | Agreement for Grant of Incentive Stock Options dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.2 | May 7, 2012 | |||||
| 10.16+ | Agreement for Grant of Non-Qualified Stock Options dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.3 | May 7, 2012 | |||||
| 10.17+ | Stock Purchase Agreement dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.4 | May 7, 2012 | |||||
| 10.18+ | Severance Agreement dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.5 | May 7, 2012 | |||||
| 10.19+ | Severance Agreement dated as of September 7, 2010 between Thomas Etergino and the Company. | 10-K | 000-25779 | 10.36 | March 14, 2011 | |||||
| 10.20+ | Amendment No. 1 to Severance Agreement dated as of March 28, 2011 between the Company and Thomas Etergino. | 10-Q | 000-25779 | 10.5 | August 5, 2011 | |||||
| 10.21+ | Amendment No. 2 to Severance Agreement dated as of December 21, 2011 between the Company and Thomas Etergino. | 10-K | 000-25779 | 10.44 | March 7, 2012 | |||||
| 10.22+ | Separation Agreement and General Release dated as of December 31, 2012 between the Company and Thomas Etergino. | |||||||||
| 10.23+ | Employment Offer Letter dated as of August 13, 2012 between the Company and Erwin Eichmann. | |||||||||
| 10.24+ | Sign-On Bonus Offer Letter dated as of August 13, 2012 between the Company and Erwin Eichmann. | |||||||||
| 10.25+ | Agreement for Grant of Incentive Stock Option dated as of August 17, 2012 between the Company and Erwin Eichmann | |||||||||
| 10.26+ | Employment Offer Letter dated as of February 1, 2013 between the Company and John C. Ferrara. | |||||||||
| 14.1 | Code of Business Conduct and Ethics. | 8-K | 000-25779 | 14.1 | January 31, 2005 | |||||
| 21.1 | Subsidiaries of the Company. | |||||||||
| 23.1 | Consent of KPMG LLP. | |||||||||
| 31.1 | Rule 13a-14(a) Certification of CEO. | |||||||||
| 31.2 | Rule 13a-14(a) Certification of CFO. | |||||||||
| 32.1 | Section 1350 Certification of CEO. | |||||||||
| 32.2 | Section 1350 Certification of CFO. | |||||||||
| 101.INS* | XBRL Instance Document | |||||||||
| 101.SCH* | XBRL Taxonomy Extension Schema Document | |||||||||
| 101.CAL* | XBRL Taxonomy Extension Calculation Document |
| 101.DEF* | XBRL Taxonomy Extension Definitions Document | |||||||||
| 101.LAB* | XBRL Taxonomy Extension Labels Document | |||||||||
| 101.PRE* | XBRL Taxonomy Extension Presentation Document |
| + | Indicates management contract or compensatory plan or arrangement |
| * | Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections |
EXHIBIT 10.22
December 31, 2012
Mr. Thomas Etergino
Executive Vice President and Chief Financial Officer
TheStreet, Inc.
14 Wall Street, 15th Floor
New York, New York 10005
Dear Tom:
This letter reflects the understanding and agreement between you (“Executive”) and TheStreet, Inc. (the “Company”) regarding certain matters described herein. The parties hereby agree as follows:
1. You shall resign from your employment with the Company, and from any positions you hold with the Company, its subsidiaries and any benefits plans maintained by the Company or its subsidiaries, upon the later of (a) the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”) or (b) February 28, 2013; provided however, that if the 2012 Form 10-K filing occurs prior to February 28, 2013, then for purposes of this agreement, your last day as an employee for purposes of Sections 3 and 4 below shall be February 28, 2013 (the “Resignation Date”) although you will no longer be required to perform any services for the Company after the 2012 Form 10-K is filed.
2. Simultaneously with the execution of this Agreement, the parties shall execute the release (the “Release”) attached hereto as Exhibit A, which the parties agree shall satisfy the requirement contained in any written agreement between the parties (each an “Agreement” and collectively, the “Agreements”) for the delivery of a release by a party and shall be effective as of the date hereof.
3. Your resignation pursuant to this letter shall be deemed to constitute a termination of your employment by the Company without Cause (as such term is defined in any such Agreement) effective as of the Resignation Date and such termination shall be deemed to be not “related to [a] Change of Control” (within the meaning of any such Agreement). For avoidance of doubt, provided you have executed the Release simultaneously with this Agreement, then you will be entitled to the following:
| (a) | pursuant to the Severance Agreement (as defined below), the Company shall pay you the lump sum of $243,750 (less applicable withholdings) as soon as practicable, but in no event more than 30 days following the Resignation Date; |
| (b) | to the extent not paid in ordinary course prior to the Resignation Date, on or before March 15, 2013 or such earlier date as the fiscal year 2012 fourth quarter bonuses are paid to similarly situated active employees, the Company shall pay you the bonus (less applicable withholdings) you would have been entitled to for the fourth quarter of fiscal year 2012 based on actual performance as if you had remained employed through the date |
| of payment of such bonuses to similarly situated active employees, including the amount of any holdback on bonuses paid during the first three quarters of fiscal year 2012; |
| (c) | If you elect continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) for you and your eligible dependents, within the time period prescribed pursuant to COBRA, the Company will reimburse you for, or pay directly your behalf, the COBRA premiums for such coverage (at the coverage levels in effect immediately prior to the Resignation Date) until the earlier of (i) a period of nine (9) months from the Resignation Date, or (ii) the date upon which you and/or your eligible dependents becomes covered under similar plans; |
| (d) | pursuant to the September 2010 RSU Agreement (as defined below) and the Severance Agreement, on the Resignation Date vesting shall accelerate with respect to an additional 160,000 restricted stock units (“RSUs”) subject to the September 2010 RSU Agreement that would otherwise be unvested as of the Resignation Date; |
| (e) | pursuant to the March 2011 RSU Agreement (as defined below) and the Severance Agreement, on the Resignation Date vesting shall accelerate with respect to an additional 6,252 RSUs subject to the March 2011 RSU Agreement that would otherwise be unvested as of the Resignation Date; and |
| (d) | pursuant to the Stock Option Agreement (as defined below) and Severance Agreement, on the Resignation Date vesting shall accelerate with respect to an additional 18,756 shares subject to the option evidenced by the Stock Option Agreement that would otherwise be unvested as of the Resignation Date and that you shall have 90 calendar days following the Resignation Date to exercise the vested portion of such option (after taking into account the vesting acceleration set forth herein). |
4. Subject to the timely execution by you (without revocation), on or after the Resignation Date and prior to the 60th day following the Resignation Date (the end of such 60-day period, the “Release Deadline”), of the release in the form attached hereto as Exhibit B (the “Second Release”), the Company shall pay you a pro rata bonus (less applicable withholdings) with respect to the first quarter of fiscal year 2013, which bonus shall be the product of (x) $54,843.75 (your target bonus of 75% of your current base salary for one quarter of the fiscal year), multiplied by (y) a fraction, the numerator of which is the number of calendar days between January 1, 2013 and the Resignation Date, inclusive and the denominator of which is 90 (such amount, the “Pro Rata Bonus”). The Pro Rata Bonus shall be paid within 10 days after the Release Deadline; provided that the Second Release is effective and irrevocable on or before the Release Deadline.
5. This letter does not amend the provisions of any of the Agreements, which include without limitation: (i) the Agreement for Grant of Restricted Stock Units Under 2007 Performance Incentive Plan dated as of September 7, 2010 (the “September 2010 RSU
Agreement”); (ii) the Agreement for Grant of Restricted Stock Units Under 2007 Performance Incentive Plan dated as of March 28, 2011 (the “March 2011 RSU Agreement”); (iii) the Agreement for Grant of Stock Options Under 2007 Performance Incentive Plan dated as of March 28, 2011 (the “Stock Option Agreement”); (vi) the Severance Agreement dated as of September 7, 2010, as amended by amendments dated as of March 28, 2011 and December 21, 2011 (the “Severance Agreement”); and (vii) the Indemnification Agreement. Without limiting the foregoing, the Company acknowledges it has certain obligations to you under Section 1(a)(i)(B) and Section 1(a)(ii)(Y) of the Severance Agreement; and you acknowledge that you have certain obligations to the Company as set forth in restrictive covenants in the certain of the Agreements. On the Resignation Date, you shall receive payment for any accrued and unused vacation. You shall be entitled to receive reimbursement for any business expenses incurred by you prior to the Resignation Date, in accordance with the Company’s policies; to the extent you receive an invoice for any such expenses after the Resignation Date, you shall submit a claim for reimbursement related thereto to the Company promptly after receipt.
6. Notwithstanding any provision of any of the Agreements to the contrary, if you are a “specified employee” as determined by the Board or the Compensation Committee in accordance with Section 409A of the Internal Revenue Code of 1986, as amended or any regulations or Treasury guidance promulgated thereunder (“Section 409A”), you shall not be entitled to any payments of amounts which constitute deferred compensation within the meaning of Section 409A upon a termination of your employment until the earlier of (a) the date which is six (6) months after the termination of you employment for any reason other than death (except that during such six (6) month period you may receive total payments from the Company that do not exceed the amount specified in Treas. Reg. Section 1.409A-1(b)(9) or that constitute a short-term deferral within the meaning of Section 409A), or (b) the date of your death. If any provision of any of the Agreements or of any award of compensation, including equity compensation or benefits, would cause you to incur any additional tax or interest under Section 409A, the parties agree to negotiate in good faith to reform such provision in such manner as to maintain, to the maximum extent practicable, the original intent and economic terms of the applicable provision without violating the provisions of Section 409A. Notwithstanding any provision of any of the Agreements to the contrary, to the extent any compensation or award which constitutes deferred compensation within the meaning of Section 409A shall vest upon the occurrence of a Change of Control (as defined in the applicable Agreement) and such Change of Control does not constitute a “change in the ownership or effective control” or a “change in the ownership of a substantial portion of the assets” of the Company within the meaning of Section 409A, then notwithstanding such vesting, payment will be made to you on the earliest of (a) your “separation from service” with the Company (determined in accordance with Section 409A) (or, if you are a specified employee within the meaning of Section 409A, such later date as provided in the first sentence of this paragraph), (b) the date payment otherwise would have been made, or (c) your death.
On behalf of the Company, I would like to express our appreciation for the many contributions you have made during your tenure at the Company, and we wish you the best with your future endeavors.
| Sincerely, | ||
| THESTREET, INC. | ||
| By: | /s/ Elisabeth DeMarse | |
| Elisabeth DeMarse | ||
| Chief Executive Officer |
AGREED
| /s/ Thomas Etergino | |
| Thomas Etergino |
Exhibit A
Release
This Release (this “Release”) is entered into by Thomas Etergino (“Etergino”) and TheStreet, Inc., a Delaware corporation (the “Company”) on December 31, 2012 and shall become effective on the date set forth herein.
In consideration of the promises set forth in (i) the Agreement for Grant of Restricted Stock Units Under 2007 Performance Incentive Plan between the Company and Etergino dated as of September 7, 2010 (the “2010 RSU Agreement”); (ii) the Agreement for Grant of Restricted Stock Units Under 2007 Performance Incentive Plan between the Company and Etergino dated as of March 28, 2011 (the “2011 RSU Agreement”); (iii) the Agreement for Grant of Stock Options Under 2007 Performance Incentive Plan between the Company and Etergino dated as of March 28, 2011 (the “2011 Option Agreement”); (vi) the Severance Agreement between the Company and Etergino dated as of September 7, 2010, as amended by amendments dated as of March 28, 2011 and December 21, 2011 (the “Severance Agreement”); (vii) any Indemnification Agreement between the Company and Etergino (the “indemnification Agreement”) and (viii) the letter from the Company to Etergino dated as of December 31, 2012 (the “Letter Agreement”) (collectively, the “Agreements”), Etergino and the Company agree as follows:
1. General Releases and Waivers of Claims.
(a) Etergino’s Release of Company. In consideration of the payments and benefits provided to Etergino under the Agreements and after consultation with counsel, Etergino on behalf of himself and each of his respective heirs, executors, administrators, representatives, agents, successors and assigns (collectively, the “Etergino Parties”) hereby irrevocably and unconditionally release and forever discharge the Company and its subsidiaries and affiliates and each of their respective officers, employees, directors, shareholders and agents (“Company Parties”) from any and all claims, actions, causes of action, rights, judgments, fees and costs (including attorneys’ fees), obligations, damages, demands, accountings or liabilities of whatever kind or character (collectively, “Claims”), including, without limitation, any Claims based upon contract, tort, or under any federal, state, local or foreign law, that the Etergino Parties may have, or in the future may possess, arising out of any aspect of Etergino’s employment relationship with and service as an employee, officer, director or agent of the Company, or the termination of such relationship or service, that occurred, existed or arose on or prior to the date hereof; provided, however, that Etergino does not release, discharge or waive (i) any rights to payments and benefits provided under the Severance Agreement and Letter Agreement, (ii) any right Etergino may have to enforce this Release or any of the Agreements, (iii) Etergino’s eligibility for indemnification in accordance with the Company’s certificate of incorporation, bylaws or other corporate governance document, any applicable insurance policy or any contract or provision to which Etergino is a party or as to which Etergino otherwise is entitled to indemnification benefits, with respect to any liability he incurred or might incur as an employee, officer or director of the Company, or (iv) any claims for accrued, vested benefits under any employee benefit or pension plan of the Company Parties subject to the terms and conditions of such plan and applicable law including, without limitation, any such claims under COBRA or the Employee Retirement Income Security Act of 1974.
(b) Company’s Release of Executive. The Company for itself and on behalf of the Company Parties hereby irrevocably and unconditionally release and forever discharge the Etergino Parties from any and all Claims, including, without limitation, any Claims based upon contract, tort, or under any federal, state, local or foreign law, that the Company Parties may have, or in the future may possess, arising out of any aspect of Etergino’s employment relationship with and service as an employee, officer, director or agent of the Company, or the termination of such relationship or service, that occurred, existed or arose on or prior to the date hereof, excepting any Claim which would constitute or result from conduct by Etergino that constituted the basis for termination for Cause under the Agreements or could be a crime of any kind. Anything to the contrary notwithstanding in this Release, nothing herein shall release Etergino or any other Executive Party from any Claims based on any right the Company may have to enforce this Release or any of the Agreements.
(c) No Assignment. The parties represent and warrant that they have not assigned any of the Claims being released under this Release.
2. Proceedings. Neither Etergino nor the Company have filed, any complaint, charge, claim or proceeding against the other party before any local, state or federal agency, court or other body relating to Etergino’s employment or the termination thereof (each, individually, a “Proceeding”).
3. Remedies.
(a) In the event Etergino initiates or voluntarily participates in any Proceeding involving any of the matters waived or released in this Release, or if he fails to abide by any of the terms of this Release, the Company may, in addition to any other remedies it may have, reclaim any amounts paid to him, and terminate any benefits or payments that are due, pursuant to the termination provisions of the Agreements, without waiving the release granted herein. In addition, in the event that Etergino has failed to comply with Sections 6 and/or 7 of the 2010 RSU Agreement, Sections 6 and/or 7 of the 2011 RSU Agreement or Sections 10 and/or 11 of the 2011 Option Agreement (other than as a result of an unintentional and immaterial disclosure of confidential information), the Company may, in addition to any other remedies it may have, to the extent permitted in the Agreements reclaim any amounts paid to him pursuant to the Agreements, without waiving the release granted herein. Etergino acknowledges and agrees that the remedy at law available to the Company for breach of any of his post-termination obligations under the Agreements or his obligations herein would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, Etergino acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law or in equity, the Company shall be entitled to seek a temporary restraining order or a preliminary or permanent injunction, or both, without bond or other security, restraining Etergino from breaching his post-termination obligations under the Agreements or his obligations hereunder. Such injunctive relief in any court shall be available to the Company, in lieu of, or prior to or pending determination in, any arbitration proceeding.
(b) Etergino understands that by entering into this Release he will be limiting the availability of certain remedies that he may have against the Company and limiting also his ability to pursue certain claims against the Company.
(c) The Company acknowledges and agrees that the remedy at law available to Etergino for breach of any of its post-termination obligations under the Agreements or its obligations hereunder would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, the Company acknowledges, consents and agrees that, in addition to any other rights or remedies that Etergino may have at law or in equity, Etergino shall be entitled to seek a temporary restraining order or a preliminary or permanent injunction, or both, without bond or other security, restraining the Company from breaching its post-termination obligations under the Agreements or its obligations hereunder. Such injunctive relief in any court shall be available to Etergino, in lieu of, or prior to or pending determination in, any arbitration proceeding.
(d) The Company understands that by entering into this Release it will be limiting the availability of certain remedies that it may have against Etergino and limiting also its ability to pursue certain claims against Etergino.
4. Severability Clause. In the event any provision or part of this Release is found to be invalid or unenforceable, only that particular provision or part so found, and not the entire Release, will be inoperative.
5. Nonadmission. Nothing contained in this Release will be deemed or construed as an admission of wrongdoing or liability on the part of the Company or Etergino.
6. Governing Law. All matters affecting this Release, including the validity thereof, are to be governed by, and interpreted and construed in accordance with, the laws of the New York applicable to contracts executed in and to be performed in that State.
7. Notices. All notices or communications hereunder shall be made in accordance with Section 3 of the Severance Agreement.
ETERGINO ACKNOWLEDGES THAT HE HAS READ THIS RELEASE AND THAT HE FULLY KNOWS, UNDERSTANDS AND APPRECIATES ITS CONTENTS, AND THAT HE HEREBY EXECUTES THE SAME AND MAKES THIS RELEASE AND THE RELEASE AND AGREEMENTS PROVIDED FOR HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.
IN WITNESS WHEREOF, the parties have executed this Release as of December 31, 2012.
| /s/ Thomas Etergino | |||
| Thomas Etergino | |||
| THESTREET, INC. | |||
| By: | /s/ Elisabeth DeMarse | ||
| Name: | Elisabeth DeMarse | ||
| Title: | Chief Executive Officer | ||
Exhibit B
Second Release
This Second Release (this “Release”) is entered into by Thomas Etergino (“Etergino”) and TheStreet, Inc., a Delaware corporation (the “Company”) on _____ __, 2013 and shall become effective on the date set forth herein. Defined terms utilized herein and not otherwise defined shall have their respective meanings as forth in the Release entered into on December 31, 2012 by Etergino and the Company.
In consideration of the promises set forth in Paragraph 4 of the Letter Agreement, Etergino and the Company agree as follows:
1. General Releases and Waivers of Claims.
(a) Etergino’s Release of Company. In consideration of the payments and benefits provided to Etergino under Paragraph 4 of the Letter Agreement and after consultation with counsel, Etergino on behalf of himself and each of his respective heirs, executors, administrators, representatives, agents, successors and assigns (collectively, the “Etergino Parties”) hereby irrevocably and unconditionally release and forever discharge the Company and its subsidiaries and affiliates and each of their respective officers, employees, directors, shareholders and agents (“Company Parties”) from any and all claims, actions, causes of action, rights, judgments, fees and costs (including attorneys’ fees), obligations, damages, demands, accountings or liabilities of whatever kind or character (collectively, “Claims”), including, without limitation, any Claims based upon contract, tort, or under any federal, state, local or foreign law, that the Etergino Parties may have, or in the future may possess, arising out of any aspect of Etergino’s employment relationship with and service as an employee, officer, director or agent of the Company, or the termination of such relationship or service, that occurred, existed or arose on or prior to the date hereof; provided, however, that Etergino does not release, discharge or waive (i) any rights to payments and benefits provided under the Severance Agreement and Letter Agreement, (ii) any right Etergino may have to enforce this Release or any of the Agreements, (iii) Etergino’s eligibility for indemnification in accordance with the Company’s certificate of incorporation, bylaws or other corporate governance document, any applicable insurance policy or any contract or provision to which Etergino is a party or as to which Etergino otherwise is entitled to indemnification benefits, with respect to any liability he incurred or might incur as an employee, officer or director of the Company, or (iv) any claims for accrued, vested benefits under any employee benefit or pension plan of the Company Parties subject to the terms and conditions of such plan and applicable law including, without limitation, any such claims under COBRA or the Employee Retirement Income Security Act of 1974.
(b) Executive’s Specific Release of ADEA Claims. In further consideration of the payments and benefits provided to Etergino under Paragraph 4 of the Letter Agreement, Etergino on behalf of himself and the other Etergino Parties hereby unconditionally release and forever discharge the Company Parties from any and all Claims that the Etergino Parties may have as of the date Etergino signs this Release arising under the Federal Age Discrimination in Employment Act of 1967, as amended, and the applicable rules and regulations promulgated thereunder (“ADEA”). By signing this Release, Etergino hereby acknowledges and confirms the following: (i) Etergino was advised by the Company in connection with his termination to
consult with an attorney of his choice prior to signing this Release and to have such attorney explain to him the terms of this Release, including, without limitation, the terms relating to his release of claims arising under ADEA, and Etergino has in fact consulted with an attorney; (ii) Etergino was given a period of not fewer than twenty-one (21) days to consider the terms of this Release and to consult with an attorney of his choosing with respect thereto; and (iii) Etergino knowingly and voluntarily accepts the terms of this Release. Etergino also understands that he has seven (7) days following the date on which he signs this Release within which to revoke the release contained in this paragraph, by providing the Company a written notice of his revocation of the release and waiver contained in this paragraph. Should Etergino not revoke this Release, it shall become effective on the eighth (8th) day following his execution of this Release.
(c) Company’s Release of Executive. The Company for itself and on behalf of the Company Parties hereby irrevocably and unconditionally release and forever discharge the Etergino Parties from any and all Claims, including, without limitation, any Claims based upon contract, tort, or under any federal, state, local or foreign law, that the Company Parties may have, or in the future may possess, arising out of any aspect of Etergino’s employment relationship with and service as an employee, officer, director or agent of the Company, or the termination of such relationship or service, that occurred, existed or arose on or prior to the date hereof, excepting any Claim which would constitute or result from conduct by Etergino that constituted the basis for termination for Cause under the Agreements or could be a crime of any kind. Anything to the contrary notwithstanding in this Release, nothing herein shall release Etergino or any other Executive Party from any Claims based on any right the Company may have to enforce this Release or any of the Agreements.
(d) No Assignment. The parties represent and warrant that they have not assigned any of the Claims being released under this Release.
2. Proceedings. Neither Etergino nor the Company have filed, any complaint, charge, claim or proceeding against the other party before any local, state or federal agency, court or other body relating to Etergino’s employment or the termination thereof (each, individually, a “Proceeding”).
3. Remedies.
(a) In the event Etergino initiates or voluntarily participates in any Proceeding involving any of the matters waived or released in this Release, or if he fails to abide by any of the terms of this Release, or if he revokes the ADEA release contained in Paragraph 1(b) of this Release within the seven-day period provided under Paragraph 1(b), the Company may, in addition to any other remedies it may have, reclaim any amounts paid to him, and terminate any benefits or payments that are due, pursuant to the termination provisions of the Agreements, without waiving the release granted herein. In addition, in the event that Etergino has failed to comply with Sections 6 and/or 7 of the 2009 RSU Agreement, Sections 6 and/or 7 of the 2011 RSU Agreement or Sections 10 and/or 11 of the 2011 Option Agreement (other than as a result of an unintentional and immaterial disclosure of confidential information), the Company may, in addition to any other remedies it may have, to the extent permitted in the Agreements reclaim any amounts paid to him pursuant to the Agreements, without waiving the release granted herein. Etergino acknowledges and agrees that the remedy at law available to the Company for breach of
any of his post-termination obligations under the Agreements or his obligations herein would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, Etergino acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law or in equity, the Company shall be entitled to seek a temporary restraining order or a preliminary or permanent injunction, or both, without bond or other security, restraining Etergino from breaching his post-termination obligations under the Agreements or his obligations hereunder. Such injunctive relief in any court shall be available to the Company, in lieu of, or prior to or pending determination in, any arbitration proceeding.
(b) Etergino understands that by entering into this Release he will be limiting the availability of certain remedies that he may have against the Company and limiting also his ability to pursue certain claims against the Company.
(c) The Company acknowledges and agrees that the remedy at law available to Etergino for breach of any of its post-termination obligations under the Agreements or its obligations hereunder would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, the Company acknowledges, consents and agrees that, in addition to any other rights or remedies that Etergino may have at law or in equity, Etergino shall be entitled to seek a temporary restraining order or a preliminary or permanent injunction, or both, without bond or other security, restraining the Company from breaching its post-termination obligations under the Agreements or its obligations hereunder. Such injunctive relief in any court shall be available to Etergino, in lieu of, or prior to or pending determination in, any arbitration proceeding.
(d) The Company understands that by entering into this Release it will be limiting the availability of certain remedies that it may have against Etergino and limiting also its ability to pursue certain claims against Etergino.
4. Severability Clause. In the event any provision or part of this Release is found to be invalid or unenforceable, only that particular provision or part so found, and not the entire Release, will be inoperative.
5. Nonadmission. Nothing contained in this Release will be deemed or construed as an admission of wrongdoing or liability on the part of the Company or Etergino.
6. Governing Law. All matters affecting this Release, including the validity thereof, are to be governed by, and interpreted and construed in accordance with, the laws of the New York applicable to contracts executed in and to be performed in that State.
7. Notices. All notices or communications hereunder shall be made in accordance with Section 3 of the Severance Agreement.
ETERGINO ACKNOWLEDGES THAT HE HAS READ THIS RELEASE AND THAT HE FULLY KNOWS, UNDERSTANDS AND APPRECIATES ITS CONTENTS, AND THAT HE HEREBY EXECUTES THE SAME AND MAKES THIS RELEASE AND THE RELEASE AND AGREEMENTS PROVIDED FOR HEREIN VOLUNTARILY AND OF HIS OWN FREE WILL.
IN WITNESS WHEREOF, the parties have executed this Release as of _____ __, 2013.
| Thomas Etergino | |||
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THESTREET, INC. |
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| By: | |||
| Name: | |||
| Title: | |||
EXHIBIT 10.23
August 13, 2012
Erwin Eichmann
Dear Erwin,
We are pleased to extend to you an offer of employment with TheStreet, Inc. (the “Company” or “TheStreet”) as described below:
| 1. | POSITION: You will serve in a full-time capacity at TheStreet with the title of Vice President Corporate and Business Development, General Counsel. You will perform such duties, functions and responsibilities as are generally incident to such position, reporting to and subject to the direction of the Chief Executive Officer or his or her designee. |
| 2. | TERM: You will commence employment on a mutually agreed upon date on or before September 4, 2012 and your employment shall continue until terminated by either you or the Company. |
| 3. | AT WILL STATUS: Your employment with TheStreet is “at will.” This means that either you or TheStreet may terminate your employment at any time, with or without notice, and with or without cause. Your status as an “at will” employee cannot be changed or retracted, either orally or in writing, by any policy or conduct, unless you receive a document expressly stating that your employment is no longer at-will, which is signed both by you and the Company’s Chief Executive Officer. |
| 4. | COMPENSATION: We will compensate you as an exempt employee at the rate of $9,166.67 semi-monthly, which is $220,000 on an annualized basis. Payments are made on the 15th and last day of each month (or the preceding business day if the regular payday falls on a weekend or holiday) and will be subject to applicable withholding and taxes. |
BONUS: You are eligible to receive a bonus for 2012 of up to 30% of the base salary you receive during 2012, as determined by the Company in its sole discretion, which determination may be based on both your individual performance and the performance of the Company. Bonuses will be calculated quarterly. Target bonuses for each calendar quarter will be 22.5% of the annual target bonus, with the remaining portion of the annual target bonus to be based upon the full year. Any bonus amount determined by the Company to be payable shall be paid not later than 30 days following the end of the quarter, with respect to the third quarter bonus amounts and not later than 60 days following the end of the year, with respect to the fourth quarter and full year bonus amounts, provided that you must remain a full-time employee of the Company through the payment date in order to receive the payment (nothing in this notice is deemed to modify the at-will nature of your employment, which may be terminated by you or the Company at any time with or without cause and with or without prior notice).
14 Wall Street 15th Floor NY, NY 10005 T 212 321 5000 www.thestreet.com
| 5. | BENEFITS: You will be eligible to participate in any employment benefits plans provided by TheStreet, subject to the terms, conditions and eligibility requirements of any relevant benefits plan documents. At present, these benefits include, but are not limited to, group medical, dental and vision plans, 100% company paid coverage under the Company’s comprehensive Life Insurance, Short-Term and Long-Term Disability Plans subject to applicable waiting periods and three weeks of paid vacation annually (prorated for any partial year). You will also have the opportunity to participate in TheStreet’s 401(k) Savings Plan, Flexible Spending Account Plans and Transit Benefits, subject to the terms, conditions and eligibility requirements of such plans. TheStreet reserves the right to amend or terminate any of its benefit programs at any time with or without notice in its sole discretion. |
| 6. | EQUITY COMPENSATION: On your first day of employment you will be granted 150,000 Incentive Stock Options, under the terms of the Company’s 2007 Performance Incentive Plan, as amended (the “Plan”). These stock options will vest and become exercisable at the rate of twenty-five percent on the first anniversary and 1/36 of the remaining seventy-five percent for the next 36 months thereafter and will be priced at “fair market value”, which is defined in the Plan as the closing price of TheStreet common stock on the Nasdaq Stock Market on the grant date (which is your first day of employment). Details regarding this grant, including any terms and conditions will be set forth in a separate grant agreement. |
| 7. | POLICIES: As an employee, you will be required to comply fully with the provisions of the Company’s Investment policy, Code of Business Conduct and Ethics, Compliance Manual and other compliance policies and procedures relevant to your position with the Company (the “Employment Materials”). Compliance is a condition of employment at TheStreet and you will be required to sign forms confirming that you will abide by the requirements of these policies and procedures. These materials, however, will not change your at-will employment status and are merely meant to provide additional information relating to your job. |
This letter and the Employment Materials contain all of the terms of your employment with the TheStreet and supersede any prior understandings or agreements, whether written or oral, between you and Company. This letter agreement may not be amended or modified except by an express written agreement signed by you and TheStreet’s Vice President of Human Resources (except that no amendment may change the at will nature of the employment unless in accordance with Paragraph 3). The terms of this letter and the resolution of any disputes hereunder shall be governed by New York law, without reference to principles of choice of law.
14 Wall Street 15th Floor NY, NY 10005 T 212 321 5000 www.thestreet.com
We hope that you find the foregoing terms acceptable. We are delighted to have you join TheStreet and look forward to a mutually beneficial working relationship. If you have any questions, please do not hesitate to contact me at 212-321-5090.
| Sincerely, | |
| /s/ Elisabeth DeMarse | |
| Elisabeth DeMarse | |
| Chair, President & CEO | |
| ACCEPTED AND AGREED | |
| /s/ Erwin Eichmann | |
| Erwin Eichmann |
14 Wall Street 15th Floor NY, NY 10005 T 212 321 5000 www.thestreet.com
EXHIBIT 10.24
August 13, 2012
Erwin Eichmann
Dear Erwin,
Provided you commence employment on a mutually agreed upon date in September 4, 2012, TheStreet, Inc. (the “Company”) is happy to provide you with a one-time sign-on bonus in the amount of $16,104 (the “Sign-on Bonus”).
In the event that your employment is terminated for Cause, or if you voluntarily resign from the Company before one (1) year has passed from the date you commenced employment with the Company, you will be obligated to reimburse the Company for the Sign-on Bonus. For purposes of this Letter, “Cause” shall be determined by the Company in the exercise of its good faith judgment, in accordance with the following guidelines: (i) your willful misconduct or gross negligence in the performance of your obligations, duties and responsibilities of your position with the Company (including those as an employee of the Company set forth in the Company’s Code of Business Conduct and Ethics dated June 1, 2006, as same may be amended from time to time provided such amendment affects all executive officers of the Company), (ii) your dishonesty or misappropriation, in either case that is willful and material, relating to the Company or any of its funds, properties, or other assets, (iii) your inexcusable repeated or prolonged absence from work (other than as a result of, or in connection with, a Disability), (iv) any unauthorized disclosure by you of Confidential Information or proprietary information of the Company in violation of Section 12(d) which is reasonably likely to result in material harm to the Company, (v) your conviction of a felony (including entry of a guilty or nolo contender plea) involving fraud, dishonesty, or moral turpitude, (vi) a violation of federal or state securities laws, or (vii) the failure by you to attempt to perform faithfully the duties and responsibilities of your position with the Company, or other material breach by you of this Letter, provided any such failure or breach described in clauses (i), (ii), (iii), (iv), (vi) and (vii) is not cured, to the extent cure is possible, by you within thirty (30) days after written notice thereof from the Company to you; provided, however, that no failure or breach described in clauses (i), (ii), (iii), (iv), (vi) and (vii) shall constitute Cause unless (x) the Company first gives you written notice of its intention to terminate your employment for Cause and the grounds of such termination no fewer than ten (10) days prior to the date of termination; and (y) you are provided an opportunity to appear before the Board, with or without legal representation at your election to present arguments on your own behalf; and (z) if you elect to so appear, such failure or breach is not cured, to the extent cure is possible, within thirty (30) days after written notice from the Company to you that, following such appearance, the Company has determined in good faith that Cause exists and has not, following the initial notice from the Company, been cured; provided further, however, that notwithstanding anything to the contrary in this Letter and subject to the other terms of this proviso, the Company may take any and all actions, including without limitation suspension (but not without pay), it deems appropriate with respect to you and your duties at the Company pending such appearance and subsequent to such appearance during which such failure or breach has not been cured. No act or failure to act on your part will be considered “willful” unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interests of the Company. For purposes of this Letter,
14 Wall Street 15th Floor NY, NY 10005 T 212 321 5000 www.thestreet.com
“Disability” shall mean physical or mental incapacity of a nature which prevents you, in the good faith judgment of the Committee, from performing the duties and responsibilities of your position with the Company for a period of ninety (90) consecutive days or one hundred and fifty (150) days during any year, with each year under this Letter commencing on each anniversary of the date hereof.
By accepting the Sign-on Bonus, you hereby authorize TheStreet to immediately offset against and reduce any amounts otherwise due to you by the Company for any amounts in respect of the obligation to repay the Sign-on Bonus, consistent with any federal, state or local laws.
Sincerely,
| /s/ Elisabeth DeMarse | |
| Elisabeth DeMarse | |
| Chair, President & CEO | |
ACCEPTED AND AGREED
| /s/ Erwin Eichmann | |
| Erwin Eichmann |
14 Wall Street 15th Floor NY, NY 10005 T 212 321 5000 www.thestreet.com
EXHIBIT 10.25
THESTREET, INC.
AGREEMENT FOR GRANT
OF
INCENTIVE STOCK OPTION
PURSUANT TO 2007 PERFORMANCE INCENTIVE PLAN
August 17, 2012
Erwin Eichmann
c/o TheStreet, Inc.
14 Wall Street
15th Floor
New York, NY 10005
Dear Erwin:
This letter (the “Letter”) sets forth the terms and conditions of the stock option (“Option”) hereby awarded to you by TheStreet, Inc. (the “Company”) in accordance with the provisions of the Company's 2007 Performance Incentive Plan (the “Plan”).
This award is subject to the terms and conditions set forth in the Plan, any rules and regulations adopted by the Board of Directors of the Company (the “Board”) or the committee of the Board which administers the Plan (the “Committee”), and this Letter. The provisions of the Plan are hereby incorporated by reference and any term used in this Letter and not defined herein shall have the meaning set forth in the Plan. Unless otherwise indicated, section references contained in this Letter shall refer to the corresponding sections of this Letter.
The Option shall be deemed to be an incentive stock option within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), to the maximum extent permissible under the Code (with the balance, if any, deemed to be a non-qualified stock option within the meaning of the Code).
1. Option Grant
You have been granted an Option to purchase 150,000 shares of the Company’s Common Stock (“Common Stock”) to the extent the Option is exercisable as set forth below. The Option may not be sold, transferred, assigned, pledged or otherwise encumbered by you, in whole or in part; provided that the foregoing shall not affect your right to name a beneficiary under Section 13 of the Plan. The Option may be exercised only by you, except that in the event of your death, the Option may be exercised (at any time prior to its expiration or termination as provided in Sections 8 and 11) by the executor or administrator of your estate or by a person who acquired the right to exercise your Option by will or pursuant to the laws of descent and distribution. Until such time as stock certificates for the shares of Common Stock represented by the purchase
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of all or portion of the Option have been delivered to you in accordance with Section 4, you shall have none of the rights of a stockholder with respect to the Common Stock with respect to such shares.
2. Option Exercise Price
The price at which you may purchase the shares of Common Stock underlying the Option is $1.41 per share.
3. Term of Option
Your Option shall expire, to the extent that it has not previously terminated, on August 17, 2017. However, your Option may terminate prior to such expiration date as provided in Sections 8 and 11. Regardless of the provisions of Sections 5 or 8 or any other provision hereof, in no event can your Option be exercised after the expiration date set forth in this Section 3.
4. Exercisability of Option
Your Option will become exercisable with respect to the following number(s) of shares of Common Stock on the following date(s) as set forth below, provided that you are in the Service (as defined below) of the Company or one of its subsidiaries on such date and the Option has not been terminated in accordance with Sections 8 or 11:
| Date | Number of Shares of Common Stock | |
| August 17, 2013 | 37,500 | |
| The 17th calendar day of each month from September 17, 2013 to August 17, 2016, inclusive | 1/36th of 112,500 shares, rounded down to the nearest whole share inclusive of any prior remaining fractions |
For purposes hereof, you shall be considered to be in the “Service” of the Company or one of its subsidiaries if you are an employee of the Company (or one if its subsidiaries, as applicable) on the applicable vesting date.
To the extent that your Option has become exercisable with respect to a number of shares of Common Stock, you may exercise the Option to purchase all or any portion of such shares of Common Stock at any time on or before the date the Option expires or terminates; provided that you may only purchase a whole number of shares of Common Stock.
5. Accelerated Vesting in Certain Events
Notwithstanding Section 4, upon the occurrence of any of the following events, the then-unvested portion of the Option shall become exercisable and may be exercised; provided that such portion of the Option only may be exercised within ninety (90) calendar days from the occurrence of such event (but in no event beyond the date set forth in Section 3): (i) the
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termination of your employment by the Company or any subsidiary thereof without Cause (as defined below) or by you for Good Reason (as defined below) prior to a Change of Control (as defined in the Plan) if such termination is related to the Change of Control; or (ii) a Change of Control, unless (A) either (x) the Company is the surviving corporation in the Change of Control and the award reflected in this Letter is equitably adjusted pursuant to Section 4.4 of the Plan or (y) the award reflected in this Letter is assumed or replaced by a Successor (as defined below) and (B) the award as so adjusted, assumed or replaced (x) has substantially the same potential economic benefits and vesting terms as did the award immediately prior to the Change of Control and (y) provides that the award immediately shall become fully vested and exercisable upon the termination of your employment (by the Company or any subsidiary thereof or by a Successor or any affiliate thereof) without Cause or by you for Good Reason at any time (provided that such portion of the Option only may be exercised within ninety (90) calendar days from such termination (but in no event beyond the date set forth in Section 3)). If you are employed by a Successor or any affiliate thereof following a Change of Control, references in this Letter to the Company shall be understood to be references to the Successor or any such affiliate regarding matters related to the occurrence of non-occurrence of events from and after the date you become employed by the Successor or such affiliate.
For purposes of this Letter, “Cause” shall be determined by the Committee in the exercise of its good faith judgment, in accordance with the following guidelines: (i) your willful misconduct or gross negligence in the performance of your obligations, duties and responsibilities of your position with the Company (including those as an employee of the Company set forth in the Company’s Code of Business Conduct and Ethics dated June 1, 2006, as same may be amended from time to time provided such amendment affects all executive officers of the Company), (ii) your dishonesty or misappropriation, in either case that is willful and material, relating to the Company or any of its funds, properties, or other assets, (iii) your inexcusable repeated or prolonged absence from work (other than as a result of, or in connection with, a Disability), (iv) any unauthorized disclosure by you of Confidential Information or proprietary information of the Company in violation of Section 12(d) which is reasonably likely to result in material harm to the Company, (v) your conviction of a felony (including entry of a guilty or nolo contender plea) involving fraud, dishonesty, or moral turpitude, (vi) a violation of federal or state securities laws, or (vii) the failure by you to attempt to perform faithfully the duties and responsibilities of your position with the Company, or other material breach by you of this Letter, provided any such failure or breach described in clauses (i), (ii), (iii), (iv), (vi) and (vii) is not cured, to the extent cure is possible, by you within thirty (30) days after written notice thereof from the Company to you; provided, however, that no failure or breach described in clauses (i), (ii), (iii), (iv), (vi) and (vii) shall constitute Cause unless (x) the Company first gives you written notice of its intention to terminate your employment for Cause and the grounds of such termination no fewer than ten (10) days prior to the date of termination; and (y) you are provided an opportunity to appear before the Board, with or without legal representation at your election to present arguments on your own behalf; and (z) if you elect to so appear, such failure or breach is not cured, to the extent cure is possible, within thirty (30) days after written notice from the Company to you that, following such appearance, the Board has determined in good faith that Cause exists and has not, following the initial notice from the Company, been cured; provided further, however, that notwithstanding anything to the contrary in this Letter and subject to the other terms of this proviso, the Company may take any and all actions, including
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without limitation suspension (but not without pay), it deems appropriate with respect to you and your duties at the Company pending such appearance and subsequent to such appearance during which such failure or breach has not been cured. No act or failure to act on your part will be considered “willful” unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interests of the Company.
For purposes of this Letter, “Disability” shall mean physical or mental incapacity of a nature which prevents you, in the good faith judgment of the Committee, from performing the duties and responsibilities of your position with the Company for a period of ninety (90) consecutive days or one hundred and fifty (150) days during any year, with each year under this Letter commencing on each anniversary of the date hereof.
For purposes of this Letter, “Good Reason” shall have the meaning ascribed to such term in Treasury Regulation Section 1.409A-1(n)(2)(ii), as determined in good faith by the Committee.
6. Manner of Exercise
You may exercise your Option by giving notice to the Company (or to such service provider as the Company may designate), following such procedures as may be communicated to you from time to time.
The shares of Common Stock represented by the exercise of your Option may consist of authorized but unissued shares or treasury shares of the Company, as determined from time to time by the Committee.
7. Satisfaction of Option Exercise Price
The Option may be exercised by payment of the option exercise price in cash (including check, bank draft, money order, or wire transfer). In addition, your Option may be exercised using such broker cashless exercise procedure or other procedure as the Company may establish from time to time.
8. Termination of Service
(a) General. If your Service terminates for any reason other than for Cause, the Option will terminate ninety (90) calendar days after such termination of Service. Following the termination of your Service, no additional portions of the Option will become exercisable, and the Option will be exercisable only to the extent exercisable on the date of such termination of Service. If your Service terminates for Cause, the Option shall be immediately terminated and may not be exercised.
(b) Adjustments by the Committee. The Committee may, in its discretion, exercised before or after your termination of Service, declare all or any portion of the Option immediately exercisable and/or permit all or any part of the Option to remain exercisable for such period
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designated by it after the time when the Option would have otherwise terminated as provided in Section 8(a), but not beyond the expiration date of your Option as set forth in Section 3 above.
(c) Committee Determinations. The Committee shall have absolute discretion to determine the date and circumstances of the termination of your Service, and its determination shall be final, conclusive and binding upon you.
9. Restrictions on Option Exercise; Delivery of Shares
(a) Even though your Option may be otherwise exercisable, your right to exercise the Option will be suspended if the Committee determines that your exercise of the Option would violate applicable laws or regulations. The suspension will last until the exercise would be lawful. Any such suspension will not extend the term of your Option.
(b) Even though your Option may be otherwise exercisable, the Committee may refuse to permit such exercise if it determines, in its discretion, that any of the following circumstances is present:
| (i) | the shares of Common Stock to be acquired upon such exercise are required to be registered or qualified under any federal or state securities law, or to be listed on any securities exchange or quotation system, and such registration, qualification, or listing has not occurred; |
| (ii) | the consent or approval of any government regulatory body is required and has not been obtained; |
| (iii) | the satisfaction of withholding tax is required and has not occurred; |
| (iv) | representations by you or other information is determined by counsel for the Company to be necessary or desirable in order to comply with any federal or state securities laws or regulations, and you have not provided such representations or information; or |
| (v) | an agreement by you with respect to the disposition of shares of Common Stock to be acquired upon exercise of your Option is determined by the Committee to be necessary or desirable in order to comply with any federal or state securities laws or regulations, or is required by the terms of this Letter, and you have not executed such agreement. |
(c) Shares of Common Stock to be delivered to you in connection with any exercise of the Option shall be delivered to you as soon as practicable and, at the Company’s election, the Company may effect such delivery by causing such number of shares of Common Stock to be deposited via DWAC into a brokerage account in your name. Common Stock delivered upon the exercise of the Option will be fully transferable (subject to any applicable securities law restrictions) and not subject to forfeiture (other than as set forth in Section 11), and will entitle the holder to all rights of a stockholder of the Company.
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(d) The Company will use reasonable commercial efforts to (i) file and cause to remain effective and current a Registration Statement on Form S-8 (or successor form) with the Securities and Exchange Commission covering shares subject to the Option until such times as all of the shares of Common Stock underlying your Option are either delivered hereunder or the Option has expired or been terminated pursuant to the terms of this Letter, and (ii) until three (3) months after you cease being an “affiliate” of the Company (if you are or were an “affiliate” of the Company), to maintain a resale prospectus thereunder (or otherwise register under the Securities Act of 1933, as amended) the Common Stock underlying your Option.
10. Income Tax Withholding
In connection with the exercise of your Option, you will be required to pay, pursuant to such arrangements as the Company may establish from time to time, any applicable federal, state and local withholding tax liability. If you fail to satisfy your withholding obligation in a time and manner satisfactory to the Committee, the Company shall have the right to withhold the required amount from your salary or other amounts payable to you.
11. Additional Termination Events and Claw-Back
Notwithstanding anything else in this Letter, the unexercised portion of the Option shall be terminated (regardless of the extent to which it is exercisable) if any one of the following occurs: (i) you engage in Competitive Activity (as defined below) with the Company or any of its subsidiaries during your employment by the Company or any of its subsidiaries or within one (1) year after your service with the Company terminates; or (ii) you breach any of the Restrictive Covenants set out in Section 12 (collectively, the “Restrictive Covenants”) within one (1) year after the cessation of your employment with the Company or any subsidiary.
The Company reserves the right (as provided below) to claw-back shares of Common Stock delivered under this Letter pursuant to each exercise of the Option by you if you engage in Competitive Activity or violate any of the Restrictive Covenants within one (1) year after the delivery of such shares of Common Stock. If the Committee determines, in its good faith discretion, that all or some portion of the shares of Common Stock delivered to you will be clawed-back, then you shall be required to repay to the Company the Repayment Amount (as defined below) with respect to such shares of Common Stock. You may satisfy the payment obligation set forth in the preceding sentence by paying the Company cash, by delivering to the Company shares of Common Stock, or by remitting to the Company a combination of cash and shares of Common Stock, such that the Fair Market Value (measured as of the day before your delivery to the Company of shares of Common Stock) of any shares of Common Stock you deliver to the Company, plus the amount of any cash you pay to the Company, equals the Repayment Amount. The “Repayment Amount” with respect to the shares of Common Stock delivered to you upon any exercise of the Option shall mean the lesser of the Exercise Date Spread Value (as defined below) with respect to such exercise of the Option and the Delivery Date Spread Value (as defined below) with respect to such exercise of the Option, in each case reduced by the amount of taxes paid by you with respect to such exercise of the Option; provided that neither the Exercise Date Spread Value nor the Delivery Date Spread Value shall be less than zero. With respect to each exercise you made of the Option, the “Exercise Date Spread
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Value” is the amount, if any, by which the Fair Market Value (measured as of the date of exercise) of the number of shares of Common Stock underlying the Option with respect to which the Option was exercised on such date, exceeded the aggregate option exercise price for such shares. With respect to each exercise you made of the Option, the “Delivery Date Spread Value” is the amount, if any, by which the Fair Market Value (measured as of the day before you remit the Repayment Amount to the Company) of the number of shares of Common Stock underlying the Option with respect to which the Option was exercised, exceeded the aggregate option exercise price for such shares. In addition to any other remedy available to the Company under applicable law, the Company shall have the right to offset any other amounts payable to you by the amount of any required repayment by you which has not been repaid.
For purposes of this Letter, “Competitive Activity” means your service as a director, officer, employee, principal, agent, stockholder, member, owner or partner of, or you permit your name to be used in connection with the activities of, any other business or organization anywhere in the United States, or in any other geographic area in which the Company or any of its subsidiaries operates or with respect to which the Company provides financial news and commentary coverage (or from which such other business or organization provides financial news and commentary coverage of the United States), which engages in a business that competes with any business in which the Company or any subsidiary is engaged (a “Competing Business”); provided, however, that, notwithstanding the foregoing, it shall not be a Competitive Activity for you to (i) become the registered or beneficial owner of up to three percent (3%) of any class of capital stock of a competing corporation registered under the Securities Exchange Act of 1934, as amended, provided that you do not otherwise participate in the business of such corporation or (ii) work in a non-competitive business of a company which is carrying on a Competing Business, the revenues of which represent less than twenty percent (20%) of the consolidated revenues of that company, or, as a result thereof, owning compensatory equity in that company.
For purposes of this Letter, “Fair Market Value” of a share of Common Stock on any date shall be (i) if the principal market for the Common Stock is a national securities exchange, the closing sales price per share of the Common Stock on such day (or, if such exchange is not open on such day, on the next day such exchange is open) as reported by such exchange or on a consolidated tape reflecting transactions on such exchange, or (ii) if the principal market for the Common Stock is not a national securities exchange, the closing average of the highest bid and lowest asked prices per share of Common Stock on such day (or, if such exchange is not open on such day, on the next day such exchange is open) as reported by the market upon which the Common Stock is quoted, or an independent dealer in the Common Stock, as determined by the Company in good faith; provided, however, that if clauses (i) and (ii) are all inapplicable, or if no trades have been made and no quotes are available for such day, the Fair Market Value of the Common Stock shall be determined by the Committee in good faith by any method consistent with applicable regulations adopted by the United States Treasury Department relating to stock options or stock valuation.
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12. Restrictive Covenants
| a. | Non-Solicitation of Employees |
You agree that, during your employment by the Company or any subsidiary and through the end of one (1) year after the cessation of your employment with the Company or any subsidiary, you will not solicit for employment or hire, in any business enterprise or activity, any employee of the Company or any subsidiary who was employed by the Company or a subsidiary during your period of employment by the Company or a subsidiary provided that (a) the foregoing shall not be violated by any general advertising not targeted at any Company or subsidiary employees nor by you serving as a reference upon request, and (b) you may solicit and hire any one or more former employees of the Company or its subsidiaries who had ceased being such an employee for a period of at least six (6) months prior to any such solicitation or hiring.
| b. | Non-Solicitation of Clients and Vendors |
You agree that, during your employment by the Company or any subsidiary and through the end of one (1) year after the cessation of your employment with the Company or any subsidiary, you will not solicit, in any business enterprise or activity, any client, customer, licensee, licensor, third-party service provider or vendor (a “Business Relation”) of the Company or any subsidiary who was a Business Relation of the Company or any subsidiary during your period of employment by the Company or any subsidiary to (i) cease being a Business Relation of the Company or any subsidiary or (ii) become a Business Relation of a Competing Business unless (without you having solicited such third party to cease such relationship) such third party ceased being a Business Relation of the Company or any subsidiary for a period of at least six (6) months prior to such solicitation.
| c. | Non-Disparagement |
During your employment by the Company or any subsidiary and indefinitely thereafter, neither party shall make any statements, written or oral, to any third party which disparage, criticize, discredit or otherwise operate to the detriment of you or the Company, its present or former officers, shareholders, directors and employees and their respective business reputation and/or goodwill, provided, however, that nothing in this Section 12(c) shall prohibit either party from (i) making any truthful statements or disclosures required by applicable law regulation or (ii) taking any action to enforce its rights under this Letter or any other agreement in effect between the parties.
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| d. | Confidentiality |
| 1) | During your employment by the Company or any subsidiary and indefinitely thereafter,
you shall keep secret and retain in strictest confidence, any and all Confidential Information relating to the Company, except
where your disclosure or use of such Confidential Information is in furtherance of the performance by you of your duties to the
Company and not for personal benefit or the benefit of any interest adverse to the Company’s interests. For purposes of this
Letter, “Confidential Information” shall mean any information including without limitation plans, specifications,
models, samples, data, customer lists and customer information, computer programs and documentation, and other technical and/or
business information, in whatever form, tangible or intangible, that can be communicated by whatever means available at such time,
that relates to the Company’s current business or future business contemplated during your employment, products, services
and development, or information received from others that the Company is obligated to treat as confidential or proprietary (provided
that such confidential information shall not include any information that (a) has become generally available to the public or is
generally known in the relevant trade or industry other than as a result of an improper disclosure by you, or (b) was available
to or became known to you prior to the disclosure of such information on a non-confidential basis without breach of any duty of
confidentiality to the Company), and you shall not disclose such confidential information to any Person (as defined below) other
than the Company, except with the prior written consent of the Company, as may be required by law or court or administrative order
(in which event you shall so notify the Company as promptly as practicable), or in performance of your duties on behalf of the
Company. Further, this Section 12(d) shall not prevent you from disclosing Confidential Information in connection with any litigation,
arbitration or mediation to enforce this Letter or other agreement between the parties, provided such disclosure is necessary for
you to assert any claim or defense in such proceeding. For purposes of this Letter, “Person” shall mean an individual, corporation, partnership, limited liability company, limited liability partnership, association, trust or other unincorporated organization or entity. |
| 2) | Upon your termination of employment for any reason, you shall return to the Company all copies, reproductions and summaries of Confidential Information in your possession and use reasonable efforts to erase the same from all media in your possession, and, if the Company so requests, shall certify in writing that you have done so, except that you may retain such copies, reproductions and summaries during any period of litigation, arbitration or mediation referred to in Section 12(d)(1). All Confidential Information is and shall remain the property of the Company (or, in the case of information that the Company receives from a third party which it is obligated to treat as confidential, then the property of such |
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| third party); provided, you shall be entitled to retain copies of (i) information showing your compensation or relating to reimbursement of expenses, (ii) information that is required for the preparation of your personal income tax return, (iii) documents provided to you in your capacity as a participant in any employee benefit plan, policy or program of the Company and (iv) this Letter and any other agreement by and between you and the Company with regard to your employment or termination thereof. |
| 3) | All Intellectual Property (as hereinafter defined) and Technology (as hereinafter defined) created, developed, obtained or conceived of by you during your employment, and all business opportunities presented to you during your employment, shall be owned by and belong exclusively to the Company, provided that they reasonably relate to any of the business of the Company on the date of such creation, development, obtaining or conception, and you shall (i) promptly disclose any such Intellectual Property, Technology or business opportunity to the Company, and (ii) execute and deliver to the Company, without additional compensation, such instruments as the Company may require from time to time to evidence its ownership of any such Intellectual Property, Technology or business opportunity. For purposes of this Letter, (x) the term “Intellectual Property” means and includes any and all trademarks, trade names, service marks, service names, patents, copyrights, and applications therefor, and (y) the term “Technology” means and includes any and all trade secrets, proprietary information, invention, discoveries, know-how, formulae, processes and procedures. |
The parties acknowledge that the restrictions contained in this Section 12 are a reasonable and necessary protection of the immediate interests of the Company, and any violation of these restrictions could cause substantial injury to the Company and that the Company would not have entered into this Letter, without receiving the additional consideration offered by you in binding yourself to any of these restrictions. In the event of a breach or threatened breach by you of any of these restrictions, the Company shall be entitled to apply to any court of competent jurisdiction for an injunction restraining you from such breach or threatened breach; provided, however, that the right to apply for an injunction shall not be construed as prohibiting the Company from pursuing any other available remedies for such breach or threatened breach.
13. No Guarantee of Continuation of Service
This grant of this Option does not constitute an assurance of continued Service for any period or in any way interfere with the Company’s right to terminate your Service.
14. Administration
The Committee has the sole power to exercise its good faith judgment to interpret the Plan and this Letter and to act upon all matters relating this grant to the extent provided in the Plan and not inconsistent with the terms of this Letter. Any decision, determination,
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interpretation, or other action taken pursuant to the provisions of the Plan and this Letter by the Committee shall be final, binding, and conclusive.
15. Section 409A
Notwithstanding anything to the contrary in the Plan or this Letter to the contrary, no benefits to be paid or provided to you, if any, pursuant to this Letter that, when considered together with any other severance payments or separation benefits, are considered deferred compensation not exempt under Section 409A (together, the “Deferred Payments”) will be paid or otherwise provided until you have a “separation from service” within the meaning of Section 409A. For purposes of this Letter, “Section 409A” means Section 409A of the Internal Revenue Code of 1986, as amended or any regulations or Treasury guidance promulgated thereunder (“Section 409A”).
Notwithstanding any provision of the Plan or this grant to the contrary, if you are a “specified employee” as determined by the Board or the Committee, in accordance with Section 409A, you shall not be entitled to any Deferred Payments until the earlier of (i) the date which is six (6) months and one (1) day after your termination of employment for any reason other than death (except that during such six (6) month period you may receive total payments from the Company that do not exceed the amount specified in Treas. Reg. Section 1.409A-1(b)(9) or that constitute a short-term deferral within the meaning of Section 409A), or (ii) the date of your death.
Notwithstanding any provision of the Plan or this Letter to the contrary, to the extent any compensation or award which constitutes deferred compensation within the meaning of Section 409A shall vest upon the occurrence of a Change of Control and such Change of Control does not constitute a “change in the ownership or effective control” or a “change in the ownership of a substantial portion of the assets” of the Company within the meaning of Section 409A, then notwithstanding such vesting, payment will be made to you on the earliest of (i) your “separation from service” with the Company (determined in accordance with Section 409A) or, if you are a specified employee within the meaning of Section 409A, such later date as provided in the preceding paragraph, (ii) the date payment otherwise would have been made, or (iii) the date of your death.
This Option is intended to be exempt from or comply with the requirements of Section 409A so that none of the benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities or ambiguous terms herein will be interpreted to be exempt or so comply. If any provision of this Letter or of any award of compensation, including equity compensation or benefits would cause you to incur any additional tax or interest under Section 409A, the parties agree to negotiate in good faith to reform such provision in such manner as to maintain, to the maximum extent practicable, the original intent and economic terms of the applicable provision without violating the provisions of Section 409A.
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16. Amendment
The Committee may from time to time amend the terms of this grant in accordance with the terms of the Plan in effect at the time of such amendment, but no amendment which is unfavorable to you can be made without your written consent.
The Plan is of unlimited duration, but may be amended, terminated or discontinued by the Board of Directors of the Company at any time. However, no amendment, termination or discontinuance of the Plan will unfavorably affect this grant.
Notwithstanding the foregoing, the Committee expressly reserves the right to amend the terms of the Plan and this grant with your consent which shall not be unreasonably withheld to the extent it determines that such amendment is necessary or desirable for an exemption from or compliance with the distribution, acceleration and election requirements of Section 409A of the Code.
17. Notices
Unless otherwise provided herein, any notice, exercise of rights or other communication required or permitted to be given hereunder shall be in writing and shall be given by overnight delivery service such as Federal Express or personal delivery against receipt, or mailed by registered or certified mail (return receipt requested), to the party to whom it is given at, in the case of the Company, Compensation Committee Chair, TheStreet, Inc., 14 Wall Street, 15th Floor, New York, NY 10005, or, in the case of you, at your principal residence address as then reflected on the records of the Company or such other address as such party may hereafter specify by notice to the other party hereto. Any notice or other communication shall be deemed to have been given as of the date so personally delivered or transmitted by telecopy or like transmission or on the next business day after sent by overnight delivery service for next business day delivery or on the fifth business day after sent by registered or certified mail.
18. Representations
The Company hereby represents and warrants that the execution and delivery of this Letter and the performance by the Company of its obligations hereunder have been duly authorized by all necessary corporate action of the Company.
19. Amendment
This Letter may be amended only by a written agreement signed by the parties hereto.
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20. Binding Effect
This Letter shall be binding upon and inure to the benefit of the Company and any Successor. As used herein, a “Successor” shall mean any successor organization that succeeds to the Company (or to any direct or indirect successor) by merger or consolidation or operation of law, or by acquisition of all or substantially all of the assets of the Company (or of any direct or indirect successor).
21. Governing Law
This Letter shall be governed by and construed in accordance with the internal laws of the State of New York applicable to contracts to be performed wholly within the state and without regard to its conflict of laws provisions that would defer to the laws of another jurisdiction, except to the extent the laws of the State of Delaware mandatorily govern.
22. Severability
If any provision of this Letter shall for any reason be held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof shall not be affected or impaired thereby. Moreover, if any one or more of the provisions of this Letter shall be held to be excessively broad as to duration, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the maximum extent allowable by applicable law. To the extent permitted by applicable law, each party hereto waives any provision of law that renders any provision of this Letter invalid, illegal or unenforceable in any way.
23. Execution in Counterparts
This Letter may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same instrument.
24. Entire Agreement
This Letter, together with award agreements entered into by and between you and the Company with respect to outstanding incentive awards and incentive awards granted on or before the date hereof, sets forth the entire agreement, and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof and thereof.
25. Titles and Headings
Titles and headings to Sections herein are for purposes of reference only, and shall in no way limit, define or otherwise affect the meaning or interpretation of any of the provisions of this Letter.
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26. Consent to Jurisdiction
The parties hereto each hereby irrevocably submit to the exclusive jurisdiction of any New York State or Federal court sitting in the Borough of Manhattan, City of New York in any action or proceeding to enforce the provisions of this Letter, and waives the defense of inconvenient forum to the maintenance of any such action or proceeding.
This Letter contains the formal terms and conditions of your award and accordingly should be retained in your files for future reference. The Company may require you to provide evidence of your acknowledgment of this Letter using such means of notification as may be communicated to you by the Company or its service provider.
| Very truly yours, | ||
| THESTREET, INC. | ||
| By: | /s/ Elisabeth DeMarse | |
| Name: | Elisabeth DeMarse | |
| Title: | Chairman and Chief Executive Officer | |
| AGREED TO AND ACCEPTED: | |
| /s/ Erwin Eichmann | |
| Erwin Eichmann |
| 14 |
EXHIBIT 10.26
February 1, 2013
John C. Ferrara
Dear John,
We are pleased to extend to you an offer of employment with TheStreet, Inc. (the “Company” or “TheStreet”) pursuant to this letter agreement (the “Letter”) as described below:
| 1. | POSITION: You will serve in a full-time capacity at TheStreet, and will be appointed as Chief Financial Officer immediately following the effective date of the resignation of our current Chief Financial Officer. You will perform such duties, functions and responsibilities as are generally incident to such position, reporting to and subject to the direction of the Chief Executive Officer or his or her designee. |
| 2. | TERM: We anticipate that you will commence employment on a mutually agreed upon date on or before March 1, 2013 (the actual date you start employment, the “Start Date”) and your employment shall continue until terminated by either you or the Company. |
| 3. | AT WILL STATUS: Your employment with TheStreet is “at will.” This means that either you or TheStreet may terminate your employment at any time, with or without notice, and with or without cause. Your status as an “at will” employee cannot be changed or retracted, either orally or in writing, by any policy or conduct, unless you receive a document expressly stating that your employment is no longer at-will, which is signed both by you and the Company’s Chief Executive Officer. |
| 4. | COMPENSATION: We will compensate you as an exempt employee at the rate of $9,166.67 semi-monthly, which is $220,000 on an annualized basis, which will be reviewed annually for potential increase at the discretion of the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”). Payments are made on the 15th and last day of each month (or the preceding business day if the regular payday falls on a weekend or holiday) and will be subject to applicable withholding and taxes. |
BONUS: In addition to your base salary, you are eligible to receive an annual bonus of up to 40% of your base salary (prorated from your Start Date for 2013), as determined by the Company in its sole discretion, which determination may be based on both your individual performance and the performance of the Company. Bonuses will be calculated quarterly. Target bonuses for each calendar quarter will be 22.5% of the annual target bonus, with the remaining 10% of the annual target bonus to be based upon the full year. Any bonus amount determined by the Company to be payable shall be paid not later than 30 days following the end of the quarter, with respect to the first, second and third quarter bonus amounts and not later than 60 days following the end of the year, with respect to the fourth quarter and full year bonus amounts, provided that you must remain a full-time employee of the Company through the payment date in order to receive the payment.
NEW HIRE BONUS: In addition to your base salary and any other annual bonuses that you may be entitled to, as an incentive for you to spend additional time familiarizing yourself with the Company so as to better be able to perform your job functions, the Company will
14 Wall Street 15th Floor NY, NY 10005 T 212 321 5000 www.thestreet.com
pay you an initial bonus in the amount of $10,000 on the first payroll date after your Start Date, less applicable withholding and taxes.
| 5. | BENEFITS: You will be eligible to participate in any employment benefits plans provided by TheStreet, subject to the terms, conditions and eligibility requirements of any relevant benefits plan documents. At present, these benefits include, but are not limited to, group medical, dental and vision plans, 100% company paid coverage under the Company’s comprehensive Life Insurance, Short-Term and Long-Term Disability Plans subject to applicable waiting periods and three (3) weeks of paid vacation annually (prorated for any partial year). You will also have the opportunity to participate in TheStreet’s 401(k) Savings Plan, Flexible Spending Account Plans and Transit Benefits, subject to the terms, conditions and eligibility requirements of such plans. TheStreet reserves the right to amend or terminate any of its benefit programs at any time with or without notice in its sole discretion. |
| 6. | EQUITY COMPENSATION: Subject to approval by the Compensation Committee, as soon as practicable following the Start Date, the Company will grant you an option to purchase 325,000 shares of common stock of the Company (the “Option”). The Option will vest and become exercisable at the rate of twenty-five percent of the shares subject to the Option on the first anniversary of the Start Date and 1/36 of the remaining seventy-five percent of the shares subject to the Option in monthly increments over the next 36 months thereafter on the anniversary of the Start Date (or the last day of the month, if necessary). The per share exercise price for the Option will be the closing price of TheStreet common stock on the NASDAQ Stock Market on the grant date. The Option will be a nonqualified and a non-plan grant intended to constitute an “inducement award” within the meaning, and subject to the requirements of, the corporate governance rules for the NASDAQ Stock Market. Details regarding this grant, including any terms and conditions will be set forth in a separate grant agreement, which will be in substantially the form attached as Exhibit A hereto (the actual agreement evidencing the Option, referred to as the “Option Agreement”). |
| 7. | POLICIES: As an employee, you will be required to comply fully with the provisions of the Company’s Investment policy, Code of Business Conduct and Ethics, Compliance Manual and other compliance policies and procedures relevant to your position with the Company (the “Employment Materials”). Compliance is a condition of employment at TheStreet and you will be required to sign forms confirming that you will abide by the requirements of these policies and procedures. These materials, however, will not change your at-will employment status and are merely meant to provide additional information relating to your job. |
| 8. | SEVERANCE: In the event that your employment is terminated by the Company (or any successor) for any reason other than for “Cause” (as defined in the Option Agreement), you will receive: |
| (a) | A severance payment (the “Severance Payment”) equal to six (6) months of your current base salary; provided, however, if such termination of employment other than for Cause occurs during the period commencing fifteen (15) days prior to a “Change of Control” (as defined in the Company’s 2007 Performance Incentive Plan) and ending on the twelve (12) month anniversary of such Change of Control, the Severance Payment shall be increased to twelve (12) months of your current base salary (the number of months used to calculate the Severance Payment |
14 Wall Street 15th Floor NY, NY 10005 T 212 321 5000 www.thestreet.com
| pursuant to this Section 8(a) referred to as the “Severance Period”). The Severance Payment, if any, shall be made within 30 days of the date of termination of your employment. |
| (b) | If you elect continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) for you and your eligible dependents, within the time period prescribed pursuant to COBRA, the Company will reimburse you for or pay directly on your behalf the COBRA premiums for such coverage (at the coverage levels in effect immediately prior to your termination or resignation) until the earlier of (i) a number of months from the last date of your employment with TheStreet equal to the Severance Period, or (ii) the date upon which you and/or your eligible dependents becomes covered under similar plans. COBRA reimbursements will be made by the TheStreet to you consistent with the TheStreet’s normal expense reimbursement policy. The amount of the COBRA premiums reimbursed to you or paid directly on your behalf will be taxable to the extent required to avoid adverse consequences to you or TheStreet under either Section 105(h) of the Internal Revenue Code of 1986, as amended (the “Code”) or the Patient Protection and Affordable Care Act of 2010. |
| (c) | Your rights to the severance and benefits in this Section 8 are subject to your execution of an appropriate release agreement in a form substantially equivalent to the sample form previously provided to you by TheStreet. |
| 9. | PARACHUTE PAYMENT LIMITATION: Anything in this Letter or the Option Agreements to the contrary notwithstanding, in the event that: |
| (a) | the aggregate payments or benefits to be made or distributed by TheStreet or its affiliates to you or for your benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Letter or otherwise) which are deemed to be parachute payments as defined in Code Section 280G or any successor thereto (the “Change of Control Benefits”) would be deemed to include an “excess parachute payment” under Code Section 280G; and |
| (b) | if such Change of Control Benefits were reduced to an amount (the “Non-Triggering Amount”), the value of which is one dollar ($1.00) less than an amount equal to three (3) times your “base amount,” as determined in accordance with Code Section 280G and the Non-Triggering Amount less the product of the marginal rate of any applicable state and federal income tax times the Non-Triggering Amount would be greater than the aggregate value of the Change of Control Benefits (without such reduction) minus (x) the amount of tax required to be paid by you thereon by Code Section 4999 and further minus (y) the product of the Change of Control Benefits times the marginal rate of any applicable state and federal income tax, then the Change of Control Benefits shall be reduced to the Non-Triggering Amount. Any reduction made pursuant to this Section 9(b) shall be made in accordance with the following order of priority: (i) stock options whose exercise price exceeds the fair market value of the optioned stock (“Underwater Options”), (ii) Full Credit Payments (as defined below) that are payable in cash, (iii) non-cash Full Credit Payments that are taxable, (iv) non-cash Full Credit Payments that are not taxable, (v) Partial Credit Payments (as defined below) and (vi) non-cash employee welfare benefits. In each case, reductions shall be made in reverse |
14 Wall Street 15th Floor NY, NY 10005 T 212 321 5000 www.thestreet.com
| chronological order such that the payment or benefit owed on the latest date following the occurrence of the event triggering the excise tax will be the first payment or benefit to be reduced (with reductions made pro-rata in the event payments or benefits are owed at the same time). “Full Credit Payment” means a payment, distribution or benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Letter or otherwise, that if reduced in value by one dollar reduces the amount of the parachute payment (as defined in Code Section 280G) by one dollar, determined as if such payment, distribution or benefit had been paid or distributed on the date of the event triggering the excise tax. “Partial Credit Payment” means any payment, distribution or benefit that is not a Full Credit Payment. In no event shall you have any discretion with respect to the ordering of payment reductions. |
| 10. | SECTION 409A: |
| (a) | Notwithstanding anything to the contrary in this Letter, no severance pay or benefits to be paid or provided to you, if any, pursuant to this Letter that, when considered together with any other severance payments or separation benefits, are considered deferred compensation not exempt under Section 409A (together, the “Deferred Payments”) will be paid or otherwise provided until you have a “separation from service” within the meaning of Section 409A. Similarly, no severance payable to you, if any, pursuant to this Letter that otherwise would be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9) will be payable until you have a “separation from service” within the meaning of Section 409A. For purposes of this Letter, “Section 409A” means Code Section 409A or any regulations or Treasury guidance promulgated thereunder (“Section 409A”). |
| (b) | Notwithstanding any provision of this Letter to the contrary, if you are a “specified employee” as determined by the Board of Directors of the Company or the Compensation Committee in accordance with Section 409A, you shall not be entitled to any Deferred Payments until the earlier of (i) the date which is six (6) months and one (1) day after her termination of employment for any reason other than death (except that during such six (6) month period you may receive total payments from the Company that do not exceed the amount specified in Treas. Reg. Section 1.409A-1(b)(9) or that constitute a short-term deferral within the meaning of Section 409A), or (ii) the date of her death. |
| (c) | The foregoing provisions are intended to be exempt from or comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities or ambiguous terms herein will be interpreted to be exempt or so comply. If any provision of this Letter or of any award of compensation, including equity compensation or benefits would cause you to incur any additional tax or interest under Section 409A, the parties agree to negotiate in good faith to reform such provision in such manner as to maintain, to the maximum extent practicable, the original intent and economic terms of the applicable provision without violating the provisions of Section 409A. |
14 Wall Street 15th Floor NY, NY 10005 T 212 321 5000 www.thestreet.com
| (d) | To the extent that reimbursements or in-kind benefits under this Letter constitute non-exempt “nonqualified deferred compensation” for purposes of Section 409A, (1) all reimbursements hereunder shall be made on or prior to the last day of the calendar year following the calendar year in which the expense was incurred by you, (2) any right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (3) the amount of expenses eligible for reimbursement or in-kind benefits provided in any calendar year shall not in any way affect the expenses eligible for reimbursement or in-kind benefits to be provided, in any other calendar year. |
| 11. | GENERAL PROVISIONS: This letter does not represent a guarantee of employment for any particular period. This letter and the Employment Materials contain all of the terms of your employment with the TheStreet and supersede any prior understandings or agreements, whether written or oral, between you and Company. This Letter may not be amended or modified except by an express written agreement signed by you and TheStreet’s Vice President of Human Resources (except that no amendment may change the at will nature of the employment unless in accordance with Paragraph 3). The terms of this letter and the resolution of any disputes hereunder shall be governed by New York law, without reference to principles of choice of law. |
o O o
14 Wall Street 15th Floor NY, NY 10005 T 212 321 5000 www.thestreet.com
We hope that you find the foregoing terms acceptable. We are delighted to have you join TheStreet and look forward to a mutually beneficial working relationship. If you have any questions, please do not hesitate to contact me at 212-321-5090.
Sincerely,
| /s/ Elisabeth DeMarse | |
| Elisabeth DeMarse | |
| Chief Executive Officer | |
| ACCEPTED AND AGREED | |
| /s/ John Ferrara | |
| John Ferrara |
14 Wall Street 15th Floor NY, NY 10005 T 212 321 5000 www.thestreet.com
EXHIBIT A
Form of Stock Option Agreement (Nasdaq Inducement Grant)
14 Wall Street 15th Floor NY, NY 10005 T 212 321 5000 www.thestreet.com
THESTREET, INC.
AGREEMENT FOR GRANT
OF
NON-QUALIFIED STOCK OPTION
March ____, 2013
John C. Ferrara
Dear John:
This letter (the “Letter”) sets forth the terms and conditions of the stock option (“Option”) hereby awarded to you by TheStreet, Inc. (the “Company”).
This award is made outside of, and not from, the Company’s 2007 Performance Incentive Plan (the “Plan”). Nevertheless, this award is subject to the terms and conditions set forth in the Plan, any rules and regulations adopted by the Board of Directors of the Company (the “Board”) or the committee of the Board which administers the Plan (the “Committee”), and this Letter. The provisions of the Plan are hereby incorporated by reference and any term used in this Letter and not defined herein shall have the meaning set forth in the Plan. Unless otherwise indicated, section references contained in this Letter shall refer to the corresponding sections of this Letter. The Option shall be deemed to be a non-qualified stock option within the meaning of the Internal Revenue Code of 1986, as amended. This award is intended to be granted as NASDAQ inducement grants qualifying for the exception to stockholder approval of stock option grants under NASDAQ rule 5635(c)(4) and, therefore, as a condition to receipt of the award, you must complete and execute the attached Investment Representation included herein as Attachment 1.
1. Option Grant
You have been granted an Option to purchase 325,000 shares of the Company’s Common Stock (“Common Stock”) to the extent the Option is exercisable as set forth below. The Option may not be sold, transferred, assigned, pledged or otherwise encumbered by you, in whole or in part; provided that the foregoing shall not affect your right to name a beneficiary under Section 13 of the Plan. The Option may be exercised only by you, except that in the event of your death, the Option may be exercised (at any time prior to its expiration or termination as provided in Sections 8 and 11) by the executor or administrator of your estate or by a person who acquired the right to exercise your Option by will or pursuant to the laws of descent and distribution. Until such time as stock certificates for the shares of Common Stock represented by the purchase of all or portion of the Option have been delivered to you in accordance with Section 4, you shall have none of the rights of a stockholder with respect to the Common Stock with respect to such shares.
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2. Option Exercise Price
The price at which you may purchase the shares of Common Stock underlying the Option is $____ per share.
3. Term of Option
Your Option shall expire, to the extent that it has not previously terminated, on March ____, 2020. However, your Option may terminate prior to such expiration date as provided in Sections 8 and 11. Regardless of the provisions of Sections 5 or 8 or any other provision hereof, in no event can your Option be exercised after the expiration date set forth in this Section 3.
4. Exercisability of Option
Your Option will become exercisable with respect to the following number(s) of shares of Common Stock on the following date(s) as set forth below, provided that you are in the Service (as defined below) of the Company or one of its subsidiaries on such date and the Option has not been terminated in accordance with Sections 8 or 11:
| Date | Number of Shares of Common Stock | |
| March ____, 2014 |
81,250
| |
|
The [first] ([1]st) calendar day of each month between April ____, 2014 and March ____, 2017, inclusive
|
6,770
| |
| March ____, 2017 |
6,800 |
For purposes hereof, you shall be considered to be in the “Service” of the Company or one of its subsidiaries if you are an employee of, or otherwise providing services to, the Company (or one if its subsidiaries, as applicable) on the applicable vesting date; provided that if you are not an employee of the Company or one of its subsidiaries on the applicable vesting date, you are providing services to the Company or one of its subsidiaries on the applicable vesting date pursuant to a written agreement signed by the Company or one of its subsidiaries that expressly agrees that the vesting of the Option shall continue during such period of service.
To the extent that your Option has become exercisable with respect to a number of shares of Common Stock, you may exercise the Option to purchase all or any portion of such shares of Common Stock at any time on or before the date the Option expires or terminates; provided that you may only purchase a whole number of shares of Common Stock.
5. Accelerated Vesting in Certain Events
Notwithstanding Section 4, upon the occurrence of any of the following events, the then-unvested portion of the Option shall become exercisable and may be exercised; provided that such portion of the Option only may be exercised within ninety (90) calendar days from the
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occurrence of such event (but in no event beyond the date set forth in Section 3): (i) the termination of your employment by the Company or any subsidiary thereof without Cause (as defined below) or by you for Good Reason (as defined below) prior to a Change of Control (as defined in the Plan) if such termination is related to the Change of Control; or (ii) a Change of Control, unless (A) either (x) the Company is the surviving corporation in the Change of Control and the award reflected in this Letter is equitably adjusted pursuant to Section 4.4 of the Plan or (y) the award reflected in this Letter is assumed or replaced by a Successor (as defined below) and (B) the award as so adjusted, assumed or replaced (x) has substantially the same potential economic benefits and vesting terms as did the award immediately prior to the Change of Control and (y) provides that the award immediately shall become fully vested and exercisable upon the termination of your employment (by the Company or any subsidiary thereof or by a Successor or any affiliate thereof) without Cause or by you for Good Reason at any time (provided that such portion of the Option only may be exercised within ninety (90) calendar days from such termination (but in no event beyond the date set forth in Section 3)). If you are employed by a Successor or any affiliate thereof following a Change of Control, references in this Letter to the Company shall be understood to be references to the Successor or any such affiliate regarding matters related to the occurrence of non-occurrence of events from and after the date you become employed by the Successor or such affiliate.
For purposes of this Letter, “Cause” shall be determined by the Committee in the exercise of its good faith judgment, in accordance with the following guidelines: (i) your willful misconduct or gross negligence in the performance of your obligations, duties and responsibilities of your position with the Company (including those as an employee of the Company set forth in the Company’s Code of Business Conduct and Ethics dated June 1, 2006, as same may be amended from time to time provided such amendment affects all executive officers of the Company), (ii) your dishonesty or misappropriation, in either case that is willful and material, relating to the Company or any of its funds, properties, or other assets, (iii) your inexcusable repeated or prolonged absence from work (other than as a result of, or in connection with, a Disability), (iv) any unauthorized disclosure by you of Confidential Information or proprietary information of the Company in violation of Section 12(d) which is reasonably likely to result in material harm to the Company, (v) your conviction of a felony (including entry of a guilty or nolo contender plea) involving fraud, dishonesty, or moral turpitude, (vi) a violation of federal or state securities laws, or (vii) the failure by you to attempt to perform faithfully the duties and responsibilities of your position with the Company, or other material breach by you of this Letter, provided any such failure or breach described in clauses (i), (ii), (iii), (iv), (vi) and (vii) is not cured, to the extent cure is possible, by you within thirty (30) days after written notice thereof from the Company to you; provided, however, that no failure or breach described in clauses (i), (ii), (iii), (iv), (vi) and (vii) shall constitute Cause unless (x) the Company first gives you written notice of its intention to terminate your employment for Cause and the grounds of such termination no fewer than ten (10) days prior to the date of termination; and (y) you are provided an opportunity to appear before the Board, with or without legal representation at your election to present arguments on your own behalf; and (z) if you elect to so appear, such failure or breach is not cured, to the extent cure is possible, within thirty (30) days after written notice from the Company to you that, following such appearance, the Board has determined in good faith that Cause exists and has not, following the initial notice from the Company, been cured; provided further, however, that notwithstanding anything to the contrary in this Letter and
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subject to the other terms of this proviso, the Company may take any and all actions, including without limitation suspension (but not without pay), it deems appropriate with respect to you and your duties at the Company pending such appearance and subsequent to such appearance during which such failure or breach has not been cured. No act or failure to act on your part will be considered “willful” unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interests of the Company.
For purposes of this Letter, “Disability” shall mean physical or mental incapacity of a nature which prevents you, in the good faith judgment of the Committee, from performing your duties and responsibilities as Chief Financial Officer for a period of ninety (90) consecutive days or one hundred and fifty (150) days during any year, with each year under this Letter commencing on each anniversary of the date hereof.
For purposes of this Letter, “Good Reason” shall have the meaning ascribed to such term in Treasury Regulation Section 1.409A-1(n)(2)(ii), as determined in good faith by the Committee.
6. Manner of Exercise
You may exercise your Option by giving notice to the Company (or to such service provider as the Company may designate), following such procedures as may be communicated to you from time to time.
The shares of Common Stock represented by the exercise of your Option may consist of authorized but unissued shares or treasury shares of the Company, as determined from time to time by the Committee.
7. Satisfaction of Option Exercise Price
The Option may be exercised by payment of the option exercise price in cash (including check, bank draft, money order, or wire transfer). In addition, your Option may be exercised using such broker cashless exercise procedure or other procedure as the Company may establish from time to time.
8. Termination of Service
(a) General. If your Service terminates for any reason other than for Cause, the Option will terminate ninety (90) calendar days after such termination of Service. Following the termination of your Service, no additional portions of the Option will become exercisable, and the Option will be exercisable only to the extent exercisable on the date of such termination of Service. If your Service terminates for Cause, the Option shall be immediately terminated and may not be exercised.
(b) Adjustments by the Committee. The Committee may, in its discretion, exercised before or after your termination of Service, declare all or any portion of the Option immediately exercisable and/or permit all or any part of the Option to remain exercisable for such period
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designated by it after the time when the Option would have otherwise terminated as provided in Section 8(a), but not beyond the expiration date of your Option as set forth in Section 3 above.
(c) Committee Determinations. The Committee shall have absolute discretion to determine the date and circumstances of the termination of your Service, and its determination shall be final, conclusive and binding upon you.
9. Restrictions on Option Exercise; Delivery of Shares
(a) Even though your Option may be otherwise exercisable, your right to exercise the Option will be suspended if the Committee determines that your exercise of the Option would violate applicable laws or regulations. The suspension will last until the exercise would be lawful. Any such suspension will not extend the term of your Option.
(b) Even though your Option may be otherwise exercisable, the Committee may refuse to permit such exercise if it determines, in its discretion, that any of the following circumstances is present:
| (i) | the shares of Common Stock to be acquired upon such exercise are required to be registered or qualified under any federal or state securities law, or to be listed on any securities exchange or quotation system, and such registration, qualification, or listing has not occurred; |
| (ii) | the consent or approval of any government regulatory body is required and has not been obtained; |
| (iii) | the satisfaction of withholding tax is required and has not occurred; |
| (iv) | representations by you or other information is determined by counsel for the Company to be necessary or desirable in order to comply with any federal or state securities laws or regulations, and you have not provided such representations or information; or |
| (v) | an agreement by you with respect to the disposition of shares of Common Stock to be acquired upon exercise of your Option is determined by the Committee to be necessary or desirable in order to comply with any federal or state securities laws or regulations, or is required by the terms of this Letter, and you have not executed such agreement. |
(c) Shares of Common Stock to be delivered to you in connection with any exercise of the Option shall be delivered to you as soon as practicable and, at the Company’s election, the Company may effect such delivery by causing such number of shares of Common Stock to be deposited via DWAC into a brokerage account in your name. Common Stock delivered upon the exercise of the Option will be fully transferable (subject to any applicable securities law restrictions) and not subject to forfeiture (other than as set forth in Section 11), and will entitle the holder to all rights of a stockholder of the Company.
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(d) The Company will use reasonable commercial efforts to (i) file and cause to remain effective and current a Registration Statement on Form S-8 (or successor form) with the Securities and Exchange Commission covering shares subject to the Option until such times as all of the shares of Common Stock underlying your Option are either delivered hereunder or the Option has expired or been terminated pursuant to the terms of this Letter, and (ii) until three (3) months after you cease being an “affiliate” of the Company, to maintain a resale prospectus thereunder (or otherwise register under the Securities Act of 1933, as amended) the Common Stock underlying your Option.
10. Income Tax Withholding
In connection with the exercise of your Option, you will be required to pay, pursuant to such arrangements as the Company may establish from time to time, any applicable federal, state and local withholding tax liability. If you fail to satisfy your withholding obligation in a time and manner satisfactory to the Committee, the Company shall have the right to withhold the required amount from your salary or other amounts payable to you.
11. Additional Termination Events and Claw-Back
Notwithstanding anything else in this Letter, the unexercised portion of the Option shall be terminated (regardless of the extent to which it is exercisable) if any one of the following occurs: (i) you engage in Competitive Activity (as defined below) with the Company or any of its subsidiaries during your employment by the Company or any of its subsidiaries or during the Non-Compete Period (as defined below); or (ii) you breach any of the Restrictive Covenants set out in Section 12 (collectively, the “Restrictive Covenants”) within one (1) year after the cessation of your employment with the Company or any subsidiary. For purposes of this Letter, the term “Non-Compete Period” shall mean the six (6) month period immediately following your termination of service with the Company; provided, however, that if your termination of service occurs during the period commencing fifteen (15) days prior to a Change of Control (as defined in the Plan) and ending on the twelve (12) month anniversary of such Change of Control, the Non-Compete Period shall be twelve (12) months.
The Company reserves the right (as provided below) to claw-back shares of Common Stock delivered under this Letter pursuant to each exercise of the Option by you if you engage in Competitive Activity during the Non-Compete Period or violate any of the Restrictive Covenants within one (1) year after the delivery of such shares of Common Stock. If the Committee determines, in its good faith discretion, that all or some portion of the shares of Common Stock delivered to you will be clawed-back, then you shall be required to repay to the Company the Repayment Amount (as defined below) with respect to such shares of Common Stock. You may satisfy the payment obligation set forth in the preceding sentence by paying the Company cash, by delivering to the Company shares of Common Stock, or by remitting to the Company a combination of cash and shares of Common Stock, such that the Fair Market Value (measured as of the day before your delivery to the Company of shares of Common Stock) of any shares of Common Stock you deliver to the Company, plus the amount of any cash you pay to the Company, equals the Repayment Amount. The “Repayment Amount” with respect to the shares of Common Stock delivered to you upon any exercise of the Option shall mean the lesser of the
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Exercise Date Spread Value (as defined below) with respect to such exercise of the Option and the Delivery Date Spread Value (as defined below) with respect to such exercise of the Option, in each case reduced by the amount of taxes paid by you with respect to such exercise of the Option; provided that neither the Exercise Date Spread Value nor the Delivery Date Spread Value shall be less than zero. With respect to each exercise you made of the Option, the “Exercise Date Spread Value” is the amount, if any, by which the Fair Market Value (measured as of the date of exercise) of the number of shares of Common Stock underlying the Option with respect to which the Option was exercised on such date, exceeded the aggregate option exercise price for such shares. With respect to each exercise you made of the Option, the “Delivery Date Spread Value” is the amount, if any, by which the Fair Market Value (measured as of the day before you remit the Repayment Amount to the Company) of the number of shares of Common Stock underlying the Option with respect to which the Option was exercised, exceeded the aggregate option exercise price for such shares. In addition to any other remedy available to the Company under applicable law, the Company shall have the right to offset any other amounts payable to you by the amount of any required repayment by you which has not been repaid.
For purposes of this Letter, “Competitive Activity” means your service as a director, officer, employee, principal, agent, stockholder, member, owner or partner of, or you permit your name to be used in connection with the activities of, any other business or organization anywhere in the United States, or in any other geographic area in which the Company or any of its subsidiaries operates or with respect to which the Company provides financial news and commentary coverage (or from which such other business or organization provides financial news and commentary coverage of the United States), which engages in a business that competes with any business in which the Company or any subsidiary is engaged (a “Competing Business”); provided, however, that, notwithstanding the foregoing, it shall not be a Competitive Activity for you to (i) become the registered or beneficial owner of up to three percent (3%) of any class of capital stock of a competing corporation registered under the Securities Exchange Act of 1934, as amended, provided that you do not otherwise participate in the business of such corporation or (ii) work in a non-competitive business of a company which is carrying on a Competing Business, the revenues of which represent less than twenty percent (20%) of the consolidated revenues of that company, or, as a result thereof, owning compensatory equity in that company.
For purposes of this Letter, “Fair Market Value” of a share of Common Stock on any date shall be (i) if the principal market for the Common Stock is a national securities exchange, the closing sales price per share of the Common Stock on such day (or, if such exchange is not open on such day, on the next day such exchange is open) as reported by such exchange or on a consolidated tape reflecting transactions on such exchange, or (ii) if the principal market for the Common Stock is not a national securities exchange, the closing average of the highest bid and lowest asked prices per share of Common Stock on such day (or, if such exchange is not open on such day, on the next day such exchange is open) as reported by the market upon which the Common Stock is quoted, or an independent dealer in the Common Stock, as determined by the Company in good faith; provided, however, that if clauses (i) and (ii) are all inapplicable, or if no trades have been made and no quotes are available for such day, the Fair Market Value of the Common Stock shall be determined by the Committee in good faith by any method consistent
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with applicable regulations adopted by the United States Treasury Department relating to stock options or stock valuation.
12. Restrictive Covenants
| a. | Non-Solicitation of Employees |
You agree that, during your employment by the Company or any subsidiary and through the end of one (1) year after the cessation of your employment with the Company or any subsidiary, you will not solicit for employment or hire, in any business enterprise or activity, any employee of the Company or any subsidiary who was employed by the Company or a subsidiary during your period of employment by the Company or a subsidiary provided that (a) the foregoing shall not be violated by any general advertising not targeted at any Company or subsidiary employees nor by you serving as a reference upon request, and (b) you may solicit and hire any one or more former employees of the Company or its subsidiaries who had ceased being such an employee for a period of at least six (6) months prior to any such solicitation or hiring.
| b. | Non-Solicitation of Clients and Vendors |
You agree that, during your employment by the Company or any subsidiary and through the end of one (1) year after the cessation of your employment with the Company or any subsidiary, you will not solicit, in any business enterprise or activity, any client, customer, licensee, licensor, third-party service provider or vendor (a “Business Relation”) of the Company or any subsidiary who was a Business Relation of the Company or any subsidiary during your period of employment by the Company or any subsidiary to (i) cease being a Business Relation of the Company or any subsidiary or (ii) become a Business Relation of a Competing Business unless (without you having solicited such third party to cease such relationship) such third party ceased being a Business Relation of the Company or any subsidiary for a period of at least six (6) months prior to such solicitation.
| c. | Non-Disparagement |
During your employment by the Company or any subsidiary and indefinitely thereafter, neither party shall make any statements, written or oral, to any third party which disparage, criticize, discredit or otherwise operate to the detriment of you or the Company, its present or former officers, shareholders, directors and employees and their respective business reputation and/or goodwill, provided, however, that nothing in this Section 12(c) shall prohibit either party from (i) making any truthful statements or disclosures required by applicable law regulation or (ii) taking any action to enforce its rights under this Letter or any other agreement in effect between the parties.
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| d. | Confidentiality |
| 1) | During your employment by the Company or any subsidiary and
indefinitely thereafter, you shall keep secret and retain in strictest confidence, any and all Confidential Information
relating to the Company, except where your disclosure or use of such Confidential Information is in furtherance of the
performance by you of your duties to the Company and not for personal benefit or the benefit of any interest adverse to the
Company’s interests. For purposes of this Letter, “Confidential Information” shall mean any
information including without limitation plans, specifications, models, samples, data, customer lists and customer
information, computer programs and documentation, and other technical and/or business information, in whatever form, tangible
or intangible, that can be communicated by whatever means available at such time, that relates to the Company’s current
business or future business contemplated during your employment, products, services and development, or information received
from others that the Company is obligated to treat as confidential or proprietary (provided that such confidential
information shall not include any information that (a) has become generally available to the public or is generally known in
the relevant trade or industry other than as a result of an improper disclosure by you, or (b) was available to or became
known to you prior to the disclosure of such information on a non-confidential basis without breach of any duty of
confidentiality to the Company), and you shall not disclose such confidential information to any Person (as defined below)
other than the Company, except with the prior written consent of the Company, as may be required by law or court or
administrative order (in which event you shall so notify the Company as promptly as practicable), or in performance of your
duties on behalf of the Company. Further, this Section 12(d) shall not prevent you from disclosing Confidential Information
in connection with any litigation, arbitration or mediation to enforce this Letter or other agreement between the parties,
provided such disclosure is necessary for you to assert any claim or defense in such proceeding. For purposes of this Letter, “Person” shall mean an individual, corporation, partnership, limited liability company, limited liability partnership, association, trust or other unincorporated organization or entity. |
| 2) | Upon your termination of employment for any reason, you shall return to the Company all copies, reproductions and summaries of Confidential Information in your possession and use reasonable efforts to erase the same from all media in your possession, and, if the Company so requests, shall certify in writing that you have done so, except that you may retain such copies, reproductions and summaries during any period of litigation, arbitration or mediation referred to in Section 12(d)(1). All Confidential Information is and shall remain the property of the Company (or, in the case of information that the Company receives from a third party which it is obligated to treat as confidential, then the property of such third party); provided, you shall be entitled to retain copies of (i) information |
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| showing your compensation or relating to reimbursement of expenses, (ii) information that is required for the preparation of your personal income tax return, (iii) documents provided to you in your capacity as a participant in any employee benefit plan, policy or program of the Company and (iv) this Letter and any other agreement by and between you and the Company with regard to your employment or termination thereof. |
| 3) | All Intellectual Property (as hereinafter defined) and Technology (as hereinafter defined) created, developed, obtained or conceived of by you during your employment, and all business opportunities presented to you during your employment, shall be owned by and belong exclusively to the Company, provided that they reasonably relate to any of the business of the Company on the date of such creation, development, obtaining or conception, and you shall (i) promptly disclose any such Intellectual Property, Technology or business opportunity to the Company, and (ii) execute and deliver to the Company, without additional compensation, such instruments as the Company may require from time to time to evidence its ownership of any such Intellectual Property, Technology or business opportunity. For purposes of this Letter, (x) the term “Intellectual Property” means and includes any and all trademarks, trade names, service marks, service names, patents, copyrights, and applications therefor, and (y) the term “Technology” means and includes any and all trade secrets, proprietary information, invention, discoveries, know-how, formulae, processes and procedures. |
The parties acknowledge that the restrictions contained in this Section 12 are a reasonable and necessary protection of the immediate interests of the Company, and any violation of these restrictions could cause substantial injury to the Company and that the Company would not have entered into this Letter, without receiving the additional consideration offered by you in binding yourself to any of these restrictions. In the event of a breach or threatened breach by you of any of these restrictions, the Company shall be entitled to apply to any court of competent jurisdiction for an injunction restraining you from such breach or threatened breach; provided, however, that the right to apply for an injunction shall not be construed as prohibiting the Company from pursuing any other available remedies for such breach or threatened breach.
13. No Guarantee of Continuation of Service
This grant of this Option does not constitute an assurance of continued Service for any period or in any way interfere with the Company’s right to terminate your Service.
14. Administration
The Committee has the sole power to exercise its good faith judgment to interpret the Plan and this Letter and to act upon all matters relating this grant to the extent provided in the Plan and not inconsistent with the terms of this Letter. Any decision, determination, interpretation, or other action taken pursuant to the provisions of the Plan and this Letter by the Committee shall be final, binding, and conclusive.
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15. Section 409A
Notwithstanding anything to the contrary in the Plan or this Letter to the contrary, no benefits to be paid or provided to you, if any, pursuant to this Letter that, when considered together with any other severance payments or separation benefits, are considered deferred compensation not exempt under Section 409A (together, the “Deferred Payments”) will be paid or otherwise provided until you have a “separation from service” within the meaning of Section 409A. For purposes of this Letter, “Section 409A” means Section 409A of the Internal Revenue Code of 1986, as amended or any regulations or Treasury guidance promulgated thereunder (“Section 409A”).
Notwithstanding any provision of the Plan or this grant to the contrary, if you are a “specified employee” as determined by the Board or the Committee, in accordance with Section 409A, you shall not be entitled to any Deferred Payments until the earlier of (i) the date which is six (6) months and one (1) day after your termination of employment for any reason other than death (except that during such six (6) month period you may receive total payments from the Company that do not exceed the amount specified in Treas. Reg. Section 1.409A-1(b)(9) or that constitute a short-term deferral within the meaning of Section 409A), or (ii) the date of your death.
Notwithstanding any provision of the Plan or this Letter to the contrary, to the extent any compensation or award which constitutes deferred compensation within the meaning of Section 409A shall vest upon the occurrence of a Change of Control and such Change of Control does not constitute a “change in the ownership or effective control” or a “change in the ownership of a substantial portion of the assets” of the Company within the meaning of Section 409A, then notwithstanding such vesting, payment will be made to you on the earliest of (i) your “separation from service” with the Company (determined in accordance with Section 409A) or, if you are a specified employee within the meaning of Section 409A, such later date as provided in the preceding paragraph, (ii) the date payment otherwise would have been made, or (iii) the date of your death.
This Option is intended to be exempt from or comply with the requirements of Section 409A so that none of the benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities or ambiguous terms herein will be interpreted to be exempt or so comply. If any provision of this Letter or of any award of compensation, including equity compensation or benefits would cause you to incur any additional tax or interest under Section 409A, the parties agree to negotiate in good faith to reform such provision in such manner as to maintain, to the maximum extent practicable, the original intent and economic terms of the applicable provision without violating the provisions of Section 409A.
16. Amendment
The Committee may from time to time amend the terms of this grant in accordance with the terms of the Plan in effect at the time of such amendment, but no amendment which is unfavorable to you can be made without your written consent.
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The Plan is of unlimited duration, but may be amended, terminated or discontinued by the Board of Directors of the Company at any time. However, no amendment, termination or discontinuance of the Plan will unfavorably affect this grant.
Notwithstanding the foregoing, the Committee expressly reserves the right to amend the terms of the Plan and this grant with your consent which shall not be unreasonably withheld to the extent it determines that such amendment is necessary or desirable for an exemption from or compliance with the distribution, acceleration and election requirements of Section 409A of the Code.
17. Notices
Unless otherwise provided herein, any notice, exercise of rights or other communication required or permitted to be given hereunder shall be in writing and shall be given by overnight delivery service such as Federal Express or personal delivery against receipt, or mailed by registered or certified mail (return receipt requested), to the party to whom it is given at, in the case of the Company, Compensation Committee Chair, TheStreet, Inc., 14 Wall Street, 15th Floor, New York, NY 10005, or, in the case of you, at your principal residence address as then reflected on the records of the Company or such other address as such party may hereafter specify by notice to the other party hereto. Any notice or other communication shall be deemed to have been given as of the date so personally delivered or transmitted by telecopy or like transmission or on the next business day after sent by overnight delivery service for next business day delivery or on the fifth business day after sent by registered or certified mail.
18. Representations
The Company hereby represents and warrants that the execution and delivery of this Letter and the performance by the Company of its obligations hereunder have been duly authorized by all necessary corporate action of the Company.
19. Amendment
This Letter may be amended only by a written agreement signed by the parties hereto.
20. Binding Effect
This Letter shall be binding upon and inure to the benefit of the Company and any Successor. As used herein, a “Successor” shall mean any successor organization that succeeds to the Company (or to any direct or indirect successor) by merger or consolidation or operation of law, or by acquisition of all or substantially all of the assets of the Company (or of any direct or indirect successor).
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21. Governing Law
This Letter shall be governed by and construed in accordance with the internal laws of the State of New York applicable to contracts to be performed wholly within the state and without regard to its conflict of laws provisions that would defer to the laws of another jurisdiction, except to the extent the laws of the State of Delaware mandatorily govern.
22. Severability
If any provision of this Letter shall for any reason be held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof shall not be affected or impaired thereby. Moreover, if any one or more of the provisions of this Letter shall be held to be excessively broad as to duration, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the maximum extent allowable by applicable law. To the extent permitted by applicable law, each party hereto waives any provision of law that renders any provision of this Letter invalid, illegal or unenforceable in any way.
23. Execution in Counterparts
This Letter may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same instrument.
24. Entire Agreement
This Letter sets forth the entire agreement, and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof and thereof.
25. Titles and Headings
Titles and headings to Sections herein are for purposes of reference only, and shall in no way limit, define or otherwise affect the meaning or interpretation of any of the provisions of this Letter.
26. Consent to Jurisdiction
The parties hereto each hereby irrevocably submit to the exclusive jurisdiction of any New York State or Federal court sitting in the Borough of Manhattan, City of New York in any action or proceeding to enforce the provisions of this Letter, and waives the defense of inconvenient forum to the maintenance of any such action or proceeding.
| 20 |
This Letter contains the formal terms and conditions of your award and accordingly should be retained in your files for future reference. The Company may require you to provide evidence of your acknowledgment of this Letter using such means of notification as may be communicated to you by the Company or its service provider.
| Very truly yours, | ||
| THESTREET, INC. | ||
| By: | ||
Name: Elisabeth DeMarse Title: President and Chief Executive Officer | ||
AGREED TO AND ACCEPTED:
John C. Ferrara |
| 21 |
ATTACHMENT 1
INVESTMENT REPRESENTATIONS
In connection with the grant to you of the Option, you represent and warrant as follows by signing below at the bottom of this Exhibit A:
(i) By checking one or more of the boxes as follows, that you are an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended (the “Act”):
___ a. A natural person with an individual net worth, or joint net worth with a spouse, in excess of $1,000,000 (excluding the value of the primary residence of such individual).
___ b. A natural person (i) who has had an individual income in excess of $200,000 in each of the past two years or a joint income with a spouse in excess of $300,000 in those two years and (ii) who reasonably expects to reach the same income level in the current year.
___ c. A director or executive officer of the Company.
(ii) You possess such knowledge and experience in finance, securities, investments and other business matters as to be able to protect your interests in connection with the potential investment in the Company, and this potential investment is not material when compared to your total financial capacity. You have adequate means for providing for your current needs and possible contingencies, have no need for liquidity regarding this potential investment, and have no reason to expect a change in your circumstances, financial or other, that may cause or require sale of this potential investment.
(iii) You understand the many risks of an investment in the Company and can afford to bear such risks, including, but not limited to, the risk of losing your entire investment.
(iv) You would be acquiring the securities to be offered under the Option for your own account for investment and not with a view to the sale or distribution thereof or the granting of any participation therein, and you have no present intention of distributing or selling to others any of such securities or granting any participation therein. You have no agreement or other arrangement, formal or informal, with any person to sell, transfer, pledge or otherwise dispose of any of such securities that would guarantee to you any profit, or protect you against loss, regarding such securities, and you have no plans to enter into any such agreement or arrangement.
_______ Yes, I am an accredited investor as defined in Section (i) and I can also make the representations in sections (ii), (iii), and (iv).
_______ No, I am not an accredited investor as defined in Section (i) and/or I cannot also make the representations in sections (ii), (iii), and (iv).
| 22 |
OPTIONEE |
COMPANY. | ||||
| By: | |||||
| (Signature) | |||||
| Name: | |||||
| John C. Ferrara | |||||
| Dated: | Title: | ||||
| 23 |
EXHIBIT 21.1
SUBSIDIARIES OF THESTREET, INC.
| ENTITY | JURISDICTION OF INCORPORATION | |
| Bankers Financial Products Corporation | Wisconsin | |
| SP-TSC Holdings LLC | Delaware | |
| The Deal, LLC | Delaware |
EXHIBIT 23.1
CONSENT OF Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of TheStreet, Inc.:
We consent to the incorporation by reference in the registration statements (No. 333-145295 and 333-185023) on Form S-8 of TheStreet, Inc. and subsidiaries of our report dated February 22, 2013, with respect to the consolidated balance sheets of TheStreet, Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of earnings, stockholders’ equity, cash flows, and comprehensive income for each of the years in the three-year period ended December 31, 2012, and the related financial statement schedule, which report appears in the December 31, 2012 annual report on Form 10-K of TheStreet, Inc. and subsidiaries.
| /s/ KPMG LLP | |
| New York, New York | |
| February 22, 2013 |
EXHIBIT 31.1
CERTIFICATION
I, Elisabeth DeMarse, certify that:
| 1. | I have reviewed this annual report on Form 10-K of TheStreet, Inc.; |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: February 22, 2013 | ||||
| By: | /s/ Elisabeth DeMarse | |||
| Elisabeth DeMarse Chairman and Chief Executive Officer (principal executive officer) |
||||
EXHIBIT 31.2
CERTIFICATION
I, Thomas Etergino, certify that:
| 1. | I have reviewed this annual report on Form 10-K of TheStreet, Inc.; |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: February 22, 2013 | ||||
| By: | /s/ Thomas Etergino | |||
| Thomas Etergino Chief Financial Officer (principal financial officer) |
||||
EXHIBIT 32.1
CERTIFICATION OF CEO PURSUANT TO 18
U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of TheStreet, Inc. (the “Company”) for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Elisabeth DeMarse, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Elisabeth DeMarse | ||
| Name: | Elisabeth DeMarse | |
| Title: | Chairman and Chief Executive Officer (principal executive officer) | |
| February 22, 2013 |
EXHIBIT 32.2
CERTIFICATION OF CFO PURSUANT TO 18
U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of TheStreet, Inc. (the “Company”) for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas Etergino, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Thomas Etergino | ||
| Name: | Thomas Etergino | |
| Title: | Chief Financial Officer (principal financial officer) | |
| February 22, 2013 |
|
Commitments and Contingencies (Tables)
|
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Dec. 31, 2012
|
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| Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block] | As of December 31, 2012, total future minimum cash payments are
as follows:
|
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|
Fair Value Measurements (Detail) - Summary of Assets and Liabilities Measured at Fair Value (USD $)
|
Dec. 31, 2012
|
Dec. 31, 2011
|
|||||
|---|---|---|---|---|---|---|---|
| Cash and cash equivalents (1) | $ 23,845,360 | [1] | |||||
| Marketable securities (2) | 35,394,318 | [2] | 28,789,603 | ||||
| Total at fair value | 59,239,678 | ||||||
|
Fair Value, Inputs, Level 1 [Member]
|
|||||||
| Cash and cash equivalents (1) | 23,845,360 | [1] | |||||
| Marketable securities (2) | 33,854,318 | [2] | |||||
| Total at fair value | 57,699,678 | ||||||
|
Fair Value, Inputs, Level 2 [Member]
|
|||||||
| Cash and cash equivalents (1) | 0 | [1] | |||||
| Marketable securities (2) | 0 | [2] | |||||
| Total at fair value | 0 | ||||||
|
Fair Value, Inputs, Level 3 [Member]
|
|||||||
| Cash and cash equivalents (1) | 0 | [1] | |||||
| Marketable securities (2) | 1,540,000 | [2] | |||||
| Total at fair value | $ 1,540,000 | ||||||
|
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