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Registration No. 333-169948
President and Chief Executive Officer
A.D.A.M., Inc.
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Atlanta, Georgia 30309
President, Chief Executive Officer and Secretary
Atlanta, Georgia
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5 Concourse Parkway, Suite 3200
Atlanta, Georgia 30328
Attn: Investor Relations
(678) 281-2020
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Agreement and Plan of Merger, dated as of August 29, 2010 by and among Ebix, Inc., Eden Acquisition Sub, Inc., and A.D.A.M., Inc. | A-1 | |||||
Opinion of Needham & Company, LLC | B-1 | |||||
Information Regarding A.D.A.M., Inc. | C-1 |
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Q: | Why am I receiving these materials? | |
A: | ADAM and Ebix have entered into a merger agreement that is described in this document. A copy of the merger agreement is attached to this Proxy Statement/Prospectus as Annex A. In order to complete the merger, the shareholders of ADAM must vote to approve the merger agreement. ADAM will hold a special meeting of its shareholders to obtain this approval. This document contains important information about the merger, the merger agreement, the special meeting of ADAM shareholders and other related matters. We are sending you these materials to help you decide how to vote your shares of ADAM common stock with respect to the proposed merger and related transactions. | |
This document is a proxy statement because the ADAM board of directors is soliciting proxies from its shareholders to vote on the approval of the merger agreement, as well as other related matters set forth in the Notice of Special Meeting and described in this Proxy Statement/Prospectus, and your proxy will be used at the meeting or any adjournment or postponement of the meeting. This document is a prospectus of Ebix because Ebix will issue registered shares of Ebix common stock in exchange for shares of ADAM common stock in the merger. For ease of reference, we refer to this document as the ProxyStatement/Prospectus. The enclosed voting materials will allow you to vote your shares of ADAM common stock without attending the special meeting in person. | ||
Q: | What will happen in the merger? | |
A: | In the proposed merger, a newly formed wholly-owned subsidiary of Ebix will merger with and into ADAM, with ADAM becoming a wholly-owned subsidiary of Ebix. As a result of the proposed the merger, each shares of ADAM common stock will be converted into the right to receive 0.3122 shares of Ebix common stock, subject to certain adjustments as specified in the merger agreement and described below. After giving effect to the merger and assuming there are no adjustments to the exchange ratio, current ADAM shareholders will hold, in the aggregate, approximately 8% of the outstanding common stock of Ebix. | |
Q: | What will ADAM shareholders receive in the merger? | |
A: | At the effective time of the merger, each issued and outstanding share of ADAM common stock will be converted into the right to receive 0.3122 shares of Ebix common stock, which we refer to as the exchange ratio. The exchange ratio is subject to adjustment if ADAM fails to pay in full at or prior to the closing out of its cash on hand any of the following items (each, an adjustment event): | |
• its bank debt; | ||
• any expenses of its financial advisor in excess of $650,000; or | ||
• ADAM’s legal expenses related to the preparation of this Proxy Statement/Prospectus. | ||
As of the date of this Proxy Statement/Prospectus, based on ADAM’s current cash on hand and expected earnings before closing, ADAM does not expect that an adjustment event will occur. If there is an adjustment event, then the shares of Ebix common stock to be received upon the exchange of one share of ADAM common stock shall equal a ratio the numerator of which is $65,350,000 minus (a) $5,071,000 for ADAM options and minus (b) $947,000 for ADAM’s outstanding warrant (proportionately reduced for any option or warrant exercises, forfeitures or cancellations), minus (c) the amounts in the bullet list above to the extent not paid by ADAM at or prior to the closing, divided by $19.06, which was the agreed upon value of Ebix common stock for purposes of the merger agreement, and the denominator of which is the number of issued and outstanding shares of ADAM common stock to be converted. |
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If there is an adjustment event, then the actual exchange ratio will not be determined until the closing date, which may not be the same date as the special meeting. Only by way of example, the table below shows the adjustment to the exchange ratio based on the amount by which the items listed above exceed ADAM’s available cash on hand at closing, in each case based on the number of ADAM shares outstanding on August 25, 2010 and assuming that there have been no option exercises, forfeitures or cancellations. |
Amount by which Expenses | Adjusted Exchange | |||||||
Exceed Cash on Hand | Ratio | |||||||
$ | 0 | 0.3122 | ||||||
$ | 500,000 | 0.3096 | ||||||
$ | 1,000,000 | 0.3069 | ||||||
$ | 1,500,000 | 0.3043 | ||||||
$ | 2,000,000 | 0.3017 | ||||||
$ | 2,500,000 | 0.2990 |
Holders of ADAM common stock will not receive any fractional shares of Ebix common stock in the merger. Instead, the total number of shares of Ebix common stock that each holder of ADAM common stock will receive in the merger will be rounded down to the nearest whole number and a shareholder that was to receive a fractional share will receive cash for any resulting fractional share that an ADAM shareholder otherwise would be entitled to receive. The exchange agent will compile all of the fractional shares of Ebix common stock and sell them as whole shares at the then prevailing price on the NASDAQ Stock Market. Upon completion of the sale of all such shares, the exchange agent will distribute the proceeds pro rata to the individuals that were to receive fractional shares. | ||
Q: | Is the merger expected to be taxable to ADAM shareholders? | |
A: | The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, and holders of ADAM common stock are not expected to recognize any gain or loss for United States federal income tax purposes on the exchange of shares of ADAM common stock for shares of Ebix common stock in the merger, except with respect to cash received instead of fractional shares of Ebix common stock. | |
If the merger does not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, the merger generally will be a taxable transaction to you, and you will generally recognize gain or loss in an amount equal to the difference, if any, between (i) the sum of the value of the Ebix common stock plus the amount of any cash received instead of fractional shares of Ebix common stock and (ii) your adjusted tax basis in the shares of ADAM common stock exchanged in the merger. | ||
You should read “Material U.S. Federal Income Tax Consequences” beginning on page 43 for a more complete discussion of the United States federal income tax consequences of the merger. Tax matters can be complicated and the tax consequences of the merger to you will depend on your particular tax situation.You should consult your tax advisor to determine the tax consequences of the merger to you | ||
Q: | When do Ebix and ADAM expect to complete the merger? | |
A: | Ebix and ADAM expect to complete the merger after all conditions to the merger in the merger agreement are satisfied or waived, including the receipt of shareholder approval at the special meeting of ADAM and the receipt of all required regulatory approvals. Ebix and ADAM currently expect to complete the merger during the first quarter of 2011. However, it is possible that factors outside of either company’s control could cause the merger to be competed at a later time or not at all. | |
Q: | What are the conditions to completion of the merger? | |
A: | The obligations of ADAM and Ebix to complete the merger are subject to the satisfaction or waiver of certain closing conditions contained in the merger agreement, including the receipt of required regulatory approvals and the approval of the merger agreement by ADAM shareholders. |
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Q: | What vote is required to approve the proposal to adopt and approve the merger agreement and approve the merger? | |
A: | The affirmative vote of a majority of the outstanding shares of ADAM common stock entitled to vote is required to adopt and approve the merger agreement, which is referred to in this ProxyStatement/Prospectus as the “Merger Proposal.” | |
Q: | How does the board of directors of ADAM recommend that I vote? | |
A: | The ADAM board of directors recommends that ADAM shareholders vote FOR the proposal to adopt and approve the merger agreement and, as a result approve the merger, and FOR the proposal to approve any motion to adjourn or postpone the special meeting to another time or place if necessary to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the previous proposal. | |
Q: | What if I do not vote on the matters relating to the merger? | |
A: | Because the approval of the Merger Proposal requires the affirmative vote of a majority of the outstanding shares entitled to vote on the proposal, the failure to vote your shares in favor of the Merger Proposal for any reason whatsoever (whether by withholding your vote, by abstaining, or by failing to instruct your broker or other nominee how to vote on the Merger Proposal) will have the same effect as a vote against the Merger Proposal. If you submit a proxy but do not indicate how you want your shares to be voted on the Merger Proposal, your shares will be counted as present for purposes of determining whether a quorum exists and will be counted as voting in favor of the Merger Proposal. | |
Q: | How do I submit a proxy? | |
A: | You may submit a proxy before the ADAM special meeting in one of the following ways: | |
• by telephone, using the toll free number shown on your proxy card; | ||
• via the Internet, by visiting the website shown on your proxy card; or | ||
• by mail, by completing, signing, dating, and returning the enclosed proxy card in the enclosed postage-paid envelope. | ||
You also may cast your vote in person at the ADAM special meeting. | ||
If your shares are held in “street name,” through a broker, bank, or other nominee, which institution will send you separate instructions describing the procedure for voting your shares. “Street name” shareholders who wish to vote at the meeting will need to obtain a proxy form from the institution that holds their shares. | ||
Q: | What do I need to do now? | |
A: | After carefully reading and considering the information contained in this Proxy Statement/Prospectus, please submit a proxy to vote your shares as soon as possible so that your shares will be represented at the ADAM special meeting. Please follow the instructions set forth on the proxy card or on the voting instruction form provided by the record holder if your shares are held in the name of your broker or other nominee. | |
Q: | When and where is the ADAM special meeting of shareholders? | |
A: | The special meeting of ADAM shareholders will be held at the offices of DLA Piper LLP (US) at One Atlantic Center, 1201 West Peachtree Street, Suite 2800, Atlanta, Georgia30309-3450 at 10:00 a.m., local time on February 4, 2011. Subject to space availability, all shareholders as of the record date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come, first-served basis. Registration and seating will begin at 9:30 a.m., local time. |
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Q: | If my shares are held in “street name” by a broker or other nominee, will my broker or nominee vote my shares for me? | |
A: | Your broker or other nominee does not have authority to vote on the proposals described in this Proxy Statement/Prospectus without receiving instructions from the beneficial owner as to how the shares are to be voted. Your broker or other nominee will vote your shares held by it in “street name” with respect to these matters ONLY if you provide instructions to it on how to vote. You should follow the directions that your broker or other nominee provides. | |
Q: | What constitutes a quorum? | |
A: | Shareholders who hold a majority in voting power of the ADAM common stock issued and outstanding as of the close of business on the record date for the ADAM special meeting and who are entitled to vote must be present or represented by proxy in order to constitute a quorum to conduct business at the ADAM special meeting. | |
Q: | May I change my vote after I have submitted my proxy? | |
A: | Yes. You may change your vote at any time before your proxy is voted at the applicable special meeting. You may do this in one of four ways: | |
• by sending a notice of revocation to the corporate secretary of ADAM; | ||
• by sending a completed proxy card bearing a later date than your original proxy card; | ||
• by submitting a later dated proxy via the Internet in the same manner that you submitted your earlier proxy via the Internet or by calling the telephone number specified on your proxy card, in each case if you are eligible to submit a proxy by Internet or telephone and following the instructions on the proxy card; or | ||
• by attending the ADAM special meeting and voting in person. | ||
Your attendance at ADAM’s special meeting alone will not revoke any proxy. If you choose any of the first three methods, you must take the described action no later than the beginning of the ADAM special meeting. | ||
If your shares are held in an account at a broker or other nominee, you should contact your broker or other nominee to change your vote. | ||
Q: | Do I have appraisal rights? | |
A: | No. Holders of ADAM common stock will not be entitled to exercise any appraisal rights in connection with the merger. | |
Q: | Should I send in my stock certificates now? | |
A: | No. Please do not send your stock certificates with your proxy card. You will receive written instructions from the exchange agent after the merger is completed on how to exchange your ADAM stock certificates for your shares of Ebix common stock. | |
Q: | What if I hold ADAM stock options or other stock-based awards? | |
A: | Immediately prior to the merger, all outstanding ADAM stock options will be cancelled and converted into a right to receive from Ebix an amount in cash, without interest, equal to the excess, if any, of $5.95 above the per share exercise price of such stock option multiplied by the number of shares subject to such stock option, subject to applicable tax withholding. | |
Q: | Who should I contact if I have any questions about the merger, the proxy materials or voting power? | |
A: | If you have any questions about the merger or if you need assistance in submitting your proxy or voting your shares or need additional copies of the Proxy Statement/Prospectus or the enclosed proxy card, you should contact ADAM’S investor relations department at800-755-ADAM (toll-free) or404-604-2757 or viae-mail at pr@adamcorp.com. |
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Amount by which Expenses | Adjusted Exchange | |||||
Exceed Cash on Hand | Ratio | |||||
$ | 0 | 0.3122 | ||||
$ | 500,000 | 0.3096 | ||||
$ | 1,000,000 | 0.3069 | ||||
$ | 1,500,000 | 0.3043 | ||||
$ | 2,000,000 | 0.3017 | ||||
$ | 2,500,000 | 0.2990 |
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• | the receipt of approval from the holders of ADAM common stock; | |
• | the expiration or termination of the waiting period under HSR; |
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• | the effectiveness of the registration statement of which this Proxy Statement/Prospectus forms a part, and the registration statement not being subject to any stop order or threatened stop order; | |
• | the absence of any injunctions or legal prohibitions preventing the consummation of the merger; | |
• | the absence of any governmental restraints with respect to the merger; | |
• | the receipt of all governmental consents required by the merger agreement; | |
• | the receipt of authorization from the NASDAQ Stock Market for listing of Ebix common stock to be issued in connection with the merger. | |
• | the accuracy of the other party’s representations and warranties in the merger agreement, including the other party’s representation that no material adverse effect has occurred; and | |
• | the other party’s compliance in all material respects with its obligations under the merger agreement. |
• | by mutual written consent of ADAM; Ebix and Eden Acquisition Sub, Inc. | |
• | by either ADAM or Ebix, if: |
• | the merger is not consummated on or before March 31, 2011 (except that this right is not available to any party whose breach of any representation, warranty, covenant or agreement found in the merger agreement has been the cause of, or resulted in, such failure to consummate the merger); | |
• | a governmental entity issues, promulgates, enforces or enters a final and nonappealable law, regulation, order, writ, assessment, decision, injunction, decree, ruling or judgment or takes any other nonappealable final action in each case making illegal, permanently enjoining or otherwise permanently prohibiting the completion of the merger (except that the right is not available to any party whose breach of any representation, warranty, covenant or agreement found in the merger agreement has been the cause of, or resulted in, the issuance, promulgation, enforcement or entry of such prohibiting circumstance); | |
• | the required ADAM shareholder vote has not been obtained at the ADAM shareholder meeting or any adjournment or postponement thereof permitted under the merger agreement; or | |
• | the other party breaches any of its representations, warranties, covenants or agreements in the merger agreement in such a way as would cause one or more of the conditions to closing not to be satisfied, and such breach is either incurable or is not cured prior to March 31, 2011, provided that thenon-breaching party must provide thirty (30) days notice of its intent to terminate pursuant to this right; |
• | by Ebix, if: |
• | ADAM’s board of directors, or any committee thereof, makes, withdraws, amends, modifies or materially qualifies in a manner adverse to Ebix any public statement inconsistent with its recommendation that ADAM’s shareholders vote in favor of the merger; | |
• | ADAM enters into or publicly announces its intention to enter into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other contract relating to any “takeover proposal” (as defined on page 55); |
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• | ADAM breaches or fails to perform in any material respect its covenants and agreements related to transactions with a buyer other than Ebix as more specifically described on pages 54 and 55; | |
• | ADAM’s board of directors fails to reaffirm its recommendation of the merger as provided for in the merger agreement; | |
• | ADAM’s board of directors, upon a tender offer or exchange offer from a third party, fails to send to the shareholders within ten (10) business days after such tender offer or exchange offer is received a statement reaffirming the board of directors recommendation of the merger and a recommendation that the shareholders reject such tender or exchange offer; or | |
• | ADAM or its board of directors publically announces its intentions to take any of the actions permitting Ebix to terminate the merger agreement. |
• | by ADAM, if prior to shareholder approval of the merger, ADAM enters into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other contract relating to any “takeover proposal” (as defined on page 55) with respect to a “superior proposal” (as defined on page 55), provided that ADAM pays the termination fee referred to below and concurrently enters into such agreement. |
• | ADAM’s board of directors, or any committee thereof, makes, withdraws, amends, modifies or materially qualifies in a manner adverse to Ebix any public statement inconsistent with its recommendation that ADAM’s shareholders vote in favor of the merger; or | |
• | prior to ADAM shareholder approval of the merger, ADAM enters into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other contract relating to any “takeover proposal” (as defined on page 55) with respect to a “superior proposal” (as defined on page 55), provided that ADAM pays the ADAM termination fee referred and concurrently enters into such agreement; or | |
• | ADAM’s board of directors, or any committee thereof, recommends, or ADAM enters into or announces its intention to enter into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other contract relating to any “takeover proposal” (as defined on page 55); or | |
• | ADAM breaches or fails to perform in any material respect its covenants and agreements related to transactions with a buyer other than Ebix as more specifically described on page 54; or | |
• | prior to shareholder approval of the merger, ADAM breaches any of its representations, warranties, covenants or agreements in the merger agreement in such a way as would cause one or more of the conditions to closing not to be satisfied, and such breach is either incurable or is not cured prior to March 31, 2011, provided that Ebix must provide thirty (30) days notice of its intent to terminate the merger agreement pursuant to this right or the merger is not consummated on or before March 31, 2011 (except that this right is not available to any party whose breach of any representation, warranty, covenant or agreement found in the merger agreement has been the cause of, or resulted in, such failure to consummate the merger) or the required ADAM shareholder vote has not been obtained at the ADAM shareholder meeting or any adjournment or postponement thereof permitted under the merger agreement and, prior to such termination, a takeover proposal shall be been publicly disclosed and not withdrawn and, within twelve months after such termination, ADAM enters into a definitive agreement with respect to a takeover proposal or a takeover proposal has been consummated (provided that, for purposes of the foregoing, the references to “15%” in the definition of takeover proposal on page 55 shall be changed to “50%”). |
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• | by Ebix for a reason other than those expressly provided for in the merger agreement; or | |
• | by ADAM because of a breach by Ebix or Eden Acquisition Sub, Inc. of any of their representations, warranties, covenants or agreements in the merger agreement in such a way as would cause one or more of the conditions to closing not to be satisfied, and such breach is either incurable or is not cured prior to March 31, 2011, provided that ADAM has provided thirty (30) days notice of its intent to terminate the merger agreement pursuant to this right or the merger is not consummated on or before March 31, 2011 (except that this right is not available to any party whose breach of any representation, warranty, covenant, or agreement found in the merger agreement has been the cause of, or resulted in, such failure to consummate the merger). |
• | solicit, initiate, or knowingly take any action to facilitate or encourage the submission of any takeover proposal or the making of any proposal that could reasonably be expected to lead to a takeover proposal, including, without limitation, amending or granting any waiver or release under any standstill or similar agreement with respect to any ADAM common stock; or | |
• | conduct or engage in any discussions or negotiations regarding, disclose any non-public information relating to ADAM, knowingly assist, participate in, facilitate or encourage any effort by any third party that is seeking to make a takeover proposal; or | |
• | amend or grant any waiver or release under any standstill or similar agreement with respect to any equity securities of ADAM or approve any transaction under the provisions of the Georgia Business Corporation Code regarding business combinations with interested shareholders; or | |
• | enter into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other contract relating to any takeover proposal. |
• | to adopt and approve the merger agreement and approve the merger, and | |
• | to approve any motion to adjourn or postpone the ADAM special meeting to another time or place if necessary to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal listed above. |
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Nine Months Ended | ||||||||||||||||||||||||||||
Year Ended December 31, | September 30, | |||||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009(1) | 2009 | 2010 | ||||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||||||
Consolidated Results of Operations Data: | ||||||||||||||||||||||||||||
Revenue | $ | 24,100 | $ | 29,253 | $ | 42,841 | $ | 74,752 | $ | 97,685 | $ | 66,381 | $ | 97,091 | ||||||||||||||
Operating income | 4,650 | 6,712 | 12,801 | 29,264 | 39,256 | 27,400 | 38,849 | |||||||||||||||||||||
Net income | 4,322 | 5,965 | 12,666 | 27,314 | 38,822 | 26,725 | 43,075 | |||||||||||||||||||||
Net income per share: | ||||||||||||||||||||||||||||
Basic(1) | $ | 0.17 | $ | 0.24 | $ | 0.45 | $ | 0.93 | $ | 1.24 | $ | 0.88 | $ | 1.24 | ||||||||||||||
Diluted(1) | $ | 0.15 | $ | 0.21 | $ | 0.40 | $ | 0.76 | $ | 1.03 | $ | 0.72 | $ | 1.10 | ||||||||||||||
Shares used in computing per share data: | ||||||||||||||||||||||||||||
Basic(1) | 25,101 | 24,912 | 27,917 | 29,514 | 31,398 | 30,531 | 34,765 | |||||||||||||||||||||
Diluted(1) | 28,089 | 28,233 | 31,604 | 36,780 | 38,014 | 37,470 | 39,218 | |||||||||||||||||||||
Consolidated Balance Sheet Data: | ||||||||||||||||||||||||||||
Total assets | $ | 27,981 | $ | 47,352 | $ | 108,510 | $ | 141,167 | $ | 262,167 | $ | 201,819 | $ | 293,117 | ||||||||||||||
Debt obligations | 2,813 | 11,952 | 36,647 | 52,192 | 52,487 | 64,310 | 43,145 | |||||||||||||||||||||
Redeemable common stock | 1,461 | — | — | — | — | — | — | |||||||||||||||||||||
Shareholders’ equity | 17,501 | 26,166 | 60,678 | 70,142 | 170,743 | 120,874 | 211,878 |
(1) | Ebix’s earnings per share and outstanding share information adjusted to reflect the effect of the3-for-1 stock split dated January 4, 2010. |
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Nine Months Ended | ||||||||||||||||||||||||||||
Year Ended December 31, | September 30, | |||||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009(1) | 2009 | 2010 | ||||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||||||
STATEMENT OF OPERATIONS DATA: | ||||||||||||||||||||||||||||
Revenues, net | $ | 10,054 | $ | 16,505 | $ | 27,878 | $ | 28,857 | $ | 28,161 | $ | 20,732 | $ | 20,348 | ||||||||||||||
Gross profit | 7,991 | 13,064 | 21,309 | 22,957 | 21,846 | 16,086 | 16,468 | |||||||||||||||||||||
Operating income (loss) | 1,289 | 3,132 | 4,759 | 1,802 | (11,521 | ) | (11,853 | ) | 3,863 | |||||||||||||||||||
Income tax benefit (expense) | 5,500 | — | 1,510 | — | (1,336 | ) | — | (148 | ) | |||||||||||||||||||
Net income (loss) | 7,062 | 2,548 | 3,939 | 38 | (13,335 | ) | (12,213 | ) | 3,457 | |||||||||||||||||||
Basic net income (loss) per share | $ | 0.87 | $ | 0.30 | $ | 0.42 | $ | 0.00 | $ | (1.35 | ) | $ | (1.24 | ) | $ | 0.35 | ||||||||||||
Weighted average number of common shares outstanding, basic | 8,108 | 8,630 | 9,461 | 9,813 | 9,886 | 9,884 | 9,963 | |||||||||||||||||||||
Diluted net income per share | $ | 0.75 | $ | 0.25 | $ | 0.38 | $ | 0.00 | $ | (1.35 | ) | $ | (1.24 | ) | $ | 0.33 | ||||||||||||
Weighted average number of common shares outstanding, diluted | 9,468 | 10,074 | 10,442 | 10,642 | 9,886 | 9,884 | 10,457 |
Year Ended December 31, | September 30, | |||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009(1) | 2010 | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
BALANCE SHEET DATA: | ||||||||||||||||||||||||
Total assets | $ | 21,880 | $ | 60,138 | $ | 59,970 | $ | 53,146 | $ | 39,456 | 39,262 | |||||||||||||
Long-term debt | — | 24,000 | 16,750 | 8,000 | 6,000 | 1,500 | ||||||||||||||||||
Total liabilities | 4,736 | 36,669 | 30,423 | 21,324 | 20,188 | 14,722 | ||||||||||||||||||
Total shareholders’ equity | 17,144 | 23,469 | 29,547 | 31,822 | 19,268 | 24,540 | ||||||||||||||||||
Working capital (deficit) | 8,576 | 3,084 | 1,228 | (5,321 | ) | (3,835 | ) | (3,378 | ) |
1. | ADAM recognized a pre-tax, non-cash impairment charge of $13,940 for the quarter ended March 31, 2009. For more information see Note 6 of the notes to ADAM’s consolidated financial statements contained in ADAM’s annual report onForm 10-K for the year ended December 31, 2009, a copy of which is included as Annex C to this Proxy Statement/Prospectus. | |
2. | Restructuring costs were $1,408 for the year ended December 31, 2009 and $2,193 for the year ended December 31, 2008. Restructuring costs are related to ADAM’s 2008 Facility Consolidation Program. For more information see Note 14 of the notes to ADAM’s consolidated financial statements contained in ADAM’s annual report onForm 10-K for the year ended December 31, 2009, a copy of which is included as Annex C to this Proxy Statement/Prospectus. |
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Year Ended December 31, 2009 | Nine Months Ended September 30, 2010 | |||||||||||||||||||||||
Ebix | ADAM | Pro Forma | Ebix | ADAM | Pro Forma | |||||||||||||||||||
As Reported | As Reported | Combined | As Reported | As Reported | Combined | |||||||||||||||||||
In thousands, except per share data | ||||||||||||||||||||||||
Revenue | $ | 97,685 | $ | 28,161 | $ | 125,846 | $ | 97,091 | $ | 20,348 | $ | 117,439 | ||||||||||||
Operating income (loss)(1) | $ | 39,256 | $ | (11,521 | ) | $ | 27,236 | $ | 38,849 | $ | 3,863 | $ | 42,160 | |||||||||||
Net income (loss)(1) | $ | 38,822 | $ | (13,335 | ) | $ | 24,810 | $ | 43,075 | $ | 3,457 | $ | 45,884 | |||||||||||
Basic earnings (loss) per share(2) | $ | 1.24 | $ | (1.35 | ) | $ | 0.71 | $ | 1.24 | $ | 0.35 | $ | 1.20 | |||||||||||
Diluted earnings (loss) per share(2) | $ | 1.03 | $ | (1.35 | ) | $ | 0.60 | $ | 1.10 | $ | 0.33 | $ | 1.08 | |||||||||||
Basic weighted average shares outstanding(2)(3) | 31,398 | 9,886 | 34,771 | 34,765 | 9,963 | 38,138 | ||||||||||||||||||
Diluted weighted average shares outstanding(2)(3) | 38,014 | 9,886 | 41,387 | 39,218 | 10,457 | 42,591 |
(1) | ADAM’s 2009 results include a $13.9 goodwill impairment charge, which was not deductible for tax purposes | |
(2) | Ebix earnings per share and outstanding share information adjusted to reflect the effect of the3-for-1 stock split dated January 4, 2010 | |
(3) | The pro forma basic and diluted weighted average shares outstanding is calculated by multiplying the number of ADAM’s outstanding common shares as of November 5, 2010 by the merger consideration exchange ratio of 0.3122 and adding the result to Ebix’s basic and diluted weighted average shares outstanding |
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As of September 30, 2010 | ||||||||||||
Ebix | ADAM | Pro Forma | ||||||||||
As Reported | As Reported | Combined | ||||||||||
In thousands, except per share data | ||||||||||||
Cash and cash equivalents | $ | 11,263 | $ | 5,688 | $ | 8,706 | ||||||
Goodwill and intangible assets (net) | $ | 231,739 | $ | 22,686 | $ | 283,869 | ||||||
Total assets | $ | 293,117 | $ | 39,262 | $ | 375,874 | ||||||
Debt obligations(1) | $ | 43,145 | $ | 3,596 | $ | 43,241 | ||||||
Total liabilities | $ | 81,239 | $ | 14,722 | $ | 97,754 | ||||||
Retained earnings (deficit) | $ | 51,698 | $ | (35,545 | ) | $ | 48,704 | |||||
Total stockholders equity | $ | 211,878 | $ | 24,540 | $ | 278,120 | ||||||
Book value per share(2)(3) | $ | 6.13 | $ | 2.36 | $ | 7.33 | ||||||
Common stock shares outstanding(2)(4) | 34,588 | 10,388 | 37,960 |
(1) | Includes capital leases | |
(2) | Ebix common stock shares outstanding and book value per share adjusted to reflect the effect of the3-for-1 stock split dated January 4, 2010 | |
(3) | The book value per common share is computed by dividing stockholders’ equity at the end of the period by the number of shares of common stock outstanding at the end of the period | |
(4) | The pro forma shares of common stock outstanding is calculated by multiplying the number of ADAM’s outstanding shares of common stock as of November 5, 2010 by the merger consideration exchange ratio of 0.3122 and adding the result to Ebix’s shares of common stock outstanding |
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• | the last reported sale price of a share of Ebix common stock and the last reported sale price of share of ADAM common stock, as reported by the NASDAQ Stock Market, and | |
• | the market value of ADAM common stock on an equivalent per share basis, as determined by reference to the value of the merger consideration to be received in respect of each share of ADAM common stock in the merger, based on the exchange ratio of 0.3122 per share, which is subject to adjustment as described in the merger agreement. |
Equivalent | ||||||||||||
Price per | ||||||||||||
Share of | ||||||||||||
EBIX | ADAM | ADAM | ||||||||||
Common | Common | Common | ||||||||||
Date | Stock | Stock | Stock | |||||||||
August 27, 2010 | $ | 19.56 | $ | 3.17 | $ | 6.11 | ||||||
December 21, 2010 | $ | 23.54 | $ | 7.11 | $ | 7.35 |
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• | statements relating to the benefits of the merger, including anticipated synergies and cost savings estimated to result from the merger; | |
• | statements relating to future business prospects, revenue, income, and financial condition; and | |
• | statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target,” or similar expressions. |
• | the ability to obtain governmental approvals of the merger on the proposed terms and time schedule, and without the imposition of significant conditions, obligations, or restrictions; | |
• | the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events; | |
• | the risk that Ebix will not integrate the business, or its other recently acquired businesses, successfully; | |
• | the risk that expected cost savings from the merger may not be fully realized within the expected time frames or at all, and attrition in key client, partner and other relationships relating to the merger may be greater than expected; | |
• | the risk that the combined company’s revenues following the merger may be lower than expected; | |
• | the effects of vigorous competition in the markets in which Ebix and ADAM operate; | |
• | the possibility of one or more of the markets in which Ebix and ADAM compete being impacted by changes in political or other factors such as monetary policy, legal, and regulatory changes or other external factors over which they have no control; | |
• | dilution to shareholders of the combined company as a result of any financing that involves equity or equity-linked securities; | |
• | changes in general economic and market conditions; and | |
• | other risks discussed, identified, or referenced from time to time in Ebix’s and ADAM’s public filings with the SEC. |
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• | its bank debt; | |
• | any expenses of its financial advisor in excess of $650,000; or | |
• | ADAM’s legal expenses related to the preparation of this Proxy Statement/Prospectus. |
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• | to adopt and approve the Agreement and Plan of Merger, dated as of August 29, 2010 among Ebix, ADAM, and Merger Sub, as the same may be amended from time to time, and approve the merger and other transactions described therein, a copy of which is attached asAnnex A to this Proxy Statement, which we refer to as the “Merger Proposal;” | |
• | to approve any motion to adjourn or postpone the special meeting to another time or place if necessary to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal listed above; and | |
• | to conduct any other business that properly comes before the ADAM special meeting and any adjournment or postponement thereof. |
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Item 1. | The Merger Proposal |
Item 2. | Possible Adjournment or Postponement of the ADAM Special Meeting |
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• | Merger consideration. The ADAM board of directors considered the 0.3122 shares of the combined company that ADAM shareholders will receive for each ADAM share if the merger is consummated |
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and the adjustments set forth in the merger agreement. The ADAM board of directors concluded that such shares are likely to deliver greater long-term value to ADAM’s shareholders than would be expected if ADAM remained independent. The ADAM board of directors also considered that the exchange ratio represented approximately 7% ownership in the combined company by ADAM shareholders on a pro forma basis and, based on the closing prices of Ebix’s and ADAM’s common stock on the NASDAQ Stock Market on August 27, 2010, corresponded to a price of approximately $6.11 per share, a 93% premium to the closing price of ADAM common stock on that date. The ADAM board of directors further considered the fact that, subject only to the adjustments set forth in the merger agreement, the exchange ratio provides ADAM shareholders with certainty regarding the number of Ebix shares they will receive in connection with the merger, and allows them to benefit from any increase in the price of Ebix common stock during the pre-closing period. |
• | Participation in future growth; synergies. The ADAM board of directors considered the fact that ADAM shareholders will participate in the future growth of an organization with considerably greater scale and breadth than ADAM alone and will benefit from the synergies that are expected to be realized as a result of the merger. In particular, the ADAM board of directors identified as potential strategic advantages and synergies: the fact that the combined company would have a stronger presence in the health information and insurance markets than ADAM alone; the fact that Ebix has an international footprint that ADAM lacks; the fact that the combined company would offerend-to-end health and employee benefit software services; the fact that the combined company would have opportunities to cross-sell complementary services to existing clients of the two companies; the fact that both companies are based in Atlanta, which should facilitate integration and make cost synergies even more achievable; and the fact that ADAM would no longer incur the substantial costs associated with being a public company. The ADAM board of directors also considered the fact that shares of Ebix common stock to be received would be freely transferable should ADAM’s shareholders wish to sell those shares. | |
• | Review of prospects in remaining independent. The ADAM board of directors considered ADAM’s financial condition, results of operations, and business and earnings prospects if it were to remain independent in light of various factors, including consolidation, increased competition, and regulatory and other developments occurring in the healthcare and benefits industries. The ADAM board of directors concluded that there were significant risks in remaining independent and that ADAM could best realize long-term shareholder value as part of a global enterprise with greater scale, resources and reach. | |
• | Extensive process. Based on the ADAM board of directors’ review of ADAM’s strategic alternatives and the extensive process that the board of directors conducted during the many months prior to the signing of the merger agreement, which involved contacting a significant number of parties who were believed to have a potential interest in a strategic combination with ADAM, the board of directors considered the fact that only two potential counterparties had made a proposal for a transaction with ADAM and that there was no assurance as to when or whether another favorable opportunity to engage in a strategic combination would arise. | |
• | Opinion of Needham & Company. The ADAM board of directors considered the financial analysis presented by Needham & Company and Needham & Company’s opinion that, as of August 29, 2010, and based upon and subject to the assumptions and other matters described in Needham & Company’s written opinion, the consideration to be received by the holders of ADAM common stock pursuant to the merger agreement was fair to those holders from a financial point of view. See “The Merger — Opinion of Financial Advisor to ADAM” beginning on page 31. | |
• | Terms of the merger agreement. The ADAM board of directors considered the terms of the merger agreement, including the parties’ respective representations, warranties, and covenants, the conditions to their respective obligations to complete the merger and the ability of the respective parties to terminate the merger agreement. The ADAM board of directors noted that the termination or “breakup” fee provisions of the merger agreement could have the effect of discouraging alternative proposals for a business combination involving ADAM but that such provisions are customary for transactions of this |
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size and type. The ADAM board of directors also considered that the $3.5 million amount of the termination fee, which amount is approximately equal to 5.3% of the equity value of ADAM at the exchange ratio based on the closing prices on August 27, 2010, was within a reasonable range, particularly in light of the process conducted by the ADAM board of directors with the assistance of Needham & Company and management. The ADAM board of directors also noted that the merger agreement permits ADAM and the ADAM board of directors to respond to a bona fide acquisition proposal that the ADAM board of directors determines is or is reasonably likely to lead to a superior proposal, subject to certain restrictions imposed by the merger agreement, and the requirement that ADAM pay Ebix the termination fee in the event that ADAM terminates the merger agreement to enter into an alternative transaction with respect to such superior proposal. |
• | Likelihood of closing. The ADAM board of directors considered the relatively limited nature of the closing conditions included in the merger agreement, including the likelihood that the merger would be approved by the relevant regulatory authorities and that the merger would be approved by ADAM’s shareholders. | |
• | Tax-free merger. The ADAM board of directors considered the fact that the merger is expected to be tax-free to ADAM shareholders for U.S. federal income tax purposes, except to the extent that ADAM shareholders recognize gain on cash received instead of any fractional shares of Ebix common stock. | |
• | Risks. The ADAM board of directors also identified and considered a number of countervailing factors and risks to ADAM, ADAM’s shareholders, and the combined company that could arise from the merger, including: |
• | the risk that the combined company will not achieve the growth or financial results anticipated or otherwise fail to deliver greater value to ADAM shareholders than they would have received had ADAM remained independent; | |
• | the challenges and costs inherent in integrating the two businesses and the time and effort that will be required from employees of both companies to successfully complete that integration; | |
• | the possibility that synergies may not be realized as a result of the merger or that they may be lower than expected; | |
• | the potential loss of customers, suppliers, and employees of the combined company following the merger or of either party during the pre-closing period; | |
• | the possibility that the merger may not be completed and the potential adverse consequences to ADAM if the merger is not completed, including the potential to depress values offered by others to ADAM in a business combination and to erode customer and employee confidence in ADAM; | |
• | the risks associated with a fixed exchange ratio, which by its nature will not compensate ADAM shareholders for any declines in the price of Ebix’s stock prior to the completion of the merger; | |
• | the risk that the final exchange ratio will not be known until closing and that the exchange ratio may be adjusted downward if ADAM fails to pay at or prior to closing (i) the amount of any ADAM debt owed out of ADAM’s cash on hand, (ii) the amount of expenses of ADAM’s financial advisor in excess of $650,000 out of ADAM’s cash on hand, or (iii) the amount of expenses of ADAM’s legal counsel as to this Proxy Statement out of ADAM’s cash on hand; | |
• | the absence of any termination right in the merger agreement that would be triggered by a decrease in Ebix’s stock price (or the corresponding decrease in the value of the merger consideration to be received by ADAM shareholders); | |
• | the fact that ADAM option holders will receive cash based on a price of $5.95 per share of ADAM common stock on the date of the merger agreement, which may be higher or lower than the value to be received by ADAM shareholders at the closing; |
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• | the limitations imposed in the merger agreement on the conduct of ADAM’s business during thepre-closing period, its ability to solicit and respond to proposals for alternative transactions, and the ability of its board of directors to change or withdraw its recommendation of the merger; | |
• | the $3.5 million termination fee payable to Ebix if the merger agreement is terminated under certain circumstances, and the potential effect that such termination fee may have on deterring other potential acquirers from proposing an alternative transaction that would be more advantageous to ADAM shareholders; and | |
• | the potential conflicts of interest of ADAM’s directors and executive officers, as described in the section entitled “Interests of ADAM’s Directors and Executive Officers in the Merger” beginning on page 39. |
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• | reviewed a draft of the merger agreement dated August 28, 2010; | |
• | reviewed certain publicly available information concerning Ebix and ADAM and certain other relevant financial and operating data of Ebix and ADAM furnished to Needham & Company by Ebix and ADAM; | |
• | reviewed the historical stock prices and trading volumes of Ebix common stock and ADAM common stock; | |
• | held discussions with members of management of Ebix and ADAM concerning the current operations of and future business prospects for Ebix and ADAM and joint prospects for the combined companies, including the potential cost savings and other synergies that may be achieved by the combined companies; | |
• | reviewed certain financial forecasts with respect to Ebix and ADAM prepared by the respective managements of those companies and held discussions with members of management concerning those forecasts; | |
• | compared certain publicly available financial data of companies whose securities are traded in the public markets and that Needham & Company deemed relevant to similar data for ADAM; | |
• | reviewed the financial terms of certain other business combinations that Needham & Company deemed generally relevant; and | |
• | reviewed such other financial studies and analyses and considered such other matters as Needham & Company deemed appropriate. |
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• | the average stock price ratios for August 27, 2010, and the three month, six month, 12 month, two year and five year periods ending on August 27, 2010. “Average stock price ratio” data represents the daily closing price of ADAM common stock divided by the daily closing price of Ebix common stock averaged over the respective periods; and | |
• | the implied exchange ratio premium (discount) to the average stock price ratio, which is equal to the percentage by which the assumed exchange ratio (0.3122 shares of Ebix common stock for each share of ADAM common stock) exceeds (or is less than) the average stock price ratio for the specified periods. |
Average | Implied Exchange | |||||||
Date or Period | Stock Price Ratio | Ratio Premium (Discount) | ||||||
August 27, 2010 | 0.1621 | 92.6 | % | |||||
Three month | 0.2003 | 55.9 | % | |||||
Six month | 0.2206 | 41.5 | % | |||||
Twelve month | 0.2226 | 40.3 | % | |||||
Two year | 0.3087 | 1.1 | % | |||||
Five year | 1.4206 | (78.0 | %) |
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ImpliedActual/Estimated | ||||||||
Percentage Contribution | ||||||||
Ebix | ADAM | |||||||
Pro forma combined revenues | ||||||||
Last 12 months | 80.9 | % | 19.1 | % | ||||
2010E | 82.2 | % | 17.8 | % | ||||
2011E | 82.1 | % | 17.9 | % | ||||
Pro forma combined gross profit | ||||||||
Last 12 months | 80.6 | % | 19.4 | % | ||||
2010E | 82.3 | % | 17.7 | % | ||||
2011E | 83.0 | % | 17.0 | % | ||||
Pro forma combined adjusted EBITDA | ||||||||
Last 12 months | 88.2 | % | 11.8 | % | ||||
2010E | 89.1 | % | 10.9 | % | ||||
2011E | 89.5 | % | 10.5 | % | ||||
Pro forma combined EBIT | ||||||||
Last 12 months | 92.3 | % | 7.7 | % | ||||
2010E | 93.0 | % | 7.0 | % | ||||
2011E | 93.8 | % | 6.2 | % | ||||
Pro forma combined net income | ||||||||
Last 12 months | 95.7 | % | 4.3 | % | ||||
2010E | 92.6 | % | 7.4 | % | ||||
2011E | 93.2 | % | 6.8 | % |
Estimated Pro Forma | ||||||||
Percentage Contribution | ||||||||
Ebix | ADAM | |||||||
Pro forma equity ownership contribution | 92.1 | % | 7.9 | % | ||||
Pro forma enterprise value contribution | 92.0 | % | 8.0 | % |
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eDiets.com, Inc.
eHealth, Inc.
HealthStream, Inc.
InsWeb Corporation
Kenexa Corporation
Taleo Corporation
Workstream Inc.
• | enterprise value as a multiple of last 12 months, or LTM, revenues; | |
• | enterprise value as a multiple of projected calendar year 2010 revenues; | |
• | enterprise value as a multiple of projected calendar year 2011 revenues; | |
• | enterprise value as a multiple of LTM adjusted EBITDA; | |
• | enterprise value as a multiple of projected calendar year 2010 adjusted EBITDA; | |
• | enterprise value as a multiple of projected calendar year 2011 adjusted EBITDA; | |
• | price as a multiple of LTM earnings per share, or EPS; | |
• | price as a multiple of projected calendar year 2010 EPS; | |
• | price as a multiple of projected calendar year 2011 EPS; and | |
• | price as a multiple of book value. |
ADAM | ||||||||||||||||||||
Selected Companies | Implied by | |||||||||||||||||||
High | Low | Mean | Median | Merger | ||||||||||||||||
Enterprise value to LTM revenues | 6.6 | x | 0.4 | x | 2.2 | x | 1.4 | x | 2.4 | x | ||||||||||
Enterprise value to projected calendar year 2010 revenues | 5.8 | x | 0.7 | x | 2.3 | x | 1.4 | x | 2.3 | x | ||||||||||
Enterprise value to projected calendar year 2011 revenues | 5.2 | x | 0.6 | x | 2.1 | x | 1.2 | x | 2.1 | x | ||||||||||
Enterprise value to LTM adjusted EBITDA | 20.8 | x | 3.1 | x | 10.5 | x | 8.5 | x | 9.4 | x | ||||||||||
Enterprise value to projected calendar year 2010 adjusted EBITDA | 16.4 | x | 3.2 | x | 9.5 | x | 7.7 | x | 9.0 | x | ||||||||||
Enterprise value to projected calendar year 2011 adjusted EBITDA | 13.9 | x | 3.2 | x | 8.0 | x | 6.3 | x | 8.0 | x | ||||||||||
Price to LTM EPS | 93.2 | x | 8.1 | x | 40.7 | x | 30.8 | x | 28.8 | x | ||||||||||
Price to projected calendar year 2010 EPS | 37.3 | x | 15.2 | x | 23.9 | x | 20.8 | x | 17.0 | x | ||||||||||
Price to projected calendar year 2011 EPS | 30.1 | x | 13.6 | x | 19.4 | x | 16.2 | x | 15.3 | x | ||||||||||
Price to book value | 3.6 | x | 1.5 | x | 2.5 | x | 2.4 | x | 3.0 | x |
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Acquirer | Target | |
OMERS Private Equity Inc. | Logibec Groupe Informatique Ltd. | |
K12 Inc. | KC Distance Learning, Inc. | |
CCMP Capital Advisors LLC | infoGROUP Inc. | |
Thoma Bravo, LLC | PLATO Learning, Inc. | |
Blackboard Inc. | ANGEL Learning, Inc. | |
Automatic Data Processing, Inc. | OneClickHR plc | |
Apax Partners, L.P. | Bankrate, Inc. | |
Vista Equity Partners LLC | SumTotal Systems, Inc. | |
TriNet Group, Inc. (General Atlantic LLC) | Gevity HR, Inc. | |
Autonomy Corporation plc | Interwoven, Inc. | |
Health Care Service Corporation | MEDecision, Inc. | |
Alterian plc | Mediasurface plc | |
Taleo Corporation | Vurv Technology, Inc. | |
SXC Health Solutions Corp. | National Medical Health Card Systems, Inc. |
• | enterprise value as a multiple of LTM revenues; and | |
• | enterprise value as a multiple of LTM adjusted EBITDA. |
ADAM | ||||||||||||||||||||
Selected Transactions | Implied by | |||||||||||||||||||
High | Low | Mean | Median | Merger | ||||||||||||||||
Enterprise value to LTM revenues | 4.5 | x | 0.1 | x | 2.0 | x | 2.1 | x | 2.4 | x | ||||||||||
Enterprise value to LTM adjusted EBITDA | 27.4 | x | 2.5 | x | 12.4 | x | 10.6 | x | 9.4 | x |
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Ebix/ | ||||||||||||||||||||
Selected Transactions | ADAM | |||||||||||||||||||
High | Low | Mean | Median | Merger | ||||||||||||||||
One trading day stock price premium | 195.2 | % | 2.3 | % | 45.9 | % | 38.0 | % | 92.7 | % | ||||||||||
Five trading day stock price premium | 187.5 | % | (0.9 | %) | 48.0 | % | 44.9 | % | 88.0 | % | ||||||||||
30 trading day stock price premium | 269.0 | % | (6.1 | %) | 54.1 | % | 43.5 | % | 89.2 | % |
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• | belief that the business combination with ADAM will enable Ebix to offer and provideend-to-end health and employee benefit software services; | |
• | expectation that the combined companies would be able to offer ADAM’s content syndication services, presently offered only in the United States, to an international customer base spread across six continents; | |
• | expectation that the combined businesses will be able to cross-sell each other’s services to their existing customer bases; for example selling ADAM’s benefit portals to Ebix’s existing backend clients and vice versa; | |
• | belief that the completed merger will drive considerable cost benefits from the resulting synergies; | |
• | the fact that both companies are headquartered in Atlanta, which is expected to facilitate efficient integration and the realization of anticipated cost reductions; | |
• | ADAM would no longer have to incur the costs of being a public registrant, resulting in substantial cost reduction to the combined company; | |
• | belief that the combined businesses would have considerable greater scale and market breadth than either company alone; and | |
• | expectation that the combined company’s end to end solution offerings would enable the merged businesses to be a player in large deals that require end to end health insurance expertise, a market that was unavailable to each of the companies individually. |
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• | the information concerning Ebix’s and ADAM’s respective historic businesses, financial results, and prospects, including the result of Ebix’s due diligence review of ADAM; | |
• | Ebix’s assessments that ADAM’s business can effectively and efficiently be integrated; | |
• | Ebix’s assessment of its ability to drive revenue growth given the market dynamics for ADAM’s analog and memory products offering; | |
• | the favorable tax synergies that may be achievable in light of ADAM’s significant sales outside the United States; | |
• | the exchange ratio of 0.3122 shares of Ebix common stock for each share of ADAM common stock and the fact that the exchange ratio is fixed and will not fluctuate based upon changes in Ebix’s stock price between signing and closing, reflecting the strategic purpose of the merger and consistent with market practice for a merger of this type; | |
• | the fact that the merger consideration is Ebix common stock, and Ebix did not therefore need to utilize cash or incur additional debt to finance the purchase price; | |
• | the relatively small size of the transaction, which limits Ebix’s downside risk; | |
• | the terms of the merger agreement, including Ebix’s right to receive a termination fee of $3.5 million if ADAM terminates the merger agreement in order to accept a superior proposal; | |
• | the challenges and costs of integrating ADAM’s business into Ebix in light of Ebix’s ongoing integration of its other recent acquisitions; | |
• | the potential for diversion of management and employee attention from other strategic priorities and for increased employee attrition both before and after the closing of the merger, and the potential effect on Ebix’s business and relations with customers and suppliers; | |
• | the fees and expenses associated with completing the merger; and | |
• | the risk that anticipated cost savings will not be achieved. |
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Number of Shares | ||||||||||||
Number of Shares of | Underlying Stock | |||||||||||
Name | ADAM Common Stock | Number of RSAs | Options | |||||||||
Non-Employee Directors: | ||||||||||||
Robert S. Cramer, Jr. | 259,654 | 3,571 | 12,000 | |||||||||
Daniel S. Howe | 0 | 3,571 | 12,000 | |||||||||
Mark Kishel, M.D. | 12,155 | 3,571 | 12,000 | |||||||||
Clay E. Scarborough | 7,155 | 3,571 | 12,000 |
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Number of Shares | ||||||||||||
Number of Shares of | Underlying Stock | |||||||||||
Name | ADAM Common Stock | Number of RSAs | Options | |||||||||
Executive Officers: | ||||||||||||
Mark B. Adams | 2,000 | 0 | 188,666 | |||||||||
Christopher R. Joe | 0 | 0 | 30,700 | |||||||||
John George(1) | 0 | 0 | 0 |
(1) | As of August 31, 2010, John George is no longer an employee of ADAM. |
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• | a shareholder that is not a citizen or resident of the United States; | |
• | a financial institution or insurance company; | |
• | a mutual fund; | |
• | a tax-exempt organization; | |
• | a partnership or other pass-through entity (or a holder that holds its ADAM common stock through a partnership or other pass-through entity); | |
• | persons who received their ADAM common stock in connection with stock option or stock purchase plans or in other compensatory transactions; |
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• | a dealer or broker in securities or foreign currencies; | |
• | a trader in securities that elects to apply amark-to-market method of accounting; | |
• | a shareholder that holds ADAM common stock as part of a hedge, appreciated financial position, straddle, conversion, or other risk reduction transaction; or | |
• | a shareholder that acquired ADAM common stock pursuant to the exercise of options or similar derivative securities or otherwise as compensation. |
• | A holder of ADAM common stock will not recognize gain or loss upon the exchange of that shareholder’s ADAM common stock for Ebix common stock in the merger, except that gain or loss will be recognized on the receipt of cash instead of a fractional share of Ebix common stock. If a holder of ADAM common stock receives cash instead of a fractional share of Ebix common stock, the holder will be required to recognize gain or loss, measured by the difference between the amount of cash received and the portion of the tax basis of that holder’s ADAM common stock allocable to that fractional share of Ebix common stock. This gain or loss will be a capital gain or loss and will be a long-term capital gain or loss if the holding period for the ADAM common stock exchanged for the fractional share of Ebix common stock is more than one year at the completion of the merger. | |
• | A holder of ADAM common stock will have a tax basis in the Ebix common stock received in the merger equal to (1) the tax basis of the ADAM common stock surrendered by that holder in the merger, |
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reduced by (2) any tax basis of the ADAM common stock surrendered that is allocable to a fractional share of Ebix common stock for which cash is received. |
• | The holding period for the Ebix common stock received in exchange for shares of ADAM common stock in the merger will include the holding period for the shares of ADAM common stock surrendered in the merger, based on the assumption that the ADAM common stock is held as a capital asset. |
• | the date of the merger; | |
• | the names and employer identification numbers of all parties to the merger; | |
• | the cost or other basis of the shares of the ADAM common stock transferred in the exchange; and | |
• | the fair market value of the ADAM common stock, immediately before the exchange, and the amount of cash received in the exchange instead of receiving a fractional share. |
• | owned at least five percent (by vote or value) of the total outstanding stock of ADAM; or | |
• | owned securities in ADAM with a basis of $1,000,000 or more. |
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• | its bank debt; | |
• | any expenses of its financial advisor in excess of $650,000; or | |
• | ADAM’s legal expenses related to the preparation of this Proxy Statement. |
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• | organization and standing, power and authority, capital structure, and execution and delivery of the merger agreement; | |
• | consents and approvals of third parties and permissions and authorizations of governmental entities required in connection with the merger agreement and the merger; | |
• | the approval of the merger agreement and the merger by the parties’ respective boards of directors; | |
• | documents filed with the SEC and the accuracy of information contained in those documents; | |
• | financial statements, internal controls, and Sarbanes Oxley compliance; | |
• | the absence of any material adverse effect since a recent date; and | |
• | correctness of respective information in this Proxy Statement. |
• | authority and power to conduct its business; | |
• | organizational documents and corporate minutes; | |
• | subsidiaries; | |
• | stock awards, stock plans, and voting debt; | |
• | takeover statutes; | |
• | the absence of undisclosed liabilities and off-balance sheet arrangements; | |
• | the NASDAQ Stock Market standards; |
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• | filing of tax returns, payment of taxes, and other tax matters; | |
• | intellectual property; | |
• | compliance with applicable legal requirements; | |
• | possession of and compliance with necessary permits; | |
• | litigation; | |
• | brokers’ and finders’ fees in connection with the merger; | |
• | transactions with ADAM’s officers, directors, and significant shareholders; | |
• | employee benefit plans and the Employee Retirement Income Security Act of 1974, as amended; | |
• | severance arrangements; | |
• | labor and employment matters; | |
• | real property; | |
• | properties and assets; | |
• | environmental matters; | |
• | certain material contracts; | |
• | the ADAM shareholder rights agreement; | |
• | certain results of the consummation of the merger; and | |
• | the receipt of a fairness opinion from ADAM’s financial advisor. |
• | financial capability to consummate the merger; | |
• | legal proceedings effecting ability to complete the merger; and | |
• | lack of ownership of any shares of ADAM common stock. |
• | amend or propose to amend its articles of incorporation, bylaws, or similar organizational documents; | |
• | split, combine, or reclassify any of its securities; | |
• | repurchase, redeem, or otherwise acquire any of its securities; | |
• | declare or pay any dividends on or make other distributions in respect of its capital stock; | |
• | issue, sell, pledge, dispose of, or encumber any of its securities, other the issuance of ADAM common stock in respect of other equity compensation awards outstanding under the ADAM’s existing stock plans, issuance of any equity awards or shares upon the exercise of any equity awards in accordance with their terms in the ordinary course of business consistent with past practice, the issuance of ADAM common stock upon the exercise of any warrant outstanding on the date of the merger agreement; |
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• | except as required by law or a contract or employee benefit plan in effect on the date of the merger agreement, increase the compensation payable by ADAM to its directors, officers, or employees, enter into any new or materially amend any existing employment, severance, retention, or change in control agreement, promote any officers or employees (unless required as a result of a departure so long as such promotion is not accompanied by a compensation increase for the position), hire any new employee with a base salary in excess of $75,000 (unless such hire is the result of a departure and the hire is not accompanied by a substantial compensation increase for the position), or establish, adopt, enter into, amend, terminate, exercise any discretion under, or take any action to accelerate rights under any employee benefit plan, or make any contribution to any employee benefit plan, except as part of any annual renewal of such a plan (provided that the terms of such plans remain reasonably consistent with those in existence); | |
• | acquire, by merger, consolidation, acquisition of stock or assets, or otherwise, any business or division or make any loans, advances or capital contributions to or investments in any business in excess of $100,000 in the aggregate; | |
• | transfer, license, sell, lease, or otherwise dispose of any assets (whether by way of merger, consolidation, sale of stock or assets, or otherwise), provided that such restriction shall not prohibit the Company from transferring, licensing, selling, leasing, or disposing of obsolete equipment or assets not being used or being replaced, in each case in the ordinary course of business consistent with past practice; | |
• | adopt or effect a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization; | |
• | repurchase, prepay, or incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any ADAM debt securities or options, warrants, calls, or other rights to acquire any debt securities, guarantee any debt securities of another person, enter into any “keep well” or other contract to maintain any financial statement condition of any other person or enter into any arrangement having the economic effect of any of the foregoing, other than in connection with the financing of ordinary course trade payables consistent with past practice and other than with respect to funded debt; | |
• | enter into, amend, or modify in any material respect, or consent to the termination of, any material agreement, agreement in principle, letter of intent, memorandum of understanding, or similar contract with respect to any joint venture, strategic partnership or alliance; | |
• | institute, settle or compromise any claim, action, suit, arbitration, proceeding or governmental investigation pending or threatened before any arbitrator, court or other governmental entity involving the payment of monetary damages by ADAM of any amount exceeding $70,000 in the aggregate, other than (i) any such legal action brought against Ebix or Eden Acquisition Sub, Inc. arising out of a breach or alleged breach of the merger agreement by Ebix or Eden Acquisition Sub, Inc. and (ii) the settlement of claims, liabilities, or obligations reserved against on ADAM’s most recent balance sheet included in the documents ADAM files with the SEC, provided that ADAM shall not settle or agree to settle any such legal action which settlement involves a conduct remedy or injunctive or similar relief or has a restrictive impact on ADAM’s business; | |
• | make any material changes in accounting methods, principles, or practices, except as required by a change in generally accepted accounting principles or legal requirements; | |
• | settle or compromise any material tax claim, audit, or assessment for an amount greater than the reserve for such on ADAM most recent balance sheet included in the documents ADAM files with the SEC, make or change any material tax election, change any annual tax accounting period, adopt or change any method of tax accounting, amend any material tax returns or file claims for material tax refunds or enter into any material closing agreement, surrender in writing any right to any material tax refund, or consent to any extension of or waive the limitation period applicable to any material tax claim or assessment relating to the company; |
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• | except in connection with permitted actions discussed “The Merger Agreement — No Solicitation; Changes in Recommendations” beginning on page 54, take any action to exempt any person from, or make any acquisition of securities of ADAM by any person not subject to, any state takeover statute or similar statute or regulation that applies to ADAM with respect to a “takeover proposal” (as defined on page 55) or otherwise, including the restrictions on “business combinations” set forth inSection 14-2-1132 of the Georgia Business Corporation Code, except for Ebix, Eden Acquisition Sub, Inc. or any of their respective subsidiaries or affiliates; | |
• | enter into any contract with a competitor of Ebix; | |
• | incur any material liability or make any material payment except in the ordinary course of business consistent with past practice (except for expenses related to the transaction paid for out of cash on hand at or prior to the effective time of the merger); or | |
• | agree or commit to do any of the foregoing. |
• | sell, license, assign, transfer, divest, hold separate, or otherwise dispose of any assets, business, or any portion of business of ADAM, Ebix, Eden Acquisition Sub, Inc., or any of their respective subsidiaries; | |
• | conduct, restrict, operate, invest, or otherwise change the assets, business, or any portion of business of ADAM, Ebix, Eden Acquisition Sub, Inc., or any of their respective subsidiaries; or | |
• | impose any restriction, requirement, or limitation on the operation of the business or any portion of the business of ADAM, Ebix, Eden Acquisition Sub, Inc., or any of their respective subsidiaries. |
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• | the receipt of approval from the holders of ADAM common stock; | |
• | the expiration or termination of the waiting period under HSR; | |
• | the effectiveness of the registration statement of which this Proxy Statement forms a part, and the registration statement not being subject to any stop order or threatened stop order; | |
• | the absence of any laws, orders, temporary, preliminary or permanent injunctions, or other decrees issued by any court of competent jurisdiction or other legal restraint making illegal, enjoining, or otherwise preventing the completion of the merger; | |
• | the receipt of such additional governmental authorizations, consents, approvals, and other authorizations as may be required to complete the merger, subject to certain exceptions; and | |
• | the receipt of authorization from the NASDAQ Stock Market for listing of Ebix common stock to be issued in connection with the merger; | |
• | the other party’s representations and warranties being true and correct on the date of the merger agreement (subject to certain materiality thresholds) and on the date on which the merger is to be completed as if made as of that date or, if representations and warranties in the merger agreement expressly relate to an earlier date, then as of that specified date, in each case other than any failures to be true and correct that, individually or in the aggregate, have not had and would not reasonably be likely to have a material adverse effect on the other party; | |
• | the other party having performed its obligations under the merger agreement in all material respects; and | |
• | the non-occurrence of a “material adverse effect,” which consists of the occurrence of an event, occurrence, fact, condition, or change that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to (i) the business, results of operations, condition (financial or otherwise), or assets of the affected party and its subsidiaries, taken as a whole, or (ii) the ability of the affected party to consummate the transactions contemplated by the merger agreement on a timely basis. |
• | changes generally affecting the economy, financial or securities markets; | |
• | the announcement of the merger; | |
• | any outbreak or escalation of war or any act of terrorism; |
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• | general conditions in the industry in which the affected party and its subsidiaries operate; | |
• | changes in the market price for or trading volume of the affected party’s stock; | |
• | any changes in the laws or applicable accounting regulations or principles, or interpretations thereof; or | |
• | the failure of the affected party to meet internal or external projections, forecasts or estimates of earnings, revenues or any other financial measures (regardless of whether such projections were made by the affected party or independent third parties), or the issuance of revised projections that are not as optimistic as those in existence on the date of the merger agreement. |
• | conduct or engage in any discussions or negotiations with, disclose any non-public information relating to ADAM to, afford access to the business, properties, assets, books or records of ADAM, or knowingly assist, participate in, facilitate, or encourage any effort by, any third party that is seeking to make, or has made, any takeover proposal; | |
• | amend or grant any waiver or release under any standstill or similar agreement with respect to any class of equity securities of ADAM, or approve any transaction under, or any third party becoming an “interested shareholder” under,Section 14-2-1112 of the Georgia Business Corporation Code; | |
• | enter into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement, or other contract relating to any takeover proposal (each, an “ADAM acquisition agreement”); or | |
• | make, withdraw, amend, modify or materially qualify, in a manner adverse to Ebix or Eden Acquisition Sub, Inc. the recommendation to ADAM shareholders that they approve and adopt the merger agreement, or recommend a takeover proposal, fail to recommend against acceptance of any tender offer or exchange offer for shares of ADAM’s common stock within ten business days after the commencement of such offer, or make any public statement inconsistent with ADAM’s board of director’s recommendation to the shareholders to approve and adopt the merger agreement, or resolve or agree to take any of the foregoing actions. |
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• | participate in negotiations or discussions with any third party that has made a bona fide, unsolicited takeover proposal in writing that the ADAM board of directors believes in good faith, after consultation with outside legal counsel and the ADAM’s financial advisor, constitutes or could reasonably be expected to result in a “superior proposal” (as defined below); | |
• | thereafter furnish to such third party non-public information relating to ADAM pursuant to an executed confidentiality agreement that contains provisions no less favorable than those in the confidentially agreement between Ebix and ADAM (a copy of which ADAM is to promptly, in all events within twenty-four (24) hours, provide to Ebix); | |
• | following receipt of and on account of a superior proposal, change its recommendation that ADAM’s shareholders approve the merger; and/or | |
• | take any action that any court of competent jurisdiction orders ADAM to take (which order remains unstayed). |
• | direct or indirect acquisition of assets of ADAM (including any voting equity interests of its subsidiaries, but excluding sales of assets in the ordinary course of business) equal to fifteen percent (15%) or more of the fair market value of the ADAM’s consolidated assets or to which fifteen percent (15%) or more of the Company’s net revenues or net income on a consolidated basis are attributable; | |
• | direct or indirect acquisition of fifteen percent (15%) or more of the voting equity interests of ADAM; | |
• | tender offer or exchange offer that if consummated would result in any person beneficially owning fifteen percent (15%) or more of the voting equity interests of ADAM; | |
• | merger, consolidation, other business combination or similar transaction involving ADAM, pursuant to which such person would own fifteen percent (15%) or more of the consolidated assets, net revenues or net income of ADAM, taken as a whole; or | |
• | liquidation or dissolution (or the adoption of a plan of liquidation or dissolution) of ADAM or the declaration or payment of an extraordinary dividend (whether in cash or other property) by ADAM. |
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• | by mutual written consent of ADAM, Ebix, and Eden Acquisition Sub, Inc.; | |
• | by either ADAM or Ebix, if: |
• | the merger is not consummated on or before March 31, 2011 (except that this right is not available to any party whose breach of any representation, warranty, covenant, or agreement found in the merger agreement has been the cause of, or resulted in, such failure to consummate the merger); | |
• | a governmental entity issues, promulgates, enforces, or enters a final and nonappealable law, regulation, order, writ, assessment, decision, injunction, decree, ruling or judgment, or takes any other nonappealable final action in each case making illegal, permanently enjoining or otherwise permanently prohibiting the completion of the merger (except that the right is not available to any party whose breach of any representation, warranty, covenant or agreement found in the merger agreement has been the cause of, or resulted in, the issuance, promulgation, enforcement, or entry of such prohibiting circumstance); | |
• | the required ADAM shareholder vote has not been obtained at the ADAM shareholder meeting or any adjournment or postponement thereof permitted under the merger agreement; or | |
• | the other party breaches any of its representations, warranties, covenants, or agreements in the merger agreement in such a way as would cause one or more of the conditions to closing not to be satisfied, and such breach is either incurable or is not cured prior to March 31, 2010, provided that the non-breaching party must provide 30 days notice of its intent to terminate pursuant to this right; |
• | by Ebix, if: |
• | the ADAM board of directors, or any committee thereof, makes, withdraws, amends, modifies, or materially qualifies, in a manner adverse to Ebix, any public statement inconsistent with its recommendation that ADAM’s shareholders vote in favor of the merger; | |
• | ADAM enters into or publicly announces its intention to enter into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement, or other contract relating to any “takeover proposal” (as defined on page 55); | |
• | ADAM breaches or fails to perform in any material respect its covenants and agreements related to transactions with a buyer other than Ebix as more specifically described in “The Merger Agreement — No Solicitation; Changes in Recommendations” beginning on page 54; | |
• | the ADAM board of directors fails to reaffirm its recommendation of the merger as provided for in the merger agreement; | |
• | the ADAM board of directors, upon a tender offer or exchange offer from a third party, fails to send to the shareholders within ten business days after such tender offer or exchange offer is received a |
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statement reaffirming the board of directors recommendation of the merger and a recommendation that the shareholders reject such tender offer or exchange offer; or |
• | ADAM or its board of directors publically announces its intentions to take any of the actions permitting Ebix to terminate the merger agreement; or |
• | by ADAM, if prior to shareholder approval of the merger, ADAM enters into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other contract relating to any “takeover proposal” (as defined on page 55) with respect to a “superior proposal” (as defined on page 55), provided that ADAM pays the termination fee referred to below and concurrently enters into such agreement. |
• | the ADAM board of directors, or any committee thereof, makes, withdraws, amends, modifies, or materially qualifies, in a manner adverse to Ebix, any public statement inconsistent with its recommendation that ADAM’s shareholders vote in favor of the merger; | |
• | prior to shareholder approval of the merger, ADAM enters into any agreement in principle, letter of intent, term sheet, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement, or other contract relating to any “takeover proposal” (as defined on page 55) with respect to a “superior proposal” (as defined on page 55), provided that ADAM pays the termination fee and concurrently enters into such agreement. | |
• | ADAM breaches or fails to perform in any material respect its covenants and agreements related to transactions with a buyer other than Ebix as more specifically described in “The Merger Agreement — No Solicitation; Changes in Recommendations” beginning on page 54; or | |
• | prior to shareholder approval of the merger, (i) ADAM breaches any of its representations, warranties, covenants or agreements in the merger agreement in such a way as would cause one or more of the conditions to closing not to be satisfied, and such breach is either incurable or is not cured prior to March 31, 2011, provided that the non-breaching party must provide 30 days notice of its intent to terminate pursuant to this right or (ii) the merger is not consummated on or before March 31, 2011 (except that this right is not available to any party whose breach of any representation, warranty, covenant or agreement found in the merger agreement has been the cause of, or resulted in, such failure to consummate the merger) or (iii) the required ADAM shareholder vote has not been obtained at the ADAM shareholder meeting or any adjournment or postponement thereof permitted under the merger agreement and, in each case, prior to such termination a takeover proposal shall have been publicly disclosed and not withdrawn and, within twelve months after such termination, ADAM enters into a definitive agreement with respect to a takeover proposal or a takeover proposal has been consummated (provided that, for purposes of the foregoing, the references to “15%” in the definition of takeover proposal on page 55 shall be changed to “50%”). |
• | by Ebix for a reason other than those expressly provided for in the merger agreement; or | |
• | by ADAM because of a breach by Ebix of any of its representations, warranties, covenants or agreements in the merger agreement in such a way as would cause one or more of the conditions to closing not to be satisfied, and such breach is either incurable or is not cured prior to March 31, 2010, provided that ADAM has provided 30 days notice of its intent to terminate the merger agreement. |
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• | each party will remain liable for fraud or the beach by it of any of its representations, warranties, covenants or other agreements contained in the merger agreement; and | |
• | designated provisions of the merger agreement, including the provisions relating to confidential treatment of information and the payment of the termination fee and expenses described above, if applicable, will survive termination. |
• | for a period of no less than one year following effective time of the merger, Ebix will use its best efforts to cause the surviving corporation to provide base compensation to ADAM’s employees who continue as employees of the surviving corporation or any affiliate of Ebix so that, at a minimum, the base compensation is reasonably comparable in the aggregate to the base compensation provided by ADAM prior to the merger; | |
• | for each employee remaining with the combined company or any affiliate of Ebix after the merger, such employee will be immediately eligible to participate, without any waiting period, in all of Ebix’s employee benefit plans, programs, policies and arrangements, including the Ebix 401(k) plan, to the extent that such a plan was in place at ADAM and the employee was eligible at any time prior to the effective date to participate; | |
• | for each employee remaining with the surviving corporation or any affiliate of Ebix after the merger, such employee will be granted credit for all services with ADAM for purposes of eligibility, benefits, and vesting for all benefits; | |
• | for each new plan an employee of ADAM that becomes an employee of the combined company providing medical, dental, pharmaceutical, vision,and/or disability benefits, all pre-existing condition exclusions and actively-at-work requirements of such new plan will be waived for such employee and his or her covered dependents, and Ebix will cause all eligible expenses incurred by such employee and his or her covered dependents to be taken into account under such new plan for purposes of satisfying all deductible, coinsurance, and maximumout-of-pocket requirements applicable to such employee and his or her covered dependents as if such amounts had been paid in accordance with such new plan; | |
• | each employee remaining with the combined company or any affiliate of Ebix after the merger will be required to execute Ebix’s standard agreements related to employment, including a confidentiality and non competition agreement; and | |
• | each employee remaining with the combined company or any affiliate of Ebix after the merger will be subject to Ebix’s policies related to vacation, sick leave and paid time off. |
• | all rights to indemnification, advancement of expenses, and exculpation existing as of the date of the merger agreement in favor of present and former ADAM directors or officers (and those individuals serving as a director or officer of another entity at the request of ADAM) for acts or omissions prior to the effective time of the merger shall be assumed by the surviving corporation and survive the merger; | |
• | to the fullest extent permitted under applicable law, Ebix and the surviving corporation shall indemnify, defend and hold harmless present and former officers and directors of ADAM (and those individuals |
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serving as a director or officer of another entity at the request of ADAM) against all losses (including reimbursement of legal expenses) arising out of their actions as an officer or director occurring at or prior to the effective time of the merger (including in connection with the negotiation of the merger); and |
• | Ebix will cause the surviving corporation to maintain the current officers’ and directors’ liability insurance policies in place at the effective time of the merger, if available, or if not, the surviving corporation will purchase “tail” officers’ and directors’ liability insurance policies with at least the same coverage and amounts and containing terms and conditions not less advantageous than ADAM’s existing directors’ and officers’ liability insurance. If Ebix cannot purchase these policies for 200% or less of the annual premium paid by ADAM for its existing insurance, the surviving corporation will obtain that amount of coverage obtainable for 200% of ADAM’s existing premium. |
• | the merger agreement may be amended by the parties in writing at any time prior to the effective time of the merger, however, after approval by ADAM’s shareholders of the merger, the merger agreement may not be amended in a manner that would require further approval by ADAM’s shareholders unless the parties obtain such approval; and | |
• | at any time before the effective time of the merger, a party may extend the time for performance of any of the obligations of the other party, waive any inaccuracies in the representations and warranties of the other party, or waive compliance by the other party with any covenant, agreement or condition in the merger agreement. |
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For the Year Ended | ||||||||
December 31, | ||||||||
2009 | 2008 | |||||||
(Dollar amounts in thousands) | ||||||||
Carrier Systems | $ | 10,624 | $ | 11,314 | ||||
Exchanges | $ | 60,764 | $ | 42,711 | ||||
BPO | $ | 14,698 | $ | 8,380 | ||||
Broker Systems | $ | 11,599 | $ | 12,347 | ||||
Totals | $ | 97,685 | $ | 74,752 | ||||
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Designation | Class | No. of Shares Authorized | Par Value | |||||||||||||
Common Stock | Common | 60,000,000 | $ | 0.10 | ||||||||||||
Preferred Stock | Preferred | 500,000 | $ | 0.10 |
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• | the number of shares and the distinctive designation of the series; | |
• | the voting power, if any; | |
• | dividend rights; | |
• | redemption rights; | |
• | liquidation preferences; | |
• | conversion rights; and | |
• | any other relative rights, preferences and limitations. |
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EBIX | ADAM | |
AUTHORIZED CAPITAL STOCK | ||
Authorized Shares. Ebix is authorized under its certificate of incorporation to issue 60,000,000 shares of common stock, par value $0.10 per share, and 500,000 shares of preferred stock, par value $0.10 per share. | Authorized Shares. ADAM is authorized under its articles of incorporation to issue 20,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share. | |
Preferred Stock. Ebix’s certificate of incorporation provides that shares of preferred stock, in one or more series or otherwise, may be issued by its board of directors. The board may fix voting powers, designations, and relative, participating, optional, conversion, redemption and other rights and qualifications, limitations and restrictions upon those rights. No shares of preferred stock have been issued. | Preferred Stock. ADAM’s articles of incorporation provide that ADAM’s board of directors is expressly authorized, at any time, by adopting resolutions providing for the issuance of, or providing for the change in the number of, shares of any particular series of preferred stock and, if and to the extent from time to time required by law, by filing articles of amendment which are effective without shareholder action, to increase or decrease the number of shares included in each series of preferred stock, but not below the number of shares then issued, and to set in any one or more respects the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms and conditions of redemption relating to the shares of each such series. The authority of the board of directors with respect to each series of preferred stock includes, but not be limited to, setting or changing the following: | |
(i) the dividend rate, if any, on shares of such series, the times of payment, and the date from which dividends shall be accumulated, if dividends are to be cumulative; | ||
(ii) whether the shares of such series shall be redeemable and, if so, the redemption price and the terms and conditions of such redemption; |
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EBIX | ADAM | |
(iii) the obligation, if any, of the corporation to redeem shares of such series pursuant to a sinking fund; | ||
(iv) whether shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes and, if so, the terms and conditions of such conversion or exchange, including the price or prices or the rate or rates of conversion or exchange and the term of adjustment, if any; | ||
(v) whether the shares of such series shall have voting rights, in addition to the voting rights provided by law, and, if so, the extent of such voting rights; | ||
(vi) the rights of the shares of such series in the event of voluntary or involuntary liquidation, dissolution orwinding-up of the corporation; and | ||
(vii) any other relative rights, powers, preferences, qualifications, limitations or restrictions thereof relating to such series. | ||
CLASSIFICATION, NUMBER AND ELECTION OF DIRECTORS | ||
The Ebix board of directors currently consists of one class of directors with each director serving a one-year term. The Ebix bylaws provide that its board of directors will consist of not fewer than four or more than eight directors, such number to be fixed by the board of directors from time to time. | ADAM’s board of directors is currently divided into three classes, with each class serving a staggered three-year term. ADAM’s bylaws provide that number of directors on serving board of directors will consist of such number to be fixed by resolution of the majority the board of directors from time to time. | |
VACANCIES ON THE BOARD OF DIRECTORS AND REMOVAL OF DIRECTORS | ||
General. Delaware law provides that any vacancy in the board of directors shall be filled as the bylaws provide or in the absence of such provision, by the board of directors or other governing body. If, at the time of filling of any vacancy or newly created directorship, the directors then in office constitute less than a majority of the authorized number of directors, the Delaware Court of Chancery may, upon application of any shareholder or shareholders holding at least 10% of the voting stock of the corporation then outstanding having the right to vote for such directors, order an election to be held to fill the vacancy or replace the directors selected by the directors then in office. | General. Georgia law provides that any vacancy in the board of directors shall be filled as the articles of incorporation or a bylaw approved by the shareholders provide or, in the absence of such provision, by the shareholders or the board of directors. If the directors remaining in office constitute fewer than a quorum of the board, the directors may fill the vacancy by the affirmative vote of a majority of the remaining directors. Georgia law provides that a director may be removed by the shareholders at a meeting called for the purpose of removing the director, and that shareholders may remove a director with or without cause. | |
Any vacancy in the Ebix board of directors, including vacancies resulting from any increase in the authorized number of directors, may be filled by a vote of the directors then in office, even if less than a quorum exists, or by the sole remaining director. | Subject to the rights holders of preferred stock, a vacancy on ADAM’s board of directors (including vacancies resulting from death, resignation, retirement, disqualification or removal from office with or without cause)) shall be filled exclusively by the board of directors and shall serve until the next annual meeting. |
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EBIX | ADAM | |
Ebix’s bylaws provide that any director may be removed with or without cause by majority vote of the holders of the outstanding shares entitled to vote for the election of directors. | Subject to the rights holders of preferred stock, any or all directors on ADAM’s board may be removed by a supermajority vote of the board of directors. | |
COMMITTEES OF THE BOARD OF DIRECTORS | ||
Ebix’s board of directors, by resolution passed by a majority of the board of directors, may designate one or more committees, each committee to consist of one or more members of the board. To the extent permitted by law, any such committee shall have the powers and authority granted to it by the board of directors; provided, however, no such committee shall have any power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the shareholders the sale, lease, or exchange of all or substantially all of the Ebix’s property and assets, recommending to the shareholders a dissolution of Ebix or a revocation of a dissolution, or amending the bylaws, and unless the resolution of the board expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Ebix currently has an audit committee and a nominating and corporate governance committee. | ADAM’s board of directors may, in its discretion, appoint committees, each consisting of one or more directors, which shall have and may exercise such delegated powers as shall be conferred on or authorized by the resolutions appointing them, except that no such committee may: (1) approve or propose to shareholders action that the Georgia Business Corporation Code requires to be approved by shareholders, (2) fill vacancies on the board of directors or any of its committees, (3) amend the articles of incorporation of ADAM pursuant toSection 14-2-1002 of the Georgia Business Corporation Code, (4) adopt, amend, or repeal ADAM’s bylaws, or (5) approve a plan of merger not requiring shareholder approval. A majority of any such committee may determine its action, fix the time and place of its meetings, and determine its rules of procedure. Each committee shall keep minutes of its proceedings and actions and shall report regularly to the board of directors. ADAM’s board of directors shall have power at any time to fill vacancies in, change the membership of, or discharge any such committee. | |
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION | ||
General. Under Delaware law, an amendment to the certificate of incorporation of a corporation generally requires the approval of the corporation’s board of directors and the approval of the holders of a majority of the outstanding stock entitled to vote upon the proposed amendment (unless a higher vote is required by the corporation’s certificate of incorporation). | General. Under Georgia law, an amendment to the articles of incorporation of a corporation generally requires the approval of the corporation’s board of directors and the approval of the holders of a majority of the outstanding stock entitled to vote upon the proposed amendment (unless a higher vote is required by the corporation’s articles of incorporation, bylaws or the board of directors). | |
Ebix’s certificate of incorporation may be amended in accordance with the general provisions of Delaware law. | ADAM’s articles of incorporation may be amended in accordance with the general provisions of Georgia law except that the affirmative vote of at least 75% of the shares of ADAM common stock entitled to vote generally in the election of directors, voting as a single group, is required to alter, amend, or repeal the articles of incorporation or adopt any provisions inconsistent with the provisions in ADAM’s articles of incorporation relating to director liability and the number of directors, the classified board structure, the number of directors, removal of directors, and filing of vacancies on the board of directors. |
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EBIX | ADAM | |
AMENDMENTS TO BYLAWS | ||
General. Under Delaware law, shareholders entitled to vote have the power to adopt, amend, or repeal bylaws. In addition, a corporation may, in its certificate of incorporation, confer this power on the board of directors. | General. Under Georgia law, the board of directors may amend or repeal the bylaws and adopt new bylaws unless such power is expressly reserved by Georgia law or the articles of incorporation, or unless shareholders have passed or repealed a bylaw together with a statement that the board may not amend or repeal that bylaw. | |
Ebix’s bylaws provide that the bylaws may be amended, adopted or repealed: (i) by Ebix’s board of directors, by vote of a majority of the number of directors then in office as directors, acting at any meeting of the board of directors or (ii) by the shareholders, by the vote of a majority of the outstanding shares of voting stock of Ebix, at an annual meeting of shareholders, without previous notice, or at any special meeting of shareholders, provided that notice of such proposed amendment, modification, repeal or adoption is given in the notice of special meeting: provided, however, that Section 2.02 of the bylaws (relating to special meetings) can only be amended if the amendment of that Section would not conflict with Ebix’s certificate of incorporation. Any bylaw made or altered by the shareholders may be altered or repealed by the board of directors or may be altered or repealed by the shareholders. | ADAM’s bylaws may be altered, amended, repealed or new bylaws adopted by ADAM’s board of directors by the affirmative vote of a majority of all directors then holding office, but any bylaws adopted by ADAM’s board of directors may be altered, amended, repealed, or any new bylaws adopted, by ADAM’s shareholders at an annual or special meeting of the shareholders, when notice of any such proposed alteration, amendment, repeal,or addition shall have been given in the notice of such meeting. ADAM’s shareholders may prescribe that any bylaw or bylaws adopted by them shall not be altered, amended, or repealed by the board of directors. Except as otherwise provided in ADAM’s articles of incorporation or bylaws, action by ADAM’s shareholders with respect to the bylaws shall be taken by an affirmative vote of a majority of all shares outstanding and entitled to vote generally in the election of directors, voting as a single voting group. | |
Notwithstanding anything herein to the contrary, Article II of ADAM’s bylaws (relating to directors) shall not be altered, amended or repealed, and no provision inconsistent therewith shall be adopted, without the affirmative vote of a majority of the entire board of directors or of the holders of at least 75% of the shares of ADAM entitled to vote generally in the election of directors, voting as a single voting group. |
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EBIX | ADAM | |
ABILITY TO CALL SPECIAL MEETINGS OF SHAREHOLDERS | ||
Special meetings of the shareholders of Ebix for any purpose or purposes may be called at any time by the board of directors or by a committee of the board of directors that has been duly designated by the board of directors and whose powers and authority, as provided in a resolution of the board of directors or in Ebix’s bylaws, includes the power to call such meetings, or by holders of at least 10% of the Ebix common stock able to vote at such meeting, but such special meetings may not be called by any other person or persons; provided, however, that if and to the extent that any special meeting of shareholders may be called by any other person or persons specified in any provisions of Ebix’s certificate of incorporation or any amendment thereto or any certificate filed under Section 151(g) of the General Corporation Law of Delaware (or its successor statute as in effect from time to time hereunder), then such special meeting may also be called by the person or persons, in the manner, at the times and for the purposes so specified. | Special meetings of the shareholders may be called by ADAM’s board of directors, by the chairman of ADAM’s board of directors, by ADAM’s President, or by ADAM upon written request (which request shall set forth the purpose or purposes of the meeting) of the shareholders of record of outstanding shares representing more than 50% of all the votes entitled to be cast on any issue proposed to be considered at the proposed annual meeting. | |
NOTICE OF SHAREHOLDER ACTION | ||
A written notice must be given prior to any meeting. which shall state the place, date and time of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called and by or at whose direction the meeting is called. The written notice must be given no less than 10 nor more than 60 days before the date of the meeting | Pursuant to ADAM’s bylaws, a written notice must be provided prior to any meeting. The written notice must be provided by ADAM’s secretary prior to the meeting and shall state the time and place (and, for a special meeting, the objective of the meeting). The written notice must be given no less than 10 nor more than 60 days before the date of the meeting. If ADAM’s secretary fails to provide notice within 20 days after the call of the meeting, the person calling or requesting such meeting, or any person designated by them, may give such notice. |
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EBIX | ADAM | |
INDEMNIFICATION OF DIRECTORS AND OFFICERS | ||
General. Under Delaware law, a corporation may generally indemnify any person who was made a party to a proceeding due to his or her service at the request of the corporation (other than an action by or in the right of the corporation) for actions taken in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the corporation; and with respect to any criminal proceeding, if such person had no reasonable cause to believe that his/her conduct was unlawful. | General. Under Georgia law, a corporation may generally indemnify a director who was made a party to a proceeding due to his or her service as a director of the corporation (other than an action by or in the right of the corporation or actions with respect to conduct for which the director was adjudged liable for improper receipt of a personal benefit whether or not involving an action in his or her capacity) for actions taken in good faith and, with respect to actions take in the director’s official capacity, in a manner the director reasonably believed to be in the best interests of the corporation; and with respect to any criminal proceeding, if such person had no reasonable cause to believe that his/her conduct was unlawful. A corporation must indemnify a director who was wholly successful, on the merits or otherwise, in defending a proceeding against reasonable expenses. A Georgia corporation may indemnify and advance expenses to officers, agents and employees to the same extent as directors and to such further extent specified by the articles of incorporation, the bylaws, a contract or the board of directors, except for liability arising out of conduct that amounts to appropriation, in violation of his or her duties, of a business opportunity, intentional misconduct, knowing violations of law, or receipt of an improper personal benefit. | |
In addition, Delaware law provides that a corporation may advance to a director or officer expenses incurred in defending any action upon receipt of an undertaking by the director or officer to repay the amount advanced if it is ultimately determined that he or she is not entitled to indemnification. | In addition, Georgia law provides that a corporation may, before final disposition of a proceeding, advance to a director or officer funds to pay reasonable expenses incurred in defending any action if he or she delivers a written affirmation of his or her good faith belief that the applicable standard of conduct has been met and an undertaking by the director or officer to repay the amount advanced if it is ultimately determined that he or she is not entitled to indemnification. | |
Ebix’s certificate of incorporation provides that director shall not be personally liable to Ebix or its shareholders for monetary damages for breach of fiduciary duty as a director; provided that this sentence shall not eliminate or limit the liability of a director: (i) for any breach of his duty of loyalty to Ebix or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the General Corporation Law of Delaware, or (iv) for any transaction from which the director derives an improper personal benefit. | ADAM’s bylaws provide that it shall indemnify to the fullest extent permitted by the Georgia Business Corporation Code, and to the extent that applicable law from time to time in effect shall permit indemnification that is broader than provided in ADAM’s bylaws, then to the maximum extent authorized by law, any individuals made a party to a proceeding (as defined in the Georgia Business Corporation Code) because he is or was a director or officer against liability (as defined in the Georgia Business Corporation Code), incurred in the proceeding, if he acted in a manner he believed in good faith to be in or not opposed to the best interests of the Corporation and, in the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. |
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EBIX | ADAM | |
ADAM has the power to indemnify to the fullest extent permitted by the Georgia Business Corporation Code, any individual made a party to a proceeding (as defined in the Georgia Business Corporation Code) because he is or was an employee or agent of the Company against liability (as defined in the Georgia Business Corporation Code), incurred in the proceeding, if he acted in a manner he believed in good faith to be in or not opposed to the best interests of the Corporation, and, in the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. | ||
ADAM shall pay for or reimburse the reasonable expenses incurred by a director or officer who is a party to a proceeding, and shall have the authority to pay for or reimburse the reasonable expenses of an employee or agent of ADAM who is a party to a proceeding, in each case in advance of the final disposition of a proceeding if: | ||
(a) such person furnishes ADAM a written affirmation of his good faith belief that he has met the standard of conduct set forth in the paragraphs above, as applicable; and | ||
(b) such person furnishes ADAM a written undertaking, executed personally on his behalf to repay any advances if it is ultimately determined that he is not entitled to indemnification. | ||
The written undertaking required by paragraph (b) above must be an unlimited general obligation of such person but need not be secured and may be accepted without reference to financial ability to make repayment. | ||
The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in ADAM’s bylaws shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the articles of incorporation, provision of these bylaws, agreement, vote of shareholders or disinterested directors or otherwise. |
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• | Annual report onForm 10-K for the fiscal year ended December 31, 2009; | |
• | Quarterly reports onForm 10-Q for the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010; and | |
• | Current reports onForm 8-K, or amendments thereto, filed on January 8, 2010, February 18, 2010, April 7, 2010, May 11, 2010, August 10, 2010, August 31, 2010, November 12, 2010, and November 17, 2010. | |
• | The description of Ebix common stock that is contained in the Registration Statement onForm 8-A dated June 5, 1987 filed under the Securities Exchange Act of 1934, and all amendments and reports that were filed by Ebix to update the description. |
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ARTICLE I | THE MERGER | A-1 | ||||||
Section 1.01 | The Merger | A-1 | ||||||
Section 1.02 | Closing | A-1 | ||||||
Section 1.03 | Effective Time | A-1 | ||||||
Section 1.04 | Effects of the Merger | A-2 | ||||||
Section 1.05 | Certificate of Incorporation; By-laws | A-2 | ||||||
Section 1.06 | Directors and Officers | A-2 | ||||||
ARTICLE II | EFFECT OF THE MERGER ON CAPITAL STOCK | A-2 | ||||||
Section 2.01 | Treatment of Company Common Stock | A-2 | ||||||
Section 2.02 | No Fractional Shares | A-3 | ||||||
Section 2.03 | Exchange of Certificates | A-3 | ||||||
Section 2.04 | Termination of Fund | A-5 | ||||||
Section 2.05 | Lost Certificates | A-6 | ||||||
Section 2.06 | Treatment of Stock Options and Other Stock-based Compensation | A-6 | ||||||
Section 2.07 | Dissenters Rights | A-6 | ||||||
Section 2.08 | Withholding Rights | A-6 | ||||||
ARTICLE III | REPRESENTATIONS AND WARRANTIES OF THE COMPANY | A-7 | ||||||
Section 3.01 | Organization; Standing and Power; Charter Documents; Minutes | A-7 | ||||||
Section 3.02 | Capital Structure | A-7 | ||||||
Section 3.03 | Authority; Non-contravention; Governmental Consents | A-8 | ||||||
Section 3.04 | SEC Filings; Financial Statements; Internal Controls; Sarbanes-Oxley Act Compliance | A-10 | ||||||
Section 3.05 | Absence of Certain Changes or Events | A-11 | ||||||
Section 3.06 | Taxes | A-11 | ||||||
Section 3.07 | Intellectual Property | A-13 | ||||||
Section 3.08 | Compliance; Permits | A-14 | ||||||
Section 3.09 | Litigation | A-14 | ||||||
Section 3.10 | Brokers’ and Finders’ Fees | A-15 | ||||||
Section 3.11 | Related Party Transactions | A-15 | ||||||
Section 3.12 | Employee Matters | A-15 | ||||||
Section 3.13 | Real Property and Personal Property Matters | A-17 | ||||||
Section 3.14 | Environmental Matters | A-18 | ||||||
Section 3.15 | Material Contracts | A-18 | ||||||
Section 3.16 | Proxy Statement/Prospectus | A-19 | ||||||
Section 3.17 | Rights Agreement | A-19 | ||||||
Section 3.18 | Change of Control | A-20 | ||||||
Section 3.19 | Fairness Opinion | A-20 | ||||||
ARTICLE IV | REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB | A-20 | ||||||
Section 4.01 | Organization | A-20 | ||||||
Section 4.02 | Authority; Non-contravention; Governmental Consents | A-20 | ||||||
Section 4.03 | Capital Structure | A-21 | ||||||
Section 4.04 | SEC Filings; Financial Statements; Internal Controls; Sarbanes-Oxley Act Compliance | A-21 | ||||||
Section 4.05 | Absence of Certain Changes or Events | A-22 |
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Section 4.06 | Proxy Statement/Prospectus | A-22 | ||||||
Section 4.07 | Financial Capability | A-23 | ||||||
Section 4.08 | Legal Proceedings | A-23 | ||||||
Section 4.09 | Ownership of Company Common Stock | A-23 | ||||||
ARTICLE V | COVENANTS | A-23 | ||||||
Section 5.01 | Conduct of Business of the Company | A-23 | ||||||
Section 5.02 | Other Actions | A-25 | ||||||
Section 5.03 | Access to Information; Confidentiality | A-25 | ||||||
Section 5.04 | No Solicitation | A-25 | ||||||
Section 5.05 | Preparation of theForm S-4 and the Proxy Statement/Prospectus; Company Shareholder Meeting | A-27 | ||||||
Section 5.06 | Notices of Certain Events | A-28 | ||||||
Section 5.07 | Directors’ and Officers’ Indemnification and Insurance | A-29 | ||||||
Section 5.08 | Reasonable Best Efforts | A-30 | ||||||
Section 5.09 | Necessary Consents | A-31 | ||||||
Section 5.10 | Public Announcements | A-31 | ||||||
Section 5.11 | Takeover Statutes | A-31 | ||||||
Section 5.12 | Merger Sub | A-32 | ||||||
Section 5.13 | Resignation | A-32 | ||||||
Section 5.14 | Certain Tax Matters | A-32 | ||||||
Section 5.15 | Rights Agreement | A-32 | ||||||
Section 5.16 | Parent Non-Competition | A-32 | ||||||
Section 5.17 | Section 16 Matters | A-32 | ||||||
Section 5.18 | Further Assurances | A-32 | ||||||
Section 5.19 | Listing | A-33 | ||||||
Section 5.20 | Employee Benefits | A-33 | ||||||
Section 5.21 | Parent Guarantee | A-33 | ||||||
ARTICLE VI | CONDITIONS | A-33 | ||||||
Section 6.01 | Conditions to Each Party’s Obligation to Effect the Merger | A-33 | ||||||
Section 6.02 | Conditions to Obligations of Parent and Merger Sub | A-34 | ||||||
Section 6.03 | Conditions to Obligation of the Company | A-35 | ||||||
ARTICLE VII | TERMINATION, AMENDMENT AND WAIVER | A-35 | ||||||
Section 7.01 | Termination By Mutual Consent | A-35 | ||||||
Section 7.02 | Termination By Either Parent or the Company | A-35 | ||||||
Section 7.03 | Termination By Parent | A-36 | ||||||
Section 7.04 | Termination By the Company | A-36 | ||||||
Section 7.05 | Notice of Termination; Effect of Termination | A-36 | ||||||
Section 7.06 | Fees and Expenses Following Termination | A-37 | ||||||
Section 7.07 | Amendment | A-38 | ||||||
Section 7.08 | Extension; Waiver | A-38 | ||||||
ARTICLE VIII | MISCELLANEOUS | A-38 | ||||||
Section 8.01 | Definitions | A-38 | ||||||
Section 8.02 | Interpretation; Construction | A-45 | ||||||
Section 8.03 | Survival | A-45 | ||||||
Section 8.04 | Governing Law | A-45 |
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Section 8.05 | Submission to Jurisdiction | A-46 | ||||||
Section 8.06 | Waiver of Jury Trial | A-46 | ||||||
Section 8.07 | Notices | A-46 | ||||||
Section 8.08 | Entire Agreement | A-47 | ||||||
Section 8.09 | No Third Party Beneficiaries | A-47 | ||||||
Section 8.10 | Severability | A-47 | ||||||
Section 8.11 | Assignment | A-47 | ||||||
Section 8.12 | Remedies | A-48 | ||||||
Section 8.13 | Counterparts; Effectiveness | A-48 |
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If to Parent or Merger Sub, to: | Ebix, Inc. 5 Concourse Parkway, Suite 3200 Atlanta, Georgia 30328 Facsimile: Attention: Robin Raina | |
with a copy (which will not constitute notice to Parent or Merger Sub) to: | Carlton Fields, P.A. 1201 West Peachtree Street, Suite 3000 Atlanta, Georgia 30309 Facsimile: 404-815-3415 Attention: Charles M. Harrell, Jr. | |
If to the Company, to: | A.D.A.M., Inc. 10 10th Street NE, Suite 525 Atlanta, Georgia 30309-3848 Facsimile: Attention: | |
with a copy (which will not constitute notice to the Company) to: | DLA Piper LLP (US) 1201 West Peachtree Street, Suite 2800 Atlanta, Georgia 30309 Facsimile: Attention: Richard G. Greenstein |
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By | /s/ Robert S. Cramer, Jr. |
Title: | Chairman |
By | /s/ Robin Raina |
Title: | President and CEO |
By | /s/ Robin Raina |
Title: | President |
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Index to Consolidated Financial Statements | ||||
Unaudited Financial Statements: | ||||
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Audited Financial Statements: | ||||
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• | Healthcare Providers — hospitals and hospital systems that license our products for use on their consumer and patient-facing web sites. Our products help healthcare providers drive awareness to their services through site traffic, build brand credibility with expert health content offerings, and improve physician loyalty. | |
• | Health Plans — health plans use our content as part of their overall care management strategies by making our information available to members through their member web sites. Our content helps plan members better understand their health, when to seek advice of a physician and how to live a healthier lifestyle. We also help improve members’ awareness and education on chronic disease conditions. | |
• | Online Media and Internet Search Providers — national consumer portals, online media organizations and Internet technology companies use our content to build site traffic, enhance their brand and expand their page inventory for advertising. |
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• | Health Reference — a collection of more than 3,600 articles and thousands of medical images that span disease information, treatment, symptoms, injuries, and surgical procedures; | |
• | Interactive Decision Support — a series of tools designed to attract and engage web site visitors while helping them better understand their healthcare needs. These products help consumers navigate to the right kind of information, assess their health, and educate themselves on health issues to make informed healthcare decisions; | |
• | Specialty Programs — groupings of our health information designed to help healthcare organizations promote key areas of their business. We offer a number of specialty programs including pregnancy, heart health, chronic conditions, women’s health and complementary and alternative medicine; and | |
• | Marketing Technologies — many of our clients want to optimize the number and quality of visitors to their organization’s web site. We help healthcare organizations achieve a strong return on investment by providing tools and programs to assist in building and measuring site traffic associated with the deployment and use of our health information. These technologies include embedded XML metadata, web site analytics and other technologies, including mobile. |
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• | Tax-advantaged Health Accounts — these include FSAs, Health Savings Accounts (HSA), Health Reimbursement Accounts (HRA) and Commuter Reimbursement Accounts (CRA); and | |
• | COBRA Administrative Services — comprehensive administration services for COBRA and for state benefits continuation requirements. |
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• | 42 percent plan to increase worker contributions to premiums | |
• | 36 percent plan to raise employees’ deductibles | |
• | 39 percent will boost employees’ share of costs for primary- and specialty-care office visits | |
• | 37 percent will hike employees’ share of prescription drug costs |
• | improved health outcomes by providing prevention and wellness information; | |
• | more efficient utilization of healthcare services and benefits plans through a better understanding of treatment plans and options, and through access to information and decision-support applications; | |
• | improved compliance with benefits plans and clinical guidelines; | |
• | reduced provider costs and drug costs through better education and more informed decision-making in regard to utilization of healthcare services; |
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• | Professional Services — services we may provide our clients include implementation, requirements specification, testing, and knowledge management (or training) services. Additionally, we provide implementation assistance and software and content customization services. | |
• | Customer Technical Support — we provide comprehensive technical and product-based support to our clients online and through telephone support. |
• | Private portal and consumer health content providers such as WebMD Health Corp., StayWell Custom Communications (part of MediMedia USA), EBSCO and Healthwise, Inc.; | |
• | Public sector, government and non-profit organizations that provide healthcare information without advertising or commercial sponsorships such as the American Medical Association, the Mayo Clinic, the Department of Health and Human Services National Institutes of Health and the American Cancer Society; | |
• | Wellness and disease management providers, including Healthways, Inc., and SHPS, Inc.; and health information service offerings of health plans and their affiliates such as United Healthcare Group and Aetna; | |
• | Agency management providers, including Zywave, Inc., Vertafore, Inc., and GBS, Inc.; | |
• | Benefits communication portal providers, including Enwisen, Inc., Vertafore, Inc. and Automatic Data Processing, Inc.; | |
• | Online benefits enrollment providers, including ADP, Benetrac, Inc. (now Paychex) and bswift; | |
• | Human Resource Management Systems (HRMS) providers (not direct competitors), such as Oracle, Lawson, Ceridian, Ultimate Software, Inc. and Paychex; and | |
• | Consulting firms such as Towers Watson and Hewitt Associates. |
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Number of Shares | ||||||||
Beneficially | Percent of | |||||||
Name of Beneficial Owner | Owned(1) | Class(2) | ||||||
MMCAP International Inc. SPC(3) | 1,425,010 | 12.2 | % | |||||
Bradley Louis Radoff(3) | 925,000 | 7.9 | % | |||||
Burnham Asset Management Corporation(3) | 606,771 | 5.2 | % | |||||
Robert S. Cramer, Jr(4) | 275,225 | 2.4 | % | |||||
Mark Adams(5) | 190,666 | 1.6 | % | |||||
Mark Kishel, M.D.(6) | 27,726 | * | ||||||
Daniel S. Howe(7) | 15,571 | * | ||||||
Clay E. Scarborough(8) | 22,726 | * | ||||||
Christopher R. Joe(9) | 30,700 | * | ||||||
All executive officers and directors as a group (six persons)(10) | 562,614 | 4.8 | % |
* | Less than 1% | |
(1) | Except as indicated in the footnotes set forth below, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. The number of shares shown as owned by, and the voting power of, individual shareholders include shares which are not currently outstanding but which such shareholders are entitled to acquire or will be entitled to acquire upon consummation of the merger. Such shares are deemed to be outstanding for the purpose of computing the percentage of outstanding common stock owned by the particular shareholder, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. | |
(2) | Based on 11,647,076 shares outstanding on December 10, 2010. | |
(3) | As reported on a Schedule 13G filed on October 4, 2010 by MMACP International Inc. SPC and MM Asset Management Inc., on an Amended Schedule 13G filed on February 11, 2010 by Burnham Asset Management Corporation and Burnham Securities Inc. and on a Schedule 13G filed on June 10, 2010 by Bradley Louis Radoff. | |
(4) | Includes 15,571 shares underlying stock options or restricted stock awards that will be cashed out or exchanged upon the merger. |
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(5) | Includes 188,666 shares underlying stock options or restricted stock awards that will be cashed out or exchanged upon the merger. | |
(6) | Includes 15,571 shares underlying stock options or restricted stock awards that will be cashed out or exchanged upon the merger. | |
(7) | Includes 15,571 shares underlying stock options or restricted stock awards that will be cashed out or exchanged upon the merger. | |
(8) | Includes 15,571 shares underlying stock options or restricted stock awards that will be cashed out or exchanged upon the merger. | |
(9) | Includes 30,700 shares underlying stock options or restricted stock awards that will be cashed out or exchanged upon the merger. | |
(10) | Includes 281,650 shares underlying stock options or restricted stock awards that will be cashed out or exchanged upon the merger. |
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Three Months Ended | ||||||||||||||||
September 30, | $ | % | ||||||||||||||
2010 | 2009 | Change | Change | |||||||||||||
Licensing | $ | 6,678 | $ | 6,714 | $ | (36 | ) | (0.5 | )% | |||||||
Product | 75 | 195 | (120 | ) | (61.5 | )% | ||||||||||
Professional services and other | 145 | 82 | 63 | 76.8 | % | |||||||||||
Total Net Revenues | $ | 6,898 | $ | 6,991 | $ | (93 | ) | (1.3 | )% | |||||||
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Three Months Ended | ||||||||||||||||
September 30, | $ | % | ||||||||||||||
2010 | 2009 | Change | Change | |||||||||||||
Cost of revenues | $ | 805 | $ | 840 | $ | (35 | ) | (4.2 | )% | |||||||
Cost of revenues — amortization | 429 | 652 | (223 | ) | (34.2 | )% | ||||||||||
Product and content development | 1,438 | 1,748 | (310 | ) | (17.7 | )% | ||||||||||
Development capitalization | (414 | ) | (458 | ) | 44 | 9.6 | % | |||||||||
Sales and marketing | 1,991 | 1,454 | 537 | 36.9 | % | |||||||||||
General and administrative | 1,015 | 1,335 | (320 | ) | (24.0 | )% | ||||||||||
Total Operating Cost and Expenses | $ | 5,264 | $ | 5,571 | $ | (307 | ) | (5.5 | )% | |||||||
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Nine Months Ended | ||||||||||||||||
September 30, | $ | % | ||||||||||||||
2010 | 2009 | Change | Change | |||||||||||||
Licensing | $ | 19,610 | $ | 19,418 | $ | 192 | 1.0 | % | ||||||||
Product | 232 | 750 | (518 | ) | (69.1 | )% | ||||||||||
Professional services and other | 506 | 564 | (58 | ) | (10.3 | )% | ||||||||||
Total Net Revenues | $ | 20,348 | $ | 20,732 | $ | (384 | ) | (1.9 | )% | |||||||
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Nine Months Ended | ||||||||||||||||
September 30, | $ | % | ||||||||||||||
2010 | 2009 | Change | Change | |||||||||||||
Cost of revenues | $ | 2,547 | $ | 3,019 | $ | (472 | ) | (15.6 | )% | |||||||
Cost of revenues — amortization | 1,333 | 1,627 | (294 | ) | (18.1 | )% | ||||||||||
Product and content development | 4,627 | 5,089 | (462 | ) | (9.1 | )% | ||||||||||
Development capitalization | (954 | ) | (1,309 | ) | 355 | 27.1 | % | |||||||||
Sales and marketing | 5,966 | 5,232 | 734 | 14.0 | % |
Nine Months Ended | ||||||||||||||||
September 30, | $ | % | ||||||||||||||
2010 | 2009 | Change | Change | |||||||||||||
General and administrative | 2,966 | 3,579 | (613 | ) | (17.1 | )% | ||||||||||
Goodwill impairment | — | 13,940 | (13,940 | ) | (100.0 | )% | ||||||||||
Restructuring costs | — | 1,408 | (1,408 | ) | (100.0 | )% | ||||||||||
Total Operating Cost and Expenses | $ | 16,485 | $ | 32,585 | $ | (16,100 | ) | (49.4 | )% | |||||||
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Year Ended December 31, | ||||||||||||||||
2009 | 2008 | $ Change | % Change | |||||||||||||
A.D.A.M., Inc. Consolidated | ||||||||||||||||
Licensing | $ | 26,075 | $ | 25,395 | $ | 680 | 2.7 | % | ||||||||
Product | 1,047 | 1,182 | (135 | ) | (11.4 | )% | ||||||||||
Professional services and other | 1,039 | 2,280 | (1,241 | ) | (54.4 | )% | ||||||||||
Total Net Revenues | $ | 28,161 | $ | 28,857 | $ | (696 | ) | (2.4 | )% | |||||||
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Year Ended | ||||||||||||||||
December 31, | ||||||||||||||||
2009 | 2008 | $ Change | % Change | |||||||||||||
A.D.A.M., Inc. Consolidated | ||||||||||||||||
Cost of revenues | $ | 4,141 | $ | 4,201 | $ | (60 | ) | (1.4 | )% | |||||||
Cost of revenues — amortization | 2,174 | 1,699 | 475 | 28.0 | % | |||||||||||
Product and content development | 6,817 | 6,022 | 795 | 13.2 | % | |||||||||||
Development capitalization | (1,556 | ) | (1,725 | ) | 169 | (9.8 | )% | |||||||||
Sales and marketing | 6,888 | 8,961 | (2,073 | ) | (23.1 | )% | ||||||||||
General and administrative | 5,870 | 5,704 | 166 | 2.9 | % | |||||||||||
Goodwill impairment | 13,940 | — | 13,940 | — | ||||||||||||
Restructuring costs | 1,408 | 2,193 | (785 | ) | (35.8 | )% | ||||||||||
Total Operating Cost and Expenses | $ | 39,682 | $ | 27,055 | $ | 12,627 | 46.7 | % | ||||||||
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September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
(In thousands, except share data) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 5,688 | $ | 5,446 | ||||
Accounts receivable, net of allowances of $137 and $274, respectively | 2,387 | 2,516 | ||||||
Inventories, net | 11 | 30 | ||||||
Prepaids and other current assets | 367 | 208 | ||||||
Deferred income tax asset | 678 | 678 | ||||||
Total current assets | 9,131 | 8,878 | ||||||
Property and equipment, net | 1,649 | 1,543 | ||||||
Intangible assets, net | 8,996 | 9,375 | ||||||
Goodwill | 13,690 | 13,690 | ||||||
Other assets | 54 | 206 | ||||||
Deferred financing costs, net | 30 | 52 | ||||||
Deferred income tax asset | 5,712 | 5,712 | ||||||
Total assets | $ | 39,262 | $ | 39,456 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expenses | $ | 4,309 | $ | 4,895 | ||||
Deferred revenue | 6,174 | 5,796 | ||||||
Current portion of long-term debt | 2,000 | 2,000 | ||||||
Current portion of capital lease obligations | 26 | 22 | ||||||
Total current liabilities | 12,509 | 12,713 | ||||||
Capital lease obligations, net of current portion | 70 | 90 | ||||||
Other liabilities | 643 | 1,385 | ||||||
Long-term debt, net of current portion | 1,500 | 6,000 | ||||||
Total liabilities | 14,722 | 20,188 | ||||||
Shareholders’ equity | ||||||||
Common stock, $.01 par value; 20,000,000 shares authorized; 10,657,408 shares issued and 10,387,649 shares outstanding at 9/30/2010 and 10,174,519 shares issued and 9,904,760 shares outstanding at 12/31/2009 | 107 | 102 | ||||||
Treasury stock, at cost, 269,759 shares | (1,088 | ) | (1,088 | ) | ||||
Additional paid-in capital | 61,066 | 59,256 | ||||||
Accumulated deficit | (35,545 | ) | (39,002 | ) | ||||
Total shareholders’ equity | 24,540 | 19,268 | ||||||
Total liabilities and shareholders’ equity | $ | 39,262 | $ | 39,456 | ||||
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Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Revenues, net | ||||||||||||||||
Licensing | $ | 6,678 | $ | 6,714 | $ | 19,610 | $ | 19,418 | ||||||||
Product | 75 | 195 | 232 | 750 | ||||||||||||
Professional services and other | 145 | 82 | 506 | 564 | ||||||||||||
Total revenues, net | 6,898 | 6,991 | 20,348 | 20,732 | ||||||||||||
Cost of revenues | ||||||||||||||||
Cost of revenues | 805 | 840 | 2,547 | 3,019 | ||||||||||||
Cost of revenues — amortization | 429 | 652 | 1,333 | 1,627 | ||||||||||||
Total cost of revenues | 1,234 | 1,492 | 3,880 | 4,646 | ||||||||||||
Gross profit | 5,664 | 5,499 | 16,468 | 16,086 | ||||||||||||
Operating expenses | ||||||||||||||||
Product and content development | 1,024 | 1,290 | 3,673 | 3,780 | ||||||||||||
Sales and marketing | 1,991 | 1,454 | 5,966 | 5,232 | ||||||||||||
General and administrative | 1,015 | 1,335 | 2,966 | 3,579 | ||||||||||||
Goodwill impairment | — | — | — | 13,940 | ||||||||||||
Restructuring costs | — | — | — | 1,408 | ||||||||||||
Total operating expenses | 4,030 | 4,079 | 12,605 | 27,939 | ||||||||||||
Operating income (loss) | 1,634 | 1,420 | 3,863 | (11,853 | ) | |||||||||||
Interest expense, net | 69 | 127 | 258 | 360 | ||||||||||||
Income (loss) before income taxes | 1,565 | 1,293 | 3,605 | (12,213 | ) | |||||||||||
Income tax expense | 88 | — | 148 | — | ||||||||||||
Net income (loss) | $ | 1,477 | $ | 1,293 | $ | 3,457 | $ | (12,213 | ) | |||||||
Basic net income (loss) per common share | $ | 0.15 | $ | 0.13 | $ | 0.35 | $ | (1.24 | ) | |||||||
Basic weighted average number of common shares outstanding | 10,013 | 9,888 | 9,963 | 9,884 | ||||||||||||
Diluted net income (loss) per common share | $ | 0.14 | $ | 0.13 | $ | 0.33 | $ | (1.24 | ) | |||||||
Diluted weighted average number of common shares outstanding | 10,532 | 10,256 | 10,457 | 9,884 | ||||||||||||
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Additional | ||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Paid-in | Accumulated | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
Balance at December 31, 2009 | 10,174,519 | $ | 102 | (269,759 | ) | $ | (1,088 | ) | $ | 59,256 | $ | (39,002 | ) | $ | 19,268 | |||||||||||||
Net Income | — | — | — | — | — | 3,457 | 3,457 | |||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 267 | — | 267 | |||||||||||||||||||||
Exercise of common stock options | 482,889 | 5 | — | — | 1,543 | — | 1,548 | |||||||||||||||||||||
Balance at September 30, 2010 | 10,657,408 | $ | 107 | (269,759 | ) | $ | (1,088 | ) | $ | 61,066 | $ | (35,545 | ) | $ | 24,540 | |||||||||||||
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Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
(Unaudited) | ||||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | 3,457 | $ | (12,213 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Goodwill impairment | — | 13,940 | ||||||
Depreciation and amortization | 1,743 | 1,967 | ||||||
Restructuring costs | — | 1,408 | ||||||
Payments for restructuring costs | (1,147 | ) | (1,219 | ) | ||||
Stock-based compensation expense | 267 | 477 | ||||||
Provisions for bad debt expense | (73 | ) | 29 | |||||
Deferred financing cost amortization | 22 | 30 | ||||||
Loss on disposal of assets | 5 | — | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | 202 | 1,162 | ||||||
Accounts payable and accrued expenses | (278 | ) | (696 | ) | ||||
Deferred revenue | 378 | (255 | ) | |||||
Other liabilities | 78 | 388 | ||||||
Prepaids and other assets | (7 | ) | 263 | |||||
Inventories | 19 | (3 | ) | |||||
Net cash provided by operating activities | 4,666 | 5,278 | ||||||
Cash flows from investing activities | ||||||||
Software product and content development costs | (954 | ) | (1,324 | ) | ||||
Purchases of property and equipment | (502 | ) | (326 | ) | ||||
Net change in restricted cash | — | 29 | ||||||
Goodwill, additional cost of previous acquisition from earnout payments | — | (13 | ) | |||||
Net cash used in investing activities | (1,456 | ) | (1,634 | ) | ||||
Cash flows from financing activities | ||||||||
Payment on long term debt | (4,500 | ) | (1,500 | ) | ||||
Repayments on capital leases | (16 | ) | (39 | ) | ||||
Proceeds from exercise of common stock options | 1,548 | 3 | ||||||
Net cash used in financing activities | (2,968 | ) | (1,536 | ) | ||||
Increase in cash and cash equivalents | 242 | 2,108 | ||||||
Cash and cash equivalents, beginning of period | 5,446 | 1,377 | ||||||
Cash and cash equivalents, end of period | $ | 5,688 | $ | 3,485 | ||||
Cash paid for interest | $ | 186 | $ | 247 | ||||
Cash paid for income taxes | $ | 222 | $ | 62 | ||||
Supplemental disclosure of non-cash activities | ||||||||
Capital expenditures in accounts payable and accrued expenses | $ | 19 | $ | — | ||||
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1. | BUSINESS AND BASIS OF PRESENTATION |
• | Health information and health decision support tools that we market to healthcare organizations, online media companies, and Internet search and technology firms; and | |
• | Benefits communication tools that help employees evaluate, select and enroll in various benefit plans, and benefits broker tools that help advisors manage their business, market benefit related products and recommend benefit plans to employers, each of which we market directly to employers with more than 500 employees and to benefits brokers and national agencies with employer clients. |
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income/(loss) | $ | 1,477 | $ | 1,293 | $ | 3,457 | $ | (12,213 | ) | |||||||
Weighted average common shares outstanding — basic | 10,013 | 9,888 | 9,963 | 9,884 | ||||||||||||
Weighted average common share equivalents | 519 | 368 | 494 | — | ||||||||||||
Weighted average common shares outstanding — diluted | 10,532 | 10,256 | 10,457 | 9,884 | ||||||||||||
Net income (loss) per common share: | ||||||||||||||||
Basic | $ | 0.15 | $ | 0.13 | $ | 0.35 | $ | (1.24 | ) | |||||||
Diluted | $ | 0.14 | $ | 0.13 | $ | 0.33 | $ | (1.24 | ) | |||||||
Anti-dilutive stock options, restricted stock awards and warrants outstanding | 861 | 1,466 | 893 | 2,249 |
2. | Long-term debt |
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Balance at | Balance at | |||||||
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
$3,000,000 revolver — principal repayable in full in December 2010; interest at1-month LIBOR plus 2.75% (3.01% at 9/30/10 and 2.99% at 12/31/09), payable monthly in advance | $ | — | $ | — | ||||
$10,000,000 term loan — principal repayable in monthly installments of $166,667 plus interest at1-month LIBOR plus 3.25% (3.51% at 9/30/10 and 3.49% at 12/31/09) until December 2011, when one final payment of the remaining balance of principal, interest and any other fees and expenses outstanding are due | 3,500 | 8,000 | ||||||
Total | $ | 3,500 | $ | 8,000 | ||||
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Total | ||||||||||||
Remaining | ||||||||||||
Principal | ||||||||||||
2010 | 2011 | Repayments | ||||||||||
2008 Loan Agreement | $ | 500 | $ | 3,000 | $ | 3,500 |
3. | Intangible Assets |
Estimated | ||||||||||||
Amortizable | September 30, | December 31, | ||||||||||
Lives (Years) | 2010 | 2009 | ||||||||||
Intangible assets: | ||||||||||||
Internally developed software | 2-3 | $ | 9,992 | $ | 9,038 | |||||||
Purchased software | 3 | 500 | 500 | |||||||||
Purchased intellectual content | 3 | 1,431 | 1,431 | |||||||||
Purchased customer contracts | 2 | 333 | 333 | |||||||||
Purchased customer relationships | 15 | 8,800 | 8,800 | |||||||||
Intangible assets, gross | 21,056 | 20,102 | ||||||||||
Accumulated amortization: | ||||||||||||
Internally developed software | (7,372 | ) | (6,479 | ) | ||||||||
Purchased software | (500 | ) | (500 | ) | ||||||||
Purchased intellectual content | (1,431 | ) | (1,431 | ) | ||||||||
Purchased customer contracts | (333 | ) | (333 | ) | ||||||||
Purchased customer relationships | (2,424 | ) | (1,984 | ) | ||||||||
Accumulated amortization | (12,060 | ) | (10,727 | ) | ||||||||
Intangible assets, net | $ | 8,996 | $ | 9,375 | ||||||||
4. | Goodwill |
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5. | Income Taxes |
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6. | Stock-based Compensation |
• | Expected Dividend Yield — because we do not currently pay dividends or expect to pay dividends in the near future, the expected dividend yield is zero; | |
• | Expected Volatility in Stock Price — reflects the historical change in our stock price over the expected term of the stock option; | |
• | Risk-free Interest Rate — reflects the average rate on a United States Treasury bond with maturity equal to the expected term of the option; and | |
• | Expected Life of Stock Awards — is based on historical experience that was modified based on expected future changes. |
Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Expected Dividend Yield | — | — | ||||||
Expected Volatility in Stock Price | 62.41 | % | 58.90 | % | ||||
Risk-Free Interest Rate | 1.94 | % | 1.79 | % | ||||
Expected Life of Stock Awards — Years | 3.50 | 3.50 | ||||||
Weighted Average Fair Value at Grant Date | $ | 1.76 | $ | 1.34 |
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Weighted | ||||||||
Average | ||||||||
Exercise | ||||||||
Shares | Price | |||||||
Outstanding at December 31, 2009 | 2,477,781 | $ | 4.44 | |||||
Granted | 340,000 | $ | 3.83 | |||||
Exercised | (482,889 | ) | $ | 3.21 | ||||
Forfeited or expired | (668,263 | ) | $ | 6.89 | ||||
Outstanding at September 30, 2010 | 1,666,629 | $ | 3.69 | |||||
Exercisable at September 30, 2010 | 1,237,467 | $ | 3.59 | |||||
Weighted | ||||||||
Average | ||||||||
Grant Date | ||||||||
Shares | Fair Value | |||||||
Unvested at December 31, 2009 | — | $ | — | |||||
Granted | 14,284 | 4.20 | ||||||
Vested | — | — | ||||||
Forfeited | — | — | ||||||
Unvested at September 30, 2010 | 14,284 | $ | 4.20 | |||||
7. | Related Party Transactions |
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8. | Contingencies |
9. | Concentrations |
10. | Fair value of financial instruments |
11. | Operating Segments |
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12. | Significant Events |
13. | Subsequent Events |
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December 31, | ||||||||
2009 | 2008 | |||||||
(In thousands, except share data) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 5,446 | $ | 1,377 | ||||
Accounts receivable, net of allowances of $274 and $345, respectively | 2,516 | 3,986 | ||||||
Restricted cash | — | 47 | ||||||
Inventories, net | 30 | 33 | ||||||
Prepaids and other assets | 208 | 597 | ||||||
Deferred income tax asset | 678 | 558 | ||||||
Total current assets | 8,878 | 6,598 | ||||||
Property and equipment, net | 1,543 | 1,592 | ||||||
Intangible assets, net | 9,375 | 9,979 | ||||||
Goodwill | 13,690 | 27,617 | ||||||
Other assets | 206 | 206 | ||||||
Deferred financing costs, net | 52 | 92 | ||||||
Deferred income tax asset | 5,712 | 7,062 | ||||||
Total assets | $ | 39,456 | $ | 53,146 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expenses | $ | 4,895 | $ | 3,880 | ||||
Deferred revenue | 5,796 | 5,995 | ||||||
Current portion of long-term debt | 2,000 | 2,000 | ||||||
Current portion of capital lease obligations | 22 | 44 | ||||||
Total current liabilities | 12,713 | 11,919 | ||||||
Capital lease obligations, net of current portion | 90 | 112 | ||||||
Other liabilities | 1,385 | 1,293 | ||||||
Long-term debt, net of current portion | 6,000 | 8,000 | ||||||
Total liabilities | 20,188 | 21,324 | ||||||
Shareholders’ equity | ||||||||
Common stock, $0.01 par value; 20,000,000 shares authorized; 10,174,519 shares issued and 9,904,760 shares outstanding at 12/31/2009; 10,152,019 shares issued and 9,882,260 shares outstanding at 12/31/2008 | 102 | 102 | ||||||
Treasury stock, at cost, 269,759 shares | (1,088 | ) | (1,088 | ) | ||||
Additional paid-in capital | 59,256 | 58,475 | ||||||
Accumulated deficit | (39,002 | ) | (25,667 | ) | ||||
Total shareholders’ equity | 19,268 | 31,822 | ||||||
Total liabilities and shareholders’ equity | $ | 39,456 | $ | 53,146 | ||||
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Year Ended December 31, | ||||||||
2009 | 2008 | |||||||
(In thousands, except per share data) | ||||||||
Revenues, net | ||||||||
Licensing | $ | 26,075 | $ | 25,395 | ||||
Product | 1,047 | 1,182 | ||||||
Professional services and other | 1,039 | 2,280 | ||||||
Total revenues, net | 28,161 | 28,857 | ||||||
Cost of revenues | ||||||||
Cost of revenues | 4,141 | 4,201 | ||||||
Cost of revenues — amortization | 2,174 | 1,699 | ||||||
Total cost of revenues | 6,315 | 5,900 | ||||||
Gross profit | 21,846 | 22,957 | ||||||
Operating expenses | ||||||||
Product and content development | 5,261 | 4,297 | ||||||
Sales and marketing | 6,888 | 8,961 | ||||||
General and administrative | 5,870 | 5,704 | ||||||
Goodwill impairment | 13,940 | — | ||||||
Restructuring costs | 1,408 | 2,193 | ||||||
Total operating expenses | 33,367 | 21,155 | ||||||
Operating income (loss) | (11,521 | ) | 1,802 | |||||
Interest expense, net | (478 | ) | (1,468 | ) | ||||
Loss on sale of investments | — | (296 | ) | |||||
Income (loss) before income taxes | (11,999 | ) | 38 | |||||
Income tax expense | 1,336 | — | ||||||
Net income (loss) | $ | (13,335 | ) | $ | 38 | |||
Basic net income (loss) per common share | $ | (1.35 | ) | $ | 0.00 | |||
Basic weighted average number of common shares outstanding | 9,886 | 9,813 | ||||||
Diluted net income (loss) per common share | $ | (1.35 | ) | $ | 0.00 | |||
Diluted weighted average number of common shares outstanding | 9,886 | 10,642 | ||||||
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Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||||||
Common Stock | Treasury Stock | Paid-in | Comprehensive | Accumulated | ||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Total | |||||||||||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||||||||||||||
Balance at December 31, 2007 | 9,958,617 | $ | 100 | (269,759 | ) | $ | (1,088 | ) | $ | 56,406 | $ | (166 | ) | $ | (25,705 | ) | $ | 29,547 | ||||||||||||||
Comprehensive income | ||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 38 | 38 | ||||||||||||||||||||||||
Unrealized loss on investments, now realized | — | — | — | — | — | 166 | — | 166 | ||||||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | — | — | 204 | ||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 903 | — | — | 903 | ||||||||||||||||||||||||
Common stock warrants issued | — | — | — | — | 366 | — | — | 366 | ||||||||||||||||||||||||
Exercise of common stock options | 186,582 | 2 | — | — | 800 | — | — | 802 | ||||||||||||||||||||||||
Issuance of restricted stock awards | 6,820 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Balance at December 31, 2008 | 10,152,019 | 102 | (269,759 | ) | (1,088 | ) | 58,475 | — | (25,667 | ) | 31,822 | |||||||||||||||||||||
Net income | — | — | — | — | — | — | (13,335 | ) | (13,335 | ) | ||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | 777 | — | — | 777 | ||||||||||||||||||||||||
Exercise of common stock options | 7,500 | — | — | — | 4 | — | — | 4 | ||||||||||||||||||||||||
Issuance of restricted stock awards | 15,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Balance at December 31, 2009 | 10,174,519 | $ | 102 | (269,759 | ) | $ | (1,088 | ) | $ | 59,256 | $ | — | $ | (39,002 | ) | $ | 19,268 | |||||||||||||||
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Year Ended December 31, | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | (13,335 | ) | $ | 38 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Goodwill impairment | 13,940 | — | ||||||
Depreciation and amortization | 2,643 | 2,149 | ||||||
Restructuring costs | 1,408 | 2,193 | ||||||
Payments for restructuring costs | (1,620 | ) | (656 | ) | ||||
Deferred income tax expense | 1,230 | — | ||||||
Stock-based compensation expense | 777 | 903 | ||||||
Deferred financing cost amortization | 40 | 852 | ||||||
Provisions for bad debt expense | 22 | 53 | ||||||
Common stock warrants expense | — | 366 | ||||||
Loss on sale of investments | — | 296 | ||||||
Loss on sale of assets | — | 249 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | 1,448 | (99 | ) | |||||
Accounts payable and accrued expenses | 754 | (771 | ) | |||||
Other liabilities | 565 | (150 | ) | |||||
Prepaids and other assets | 389 | 188 | ||||||
Deferred revenue | (199 | ) | 319 | |||||
Inventories | 3 | 32 | ||||||
Net cash provided by operating activities | 8,065 | 5,962 | ||||||
Cash flows from investing activities | ||||||||
Software product and content development costs | (1,570 | ) | (1,725 | ) | ||||
Purchases of property and equipment | (420 | ) | (1,426 | ) | ||||
Net change in restricted cash | 47 | (1 | ) | |||||
Goodwill, additional cost of previous acquisition from earnout payments | (13 | ) | (149 | ) | ||||
Proceeds from sale of investments | — | 2,716 | ||||||
Purchase of investments | — | (37 | ) | |||||
Proceeds from sales of property and equipment | — | 2 | ||||||
Net cash used in investing activities | (1,956 | ) | (620 | ) | ||||
Cash flows from financing activities | ||||||||
Payment on long-term debt | (2,000 | ) | (20,000 | ) | ||||
Payments on capital leases | (44 | ) | (100 | ) | ||||
Proceeds from exercise of common stock options | 4 | 802 | ||||||
Proceeds from issuance of term note | — | 10,000 | ||||||
Payment of deferred financing costs | — | (92 | ) | |||||
Net used in financing activities | (2,040 | ) | (9,390 | ) | ||||
Increase (decrease) in cash and cash equivalents | 4,069 | (4,048 | ) | |||||
Cash and cash equivalents, beginning of year | 1,377 | 5,425 | ||||||
Cash and cash equivalents, end of year | $ | 5,446 | $ | 1,377 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest | $ | 325 | $ | 1,263 | ||||
Cash paid for income taxes | $ | 77 | $ | 84 | ||||
Supplemental disclosure of non-cash activities | ||||||||
Equipment acquired through capital lease obligations | $ | — | $ | 66 | ||||
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1. | Description of Business and Summary of Significant Accounting Policies |
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2009 | 2008 | |||||||
Net income (loss) | $ | (13,335 | ) | $ | 38 | |||
Weighted average common shares outstanding | 9,886 | 9,813 | ||||||
Weighted average common share equivalents | — | 829 | ||||||
Weighted average diluted common shares outstanding | 9,886 | 10,642 | ||||||
Net income per share: | ||||||||
Basic | $ | (1.35 | ) | $ | 0.00 | |||
Diluted | $ | (1.35 | ) | $ | 0.00 | |||
Anti-dilutive stock options, restricted stock awards and stock warrants outstanding | 2,277 | 1,406 |
2. | Long-term debt |
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Balance at | Balance at | |||||||
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
$3,000,000 revolver with RBC Bank — principal repayable in full in December 2010; interest at1-month LIBOR plus 2.75% (2.99% at 12/31/09), payable monthly in advance | $ | — | $ | — | ||||
$10,000,000 term loan with RBC Bank — principal repayable in monthly installments of $166,667 plus interest at1-month LIBOR plus 3.25% (3.49% at 12/31/09) until December 2011, when one final payment of the remaining balance of principal, interest and any other fees and expenses outstanding are due | 8,000 | 10,000 | ||||||
Total | $ | 8,000 | $ | 10,000 |
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Year Ending December 31, | ||||
2010 | $ | 2,000 | ||
2011 | 6,000 | |||
$ | 8,000 | |||
3. | Property and Equipment |
Estimated | ||||||||||||
Useful Life | Year Ended December 31, | |||||||||||
(Years) | 2009 | 2008 | ||||||||||
Computers | 3 | $ | 1,278 | $ | 874 | |||||||
Equipment | 5 | 442 | 435 | |||||||||
Furniture and fixtures | 5-10 | 524 | 520 | |||||||||
Leasehold improvements | 5-10 | 194 | 189 | |||||||||
2,438 | 2,018 | |||||||||||
Accumulated depreciation | (895 | ) | (426 | ) | ||||||||
$ | 1,543 | $ | 1,592 | |||||||||
4. | Product and Content Development Expenditures |
2009 | 2008 | |||||||
Total product and content development expenditures | $ | 6,817 | $ | 6,022 | ||||
Less: additions to capitalized software product and content development | (1,556 | ) | (1,725 | ) | ||||
Product and content development expense | $ | 5,261 | $ | 4,297 | ||||
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5. | Intangible Assets |
Estimated | ||||||||||||
Amortizable | December 31, | |||||||||||
Lives (Years) | 2009 | 2008 | ||||||||||
Intangible Assets: | ||||||||||||
Internally developed software | 2-3 | $ | 9,038 | $ | 7,467 | |||||||
Purchased software | 3 | 500 | 500 | |||||||||
Purchased intellectual content | 3 | 1,431 | 1,431 | |||||||||
Purchased customer contracts | 2 | 333 | 333 | |||||||||
Purchased customer relationships | 15 | 8,800 | 8,800 | |||||||||
Intangible assets, gross | 20,102 | 18,531 | ||||||||||
Less accumulated amortization: | ||||||||||||
Internally developed software | (6,479 | ) | (4,994 | ) | ||||||||
Purchased software | (500 | ) | (397 | ) | ||||||||
Purchased intellectual content | (1,431 | ) | (1,431 | ) | ||||||||
Purchased customer contracts | (333 | ) | (333 | ) | ||||||||
Purchased customer relationships | (1,984 | ) | (1,397 | ) | ||||||||
Accumulated amortization | (10,727 | ) | (8,552 | ) | ||||||||
Intangible assets, net | $ | 9,375 | $ | 9,979 | ||||||||
2010 | $ | 1,721 | ||
2011 | 1,508 | |||
2012 | 1,088 | |||
2013 | 587 | |||
2014 | 587 | |||
$ | 5,491 | |||
6. | Goodwill |
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Balance, December 31, 2008 | $ | 27,617 | ||
Final payment related to earn-out provision of previous acquisition | 13 | |||
Goodwill impairment | (13,940 | ) | ||
Balance, December 31, 2009 | $ | 13,690 | ||
7. | Accounts Payable and Accrued Expenses |
December 31, | ||||||||
2009 | 2008 | |||||||
Accounts payable | $ | 532 | $ | 538 | ||||
Accrued compensation and employee benefits | 1,879 | 1,127 | ||||||
Other accrued expenses | 2,484 | 2,215 | ||||||
$ | 4,895 | $ | 3,880 | |||||
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8. | Income Taxes |
2009 | 2008 | |||||||
Current income tax expense | ||||||||
Federal | $ | 32 | $ | — | ||||
State | 74 | — | ||||||
Total current income tax expense | 106 | — | ||||||
Deferred income tax expense | ||||||||
Federal | 875 | $ | — | |||||
State | 355 | — | ||||||
Total Deferred income tax expense | 1,230 | — | ||||||
Total income tax expense | $ | 1,336 | $ | — | ||||
2009 | 2008 | |||||||
Federal tax provision on income before income taxes at statutory federal income tax rate | $ | (4,080 | ) | $ | (13 | ) | ||
State taxes, net of federal benefit | (306 | ) | (1 | ) | ||||
Change in valuation allowance | (1,441 | ) | 1,274 | |||||
Deferred tax asset adjustment for stock options impacting change in valuation allowance | 1,483 | (845 | ) | |||||
Rate adjustment for change in state tax rate | 291 | — | ||||||
Federal tax | 80 | — | ||||||
State tax | 79 | — | ||||||
Impact of goodwill impairment not deductable for tax purposes | 5,095 | — | ||||||
Other differences | 135 | (415 | ) | |||||
Total income tax expense (benefit) | $ | 1,336 | $ | — | ||||
December 31, | ||||||||
2009 | 2008 | |||||||
Deferred tax assets | ||||||||
Alternative Minimum Tax | $ | 108 | $ | — | ||||
Accrued expenses and other liabilities | 1,936 | 1,199 | ||||||
Allowance for doubtful accounts | 94 | 131 | ||||||
Property and equipment | 161 | 179 | ||||||
Research and development credits | 959 | 1,022 | ||||||
Capitalized product and content development | 109 | 305 | ||||||
Capital loss carryforwards | 123 | 128 | ||||||
Net operating loss carryforwards | 17,163 | 20,754 | ||||||
20,653 | 23,718 |
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December 31, | ||||||||
2009 | 2008 | |||||||
Deferred tax liabilities | ||||||||
Intangible assets | (2,249 | ) | (2,487 | ) | ||||
Software development costs | (935 | ) | (1,091 | ) | ||||
Net deferred tax asset before valuation allowance | 17,469 | 20,140 | ||||||
Valuation allowance | (11,079 | ) | (12,520 | ) | ||||
Net deferred tax asset | $ | 6,390 | $ | 7,620 | ||||
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Year Ending December 31, | ||||
2010 | $ | 3,475 | ||
2011 | 5,828 | |||
2012 | — | |||
2013 | — | |||
2014 | — | |||
$ | 9,303 | |||
9. | Stock-based Compensation |
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Year Ended December 31, | 2009 | 2008 | ||||||
Expected Dividend Yield | — | — | ||||||
Expected Volatility in Stock Price | 58.8 | % | 45.0 | % | ||||
Risk-Free Interest Rate | 1.8 | % | 2.2 | % | ||||
Expected Life of Stock Awards — Years | 3.5 | 3.5 | ||||||
Weighted Average Fair Value at Grant Date | $ | 1.34 | $ | 2.60 |
Weighted | ||||||||
Average | ||||||||
Exercise | ||||||||
Shares | Price | |||||||
Outstanding at December 31, 2007 | 2,744,325 | $ | 4.92 | |||||
Granted | 252,500 | $ | 7.39 | |||||
Exercised | (186,582 | ) | $ | 4.31 | ||||
Forfeited or expired | (187,951 | ) | $ | 5.98 | ||||
Outstanding at December 31, 2008 | 2,622,292 | $ | 5.13 | |||||
Granted | 257,500 | $ | 3.08 | |||||
Exercised | (7,500 | ) | $ | 0.41 | ||||
Forfeited or expired | (394,511 | ) | $ | 8.24 | ||||
Outstanding at December 31, 2009 | 2,477,781 | $ | 4.44 | |||||
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Weighted | ||||||||
Average | ||||||||
Exercise | ||||||||
Shares | Price | |||||||
Exercisable at December 31, 2008 | 2,154,699 | $ | 4.79 | |||||
Exercisable at December 31, 2009 | 2,008,620 | $ | 4.34 |
Weighted Average | ||||||||
Grant Date | ||||||||
Shares | Fair Value | |||||||
Unvested at December 31, 2007 | — | $ | — | |||||
Granted | 6,820 | 8.80 | ||||||
Vested | (6,820 | ) | 8.80 | |||||
Forfeited | — | — | ||||||
Unvested at December 31, 2008 | — | $ | — | |||||
Granted | 15,000 | 4.00 | ||||||
Vested | (15,000 | ) | 4.00 | |||||
Forfeited | — | — | ||||||
Unvested at December 31, 2009 | — | $ | — | |||||
10. | Benefit Plan |
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11. | Preferred Share Purchase Rights |
12. | Related Party Transactions |
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13. | Commitments and Contingencies |
Future Minimum | ||||||||
Operating Leases | Capital | |||||||
Year Ending December 31, | (Office Lease Payments) | Leases | ||||||
2010 | $ | 2,158 | $ | 43 | ||||
2011 | 1,490 | 43 | ||||||
2012 | 728 | 43 | ||||||
2013 | 749 | 31 | ||||||
2014 | 772 | — | ||||||
Thereafter | 3,620 | — | ||||||
$ | 9,517 | 160 | ||||||
Less amounts representing interest | (48 | ) | ||||||
Present value of future minimum lease payments | 112 | |||||||
Less current portion | (22 | ) | ||||||
Capital lease obligations, net of current portion | $ | 90 | ||||||
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14. | Restructuring Costs |
Accrued | Accrued | |||||||||||||||
Costs at | Costs at | |||||||||||||||
December 31, | Payments | December 31, | ||||||||||||||
2007 | Made | Provision | 2008 | |||||||||||||
Accrued restructuring costs: | ||||||||||||||||
Severance and exit costs | $ | — | $ | (460 | ) | $ | 985 | $ | 525 | |||||||
Contractual obligations | 1,041 | (196 | ) | 1,208 | 2,053 | |||||||||||
Total restructuring costs | $ | 1,041 | $ | (656 | ) | $ | 2,193 | $ | 2,578 | |||||||
Accrued | Accrued | |||||||||||||||
Costs at | Costs at | |||||||||||||||
December 31, | Payments | December 31, | ||||||||||||||
2008 | Made | Provision | 2009 | |||||||||||||
Accrued restructuring costs: | ||||||||||||||||
Severance and exit costs | $ | 525 | $ | (525 | ) | $ | — | $ | — | |||||||
Contractual obligations | 2,053 | (1,095 | ) | 1,408 | 2,366 | |||||||||||
Total restructuring costs | $ | 2,578 | $ | (1,620 | ) | $ | 1,408 | $ | 2,366 | |||||||
15. | Reclassification |
16. | Fair value of financial instruments |
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17. | Severance |
18. | Operating segments |
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Year Ended December 31, | ||||||||
2009 | 2008 | |||||||
United States | $ | 27,809 | $ | 28,425 | ||||
Other foreign countries | 352 | 432 | ||||||
$ | 28,161 | $ | 28,857 | |||||
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