UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No.)
Filed by the Registrant x
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¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
¨ | Definitive Proxy Statement |
¨ | Definitive Additional Material |
¨ | Soliciting Material Pursuant to §240.14a-12 |
BITSTREAM INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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BITSTREAM INC. | ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
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PRELIMINARY PROXY MATERIAL, SUBJECT TO COMPLETION BITSTREAM INC. 500 NICKERSON ROAD MARLBOROUGH, MA 01752-4695 |
, 2012
MERGER PROPOSED—YOUR VOTE IS IMPORTANT
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders of Bitstream Inc., a Delaware corporation, which will be held at our principal offices located at 500 Nickerson Road, Marlborough, MA 01752 at 10:00 a.m., Eastern Time, on , , 2012.
At the special meeting, we will ask you to consider and vote on a proposal to adopt a merger agreement that we entered into with Monotype Imaging Holdings Inc., a Delaware corporation, and Birch Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Monotype Imaging, on November 10, 2011, pursuant to which Monotype Imaging will acquire Bitstream’s fonts and font rendering technologies. If stockholders representing at least a majority of the outstanding shares of Bitstream’s class A common stock adopt the merger agreement and the merger is completed, we will become a wholly-owned subsidiary of Monotype Imaging, and you will be entitled to receive, based on our estimates of the aggregate merger consideration as of the date hereof, approximately $ in cash, without interest, less any applicable withholding taxes and subject to adjustment as provided in the merger agreement and discussed in detail in the accompanying proxy statement. In connection with and as a closing condition to the merger, we have contributed our personalized marketing communications and variable publishing technologies and our mobile web browsing technologies to our wholly-owned subsidiary, Marlborough Software Development Holdings Inc., a Delaware corporation (“MSDH”), and we will distribute all of the shares of MSDH common stock that we own to our stockholders on a pro rata basis (the “Spin-off”). You will receive one share of MSDH common stock for every share of Bitstream class A common stock that you own.
A special committee of Bitstream’s board of directors, formed to oversee the strategic review process, reviewed and considered the terms and conditions of the merger agreement and unanimously resolved that the merger pursuant to the terms and conditions of the merger agreement is advisable and in the best interests of Bitstream and its stockholders. Each member of the special committee is (i) an “independent director” as that term is defined in the rules of The NASDAQ Stock Market, (ii) disinterested with respect to the merger and the Spin-off, and (iii) not a member of Bitstream’s management. The special committee recommended that the board of directors authorize and approve in all respects the merger agreement, the merger and the Spin-off. After careful consideration, our board of directors unanimously approved the merger agreement, the merger and the Spin-off and determined that the merger agreement, the merger and the Spin-off are advisable and in the best interests of our company and our stockholders.Our board of directors unanimously recommends that you vote “FOR” the adoption of the merger agreement.
At the special meeting, in addition to the approval of the merger agreement, you will be asked to cast an advisory (non-binding) vote on the “golden parachute” compensation payable or that could become payable to the named executive officers of Bitstream in connection with the merger pursuant to pre-existing arrangements. If necessary, you may also be asked to vote on a proposal to adjourn or postpone the special meeting to permit the further solicitation of proxies.The Bitstream board of directors recommends that the shareholders vote “FOR” approval, on an advisory (non-binding) basis, of the “golden parachute” compensation payable or that could become payable to the named executive officers of Bitstream in connection with the merger, and “FOR” the adjournment proposal.
The accompanying proxy statement provides a detailed description of the proposed merger, the merger agreement and related matters, and a copy of the merger agreement is included as Annex A to this document. We urge you to read these materials carefully.
Your vote is very important.Adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Bitstream Inc. class A common stock entitled to vote at the special meeting. Therefore, failure to vote will have the same effect as a vote against the adoption of the merger agreement. Whether or not you are able to attend the special meeting in person, please submit your proxy via the Internet ( ), by telephone ( ), or complete, sign and date the enclosed proxy card and return it in the envelope provided as soon as possible. If you have Internet access, we encourage you to record your vote via the Internet. This action will not limit your right to vote in person at the special meeting.
Thank you for your cooperation and your continued support of Bitstream.
By Order of the Board of Directors, |
Amos Kaminski |
The accompanying proxy statement is dated , 2012, and is first being mailed, with the form of proxy, to our stockholders on or about , 2012.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE PROPOSED MERGER, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THE ACCOMPANYING PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
BITSTREAM INC. 500 NICKERSON ROAD MARLBOROUGH, MA 01752-4695 |
NOTICE OF ANNUALSPECIAL MEETING OF STOCKHOLDERS
To Be Held on May 27, 2010 , 2012 at 10:00 a.m.
NOTICE IS HEREBY GIVEN to the stockholders of BITSTREAM INC., a Delaware corporation, (the “Company”), that the Annuala Special Meeting of Stockholders (the “Meeting”“Special Meeting”) will be held at the Company’sour principal offices located at 500 Nickerson Road, Marlborough, MA 01752 at 10:00 a.m., Eastern Daylight Time, on Thursday, May 27, 2010 for, , 2012, to consider and act upon the following purposes:matters:
1. To electadopt the Agreement and Plan of Merger, dated as of November 10, 2011, among Bitstream Inc. (“Bitstream,” “we,” “us,” “our,” or “ours”), Monotype Imaging Holdings Inc. (“Monotype Imaging”) and Birch Acquisition Corporation, a boardwholly-owned subsidiary of eight (8) directorsMonotype Imaging (the “Merger Subsidiary” or “Birch Acquisition Corporation”), as such may be amended from time to serve untiltime, pursuant to which each holder of shares of Bitstream class A common stock (the “Common Stock”) will be entitled to receive, based on our estimates of the next Annual Meetingaggregate merger consideration as of Stockholders or until their respective successors are electedthe date hereof, approximately $ in cash, without interest, less any applicable withholding taxes and qualified;subject to adjustment as provided in the merger agreement and discussed in detail in the accompanying proxy statement, for each share of Bitstream Common Stock held by such holder;
2. To consider and vote upon an advisory (non-binding) proposal to approve the “golden parachute” compensation payable or that could become payable to the named executive officers of Bitstream in connection with the merger pursuant to pre-existing severance arrangements;
3. To approve a proposal to adjourn or postpone the special meeting, if necessary, to solicit additional proxies in favor of adoption of the merger agreement; and
4. To transact such other and further business as may properly come before the Meetingspecial meeting or any adjournment or postponement or adjournment thereof.thereof, including to consider any procedural matters incident to the conduct of the special meeting.
A copy of the merger agreement is attached as Annex A to the accompanying proxy statement.
Only stockholdersholders of record atof Bitstream Common Stock as of the close of business on April 16, 2010 , 2012 are entitled to notice of, and to vote at, the Special Meeting orand any adjournment thereof. The stock transfer booksor postponement of the CompanySpecial Meeting. Adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Bitstream Common Stock entitled to vote at the Special Meeting. The list of stockholders entitled to vote at the Special Meeting will be available for inspection at our principal executive offices at 500 Nickerson Road, Marlborough, Massachusetts 01752 during ordinary business hours at least ten days before the Special Meeting.
Whether or not you are able to attend the Special Meeting in person, please submit your proxy via the Internet ( ) or by telephone ( ), or complete, sign and date the enclosed proxy card and return it in the envelope provided as soon as possible. If you have Internet access, we encourage you to record your vote via the Internet. This action will not limit your right to vote in person at the Special Meeting. If you fail to vote by proxy or in person, it will have the same effect as a vote against the adoption of the merger agreement.If you return a properly signed proxy card but do not indicate how you want to vote, your proxy will be closed.counted as a vote “FOR” approval and adoption of the merger agreement, “FOR” approval, on an advisory (non-binding) basis, of the “golden parachute” compensation payable or that could become payable to the named executive officers of Bitstream in connection with the merger, and “FOR” the adjournment or postponement of the Special Meeting, if necessary, to solicit additional proxies.
The board of directors of Bitstream unanimously recommends that stockholders vote “FOR” the adoption of the merger agreement and the other proposals.
In connection with the execution of the merger agreement, the directors and executive officers of Bitstream and certain stockholders of Bitstream, who collectively beneficially own approximately % of the voting power of Bitstream Common Stock as of the record date, entered into voting agreements agreeing to vote in favor of the adoption of the merger agreement. If the merger agreement terminates in accordance with its terms, these voting agreements will also terminate. A copy of the Company’s Annual Report forform of voting agreement is attached as Annex B to the year ended December 31, 2009 accompanies this notice.accompanying proxy statement.
By OrderIf the merger becomes effective, Bitstream stockholders who do not vote in favor of the adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares of Bitstream Common Stock, as determined by the Delaware Court of Chancery under applicable provisions of Delaware law, subject to the satisfaction of the requirements for exercising and perfecting such rights. A copy of the full text of the applicable Delaware statutory provisions is included as Annex D to the accompanying proxy statement, and a summary of these provisions can be found under the section entitled “Appraisal Rights” beginning on page 90 in the accompanying proxy statement.
By Order of the Board of Directors, |
Amos Kaminski |
Chairman of the Board and Interim Chief Executive Officer |
Marlborough, Massachusetts
, 2012
CHARLES YING
Chairman of the Board
Boston, Massachusetts
April 28, 2010
RETURN OF PROXIES
Your vote is important. A proxy and self-addressed envelope are enclosed for your use. Whether or not you plan to attend the Meeting, our Board of Directors requests that you execute and return your proxy in the enclosed envelope in order to secure a quorum, to avoid the expense of additional proxy solicitation and to ensure that your shares will be represented at the Meeting. Your cooperation is greatly appreciated.
Important notice regarding the availability of Proxy Materials for the Annual Meeting to be held on Thursday, May 27, 2010: The Proxy Statement and 2009 Annual Report on Form 10-K are available at www.bitstream.com/eproxy.
Bitstream Inc.
500 Nickerson Road
Marlborough MA 01752-74695PRELIMINARY PROXY MATERIAL, SUBJECT TO COMPLETION
PROXY STATEMENT
The enclosed proxy (“Proxy”) is solicited by the Board of Directors (the “Board”) of Bitstream Inc., a Delaware corporation (“Bitstream” or the “Company”), for use at our Annual Meeting of Stockholders (the “Meeting”) to be held at the Company’s principal offices located at 500 Nickerson Road, Marlborough, MA 01752 on Thursday May 27, 2010, at 10:00 a.m., Eastern Daylight Time and at any adjournment or adjournments thereof. Any stockholder giving a Proxy has the power to revoke it at any time before it is voted by executing another Proxy bearing a later date or by giving written notice of revocation to the Company addressed to the Secretary prior to the Meeting or by oral or written notice at the Meeting or by voting in person by ballot at the Meeting. A stockholder’s attendance at the Meeting will not by itself revoke a Proxy.
The mailing address of our principal executive office is 500 Nickerson Road, Marlborough, MA 01752-4695 Telephone No. (617) 497-6222. The approximate date on whichYou are receiving this proxy statement (the “Proxy Statement”) and proxy card or voting instruction form because you own shares of Proxy areour common stock. This proxy statement describes matters on which we urge you to vote and is intended to assist you in deciding how to vote your shares of common stock with respect to such matters. This proxy statement is dated , 2012, and is first being sent or givenmailed to stockholders isof Bitstream Inc. on or about April 27, 2010., 2012.
In this proxy statement, the terms “we,” “us,” “our,” “our company” and “Bitstream” refer to Bitstream Inc., the term “Monotype Imaging” refers to Monotype Imaging Holdings Inc., the term “Merger Subsidiary” refers to Birch Acquisition Corporation, a wholly-owned subsidiary of Monotype Imaging, the term “MSDH” refers to Marlborough Software Development Holdings Inc., a wholly-owned subsidiary of Bitstream, and the term “merger agreement” refers to the Agreement and Plan of Merger, dated as of November 10, 2011, among Bitstream Inc., Monotype Imaging Holdings Inc. and Birch Acquisition Corporation, as such may be amended from time to time.
Important Notice Regarding the Availability of Proxy Materials
for the Shareholder Meeting To Be Held on , 2012:
The notice and proxy statement are available
at: .
HOW TO VOTE YOUR SHARES
TO VOTE USING THE INTERNET. Please visit www. and follow the on-screen instructions. Have your proxy card available when you access the web site, and use the Company Number and Account Number shown on your card.
TO VOTE BY TELEPHONE. Please call 1- in the United States or 1- from foreign locations from any touch-tone telephone and follow the instructions. Have your proxy card available when you call this number, and use the Company Number and Account Number shown on your card.
TO VOTE USING THE ENCLOSED PROXY CARD. Sign and date the enclosed proxy card and return it in the provided envelope.
In accordance with our security procedures, all persons attending the special meeting of stockholders will be required to present picture identification.
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This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. Accordingly, we urge you to read carefully this entire proxy statement and the annexes to this proxy statement. We have included page references parenthetically to direct you to a more complete description of the topics in this summary.
SOLICITATION OF PROXIESThe Companies
Bitstream Inc.
500 Nickerson Road
Marlborough, Massachusetts 01752-4695
(617) 497-6222
Bitstream Inc., a Delaware corporation, is a software development company focused on bringing innovative and proprietary software products to a wide variety of markets. Bitstream’s core software products include award-winning fonts and font rendering technologies, mobile browsing and messaging technologies, variable data publishing and web-to-print technologies, and multi-channel communications technologies. Bitstream operates in one business segment. Bitstream conducts its fonts and font rendering technology operations directly through Bitstream and conducts the operation of its personalized marketing communications and variable publishing technologies, or Pageflex product, and its mobile web browsing technologies, or BOLT product, through its wholly-owned subsidiary Marlborough Software Development Holdings Inc., and its foreign operations through two wholly-owned foreign subsidiaries: Bitstream India Pvt. Ltd. and Bitstream Israel LTD.
Monotype Imaging Holdings Inc.
500 Unicorn Park Drive
Woburn, Massachusetts 01801
(781) 970-6000
Monotype Imaging combines technology with design to help the world communicate. Based in Woburn, Massachusetts with offices in the U.S., Europe and Asia, Monotype Imaging brings text imaging and graphical user interface capabilities to consumer electronics devices such as laser printers, copiers, mobile phones, navigation devices, digital cameras, e-book readers, automotive devices, tablets, digital televisions, set-top boxes and consumer appliances. Monotype Imaging also provides printer drivers, page description language interpreters, printer user interface technology and color imaging solutions to printer manufacturers and OEMs (original equipment manufacturers). Monotype Imaging technologies are combined with access to more than 14,000 typefaces from the Monotype®, Linotype® and ITC® typeface libraries—home to some of the world’s most widely used designs, including the Times New Roman®, Helvetica® and ITC Franklin Gothic™ typefaces. Fonts are licensed to creative, business and Web professionals through e-commerce portals, direct and indirect sales and custom design services. Monotype Imaging offers industry-standard font solutions that support all of the world’s major languages.
Birch Acquisition Corporation
c/o Monotype Imaging Holdings Inc.
500 Unicorn Park Drive
Woburn, Massachusetts 01801
(781) 970-6000
Birch Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Monotype Imaging, was formed solely for the purpose of facilitating Monotype Imaging’s acquisition of Bitstream. Birch Acquisition Corporation has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement. Upon consummation of the proposed merger, Birch Acquisition Corporation will merge with and into Bitstream and will cease to exist.
Upon the terms and subject to the conditions of the merger agreement, the Merger Subsidiary will be merged with and into us. As a result of the merger, we will cease to be a publicly traded company and will instead become a wholly-owned subsidiary of Monotype Imaging. You will not own any shares of the surviving corporation. The merger agreement is attached as Annex A to this proxy statement. Please read it carefully.
The Merger Consideration (page 65)
The persons namedaggregate merger consideration to be paid by Monotype Imaging pursuant to the merger agreement is $50 million in cash, plus the aggregate exercise price of all Bitstream stock options outstanding (and not exercised) as proxies are Charles Ying, our Chairman of the Board,closing date of the merger (as adjusted to account for the effects of the spin-off of MSDH (as discussed below)) and Anna M. Chagnon, our Presidentplus or minus Bitstream’s positive or negative net asset value (as discussed below), as applicable. In accordance with the merger agreement, Bitstream is required to deliver to Monotype Imaging a calculation of Bitstream’s net asset value no less than twenty (20) business days prior to the expected closing date of the merger. The merger agreement further provides the procedures by which Bitstream and Chief Executive Officer. TheMonotype Imaging will determine the final net asset value of Bitstream prior to the effective time of the merger.
Based upon the exercise prices of all outstanding stock representedoptions (as adjusted to account for the effects of the spin-off of MSDH) and an estimated net asset value as of the most recent practicable date prior to mailing of this proxy statement, Bitstream estimates that the aggregate merger consideration to be paid by Monotype Imaging at closing will be approximately $ , or $ per share, without interest and less any applicable withholding taxes, for each share of Bitstream common stock that you own (which we refer to herein as the Meetingestimated per share merger consideration). This does not apply to shares held by Bitstream stockholders, if any, that properly perfect appraisal rights under Delaware law.
For purposes of calculating the merger consideration, net asset value means (A) Bitstream’s total current assets (consisting of all such current assets required to be set forth on a balance sheet prepared in accordance with generally accepted accounting principles in the United States, or GAAP, but excluding current tax assets), plus (B) the value of net property and equipment to the extent not included in (A) above, minus (C) total liabilities (consisting of all such liabilities required to be set forth on a balance sheet prepared in accordance with GAAP, including tax liabilities). For purposes of calculating net asset value, total liabilities will include, without limitation, all liabilities associated with (i) the treatment of the lease for Bitstream’s Marlborough, Massachusetts headquarters, as contemplated by the enclosed Proxymerger agreement, (ii) the termination of Bitstream employees who will be voted innot become employees of Monotype Imaging or the manner specifiedsurviving corporation after the effective time of the merger, (iii) the merger and all other transactions contemplated by the stockholder executingmerger agreement and (iv) the same. Inspin-off of MSDH. Total liabilities will exclude all liabilities that are assumed exclusively by MSDH in connection with the absencespin-off of specification,MSDH with no residual liability to Bitstream.
The Spin-Off of MSDH (page 54)
On November 10, 2011, Bitstream completed an internal restructuring transaction pursuant to which Bitstream transferred to MSDH certain assets and liabilities relating to its Pageflex and BOLT products. As required by the merger agreement, prior to the completion of the merger, Bitstream will distribute all of the shares of MSDH common stock to the stockholders of Bitstream on a pro rata basis (which we refer to as the spin-off of MSDH). Bitstream’s stockholders will not be required to pay any cash or other consideration for the MSDH common stock received in the spin-off of MSDH, and Bitstream will pay the costs and expenses incurred in connection therewith. Bitstream’s stockholders will be voted FOR the election of eachresponsible for any taxes they incur in connection with their receipt of the eight persons nominated by the Board to serve as directors and in the discretionMSDH common stock. For a more detailed explanation of the tax consequences of the distribution of the MSDH common stock, see “Certain Material U.S. Federal Income Tax Considerations” on page 61 of this proxy statement.
The special meeting will be held on , 2012 at 10:00 a.m., Eastern Time, at Bitstream’s corporate offices at 500 Nickerson Road, Marlborough Massachusetts 01752-4695. At the special meeting, you will be asked to vote upon a proposal to adopt the merger agreement that we have entered into with Monotype Imaging and the Merger Subsidiary. You will also be asked to vote upon a proposal to approve the advisory (non-binding) vote on the “golden parachute” compensation payable or that could become payable to the named executive officers of Bitstream in connection with the merger, or the “golden parachute” compensation, and a proposal to adjourn or postpone the special meeting, if necessary, to solicit additional proxies onin favor of approval and adoption of the merger agreement. You may also be asked to vote upon such other business whichmatters as may properly come before the Meeting. The cost of preparing, assembling and mailing the Proxy, this Proxy Statement and the other material enclosed will be borne by the Company. In addition to these mailed proxy materials, our directors, officers and employees (who will receive no compensation in addition to their regular salaries) may solicit proxies in person, by telephonespecial meeting or by other means of communication. We will request brokerage houses, banking institutions, and other custodians, nominees and fiduciaries, with respect to shares held of record in their namesany adjournment or in the names of their nominees, to forward the proxy material to the beneficial owners of such shares of stock and will reimburse them for their reasonable expenses in forwarding the proxy material.
SHARES OUTSTANDING AND VOTING RIGHTSRecord Date; Stock Entitled to Vote (page 18)
Only holdersOur board of record of shares of Class A Common Stock, $0.01 par value (“Class A Shares” or “Class A Common Stock”), atdirectors has fixed the close of business on April 16, 2010 (the “Record Date”) are, 2012, as the record date for determining stockholders entitled to notice of and to vote at the Meeting, or any adjournment thereof.special meeting. On the Record Date, there were 10,010,807 Classrecord date, we had outstanding shares of Bitstream common stock consisting entirely of shares of Bitstream’s class A Shares issued and outstanding, including 145,000 unvested restricted shares withcommon stock held by approximately stockholders of record. We have no other class of voting rights. Each Class A Share issecurities outstanding.
Stockholders of record on the record date will be entitled to one vote per share of Bitstream common stock on all mattersany matter that may properly come before the special meeting and any adjournment or postponement of that meeting.
Votes Required for Approval (page 19)
Pursuant to be voted upon. The presence in personthe requirements of the Delaware General Corporation Law, or by properly executed Proxythe DGCL, the adoption of the merger agreement requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Class A Common StockBitstream common stock entitled to vote at the Meeting is necessaryspecial meeting.Failure to constitutevote, by proxy or in person, will have the same effect as a quorum. Directors are elected by a pluralityvote “AGAINST” the adoption of the votesmerger agreement.
The affirmative vote of the holders of a majority of the shares of Bitstream common stock present in person or by proxy and entitled to vote at the Meetingspecial meeting will be required to approve the advisory (non-binding) vote on the “golden parachute” compensation payable or that could become payable to the named executive officers of Bitstream in connection with the merger and the adjournment, if necessary, of the special meeting to solicit additional proxies in favor of the approval and adoption of the merger agreement. Because the “golden parachute” compensation proposal is advisory, it will not be binding upon the Bitstream board of directors if approved regardless of whether the merger agreement is approved. Failure to vote, in person or by proxy, will have no effect on the approval of the non-binding advisory proposal regarding “golden parachute” compensation or any adjournment proposal.
Brokers who hold shares of Bitstream common stock in street name for a customer who is the beneficial owner of those shares may not exercise voting authority on the customer’s shares with respect to the actions proposed in this document without specific instructions from the customer. Proxies submitted by a broker that do not exercise this voting authority are referred to as “broker non-votes.” If your broker holds your shares of Bitstream common stock in street name, your broker will vote your shares only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your broker with this document. If you do not instruct your broker how to vote, it will have the same effect as a vote against the adoption of the Merger Agreement, but it will not have an effect on the non-binding advisory proposal regarding “golden parachute” compensation or the proposal to adjourn the special meeting.
In connection with the execution of the merger agreement, the directors and executive officers of Bitstream and certain stockholders of Bitstream, who collectively beneficially own approximately % of the voting power
of Bitstream common stock as of the record date, entered into voting agreements agreeing to, among other things, vote in favor of the adoption of the merger agreement. If the merger agreement terminates in accordance with its terms, these stockholders’ voting agreements will also terminate. A copy of the form of voting agreement is attached as Annex B to this proxy statement.
Recommendation of our Board of Directors (page 36)
After consideration of various factors described in the section entitled “The Merger—Reasons for the Merger and Recommendation of our Board of Directors,” including the recommendation of the special committee, our board of directors has unanimously (i) determined that the merger agreement, the merger and the spin-off of MSDH are advisable and in the best interests of our company and our stockholders, (ii) approved the merger agreement, the merger and the spin-off of MSDH, (iii) resolved to recommend that the stockholders adopt the merger agreement, and (iv) directed that such proposal. matter be submitted for consideration of the stockholders of Bitstream at the special meeting.Accordingly, our board of directors unanimously recommends that our stockholders vote “FOR” the adoption of the merger agreement at the special meeting. Our board of directors also unanimously recommends that our stockholders vote “FOR” approval, on an advisory (non-binding) basis, of the “golden parachute” compensation payable or that could become payable to the named executive officers of Bitstream in connection with the merger pursuant to pre-existing severance arrangements, and “FOR” the adjournment or postponement of the special meeting, if necessary, to solicit additional proxies.
For the factors considered by the special committee and our board of directors in reaching their decision to approve the merger agreement, see “Proposal No. 1—The Merger—Reasons for the Merger and Recommendation of our Board of Directors”, beginning on page 36 of this proxy statement.
Opinion of Bitstream’s Financial Advisor (page 39 and Annex C)
On November 10, 2011, Rothschild Inc., Bitstream’s financial advisor (which we refer to as Rothschild), delivered to Bitstream’s board of directors an oral opinion, subsequently confirmed by delivery of a written opinion, dated November 10, 2011, to the effect that, as of the date of the written opinion and subject to the qualifications, limitations and assumptions set forth in the written opinion, the consideration to be received by the holders of Bitstream common stock pursuant to the merger agreement was fair from a financial point of view to those holders. The full text of the written opinion of Rothschild, dated November 10, 2011, which describes, among other things, the assumptions made, procedures followed, factors considered, qualifications of and limitations on the review undertaken by Rothschild, is attached as Annex C to this proxy statement and is incorporated by reference in this proxy statement in its entirety. The opinion of Rothschild was limited to the evaluation of the fairness, from a financial point of view, to the holders of Bitstream common stock of the consideration to be received by those holders pursuant to the merger agreement. Rothschild did not express any view or opinion as to the fairness, financial or otherwise, of the merger to, or any consideration received in connection therewith by, any other constituencies or affiliates. The summary of the written opinion of Rothschild in this proxy statement is qualified in its entirety by reference to the full text of the opinion. Rothschild provided its opinion to Bitstream’s board of directors for the benefit and use of Bitstream’s board of directors in connection with and for purposes of its evaluation of the merger consideration from a financial point of view. Rothschild’s opinion does not address any other aspect of the merger and does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed merger or any other matter.
Conditions to the Merger (page 83)
Conditions to Each Party’s Obligations. Each party’s obligation to consummate the merger is subject to the satisfaction or waiver of the following mutual conditions:
approval and adoption of the merger agreement and the merger by an affirmative vote of the holders of a majority of the votesoutstanding shares of Bitstream common stock;
no governmental authority with jurisdiction over any party has issued any binding order, injunction, decree, judgment, ruling or other action that is in effect (whether temporary, preliminary or permanent) restraining, enjoining or otherwise prohibiting the consummation of the merger;
no law or regulation has been adopted that makes the consummation of the merger illegal or otherwise prohibited;
the waiting period applicable to the merger under any foreign competition laws has expired or been terminated, and any affirmative approval of a governmental entity required under any foreign competition laws has been obtained;
the amount of the per share merger consideration is final and binding on Monotype Imaging, Merger Subsidiary and Bitstream in accordance with the terms of the merger agreement; and
the amount of the taxes arising out of or relating to the spin-off of MSDH, as determined by Monotype Imaging and Bitstream, is final and binding on Monotype Imaging, Merger Subsidiary and Bitstream for purposes of effecting the merger, and does not exceed the sum of (i) $1.0 million and (ii) the aggregate amount of any reduction in net asset value for such spin-off taxes included in the calculation of the per share merger consideration.
Conditions to Monotype Imaging’s and Birch Acquisition Corporation’s Obligations. The obligation of Monotype Imaging and Birch Acquisition Corporation to consummate the merger is subject to the satisfaction or waiver of further conditions, including:
the representations and warranties of Bitstream relating to corporate existence, power, authority, non-contravention, capitalization, brokers of Bitstream, the opinion of Bitstream’s financial advisor set forth in the merger agreement and anti-takeover statutes, will be true and correct in all material respects when made and as of the closing date of the merger (other than those representations and warranties that were made only as of a specified date, which need only be true in all material respects as of such specified date);
the other representations and warranties of Bitstream made in the merger agreement, disregarding materiality or material adverse effect qualifications, will be true and correct when made and as of the closing date of the merger (other than those representations and warranties that were made only as of a specified date, which need only be true as of such specified date), provided that such representations will be deemed to be true unless the individual or aggregate impact of the failure to be so true would have or would reasonably be expected to have a material adverse effect on Bitstream;
Bitstream will have performed, in all material respects, its obligations under the merger agreement on or prior to the consummation of the merger;
Monotype Imaging will have received a certificate signed on Bitstream’s behalf by a senior executive officer of Bitstream as to the satisfaction of the preceding three conditions;
Bitstream will have completed the assignment of the lease for its corporate offices in Marlborough, Massachusetts to MSDH, including a release of Bitstream from any and all obligations, liabilities and liens arising out of or in connection with this lease;
Bitstream will have completed the spin-off of MSDH;
there will not have been any effect, change, event or occurrence that has had or would reasonably be expected to have a material adverse effect on Bitstream; and
Bitstream will have delivered a properly executed statement in a form reasonably acceptable to Monotype Imaging that Bitstream’s securities do not constitute “United States real property interests.”
Conditions to Bitstream’s Obligations. The obligation of Bitstream to consummate the merger is subject to the satisfaction or waiver of further conditions, including:
the representations and warranties of Monotype Imaging and Birch Acquisition Corporation set forth in the merger agreement will be true and correct in all respects (disregarding any materiality qualifications contained therein) when made and as of the closing date of the merger (other than those representations
and warranties that were made only as of a specified date, which need only be true and correct in all material respects as of such specified date), except where the failure of such representations and warranties to be so true and correct would not reasonably be expected, individually or in the aggregate, to materially delay or materially impair the ability of Monotype Imaging or Birch Acquisition Corporation to consummate the merger; |
Monotype Imaging and Birch Acquisition Corporation will have performed in all material respects their respective obligations under the merger agreement; and
Bitstream will have received a certificate signed on Monotype Imaging’s behalf by a senior executive officer of Monotype Imaging as to the satisfaction of the preceding two conditions.
Immediately upon signing of the merger agreement, Bitstream and its subsidiaries agreed as an inducement to Monotype Imaging to enter into the definitive merger agreement, to cease any existing activities, discussions or negotiations with respect to any competing acquisition proposal. In addition, under the merger agreement, Bitstream and its subsidiaries are not permitted to, among other things, (i) solicit, initiate, or knowingly facilitate or knowingly encourage the submission of any acquisition proposal or the making of any inquiries, offer or proposal that could reasonably be expected to lead to an acquisition proposal or (ii) conduct or engage in any discussions or negotiations with, disclose any non-public information relating to Bitstream or any of its subsidiaries to, afford access to the business, properties, assets, books or records of Bitstream or any of its subsidiaries to, or otherwise cooperate in any way, or knowingly assist, participate in, knowingly facilitate or knowingly encourage any effort by, any third party that is seeking to make, or has made, any acquisition proposal.
Notwithstanding the restrictions described above, at any time before the adoption of the merger agreement by Bitstream’s stockholders, the Bitstream board of directors, directly or indirectly through any representative, may (i) engage in negotiations or discussions with any person that has made (and not withdrawn) a bona fide unsolicited acquisition proposal in writing after the date of the merger agreement, that did not result from or arise out of a breach of the non-solicitation provisions of the merger agreement, and that the Bitstream board of directors believes in good faith, after consultation with its outside legal counsel and financial advisor of nationally recognized reputation, constitutes or would reasonably be expected to result in a superior proposal and (ii) thereafter furnish to such person non-public information relating to Bitstream or any of its subsidiaries pursuant to an executed confidentiality agreement (which we refer to as an acceptable confidentiality agreement) with terms no less favorable to Bitstream than those contained in the confidentiality agreement between Bitstream and Monotype Imaging (including with regard to any standstill provisions thereof) and containing additional provisions that expressly permit Bitstream to comply with the non-solicitation provisions of the merger agreement, but in each case under the preceding clauses (i) and (ii), only if the Bitstream board of directors determines in good faith, after consultation with its outside legal counsel, that the failure to take such action would be a breach of its fiduciary duties under applicable law.
Termination of the Merger Agreement (page 85)
Bitstream and Monotype Imaging may terminate the merger agreement by mutual written consent at any time before the consummation of the merger. In addition, with certain exceptions, either Monotype Imaging or Bitstream may terminate the merger agreement at any time before the consummation of the merger if:
the merger is not consummated on or before May 15, 2012 (which we refer to as the end date), provided, that if all of the conditions to the consummation of the merger have been satisfied (or are capable of being satisfied or have been waived), other than (i) Bitstream’s completion of the spin-off of MSDH and (ii) the calculation of the per share merger consideration having become final and binding, then Monotype Imaging or Bitstream will be entitled to extend the end date to June 30, 2012; provided, further, that if all of the conditions to the consummation of the merger have been satisfied (or are
capable of being satisfied or have been waived), other than the expiration or termination of the applicable waiting period and the receipt of required regulatory approvals under the applicable antitrust or merger control laws of the required foreign jurisdictions, then the end date may be extended by a three month period by Monotype Imaging by written notice to Bitstream (the end date may be so extended not more than twice), it being understood that in no event will the end date be extended to a date that is later than the twelve month anniversary of the merger agreement; |
any governmental entity of competent jurisdiction issues an order, decree, injunction or ruling or takes any other action permanently enjoining, permanently restraining or otherwise prohibiting the consummation of the merger and such order, decree, injunction, ruling or other action becomes final and non-appealable;
any law or regulation is adopted that makes consummation of the merger illegal or otherwise prohibited;
the amount of the taxes relating to or arising out of the spin-off of MSDH by Bitstream (as determined immediately following the completion of the spin-off of MSDH) to its stockholders exceeds the sum of $1 million plus the amount by which the net asset value of Bitstream was reduced by such taxes (as estimated in connection with the determination of Bitstream’s net asset value in calculating the per share merger consideration); or
the approval and adoption of the merger agreement and the merger by Bitstream’s stockholders has not been obtained by reason of the failure to obtain the required vote upon a final vote taken at the special meeting (or any permitted adjournment or postponement thereof).
Monotype Imaging may also terminate the merger agreement if:
Bitstream has failed to include the board recommendation (as defined in the section entitled “The Merger Agreement—Bitstream Board Recommendation”) in this proxy statement or has effected an adverse recommendation change (as defined in the section entitled “The Merger Agreement—Bitstream Board Recommendation”) has occurred;
the Bitstream board of directors has failed to publicly reaffirm its recommendation of the merger agreement in the absence of a publicly announced acquisition proposal (as defined in the section entitled “The Merger Agreement—No Solicitations”) within five business days after Monotype Imaging so requests in writing;
Bitstream has entered into, or publicly announced its intention to enter into, an acquisition agreement (as defined in the section entitled “The Merger Agreement—No Solicitations”), other than an acceptable confidentiality agreement, relating to any acquisition proposal;
Bitstream has breached in any material respect the non-solicitation provisions of the merger agreement, and such violation or breach has resulted in the receipt by Bitstream of an acquisition proposal;
Bitstream has failed to effect the spin-off of MSDH to its stockholders by the end date; or
Bitstream materially breaches any of its covenants or agreements contained in the merger agreement, or if any representation or warranty of Bitstream was inaccurate when made or has become inaccurate, in either case such that the conditions to the merger relating to the accuracy of Bitstream’s representations and warranties and performance of covenants would not be satisfied as of the time of such breach or as of the time such representation and warranty became inaccurate (except that with respect to breaches or inaccuracies that are curable by Bitstream through the exercise of commercially reasonable efforts within 30 days and prior to the end date, Monotype Imaging cannot terminate the merger agreement as described in this bullet point until the earlier of (i) the expiration of the 30-day period after delivery of written notice from Monotype Imaging to Bitstream of any such breach or inaccuracy, or (ii) Bitstream’s ceasing to exercise commercially reasonable efforts to cure the breach or inaccuracy, provided that Bitstream continues to exercise commercially reasonable efforts to cure the breach or inaccuracy).
Bitstream may also terminate the merger agreement if:
prior to the receipt of approval of the adoption of the merger agreement by Bitstream’s stockholders, the Bitstream board of directors authorizes Bitstream, in compliance with the terms of the merger agreement, to enter into an acquisition agreement (other than an acceptable confidentiality agreement) in respect of a superior proposal if (1) Bitstream pays the applicable termination fee described below at or prior to termination of the merger agreement and (2) Bitstream substantially concurrently enters into such acquisition agreement with respect to such superior proposal; or
Monotype Imaging or Birch Acquisition Corporation materially breaches any of its covenants or agreements contained in the merger agreement, or if any representation or warranty of Monotype Imaging or Birch Acquisition Corporation was inaccurate when made or has become inaccurate, in either case, such that the conditions to the merger relating to the accuracy of Monotype Imaging’s and Birch Acquisition Corporation’s representations and warranties and performance of covenants would not be satisfied as of the time of such breach or as of the time such representation and warranty became inaccurate (except that with respect to breaches or inaccuracies that are curable by Monotype Imaging or Birch Acquisition Corporation through the exercise of commercially reasonable efforts within 30 days and prior to the end date, Bitstream cannot terminate the merger agreement as described in this bullet point until the earlier of (i) the expiration of the 30-day period after delivery of written notice from Bitstream to Monotype Imaging of any such breach or inaccuracy, or (ii) Monotype Imaging or Birch Acquisition Corporation, as the case may be, ceasing to exercise commercially reasonable efforts to cure the breach or inaccuracy, provided that Monotype Imaging or Birch Acquisition Corporation, as the case may be, continues to exercise commercially reasonable efforts to cure the breach or inaccuracy).
We have agreed to pay Monotype Imaging a termination fee of $1.0 million in the event that the merger agreement is terminated by Monotype Imaging pursuant to the provisions described in the fifth bullet point in the second paragraph under “Summary—Termination of the Merger Agreement” above, provided that, immediately prior to such termination, all conditions to the closing of the merger are satisfied, other than the conditions in the sixth bullet under “Summary—Conditions to the Merger—Conditions to Each Party’s Obligations” and the sixth bullet under “Summary—Conditions to the Merger—Conditions to Monotype Imaging’s and Birch Acquisition Corporation’s Obligations.” We have agreed to pay Monotype Imaging a termination fee of $2.0 million in the event that the merger agreement is terminated by (a) Monotype Imaging pursuant to the provisions described in the first four bullet points in the second paragraph under “Summary—Termination of the Merger Agreement” above, (b) Bitstream pursuant to the provisions described in the first bullet point in the third paragraph under “Summary—Termination of the Merger Agreement” above or (c) either party pursuant to the provisions described in the first or fifth bullet point described in the first paragraph or Monotype Imaging pursuant to the provisions described in the fifth or sixth bullet points described in the second paragraph, in each case, under “Summary—Termination of the Merger Agreement” above, and in the case of this clause (c), (x) prior to such termination (in the case of termination pursuant to the first bullet point in the first paragraph or the fifth or sixth bullet points in the second paragraph under “Summary—Termination of the Merger Agreement” above) or the special meeting (in the case of termination pursuant to the fifth bullet point in the first paragraph under “Summary—Termination of the Merger Agreement” above), an acquisition proposal has been publicly announced and not publicly withdrawn, and (y) within 12 months following the date of such termination Bitstream has (1) entered into a definitive agreement with respect to, (2) recommended to its stockholders or (3) completed, a transaction contemplated by such acquisition proposal.
Each of Bitstream and Monotype Imaging are required to pay their own expenses in connection with the merger agreement and consummation of the transactions contemplated thereby, provided that Bitstream and Monotype Imaging will share equally all filing fees payable pursuant to any foreign competition laws.
However, if the merger agreement is terminated by Monotype Imaging or Bitstream because the required approval of the stockholders of Bitstream has not been obtained by reason of the failure to obtain the required vote upon a final vote taken at the special meeting, Bitstream has agreed to reimburse Monotype Imaging for all its documented, reasonable out-of-pocket fees and expenses (any reimbursement of such amounts paid by Bitstream will be credited against any obligation of Bitstream to pay Monotype Imaging a termination fee pursuant to clause (c) of “Summary—Termination Fees” above).
The Voting Agreements (page 58)
Each of the directors and executive officers and certain stockholders of Bitstream have entered into voting agreements with Monotype Imaging (collectively, the “voting agreements”) pursuant to which they agreed, among other things, to vote their shares of Bitstream in favor of adoption and approval of the merger agreement, the spin-off of MSDH and all other transactions contemplated by the merger agreement, against any acquisition proposal, and against any agreement, transaction or other matter that would impede, interfere with, delay, postpone, discourage or materially or adversely affect the consummation of the merger, the spin-off of MSDH or the other transactions contemplated by the merger agreement. If the merger agreement terminates in accordance with its terms, these voting agreements will also terminate. As of the record date, the directors and executive officers and certain stockholders of Bitstream that entered into the voting agreements collectively own beneficially and of record an aggregate of approximately % of the outstanding Bitstream common stock.
A copy of the form of voting agreement is attached as Annex B to this proxy statement.
Under Delaware law, holders of Bitstream common stock may have the right to receive an appraisal of the fair value of their shares of Bitstream common stock in connection with the merger. To exercise appraisal rights, a holder of Bitstream common stock must not vote for the proposal to adopt the merger agreement, must deliver to us a written appraisal demand before the stockholder vote on the merger agreement is taken at the special meeting, must not submit a letter of transmittal, and must strictly comply with all of the procedures required by Delaware law.
A copy of the full text of Section 262 of the DGCL is included as Annex D to this proxy statement. Failure to follow the procedures set forth in Section 262 of the DGCL will result in the loss of appraisal rights.
Certain Material U.S. Federal Income Tax Considerations (page 61)
The exchange of Bitstream common stock by our stockholders for the cash merger consideration and the distribution of MSDH common stock to our stockholders will generally be treated as taxable transactions to our stockholders (and in the case of the distribution of MSDH common stock, also to Bitstream) for U.S. federal income tax purposes under the Internal Revenue Code of 1986, as amended, or the Code. Because of the complexities of the tax laws, we advise you to consult your personal tax advisors concerning the applicable U.S. federal, state, local and foreign income and other tax consequences of the merger and the spin-off of MSDH.
Treatment of Options and Restricted Stock (page 68)
On the date that Bitstream completes its spin-off of MSDH, each outstanding option to purchase a share of Bitstream common stock (which we refer to as the Bitstream options) will be divided into (i) one option to purchase a share of Bitstream common stock (each of which we refer to as an adjusted Bitstream option) and (ii) one option to purchase a share of MSDH common stock (each of which we refer to as an MSDH option). Each adjusted Bitstream option will continue to have, and be subject to, the same terms and conditions set forth in the applicable equity compensation plan of Bitstream, except that the exercise price of such adjusted Bitstream option shall be adjusted to the product of the original exercise price of such Bitstream option multiplied by a
fraction the numerator of which is the per share consideration in the merger and the denominator of which is the sum of the per share consideration in the merger and the appraised value of each share of MSDH common stock. Each MSDH option shall be issued under the MSDH Incentive Compensation Plan, to be adopted by MSDH immediately prior to the spin-off of MSDH from Bitstream, but shall otherwise be subject to the same term and conditions of the Bitstream option, except that the exercise price of such MSDH option will be adjusted to the product of the original exercise price of such Bitstream option multiplied by a fraction, the numerator of which is the appraised value of MSDH divided by the sum of the number of outstanding shares of Bitstream common stock and the number of shares of Bitstream common stock subject to outstanding equity-based awards and the denominator of which is the sum of the per share consideration in the merger and the appraised value of each share of MSDH common stock.
Each adjusted Bitstream option with an adjusted exercise price that is less than the per share merger consideration in the merger will, on the effective date of the merger, be converted into the right to receive an amount in cash equal to the difference between the per share merger consideration and the adjusted exercise price of such adjusted Bitstream option. Each adjusted Bitstream option with an exercise price equal to or greater than the per share merger consideration in the merger will be cancelled without any payment. Each MSDH option shall otherwise not be affected by the merger and shall remain outstanding in accordance with its terms.
Each outstanding share of Bitstream restricted stock will, immediately prior to the effective time of the merger, become fully vested, cancelled and be automatically converted into the right to receive the per share merger consideration.
Interests of Our Directors and Executive Officers in the Merger (page 48)
In considering the recommendation of our board of directors with respect to the merger agreement, holders of shares of Bitstream common stock should be aware that our executive officers and directors have interests in the merger that may be different from, or in addition to, those of our stockholders generally. These interests may create potential conflicts of interest. Our board of directors was aware that these interests existed when it approved the merger agreement. These interests include:
accelerated vesting at the closing of all equity awards held by our directors and executive officers, as well as all other employees of Bitstream;
pre-existing severance arrangements covering certain of our executive officers;
indemnification of our directors and executive officers by the surviving corporation following the merger;
receipt by our board of directors and executive officers of MSDH options in connection with the spin-off of MSDH on the same terms as all other employees of Bitstream holding Bitstream options; and
the new compensation arrangements with MSDH to be entered into by our directors and executive officers continuing to serve as directors and executive officers of MSDH following the completion of the merger and the spin-off of MSDH.
These arrangements are further described under “Proposal No. 1—The Merger—Interests of Our Directors and Executive Officers in the Merger.”
Common Stock Ownership of Our Directors and Executive Officers (page 94)
As of the record date, our directors and executive officers beneficially owned in the aggregate shares of Bitstream common stock or approximately % of our total issued and outstanding shares. This amount excludes options to purchase shares of our common stock that will be exercisable at the effective time of the merger that are beneficially owned by our directors and executive officers. The share ownership of our directors and executive officers is further described under “Security Ownership Of Management and Certain Beneficial Owners.”
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers briefly address some commonly asked questions about the special meeting of stockholders and the merger. These questions and answers may not address all questions that may be important to you as a stockholder. You should carefully read this entire proxy statement, including each of the annexes.
Q. What is the proposed transaction?
A. Bitstream and Monotype Imaging have entered into a definitive agreement pursuant to which, and subject to the terms and conditions of which, Monotype Imaging will acquire Bitstream by merging a subsidiary of Monotype Imaging with and into Bitstream, with Bitstream as the surviving corporation. Upon completion of the proposed merger, we will cease to be a publicly traded company and will instead become a wholly-owned subsidiary of Monotype Imaging.
Q. If the merger is completed, what will I be entitled to receive for my shares of Bitstream common stock and when will I receive it?
A. The aggregate merger consideration to be paid by Monotype Imaging pursuant to the merger agreement is $50 million in cash, plus the aggregate exercise price of all adjusted Bitstream options outstanding (and not exercised) as of the closing date of the merger and plus or minus Bitstream’s positive or negative net asset value, as applicable. In accordance with the merger agreement, Bitstream is required to deliver to Monotype Imaging a calculation of Bitstream’s net asset value no less than twenty (20) business days prior to the expected closing date of the merger. The merger agreement further provides for the reconciliation of the estimated net asset value by Monotype Imaging and Bitstream and the procedures by which Bitstream and Monotype Imaging shall determine the final net asset value of Bitstream prior to the effective time of the merger.
Based upon the exercise prices of all outstanding adjusted Bitstream options and an estimated net asset value as of the most recent practicable date prior to mailing of this proxy statement, Bitstream estimates that the aggregate merger consideration to be paid by Monotype Imaging at closing will be approximately $ , or $ per share, without interest and less any applicable withholding taxes, for each share of Bitstream common stock that you own. This does not apply to shares held by Bitstream stockholders, if any, that properly perfect appraisal rights under Delaware law.
For purposes of calculating the merger consideration, net asset value means (A) Bitstream’s total current assets (consisting of all such current assets required to be set forth on a balance sheet prepared in accordance with GAAP but excluding current tax assets), plus (B) the value of net property and equipment to the extent not included in (A) above, minus (C) total liabilities (consisting of all such liabilities required to be set forth on a balance sheet prepared in accordance with GAAP, including tax liabilities). For purposes of calculating net asset value, total liabilities will include, without limitation, all liabilities associated with (i) the treatment of the lease for Bitstream’s Marlborough, Massachusetts headquarters, as contemplated by the merger agreement, (ii) the termination of Bitstream employees who will not become employees of Monotype Imaging or the surviving corporation after the effective time, (iii) the merger and all other transactions contemplated by the merger agreement and (iv) the spin-off of MSDH. Total liabilities will exclude all liabilities that are assumed exclusively by MSDH in connection with the spin-off of MSDH with no residual liability to Bitstream.
After the merger closes, Monotype Imaging will arrange for a letter of transmittal to be sent to each stockholder. The merger consideration will be paid to a stockholder once that stockholder submits a properly completed letter of transmittal, his, her or its stock certificates, if applicable, and any other required documentation.
Q. When is the merger expected to be completed?
A. We expect the merger to be completed at the end of the first quarter of 2012. However, the merger is subject to various closing conditions, including Bitstream stockholder approval and the completion of the spin-off of MSDH, and it is possible that the failure to timely meet these closing conditions or other factors outside of our control could require us to complete the merger at a later time or not at all.
Q. When is the spin-off of MSDH expected to be completed?
A. Concurrent with the signing of the merger agreement between Bitstream, Monotype Imaging and Birch Acquisition Corporation on November 10, 2011, MSDH filed with the Securities and Exchange Commission a registration statement on Form S-1 to register the issuance of MSDH common stock to the stockholders of Bitstream in the spin-off. The spin-off of MSDH cannot be completed until this registration statement has been reviewed and declared effective by the Securities and Exchange Commission, or the SEC, a process that is expected to take at least two months from the original date of filing. Accordingly, it is expected that the spin-off of MSDH also will be completed at the end of the first quarter of 2012 but prior to the effective time of the merger.
Q. What will I receive as a result of the of the spin-off of MSDH?
A. Bitstream will distribute to its stockholders one share of MSDH common stock for each share of Bitstream common stock outstanding as of the record date for the spin-off of MSDH.
Q. What relationship will exist between Bitstream and MSDH following the spin-off?
A. After the spin-off of MSDH, Bitstream will not own any shares of MSDH common stock. However, in connection with the spin-off, the two companies have entered into a number of agreements that govern the terms of the spin-off of MSDH and certain matters between the companies following completion of the spin-off of MSDH. See “The Spin-Off of MSDH,” beginning on page 54 of this proxy statement.
Q. What will happen to my shares of Bitstream common stock after the merger?
A. Following the effectiveness of the merger, your shares of Bitstream common stock will represent solely the right to receive the per share merger consideration, except for those stockholders who have not voted in favor of the merger and exercise their appraisal rights under Section 262 of the DGCL as further described under “Appraisal Rights” on page 90 of this proxy statement. At the effective time of the merger, trading in Bitstream common stock on the NASDAQ Capital Market will cease. Price quotations for Bitstream common stock will no longer be available and we will cease filing periodic reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Q. What will I be asked to vote upon at the special meeting?
A. You will be asked to vote on the adoption of the merger agreement that we have entered into with Monotype Imaging and Birch Acquisition Corporation, a wholly-owned subsidiary of Monotype Imaging, pursuant to which Birch Acquisition Corporation will be merged with and into us and we will become a wholly-owned subsidiary of Monotype Imaging. We will also be asking you to cast an advisory (non-binding) vote on the “golden parachute” compensation payable or that could become payable to the named executive officers of Bitstream in connection with the merger pursuant to pre-existing severance arrangements and to approve the adjournment or postponement, if necessary, of the special meeting to solicit additional proxies in favor of adoption of the merger agreement. Whether or not you are able to attend the special meeting in person, please submit your proxy via the Internet ( ) or by telephone ( ), or complete, sign and date the enclosed proxy card and return it in the envelope provided as soon as possible.
Q. What stockholder approvals are required for the merger?
A: The holders of a majority of the outstanding shares of Bitstream common stock on , 2012, or the record date for the special meeting of stockholders, must vote in favor of the adoption of the merger agreement. Only holders of record of Bitstream common stock at the close of business on the record date are entitled to notice of and to vote at the special meeting. As of the record date, there were shares of Bitstream class A common stock issued and outstanding, held by approximately holders of record, and entitled to vote at the special meeting. No other classes of Bitstream capital stock were outstanding as of the record date. In connection with the execution of the merger agreement, the directors and executive officers and certain stockholders of Bitstream, who collectively beneficially own approximately % of the voting power of Bitstream common stock as of the record date, entered into voting agreements agreeing to, among other things, vote in favor of the adoption of the merger agreement. If the merger agreement terminates in accordance with its terms, these stockholders’ voting agreements will also terminate. A copy of the form of voting agreement is attached as Annex B to this proxy statement.
Q. Who is entitled to vote at the special meeting?
A. Holders of record of shares of Bitstream common stock as of the close of business on , 2012, the record date for the special meeting of stockholders, are entitled to vote at the special meeting. Such holders are entitled to one vote per share of Bitstream common stock held.
Q. Why is our board of directors recommending the merger?
A. After careful consideration involving a deliberative process and consultation with our senior management, legal counsel and financial advisor, our board of directors, by the unanimous vote of all directors, approved the merger agreement, the merger and the spin-off of MSDH and determined that the merger agreement, the merger and the spin-off of MSDH are advisable and in the best interests of our company and our stockholders, and recommends that you adopt the merger agreement. For a more detailed explanation of the factors that our board of directors considered in determining whether to recommend the merger, see “Proposal No. 1—The Merger—Reasons for the Merger and Recommendation of our Board of Directors” on page 36 of this proxy statement.
Q. Why am I being asked to cast an advisory (non-binding) vote to approve the “golden parachute” compensation payable or that could become payable to certain Bitstream officers in connection with the merger pursuant to pre-existing severance arrangements?
A: The SEC, in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, adopted rules that require Bitstream to seek an advisory (non-binding) vote with respect to certain payments that may be made to Bitstream’s named executive officers in connection with the merger.
Q: What will happen if Bitstream shareholders do not approve the “golden parachute” compensation at the special meeting?
A: Approval of the “golden parachute” compensation payable or that could become payable under pre-existing severance arrangements that Bitstream’s named executive officers may receive in connection with the merger is not a condition to completion of the merger. The vote with respect to the “golden parachute” compensation is an advisory vote and will not be binding on Bitstream regardless of whether the merger agreement is approved. Therefore, regardless of whether stockholders approve the “golden parachute” compensation, if the merger is approved by the stockholders and completed, the “golden parachute” compensation will still be paid to Bitstream’s named executive officers to the extent payable in accordance with the terms of such pre-existing compensation arrangements.
Q: What vote of Bitstream stockholders is required to adopt the proposal regarding “golden parachute” compensation and the proposal to adjourn the special meeting, if necessary?
A: The affirmative vote of the holders of a majority of the shares of Bitstream common stock present in person or by proxy and entitled to vote at the Meetingspecial meeting will be required to approve the advisory (non-binding) vote on the “golden parachute” compensation payable or that could become payable to the named executive officers of Bitstream in connection with the merger and the adjournment, if necessary, of the special meeting to solicit additional proxies in favor of the approval and adoption of the merger agreement. Because the “golden parachute” compensation proposal is required foradvisory, it will not be binding upon the Bitstream board of directors if approved regardless of whether the merger agreement is approved. Failure to vote, in person or by proxy, will have no effect on the approval of any other business which may properly be brought before the Meeting“golden parachute” compensation or any adjournment proposal.
Q. What should I do now?
A. After carefully reading and considering the information contained in this proxy statement, please vote in one of the following three ways whether or not you plan to attend the special meeting: (i) by completing your proxy through the Internet at the address listed on the accompanying proxy card, (ii) by completing your proxy using the toll-free telephone number listed on the proxy card, or (iii) by completing, signing and dating the proxy card and returning it in the enclosed postage-prepaid envelope. You can also attend the special meeting and vote in person. Do NOT enclose or return your stock certificate(s) with your proxy card.
Q. If my shares are held in “street name” by my broker, will my broker vote my shares for me?
A. Brokers who hold shares of Bitstream common stock in street name for a customer who is the beneficial owner of those shares may not exercise voting authority on the customer’s shares with respect to the actions proposed in this document without specific instructions from the customer. Proxies submitted by a broker that do not exercise this voting authority are referred to as “broker non-votes.” If your broker holds your shares of Bitstream common stock in street name, your broker will vote your shares only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your broker with this document.If you do not instruct your broker how to vote, it will have the same effect as a vote against the adoption of the Merger Agreement, but it will not have an effect on the non-binding advisory proposal regarding “golden parachute” compensation or the proposal to adjourn the special meeting.
Q. What if I do not vote?
A. If you fail to vote by proxy or in person, it will have the same effect as a vote “AGAINST” the adoption of the merger agreement. Failure to vote will have no effect on the advisory (non-binding) vote on the “golden parachute” compensation payable or that could become payable to the named executive officers of Bitstream in connection with the merger or the proposal to adjourn or postpone the special meeting, if necessary, to solicit additional proxies in favor of the adoption of the merger agreement.
If you return a properly signed proxy card but do not indicate how you want to vote, your proxy will be counted as a vote “FOR” the adoption of the merger agreement, “FOR” approval of the non-binding advisory proposal regarding “golden parachute” compensation and “FOR” approval of the adjournment proposal.
If you submit your properly signed proxy and affirmatively elect to abstain from voting, your proxy will be counted as present for the purpose of determining the presence of a quorum but will have the same effect as a vote “AGAINST” the adoption of the merger agreement. With respect to the proposal to approve the “golden parachute” compensation and the proposal to approve one or more adjournments to the special meeting, an abstention will have no effect, and each proposal will be decided by the stockholders who cast votes “FOR” and “AGAINST” such proposals.
Q. When should I cast my vote?
A. You should complete your proxy card through the Internet or by telephone or mail in your proxy card as soon as possible, but in any event before , 2012, so that your shares will be voted at the special meeting.
Q. May I change my vote after I have mailed my signed proxy card or voted via the Internet or by telephone?
A. Yes. You may change your vote and revoke your proxy at any time before the polls close at the special meeting. You can do this in one of three ways. First, you can send a written, dated notice to our Secretary stating that you would like to revoke your proxy. Second, you can complete, date and submit a new proxy card. Third, you can attend the meeting and vote in person. Your attendance alone will not revoke your proxy. If you have instructed a broker to vote your shares, you must follow directions received from your broker to change those instructions. With respect to voting your proxy via the Internet or by telephone, you can revoke your proxy by voting again and only your last action via the Internet or by telephone will be counted.
Q. May I vote in person?
A. Yes. You may attend the special meeting of stockholders and vote your shares of Bitstream common stock in person. If you hold shares in “street name,” you must provide a proxy executed by your bank or broker in order to vote your shares at the meeting. In accordance with our security procedures, all persons attending the special meeting will be required to present picture identification.
Q: Am I entitled to appraisal rights?
A: Under Section 262 of the DGCL, holders of shares of Bitstream common stock who do not vote for the adoption of the merger agreement have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery if the merger is completed, but only if they comply with all requirements of Delaware law, which are summarized in this proxy statement. This appraisal amount could be more than, the same as, or less than the amount a stockholder would be entitled to receive under the merger agreement. Any holder of shares of Bitstream common stock intending to exercise appraisal rights, among other things, must submit a written demand for appraisal to Bitstream prior to the vote on the adoption of the merger agreement and must not vote or otherwise submit a proxy in favor of the adoption of the merger agreement. Failure to follow exactly the procedures specified under Delaware law will result in the loss of appraisal rights. Because of the complexity of the Delaware law relating to appraisal rights, if you are considering exercising your appraisal right, we encourage you to seek the advice of your own legal counsel. For more information, see “Appraisal Rights” on page 90 of this proxy statement. In addition, a copy of the full text of Section 262 of the DGCL is attached as Annex D to this proxy statement.
Q. Will the merger and spin-off of MSDH be taxable transactions to me under U.S. federal income tax law?
A. If you are a U.S. holder, the receipt of cash for shares of Bitstream common stock pursuant to the merger and the receipt of MSDH common stock in the spin-off of MSDH will generally be taxable transactions for U.S. federal income tax purposes. If you are a non-U.S. holder, the receipt of cash for shares of Bitstream common stock pursuant to the merger generally will not be a taxable transaction for U.S. federal income tax purposes unless you have certain connections with the United States. However, the receipt of MSDH common stock by a non-U.S. holder in connection with the spin-off of MSDH could be subject to withholding tax under U.S. federal income tax law. For a more detailed explanation of the tax consequences of the merger and spin-off of MSDH, see “Certain Material U.S. Federal Income Tax Considerations” on page 61 of this proxy statement. The tax consequences may vary depending upon the particular circumstances of each stockholder.You should consult your tax advisor with respect to the tax consequences of the merger and the spin-off of MSDH to you, including under any applicable U.S. federal, state, local and foreign income and other tax laws.
Q. Should I send in my stock certificates now?
A. No. After the merger closes, Monotype Imaging will arrange for a letter of transmittal containing detailed instructions to be sent to each stockholder. The merger consideration will be paid to a stockholder once that stockholder submits a properly completed letter of transmittal accompanied by that stockholder’s stock certificates and any other required documentation.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES NOW.
Q. What should I do if I have questions?
A. You should direct any questions regarding extra copies of the proxy materials, the special meeting of stockholders or the merger to James Dore at 500 Nickerson Road, Marlborough, MA 01752 Phone: 617-520-8377. If your brokerage firm, bank, trust or other nominee holds your shares in “street name,” you should also call your brokerage firm, bank, trust or other nominee for additional information.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this proxy statement, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Exchange Act. These forward-looking statements generally are identified by the words “believes”, “projects”, “expects”, “anticipates”, “estimates”, “intends”, “strategy”, “plan”, “may”, “will”, “would”, “will be”, “will continue”, “will likely result”, and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including, without limitation:
the requirement that our stockholders adopt the merger agreement;
the failure to satisfy any other conditions to the merger, including the completion of the spin-off of MSDH to our stockholders;
the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement;
the effect of the announcement of the merger on our customer and supplier relationships, operating results and business generally, including our ability to retain key employees;
adverse changes in our industry;
the parties’ ability to meet expectations regarding the timing and completion of the merger; and
other risks detailed in our current filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as updated by our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2011, June 30, 2011 and September 30, 2011. See “Where You Can Find More Information” on page 99 of this proxy statement.
You should not place undue reliance on forward-looking statements. We cannot guarantee any future results, levels of activity, performance or achievements. The statements made in this proxy statement are based on the information available to us as of the date of this proxy statement, and you should not assume that the statements made herein remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements or update the reasons actual results could differ materially from those anticipated in forward-looking statements, except as required by law.
THE SPECIAL MEETING OF STOCKHOLDERS
We are furnishing this proxy statement to you, as a holder of Bitstream class A common stock, as part of the solicitation of proxies by our board of directors for use at the special meeting of stockholders, or at any adjournment or postponement thereof.
Date, Time and Place of the Special Meeting
The special meeting of our stockholders will be held at our headquarters at our corporate offices at 500 Nickerson Road, Marlborough, Massachusetts 01752-4695, on , 2012, at 10:00 a.m., Eastern Time.
Purpose of the Special Meeting
The purpose of the special meeting is:
to vote on a proposal to adopt the merger agreement, a copy of which is attached as Annex A to this proxy statement;
to consider and vote upon an advisory (non-binding) proposal to approve the “golden parachute” compensation payable or that could become payable to the named executive officers of Bitstream in connection with the merger pursuant to pre-existing severance arrangements;
to vote on a proposal to adjourn or postpone the special meeting, if necessary, to solicit additional proxies in favor of the adoption of the merger agreement; and
to transact such other business as may properly come before the meeting or any adjournment or postponement thereof, including to consider any procedural matters incident to the conduct of the special meeting.
Our board of directors, by the unanimous vote of all directors, approved the merger agreement, the merger and the spin-off of MSDH, and determined that the merger agreement, the merger and the spin-off of MSDH are advisable and in the best interests of our company and our stockholders.Accordingly, our board of directors unanimously recommends that you vote “FOR” the adoption of the merger agreement at the special meeting. Our board of directors also unanimously recommends that our stockholders vote “FOR” approval, on an advisory (non-binding) basis, of the “golden parachute” compensation payable or that could become payable to the named executive officers of Bitstream in connection with the merger pursuant to pre-existing severance arrangements, and “FOR” the adjournment or postponement of the special meeting, if necessary, to solicit additional proxies.
Record Date; Stock Entitled to Vote
The holders of record of shares of Bitstream common stock as of the close of business on , 2012, which is the record date for the special meeting, are entitled to receive notice of and to vote at the special meeting. On the record date, there were shares of Bitstream class A common stock outstanding and entitled to vote held by approximately stockholders of record. No other shares of capital stock of Bitstream were outstanding as of the record date. Each share of Bitstream common stock entitles the holder to one vote on all matters properly coming before the special meeting or any adjournment or postponement thereof.
Our by-laws and Delaware law require the presence, in person or by duly executed proxy, of recordthe holders of a majority of the voting power of outstanding shares of Bitstream common stock entitled to vote at the Meeting by casting ballots (in person or by proxy), which are tabulated byspecial meeting to constitute a person whoquorum. Both abstentions and “broker non-votes” (as that term is appointed bydescribed in the Board before the Meeting to servenext
section) will be counted as the inspector of election at the Meeting and who has executed and verified an oath of office. Forpresent for purposes of determining the numberexistence of votes cast with respect to a particular matter, only those cast “For” or “Against” are included. Abstentions and broker non-votes (i.e. shares held by a broker or nominee which are represented at the Meeting, but with respect to which the broker or nominee is not empowered to vote on a particular proposal) are counted only for purposes of determining whetherquorum. If a quorum is not present, we expect to adjourn the special meeting to solicit additional proxies and intend to vote any proxies we have received at the Meeting.
Our stock transfer books will not be closed. Stockholders who do not expect to attendtime of the Meeting, but wish to have their sharesspecial meeting in favor of stock voted at the Meeting, are urged to complete, sign, date and return the enclosed Proxy as promptly as possible.an adjournment.
PROPOSAL NO. 1 - ELECTION OF DIRECTORSVote Required for Approval
EightDelaware law requires the affirmative vote of holders of a majority of the outstanding shares of Bitstream common stock entitled to vote at the special meeting to adopt the merger agreement. For the proposal to adopt the merger agreement, you may vote FOR, AGAINST or ABSTAIN. Neither abstentions nor “broker non-votes” (as described below) will be counted as votes cast or shares voting on the proposal to adopt the merger agreement.Failure to vote, by proxy or in person, will have the same effect as a vote “AGAINST” the adoption of the merger agreement.
The affirmative vote of the holders of a majority of the shares of Bitstream common stock present in person or by proxy and entitled to vote at the special meeting will be required to approve the advisory (non-binding) vote on the “golden parachute” compensation payable or that could become payable to the named executive officers of Bitstream in connection with the merger and the adjournment, if necessary, of the special meeting to solicit additional proxies in favor of the adoption of the merger agreement. Failure to vote, in person or by proxy, will have no effect on the approval of the non-binding advisory proposal regarding “golden parachute” compensation or any adjournment proposal.
Brokers who hold shares of Bitstream common stock in street name for a customer who is the beneficial owner of those shares may not exercise voting authority on the customer’s shares with respect to the actions proposed in this document without specific instructions from the customer. Proxies submitted by a broker that do not exercise this voting authority are referred to as “broker non-votes.” If your broker holds your shares of Bitstream common stock in street name, your broker will vote your shares only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your broker with this document. Non-voted shares of Bitstream common stock will have no effect on the non-binding advisory proposal regarding “golden parachute” compensation or the proposal to adjourn the special meeting, if necessary, to solicit additional proxies in favor of the adoption of the merger agreement.
As of the record date, our directors and executive officers beneficially owned in the aggregate shares of Bitstream common stock or approximately % of our total issued and outstanding shares. This amount excludes options to purchase shares of our common stock that will be exercisable at the effective time of the merger that are beneficially owned by our directors and executive officers. The share ownership of our directors and executive officers is further described under “Security Ownership Of Management and Certain Beneficial Owners.” All of shares of our common stock owned by our directors and executive officers are subject to voting agreements. If the merger agreement terminates in accordance with its terms, these voting agreements will also terminate. A copy of the form of voting agreement is attached as Annex B to this proxy statement.
Holders of record of Bitstream common stock may vote their shares by attending the special meeting and voting their shares of Bitstream common stock in person, or one of the following three ways whether or not you plan to attend the special meeting:
by completing your proxy through the Internet at www. , as listed on the accompanying proxy card;
by completing your proxy using the toll-free telephone number , as listed on the proxy card; or
by completing, signing and dating the proxy card and returning it in the enclosed postage-prepaid envelope.
All shares of Bitstream common stock represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in the manner specified by the holder. If a written proxy card is signed by a stockholder and returned without instructions, the shares of Bitstream common stock represented by the proxy will be voted “FOR” the adoption of the merger agreement, “FOR” approval, on an advisory (non-binding) basis, of the “golden parachute” compensation payable or that could become payable to the named executive officers of Bitstream in connection with the merger, “FOR” approval of any proposal to adjourn the special meeting to solicit additional proxies in favor of the adoption of the merger agreement and in accordance with the recommendations of our board of directors on any other matters properly brought before the special meeting for a vote.
Stockholders who have questions or requests for assistance in completing and submitting proxy cards should contact James Dore at 500 Nickerson Road, Marlborough, MA 01752 Phone: 617-520-8377.
Brokers who hold shares of Bitstream common stock in street name for a customer who is the beneficial owner of those shares may not exercise voting authority on the customer’s shares with respect to the actions proposed in this document without specific instructions from the customer. Proxies submitted by a broker that do not exercise this voting authority are referred to as “broker non-votes.” If your broker holds your shares of Bitstream common stock in street name, your broker will vote your shares only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your broker with this document.
In connection with the execution of the merger agreement, the directors and executive officers and certain stockholders of Bitstream, who collectively beneficially own approximately % of the voting power of Bitstream common stock as of the record date, have entered into voting agreements agreeing to vote in favor of the adoption of the merger agreement. If the merger agreement terminates in accordance with its terms, these voting agreements will also terminate. A copy of the form of voting agreement is attached as Annex B to this proxy statement.
You may change your vote at any time before the polls close at the special meeting. You can do this in one of three ways. First, you can send a written, dated notice to our Secretary at Office of the Secretary, Bitstream Inc., 500 Nickerson Road, Marlborough, Massachusetts 01752-4695, stating that you would like to revoke your proxy. Second, you can complete, date and submit a new proxy card with a later date. Third, you can attend the special meeting and vote in person. Your attendance alone will not revoke your proxy. If you have instructed a broker to vote your shares, you must follow directions received from your broker to change those instructions. If you have voted your proxy via the Internet or by telephone, you can revoke your proxy by voting again and only your last action via the Internet or by telephone will be counted.
This proxy solicitation is being made and paid for by Bitstream on behalf of its board of directors. In addition to solicitation by mail, our directors, officers and employees may solicit proxies by personal interview, e-mail, telephone, facsimile or other means of communication. Our directors, officers and employees will not receive any additional compensation for their services, but we will reimburse them for their out-of-pocket expenses. We will reimburse banks, brokers, nominees, custodians and fiduciaries for their reasonable expenses in forwarding copies of this proxy statement to the beneficial owners of shares of Bitstream common stock and in obtaining voting instructions from those owners. We will pay all expenses of filing, printing and mailing this proxy statement.
We are not currently aware of any business to be electedacted upon at the special meeting other than the matters discussed in this proxy statement. Under our by-laws, business transacted at the special meeting is limited to serve untilmatters set forth in the next annualnotice of special meeting, which is provided at the beginning of our stockholdersthis proxy statement. If
other matters do properly come before the special meeting, or until the election and qualification of their respective successors. Sixat any adjournment or postponement of the nominees named below currently serve as directorsspecial meeting, we intend that shares of Bitstream common stock represented by properly submitted proxies will be voted by and at the discretion of the Company. The Board has also nominated Melvin L. Keating and Raul K. Martynek to serve as new additional independent directors. The persons named as proxies on the proxy card. In addition, the grant of a proxy will confer discretionary authority on the persons named as proxies on the proxy card to vote in accordance with their best judgment on procedural matters incident to the conduct of the special meeting.
Questions and Additional Information
If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please contact James Dore at 500 Nickerson Road, Marlborough, MA 01752 Phone: 617-520-8377.
The reports, opinions or appraisals referenced in this proxy statement will be made available for inspection and copying at the principal executive offices of Bitstream during our regular business hours by any interested holder of Bitstream common stock. In addition, our list of stockholders entitled to vote at the special meeting will be available for inspection at our principal executive offices at least ten days before the special meeting.
Bitstream Inc.
500 Nickerson Road
Marlborough, Massachusetts 01752-4695
(617) 497-6222
Bitstream Inc., a Delaware corporation, is a software development company focused on bringing innovative and proprietary software products to a wide variety of markets. Bitstream’s core software products include award-winning fonts and font rendering technologies, mobile browsing and messaging technologies, variable data publishing and web-to-print technologies, and multi-channel communications technologies. Bitstream operates in one business segment. Bitstream conducts its fonts and font rendering technology operations directly through Bitstream and conducts the operation of its personalized marketing communications and variable publishing technologies, or Pageflex product, and its mobile web browsing technologies, or BOLT product, through its wholly-owned subsidiary Marlborough Software Development Holdings Inc., and its foreign operations through two wholly-owned foreign subsidiaries: Bitstream India Pvt. Ltd. and Bitstream Israel LTD.
Monotype Imaging Holdings Inc.
500 Unicorn Park Drive
Woburn, Massachusetts 01801
(781) 970-6000
Monotype Imaging combines technology with design to help the world communicate. Based in Woburn, Massachusetts with offices in the accompanying Proxy intendU.S., Europe and Asia, Monotype Imaging brings text imaging and graphical user interface capabilities to vote (unless authorityconsumer electronics devices such as laser printers, copiers, mobile phones, navigation devices, digital cameras, e-book readers, automotive devices, tablets, digital televisions, set-top boxes and consumer appliances. Monotype Imaging also provides printer drivers, page description language interpreters, printer user interface technology and color imaging solutions to vote for directors is withheld in such Proxy or later revoked) all duly executed Proxies forprinter manufacturers and OEMs (original equipment manufacturers). Monotype Imaging technologies are combined with access to more than 14,000 typefaces from the electionMonotype®, Linotype® and ITC® typeface libraries—home to some of the Board ofworld’s most widely used designs, including the Times New Roman®, Helvetica® and ITC Franklin Gothic™ typefaces. Fonts are licensed to creative, business and Web professionals through e-commerce portals, direct and indirect sales and custom design services. Monotype Imaging offers industry-standard font solutions that support all of the nominees named below, eachworld’s major languages.
Birch Acquisition Corporation
c/o Monotype Imaging Holdings Inc.
500 Unicorn Park Drive
Woburn, Massachusetts 01801
(781) 970-6000
Birch Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of whom consentedMonotype Imaging, was formed solely for the purpose of facilitating Monotype Imaging’s acquisition of Bitstream. Birch Acquisition Corporation has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement. Upon consummation of the proposed merger, Birch Acquisition Corporation will merge with and into Bitstream and will cease to exist.
Bitstream’s board of directors has periodically reviewed and assessed Bitstream’s long-term strategies and objectives and developments in the markets in which Bitstream operates, including, among other things, strategies to develop, fund and grow Bitstream’s business and operations.
On February 17, 2009, Columbia Pacific Opportunity Fund L.P., Columbia Pacific Advisors LLC, Alexander B. Washburn, Daniel R. Baty, Stanley L. Baty and Brandon D. Baty (which we collectively refer to as the Columbia Group) filed a joint statement on Schedule 13G to report beneficial ownership by the Columbia Group of approximately 6.2% of Bitstream’s issued and outstanding class A common stock.
On May 1, 2009, NV North American Opportunity Fund, Millennium Group LLC, Highland Park Partners Fund LP, HPP GP LLC and Trent Stedman (which we collectively refer to as the NVP Group) filed a joint statement on Schedule 13D to report the beneficial ownership by the NVP Group of approximately 13.6% of Bitstream’s issued and outstanding class A common stock. In this filing, the NVP Group disclosed its belief that Bitstream’s class A common stock was significantly undervalued and that it intended to evaluate measures aimed at enhancing shareholder value for all of Bitstream’s shareholders. In addition, the NVP Group disclosed its intent to engage in communications with Bitstream’s management and board of directors, conversations with other Bitstream shareholders, offering proposals to Bitstream concerning changes to Bitstream’s capitalization, ownership structure, board composition, or operations of the company, engaging investment bankers or other advisors, and discussions with industry participants.
On June 15, 2009, Daniel Gerron, Vice President of Corporate Development of Monotype Imaging, contacted Anna Chagnon, then Chief Executive Officer of Bitstream, to discuss Bitstream’s potential interest in selling its OEM Type and Myfonts products (which we refer to as our fonts products). On that call, Ms. Chagnon indicated that she would inform Bitstream’s board of directors of Monotype Imaging’s initial expression of interest, determine the board’s level of interest in discussing a potential transaction and, if such interest existed, recommend a process for continuing discussions.
On August 18, 2009, Mr. Gerron again contacted Ms. Chagnon to inquire about Bitstream’s potential willingness to consider a sale of its fonts products. Ms. Chagnon informed Mr. Gerron that Bitstream was unwilling to engage in discussions with Monotype Imaging without Monotype Imaging first having made a formal proposal. Monotype Imaging did not make a formal proposal and no additional discussions took place at that time.
On April 20, 2010, the Columbia Group filed a joint statement on Schedule 13D to report beneficial ownership of approximately 11.6% of Bitstream’s issued and outstanding class A common stock. In this filing, the Columbia Group also disclosed that, as of April 12, 2010, it had decided to become more actively involved with a view towards influencing material business decisions relating to the future of Bitstream.
On April 23, 2010, the NVP Group filed an amendment to its joint statement on Schedule 13D/A to disclose the addition of Thomas Patrick as a member of the group. This filing also disclosed that Mr. Stedman and Mr. Patrick had acquired all of the shares of Bitstream’s class A common stock owned by Highland Park Partners Fund LP, which ceased to be named hereina member of the NVP group.
On August 18, 2010, the board of directors of Bitstream received a letter from Mr. Washburn of the Columbia Group requesting that the board of directors form a non-executive committee for the purpose of exploring a potential sale of Bitstream. The Columbia Group disclosed its letter to Bitstream in an amendment to its joint statement on Schedule 13D/A filed on August 18, 2010.
On August 20, 2010, the board of directors of Bitstream received a letter from Mr. Stedman of the NVP Group referencing the August 18, 2010 letter from the Columbia Group in support of its recommendation that Bitstream’s board of directors form a special committee to explore a sale of Bitstream. The NVP Group disclosed its letter to Bitstream in an amendment to its joint statement on Schedule 13D/A filed on August 20, 2010.
On August 26, 2010, Bitstream’s board of directors discussed the letters from the Columbia Group and the NVP Group during a telephonic meeting. The board of directors unanimously determined to consider possible responses to the shareholder letters and to serve as a director if elected at the Meeting. The Board knows of no reason why any of the nominees will be unavailable or unable to serve as a director, but in the event that any nominee should become unavailable prior to the Meeting, the Proxy will be voted for a substitute nominee designated by the Board if a substitute nominee is designated. Listed below is certain informationdiscuss potential strategic alternatives with respect to Bitstream at the
next board of directors meeting. Following the board meeting, Amos Kaminski, chairman of Bitstream’s board of directors, spoke separately by telephone with each current nomineeof Messrs. Washburn and Stedman regarding their letters to the board of directors and advised that the board of directors was considering possible options and would discuss these options at its next meeting.
On September 16, 2010, the board of directors of Bitstream held a meeting at which members of the board discussed the letters that had been received from the Columbia Group and the NVP Group. It was determined that these large shareholders were frustrated with the performance of Bitstream’s stock price and believed that Bitstream was pursuing multiple, diverse product lines making it difficult for electionthe capital markets to accurately value the company as a director. Forwhole and making it difficult to attract new investors. Bitstream’s board of directors determined that it would be appropriate to consider engaging a financial advisor and exploring possible alternatives for enhancing shareholder value. The board determined that a special committee (which we refer to as the special committee) should be formed to interview and hire a financial advisor, to supervise the initial work performed by such advisor and perform such other analyses as the board of directors may determine. The board of directors then formally established the special committee, consisting of Messrs. Kagan, Keating and Kaminski, with Mr. Kagan appointed as chairman. The principal purpose of the special committee was to streamline the process of hiring the financial advisor and considering strategic alternatives, so that the full board would not be needed in all the requisite deliberations, with the understanding that the full board would continue to approve significant matters as part of the ongoing process.
On October 5, 2010, the special committee met to discuss proposals from four investment banking firms.
On October 20, 2010, the special committee authorized the execution of an engagement letter with Rothschild appointing Rothschild as Bitstream’s financial advisor. On October 25, 2010, Bitstream issued a press release announcing that Rothschild had been appointed as Bitstream’s financial advisor to advise the company in connection with reviewing business opportunities and strategic alternatives to enhance shareholder value.
On October 26, 2010, Mr. Gerron telephoned Rothschild and expressed Monotype Imaging’s interest in a possible acquisition of Bitstream’s fonts products. Rothschild advised Mr. Gerron that Bitstream had just initiated the process of considering its strategic alternatives and as such Bitstream was not in a position to engage with Monotype Imaging at that point in time. Rothschild further advised Mr. Gerron that it would follow up with Mr. Gerron if the board of directors of Bitstream directed Rothschild to do so in the future.
On November 12, 2010, Bitstream’s board of directors held a meeting at which members of the management team and Rothschild were present. The board of directors then discussed the merits of exploring a sale of the entire company or a sale of the BOLT product line, and the merits of remaining an independent company and continuing to pursue Bitstream’s existing strategic plan. Following this discussion, the board of directors determined to initiate a process that would solicit potential strategic partners or acquirers of its BOLT product line or of Bitstream as a whole. The board of directors determined not to engage with any competitors at the outset of this process because the board of directors was concerned about the potential need to disclose competitively sensitive information to participants in the process.
From November 12, 2010 through January 20, 2011, Bitstream and Rothschild created short-form marketing summaries and information memoranda for both Bitstream as a whole and its BOLT product line.
From mid-November 2010 through mid-January 2011, Rothschild conducted preliminary inquiries with approximately 90 potential strategic partners or buyers of Bitstream or its BOLT product line, as authorized by Bitstream. Competitors of Bitstream, including Monotype Imaging, were not included in this process. At this stage, eight potential bidders entered into non-disclosure agreements. All parties were requested to submit preliminary indications of interest by February 15, 2011.
On December 9, 2010 and December 22, 2010, Mr. Gerron of Monotype Imaging made telephone inquiries to Rothschild reiterating Monotype Imaging’s interest in acquiring Bitstream’s fonts products. On both occasions, Rothschild advised Mr. Gerron that Bitstream was still in the process of considering its strategic alternatives and was not prepared to engage with Monotype Imaging at that time.
On December 15, 2010, Rothschild contacted an additional potentially interested party, Company A, a venture capital firm focused on research and development stage investments (“Company A”), regarding the possible sale of the BOLT product line.
On January 20, 2011, Bitstream entered into a non-disclosure agreement with Company A.
As of the February 15, 2011 deadline for submission of indications of interest, Rothschild did not receive any offers for Bitstream as a whole. Strategic buyers expressed concern with respect to the disparate segments in which Bitstream operates. Financial buyers generally cited the following concerns in declining to submit an offer for Bitstream:
lack of growth – recent financial results did not support growth equity investment
lack of profitability – cash flows insufficient to service acquisition debt
small scale – investment below a given fund’s mandate size
complexity – company operates in too many markets for investors to understand and make meaningful return
On February 17, 2011, Company A submitted an indication of interest with respect to an investment in the BOLT product line. As contemplated, Company A would fund BOLT’s operating losses and capital needs in exchange for a majority interest in the BOLT product line. Under this proposed structure, Bitstream would not receive any cash proceeds. Additionally, Bitstream would retain a significant minority interest in a new company formed to operate the BOLT product line.
On February 22, 2011, Mr. Gerron of Monotype Imaging telephoned Rothschild to obtain an update on Bitstream’s sale process and to inquire again about a possible acquisition of Bitstream’s fonts products. Rothschild advised Mr. Gerron that Bitstream was making progress in assessing its strategic alternatives and that Rothschild expected to be in position to provide additional information to Monotype Imaging regarding Bitstream’s process in the near future.
On February 24, 2011, Bitstream’s board of directors met with Rothschild to discuss the indication of interest letter submitted by Company A regarding a majority interest in the BOLT product line. The board of directors felt that the amount of capital that Company A was prepared to invest in the BOLT product line was sufficiently compelling to warrant additional dialogue between the parties, but the board of directors also was of the view that Bitstream should receive an increased share of the ongoing interest in the product line. The board of directors also viewed the proposal as worth pursuing to the extent that Company A would take on the entire operational and development cost associated with the BOLT product line. Following this discussion, the board of directors authorized management and Rothschild to explore a transaction with Company A relating to the BOLT product line. In view of the lack of interest in an acquisition involving Bitstream as a whole by parties who were not competitors of Bitstream, Bitstream’s board of directors also authorized Rothschild to contact competitors, including Monotype Imaging, to determine whether any might have an interest in acquiring Bitstream as a whole or the BOLT product line. As a result of these discussions, it was determined that an additional six parties should be contacted, one of which was Monotype Imaging.
On February 28, 2011, Ms. Chagnon contacted Company B, a stock photography agency (“Company B”), as a potential acquirer of Bitstream’s fonts products and referred Company B to Rothschild for follow up. Bitstream
entered into a non-disclosure agreement with Company B on March 3, 2011 and on March 4, 2011, Rothschild distributed the marketing summary and confidential information memorandum regarding Bitstream to Company B.
On February 28, 2011, Rothschild contacted Company C, an international leading provider of customer-focused digital printing technologies (“Company C”), as a potential acquirer of Bitstream’s Pageflex products. Bitstream entered into a non-disclosure agreement with Company C on March 7, 2011 and on March 8, 2011, Rothschild distributed the marketing summary and confidential information memorandum regarding Pageflex to Company C.
On March 2, 2011, Rothschild telephoned Mr. Gerron at Monotype Imaging to advise him that Bitstream was prepared to enter into discussions regarding a possible transaction involving the fonts products.
On March 12, 2011, Company A submitted a revised non-binding indication of interest for the BOLT product line. The revised indication of interest provided more detailed information about the proposed transaction and the proposed capital structure of the new entity.
On March 15, 2011, Bitstream signed a letter with Company A providing for an exclusivity period of 60 days limited to the BOLT products. On the same day, representatives of Company A and Bitstream met at Rothschild’s offices in New York to begin the due diligence process.
On March 18, 2011, Bitstream entered into a non-disclosure agreement with Monotype Imaging and on March 21, 2011, Rothschild furnished Monotype Imaging with the marketing summary and confidential information memorandum.
On March 21, 2011, Rothschild contacted Company D, a provider of digital entertainment and digital imaging services (“Company D”), as a potential strategic partner of Bitstream. Bitstream entered into a non-disclosure agreement with Company D on March 25, 2011 and on March 30, 2011, Rothschild distributed a confidential information memo regarding Bitstream to Company D.
On March 22, 2011, Rothschild contacted Company E, a global software company and leading provider of web and mobile software and services (“Company E”), as a potential acquirer of Bitstream’s fonts products. Bitstream entered into a non-disclosure agreement with Company E on April 20, 2011 and on April 22, 2011, Rothschild distributed the marketing summary and confidential information memorandum regarding Bitstream to Company E.
On March 22, 2011, Ms. Chagnon contacted Company F, a technology provider in the print and imaging industry (“Company F”), as a potential strategic partner of Bitstream and referred Company F to Rothschild for follow up. Bitstream entered into a non-disclosure agreement with Company F on March 23, 2011 and on the same day, Rothschild distributed the marketing summary and confidential information memorandum regarding Bitstream to Company F.
Between March 22 and March 29, 2011, Monotype Imaging conducted due diligence on the fonts business.
On March 28, 2011, Company A provided a list of items for Bitstream to provide in connection with Company A’s due diligence process with respect to the BOLT product line.
On March 29, 2011, the Monotype Imaging and Bitstream management teams, with representatives of Rothschild also participating, participated on a conference call to review the confidential information memorandum and to discuss various diligence questions raised by Monotype Imaging.
On April 1, 2011, Company C delivered a preliminary indication of interest proposing an acquisition of the Pageflex products at a valuation of between $12 million and $17 million, subject to further due diligence, with a
significant portion of the purchase price to be paid over time and subject to the attainment of certain revenue targets.
On April 5, 2011, the board of directors of Bitstream held a meeting to discuss the preliminary indication of interest received from Company C on April 1, 2011. Based primarily upon the conditions of the offer (which included the significant deferral of the purchase price, the revenue conditions precedent to payment and a substantial escrow), Bitstream’s board of directors determined not to pursue this offer and no further negotiations occurred with Company C.
On April 14, 2011, Monotype Imaging submitted a non-binding indication of interest for an acquisition of Bitstream’s fonts products for between $28 to $35 million in cash, subject to further diligence and structured as an asset purchase.
During the period between April 14, 2011 and May 5, 2011, several indications of interest were expressed orally by Companies B, D, E and F, corresponding to various Bitstream product lines, but no formal offer letters were received from any of these parties and Bitstream did not enter into meaningful negotiations with any such parties.
On April 29, 2011, Mr. Gerron telephoned Rothschild seeking a response to Monotype Imaging’s April 14, 2011 non-binding indication of interest. Rothschild advised Mr. Gerron that Bitstream was evaluating various proposals and would respond shortly.
On May 2, 2011, Bitstream issued a press release announcing the resignation of Ms. Chagnon from her positions with Bitstream.
Also on May 2, 2011, Rothschild telephoned Mr. Gerron to discuss Monotype Imaging’s April 14, 2011 indication of interest as well as Ms. Chagnon’s resignation. At the direction of the special committee, Rothschild indicated that Bitstream was not prepared to sell the fonts products for the price set forth in Monotype Imaging’s April 14, 2011 letter.
On May 16, 2011, Rothschild telephoned Mr. Gerron to provide additional information regarding Bitstream’s pricing and structure expectations regarding a sale of the fonts products. On this call, Rothschild indicated that Bitstream expected significantly more than the $28 to $35 million valuation offered by Monotype Imaging and that it desired a tax-efficient structure so as to maximize net proceeds to the stockholders from a sale.
On May 17, 2011, Mr. Washburn and Rothschild discussed the resignation of Ms. Chagnon. Mr. Washburn urged Bitstream to move expeditiously with respect to its strategic alternatives and asked to be kept informed as the process unfolded.
On May 23, 2011, Rothschild provided Monotype Imaging with updated financial information for Bitstream’s first quarter.
On May 25, 2011 the Columbia Group amended its Schedule 13D to disclose its interest in exploring a potential transaction to acquire the outstanding shares of Bitstream it did not then own. Later that day, Mr. Gerron contacted Rothschild to reiterate Monotype Imaging’s interest in acquiring Bitstream’s fonts products.
On May 26, 2011, at the board’s direction, Rothschild advised Mr. Gerron that for a transaction between Bitstream and Monotype Imaging to occur, it would likely need to be structured as a merger, rather than as an asset sale, which would be less tax efficient for Bitstream. Further, Rothschild advised Mr. Gerron that Monotype Imaging would have to increase its purchase price.
On May 27, 2011, Mr. Gerron e-mailed Rothschild to inform Rothschild that Monotype Imaging was giving consideration to Bitstream’s indication of required valuation and structure for a sale of the fonts products.
Mr. Gerron also expressed Monotype Imaging’s desire to understand how Bitstream proposed treating the liabilities of the non-fonts-related assets in a merger structure given that Monotype Imaging was interested solely in the fonts products and was not willing to succeed to the liabilities of Bitstream’s other businesses.
On May 27, 2011, Monotype Imaging’s board of directors authorized Monotype Imaging to negotiate on price and structure to acquire the Bitstream fonts products, provided it would not acquire businesses, liabilities or obligations of the non-fonts-related assets.
On May 31, 2011, Bitstream entered into a non-disclosure agreement with the Columbia Group. Subsequent to that, Mr. Washburn indicated to Rothschild that the Columbia Group determined it did not intend to be a bidder for Bitstream or any of its assets.
On June 1, 2011, Monotype Imaging delivered to Bitstream a second non-binding indication of interest letter, increasing its offer price to $45 million in cash and agreeing to acquire Bitstream’s fonts products by means of a merger, but stipulating that Bitstream’s operations at the time of closing must consist only of its fonts products and no non-font-related assets or liabilities. On June 1, 2011, Mr. Gerron and Douglas Shaw, the Chief Executive Officer of Monotype Imaging, telephoned Rothschild and reviewed Monotype Imaging’s revised non-binding proposal, with Messrs. Shaw and Gerron expressing their view that the revised proposal sought to address Bitstream’s requirements based on the parties’ prior discussions.
On June 8, 2011, the Bitstream board of directors met at Bitstream’s headquarters in Marlborough, Massachusetts. At that meeting the board of directors reviewed the terms of Monotype Imaging’s June 1, 2011 revised indication of interest. The board of directors discussed the fact that the proposal would require a divestiture of the Pageflex products and BOLT products either in transactions with third-parties or in a spin-off to Bitstream’s stockholders. The board of directors also concluded that the purchase price proposed by Monotype Imaging was still below the board’s belief as to the value of the fonts products. The board of directors determined it needed more time to review the Monotype Imaging offer in light of ongoing efforts to secure bids for all or a portion of Bitstream’s business. In addition, the board wanted to take additional time to assess the feasibility of the potential transaction structure proposed in Monotype Imaging’s proposal. The board believed that in order for Monotype Imaging’s proposal to be attractive, it would have to reflect a valuation of the fonts products closer to $50.0 million, and directed management and Rothschild to continue negotiating in an effort to cause Monotype Imaging to increase its offer price.
On June 9, 2011, Rothschild spoke by telephone with Mr. Gerron. At the board’s direction, Rothschild communicated that the price was still lower than expected by the Bitstream board of directors. Rothschild also conveyed Bitstream’s willingness to consider a divestiture of its Pageflex and BOLT products as a condition to completing a transaction with Monotype Imaging assuming the parties could otherwise agree on an appropriate purchase price for the fonts products.
Also on June 9, 2011, Rothschild received a revised proposal from Company A regarding an investment in Bitstream’s BOLT products. The revised proposal contemplated that Company A and a co-investor would capitalize a new entity that would own the BOLT products with Bitstream retaining a minority interest.
On or around June 13, 2011, Rothschild provided Mr. Washburn with certain information concerning Bitstream’s efforts to obtain indications of interest from various parties.
On June 13, 2011, Monotype Imaging delivered a revised proposal increasing the purchase price to $50 million in cash.
On June 15 and 16, 2011, Bitstream’s management consulted with Rothschild and Seyfarth Shaw LLP, Bitstream’s outside legal counsel (“Seyfarth”), to discuss the terms and conditions of the Monotype Imaging offer. Also during this same period, Bitstream’s management received advice from Seyfarth and PricewaterhouseCoopers LLP (“PwC”) as to the manner in which Bitstream could separate the BOLT and Pageflex products by means of spin-off. Following this consultation, Bitstream management concluded that the basic terms being offered by Monotype Imaging were consistent with the direction of Bitstream’s board of directors at its June 8, 2011 meeting. On the same day, Rothschild telephoned Mr. Gerron to advise him that Bitstream’s management viewed Monotype Imaging’s revised proposal favorably but would need additional time
to further consider how it would separate the BOLT and Pageflex products, and the liabilities associated with these products, from the fonts products.
On June 17, 2011, Rothschild, on behalf of Bitstream, returned a mark-up of the non-binding offer letter to Monotype Imaging. On June 17, 2011, representatives of Goodwin Procter LLP, Monotype Imaging’s outside legal counsel (“Goodwin Procter”), distributed a revised draft of the non-binding offer letter reflecting comments from Monotype Imaging and its advisors.
On June 21, 2011, representatives from Seyfarth distributed a revised draft of the non-binding offer letter reflecting additional comments from Bitstream and its advisor and counsel.
On June 23, 2011, Bitstream and Monotype Imaging signed the non-binding offer letter, thereby beginning a period of exclusivity between the two companies originally scheduled to expire on August 15, 2011. Also on June 23, 2011, Goodwin Procter delivered to Rothschild and Seyfarth a due diligence request list.
On June 27, 2011, representatives of Bitstream, Monotype Imaging, Seyfarth, Goodwin Procter and Rothschild participated on a conference call to discuss process and timing with respect to the due diligence process relating to Monotype Imaging’s acquisition of the fonts products and Bitstream’s divestiture of its Pageflex and BOLT products.
On June 29, 2011, Rothschild, on behalf of Bitstream, granted data room access to representatives of Monotype Imaging and its advisors for the purpose of conducting further due diligence in connection with a potential transaction. From June 29, 2011 through November 10, 2011, Monotype Imaging and its advisors conducted due diligence regarding Bitstream.
On July 1, 2011, the NVP Group signed a non-disclosure agreement with Bitstream and asked to be kept up to date with respect to Bitstream’s consideration of its strategic alternatives.
On July 6, 2011, Bitstream received a revised term sheet from Company A regarding an investment in Bitstream’s BOLT products. Like the June 9, 2011 term sheet, the revised proposal contemplated that Company A and a co-investor would capitalize a new entity that would own the BOLT products with Bitstream retaining a minority interest in the new entity. The revised proposal increased the amount of the proposed investment by Company A in the new entity and slightly decreased the number of shares of Class A Common Stock beneficially ownedthe new entity to be issued to Bitstream. It also provided for an additional payment to be made to Bitstream upon a sale of the company after the payment in full of the liquidation preference of the outstanding preferred stock. The revised proposal further provided that the new company would assume all known liabilities relating to the BOLT products and required the new company to license back to Bitstream any of Bitstream’s intellectual property assigned to the new entity to the extent that Bitstream required such intellectual property in connection with non-BOLT products. On July 13, 2011, Bitstream signed the term sheet with Company A.
On July 7, 2011, Mr. Gerron spoke by each nominee, see “Principaltelephone with Rothschild and Management Stockholders” included elsewhere herein.requested additional due diligence materials relating to financial statements and revenue and customer information.
On July 11, 2011, Mr. Gerron provided Rothschild with two email requests for supplemental diligence materials. The first request related to specific customer contracts of Bitstream. The second request was a broader request for organizational documents, balance sheet information, employee benefit matters and intellectual property matters.
On July 13, 2011, representatives of Monotype Imaging, Bitstream, Goodwin Procter, Seyfarth and Rothschild met at Seyfarth’s offices in Boston to discuss and review Bitstream’s operations and business records relating to its fonts products.
On July 15, 2011, Bitstream’s board of directors conducted a telephonic meeting and discussed the status of the due diligence process with Monotype Imaging at the July 13 meeting as well as the advisability and feasibility of spinning off the Pageflex and BOLT products, including with regard to the preparation of the separate financial statements of MSDH. The board directed Rothschild and Seyfarth to focus on accelerating the
THE BOARD UNANIMOUSLY RECOMMENDSprocess so that Bitstream would be prepared to separate its Pageflex and BOLT products with a view to a possible spin-off of Pageflex and BOLT. The board also gave approval for continued negotiations with Company A.
As Monotype Imaging had conditioned its acquisition upon the separation of the assets and liabilities relating to the fonts products, Bitstream continued to explore strategic alternatives for the Pageflex and BOLT products, including a possible spin-off, while proceeding towards a transaction with Monotype Imaging. Bitstream created MSDH on July 18, 2011 to facilitate a potential spin-off or divestiture of the Pageflex and BOLT products.
On July 18, 2011, Bitstream executed Company’s A VOTE “FOR ALL” OF THE NOMINEESproposed term sheet providing for an exclusivity period on the BOLT product line until October 28, 2011.
On July 21, 2011, Rothschild and Mr. Gerron spoke by telephone to discuss the potential alternatives for separating Bitstream’s fonts products from its BOLT and Pageflex products, which consisted of a spin-off of the BOLT and Pageflex products, their sale to a third-party, or the potential discontinuance of their operations. Rothschild advised Mr. Gerron that Bitstream was considering all alternatives.
On July 22, 2011, Bitstream’s board of directors conducted a telephonic meeting and discussed the status of the due diligence process with Monotype Imaging and the status of the spin-off of the Pageflex and BOLT products, including the preparation of the separate financial statements of MSDH. The board also discussed Rothschild’s efforts to solicit purchasers or strategic partners for the Pageflex and BOLT products. Rothschild reported it was continuing to solicit potentially interested parties in both the Pageflex and BOLT products, but with the exception of two interested parties that indicated they might submit an offer for the Pageflex products, no additional parties had emerged.
On July 29, 2011, Bitstream’s board of directors conducted a telephonic meeting and discussed the status of the due diligence process with Monotype Imaging, the status of a potential spin-off of the Pageflex and BOLT products, including the preparation of the separate financial statements of MSDH and a draft registration statement on Form S-1 relating to the spin-off of MSDH, and the status of a potential sale of the Pageflex and BOLT products. Rothschild discussed the contact made with parties previously interested in the Pageflex products or recently identified as being potentially interested. Mr. Kaminski advised that he was considering co-investing with one of the parties potentially interested in acquiring the Pageflex products but was not currently part of any group making a proposal to Bitstream to purchase the Pageflex products. Accordingly, Mr. Kaminski resigned from the special committee and Raul Martynek was appointed to the special committee. Notwithstanding Mr. Kaminski’s potential interest, he did not agree to co-invest with any party that submitted a proposal to purchase the Pageflex products.
On August 5, 2011, representatives of Monotype Imaging, Goodwin Procter, Bitstream, Seyfarth and Rothschild met at Goodwin Procter’s offices in Boston to discuss outstanding due diligence items, transition matters and specific questions by Monotype Imaging with respect to Bitstream’s operations, customers and intellectual property.
On August 8, 2011, Rothschild and Mr. Gerron spoke by telephone. On that call, Rothschild provided Mr. Gerron with an update on the BOLT and Pageflex divestiture process.
On August 10, 2011, Rothschild contacted Company G, a private equity firm, regarding a potential acquisition of Pageflex. Rothschild had previously contacted Company G in early 2011 regarding a sale of Bitstream as a whole and Company G had then signed a non-disclosure agreement, dated February 8, 2011.
On August 12, 2011, Bitstream’s board of directors conducted a telephonic meeting and discussed the status of the due diligence process with Monotype Imaging and the status of the spin-off of the Pageflex and BOLT products, including the preparation of the separate financial statements of MSDH. The board also discussed Rothschild’s efforts to solicit purchasers or strategic partners for the Pageflex and BOLT products. Rothschild reported that it had discussions with Company C and that its expectation was that Company C would respond within two weeks. Rothschild also provided an update on its conversations with Company G and reported that
two additional parties had signed non-disclosure agreements with Bitstream though one had subsequently signaled that it would not proceed due to timing concerns.At this meeting, the board of directors authorized an extension of Monotype Imaging’s exclusivity period from August 15, 2011 to September 15, 2011.
On August 12, 2011, Bitstream delivered to Monotype Imaging an executed agreement extending the exclusivity period to September 15, 2011.
On August 17, 2011, Mr. Gerron spoke by telephone with Rothschild to discuss due diligence matters.
On August 19, 2011, Bitstream’s board of directors met and discussed the status of the due diligence process with Monotype Imaging and the status of the spin-off of the Pageflex and BOLT products, including the preparation of the separate financial statements of MSDH. The board also discussed Rothschild’s efforts to solicit purchasers or strategic partners for the Pageflex and BOLT products. Rothschild reported that Company C had indicated that it might extend an offer to purchase Pageflex sometime near the end of the following week and Rothschild’s representative also reported that one party who signed an NDA requested additional information concerning the Pageflex products. Rothschild also reported that it was working with another potential bidder for the Pageflex products to satisfy the potential bidder’s request for due diligence information.
On August 26, 2011, Company G submitted an expression of interest for an acquisition of the Pageflex products, proposing a purchase price of up to $16 million, of which $6 million would be paid in cash upon closing and $10 million over time, subject to attainment of certain financial targets.
Also on August 26, 2011, Rothschild communicated to Company A that the board of directors wanted Company A’s investment to proceed more quickly and remained concerned that the deal would not be finalized in the time frame needed to facilitate the consummation of the transaction with Monotype Imaging.
On August 30, 2011, Mr. Gerron spoke by telephone with Rothschild to request additional materials relating to board books and corporate minutes.
On September 1, 2011, Bitstream’s board of directors met in New York City and discussed Company G’s expression of interest. The board of directors believed the offer understated Pageflex’s value and contained an unacceptable level of conditionality as to the future payments, and further questioned whether the buyer could close in a timeframe that would not delay the transaction with Monotype Imaging. Accordingly, the board of directors determined not to pursue Company G’s proposal. The board directed Rothschild to deliver this message and no further discussions occurred with Company G.
On September 2, 2011, Rothschild and Mr. Gerron communicated by e-mail to discuss various due diligence items.
On September 7, 2011, Rothschild telephoned Mr. Gerron to provide him with an update as to the status of Bitstream’s efforts to sell the BOLT and Pageflex products.
On September 12, 2011, Rothschild and Mr. Gerron spoke by telephone to discuss various due diligence items.
On September 14 and 15, 2011, representatives of Monotype Imaging, Bitstream and Rothschild met in person at Seyfarth’s offices in Boston, Massachusetts to discuss various due diligence matters and the timing of the transaction going forward.
On September 16, 2011, Bitstream and Monotype Imaging entered into an agreement extending the exclusivity period to September 30, 2011.
Also on September 16, 2011, Goodwin Procter distributed a draft of the merger agreement to Bitstream, Rothschild and Seyfarth.
On September 20, 2011, representatives of Monotype Imaging met with representatives of PwC, Bitstream’s independent registered public accounting firm, at PwC’s offices, to review the working papers prepared in connection with the preparation of certain financial statements in furtherance of Monotype Imaging’s due diligence efforts.
On September 23, 2011, Bitstream’s board of directors met to discuss the draft merger agreement with Seyfarth and Rothschild. The Bitstream board of directors’ concerns included, (i) the ability to preserve optionality to either spin-off the BOLT and Pageflex products or to divest those product lines, (ii) the ability to have additional time to complete a spin-off divestiture (Monotype Imaging had proposed an end date under the merger agreement of March 31, 2012), (iii) seeking to reduce the termination fee payable to Monotype Imaging under certain circumstances from $2.0 million to $1.5 million, and (iv) seeking to eliminate payment of a termination fee for failure to complete the spin-off of the Pageflex and BOLT products. The board of directors directed Seyfarth to mark-up the merger agreement consistent with the board’s views and also authorized Bitstream to further extend Monotype Imaging’s exclusivity period until November 1, 2011.
Also, on or about September 23, 2011, Bitstream communicated to Company A that in the event that Company A could not quickly proceed to close the transaction or acquire the BOLT products, Bitstream planned to abandon its efforts to negotiate a transaction with Company A and would instead seek to spin-off the BOLT products. Following this communication by Bitstream, Company A and Bitstream had no further discussions to pursue the transactions outlined in the term sheet.
On September 27, 2011, Rothschild and Mr. Gerron spoke by telephone. On this call, Rothschild provided Mr. Gerron with an update on Bitstream’s efforts to sell the BOLT products.
On September 30, 2011, Rothschild and Mr. Gerron spoke by telephone to discuss various due diligence items.
On October 3, 2011, Bitstream and Monotype Imaging entered into an agreement extending the exclusivity period to November 1, 2011.
On October 4, 2011, Seyfarth distributed a mark-up of the draft merger agreement received from Goodwin Procter on September 16, 2011.
Between October 4, 2011 and November 10, 2011, the parties negotiated the merger agreement.
On October 11, 2011, representatives of Monotype Imaging and Bitstream met in person at the Westgate Hotel in San Diego, California to discuss various due diligence matters.
On October 18, 2011, Rothschild and Mr. Gerron spoke by telephone to discuss various due diligence items.
On October 19, 2011, Goodwin Procter distributed a revised draft of the merger agreement to Bitstream, Rothschild and Seyfarth.
On October 20, 2011, Seyfarth distributed to Goodwin Procter a draft of the contribution agreement to effect the separation of the assets and liabilities relating to Pageflex and BOLT from Bitstream. Also, Rothschild telephoned Mr. Gerron to update him on the status of Bitstream’s efforts to seek buyers for the BOLT and Pageflex products and to convey that Bitstream would pursue the spin-off if no deal to divest BOLT and Pageflex was obtained.
On October 21, 2011, representatives of Monotype Imaging, Bitstream, Goodwin Procter, Seyfarth and Rothschild participated in a telephone conference call to discuss unresolved terms of the merger agreement and process and timing for drafting, distribution and approval of all ancillary transaction documents relating to the merger and the spin-off of the Pageflex and BOLT products.
On October 25, 2011, Seyfarth distributed to Goodwin Procter a draft distribution agreement providing for the distribution of shares of MSDH common stock to stockholders of Bitstream to complete the spin-off of the Pageflex and BOLT products. Rothschild and Mr. Gerron also spoke by telephone regarding Bitstream’s efforts to sell the BOLT products.
On October 26, 2011, the special committee reviewed the status of the merger agreement negotiations. The special committee authorized and directed Seyfarth to continue negotiating with Monotype Imaging and its counsel with a view to seeking (i) the ability to have additional time to complete a spin-off divestiture (Monotype Imaging had proposed an end date under the merger agreement of March 31, 2012), (ii) to reduce the termination fee payable to Monotype Imaging under certain circumstances from $2.0 million to $1.5 million, and (iii) to eliminate or reduce the payment of a termination fee for failure to complete the spin-off of the Pageflex and BOLT products discussed by the special committee.
On October 27, 2011, Goodwin Procter distributed a draft voting agreement to be signed by the directors, executive officers and 10% stockholders of Bitstream (which included the Columbia Group and the NVP Group) in connection with the merger agreement. Representatives of Goodwin Procter and Seyfarth also spoke by telephone to address the remaining unresolved terms under the merger agreement. On the same day, Seyfarth distributed a draft of the disclosure schedules to the merger agreement to Goodwin Procter and Monotype Imaging.
On October 28, 2011, representatives of Monotype Imaging, Bitstream, Goodwin Procter, Seyfarth and Rothschild participated in a telephone conference call to discuss unresolved terms of the merger agreement and the process and timing for drafting, distribution and approval of all ancillary transaction documents relating to the merger and the spin-off of the Pageflex and BOLT products. In particular, the parties discussed the proposed treatment of the Bitstream options in the merger and the spin-off of the Pageflex and BOLT products, the proposed timeline to close the transaction, matters relating to the timing for determining and agreeing upon Bitstream’s spin-off tax liability, the flexibility of Bitstream to abandon the spin-off of the Pageflex and BOLT products and instead pursue the disposition of the BOLT and Pageflex products, consents required for closing, the ability of the parties to extend the end date under the merger agreement, the termination fee payable by Bitstream to Monotype Imaging under certain circumstances, matters relating to Bitstream’s India subsidiary and matters relating to licensing of certain BOLT patents. On the same day, Rothschild and Mr. Gerron spoke by telephone to discuss the timing for completing the merger and the spin-off of the Pageflex and BOLT products.
Also on October 28, 2011, Goodwin Procter distributed to Seyfarth comments to the draft contribution agreement to effect the separation of MSDH and the assets and liabilities relating to the Pageflex and BOLT products from Bitstream.
Also on October 28, 2011, the exclusivity period with Company A expired.
On October 31, 2011, Rothschild and Mr. Gerron spoke by telephone to discuss the timing by which Bitstream anticipated that its accountants would complete their audit of the BOLT and Pageflex financial statements for inclusion in the spin-off registration statement. On that same day, Rothschild sent the then current draft merger agreement and draft voting agreement to the Columbia Group and the NVP Group.
On November 1, 2011, representatives of Monotype Imaging, Bitstream, Goodwin Procter, Seyfarth and Rothschild participated in a telephone conference call to discuss unresolved terms of the merger agreement and process and timing for drafting, distribution and approval of the ancillary documents relating to the merger and the spin-off of the Pageflex and BOLT products. On this call the parties had narrowed the unresolved issues to
matters regarding the timing for determining and agreeing upon Bitstream’s spin-off tax liabilities, consents required for closing, the ability of the parties to extend the end date under the merger agreement, and the termination fee payable by Bitstream to Monotype Imaging in the event that Bitstream is unable to complete the spin-off of the Pageflex and BOLT products by the end date (the spin-off termination fee).
On November 2, 2011, the board of directors of Bitstream conducted a telephonic meeting to discuss the status of the merger negotiations and the unresolved open items discussed by the parties on the November 1, 2011 telephone call.
Later on November 2, 2011, representatives of Monotype Imaging, Bitstream, Goodwin Procter, Seyfarth and Rothschild convened by telephone to continue discussing the unresolved issues discussed on the November 1, 2011 telephone call.
On November 3, 2011, Goodwin Procter distributed a draft transition services agreement to Seyfarth proposing certain transition services and related fee schedules as well as comments to Seyfarth’s initial drafts of the contribution agreement and distribution agreement relating to the separation of MSDH and the assets and liabilities relating to Pageflex and BOLT from Bitstream and the distribution of shares of MSDH common stock to stockholders of Bitstream to complete the spin-off of the Pageflex and BOLT products.
Also on November 3, 2011, Seyfarth distributed drafts of certain intellectual property assignment and license agreements by and between Bitstream and MSDH regarding certain proprietary information relating to the Pageflex and BOLT products.
On November 4, 2011, Messrs. Shaw and Kagan discussed by telephone the unresolved open issues under the merger agreement. Bitstream and Monotype Imaging also entered into an agreement extending the exclusivity period to November 10, 2011.
Also, on November 4, 2011, Seyfarth distributed to Goodwin Procter an initial draft of the tax indemnity agreement.
On November 7, 2011, Goodwin Procter distributed a revised draft of the merger agreement to Bitstream and its advisors.
Also on November 7, 2011, Seyfarth distributed to Goodwin Procter comments to the draft transition services agreement and revised drafts of the contribution agreement and distribution agreement relating to the separation of MSDH and the assets and liabilities relating to Pageflex and BOLT from Bitstream and the distribution of shares of MSDH common stock to stockholders of Bitstream to complete the spin-off of the Pageflex and BOLT products. In addition, representatives of Monotype Imaging, Bitstream, Goodwin Procter, Seyfarth and Rothschild participated in a telephone conference call to continue their efforts to resolve the remaining open issues under the merger agreement, which included consents with respect to certain customer agreements, assignment of the lease at Bitstream’s corporate offices, and the end date and the spin-off termination fee under the merger agreement.
Later on November 7, 2011, Goodwin Procter distributed to Seyfarth comments to the draft intellectual property assignment and license agreements by and between Bitstream and MSDH regarding certain proprietary information relating to the Pageflex and BOLT products.
On November 8, 2011, the board of directors of Bitstream conducted a telephonic meeting to discuss the status of the merger negotiations and the unresolved open items relating to consents with respect to certain customer agreements, assignment of the lease at Bitstream’s corporate offices, and the end date and termination fees under the merger agreement. Bitstream’s board determined that they could accept a condition which would require Bitstream to assign its lease for its Marlborough facility without recourse to Monotype Imaging. However, the board was not willing to accept as a condition to the merger the receipt of any customer consent. The board also determined that the maximum spin-off termination fee should not exceed $1.0 million.
Also on November 8, 2011, representatives of Seyfarth and Goodwin Procter participated in telephone negotiations with respect to the merger agreement and unresolved open items relating to consents with respect to certain customer agreements, assignment of the lease at Bitstream’s corporate offices, and the end date and the spin-off termination fee under the merger agreement.
On November 9, 2011, representatives of Seyfarth and Goodwin Procter participated in telephone negotiations with respect to the merger agreement and unresolved open items relating to assignment of the lease at Bitstream’s corporate offices and the end date and the spin-off termination fee under the merger agreement.
Also on November 9, 2011, Goodwin Procter distributed a revised draft of the tax indemnity agreement to Seyfarth. Later on November 9, 2011, Seyfarth replied to Goodwin Procter with certain comments to the tax indemnity agreement.
Later on November 9, 2011, Goodwin Procter distributed revised drafts of the merger agreement and transition services agreement to Bitstream and its advisors.
Also on November 9, 2011, Seyfarth distributed revised drafts of the intellectual property assignment and license agreements by and between Bitstream and MSDH regarding certain proprietary information relating to the Pageflex and BOLT products.
On November 10, 2011, representatives of Seyfarth and Goodwin Procter participated in telephone negotiations with respect to the merger agreement and resolved all outstanding open items under the merger agreement within the parameters established by Bitstream and Monotype Imaging.
On November 10, 2011, representatives of Goodwin Procter and Seyfarth exchanged additional comments on the intellectual property assignment and license agreements by and between Bitstream and MSDH regarding certain proprietary information relating to the Pageflex and BOLT products.
On November 10, 2011, the board of directors and the special committee of Bitstream held a meeting to discuss the proposed terms of the transaction and the then-current draft of the merger agreement and related documents. Also in attendance were representatives of Seyfarth and Rothschild. At the meeting, representatives of Seyfarth and Rothschild provided an overview of the negotiation process to date with Monotype Imaging’s representatives, as well as a presentation regarding the terms of the merger agreement. Representatives of Seyfarth reported that the following terms in the merger agreement had been resolved: the ability of Bitstream to unilaterally extend the end date under the merger agreement from May 15, 2012 to June 30, 2012 in order to complete the spin-off of the Pageflex and BOLT products, a reduction in the termination fee to $1.0 million in the event that at June 30, 2012, the merger has not been completed solely due to Bitstream’s inability to consummate the spin-off of the Pageflex and BOLT products, a condition that the lease for Bitstream’s corporate offices will have been assigned to MSDH, and that no customer contract consents would be a condition to closing. Representatives of Rothschild delivered its oral opinion to the special committee and board of directors, subsequently confirmed by delivery of a written opinion, that, as of November 10, 2011, and subject to the qualifications, limitations and assumptions set forth in the written opinion, the consideration to be received by holders of Bitstream common stock pursuant to the merger agreement was fair from a financial point of view to those holders. Bistream’s board of directors and the special committee asked numerous questions of management, Rothschild and Seyfarth, and discussed the advantages and risks of the proposed transaction that are described in “—Reasons for the Merger and Recommendation of our Board of Directors” below. After consideration, our board of directors and the special committee unanimously approved the merger agreement, the merger and the other transactions contemplated by the merger agreement and determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement were advisable and in the best interests of Bitstream’s stockholders.
On November 10, 2011, each of the directors and executive officers of Bitstream and all of the members of the Columbia Group and the NVP Group signed the voting agreements with Monotype Imaging and Bitstream entered into the merger agreement with Monotype Imaging. Concurrently with these signings, Bitstream and Monotype entered into the transition services agreement, Bitstream entered into the contribution agreement, the
distribution agreement, the intellectual property assignment and license agreements and the tax indemnity agreement with MSDH and MSDH filed its registration statement on Form S-1 with the SEC relating to the shares of MSDH common stock to be distributed to Bitstream’s stockholders in connection with the spin-off of the Pageflex and BOLT products.
Reasons for the Merger and Recommendation of our Board of Directors
NomineesReasons for Directorsthe Merger
The Company’sspecial committee of our board of directors has determined that the merger agreement, the merger and the spin-off of MSDH are advisable and in the best interests of our stockholders, and recommended that the board of directors approve the merger agreement, the merger and the spin-off of MSDH. After evaluation of and discussions regarding the special committee’s determinations and recommendation, our board of directors unanimously (i) determined that the merger agreement, the merger and the spin-off are advisable and in the best interests of our company and our stockholders, (ii) approved the merger agreement, the merger and the spin-off of MSDH, (iii) resolved to recommend that the stockholders adopt the merger agreement, and (iv) directed that such matter be submitted for consideration of the stockholders of Bitstream at the special meeting. In the course of reaching their decision to approve the merger agreement and the merger and the spin-off of MSDH on which the merger is conditioned, the special committee and our board of directors held numerous meetings and consulted with our senior management, legal counsel and financial advisor, reviewed a significant amount of information and considered a number of factors, including, among others, the following factors:
information concerning our three product lines, financial performance (both past and prospective) and our financial condition, results of operations (both past and prospective), business and strategic objectives, as well as the risks of accomplishing those objectives;
our business and financial prospects if we were to remain an independent company, with and without the spin-off of MSDH and the Pageflex and BOLT products, and the scale required to effectively compete in the industry;
the possible alternatives to the merger and the spin-off of MSDH (including the possibility of continuing to operate as an independent entity, and the perceived risks thereof), the range of possible benefits to our stockholders of those alternatives and the timing and the likelihood of accomplishing the goal of any of such alternatives, and our board of directors’ assessment that the merger with Monotype Imaging presented a superior opportunity to such alternatives for our stockholders;
the current economic and industry environment, including the rate of consolidation in the fonts technology area;
the results of discussions with third parties relating to a possible business combination or similar transaction with us relating to one or more of our three product lines, either individually or in the aggregate;
the process undertaken by our board of directors in connection with pursuing a strategic transaction and the terms and conditions of the proposed merger, in each case in light of the current market dynamics in the industry;
current financial market conditions and historical market prices, volatility and trading information with respect to Bitstream common stock;
the potential for obtaining a superior offer from an alternative purchaser in light of the other potential purchasers previously identified and contacted by our management or our financial advisor and the risk of losing the proposed transaction with Monotype Imaging;
the terms of the merger agreement, including the parties’ representations, warranties and covenants, the conditions to their respective obligations and the termination rights of the parties;
the fact that Bitstream received no other formal proposals for its fonts products or Bitstream as a whole from interested parties; and
the fairness to Bitstream of the terms of the merger agreement, the related agreements and the spin-off of MSDH, which were the product of extensive arm’s length negotiations.
In the course of their deliberations, the special committee and our board of directors also considered, among other things, the following positive factors:
the value of the consideration to be received by our stockholders in the merger pursuant to the merger agreement, and in the spin-off of MSDH;
the multiple of our revenue represented by the aggregate merger consideration to be received pursuant to the merger agreement relative to multiples of revenue represented by the aggregate consideration paid in comparable precedent transactions;
the oral opinion of Rothschild, subsequently confirmed by delivery of a written opinion, that, as of November 10, 2011 and subject to the qualifications, limitations and assumptions set forth in its written opinion, the consideration to be received by holders of Bitstream common stock pursuant to the merger agreement was fair from a financial point of view to those holders (the full text of the written opinion, which sets forth the assumptions made, procedures followed, matters considered, qualifications of and limitations on the review undertaken by Rothschild in connection with the opinion, is attached as Annex C to the proxy statement), together with the financial presentation of Rothschild made to Bitstream’s board of directors in connection with this opinion;
the likelihood that the proposed acquisition would be consummated, in light of the experience, reputation and financial capabilities of Monotype Imaging;
the fact that Monotype Imaging has, and has represented to us in the merger agreement that it has, adequate capital resources to pay the merger consideration;
the form of merger consideration, consisting solely of cash, which provides certainty of value to our stockholders;
the process through which Bitstream, with the assistance of its financial advisor, engaged in or sought to engage in discussions with other companies believed to be the most likely candidates to pursue a business combination with or acquisition of Bitstream;
the belief of the special committee and our board of directors that, after extensive negotiations with Monotype Imaging and its representatives, we have obtained the highest aggregate merger consideration that Monotype Imaging is willing to pay and the highest price reasonably obtainable on the date of signing of the merger agreement;
the merger agreement, subject to the limitations and requirements contained in the agreement, provides our board of directors with flexibility to furnish information to and conduct negotiations with third parties in certain circumstances and, upon payment to Monotype Imaging of a termination fee of $2.0 million (which our board of directors believes is reasonable under the circumstances) to terminate the merger agreement, to accept a superior offer;
the other terms and conditions of the merger agreement, including among other things the size of the termination fees and the circumstances when that fee may be payable; the limited number and nature of the conditions to Monotype Imaging’s obligation to complete the merger, including (but not limited to) the absence of a financing condition and the adequacy of Monotype Imaging’s capital resources to pay the merger consideration; and the definition of “material adverse effect” and the exceptions for what constitutes a material adverse effect for purposes of the merger agreement; and
the voting agreements with our executive officers and directors and their agescertain of our stockholders that collectively beneficially own % of the issued and outstanding shares of our common stock as of April 16,the record date terminate in the event that we terminate the merger agreement which permits those persons to support a transaction involving a superior offer.
In the course of its deliberations, the special committee and our board of directors also considered, among other things, the following negative factors:
the potential loss of customer or other commercial relationships of Bitstream as a result of the customer’s or other party’s unwillingness to do business with Monotype Imaging, or other potential disruption to customer, vendor or other commercial relationships important to us as a result of the merger;
the corporate tax liability to be incurred by Bitstream in connection with the spin-off of MSDH;
the possibility that the merger and the spin-off of MSDH will not be consummated and the potential negative effect of the public announcement of the merger and the spin-off of MSDH on our sales, operating results and stock price and our ability to retain key management, sales and marketing and technical personnel;
our stockholders would not participate in any future growth potential or benefit from any future increase in the value of our fonts technologies;
the conditions to Monotype Imaging’s obligation to complete the merger and the right of Monotype Imaging to terminate the merger agreement under certain circumstances;
the possibility that we may be obligated to pay Monotype Imaging a termination fee of between $1.0 million and $2.0 million or reimburse Monotype Imaging for its expenses if the merger agreement is terminated under certain circumstances;
the fact that the merger consideration consists of cash and will therefore generally be taxable to our stockholders for U.S. federal income tax purposes;
the restrictions on our ability to solicit or engage in discussions or negotiations regarding alternative business combination transactions, subject to specified exceptions, and the requirement that we pay a termination fee of $2.0 million in order to accept a superior acquisition proposal, which may discourage a competing proposal to acquire us that may be more advantageous to our stockholders;
the restrictions on the conduct of our business prior to the completion of the merger, requiring us to conduct our business in the ordinary course, subject to specific limitations, which may delay or prevent us from undertaking business opportunities that may arise pending completion of the merger;
the risk of diverting management’s focus and resources from other strategic opportunities and from operational matters while working to implement the merger and the spin-off of MSDH, and the possibility of other management and employee disruption associated with such transactions, including the possible loss of key management, technical or other personnel; and
the interests that certain of our directors and executive officers may have with respect to the merger, in addition to their interests as stockholders of Bitstream generally, as described in “Proposal No. 1—The Merger—Interests of Our Directors and Executive Officers in the Merger.”
The preceding discussion of the information and factors considered by the special committee and our board of directors is not, and is not intended to be, exhaustive. In view of the variety of factors considered in connection with their evaluation of the merger and the spin-off of MSDH and the complexity of these matters, the special committee and our board of directors did not find it practical to quantify or otherwise assign relative weights to the specific factors considered in reaching their determination and did not do so. In addition, many of the factors contained elements which may affect the fairness of the merger in both a positive and negative way. Except as described above, the special committee and our board of directors, as a whole, did not attempt to analyze each individual factor separately to determine how it impacted the fairness of the merger and the spin-off of MSDH, but rather the special committee and our board of directors conducted an overall analysis of the factors described above, including discussions with and questioning of our senior management, legal counsel and financial advisor. Consequently, individual members of the special committee and our board of directors may have given different weights to different factors and may have viewed different factors as affecting the determination of fairness differently.
Board of Directors Recommendation
After careful consideration, our board of directors has unanimously approved the merger agreement, the merger and the spin-off of MSDH, and deems it advisable and in the best interests of Bitstream���s stockholders to consummate the merger, the spin-off of MSDH and the other transactions contemplated by the merger agreement, on the terms and subject to the conditions set forth in the merger agreement.Accordingly, our board of directors unanimously recommends that our stockholders adopt the merger agreement and that you vote “FOR” the adoption of the merger agreement at the special meeting.
Opinion of Bitstream’s Financial Advisor
As more fully described in —Background of the Merger beginning on page 22 of this proxy statement, in October 2010, we hired Rothschild Inc., an investment banking firm, to act as our exclusive financial advisor in connection with its evaluation of possible strategic alternatives. On November 10, 2011, Rothschild delivered to our board of directors its oral opinion, subsequently confirmed by delivery of a written opinion, dated November 10, 2011, to the effect that, as of the date of the written opinion and based upon and subject to the considerations and limitations set forth in the written opinion, the consideration to be received by holders of Bitstream common stock pursuant to the merger agreement was fair from a financial point of view to those holders.
We determined the type and amount of consideration payable in the merger through negotiations with Monotype Imaging, and the decision to approve the merger was solely that of Bitstream and Bitstream’s board of directors. Rothschild did not recommend any specific merger consideration to the board of directors or that any given merger consideration constituted the only appropriate consideration for the merger. We did not issue any instructions to nor impose any limitations on Rothschild with respect to the investigations made or procedures followed in rendering its opinion. We have attached the full text of the written opinion that Rothschild delivered to us as Annex C to this proxy statement, which describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Rothschild in connection with its opinion. You should read this opinion carefully and in its entirety. However, we have included the following summary of the Rothschild opinion, which is qualified in its entirety by reference to the full text of the opinion attached as Annex C.
Rothschild has directed its opinion to, and was solely for the use and benefit of, our board of directors in connection with its evaluation of the merger. Rothschild’s opinion was not intended to be and did not constitute a recommendation to our board of directors to approve or enter into the merger. Rothschild has consented to the inclusion of its opinion and the disclosures contained under the heading Opinion of Bitstream’s Financial Advisor in this proxy statement, however, Rothschild has not assumed any responsibility for the form or content of this proxy statement, other than Rothschild’s opinion itself. Rothschild’s opinion is not intended to and does not constitute a recommendation to you as to how you should vote or otherwise act with respect to the merger or any matter related thereto. The opinion addresses only the fairness, from a financial point of view, of the merger consideration to be received by our stockholders pursuant to the merger agreement, as of the date of the written opinion and subject to the qualifications, limitations and assumptions stated therein. The opinion does not address the relative merits of the merger or any alternatives to the merger nor any aspects of the spin-off of MSDH. Further, the opinion does not address our underlying decision to proceed with or effect the merger or any other aspect of the merger nor any aspects of the spin-off of MSDH. Moreover, the opinion does not address the fairness of the amount or nature of any compensation to be paid or payable to any of our officers, directors or employees, or class of such persons, in connection with the merger, whether relative to the consideration to be received by our stockholders or otherwise.
In connection with its opinion, Rothschild:
(1) | reviewed certain publicly available financial and other data with respect to our company, including the consolidated financial statements for recent years to December 31, 2010 and interim periods to |
June 30, 2011, and certain other relevant financial and operating data, including financial forecasts, relating to our company made available to Rothschild from published sources and from our internal records; |
(2) | reviewed publicly available business and financial information relating to Bitstream, including information concerning the trading of, and the trading market for, our common stock; |
(3) | reviewed and discussed with management information of a business and financial nature regarding our company furnished to Rothschild by our company, including financial forecasts and related assumptions for the fiscal years ending 2011 through 2015; |
(4) | with our permission and at our request, contacted third parties to determine their interest in pursuing discussions with us regarding a possible acquisition of us or other strategic transaction involving us; |
(5) | reviewed a draft of the merger agreement dated November 10, 2011; |
(6) | discussed the proposed merger with management; |
(7) | compared our company from a financial point of view with certain other companies listed below in —Comparable Company Analysis in similar industries which Rothschild deemed to be relevant; |
(8) | considered the financial terms, to the extent publicly available, of selected recent business combinations of companies listed below in —Comparable Transactions Analysis in industries which Rothschild deemed to be comparable, in whole or in part, to this merger; |
(9) | performed a discounted cash flow analysis; |
(10) | made inquiries regarding and discussed the merger and the merger agreement and other matters related thereto with our counsel; and |
(11) | performed such other analyses and examinations as Rothschild deemed appropriate. |
In rendering its opinion, Rothschild did not assume any responsibility to independently verify, and did not independently verify, any information, whether publicly available or furnished to Rothschild, concerning Bitstream or any of its subsidiaries, including, without limitation, any financial information considered by it in connection with the rendering of its opinion. Instead, with our consent, in the course of Rothschild’s analyses and for purposes of its opinion, Rothschild relied on the accuracy and completeness of all such information. In rendering its opinion, Rothschild did not prepare or was not provided with any independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of the company or any of its subsidiaries. In particular, Rothschild did not express any opinion as to the value of any asset or liability of the company or any of its subsidiaries, whether at then current market prices or in the future. Rothschild did not prepare or obtain any independent evaluation with respect to the solvency of any party to the merger or any of its subsidiaries and did not express any opinion as to the solvency of any party to the merger, including under any state, federal or other applicable laws relating to bankruptcy, insolvency or similar matters. Rothschild also made the following assumptions for purposes of rendering its opinion:
with respect to the financial forecasts of our company provided to Rothschild by our management, upon our advice and with our consent, that (a) the forecasts were reasonably prepared on bases reflecting the best available estimates and judgments of our management at the time of preparation as to the future financial performance of our company, and (b) these forecasts provide a reasonable basis upon which Rothschild could form its opinion;
there have been no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of our company since the respective dates on which the most recent financial statements were made available to Rothschild;
that the final merger agreement as executed would not differ in any material respect from the latest draft of the agreement reviewed by it;
that the representations and warranties, in all respects material to its analysis, contained in the merger agreement and any agreement contemplated thereby were and will be as of all dates made or deemed made true and correct;
that the merger will be consummated in a manner that complies in all respects with the applicable provisions of the Securities Act, the Exchange Act, and all other applicable federal and state statutes, rules and regulations; and
that the merger will be consummated in accordance with the terms described in the merger agreement, without further amendment thereto, and without any waiver by our company of any of the conditions to our obligations thereunder.
In addition, for purposes of its opinion:
Rothschild relied on information provided by our counsel and independent accountants as to all legal, financial reporting, tax, accounting and regulatory matters with respect to our company, the merger and the merger agreement, and accordingly, Rothschild did not express any opinion as to any tax or other consequences that might result from the merger, nor did Rothschild’s opinion address any legal, tax, regulatory or accounting matters. Rothschild expressed no view or opinion as to the fairness of the amount or nature of, or any other aspects relating to, the compensation to be received by any officers, directors or employees of any parties to the merger, or class of such persons, relative to the merger consideration or otherwise. Rothschild expressed no view or opinion as to the financing of the merger or the terms or conditions upon which it is to be obtained; and
Rothschild did not assume responsibility for making an independent evaluation, appraisal or physical inspection of the assets or liabilities (contingent or otherwise) of our company, nor was Rothschild furnished with any of these appraisals.
Rothschild employed several analytical methodologies and no one method of analysis should be regarded as critical to the overall conclusion reached by Rothschild. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. The conclusion reached by Rothschild was based on all analyses and factors taken as a whole and also on application of Rothschild’s experience and judgment, which conclusion involved significant elements of subjective judgment and qualitative analysis. Rothschild therefore gave no opinion as to the value or merit standing alone of any one or more parts of the analyses it performed. No company, transaction or business used by Rothschild in its analyses as a comparison is identical to the company or the merger, and an evaluation of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed.
The estimates contained in Rothschild’s analyses and the valuation ranges resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by its analyses. In addition, analyses relating to the value of businesses or securities do not necessarily purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, Rothschild’s analyses and estimates are inherently subject to substantial uncertainty. In rendering its opinion, Rothschild did not express any opinion as follows:to the price at which any security may trade at any time, including subsequent to the date of its opinion.
Rothschild’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Rothschild as of, the date of its opinion. Accordingly, although subsequent developments may affect its opinion, Rothschild has not assumed any obligation to update, revise or reaffirm its opinion.
The following represents a summary of the material financial analyses performed by Rothschild, each of which is a standard valuation methodology customarily undertaken in transactions of this type, in connection
with providing its opinion, dated November 10, 2011, to our board of directors. The summary of these analyses is not a comprehensive description of all analyses and factors considered by Rothschild. The preparation of a fairness opinion is a complex analytical process that involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances and, therefore, a fairness opinion is not readily susceptible to summary description. Some of the summaries of financial analyses performed by Rothschild include information presented in tabular format. In order to fully understand the financial analyses performed by Rothschild, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data set forth in the tables without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by Rothschild.
Comparable Company Analysis. From a financial point of view, Rothschild compared our OEM Type business to three publicly traded companies it deemed comparable and our MyFonts business to five publicly traded companies it deemed comparable. One publicly traded company Rothschild deemed comparable was in both the OEM Type business and the MyFonts business. Rothschild compared our estimated LTM, 2011 and 2012 financial metrics, as provided by management, to estimated LTM, 2011 and 2012 metrics of the selected comparable companies that were obtained from publicly available sources, including research reports and filings with the Securities and Exchange Commission. Based on this information, Rothschild calculated for the selected comparable companies listed below the multiples of enterprise value (defined by Rothschild as fully-diluted equity value (using the treasury stock method) plus debt, less cash and cash equivalents, plus minority interest and plus preferred equity) to (i) last 12 months (“LTM”) and estimated calendar years 2011 and 2012 revenues; and (ii) LTM and estimated calendar years 2011 and 2012 earnings before interest, taxes, stock-based compensation, depreciation, amortization and other one-time adjustments (“EBITDA”).
Rothschild selected the following seven companies based on its knowledge of our company and its understanding of the industries in which our OEM Type and MyFonts segments operate. Consideration was given to the business models and financial profiles of the companies comprising the comparable group including the nature of revenues, cost structure, scale, growth and profitability. Rothschild believes that the seven selected companies listed below have certain operations similar to some of the operations of our OEM Type and MyFonts segments, but noted that no company is identical to our company and none of these companies have the same management, composition, size, short and long term growth profile, or combination of businesses as us:
Adobe Systems Incorporated (NasdaqGS: ADBE)
Mentor Graphics Corporation (NasdaqGS: MENT)
Monotype Imaging Holdings Incorporated (NasdaqGS: TYPE)
Shutterfly, Incorporated (NasdaqGS: SFLY)
Digital River Incorporated (NasdaqGS: DRIV)
Stamps.com Incorporated (NasdaqGS: STMP)
1-800-Flowers.com, Incorporated (NasdaqGS: FLWS)
While the comparable company analysis compared our OEM Type and MyFonts segments to the seven companies listed above, Rothschild did not include every company that could be deemed to be a participant in font technology and digital commerce sectors. An analysis of the results of the foregoing involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies, business models, growth characteristics and other factors that could affect the public trading value of the companies to which our company and the merger are being compared. Rothschild’s comparable company analysis table for these seven comparable companies is below.
Enterprise Value to Revenue | Enterprise Value to EBITDA | |||||||||||
LTM | 2011E | 2012E | LTM | 2011E | 2012E | |||||||
ADBE | 3.21x | 3.15x | 2.90x | 7.7x | 7.6x | 7.0x | ||||||
MENT | 1.33x | 1.32x | 1.24x | 8.4x | 6.5x | 5.9x | ||||||
TYPE | 4.21x | 4.14x | 3.77x | 10.1x | 9.3x | 8.5x | ||||||
SFLY | 3.56x | 2.77x | 2.15x | n/m | 14.2x | 10.0x | ||||||
DRIV | 0.93x | 0.91x | 0.84x | 5.1x | 4.5x | 3.9x | ||||||
STMP | 4.05x | 3.90x | 3.52x | 23.4x | 19.4x | 16.6x | ||||||
FLWS | 0.36x | 0.35x | 0.34x | 7.9x | 7.1x | 5.1x |
The following tables set forth the mean valuation multiple of the comparable companies and the value it implies for Bitstream’s relevant segment.
Enterprise Value to Revenue (OEM Type): | Mean | Implied Value ($, millions) | ||||||
LTM | 2.92x | $ | 36.0 | |||||
2011E | 2.87x | $ | 32.2 | |||||
2012E | 2.64x | $ | 33.8 | |||||
Enterprise Value to Revenue (MyFonts): | ||||||||
LTM | 2.62x | $ | 14.6 | |||||
2011E | 2.41x | $ | 16.5 | |||||
2012E | 2.12x | $ | 17.4 | |||||
Enterprise Value to EBITDA (OEM Type): | Mean | Implied Value | ||||||
LTM | 8.7x | $ | 18.0 | |||||
2011E | 7.8x | $ | 20.9 | |||||
2012E | 7.1x | $ | 22.1 | |||||
Enterprise Value to EBITDA (MyFonts): | ||||||||
LTM | 11.6x | $ | 26.3 | |||||
2011E | 10.9x | $ | 22.9 | |||||
2012E | 8.8x | $ | 24.5 |
Comparable Transactions Analysis. Based on publicly available information, Rothschild calculated the multiples of enterprise value to LTM revenues, where possible, for the following 29 transactions in industries it deemed comparable to that of OEM Type and MyFonts:
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RIM | TAT |
CSG Systems International | Intec Telecom Systems |
Adobe Systems Benelux | Day Software | |||
May 2010 | Cadence Design Systems | Denali Software | ||
October 2009 | GSI Commerce | Retail Convergence | ||
September 2009 | Shutterstock Images | BigStockPhoto | ||
May 2009 | Ixia | Catapult Communications | ||
May 2009 | Open Text | Vignette | ||
October 2008 | Getty Images | Jupiter Images | ||
October 2008 | Omniture Inc. | Mercado Software | ||
September 2008 | Acxiom | Midpoint | ||
May 2008 | Hubwoo | AchatPro | ||
January 2008 | Amazon | Audible | ||
August 2007 | X-Rite | Pantone | ||
June 2007 | Website Pros | Web.com | ||
April 2007 | PNI Digital Media | Pixology Limited | ||
January 2007 | Avanquest Software | Nova Development Corp. | ||
September 2006 | Web.com Group | 1ShoppingCart.com | ||
April 2006 | Miranda Technologies | VertigoXmedia | ||
February 2006 | Getty Images | iStock International | ||
November 2004 | TA Associates | Monotype Imaging |
George B. BeitzelThe following table sets forth the mean valuation multiples for the selected comparable transactions and the value implied for the relevant Bitstream segment.
OEM Type - Enterprise Value to: | Mean | Implied Value ($, millions) | ||||||||
LTM Revenues | 2.93x | $ | 14.6 | |||||||
MyFonts - Enterprise Value to: | ||||||||||
LTM Revenues | 2.35x | $ | 32.2 |
No transaction used in the comparable transaction analysis is identical to the merger. However, Rothschild chose such transactions based on, among other things, a review of transactions involving companies in similar industries that were announced in the past five years (with the exception of one transaction announced November 5, 2004, which was included because it involved Monotype Imaging). In assessing the comparability of a transaction, Rothschild relied upon its knowledge of our company and made subjective judgments and assumptions with regard to the industries in which we operate, the operational nature of our business, the similarity of the applicable target companies in the transactions to us with respect to the size, mix, margins and
other characteristics of their businesses, as well as general business, economic, market and financial conditions. Accordingly, an analysis of the results of the foregoing involves complex considerations and judgments concerning differences in the business, financial and operating characteristics of the target companies and other factors that could affect the public trading value of the companies and the transactions to which our company and the merger are being compared.
Discounted Cash Flow Analysis. Rothschild used financial forecasts for our company for calendar years 2012 through 2015, as provided by our management, to perform a separate, discounted cash flow analysis for each of the OEM Type and Myfonts products. This type of analysis is designed to provide insight into a company’s future cash flow projections and then discount them to arrive at a present value that reflects our overall weighted average cost of capital (“WACC”). In conducting this analysis, Rothschild assumed that we would perform in accordance with these forecasts. Rothschild first projected cash flows based on management forecasts and discounted the cash flows projected through 2015 and the terminal values to present values using rates ranging from 14.0% to 16.0% based on our estimated WACC, which was based on a risk-free rate of 1.96% using the10 year treasury rate as of November 9, 2011, a U.S. market risk premium of 6.7% based on the 2011 Ibbotson report, a levered industry beta based upon Bloomberg 2-year weekly adjusted beta for comparable public companies, a tax rate of 35%, a size premium of 6.36% based on 2011 Ibbotson report for companies with a market capitalization between $1.2 million to $236 million and an assumed debt to total capitalization ratio of 0%. Rothschild then estimated the terminal value of the projected cash flows by applying a growth rate in perpetuity of 2.0% - 4.0% based on industrial dynamics and inflationary expectations. This analysis indicated a range of enterprise values from $41.8 million to $56.6 million.
The foregoing description is only a summary of the analyses and examinations that Rothschild deemed material to its opinion. The valuation and financial analyses set out above is not a comprehensive description of all analyses and examinations actually conducted by Rothschild. The preparation of a fairness opinion is a complex process and involves various judgments and determinations as to the most appropriate and relevant valuation and financial analyses and the application of those methods to the particular circumstances involved, and therefore a fairness opinion necessarily is not susceptible to partial analysis or summary description. Rothschild believes that its analyses and the summary set forth above must be considered as a whole and that selecting portions of its analyses and of the factors considered, without considering all of the described analyses and factors, would create an incomplete view of the process underlying the analyses set forth in its presentation to our board of directors. In addition, Rothschild may have given various analyses more or less weight than other analyses, and may have deemed various assumptions more or less probable than other assumptions. The fact that any specific analysis has been a directorreferred to in the summary above is not meant to indicate that this analysis was given greater weight than any other analysis. Accordingly, the ranges of valuations resulting from any particular analysis described above should not be taken to be the view of Rothschild with respect to the actual value of our company.
In performing its analyses, Rothschild made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of our company. The analyses performed by Rothschild are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those suggested by these analyses. These analyses were prepared solely as part of the Company since April 1989. Mr. Beitzel retired in 1987 from International Business Machines Corporation (“IBM”), where he held numerous positions including serving as a memberanalysis performed by Rothschild with respect to the financial fairness of the IBM Boardconsideration to be received by our stockholders pursuant to the merger, and were provided to our board of Directors and Corporate Office. Mr. Beitzel currently serves ondirectors in connection with the Boarddelivery of Directors of Actuate Corporation.the Rothschild opinion. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities may trade at any time in the future.
Anna M. Chagnon has been a directorAs described above, Rothschild’s opinion, together with the analyses performed by Rothschild in connection with its opinion and reviewed by Bitstream’s board of directors, and presentation were among the many factors that our board of directors took into consideration in making our determination to approve, and to recommend
that our stockholders approve, the merger. Rothschild was not requested to, and did not, recommend the specific consideration payable in the merger. The amount and type of consideration payable in the merger was determined through negotiations between Bitstream and Monotype Imaging. Consequently, Rothschild’s opinion should not be viewed as determinative of the Company since May 2003. Ms. Chagnon has served as our Chief Executive Officer since October 2003. She has also served as our President since June 2000 and as General Counsel since July 1997. She previously served as Chief Operating Officer from August 1998 to October 2003, and Chief Financial Officer from August 1998 to March 2003. From July 1997 to August 1998, she served in various positions at the Company including Vice President, Finance and Administration, Chief Financial Officer and General Counsel, and Vice President and General Counsel. She holds a Bachelor of Science degree, summa cum laude, from Northeastern University, a Juris Doctor degree from Boalt Hall School of Law of the University of California at Berkeley, and a Master of Business Administration, summa cum laude, from Babson College.
Jonathan H. Kagan has been a director since his appointment in February 2010. Mr. Kagan is a Managing Principal of Corporate Partners LLC. Prior to February 2009, Mr. Kagan was also a Managing Principal of Lazard Alternative Investments. Previously, Mr. Kagan was a Managing Director of Corporate Partners I, which he joined in 1990, and of Centre Partners Management LLC, which managed the Centre Capital funds. He began his career in the investment banking division of Lazard in 1980 and became a General Partner in 1987. At Lazard, Mr. Kagan helped head the corporate finance and capital markets areas. He is or has been a memberviews of the board of directors or management with respect to the merger or the merger consideration, including whether the board of directors would have been willing to determine that a number of NYSE- and NASDAQ-listed companies and private companies. Mr. Kagan received an M.A. from Oxford University and an A.B. from Harvard College.different merger consideration was fair.
Amos Kaminski has beenOur engagement letter with Rothschild provides that Rothschild will receive fees for its financial advisory services that are contingent upon the closing of any business combination whereby we are acquired. As compensation for Rothschild’s financial advisory services in connection with the merger, Rothschild is entitled to receive a directorfee of up to approximately $1.75 million, of which $250,000 was payable in connection with the delivery of its fairness opinion and the remainder will be payable only upon the closing of the Company since 1985merger and was Chairman$150,000 shall be deemed to have been paid with respect to monthly advisory fees previously paid by Bitstream to Rothschild. Further, we have agreed to reimburse Rothschild for its reasonable out-of-pocket expenses, including fees and disbursements of counsel, and to indemnify Rothschild, its affiliates, and their respective partners, directors, officers, agents, consultants, employees and controlling persons against specific liabilities, including liabilities under the federal securities laws. The special committee selected Rothschild to act as our financial advisor in connection with the merger based on Rothschild’s reputation and experience. Rothschild is regularly engaged to provide advisory services in connection with mergers and acquisitions, financings and financial restructurings. The terms of Rothschild’s fee arrangements were negotiated at an arm’s length between Bitstream and Rothschild, and Bitstream’s board of directors and special committee were aware of this fee structure and took it into account in considering the Rothschild opinion and in approving the merger.
In the past, Rothschild has provided financial advisory services to Bitstream, and Rothschild or its affiliates may in the future provide financial services to Bitstream, Monotype Imaging or their respective affiliates in the ordinary course of Rothschild’s business from time to time and may receive fees for the rendering of such services. In addition, in the ordinary course of Rothschild’s business activities, Rothschild and its affiliates may at any time hold long or short positions, and may trade or otherwise effect transactions for its own account or the accounts of its clients in equity, debt or other securities (or related derivative securities) or financial instruments of Monotype Imaging, Bitstream or their respective affiliates.
Our senior management does not as a matter of course make public forecasts or projections as to future performance or earnings beyond the current fiscal quarter and generally does not make public projections for extended periods due to the unpredictability of the Board from 1991 through 1996. Mr. Kaminski founded Interfid Ltd., a venture capital firm,underlying assumptions and estimates. However, during the course of negotiating the merger agreement, our management prepared certain prospective financial information to present certain projections of financial performance, and these projections were provided to the special committee, Rothschild and our board of directors in 1984 and has served as its President and on its Board of Directors since its formation. Mr. Kaminski is also the founder, President and Chairmanconnection with their financial analyses of the Boardproposed merger. We have included below these projections concerning our revenue, gross profit, operating expense, EBITDA (excluding FAS 123R stock compensation expense), as well as projections of Directors of AFA Asset Services, Inc., a private real estate asset management company, and Chairman of the Board of Directors of Interfid Capital, Inc.
Melvin L. Keating was President and CEO of Alliance Semiconductor Corp., a worldwide manufacturer and seller of semiconductors, from 2005 through 2008. Previously, he was a strategy consultant for Warburg Pincus Equity Partners for seven years, providing acquisition andunlevered after-tax EBITDA plus depreciation plus working capital investment target analysis and transactional advice. He is currently a director of White Electronics Design Corp. Mr. Keating holds both an MS in Accounting and an MBA in Finance from the Wharton School at the University of Pennsylvania.
David G. Lubrano has been a director of the Company since 1987. Mr. Lubrano is the founder and CEO of 21st Century Investors, a ventureless capital firm. Mr. Lubrano retired in 1985 from Apollo Computer Inc., a corporation engaged in manufacturing workstations, which he co-founded and where he had been Senior Vice President of Finance and Administration, Chief Financial Officer and a director.
Raul K. Martynek has served as a director of Broadview Networks Holdings, Inc.expenditures (“Broadview”Free Cash Flow”), a network-based business communications provider, since August 2007. From May 2008 to December 2009, he served as a Senior Advisor to Plainfield Asset Management, where he advisedwhich measure was calculated based on investment opportunitiesmanagement forecasts using the Free Cash Flow definition applied in the telecommunications sectorDiscounted Cash Flow Analysis described above, to give our stockholders access to certain previously nonpublic information prepared for purposes of considering and advisedevaluating the boards of portfolio companies on strategic and tactical initiatives. Mr. Martynek served as the Chief Restructuring Officer of Smart Telecom, a Dublin, Ireland-based fiber competitive local exchange carrier, or CLEC, from January 2009 to December 2009 and has served as a director since December 2009. He was President and Chief Executive Officer and a director of InfoHighway Communications Inc. (“InfoHighway”), a CLEC, from November 2003 to July 2007. InfoHighway was acquired by Broadview in May 2007. From March 1998 to November 2003, Mr. Martynek was Chief Operating Officer of Eureka Networks (“Eureka”), a telecommunications company, which acquired InfoHighway in August 2005. From December 1995 to March 1998, he served as an Executive Vice President of Gillette Global Network, a non-facilities based telecommunications carrier that merged with Eureka in 2000. Mr. Martynek received a B.A. in Political Science from SUNY-Binghamton and a Master in International Finance from Columbia University School of International and Public Affairs.
Charles Ying has been Chairman of the Board since April 1997. He also served as Chief Executive Officer of the Company from May 1997 through October 2003. From January 1992 to January 1996, Mr. Ying served as Chief Executive Officer of Information International Inc., a corporation engaged in the business of designing, manufacturing and marketing computer-based systems that automate document production and publishing. Mr. Ying holds a B.S. and M.S. in Electrical Engineering from the Massachusetts Institute of Technology.
Mr. Martynek was recommended for nomination as a director of Bitstream by Raging Capital, Raging Capital Fund (QP), LP, a Delaware limited partnership (“Raging QP”), Raging Capital Management, LLC, a Delaware limited liability company (“Raging Management”), and William C. Martin (“Mr. Martin” and, together with Raging Capital, Raging QP and Raging Management, the “Raging Parties”). Mr. Martynek has signed a compensation letter agreement with Raging Management pursuant to which Raging Management paid Mr. Martynek $10,000 in cash upon Raging Capital’s submission to Bitstream of its notice of nomination of the Nominees on February 26, 2010. Pursuant to the compensation letter agreement Mr. Martynek used such compensation to acquire shares of Bitstream stock. If elected or appointed to serve as a director of the Board, Mr. Martynek agreed not to sell, transfer or otherwise dispose of any of those shares within two (2) years of his election or appointment as a director; provided, however, in the event that we enter into a business combination with a third party, Mr. Martynek, may sell, transfer or exchange our shares in accordance with the terms of such business combination.merger.
The Company’s By-laws provideprojections were developed from historical financial statements and did not give effect to any changes or expenses as a result of the merger or any other effects of the merger. The projections for fiscal year 2011 were prepared in the ordinary course in October 2010 and updated in January 2011 and the projections for fiscal years 2012-2015 were prepared in connection with the financial analysis of the proposed merger in January 2011. The projections were not prepared with a view toward public disclosure or compliance with published guidelines of the American Institute of Certified Public Accountants for preparation and presentation
of prospective financial information or U.S. generally accepted accounting principles. The inclusion of this information should not be regarded as an indication that the membersspecial committee, our board of directors, Rothschild, or any other recipient of this information considered, or now considers, this information to be a reliable prediction of future results. Our independent registered certified public accounting firm, PricewaterhouseCoopers LLP (“PWC”), has neither examined nor compiled this prospective financial information and, accordingly, PWC does not express an opinion or any other form of assurance with respect thereto. Furthermore, the projections:
while presented with numerical specificity, necessarily make numerous assumptions, many of which are beyond our control, including with respect to industry performance, general business, economic, regulatory, market and financial conditions, as well as matters specific to our business, and may not prove to have been, or may no longer be, accurate;
were prepared and updated as of January 2011 with respect to fiscal year 2011 and were prepared as of January 2011 with respect to fiscal years 2012-2015 in the context of the Boardbusiness, economic, regulatory, market and financial conditions that existed at that time, and have not been updated to reflect revised prospects for our business, changes in general business, economic, regulatory, market and financial conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the projections were prepared;
are not necessarily indicative of current values or future performance, which may be significantly more favorable or less favorable than as set forth below; and
should not be regarded as a representation that the projections will be electedachieved and readers of this proxy statement are cautioned not to place undue reliance on the projections.
We believe the assumptions our management used as a basis for the projections were reasonable at the annual meetingtime the projections were prepared, given the information our management had at the time. The projections, however, are not a guarantee of performance. The projections involve risks, uncertainties and assumptions. The future financial results and stockholder value of our company may materially differ from those expressed in the stockholders,projections due to factors that are beyond our ability to control or atpredict. We cannot assure you that the projections will be realized or that our future financial results will not materially vary from the projections. Since the projections cover multiple years, such information by its nature becomes less reliable with each successive year. The projections do not take into account any circumstances or events occurring after the date they were prepared and have not been updated since their respective dates of preparation. They should not be utilized as public guidance and will not be provided in the ordinary course of our business in the future.
The projections are a special meetingforward-looking statement. For information on factors which may cause our future financial results to materially vary, see “Special Note Regarding Forward-Looking Statements” on page 17 of the stockholders in lieu thereof, and that all directors shall hold office until the next annual meeting of stockholders, or next special meeting of the stockholders in lieu thereof, or until their successors are chosen and qualified.
CORPORATE GOVERNANCEProjected Financial Results
Code of Business Conduct and EthicsOEM Type
We have a code of ethics that applies to our principal executive officer and principal financial officer, or persons performing similar functions. This code of ethics is incorporated in our Code of Business Conduct and Ethics that applies to all of our officers, directors, and employees. A copy of our Code of Business Conduct and Ethics is available on our website at www.bitstream.com. We intend to satisfy the SEC’s disclosure requirements regarding amendments to, or waivers of, the code of business conduct and ethics by posting such information on our website.
Board Committees and Meetings of the Board
The Board has a standing Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. During the year ended December 31, 2009, the Nominating and Corporate Governance Committee met four times, the full Board met ten times, the Compensation Committee met four times, and the Audit Committee met nine times. All incumbent directors attended at least 75% of the aggregate number of the meetings of the Board and each member of the Committees of the Board attended at least 75% of the meetings of the Committees. Each committee’s charter is available through the Corporate Governance link on the Company’s website at www.bitstream.com, or by sending your request in writing to the Corporate Secretary, Bitstream Inc., 500 Nickerson Road, Marlborough, MA 01752-4695. Each committee conducts an annual assessment to determine whether it has sufficient information, resources and time to fulfill its obligations and whether it is performing its obligations. Under the Board’s Corporate Governance Guidelines, each committee may retain experts to assist it in carrying out its responsibilities. The Board of Directors has determined that each of the members of the Audit Committee, Compensation Committee, and the Nominating and Corporate Governance Committee are “independent” as required by applicable laws and regulations, and the NASDAQ listing standards.
The Board and executive management believe that good corporate governance is important to ensure that we are managed for the long-term benefit of our stockholders. The Board and executive management team have been reviewing and will continue to review our corporate governance policies and practices for compliance with applicable regulations and will continue to compare those policies and practices to those suggested by various authorities in corporate governance and the practices of other public companies.
The Audit Committee reviews our accounting practices, internal accounting controls and financial results and oversees the engagement of our independent registered public accountants. The Audit Committee also oversees management’s performance of its duties with respect to maintaining the integrity of our accounting and financial reporting and our systems of internal controls, the performance and qualifications of the independent accountants (including the independent accountant’s independence), and our compliance with legal and regulatory requirements. The Audit Committee establishes procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls and the confidential and anonymous submission by employees and others regarding questionable or possibly fraudulent actions or activities. The Board of Directors, based on the recommendation of the Audit Committee, has designated David Lubrano as the “audit committee financial expert.” During 2009, the members of this committee were David Lubrano, serving as Chairperson, George Beitzel and Amos Kaminski.
The Compensation Committee establishes salaries, incentives and other forms of compensation for our directors, officers and other employees. The Compensation Committee also administers our benefit plans and administers the issuance of stock options and other awards under our Stock Plans to all our employees and directors, including the members of such committee. The committee also reviews, and recommends to the full Board, the compensation and benefits for non-employee Directors. During 2009, the members of this committee were George Beitzel, serving as Chairperson, Amos Kaminski and David Lubrano.
The Nominating and Corporate Governance Committee provides oversight and guidance to the Board of Directors to ensure that the membership, structure, policies, and practices of the Board and its committees facilitate the effective exercise of the Board’s role in the governance of the Company. The committee reviews and evaluates the policies and practices with respect to the size, composition, independence and functioning of the Board and its committees and reflects those policies and practices in corporate governance guidelines, and evaluates the qualifications of, and recommends to the full Board, candidates for election as Directors. During 2009, the members of this committee were Amos Kaminski, serving as Chairperson, George Beitzel, David Lubrano and Charles Ying.
Policy Governing Director Attendance at Annual Meetings of Stockholders
Our policy is that all directors are encouraged to attend annual meetings of stockholders. All of our directors attended the 2009 Annual Meeting of Stockholders.
Independence of Directors
Our Board has determined that the majority of the Board is comprised of “independent directors” within the meaning of applicable NASDAQ listing standards applicable to Board composition and Section 301 of the Sarbanes-Oxley Act of 2002. Our independent directors are: Mr. Beitzel, Mr. Kagan, Mr. Kaminski, Mr. Lubrano and Mr. Ying. If elected, Mr. Keating and Mr. Martynek will also be independent directors. There are no family relationships among any of the executive officers or directors of the Company.
Shareholder Communications with Directors
A shareholder who wishes to communicate directly with the Board, a committee of the Board or with an individual Director, should send the communication to:
Bitstream Inc.
Attn: Board of Directors [or committee name or Director’s name, as appropriate]
500 Nickerson Road
Marlborough, MA 01752-4695
Bitstream will forward all shareholder correspondence concerning the Company to the Board, committee or individual Director, as appropriate. This process has been approved by the current independent Directors of Bitstream.
Nomination of Candidates for Director
When evaluating potential candidates for directors, the Nominating and Corporate Governance Committee (the “Nominating Committee”) considers individuals recommended by members of the Nominating Committee, other Directors, members of management, and shareholders or self-nominated individuals. The Nominating Committee is advised of all nominations that are submitted to us and determines whether it will further consider the candidates using the criteria described below. The Nominating and Corporate Governance Committee acts pursuant to a written charter, which may be found on our web site at:
http://www.bitstream.com/corporate/investor/corp_gov.html
In order to be considered, each proposed candidate must:
Be ethical;
Have proven judgment and competence;
Have professional skills and experience that are complementary to the background and experience represented on the Board and that meet our needs;
Have demonstrated the ability to act independently and be willing to represent the interests of all shareholders and not just those of a particular philosophy or constituency; and
Be willing and able to devote sufficient time to fulfill his/her responsibilities to Bitstream and its shareholders.
After the Nominating Committee has completed its evaluations, it presents its recommendations to the full Board for its consideration and approval. In presenting its recommendations, the Nominating Committee also reports on other candidates who were considered but not selected.
We will report any material change to this procedure in a quarterly or annual filing with the Securities and Exchange Commission and any new procedure will be available through the Corporate Governance link on our website at www.bitstream.com.
Our Bylaws require that a shareholder who wishes to nominate an individual for election as a Director at our Annual Meeting of Shareholders must give us advance written notice no later than 120 days prior to the anniversary date of the Proxy mailing date, or December 29, 2010, in connection with next year’s Annual Meeting and provide specified information. Shareholders may request a copy of the Bylaw requirements from the Corporate Secretary, Bitstream Inc., 500 Nickerson Road, Marlborough, MA 01752-4695.
Director Compensation
For the year ended December 31, 2009, each director who was not our employee received $35,000 in cash compensation for service as a director. In addition, our non-employee Chairman of the Board received an additional $15,000 in cash compensation for his service as Chairman. On August 19, 2009, each non-employee director was also granted a restricted stock award for 5,000 shares of the Company’s Class A Common Stock, vesting in one-fifth increments on each of the first, second, third, fourth and fifth anniversaries of the date of the grant. From January 1, 2010 to April 27, 2010, the Board did not make any stock option grants to purchase Class A Common Stock to any Board member and made one restricted stock award of 25,000 shares on February 22, 2010 to Mr. Kagan upon his appointment to the Board. As a non-employee director, Mr. Kagan receives $35,000 in annual cash compensation in addition to the restricted stock award of 25,000 shares which vests over five years in one-twentieth increments on each quarterly anniversary date from the date of the grant.
The following table provides information on the compensation of our directors for the fiscal year ended December 31, 2009. Ms. Chagnon does not currently receive separate compensation for her services as a director. For her compensation as our Chief Executive Officer, see Ms. Chagnon’s compensation discussed in this Proxy Statement under the “Compensation Discussion and Analysis” and the data related to her compensation in the Summary Compensation Table and related tables.
DIRECTOR COMPENSATION TABLE(1)
Name(1) | Fees Earned or Paid in Cash ($) | Stock Awards ($)(2) | Option Awards ($)(2) | All Other Compensation ($) | Total ($) | |||||
George B. Beitzel | 35,000 | 16,038 | 8,113 | — | 59,151 | |||||
Amos Kaminski | 35,000 | 16,038 | 8,113 | — | 59,151 | |||||
David G. Lubrano | 35,000 | 16,038 | 8,113 | — | 59,151 | |||||
Charles Ying | 50,000 | 16,038 | 8,113 | — | 74,151 |
Financial Year Ended as of December 31,(1) | ||||||||||||||||||||
Projected Financial Results(2) | 2011E | 2012E | 2013E | 2014E | 2015E | |||||||||||||||
Revenue | $ | 5.8 | $ | 6.6 | $ | 7.4 | $ | 8.2 | $ | 8.8 | ||||||||||
Gross Profit | $ | 5.0 | $ | 5.7 | $ | 6.5 | $ | 7.2 | $ | 7.7 | ||||||||||
Total Operating Expense | $ | 2.4 | $ | 2.7 | $ | 3.0 | $ | 3.3 | $ | 3.4 | ||||||||||
Non-GAAP EBITDA | $ | 2.7 | $ | 3.1 | $ | 3.6 | $ | 4.0 | $ | 4.4 | ||||||||||
Non-GAAP Free Cash Flow | $ | n/a | $ | 1.4 | $ | 1.7 | $ | 2.0 | $ | 2.2 |
(1) |
(2) | Non-GAAP financial measures may be calculated differently by different companies. Please see the |
MyFonts
Financial Year Ended as of December 31,(1) | ||||||||||||||||||||
Projected Financial Results(2) | 2011E | 2012E | 2013E | 2014E | 2015E | |||||||||||||||
Revenue | $ | 13.4 | $ | 15.9 | $ | 20.1 | $ | 23.5 | $ | 26.0 | ||||||||||
Gross Profit | $ | 4.5 | $ | 5.2 | $ | 7.0 | $ | 8.1 | $ | 9.0 | ||||||||||
Total Operating Expense | $ | 2.5 | $ | 2.6 | $ | 2.7 | $ | 2.9 | $ | 3.0 | ||||||||||
Non-GAAP EBITDA | $ | 2.1 | $ | 2.8 | $ | 4.4 | $ | 5.4 | $ | 6.2 | ||||||||||
Non-GAAP Free Cash Flow | $ | n/a | $ | 1.1 | $ | 2.2 | $ | 2.8 | $ | 3.4 |
(1) | Dollars in millions. |
(2) |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires directors, executive officers and stockholders who own more than ten percent of the outstanding Class A Common Stock of the Company to file with the Securities and Exchange Commission and NASDAQ reports of ownership and changes in ownership of voting securities of the Company and to furnish copies of such reports to us.
Based solely on a review of the copies of such forms received by the Company, and on written representations from certain reporting persons, we believe that with respect to the year ended December 31, 2009, our directors, officers and ten-percent stockholders timely filed all such required forms, except for one Form 4 required in connection with five gifts totaling 6,100 shares and one Form 4 for the exercise of options for 1,667 shares.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Audit Committee has retained PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm for the audit of our financial statements for the year ended December 31, 2009 and intends to retain PwC for the year ending December 31, 2010. Representatives of PwC are expected to be present at the meeting to answer appropriate questions and they will have the opportunity to make a statement if they desire to do so.
Principal Accountant Fees and Services
We retained our independent registered public accounting firm, PwC, to provide services in the following categories and amounts:
Years Ended December 31, | ||||||
2009 | 2008 | |||||
Audit fees(1) | $ | 284,000 | $ | 243,000 | ||
Audit-related fees(2) | — | 10,000 | ||||
Tax fees(3) | 55,563 | 61,250 | ||||
Total all fees | $ | 339,563 | $ | 314,250 | ||
Our Audit Committee (the “Audit Committee”) annually considers whether the provisions of non-audit services by our principal auditors is compatible with maintaining auditor independence and concluded that all such services provided during 2009 were compatible with maintaining auditor independence.
The policyFinancing of the Audit Committee is to pre-approve all audit and permissible non-audit services to be performed by our principal auditors during the year. The Audit Committee pre-approves services by authorizing specific projects within the categories outlined above. The Audit Committee’s charter authorizes its Chairperson to address any requests for pre-approval of services between Audit Committee meetings, and the Chairperson must report any pre-approval decisions to the Audit Committee at its next scheduled meeting. All services related to Audit-Related Fees and Tax Fees during 2009 were pre-approved by the Audit Committee.
REPORT OF THE AUDIT COMMITTEEMerger
The Audit Committee, atmerger is not conditioned on Monotype Imaging’s ability to obtain financing.
Delisting and Deregistration of Bitstream common stock
If the direction of the Board, has prepared the following report for inclusion in this Proxy Statement. The Audit Committee was comprised of Messrs. Beitzel, Kagan, Kaminski and Lubrano, four non-employee directors who meet the independence criteria prescribed by applicable law and the rules of the U.S. Securities and Exchange Commission (“SEC”) for audit committee membership and eachmerger is an “independent director” within the meaning of applicable NASDAQcompleted, Bitstream’s class A common stock will be removed from listing standards. Each Audit Committee member meetson the NASDAQ financial literacy requirements. The Board has named Mr. Lubrano, who meetsCapital Market and deregistered under the NASDAQ professional experience requirements, as its audit committee financial expert as such term is defined in Item 407(d) of Regulation S-K promulgated by the SEC. The Audit Committee acts pursuant to a written charter, which complies with the applicable provisions of the Sarbanes-OxleyExchange Act, of 2002 and related rules of the SEC and NASDAQ, a copy of which can also found on our website at:
http://www.bitstream.com/corporate/investor/corp_gov.html
The Audit Committee has the responsibility for reviewing Bitstream’s accounting practices, internal accounting controls and financial results and oversees the engagement of our independent registered public accounting firm, including conducting a review of its independence, reviewing and approving the planned scope of our annual audit, overseeing the independent auditors’ audit work, reviewing and pre-approving any audit and audit related services that may be performed by them, reviewing with management and our independent auditors the adequacy of our internal controls, and reviewing our critical accounting policies and the application of accounting principles. The Audit Committee holds meetings with management and our independent registered public accounting firm to review our annual audited financial statements and quarterly financial statements. The Audit Committee establishes procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
The Audit Committee reviewed and discussed the audited financial statements for the year ended December 31, 2009 and management’s assessment of the effectiveness of Bitstream’s internal controls over financial reporting as of December 31, 2009 with management and the independent registered public accounting firm.
The Audit Committee discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, Communication with Audit Committees.
The Audit Committee received the written disclosures and the letter from our independent registered public accounting firm required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and have discussed with our independent registered public accounting firm its independence.
Based on the reviews and discussions referred to above, in reliance on management and the independent registered public accounting firm, and subject to the limitations of our role, the Audit Committee recommended to the Board of Directors, and the Board has approved, the inclusion of the financial statements referred to above in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 for filingwe will no longer file periodic reports with the SEC.
Respectfully submitted,Interests of Our Directors and Executive Officers in the Merger
AUDIT COMMITTEEIn considering the recommendation of our board of directors with respect to the merger agreement, holders of shares of Bitstream common stock should be aware that our executive officers and directors have interests in the merger that may be different from, or in addition to, those of our stockholders generally. These interests may create potential conflicts of interest. Our board of directors was aware that these interests existed when it approved the merger and the merger agreement. The material interests are summarized below.
George B. BeitzelEquity-Based Awards
Based upon the terms and conditions of Bitstream’s equity compensation plans governing equity awards previously granted to our directors, executive officers and other employees, and pursuant to the terms and conditions of the merger agreement, all issued and outstanding equity compensation awards under such equity compensation plans, including unvested stock options and unvested restricted shares of common stock, will become fully vested and/or 100% exercisable as a result of the merger.
On the date that Bitstream completes its spin-off of MSDH and the Pageflex and BOLT products, each outstanding option to purchase a share of Bitstream common stock (which we refer to as the Bitstream options) will be divided into (i) one option to purchase a share of Bitstream common stock (each of which we refer to as an adjusted Bitstream option) and (ii) one option to purchase a share of MSDH common stock (each of which we refer to as an MSDH option). Each adjusted Bitstream option will continue to have, and be subject to, the same terms and conditions set forth in the applicable equity compensation plan of Bitstream, except that the exercise
price of such adjusted Bitstream option shall be adjusted to the product of the original exercise price of such Bitstream option multiplied by a fraction the numerator of which is the per share consideration in the merger and the denominator of which is the sum of the per share consideration in the merger and the appraised value of each share of MSDH common stock. Each MSDH option shall be issued under the MSDH Incentive Compensation Plan, to be adopted by MSDH immediately prior to the spin-off of MSDH from Bitstream, but shall otherwise be subject to the same term and conditions of the Bitstream option, except that the exercise price of such MSDH option will be adjusted to the product of the original exercise price of such Bitstream option multiplied by a fraction, the numerator of which is the appraised value of MSDH divided by the sum of the number of outstanding shares of Bitstream common stock and the number of shares of Bitstream common stock subject to outstanding equity-based awards and the denominator of which is the sum of the per share consideration in the merger and the appraised value of each share of MSDH common stock.
Each adjusted Bitstream option with an adjusted exercise price that is less than the per share merger consideration in the merger will, on the effective date of the merger, be converted into the right to receive an amount in cash equal to the difference between the per share merger consideration and the adjusted exercise price of such adjusted Bitstream option. Each adjusted Bitstream option with an exercise price equal to or greater than the per share merger consideration in the merger will be cancelled without any payment. Each MSDH option shall otherwise not be affected by the merger and shall remain outstanding in accordance with its terms.
The following table identifies for each of our executive officers and directors the number of shares subject to his outstanding unvested equity awards (stock options and shares of restricted stock) that will become fully vested and exercisable immediately prior to the closing of the merger, the weighted average exercise price, if any, of his equity awards that will be accelerated immediately prior to the closing of the merger, the value of such accelerated awards based on the difference between the exercise price and the estimated per share merger consideration and the value of the vested securities held by him. The following table assumes that the closing of the merger occurs on February 1, 2012.