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(Mark One)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________________
Form 10-K
___________________________________________________________________
☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM TO
Commission File Number 001-33520
_______________________________________________________________
COMSCORE, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
54-1955550
(I.R.S. Employer Identification Number)
11950 Democracy Drive, Suite 600
Reston, Virginia 20190
(Address of Principal Executive Offices)
(703) 438-2000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share
SCOR
Securities registered pursuant to Section 12(g) of the Act: None.
_________________________________________________________________________
NASDAQ Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☑
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant, as of June 28, 2019, the last business day of the
registrant’s most recently completed second fiscal quarter, was approximately $220.3 million (based on the closing price of the registrant’s common stock on the Nasdaq
Global Select Market on that date). Solely for purposes of this disclosure, shares of the registrant’s common stock held by executive officers and directors and each person who
owned 10% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: As of February 25, 2020, there were 70,103,469
shares of the registrant’s common stock outstanding.
Specified portions of the registrant’s Proxy Statement with respect to its 2020 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission no
later than 120 days following the end of the registrant’s fiscal year ended December 31, 2019, are incorporated by reference in Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
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COMSCORE, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE PERIOD ENDED DECEMBER 31, 2019
TABLE OF CONTENTS
Cautionary Note Regarding Forward-Looking Statements
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We may make certain statements, including in this Annual Report on Form 10-K, or 10-K, including the information contained in Item 7, "Management’s
Discussion and Analysis of Financial Condition and Results of Operations" of this 10-K, and the information incorporated by reference in this 10-K, that
constitute forward-looking statements within the meaning of federal and state securities laws. Forward-looking statements are all statements other than
statements of historical fact. We attempt to identify these forward-looking statements by words such as "may," "will," "should," "could," "might," "expect,"
"plan," "anticipate," "believe," "estimate," "target," "goal," "predict," "intend," "potential," "continue," "seek" and other comparable words. Similarly,
statements that describe our business strategy, goals, prospects, opportunities, outlook, objectives, plans or intentions are also forward-looking statements.
These statements may relate to, but are not limited to, expectations of future operating results or financial performance, macroeconomic trends that we expect
may influence our business, plans for financing or capital expenditures, expectations regarding liquidity and compliance with financing covenants and
payment obligations, expectations regarding the introduction of new products, effects of restructuring actions and changes in our management team,
regulatory compliance and expected changes in the regulatory landscape affecting our business, internal control improvements, expected impact of litigation
and regulatory proceedings, plans for growth and future operations, effects of acquisitions, divestitures and partnerships, as well as assumptions relating to
the foregoing.
Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These statements are based on
expectations and assumptions as of the date of this 10-K regarding future events and business performance and involve known and unknown risks,
uncertainties and other factors that may cause actual events or results to be materially different from any future events or results expressed or implied by
these statements. These factors include those set forth in the following discussion and within Item 1A, "Risk Factors" of this 10-K and elsewhere within this
report, and those identified in other documents that we file from time to time with the U.S. Securities and Exchange Commission, or SEC.
We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to
accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements.
You should not place undue reliance on forward-looking statements, which apply only as of the date of this 10-K. You should carefully review the risk factors
described in this 10-K and in other documents that we file from time to time with the SEC. Except as required by applicable law, including the rules and
regulations of the SEC, we undertake no obligation, and expressly disclaim any duty, to publicly update or revise forward-looking statements, whether as a
result of any new information, future events or otherwise. Although we believe the expectations reflected in the forward-looking statements are reasonable as
of the date of this 10-K, our statements are not guarantees of future results, levels of activity, performance, or achievements, and actual outcomes and results
may differ materially from those expressed in, or implied by, any of our statements.
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ITEM 1.
BUSINESS
PART I
Unless the context requires otherwise, references in this 10-K to "Comscore," "we," "us," the "Company" and "our" refer to comScore, Inc. and its
consolidated subsidiaries. We have registered trademarks around the globe, including Unified Digital Measurement®, UDM®, vCE®, Metrix®, Essentials®,
Box Office Essentials®, OnDemand Essentials®, OnDemand Everywhere®, and TV Essentials®. This 10-K also contains additional trademarks and trade
names of our company and our subsidiaries. We file and maintain trademark protection for our products and services. All trademarks and trade names
appearing in this 10-K are the property of their respective holders.
Overview
We are a global information and analytics company that measures advertising, content, and the consumer audiences of each, across media platforms. We
create our products using a global data platform that combines information on digital platforms (smartphones, tablets and computers), television ("TV") and
movie screens with demographics and other descriptive information. We have developed proprietary data science that enables measurement of person-level
and household-level audiences, removing duplicated viewing across devices and over time. This combination of data and methods enables a common
standard for buyers and sellers to transact on advertising. This helps companies across the media ecosystem better understand and monetize their audiences
and develop marketing plans and products to more efficiently and effectively reach those audiences. Our ability to unify behavioral and other descriptive data
enables us to provide audience ratings, advertising verification, and granular consumer segments that describe hundreds of millions of consumers. Our
customers include digital publishers, television networks, movie studios, content owners, advertisers, agencies and technology providers.
The platforms we measure include televisions, smartphones, computers, tablets, over-the-top ("OTT") devices and movie theaters. The information we
analyze crosses geographies, types of content and activities, including websites, mobile applications ("apps"), video games, television and movie
programming, electronic commerce ("e-commerce") and advertising.
We are a Delaware corporation headquartered in Reston, Virginia with principal offices located at 11950 Democracy Drive, Suite 600, Reston, VA 20190. Our
telephone number is 703-438-2000.
Key Developments in 2019
Leadership Changes
On March 31, 2019, Bryan Wiener resigned as our Chief Executive Officer ("CEO") and director and Sarah Hofstetter resigned as our President, effective
immediately. On the same day, we appointed Dale Fuller, then a member of our Board of Directors, as Interim CEO. On November 4, 2019, Mr. Fuller
resigned as Interim CEO and we appointed William Livek as our CEO and Executive Vice Chairman.
CVI Financing
On June 26, 2019, we issued 2,728,513 shares of our common stock, par value $0.001 ("Common Stock") and four series of warrants to CVI Investments,
Inc. ("CVI") in exchange for gross cash proceeds of $20.0 million. On October 14, 2019, we issued 2,728,513 shares of our Common Stock to CVI upon
exercise of our Series C warrant. On January 29, 2020, our Series B-1 warrant expired unexercised. For additional information about the CVI financing, refer
to Footnote 5, Stockholders' Equity.
SEC Settlement
On September 24 ,2019, we announced a settlement with the SEC, resolving the previously disclosed investigation into financial accounting and disclosure
practices between February 2014 and February 2016. For additional information about the SEC settlement, refer to Footnote 11, Commitments and
Contingencies.
Starboard Amendment
On November 6, 2019, we entered into an amendment agreement with the holders of our senior secured convertible notes. The amendment prescribed the
terms under which we may redeem the convertible notes for cash in the event of a qualifying change of control, as defined in the amendment. For additional
information about the amendment and our convertible notes, refer to Footnote 4, Long-term Debt.
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Background and Market
We were founded in 1999 on the belief that digital technology would transform the interactions between people, media and brands in ways that would
generate substantial demand for data and analytics about that interaction. The growing adoption of digital technologies also allowed measurement of the
behavior of consumers' online activities. Based on this vision, we built a global opt-in panel of over two million individuals that provided insight into online
activities. In 2002, we acquired Media Metrix, an internet ratings brand with its own panel of consumers. Anticipating that mobile would become a key digital
platform in the future, we acquired mobile measurement specialist M:Metrics in 2008. In 2009, we introduced our proprietary Unified Digital Measurement
("UDM") methodology, which allowed us to unite consumer panel data with census-level data from tags that we implemented on websites and their content
and later from software development kits on mobile apps.
To expand our global presence in Latin America and Europe, we acquired Certifica in 2009 and NedStat in 2010, respectively. To enhance our product
offerings and expand our presence in certain markets, we acquired ARS in 2010, M.Labs, LLC in 2014, Proximic, Inc. in 2015, and Compete, Inc. in 2016.
As consumer media consumption and the availability of television and video programming expanded across a myriad of consumer devices, the ability to
measure this dynamic cross-platform world became more important for buyers and sellers of advertising. In response, we partnered with ESPN and Arbitron
to pioneer a cross-platform measurement solution, and in 2015 launched Xmedia, a syndicated cross-platform measurement product. Arbitron was later
acquired by Nielsen Holdings N.V. ("Nielsen"), and we continue to have access to legacy Arbitron data through a 2013 license agreement with Nielsen. This
cross-platform measurement strategy led to our 2015 strategic alliance with WPP plc (together with its affiliates, "WPP"), one of the largest communications
services businesses in the world, and our 2016 merger with Rentrak Corporation ("Rentrak"), a global media measurement and advanced consumer targeting
company serving the entertainment, television, video and advertising industries. Following the Rentrak merger, we have access to millions of television and
video on demand ("VOD") screens and the ability to measure box office results from movie screens across the world. We also have an opt-in Total Home
Panel, which enables measurement of household devices that use a home's internet connection, whether traditional mobile and computer devices, streaming
media devices, gaming consoles or Internet of Things ("IOT") devices, which may include devices such as smart speakers, thermostats, and appliances.
Our Approach to Media Measurement
Our approach to measuring media consumption addresses the ubiquitous nature of media content and the fragmentation caused by the variety of platforms and
technologies used to access such content. We believe this fragmentation presents major challenges to using legacy measurement systems that are comprised of
relatively small panels of cooperating consumers or limited to specific media platforms. Our products and services are built on measurement and analytic
capabilities comprised of broad-based data collection, proprietary databases, internally developed software and a computational infrastructure to measure,
analyze and report on digital, television and movie activity at the level of granularity that we believe the media and advertising industries need.
Data Collection
The following collection methods illustrate our extensive data sourcing:
• We collect data from proprietary consumer panels that measure the use of computers, tablets and smartphones that access the internet. These
panelists have agreed to install our passive metering software on their devices, home network or both.
• We collect data from our near-census digital network whereby content publishers implement our software code (referred to as "tagging") on their
websites, in mobile applications and video players to provide us usage information.
• We license certain demographic and behavioral mobile and panel data from third-party data providers.
• We obtain U.S. television viewership information from satellite, telecommunications and cable operators covering millions of television and VOD
screens.
• We measure gross receipts and attendance information from movie screens across the world.
• We integrate our digital and television viewership information with other third-party datasets that include consumer demographic characteristics,
attitudes, lifestyles and purchase behavior.
• We integrate many of our services with ad serving platforms.
• We utilize knowledgeable in-house industry analysts that span verticals such as pharmaceuticals, media, finance, consumer packaged goods and
political information to add value to our data.
• We have created an opt-in Total Home Panel, which can capture data that runs through a home's internet connection. This expands our intelligence to
include such activity as game console and IOT device usage.
Data Science and Management
The ability to integrate, manage and transform massive amounts of data is core to our company. We continue to invest in technologies to enable large-scale
measurement with protection of consumer privacy and attractive economics. Our systems contain multiple redundancies and advanced distributed processing
technologies. We have created innovations such as:
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Our UDM methodology, which allows us to combine person-centric panel data with website server data. We believe this gives our customers greater
accuracy, granularity and relevance in audience measurement.
An ability to de-duplicate audiences across platforms, which is based on direct observations within our consumer panel and census data combined
with proprietary data science. This de-duplication allows us to measure the reach and frequency of advertising and content exposure across platforms
and over time.
An ability to validate advertising delivery and detect fraud through our Invalid Traffic and Sophisticated Invalid Traffic filtration methods. These
methods have been accredited by the Media Rating Council, which provides our customers with added assurances of validity and reliability.
An ability to capture the full content of a website or app session, which allows us to measure activity beyond page views such as purchase
transactions, application submissions and product configurations.
An ability to intelligently categorize massive amounts of web content, which allows us to inform targeted and brand-safe advertising.
Product Delivery
We deliver our products and services through diverse methods to meet the needs of our customers. These include Software-as-a-Service delivery platforms,
application programming interface and other data feeds that integrate directly with customer systems, and integrations with advertising technology providers
such as data management platforms and demand-side platforms that enable data management, ad management and programmatic ad trading.
Our Products and Services
Our products and services help our customers measure audiences and consumer behavior across media platforms, while offering validation of advertising
delivery and its effectiveness. Our customers include:
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Local and national television broadcasters and content owners;
Network operators including cable companies, mobile operators and internet service providers;
Digital content publishers and internet technology companies;
Advertising agencies;
• Movie studios and movie theater operators;
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Financial service companies, including buy and sell-side investment firms, consumer banks and credit card issuers;
• Manufacturers and retailers of consumer products such as consumer packaged goods, pharmaceuticals, automotive and electronics; and
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Political campaigns and related organizations.
Our products and services are organized around three solution groups that address customer needs:
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Ratings and Planning products and services that provide measurement of the behavior and characteristics of audiences of content and advertising,
across television and digital platforms including computers, tablets, smartphones, and other connected devices;
Analytics and Optimization products and services including custom solutions, activation, lift and survey-based products, that provide end-to-end
solutions for planning, optimization and evaluation of advertising campaigns and brand protection; and
• Movies Reporting and Analytics products and services that measure movie viewership and box office results by capturing movie ticket sales in real
time or near real time and include box office analytics, trend analysis and insights for movie studios and movie theater operators worldwide.
We categorize our revenue along these three solution groups; however, our shared cost structure is defined and tracked by function and not by our solution
groups. These shared costs include employee costs, operational overhead, data centers and our technology that supports our product offerings.
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Ratings and Planning products and services are designed to help customers find the most relevant viewing audience, whether that viewing is linear, non-
linear, online or on-demand. These products and services include:
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• Media Metrix and Mobile Metrix, which measure websites and apps on computers, smartphones and tablets across dozens of countries, are leading
currencies for online media planning and enable customers to analyze audience size, reach, engagement, demographics and other characteristics.
Publishers use Media Metrix and Mobile Metrix to demonstrate the value of their audiences and understand market dynamics, and advertisers and
their agencies use Media and Mobile Metrix to plan and execute effective marketing and content campaigns. These products also provide
competitive intelligence such as cross-site visiting patterns, traffic source/loss reporting and local market trends.
Video Metrix, which delivers unduplicated measurement of digital video consumption across computer, smartphone, tablet and OTT devices and
provides TV-comparable reach and engagement metrics, as well as audience demographics.
Plan Metrix, which provides an understanding of consumer lifestyle, buying and other consumption habits, online and offline, by integrating
attitudes and interests with online behavior and provides customers with insight into patterns and trends needed to develop and execute advertising
and marketing campaigns.
TV Essentials, which combines TV viewing information with marketing segmentation and consumer databases for enhanced audience intelligence.
TV Essentials data is also used in analytical applications to help customers better understand the performance of network advertising campaigns.
StationView Essentials, which allows customers to better understand consumer viewing patterns and characteristics across local TV stations and
cable channels in their market(s) to promote viewership of a particular station and negotiate inventory pricing based on the size, value and relevance
of the audience.
Cross-Platform Suite, including XMedia and Extended TV (currently in development), which provides the integration of person-level linear TV
viewership with digital audience data and enables the creation of cross-platform media plans based on an analysis of de-duplicated reach,
engagement and audience overlap across TV and digital platforms using a self-service tool. Customers can simulate cross-platform media planning
and share scenarios, understand incremental reach and frequency that digital provides compared to that of linear TV media buys, and simulate
various media-mix scenarios to better understand the optimal mix.
OnDemand Essentials, which provides multichannel video programming distributors and content providers with transactional tracking and reporting
based on millions of television screens, enabling our customers to plan advertising campaigns that more precisely target consumers watching on-
demand video content.
Comscore Campaign Ratings ("CCR"), which expands upon validated Campaign Essentials ("vCE") verification of mobile and desktop video
campaigns with the addition of video advertising delivered via OTT and TV and provides unduplicated reporting that enables ad buyers and sellers
to negotiate and evaluate campaigns across media platforms.
vCE, which validates whether digital ad impressions are visible to humans, identifies those that are fraudulent (e.g., delivered to automated bots or
requested by malware), and verifies that ads are shown in brand safe content and delivered to the right audience targets. Advertisers and their
agencies use vCE as the basis for negotiating and evaluating campaign performance against their contracts with, and payments to, digital publishers
for ad campaigns.
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Analytics and Optimization products and services provide end-to-end solutions for planning, optimization and evaluation of advertising campaigns and
brand protection. These products are primarily a part of customized data services. These products and services include:
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Comscore Marketing Solutions, which provide analytics that integrate online visitation and advertising data, TV viewing, purchase transactions,
attitudinal research and other Comscore information assets. These custom deliverables are designed to meet client needs in specific industries such as
automotive, financial services, media, retail, travel, telecommunications and technology. Applications include path-to-purchase analyses, competitive
benchmarking, and market segmentation studies.
Lift Models, which measure the impact of advertising on a brand across multiple behavioral and attitudinal dimensions such as brand awareness,
purchase intent, online visitation, online and offline purchase behavior and retail store visitation, enabling customers to fine tune campaign strategy
and execution.
Survey Analytics, which measure various types of consumer insights including brand health metrics.
Activation Solutions, which use Comscore-collected data about media characteristics and consumption to help our clients enhance their customer
interactions, enable clients to ensure that their advertisements appear only in brand-safe, relevant environments, or enrich client databases for use in
advanced analytic and media planning applications.
Branded Content Analytics, which measure the impact and value of brand integrations into content such as TV programs.
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Movies Reporting and Analytics products and services measure movie viewership and box office results by capturing movie ticket sales in real time or near
real time and include box office analytics, trend analysis and insights for movie studios and movie theater operators worldwide. These products and services
include:
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Box Office Essentials, which provides detailed measurement of domestic and international theatrical gross receipts and attendance, with movie-
specific information across the globe.
Box Office Analytics, which provides release-date optimization using predictive analytics to estimate the gross revenue potential for future films,
long-lead measurement to help gauge the health of a movie's marketing campaign before theatrical release, and post-release reports of audience
demographics and the aspects of each movie that trigger interest and attendance.
Swift, which is an electronic box office reporting system that facilitates the flow of reconciled theater-level ticket transactions.
Hollywood Software, which provides movie theater distributors and exhibitors with software and infrastructure to manage and control end-to-end
processes and equipment for digital cinema exhibition and enables customers to plan releases, program theater screens, and manage payments across
multiple theaters.
Research and Development
Our research and development activities span our business of media and cross-platform measurement, encompassing data collection, data science, analytical
application development and product delivery. We continue to focus on expanding our coverage and scale, precision and granularity across diverse types of
media, devices and geographies using our census, panel and other data assets.
Examples of our research and development initiatives include:
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Enhancing our recruiting methods and software applications;
Developing new technologies to manage, stage and deliver cross-platform data and analytics through traditional web-based user interfaces and via
integration with customer systems;
Creating new methodologies to measure person-level TV and digital consumption at scale and across platforms; and
Continuing to develop expertise in combining our data assets with those of partner companies, which allows us to enhance existing services and
create new audience rating products and insight into audience behavior.
Intellectual Property
Our intellectual property assets are important to protect our business. We protect our innovations and products with numerous patents, trademarks, copyrights,
trade secrets, and other intellectual property. In particular, we file for, and seek to acquire patent rights for our innovations and we continue to seek to enhance
our patent portfolio through targeted and strategic patent filings and licensing opportunities. We believe that we own the material trademarks used in
connection with the marketing, distribution and sale of our products, both domestically and internationally. We will continue to pursue intellectual property
opportunities in areas and technologies that we deem to be strategic and appropriate for our business.
Patents
Our patents extend across our data capture and processing techniques and include the following:
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Data Collection - metering such as biometrics and audio fingerprinting, tagging such as video viewability, browser optimization, IP obfuscation and
TV-off measurement methodology.
Data Processing - traffic and content categorization, demographic attribution, ad effectiveness measurement, data overlap and fusion, invalid traffic
detection, data weighting, projection and processing of return path data.
Trademarks
We file and maintain trademark protection for our products and services. We rely on trademarks and service marks to protect our intellectual property assets
and believe these are important to our marketing efforts and the competitive value of our products and services. We have registered trademarks around the
globe, including Unified Digital Measurement®, UDM®, vCE®, Metrix®, Essentials®, Box Office Essentials®, OnDemand Essentials®, OnDemand
Everywhere®, and TV Essentials®. This 10-K also contains additional trademarks and trade names of our Company and our subsidiaries. All trademarks and
trade names appearing in this 10-K are the property of their respective holders.
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Licenses
We license data from third-party providers across the media platforms that we measure. Our licenses include agreements with Nielsen to license certain
market (DMA) data used in our television products and Arbitron data used in our cross-platform solutions, as well as licenses with satellite,
telecommunications and cable operators covering television and VOD viewership data, third-party scheduling datasets and data matching partners, and
agreements with providers of demographic and behavioral mobile and panel data. See "Our Approach to Media Measurement" above for a discussion of our
data sourcing.
Competition
The market for audience and advertising measurement products is highly competitive and is evolving rapidly. We compete primarily with other providers of
media intelligence and related analytical products and services. We also compete with providers of marketing services and solutions, with full-service survey
providers and with internal solutions developed by customers and potential customers. Our principal competitors include:
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Full-service market research firms, including Nielsen, Ipsos and GfK;
Companies that provide audience ratings for TV, radio and other media that have extended or may extend their current services, particularly in
certain international markets, to the measurement of digital media, including Nielsen Audio (formerly Arbitron) and TiVo Corporation;
Online advertising companies that provide measurement of online ad effectiveness and ad delivery used for billing purposes, including Nielsen,
Google and Facebook;
Companies that provide digital advertising technology point solutions, including DoubleVerify, Integral Ad Science, Moat (owned by Oracle), and
WhiteOps;
Companies that provide audience measurement and competitive intelligence across digital platforms, including Nielsen, SimilarWeb, and App
Annie;
Analytical services companies that provide customers with detailed information about behavior on their own websites, including Adobe Analytics,
IBM Digital Analytics and WebTrends Inc.;
Companies that report Smart TV data such as Vizio, Alphonso, and Samba TV; and
Companies that provide consumers with TV and digital services such as AT&T and Comcast.
We compete based on the following principal factors:
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The ability to provide accurate measurement of digital audiences across multiple digital platforms;
The ability to provide TV audience measurement based on near-census data that increases accuracy and reduces variability;
The ability to provide de-duplicated audience measurement across platforms;
The ability to provide actual, accurate and reliable data regarding audience behavior and activity in a timely manner, including the ability to maintain
large and statistically representative panels;
The ability to provide reliable and objective third-party data that, as needed, is able to receive industry-accepted accreditation;
The ability to adapt product offerings to emerging digital media technologies and standards;
The breadth and depth of products and their flexibility and ease of use;
The availability of data across various industry verticals and geographic areas and expertise across these verticals and in these geographic areas; and
The ability to offer products that meet the changing needs of customers, particularly in the evolving privacy environment.
We believe we compete favorably on these factors and that our vision and investments in the future of media measurement across platforms will deliver
products and services that our customers will continue to trust and value.
Government Regulation and Privacy
U.S. and international data security and privacy laws apply to our various businesses. We have programs in place to detect, contain and respond to data
security incidents; however, increasing technology risks or unauthorized users who successfully breach our network security could misappropriate or misuse
our proprietary information or cause interruptions in our services. Many countries have data protection laws with different requirements than those in the
U.S., and many states in the U.S. have or are developing their own data protection and privacy requirements. This may result in inconsistent requirements and
differing interpretations across jurisdictions. Governments, privacy advocates and class action attorneys are increasingly scrutinizing how companies collect,
process, use, store, share and transmit personal data. New laws such as the California Consumer Privacy Act ("CCPA"), Brazil's General Data Protection Law
("LGPD") and the General Data Protection Regulation ("GDPR") in Europe and industry self-regulatory codes have been enacted, and more are being
considered that will affect our ability (and our customers' ability) to reach current and prospective customers, to respond to individual customer requests under
the laws, and to implement our business models effectively. The GDPR took effect in May 2018 and includes requirements regarding the collection and
handling of individuals' personal data. The CCPA went into effect in January 2020, and the LGPD is scheduled to come into effect in August
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2020. In addition, regulators in the European Union and elsewhere are increasingly focused on consent and the collection of data using tracking technologies,
including recent guidance from the U.K.'s Information Commissioner's Office. Failure to meet the applicable GDPR, CCPA or LGPD requirements, or failure
to comply with privacy, data collection or consent requirements in other jurisdictions, could result in substantial penalties.
We participate in the EU-U.S. Privacy Shield Framework and the Swiss-U.S. Privacy Shield Framework as set forth by the U.S. Department of Commerce
regarding the collection, use, and retention of personal information transferred from the European Economic Area and Switzerland to the U.S. We also
monitor actions by the Federal Communications Commission and the Federal Trade Commission, including regulatory developments affecting Internet
Service Providers and other industry participants.
Where we receive data from third-party service providers, our contracts with such providers obligate them to meet privacy and data security standards set
forth therein, including a requirement to obtain appropriate consent or provide another appropriate legal basis for collection. Our policies and protocols are
designed to be consistent with the American Institute of Certified Public Accountants, Inc. ("AICPA") and the Canadian Institute of Chartered Accountants
("CICA") Trust Service Principles criteria for online privacy.
Employees
As of January 31, 2020, we had approximately 1,300 employees. We believe our employee relations are good. Our employees are not represented by labor
unions outside of those few countries where union representation is a mandatory practice for doing business.
Locations and Geographic Areas
We are located around the globe with employees in 20 countries. Our primary geographic market is the United States, followed by Europe, Latin America,
Canada and Asia. For information with respect to our geographic markets, refer to Footnote 14, Geographic Information, of the Notes to Consolidated
Financial Statements.
Executive Officers and Directors
Executive Officers and Executive Director
William (Bill) Livek has served as our Chief Executive Officer since November 2019 and as our Vice Chairman since January 2016. He was our President
from January 2016 through May 2018. Mr. Livek previously served as Vice Chairman and Chief Executive Officer of Rentrak Corporation, a media
measurement and consumer targeting company, from June 2009 until our merger with Rentrak in January 2016. Prior to Rentrak, Mr. Livek was founder and
Chief Executive Officer of Symmetrical Capital, an investment and consulting firm; Senior Vice President, Strategic Alliances and International Expansion,
of Experian Information Solutions, Inc., a provider of information, analytical and marketing services; and co-President of Experian’s subsidiary Experian
Research Services. He holds a B.S. degree in Communications Radio/Television from Southern Illinois University. Mr. Livek brings substantial industry
experience and audience measurement expertise to our Board and management team.
Carol DiBattiste has served as our Chief Legal Officer since December 2019 and as our Chief Compliance Officer since April 2017. She previously served as
our General Counsel and Chief Privacy and People Officer from January 2017 to December 2019. Prior to joining the Company, Ms. DiBattiste held positions
at the U.S. Department of Veterans Affairs with the Board of Veterans' Appeals as Executive in Charge and Vice Chairman from August 2016 to January
2017, and Senior Advisor for Appeals Modernization, Office of the Secretary, from May 2016 to August 2016. Prior to that, Ms. DiBattiste served as
Executive Vice President and Chief Legal, Privacy, Security and Administrative Officer of Education Management Corporation, an operator of for-profit post-
secondary educational institutions, from March 2013 through March 2016. She also served as Executive Vice President, General Counsel and Chief
Administrative Officer of Geeknet, Inc., an online retailer, from April 2011 through March 2013. Among other distinguished government positions, Ms.
DiBattiste served as Deputy Administrator of the U.S. Transportation Security Administration from 2003 to 2005, as Under Secretary of the U.S. Air Force
from 1999 to 2001, as Deputy U.S. Attorney (Southern District of Florida) from 1998 to 1999, as Director, Executive Office for U.S. Attorneys from 1994 to
1998, and as Principal Deputy General Counsel, U.S. Department of the Navy from 1993 to 1994. Ms. DiBattiste holds an L.L.M., Law from the Columbia
University School of Law, a J.D. from Temple University School of Law, and a B.A., Sociology-Criminal Justice from LaSalle University.
Gregory Fink has served as our Chief Financial Officer and Treasurer since October 2017 and previously served as our Executive Vice President, Finance
since joining the Company earlier in October 2017. Prior to joining the Company, Mr. Fink was the Senior Vice President, Controller and Chief Accounting
Officer at Fannie Mae, a government-sponsored enterprise in the mortgage industry, since 2011, where he led a team of 600 professionals and oversaw a
multi-billion-dollar annual expense budget. He has more than 25 years of experience in accounting, financial reporting, business analytics, budgeting, internal
controls and talent
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development. Mr. Fink holds a B.S. in Business Administration with an accounting emphasis from San Diego State University and is a Certified Public
Accountant.
Christopher Wilson has served as our Chief Commercial Officer since April 2019. He previously served as our Chief Revenue Officer from June 2017 to
December 2018 and as our Executive Vice President, Commercial from January 2016 to June 2017. Prior to joining the Company, Mr. Wilson served as
President, National Television at Rentrak Corporation from 2010 until our merger with Rentrak in January 2016. Before Rentrak, he was Senior Vice
President, Sales at Scarborough Research Company; President at Experian Research Services; President and COO of Simmons Market Research Bureau; and
CEO and President of LogicLab, a division of Merkle LLC. Mr. Wilson holds a bachelor's degree in Broadcast Communications from Southern Illinois
University, Carbondale.
Non-Executive Directors
Brent Rosenthal has served as Chairman of the Board since April 2018 and as a director since January 2016. Mr. Rosenthal is the Founder of Mountain Hawk
Capital Partners, LLC., an investment fund focused on small and microcap equities in the technology, media, telecom (TMT) and food industries. Mr.
Rosenthal has been the Non-Executive Chairman of the board of directors of RiceBran Technologies, a food company, since July 2016 and has served as an
advisor to the board of directors and executive management of FLYHT Aerospace since December 2019. He also served on the board of directors of SITO
Mobile, Ltd., a mobile location-based media platform, from August 2016 to July 2018, and as Non-Executive Chairman of its board of directors from June
2017 to July 2018. Previously, Mr. Rosenthal was a Partner in affiliates of W.R. Huff Asset Management where he worked from 2002 to 2016. Mr. Rosenthal
served as the Non-Executive Chairman of Rentrak Corporation from 2011 to 2016. He was Special Advisor to the board of directors of Park City Group from
November 2015 to February 2018. Mr. Rosenthal earned his B.S. from Lehigh University and M.B.A. from the S.C. Johnson Graduate School of
Management at Cornell University. He is an inactive Certified Public Accountant. Mr. Rosenthal brings to our Board financial expertise and experience in the
media and information industries.
Joanne Bradford has served as a director since April 2019. She has been President of Honey Science Corp., an e-commerce technology platform, since
August 2019. Honey was acquired by PayPal in January 2020. Prior to joining Honey, Ms. Bradford was Chief Marketing Officer of SoFi, an online personal
finance company, from June 2017 to May 2019. She previously served as Chief Operating Officer of SoFi from July 2015 to June 2017. Ms. Bradford served
as Head of Partnerships at Pinterest, a social media web and mobile application company, from November 2013 to December 2015. She previously held
executive-level roles at the Hearst Corporation and San Francisco Chronicle, Demand Media, Yahoo!, and Microsoft Corporation. Ms. Bradford has served as
a director of Wave App, a small business software company, since October 2018 and OneLogin, a unified access management company, since July 2019. Ms.
Bradford holds a B.A. in Journalism from San Diego State University. Ms. Bradford brings to our Board over 20 years of experience leading product
marketing, business development and programming, as well as building global sales and marketing teams.
Irwin Gotlieb has served as a director since April 2019. Mr. Gotlieb has been a senior advisor to WPP plc, a multinational advertising and public relations
company, since April 2018. He was formerly the global Chief Executive Officer and Chairman of GroupM, a global media investment group, from its
formation in early 2003 to 2012 and Chairman of GroupM until April 2018. Mr. Gotlieb has served on the board of directors of Invidi, a media solutions
company, since October 2007, and on the advisory board of Harland Clarke, a payment solutions company, from January 2014 to December 2018. Mr.
Gotlieb brings over 40 years of industry experience to the Board and is the first media agency executive inducted into both the American Advertising
Federation Hall of Fame and the Broadcasting & Cable Hall of Fame.
Jacques Kerrest has served as a director since June 2017. Mr. Kerrest served as Executive Vice President and CFO of Intelsat S.A., a communications satellite
services provider, from February 2016 to June 2019. Prior to his appointment at Intelsat, he held executive-level roles at numerous leading technology and
communications companies, including ActivIdentity Corporation, Virgin Media Inc., Harte-Hanks Corporation and Chancellor Broadcasting Company.
Previously, Mr. Kerrest served on the boards of directors of several public companies. Mr. Kerrest received his Master of Science Degree from Faculté des
Sciences Économiques in Paris, France, and an M.B.A. from Institut D’Etudes Politiques De Paris in Paris, France as well as the Thunderbird School of
Global Management in Glendale, Arizona. Mr. Kerrest’s deep financial expertise and background enable him to bring valuable perspective to our Board.
Kathleen Love has served as a director since April 2019. Ms. Love is currently the Chief Executive Officer of Motherwell Resources LLC, a company
devoted to management consulting and executive coaching, which she founded in 2013. Prior to founding Motherwell, Ms. Love served as the President and
Chief Executive Officer of GFK MRI (formerly Mediamark Research), a media research company, from 2000 to 2013. Prior to joining MRI, Ms. Love held
executive positions at The New York Times, EMAP Publishing and The Magazine Publishers of America. She has been an adjunct or guest instructor at
Rutgers University, Brooklyn College and Queens College. Ms. Love holds a B.A. degree from Douglass College, Rutgers - The State University, an M.A.
from Michigan State University and an M.Phil. from The Graduate Center, C.U.N.Y. She has advanced to candidacy for a Ph.D. in
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psychology. Ms. Love brings over 30 years of industry experience in media and marketing research, strategic planning and business development to our
Board.
John Martin has served as a director since May 2019. Mr. Martin was the Chairman and CEO of Turner Broadcasting System, Inc., a media and entertainment
company, from January 2014 through June 2018. At Turner Broadcasting, Mr. Martin oversaw a portfolio of networks including CNN, TBS, TNT, Cartoon
Network, Adult Swim and Turner Sports. Prior to Turner Broadcasting, Mr. Martin was the Chief Financial and Administrative Officer of Time Warner, Inc.
for six years. Mr. Martin holds an M.B.A. from Columbia University and a B.S. from the Wharton School of Business. Mr. Martin brings substantial industry
experience and financial expertise to our Board.
Available Information
We make our periodic and current reports along with amendments to such reports available, free of charge, on our website as soon as reasonably practicable
after such material is electronically filed with or furnished to the SEC. Our website address is www.comscore.com, and such reports are filed under "SEC
Filings" in the Investor Relations section of our website. Information contained on our website is not part of this 10-K and is not incorporated herein by
reference.
You can read our SEC filings, including this 10-K as well as our other periodic and current reports, on the SEC's website at www.sec.gov.
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ITEM 1A.
RISK FACTORS
An investment in our Common Stock involves a substantial risk of loss. You should carefully consider these risk factors, together with all of the other
information included herewith, before you decide whether to invest in shares of our Common Stock. The risks identified below could materially and adversely
affect our business, financial condition and operating results. In that case, the trading price of our Common Stock could decline, and you could lose part or
all of your investment. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially and adversely affect our business, financial condition and operating results, and may result in the loss of
part or all of your investment.
Risks Related to Our Business and Our Technologies
The market for media measurement and analytics products is highly competitive, and if we cannot compete effectively, our revenues could decline and
our business could be harmed.
The market for audience and advertising measurement products is highly competitive and is evolving rapidly. We compete primarily with providers of media
intelligence and related analytical products and services. We also compete with providers of marketing services and solutions, with full-service survey
providers, and with internal solutions developed by customers and potential customers.
Some of our competitors have longer operating histories, access to larger customer bases and substantially greater resources than we do. As a result, these
competitors may be able to devote greater resources to marketing and promotional campaigns, panel retention, panel development, or development of systems
and technologies than we can. In addition, some of our competitors have adopted and may continue to adopt aggressive pricing policies, including the
provision of certain services at little or no cost, in order to retain or acquire customers.
Furthermore, large software companies, internet portals and database management companies may enter our market or enhance their current offerings, either
by developing competing services or by acquiring our competitors, and could leverage their significant resources and pre-existing relationships with our
current and potential customers. Finally, consolidation of our competitors could make it difficult for us to compete effectively.
If we are unable to compete successfully against our current and future competitors, we may not be able to retain and acquire customers, and we may
consequently experience a decline in revenues, reduced operating margins, loss of market share and diminished value from our products.
The market for cross-platform products is developing, and if it does not develop further, or develops more slowly than expected, our business could be
harmed.
The market for cross-platform products is still developing, and it is uncertain whether these products will achieve or maintain high levels of demand and
increased market acceptance. Our success will depend to a substantial extent on the willingness of companies to increase their use of such products and to
continue use of such products on a long-term basis. Factors that may affect market acceptance include:
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the reliability of cross-platform products;
decisions of our customers and potential customers to develop cross-platform solutions internally rather than purchasing such products from third-
party suppliers like us;
decisions by industry associations in the U.S. or in other countries that result in association-directed awards of measurement contracts to one or a
limited number of competitive vendors;
the rate of growth in e-commerce and mobile commerce, cross-platform focused advertising and continued growth in television and digital media
consumption; and
public and regulatory concern regarding privacy and data security.
The adoption of advertising across television and digital platforms, particularly by advertisers that have historically relied on traditional offline media,
requires the acceptance of new approaches to conducting business and a willingness to invest in such new approaches. Moreover, the decision to adopt a
cross-platform approach to buying advertisement campaigns requires a change to buying approaches and a willingness to adopt new data analytics to assist in
evaluating such approaches by advertisement buyers who traditionally focus on buying advertising campaigns through one medium. Advertisers may perceive
such new approaches to advertising or understanding advertising to be less effective than traditional methods for marketing their products. They may also be
unwilling to pay premium rates for advertising that is targeted at specific segments of validated users based on their demographic profile or internet behavior
across digital media platforms. The digital media advertising and e-commerce markets may also be adversely affected by privacy issues relating to such
targeted advertising, including that which makes use of personalized information or online behavioral information. Because of the foregoing factors, among
others, the market for cross-platform focused
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digital media advertising and e-commerce may not continue to grow at significant rates. If these markets do not continue to develop, or if they develop more
slowly than expected, our business could suffer.
If we are unable to provide television, digital or cross-platform analytics, or if our analytics are incomplete, our ability to maintain and grow our business
may be harmed.
As the media and advertising industries increasingly evaluate advertising campaigns across various forms of media, such as television, online, and mobile, the
ability to measure the combined size and composition of audiences across platforms is increasingly important and in demand.
If we are unable to gain or maintain access to information measuring a media component or type, or if we are unable to do so on commercially reasonable
terms, our ability to meet our customers' demands and our business and financial performance may be harmed. Furthermore, even if we do have access to
television and digital (including mobile and OTT) data, if we have insufficient technology, encounter challenges in our methodological approaches or
inadequate source materials to parse the information across such media components to avoid duplications or to do so in a cost-effective manner, our products
may be inferior to other offerings, and we may be unable to meet our customers' demands. In such event, our business and financial performance may be
harmed.
In particular, our acquisition of television data may be reliant on companies that have historically held a dominant market position measuring television to
produce industry-accepted measurement across a combination of media platforms. Our competitors, such as Nielsen (with whom we have agreements,
scheduled to expire in 2020 and 2021, to license certain geographic market definitions (DMA) used in our products and Arbitron data used in our cross-
platform solutions), or other providers may have more leverage with data providers and may be unable or unwilling to provide us with access to quality data
to support our products, on reasonable terms or at all. Likewise, our acquisition of digital data may be reliant on large digital publishers that may
technologically or legally prevent access to their proprietary platforms for research or measurement purposes. Moreover, as mobile devices, technology and
OTT viewing continue to proliferate, gaining and maintaining cost-effective access to mobile and OTT data will become increasingly critical, and we could
face difficulty in accessing these forms of data. If we are unable to acquire data effectively and efficiently, or if the cost of data acquisition increases, our
business, financial condition and results of operations may be harmed.
We depend on third parties for data that is critical to our business, and our business could suffer if we cannot continue to obtain reliable data from these
suppliers or if third parties place additional restrictions on our use of such data.
We rely on third-party data sources for information usage across the media platforms that we measure, as well as demographics about the people that use such
platforms. The availability and accuracy of this data is important to the continuation and development of our products and the performance of our obligations
to customers. These data suppliers, some of whom compete with us, may increase restrictions on our use of such data, undertake audits (at either our or their
expense) of our use of such data, require us to implement new processes with respect to such data, fail to adhere to our quality control, privacy or security
standards or otherwise satisfactorily perform services, increase the price they charge us for the data or refuse to license the data to us. Additional restrictions
on third-party data could limit our ability to include that data in certain products, which could lead to decreased commercial opportunities for certain products
as well as loss of customers, sales credits, refunds or liability to our customers. To comply with any additional restrictions, we may be required to implement
certain additional technological and manual controls that could put pressure on our cost structure and could affect our pricing. Supplier consolidation and
increased pricing for additional use cases could also put pressure on our cost structure and our ability to meet obligations to our customers. We may be
required to enter into vendor relationships, strategic alliances, or joint ventures with some third parties in order to obtain access to the data sources that we
need. If our partners do not apply rigorous standards to their data collection methodology and actions, notwithstanding our best efforts, we may receive third-
party data that is inaccurate, defective, or delayed. If third-party information is not available to us on commercially reasonable terms, or is found to be
inaccurate, it could harm our products, our reputation, and our business and financial performance.
If we fail to respond to technological developments or evolving industry standards, our products may become obsolete or less competitive.
Our future success will depend in part on our ability to develop new and modify or enhance our existing products and services, including without limitation,
our data collection technologies and approaches, in order to meet customer needs, add functionality and address technological advancements and industry
standards. For example, if certain proprietary hand-held mobile devices become the primary mode of receiving content and conducting transactions on the
internet, and we are unable to adapt to collect information from such devices, then we would not be able to report on digital usage activity. To remain
competitive, we will need to develop new products that address these evolving technologies and standards across the universe of media including television,
online, and mobile usage. However, we may be unsuccessful in identifying new product opportunities, developing or marketing new products in a timely or
cost-effective manner, or obtaining the necessary access to data or technologies needed to support new products, or we may be limited in our ability to operate
due to patents held by others. In addition, our product innovations may not achieve the market penetration or price levels necessary for profitability. If we are
unable to develop timely enhancements to,
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and new features for, our existing methodologies or products or if we are unable to develop new products and technology that keep pace with rapid
technological developments or changing industry standards, our products may become obsolete, less marketable and less competitive, and our business will
be harmed.
Furthermore, the market for our products is characterized by changes in protocols and evolving industry standards. For example, industry associations such as
the Advertising Research Foundation, the Council of American Survey Research Organizations, the Internet Advertising Bureau ("IAB"), and the Media
Rating Council ("MRC") as well as internationally-based industry associations have independently initiated efforts to either review market research
methodologies across the media that we measure or develop minimum standards for such research. Failure to achieve accreditation, delays in accreditation, or
adverse audit findings may negatively impact the market acceptance of our products. Meanwhile, successful accreditation or audits may lead to costly
changes to our procedures and methodologies.
Our business may be harmed if we deliver, or are perceived to deliver, inaccurate information products.
The metrics contained in our products may be viewed as an important measure of the success of certain businesses, especially those that utilize our metrics to
evaluate a variety of investments ranging from their internal operations to advertising initiatives. If the information that we provide to our customers, the
media, or the public is inaccurate, or perceived to be inaccurate, whether due to inadequate methodological approaches, errors, biases towards certain
available data sources or partners, disparate data sets across our products, defects or errors in data collection and processing (conducted by us or by third
parties) or the systems used to collect, process or deliver data, our business may be harmed.
Any inaccuracy, perceived inaccuracy or inconsistency in the data reported by us could lead to consequences that could adversely impact our operating
results, including:
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loss of customers;
sales credits, refunds or liability to our customers;
the incurrence of substantial costs to correct any material defect, error or inconsistency;
increased warranty and insurance costs;
potential litigation;
interruptions in the availability of our products;
diversion of development resources;
lost or delayed market acceptance and sales of our products; and
damage to our brand.
Our business may be harmed if we change our methodologies or the scope of information we collect.
We have in the past and may in the future change our methodologies, the methodologies of companies we acquire, or the scope of information we collect.
Such changes may result from identified deficiencies in current methodologies, development of more advanced methodologies, changes in our business plans
or in industry standards or regulatory requirements, changes in technology used by websites, browsers, mobile applications, servers, or media we measure,
integration of acquired companies or expressed or perceived needs of our customers, potential customers or partners. Any such changes or perceived changes,
or our inability to accurately or adequately communicate to our customers and the media such changes and the potential implications of such changes on the
data we have published or will publish in the future, may result in customer dissatisfaction, particularly if certain information is no longer collected or
information collected in future periods is not comparable with information collected in prior periods. As a result of future methodology changes, some of our
customers that may also supply us with data may decide not to continue buying products or services from us or may decide to discontinue providing us with
their data to support our products. Such customers may elect to publicly air their dissatisfaction with the methodological changes made by us, which may
damage our brand and harm our reputation.
If we are not able to maintain panels of sufficient size and scope, or if the costs of establishing and maintaining our panels materially increase, our
business could be harmed.
We believe that the quality, size and scope of our research panels are critical to our business. There can be no assurance, however, that we will be able to
maintain panels of sufficient size and scope to provide the quality of marketing intelligence that our customers demand from our products. We anticipate that
the cost of panel recruitment will continue to increase with the proliferation of proprietary and secure media content delivery platforms and evolving
regulatory requirements, and that the difficulty in collecting these forms of data will continue to grow, which may require significant hardware and software
investments, as well as increases to our panel incentive and panel management costs.
We have historically established and/or acquired new panels. We plan to continue to make significant investments in our panels in the future. Our panel costs
may significantly increase our cost of revenues in the future. To the extent that such additional
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expenses are not accompanied by increased revenues, our operating margins may be reduced and our financial results could be adversely affected.
We derive a significant portion of our revenues from sales of our subscription-based products. If our customers terminate or fail to renew their
subscriptions, our business could suffer.
We currently derive a significant portion of our revenues from our syndicated products, which are generally one-year subscription-based products. This has
generally provided us with recurring revenue due to high renewal rates among our enterprise customers; however, syndicated digital revenue from our smaller
and international customers declined in 2019. If additional customers terminate their subscriptions for our products, do not renew their subscriptions, delay
renewals of their subscriptions or renew on terms less favorable to us, our revenues could decline and our business could suffer.
Our customers have no obligation to renew after the expiration of their initial subscription period, and we cannot be assured that current subscriptions will be
renewed at the same or higher dollar amounts, if at all. Furthermore, our newer subscription products, for which revenue is recognized based on impressions
used, may be subject to higher fluctuations in revenue.
Our customer renewal rates may decline or fluctuate due to a number of factors, including customer satisfaction or dissatisfaction with our products, the costs
or functionality of our products, the prices or functionality of products offered by our competitors, the health of the advertising marketplace, mergers and
acquisitions affecting our customer base, general economic conditions or reductions in our customers' spending levels.
Our growth depends upon our ability to retain existing large customers and add new large customers. To the extent we are not successful in doing so, our
ability to grow revenue and attain profitability and positive cash flow may be impaired.
Our success depends in part on our ability to sell our products to large customers and on the renewal of these subscriptions and contracts to these customers in
subsequent years. For the years ended 2019 and 2018, we derived 27% and 24%, respectively, of our total revenues from our top 10 customers. Uncertain
economic conditions, changes in the regulatory environment or other factors, such as the failure or consolidation of large customer companies, internal
reorganization or changes in focus, or dissatisfaction with our products, may cause certain large customers to terminate or reduce their subscriptions and
contracts with us. The loss of any one or more of these customers could decrease our revenues and harm our current and future operating results. The addition
of new large customers or increases in sales to existing large customers may require particularly long implementation periods and other significant upfront
costs, which may adversely affect our profitability. To compete effectively, we have in the past been, and may in the future be, forced to offer significant
discounts to maintain existing customers or acquire other large customers. In addition, we may be forced to reduce or withdraw from our relationships with
certain existing customers or refrain from acquiring certain new customers in order to acquire or maintain relationships with important large customers. As a
result, new large customers or increased usage of our products by large customers may cause our profits to decline, and our ability to sell our products to other
customers could be adversely affected.
If we are unable to effectively persuade customers to buy our products in substitution for those of an incumbent services provider, our revenue growth
may suffer.
Some of our newer products require that we persuade prospective customers, or customers of our existing products, to buy our newer products in substitution
for those of an incumbent service provider. In some instances, the customer may have built their systems and processes around the incumbent provider's
products. Persuading such customers to switch service providers may be difficult and require longer sales cycles, affecting our ability to increase revenue in
these areas. Moreover, the incumbent service provider may have the ability to significantly discount its services or enter into long-term agreements, which
could further impede our ability to persuade customers to switch service providers, and accordingly, our ability to increase our revenues.
We may expand through investments in, acquisitions of, or the development of new products with assistance from, other companies, any of which may not
be successful and may divert our management's attention.
In the past, we completed several strategic acquisitions. We also may evaluate and enter into discussions regarding an array of potential strategic transactions,
including acquiring complementary products, technologies or businesses.
An acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter
difficulties integrating the businesses, technologies, products, personnel or operations of the acquired companies, particularly if the key personnel of the
acquired company choose not to be employed by us, and we may have difficulty retaining the customers of any acquired business due to changes in
management and ownership. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that
would otherwise be available for ongoing development of our business. Moreover, we cannot assure you that the anticipated benefits of any acquisition,
investment or business relationship would be realized timely, if at all, or that we would not be exposed to unknown liabilities. In connection with any such
transaction, we may:
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encounter difficulties retaining key employees of the acquired company or integrating diverse business cultures;
incur large charges or substantial liabilities, including without limitation, liabilities associated with products or technologies accused or found to
infringe on third-party intellectual property rights or violate existing or future privacy regulations;
issue shares of our capital stock as part of the consideration, which may be dilutive to existing stockholders;
become subject to adverse tax consequences, legal disputes, substantial depreciation or deferred compensation charges;
use cash that we may otherwise need for ongoing or future operation of our business;
enter new geographic markets that subject us to different laws and regulations that may have an adverse impact on our business;
experience difficulties effectively utilizing acquired assets;
encounter difficulties integrating the information and financial reporting systems of acquired businesses, particularly those that operated under
accounting principles other than those generally accepted in the U.S. prior to the acquisition by us; and
incur debt, which may be on terms unfavorable to us or that we are unable to repay.
We also have entered into relationships with certain third-party providers to expand our product offerings, and we may enter into similar arrangements in the
future. These or other future relationships or transactions may involve preferred or exclusive licenses, discount pricing or investments in other businesses to
expand our sales capabilities. These transactions could be material to our financial condition and results of operations, and though these transactions may
provide additional benefits, they may not be profitable immediately or in the long term. Negotiating any such transactions could be time-consuming, difficult
and expensive, and our ability to close these transactions may be subject to regulatory or other approvals and other conditions that are beyond our control.
Consequently, we can make no assurances that any such transactions, investments or relationships, if undertaken and announced, would be completed or
successful.
The impact of any one or more of these factors could materially and adversely affect our business, financial condition or results of operations.
System failures, security breaches or delays in the operation of our computer and communications systems may harm our business.
Our success depends on the efficient and uninterrupted operation of our computer and communications systems and the third-party data centers we use. Our
ability to collect and report accurate data may be interrupted by a number of factors, including the failure of our network or software systems, computer
viruses, security breaches, or variability in user traffic on customer websites. A failure of our network or data gathering procedures, or those of our third-party
data suppliers, could impede the processing of data, cause the corruption or loss of data, prevent the timely delivery of our products, or damage our brand and
reputation.
In the future, we may need to expand our network and systems at a more rapid pace than we have in the past. Our network or systems may not be capable of
meeting the demand for increased capacity, or we may incur additional expenses to accommodate these capacity demands. In addition, we may lose valuable
data or be unable to obtain or provide data on a timely basis or our network may temporarily shut down if we fail to adequately expand or maintain our
network capabilities to meet future requirements. Any lapse in our ability to collect or transmit data may decrease the value of our products and prevent us
from providing the data requested by our customers and partners. Any disruption in our network processing or loss of internet user data may damage our
reputation and result in the loss of customers, partners and vendors and the imposition of penalties or other legal or regulatory action, and our business,
financial condition and results of operations could be materially and adversely affected.
We are subject to customer and partner security reviews, and failure to pass these reviews could have an adverse impact on our operations.
Many of our customer and partner contracts require that we maintain certain physical and/or information security standards. Any failure to meet such
standards could have an adverse impact on our business. In certain cases, we permit a customer or partner to audit our compliance with contractual standards.
Negative findings in an audit and/or the failure to adequately remediate in a timely fashion such negative findings could cause customers or partners to
terminate their contracts or otherwise have an adverse effect on our reputation, results of operations and financial condition.
Further, customers or partners from time to time may require new or stricter physical or information security than they negotiated in their contracts and may
condition continued volumes and business on the satisfaction of such additional requirements. Some of these requirements may be expensive to implement or
maintain and may not be factored into our contract pricing. Failure to meet these requirements could have an adverse effect on our business.
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We rely on a small number of third-party service providers to host and deliver our products, and any interruptions or delays in services from these third
parties could impair the delivery of our products and harm our business.
We host our products and serve our customers from data center facilities located throughout the U.S. While we operate our equipment inside these facilities,
we do not control the operation of these facilities, and, depending on service level requirements and costs, we may not continue to operate or maintain
redundant data center facilities for all of our products or for all of our data, which could increase our vulnerability. These facilities are vulnerable to damage
or interruption from earthquakes, hurricanes, floods, fires, power loss, telecommunications failures and similar events. They are also subject to break-ins,
computer viruses, security breaches, sabotage, intentional acts of vandalism and other misconduct. A natural disaster or an act of terrorism, a decision to close
the facilities without adequate notice, or other unanticipated problems could result in lengthy interruptions in availability of our products. We may also
encounter capacity limitations at our third-party data centers. Additionally, our data center facility agreements are of limited durations, and our data center
facilities have no obligation to renew their agreements with us on commercially reasonable terms, if at all. We believe that we have good relationships with
our data center facility vendors and believe that we will be able to renew, or find alternative data center facilities, on commercially reasonable terms, although
there can be no guarantee of this. If we are unable to renew our agreements with the owners of the facilities on commercially reasonable terms, or if we
migrate to a new data center, we may experience delays in delivering our products until an agreement with another data center facility can be arranged or the
migration to a new facility is completed.
If we or the third-party data centers that we use were to experience a major power outage, we would have to rely on back-up generators, which may not
function properly, and their supply may be inadequate. Such a power outage could result in the disruption of our business. Additionally, if our current
facilities fail to have sufficient cooling capacity or availability of electrical power, we would need to find alternative facilities and could experience delays in
delivering our products.
We currently leverage a large content delivery network ("CDN"), to provide services that allow us to offer a more efficient tagging methodology. If that
network faced an outage or breach or the service became unavailable, an alternate CDN provider or additional capacity in our data centers would need to be
established to support the large volume of tag requests that we currently manage, which would either require additional investments in equipment and
facilities or a transition plan. This could unexpectedly raise our costs and could contribute to delays or losses in tag data that could affect the quality and
reputation of our Media Metrix, vCE, cross-platform and other products that involve the measurement of a large amount of digitally transmitted activity
across multiple providers.
Further, we depend on access to the internet through third-party bandwidth providers to operate our business. If we lose the services of one or more of our
bandwidth providers for any reason, we could experience disruption in the delivery of our products or be required to retain the services of a replacement
bandwidth provider. It may be difficult for us to replace any lost bandwidth on a timely basis, on commercially reasonable terms, or at all, due to the large
amount of bandwidth our operations require.
Any errors, defects, breaches, disruptions or other performance problems related to our products or the delivery of our services caused by third parties could
reduce our revenues, harm our reputation, result in the loss of customers, partners and vendors and the imposition of penalties or other legal or regulatory
actions and otherwise damage our business. Interruptions in the availability of our products and the delivery of our services may reduce our revenues due to
increased turnaround time to complete projects, cause us to issue credits or refunds to customers, cause customers to terminate their agreements or adversely
affect our renewal rates. Our business, financial condition and results of operations would be materially and adversely affected if there were errors or delays
in delivering our products or services, including for reasons beyond our control, and our reputation would be harmed if our customers or potential customers
believe our products and services are unreliable.
Our restructuring activities and cost reduction initiatives may not deliver the expected results and could disrupt our business operations.
Achieving our long-term profitability goals depends significantly on our ability to control our operating costs. If we are not able to identify and implement
initiatives that control or reduce costs and increase operating efficiency, or if the initiatives we have implemented to date do not generate the expected cost
savings, our financial results could be adversely affected. Our efforts to reduce cost have included restructuring activities involving workforce reductions,
lease and contract terminations, and other cost reduction initiatives. Some of the operational improvements we have made to reduce our cost structure will
require careful management to avoid disrupting customer, partner and employee relationships. If we do not successfully manage our restructuring activities,
the expected benefits may be delayed or not realized, and our operations and business could be disrupted.
Our review of strategic options may not be successful and could disrupt our business operations.
During our November 5, 2019 earnings call, we reiterated that we are pursuing all strategic options and that our Board of Directors remains open to any
financial or operational strategies that would maximize stockholder value, including the sale of our company. We cannot assure you that this review will result
in the identification or consummation of any transaction, and our Board of Directors may determine that our most effective strategy is to continue to
effectuate our current business plan. Any strategic decision
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will involve risks and uncertainties, and we cannot assure our stockholders that any strategic option, if identified, evaluated and consummated, will provide
greater value to our stockholders than that reflected in our current stock price. In addition, the process of negotiating any corporate transaction could be time-
consuming and disruptive, and any transaction would be dependent on a number of factors that are beyond our control, including, among other things,
regulatory or other approvals, the availability of financing to potential buyers on reasonable terms, market conditions, industry trends and the interest of third
parties in our business. We also could incur substantial expenses associated with identifying and evaluating potential strategic alternatives, including those
related to employee retention payments, equity compensation, severance pay and legal, accounting and financial advisory fees. Moreover, this process could
divert our resources and require significant management time and attention that would otherwise be available for ongoing development of our business. It also
could disrupt our customer and partner relationships, impair our ability to recruit and retain key personnel, increase our costs, and lead to legal disputes in
connection with this process or any resulting transaction. Any of these factors could have an adverse effect on our business and financial condition.
Further, we do not intend to disclose detailed developments or provide regular updates on the progress or status of this process until our Board of Directors
deems further disclosure is appropriate or required. Accordingly, speculation regarding any developments related to this process and perceived uncertainties
related to the future of our company could cause our stock price to fluctuate significantly and may result in the loss of potential business opportunities.
We rely on our management team, many of whom were recently appointed to their roles, and may need additional personnel to operate and grow our
business. The loss of one or more key employees, the inability to attract and retain qualified personnel, or the failure to integrate new personnel could
harm our business.
In 2019, we experienced a number of changes to our senior management team. Our success and future growth depend to a significant degree on the skills and
continued services of our management team, many of whom were recently appointed to their roles. Our future success also depends on our ability to retain,
attract and motivate highly skilled technical, managerial, marketing and customer service personnel, including members of our management team. We may
experience a loss of productivity due to the departure of key personnel and the associated loss of institutional knowledge, or while new personnel integrate
into our business and transition into their respective roles. This transition may not ultimately be successful.
A substantial majority of our U.S. employees work for us on an at-will basis. We continually evaluate our personnel needs in all areas of our business,
particularly in our sales, marketing, finance and technology development areas, both domestically and internationally, which could increase our recruiting and
hiring costs in the foreseeable future. Competition for these types of personnel is intense, particularly in the internet and software industries. Our inability to
retain and attract the necessary personnel could adversely affect our business.
The effectiveness of our equity awards as a means to recruit and retain key personnel has diminished, and we may need to grant equity awards outside of
our existing plan.
Historically, we have relied on equity awards as one means of recruiting and retaining key personnel, including our senior management. Due to declines in
our stock price, the effectiveness of our outstanding equity awards as a means to retain key personnel has diminished. Moreover, the quantity of equity awards
we are able to grant under our 2018 Equity and Incentive Compensation Plan ("2018 Plan") is limited, both by plan design and by certain limitations in our
outstanding warrants. These limits have impacted our ability to offer new awards to current and prospective employees. In order to address our retention and
hiring needs, we may seek to amend our 2018 Plan and warrants to increase the number of shares available for future equity awards, or we may need to
consider granting equity awards outside of our 2018 Plan. Either of these options could result in additional dilution to our existing stockholders. Alternatively,
we may need to shift a larger portion of employee compensation to cash, which could adversely affect our liquidity and financial condition.
Risks Related to Our Results of Operations
Our revenues and results of operations may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of securities analysts or
investors, which could cause our stock price to decline.
Our results of operations may fluctuate as a result of a variety of factors, many of which are outside of our control. If our revenues or results of operations do
not meet or exceed the expectations of securities analysts or investors, the price of our Common Stock could decline substantially. Factors that may cause
fluctuations in our revenues or results of operations include:
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our ability to increase sales to existing customers and attract new customers;
the potential loss or reduction in spending by significant customers;
changes in our customers' subscription renewal behaviors and spending on projects;
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the impact of our contract renewal rates caused by our customers' budgetary constraints, competition, customer dissatisfaction, customer corporate
restructuring or change in control, or our customers' actual or perceived lack of need for our products;
the timing of contract renewals, delivery of products and duration of contracts and the corresponding timing of revenue recognition;
variations in the demand for our products and the implementation cycles of our products by our customers;
the challenges of persuading existing and prospective customers to switch from incumbent service providers;
the timing of revenue recognition for usage-based or impression-based products;
the effect of revenues generated from significant one-time projects or the loss of such projects;
the timing and success of new product introductions by us or our competitors;
changes in our pricing and discounting policies or those of our competitors;
the impact of our decision to discontinue certain products;
our failure to accurately estimate or control costs - including those incurred as a result of investments, other business or product development
initiatives, legal proceedings, and the integration of acquired businesses;
the cost and availability of data from third-party sources;
adverse judgments or settlements, or increased legal fees, in legal disputes or government proceedings;
changes in interest rates under our senior secured convertible notes or other financing vehicles;
the amount and timing of capital expenditures and operating costs related to the maintenance and expansion of our operations and infrastructure;
service outages, other technical difficulties or security breaches;
limitations relating to the capacity of our networks, systems and processes;
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• maintaining appropriate staffing levels and capabilities relative to projected growth, or retaining key personnel;
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limitations on our ability to use equity awards to compensate current and prospective employees;
the cost and timing of organizational restructuring;
the risks associated with operating in countries in which we may have little or no previous experience and with maintaining or reorganizing corporate
entity structures in international jurisdictions;
the extent to which certain expenses are deductible for tax purposes, such as share-based compensation that fluctuates based on the timing of vesting
and our stock price;
the timing of any changes to our deferred tax valuation allowance;
adoption of new accounting pronouncements;
changes in the fair value of our financing derivatives and warrants related to market volatility or management assumptions; and
general economic, political, regulatory, industry and market conditions and those conditions specific to internet usage and online businesses.
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We believe that our revenues and results of operations on a year-over-year and sequential quarter-over-quarter basis may vary significantly in the future and
that period-to-period comparisons of our operating results may not be meaningful. Investors are cautioned not to rely on the results of prior periods as an
indication of future performance.
We may not be able to generate or obtain sufficient cash to service our debt and lease facilities or trade payables.
We currently have, and will likely continue to have, a substantial amount of indebtedness (in the form of our senior secured convertible notes ("Notes") and
subsidiary term debt) and lease facilities, as well as trade payables, including expenses incurred in prior periods. These obligations could require us to use a
large portion of our cash flow from operations to service our debt and lease facilities and pay accrued expenses. They could also limit our flexibility to invest
in our business and adjust to market conditions, which could impact our customer relationships and place us at a competitive disadvantage.
We expect to obtain the funds to pay our expenses and meet our financial obligations from cash flow from our operations and, potentially, from other debt
and/or equity offerings. Accordingly, our ability to meet our obligations depends on our future performance and capital-raising activities, which will be
affected by financial, business, contractual, economic and other factors, some of which are beyond our control. Failure to meet our payment obligations to
vendors could disrupt our supply of goods and services and impact our reputation, creditworthiness and relations with customers. It could also lead to costly
litigation.
If our cash flow and capital resources prove inadequate to allow us to pay the interest and principal on our debt when due and meet our other financial
obligations, we could face substantial liquidity challenges and might be required to dispose of material assets or operations, restructure or refinance our debt
(which we may be unable to do on acceptable terms) or forego attractive business opportunities. In addition, the terms of our existing or future financing
agreements may restrict us from pursuing these alternatives. Failure to meet our obligations under the Notes could lead to an Event of Default (as defined in
the Notes), which could have important consequences including, potentially, forcing us into bankruptcy or liquidation.
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Our financial condition and results of operations could suffer and be adversely affected if we incur an impairment of goodwill or other intangible assets.
We are required to test goodwill and intangible assets, annually and on an interim basis if an event occurs or there is a change in circumstance that would
more likely than not reduce the fair value of our reporting unit below its carrying values or indicate that the carrying value of such intangibles is not
recoverable. When the carrying value of a reporting unit exceeds its fair value, a charge to operations, up to the total amount of goodwill, is recorded. If the
carrying amount of an intangible asset is not recoverable, a charge to operations is recognized. Either event would result in incremental expenses for that
period, which would reduce any earnings or increase any loss for the period in which the impairment was determined to have occurred. We recorded a $224.3
million impairment charge related to goodwill and a $17.3 million impairment charge for our strategic alliance intangible asset in the second quarter of 2019.
Our impairment analysis is sensitive to changes in key assumptions used in our analysis, such as expected future cash flows, the degree of volatility in equity
and debt markets and our stock price. Additionally, changes in our strategy or significant technical developments could significantly impact the recoverability
of our intangible assets. If the assumptions used in our analysis are not realized, it is possible that an additional impairment charge may need to be recorded in
the future. We cannot predict the amount and timing of any future impairment of goodwill or other intangible assets.
Changes in the fair value of our derivative financial instruments or warrants could adversely affect our financial condition and results of operations.
Our financing derivatives, including the interest rate reset feature and change of control redemption features of our Notes, and our warrants are classified as
liabilities in our consolidated financial statements. We use various models and assumptions to determine the fair value of these liabilities, including
assumptions with respect to market rates, the price and volatility of our Common Stock, the probability of occurrence of certain events, and term. Any change
in our assumptions could result in a change in the fair value of our derivative liabilities and warrants, which would be recorded to earnings and could
significantly affect our financial condition and results of operations.
We may encounter difficulties managing our costs, which could adversely affect our results of operations.
We believe that we will need to continue to effectively manage our organization, operations and facilities in order to accommodate changes in our business
and to successfully integrate acquired businesses. If we continue to grow or change, either organically or through acquired businesses, our current systems
and facilities may not be adequate and may need to be expanded or reduced. For example, we may be required to enter into leases for additional facilities or
commit to significant investments in the build out of current or new facilities, or we may need to renegotiate or terminate leases to reflect changes in our
business. If we are unable to effectively forecast our facilities needs or if we are unable to sublease or terminate leases for unused space, we may experience
increased and unexpected costs. Moreover, our need to effectively manage our operations and cost structure requires that we continue to assess and improve
our operational, financial and management controls, reporting systems and procedures.
From time to time, as a result of acquisition integration initiatives, or through efforts to improve or streamline our operations, we have reduced our workforce
or reassigned personnel, and we may do so in the future. Such actions may expose us to disruption by dissatisfied employees or employee-related claims,
including claims by terminated employees who believe they are owed more compensation than we believe these employees are due under our compensation
and benefit plans, or claims maintained internationally in jurisdictions whose laws and procedures differ from those in the U.S.
If we are not able to efficiently and effectively manage our cost structure and resolve employee-related claims, or if we are unable to find appropriate space to
support our needs, our business may be impaired.
We have a history of significant net losses, may incur significant net losses in the future and may not achieve profitability.
We incurred net losses of $339.0 million, $159.3 million and $281.4 million for the years ended December 31, 2019, 2018 and 2017, respectively. We cannot
make assurances that we will be able to achieve profitability in the future. As of December 31, 2019, we had an accumulated deficit of $1,108.1 million.
Because a large portion of our costs are fixed, we may not be able to adequately reduce our expenses in response to any decrease in our revenues, which
would materially and adversely affect our operating results. In addition, our operating expenses may increase as we implement certain growth initiatives,
which include, among other things, the development of new products and enhancements of our infrastructure. If our revenues do not increase to offset these
increases in costs and operating expenses, our operating results would be materially and adversely affected.
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Our net operating loss carryforwards may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.
We have experienced "changes in control" that have triggered the limitations of Section 382 of the Internal Revenue Code on a significant portion of our net
operating loss carryforwards. As a result, we may be limited in the amount of net operating loss carryforwards that we can use in the future to offset taxable
income for U.S. federal income tax purposes.
As of December 31, 2019, we estimate our U.S. federal and state net operating loss carryforwards for tax purposes are $639.9 million and $1,391.3 million,
respectively, subject to limitation as described above. These net operating loss carryforwards will begin to expire in 2022 for federal income tax reporting
purposes and portions are expiring annually for state income tax reporting purposes. The federal and certain state net operating losses generated after
December 31, 2017 currently have an indefinite carryforward period as a result of the enactment of the Tax Cuts and Jobs Act (the "TCJA").
As of December 31, 2019, we estimate our aggregate net operating loss carryforwards for tax purposes related to our foreign subsidiaries are $5.1 million,
which will begin to expire in 2024.
We apply a valuation allowance to our deferred tax assets when management does not believe that it is more-likely-than-not that they will be realized. In
assessing the need for a valuation allowance, we consider all sources of taxable income, including potential opportunities for loss carrybacks, the reversal of
existing temporary differences associated with our deferred tax assets and liabilities, tax planning strategies and future taxable income. We also consider other
evidence such as historical pre-tax book income in making the determination.
As of December 31, 2019, we continue to have a valuation allowance recorded against the net deferred tax assets of our U.S. entities and certain foreign
subsidiaries, including net operating loss carryforwards.
We have limited experience with respect to our pricing model for our new offerings, and if the fees we charge for our products are unacceptable to
customers, our revenues and operating results will be harmed.
Many of our customers purchase specifically tailored contracts that are priced in the aggregate. Due to the level of customization of such contracts, the pricing
of contracts or individual product components of such packages may not be readily comparable across customers or periods. Existing and potential customers
may have difficulty assessing the value of our products and services when comparing them to competing products and services. As the market for our
products matures, or as competitors introduce new products or services that compete with ours, we may be unable to renew our agreements with existing
customers or attract new customers with the fees we have historically charged. As a result, it is possible that future competitive dynamics in our market may
require us to reduce our fees, which could have an adverse effect on our revenues, profitability and operating results.
Risks Related to Legal and Regulatory Compliance, Litigation and Tax Matters
Concern over privacy violations and data breaches could lead to public relations problems, regulatory scrutiny and class action lawsuits, which could
harm our business.
We are subject to data privacy and protection laws and regulations that apply to the collection, transmission, storage and use of proprietary information and
personal information. The regulatory environment surrounding information security and data privacy varies from jurisdiction to jurisdiction and is constantly
evolving and increasingly demanding. The restrictions imposed by such laws continue to develop and may require us to incur substantial costs and fines or
adopt additional compliance measures, such as notification requirements and corrective actions.
Any perception of our practices, products or services as a violation of individual privacy rights may subject us to public criticism, loss of customers, partners
or vendors, class action lawsuits, reputational harm, or investigations or claims by regulators, industry groups or other third parties, all of which could
significantly disrupt our business and expose us to increased liability. (Refer to Footnote 11, Commitments and Contingencies, of the Notes to Consolidated
Financial Statements for a discussion of certain legal proceedings in which we are involved.) Additionally, laws regulating privacy and third-party products
purporting to address privacy concerns could negatively affect the functionality of, and demand for, our products and services, thereby resulting in loss of
customers, partners and vendors and harm to our business.
We also rely on security questionnaires and contractual representations made to us by customers, partners, vendors and other third-party data providers that
their own use of our services and the information they provide to us do not violate any applicable privacy laws, rules and regulations or their own privacy or
security policies. As a component of our client contracts, we obligate customers to provide their consumers the opportunity to obtain the appropriate level of
consent (including opt outs) for the information collection associated with our services, as applicable, or provide another appropriate legal basis for collection.
If these questionnaires or representations are false, inaccurate or incomplete, or if our customers, partners, vendors and other third-party data providers do not
otherwise comply with applicable privacy laws or security practices, we could face adverse publicity and possible legal or regulatory action.
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Outside parties, including foreign actors, may attempt to fraudulently induce our employees or users of our solutions to disclose sensitive information via
illegal electronic spamming, phishing, threats or other tactics. Unauthorized parties may also attempt to gain physical access to our information systems. This
risk may be heightened in U.S. election years, particularly from foreign governments and other foreign actors. Any breach of our security measures or the
accidental loss, inadvertent disclosure or unauthorized dissemination of proprietary information or sensitive, personal or confidential data about us, our
employees or our customers, partners or vendors, including the potential loss or disclosure of such information or data as a result of hacking, fraud, trickery or
other forms of deception, could expose us, our employees, our customers or the individuals affected to risks of loss or misuse of this information. Any actual
or potential breach of our security measures may result in litigation and potential liability or fines, governmental inquiry or oversight or a loss of customer
confidence, any of which could harm our business and damage our brand and reputation, possibly impeding our present and future success in retaining and
attracting new customers and thereby requiring time and resources to repair our brand.
Domestic or foreign laws, regulations or enforcement actions may limit our ability to collect and incorporate media usage information in our products,
which may decrease their value and cause an adverse impact on our business and financial results.
Our business could be adversely impacted by existing or future laws, regulations or actions by domestic or foreign regulatory agencies, or by our customers'
or partners' efforts to comply with these laws. For example, privacy, data protection and personal information, intellectual property, advertising, data security,
data retention and deletion, protection of minors, consumer protection, economic or other trade prohibitions or sanctions concerns could lead to legislative,
judicial and regulatory limitations on our or our partners' ability to collect, maintain and use information about consumers' behavior or media consumption in
the U.S. and abroad. This could impact the amount and quality of data in our products.
State and federal laws within the U.S. and foreign laws and regulations are varied, and at times conflicting, resulting in higher risk related to compliance. A
number of new laws coming into effect and/or proposals pending before federal, state and foreign legislative and regulatory bodies will likely affect our
business. For example, the European Union’s ("EU") General Data Protection Regulation, or GDPR, became effective in May 2018, imposing more stringent
EU data protection requirements and providing for greater penalties for noncompliance. In addition, regulators in the EU and elsewhere are increasingly
focused on consent and the collection of data using tracking technologies, including recent guidance from the United Kingdom ("UK") Information
Commissioner's Office. Adding further uncertainty is the UK's recent departure from the EU, commonly referred to as Brexit. Among other things, it is
unclear how data transfers to and from the UK will be regulated. As another example, Brazil recently enacted the General Data Protection Law, and the State
of California recently enacted the California Consumer Privacy Act ("CCPA"). The CCPA, which went into effect in January 2020, expands the scope of what
is considered "personal information" and creates new data access and opt-out rights for consumers, which is impacting Comscore and other companies that
operate in California, including many of our customers and partners. These U.S. federal and state and foreign laws and regulations, which in some cases can
be enforced by private parties in addition to government entities, are constantly evolving and can be subject to significant change.
We have implemented policies and procedures to comply with GDPR, CCPA, the Children's Online Privacy Protection Act ("COPPA") and other laws, and
we continue to evaluate and implement processes and enhancements and monitor changes in laws and regulations. However, the application, interpretation,
and enforcement of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate, and may be
interpreted and applied inconsistently from country to country, state to state, and customer to customer, and inconsistently with our current policies and
practices. Additionally, the costs of compliance with, and the other burdens imposed by, these and other laws, regulatory actions and customer or partner
policies may prevent us from selling our products and have and may continue to increase the costs associated with selling our products, and may affect our
ability to invest in or jointly develop products in the U.S. and in foreign jurisdictions. In addition, failure to comply with these and other laws and regulations
may result in, among other things, administrative enforcement actions and substantial fines, class action lawsuits, significant legal fees, and civil and criminal
liability. Any regulatory or civil action that is brought against us, even if unsuccessful, may distract our management's attention, divert our resources,
negatively affect our public image or reputation among our panelists, customers, partners and vendors, and harm our business.
An assertion from a third party that we are infringing its intellectual property rights, whether such assertion is valid or not, could subject us to costly and
time-consuming litigation or expensive licenses.
The media measurement, software and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade
secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights, domestically or internationally. As we
grow and face increasing competition, the probability that one or more third parties will make intellectual property rights claims against us increases. In such
cases, our technologies may be found to infringe on the intellectual property rights of others. Additionally, many of our agreements may require us to
indemnify our customers for third-party intellectual property infringement claims, which would increase our costs if we have to defend such claims and may
require that we pay damages and provide alternative services if there were an adverse ruling in any such claims. Intellectual property claims could harm our
relationships with our customers, deter future customers from buying our products or expose us to litigation, which could be expensive and divert
considerable attention of our management team from the normal
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operation of our business. Even if we are not a party to any litigation between a customer and a third party, an adverse outcome in any such litigation could
make it more difficult for us to defend against intellectual property claims by the third party in any subsequent litigation in which we are a named party. Any
of these results could adversely affect our brand, business and results of operations.
With respect to any intellectual property rights claim against us or our customers, we may have to pay damages or stop using technology found to be in
violation of a third party's rights. We may have to seek a license for the technology, which may not be available on reasonable terms or at all, may
significantly increase our operating expenses or may significantly restrict our business activities in one or more respects. We may also be required to develop
alternative non-infringing technology, which could require significant effort and expense. Any of these outcomes could adversely affect our business and
results of operations. Even if we prove successful in defending ourselves against such claims, we may incur substantial expenses and the defense of such
claims may divert considerable attention of our management team from the normal operation of our business.
The success of our business depends in large part on our ability to protect and enforce our intellectual property rights.
We rely on a combination of patent, copyright, service mark, trademark and trade secret laws, as well as confidentiality procedures and contractual
restrictions, to establish and protect our proprietary rights, all of which provide only limited protection. We endeavor to enter into agreements with our
employees and contractors and with parties with whom we do business in order to limit access to and disclosure of our proprietary information. We cannot be
certain that the steps we have taken will prevent unauthorized use of our technology or the reverse engineering of our technology. We cannot make assurances
that any additional patents will be issued with respect to any of our pending or future patent applications, nor can we assure that any patent issued to us will
provide adequate protection, or that any patents issued to us will not be challenged, invalidated, circumvented, or held to be unenforceable in actions against
alleged infringers. Also, we cannot make assurances that any future trademark or service mark registrations will be issued with respect to pending or future
applications or that any of our registered trademarks and service marks will be enforceable or provide adequate protection of our proprietary rights.
We have been named in a purported securities class action and may be named in further litigation or proceedings, which could require significant
management time and attention and result in significant legal expenses, which could have an adverse impact on our financial condition.
We, our former Chief Executive Officer and our current Chief Financial Officer have been named as defendants in a putative class action complaint alleging
that we failed to disclose material information concerning a disagreement relating to our business strategy. While we believe that we have substantial legal
and factual defenses in this matter, we cannot predict the outcome of this litigation or any future proceedings against us. (Refer to Footnote 11, Commitments
and Contingencies, of the Notes to Consolidated Financial Statements for a discussion of certain legal proceedings in which we are involved.)
Any legal proceedings could involve substantial defense and other costs and, if decided adversely to us, could result in significant monetary damages,
penalties and reputational harm. Although we maintain insurance coverage in amounts and with deductibles that we believe are appropriate for our operations,
our insurance may not cover all claims that have been or may be brought against us, and insurance coverage may not continue to be available to us at a
reasonable cost in the future. As a result, we could be exposed to substantial uninsured liabilities, including pursuant to our indemnification obligations to
directors and officers, which could adversely affect our business, results of operations and financial condition.
We are subject to taxation in multiple jurisdictions. Any adverse development in the tax laws of any of these jurisdictions or any disagreement with our
tax positions could have a material and adverse effect on our business, financial condition or results of operations.
We are subject to taxation in, and to the tax laws and regulations of, multiple jurisdictions as a result of the international scope of our operations and our
corporate entity structure. We are also subject to transfer pricing laws with respect to our intercompany transactions, including those relating to the flow of
funds among our companies. Adverse developments in these laws or regulations, or any change in position regarding the application, administration or
interpretation thereof, in any applicable jurisdiction, could have a material and adverse effect on our business, financial condition or results of operations. In
addition, the tax authorities in any applicable jurisdiction, including the U.S., may disagree with the positions we have taken or intend to take regarding the
tax treatment or characterization of any of our transactions. If any applicable tax authorities, including U.S. tax authorities, were to successfully challenge the
tax treatment or characterization of any of our transactions, it could have a material and adverse effect on our business, financial condition or results of
operations.
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Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added or similar taxes, and we
could be subject to liability with respect to past or future sales, which could adversely affect our results of operations.
In certain cases, we have concluded that we do not need to collect sales and use, value added and similar taxes in jurisdictions in which we have sales. Sales
and use, value added and similar tax laws and rates vary greatly by jurisdiction. Certain jurisdictions in which we do not collect such taxes may assert that
such taxes are applicable, which could result in tax assessments, penalties and interest, and we may be required to collect such taxes in the future. Such tax
assessments, penalties and interest or future requirements may adversely affect our financial condition and results of operations.
Our annual effective income tax rate can change materially as a result of changes in our mix of U.S. and foreign earnings and other factors, including
changes in tax laws and changes made by regulatory authorities.
Our overall effective rate is equal to our total tax expense as a percentage of total earnings before tax. However, income tax expense and benefits are not
recognized on a global basis but rather on a jurisdictional or legal entity basis. Losses in one jurisdiction may not be used to offset profits in other
jurisdictions and may cause an increase in our tax rate. Changes in statutory tax rates and laws, as well as audits by domestic and international authorities,
could affect the amount of income taxes and other taxes paid by us. Changes in the mix of earnings (or losses) between jurisdictions and assumptions used in
the calculation of income taxes, among other factors, could have a significant effect on our overall effective income tax rate.
We have incurred and will continue to incur costs and demands upon management as a result of complying with the laws and regulations affecting a
public company, which could adversely affect our operating results.
As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we would not otherwise incur if we
were a private company. In addition, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules
implemented by the SEC and the securities exchanges, require certain corporate governance practices for public companies. We have also implemented
additional governance practices in connection with the settlement of past legal proceedings. Our management and other personnel have devoted and expect to
continue to devote a substantial amount of time to public reporting requirements and corporate governance. These rules and regulations have significantly
increased our legal and financial compliance costs and made some activities more time-consuming and costly. We also have incurred and expect to continue
to incur substantial costs associated with internal control requirements. If these costs are not offset by increased revenues and improved financial
performance, our financial condition and results of operations will be materially and adversely affected. These rules and regulations, together with current and
past legal proceedings, also make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to
accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage if these costs continue to rise. As a result,
it may be more difficult for us to attract and retain qualified people to serve on our Board of Directors or as executive officers.
Risks Related to International Operations
Our business could become increasingly susceptible to risks associated with international operations.
In the past, we acquired various businesses with substantial presence or clientele in multiple Latin American, European and Asian countries. Prior to these
acquisitions, we otherwise had limited experience operating in markets outside of the U.S. Our inexperience in operating our business outside of the U.S. may
increase the risk that the international businesses in which we are engaged will not be successful. In addition, conducting international operations subjects us
to risks that we have not generally faced in the U.S. These risks include:
•
•
•
•
•
•
•
recruitment and maintenance of a sufficiently large and representative panel both globally and in certain countries;
difficulties and expenses associated with tailoring our products to local and international markets as may be required by local customers and joint
industry committees or similar industry organizations;
difficulties in expanding the adoption of our server- or census-based web beacon data collection in certain countries or obtaining access to other
necessary data sources;
differences in customer buying behaviors;
the complexities and expense of complying with a wide variety of foreign laws and regulations, including the GDPR, LGPD, other privacy and data
protection laws and regulations, and foreign anti-corruption laws, as well as the U.S. Foreign Corrupt Practices Act;
difficulties in staffing and managing international operations, including complex and costly hiring, disciplinary, and termination requirements;
the complexities of foreign value-added taxes and the repatriation of earnings, particularly following the enactment of the TCJA;
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•
•
•
•
reduced or varied protection for intellectual property rights in some countries;
political, social and economic instability abroad, terrorist attacks and security concerns;
fluctuations in currency exchange rates; and
increased accounting and reporting burdens and complexities.
Additionally, operating in international markets requires significant additional management attention and financial resources. We cannot be certain that the
investments and additional resources required to establish and maintain operations in other countries will hold their value or produce desired levels of
revenues or profitability. We cannot be certain that we will be able to comply with laws, rules, regulations or local guidelines to maintain and increase the size
of the user panels that we currently have in various countries, that we will be able to recruit a representative sample for our audience measurement products or
that we will be able to enter into arrangements with a sufficient number of website and mobile app content providers and/or television operators to allow us to
collect information for inclusion in our products. In addition, there can be no assurance that internet usage and e-commerce will continue to grow in
international markets. In addition, governmental authorities in various countries have different views regarding regulatory oversight of the internet, data
protection and consumer privacy.
The impact of these risks could negatively affect our international business and, consequently, our financial condition and results of operations.
Export controls and economic and trade sanctions laws could impair our ability to compete in international markets and subject us to liability if we are
not in full compliance with applicable laws.
Our business activities include the collection of survey data from panelists around the world, and such activities are subject to various restrictions under U.S.
export controls and economic and trade sanctions laws, including the U.S. Commerce Department's Export Administration Regulations and sanctions
administered by the U.S. Treasury Department's Office of Foreign Assets Control (OFAC). If we fail to comply with these laws and regulations, we could be
subject to civil or criminal penalties and reputational harm. (Refer to Footnote 11, Commitments and Contingencies, of the Notes to Consolidated Financial
Statements for a discussion of an internal review we conducted and voluntary disclosure we filed with OFAC and the Commerce Department's Bureau of
Industry and Security in 2018.)
Although we take precautions to prevent the collection of survey data from panelists in embargoed countries that are subject to export controls and economic
and trade sanctions under these laws and regulations, we have collected such data in the past, and there is a risk that we could collect such data in the future
despite such precautions. We have implemented a number of additional screening and other measures designed to prevent such transactions with embargoed
countries and other U.S. sanctions targets. Changes in the list of embargoed countries and regions or prohibited persons may require us to modify these
procedures in order to comply with governmental regulations. Our failure to screen potential panelists properly could result in negative consequences to us,
including government investigations, penalties and reputational harm, any of which could materially and adversely affect our business, financial condition or
results of operations.
Changes in foreign currencies could have a significant effect on our operating results.
We operate in several countries in Latin America, Europe and Asia. A portion of our revenues and expenses from business operations in foreign countries are
derived from transactions denominated in currencies other than the functional currency of our operations in those countries. As such, we have exposure to
adverse changes in exchange rates associated with revenues and operating expenses of our foreign operations, but we do not currently enter into any hedging
instruments that hedge foreign currency exchange rate risk. If we grow our international operations, or acquire companies with established business in
international regions, our exposure to foreign currency risk could become more significant.
The UK's withdrawal from the EU, commonly known as Brexit, and the risk that other countries may follow suit could adversely affect our business.
The UK formally left the EU on January 31, 2020. Although certain separation issues have been resolved, there is still significant uncertainty with respect to
the terms of the future relationship between the EU and the UK. Given the status of Brexit at this time, we are unable to predict the impact that it may have on
our business. Among other things, we could experience lower growth in the region, increased foreign currency risk, greater restrictions on business with UK
customers and data providers, and increased regulatory complexity. Brexit has also created uncertainty with regard to the regulation of data protection in the
UK and data transfers to and from the UK. A change in such regulations, or other regulations, could increase our costs of doing business, or in some cases our
ability to do business, and adversely impact our operations and financial results. There is also a risk that other countries may decide to leave the EU. We
cannot predict the impact that any additional countries leaving the EU may have on our business, but any such impact could adversely affect us.
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Risks Related to Our Capital Structure and Financings
Restrictive covenants in the agreements governing our current and future indebtedness could restrict our operating flexibility.
The agreements governing our existing debt, and debt we may incur in the future, contain, or may contain, affirmative and negative covenants that materially
limit our ability to take certain actions, including our ability to incur debt, issue equity, pay dividends and repurchase stock, make certain investments and
other payments, enter into certain mergers and consolidations, and encumber and dispose of assets. Our Notes also require us to maintain certain minimum
cash balances, which may restrict our ability to invest in our business or may require us to invest less than we otherwise would. The minimum cash balance
requirement under the Notes is currently $40.0 million.
We may require additional capital to support our business, and this capital may not be available on acceptable terms or at all.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the
need to develop new products or enhance our existing products, enhance our operating infrastructure and acquire complementary businesses and technologies.
Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or
convertible debt securities, our existing stockholders could suffer significant dilution, and any new securities we issue could have rights, preferences and
privileges superior to those of holders of our Common Stock. Any financing secured by us in the future could include restrictive covenants relating to our
capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue
business opportunities, including potential acquisitions.
As a result of our settlement with the SEC relating to financial accounting and disclosure practices between February 2014 and February 2016, we are
currently subject to a "bad actor" disqualification and are unable to rely on certain exemptions from registration under the federal securities laws, including
Regulation D. In addition, we are an "ineligible issuer" as the term is defined under Rule 405 promulgated under the Securities Act. This could make it more
difficult for us to raise necessary financing in the future.
Capital and credit market conditions, adverse events affecting our business or industry, the tightening of lending standards, rising interest rates, negative
actions by regulatory authorities or rating agencies, or other factors also could negatively impact our ability to obtain future financing or to refinance our
outstanding indebtedness on terms acceptable to us or at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we
require it, our ability to support our business growth and to respond to business challenges could be significantly limited. In addition, the terms of any
additional equity or debt issuances may adversely affect the value and price of our Common Stock, our results of operations, financial condition and cash
flows.
The interest rate reset feature of our Notes subjects us to interest rate risk, which has caused our debt service obligations to increase and may continue to
result in increased interest charges in future years.
We are subject to interest rate risk as a result of the interest rate reset feature of our $204.0 million aggregate principal amount of Notes outstanding. The
interest rate on our Notes is currently 12.0% per year (increased from 6.0% per year effective January 30, 2019) and resets on February 1, 2021 (the "Interest
Reset Date"), based on the then-applicable conversion premium, which is calculated by dividing the conversion price of the Notes (set at $31.29 per share) by
the arithmetic average of the volume-weighted average trading prices of our Common Stock on each of the ten consecutive trading days immediately
preceding the Interest Reset Date. Generally, as the conversion premium increases, the interest rate increases, and as the conversion premium decreases, the
interest rate decreases. We are unable to forecast with any certainty the conversion premium as of the Interest Reset Date, and as a result, there can be no
assurance that the interest rate on the Notes will decrease in future years.
We have the ability, subject to certain conditions, to pay interest on the Notes through the issuance of additional shares of Common Stock ("PIK Interest
Shares") rather than cash. Any PIK Interest Shares would be valued based on the arithmetic average of the volume-weighted average trading prices of our
Common Stock on each trading day during the ten consecutive trading days ending immediately before the applicable interest payment date. In 2019, we paid
interest on the Notes in cash in January and in PIK Interest Shares in April, July and October. We issued an aggregate of 4,057,129 PIK Interest Shares in
2019. We paid interest on the Notes in cash in January 2020. If we elect to pay future interest on the Notes in cash, our cash flow will be negatively affected,
which could have a material and adverse effect on our liquidity and financial condition. If we elect to pay interest on the Notes in PIK Interest Shares, our
existing stockholders could suffer significant dilution, particularly if our Common Stock continues to be subject to significant fluctuations in price.
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The issuance of shares of Common Stock upon conversion of, or payment of interest on, our Notes and the exercise of warrants to purchase our Common
Stock could substantially dilute your investment and could impede our ability to obtain additional financing.
Our Notes are convertible into, and our warrants are exercisable for, shares of our Common Stock and give the holders thereof an opportunity to profit from a
rise in the market price of our Common Stock such that conversion or exercise thereof will result in dilution of the equity interests of our stockholders.
Further, the issuance of shares of our Common Stock, at our election, in lieu of cash, in payment of interest on the Notes, has and would result in dilution of
the equity interests of our other stockholders, particularly if our Common Stock continues to be subject to significant fluctuations in price. Except for our
Series B-2 warrants, which allow us to force an exercise in certain circumstances, we have no control over whether the holders of Notes and warrants will
exercise their right, in whole or in part, to convert their Notes or exercise their warrants. Additionally, if we elect to pay interest on the Notes in shares of
Common Stock, the number of PIK Interest Shares issuable would depend on the trading price of our Common Stock during the ten consecutive trading days
ending immediately before the applicable interest payment date. For these reasons, we are unable to forecast or predict with any certainty the total number of
shares of Common Stock that may be issued under the Notes and warrants. The existence and potentially dilutive impact of the Notes and our warrants may
prevent us from obtaining additional financing in the future on acceptable terms, or at all.
The terms of our Notes, our warrants and our registration rights agreement with certain investors could impede our ability to enter into corporate
transactions or obtain additional financing and could result in our paying premiums or penalties to the holders of the Notes and warrants.
The terms of our Notes and our warrants require us, upon the consummation of any "Fundamental Transaction" (as defined in the Notes and the warrants), to
cause any successor entity resulting from such Fundamental Transaction to assume all of our obligations under the Notes and warrants and the associated
transaction documents. Further, the terms of the Notes and the warrants could impede our ability to enter into certain transactions or obtain additional
financing in the future.
The Notes and the warrants require us to deliver the number of shares of our Common Stock issuable upon conversion or exercise within a specified time
period. If we are unable to deliver the shares of Common Stock within the timeframe required, we may be obligated to reimburse the holders for the cost of
purchasing the shares of our Common Stock in the open market or pay them the profit they would have realized upon the conversion or exercise and sale of
such shares.
Our registration rights agreement with Starboard provides that in the event that the registration statement required to be filed under the Starboard registration
rights agreement ceases to be effective and available to the selling stockholders party thereto under certain circumstances, we must pay to the selling
stockholders on the 121st day after the occurrence of each such event and on every 30th day thereafter until the applicable event is cured, an amount equal to
1.0% of the Conversion Amount (as defined in the Notes), subject to a maximum of 3.0% of the aggregate principal amount outstanding under the Notes for
any 30-day period. Our registration rights agreement with CVI provides that in the event that the registration statement required to be filed under the CVI
registration rights agreement ceases to be effective and available to the selling stockholders party thereto under certain circumstances, we must pay to the
selling stockholder on the date of the occurrence of each such event and on every 30th day thereafter until the applicable event is cured, an amount equal to
2.0% of the Purchase Price (as defined in the CVI purchase agreement), subject to a maximum of 8.0% of the Purchase Price.
The payments we may be obligated to make to the holders of the Notes and our warrants described above may adversely affect our financial condition,
liquidity and results of operations.
We may be obligated to redeem our Notes at a premium upon the occurrence of an Event of Default (as defined in the Notes) or a Change of Control (as
defined in the Notes).
If we fail to comply with the various covenants in our Notes, including the financial covenants, we could be in default. Upon an Event of Default under the
Notes, we could be required to redeem the Notes at a premium. In addition, upon the occurrence of specific kinds of Change of Control events, we will be
required to offer to redeem the Notes at a premium as set out in the Notes.
In either event, the source of funds for any such redemption would be our available cash or, possibly, other financing. We may not be able to redeem the
Notes pursuant to the terms thereof because we may not have the financial resources to do so, and no assurances can be provided as to our ability to obtain
other requisite financing in amounts, or at times, as may be needed. Our failure to repurchase the Notes upon a Change of Control in accordance with the
terms thereof would also result in an Event of Default under the Notes. In the event the holders of the Notes exercised their rights thereunder and we were
unable to redeem the Notes, it could have important consequences including, potentially, forcing us into bankruptcy or liquidation.
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Risks Related to the Securities Markets and Ownership of Our Common Stock
The trading price of our Common Stock may be subject to significant fluctuations and volatility, and our stockholders may be unable to resell their shares
at a profit.
The stock markets, in general, and the markets for technology stocks in particular, have experienced high levels of volatility. The market for technology
stocks has been extremely volatile and frequently reaches levels that bear no relationship to the past or present operating performance of those companies.
These broad market fluctuations may adversely affect the trading price of our Common Stock. In addition, our Common Stock has been subject to significant
fluctuations in price, particularly over the past year, and may continue to experience fluctuations or declines.
The price of our Common Stock in the market may be higher or lower depending on many factors, some of which are beyond our control and may not be
related to our operating performance. It is possible that, in future quarters, our operating results may be below the expectations of analysts or investors, or we
may take actions (including additional equity or debt financings) or have additional changes in management that are negatively perceived by the market. As a
result of these and other factors, the price of our Common Stock may decline, possibly materially. These fluctuations could cause an investor to lose all or part
of their investment in our Common Stock.
The Company's outstanding securities, the stock or securities that we may become obligated to issue under existing or future agreements, and certain
provisions of those securities, may cause immediate and substantial dilution to our existing stockholders.
Our existing stockholders have and may continue to experience substantial dilution as a result of our obligations to issue shares of Common Stock.
The total principal amount of Notes held by Starboard as of December 31, 2019 was $204.0 million. The Notes are convertible, at the option of Starboard,
into shares of Common Stock at a conversion price of $31.29 per share. Interest on the Notes is payable, at our option, in cash or through the issuance of PIK
Interest Shares. Any PIK Interest Shares so issued are valued at the arithmetic average of the volume-weighted average trading prices of our Common Stock
on each trading day during the ten consecutive trading days ending immediately preceding the applicable interest payment date. We issued PIK Interest
Shares in April, July and October 2019, and we may issue PIK Interest Shares in the future.
In addition, we have the right to conduct a rights offering (the "Rights Offering") for up to $150.0 million in senior secured convertible notes (the "Rights
Offering Notes"). The Rights Offering Notes would be substantially similar to the Notes, except with respect to, among other things, the conversion price
thereof, which would be equal to 130% of the closing price of our Common Stock on the last trading day immediately prior to the commencement of the
Rights Offering (subject to a conversion price floor of $28.00 per share). Interest on the Rights Offering Notes would also be payable, at our option, in cash or
through the issuance of PIK Interest Shares.
Pursuant to the CVI purchase agreement, we granted to CVI warrants to initially purchase up to 11,654,033 shares of Common Stock. As of December 31,
2019, following exercise of the Series C warrant, 8,925,520 shares of Common Stock were reserved for issuance pursuant to the CVI warrants.
As of December 31, 2019, 1,538,967 shares of Common Stock were reserved for issuance pursuant to outstanding stock options under our equity incentive
plans, 2,660,236 shares of Common Stock were reserved for issuance pursuant to outstanding restricted stock unit awards under our equity incentive plans,
and 1,871,778 shares of Common Stock were available for future equity awards under our 2018 Equity and Incentive Compensation Plan.
The issuance of shares of Common Stock (i) upon the conversion of the Notes or the Rights Offering Notes (if issued), (ii) as payment-in-kind of interest on
any such notes through the issuance of PIK Interest Shares, (iii) upon the exercise of warrants, (iv) pursuant to outstanding and future equity awards, or (v)
upon the conversion of other existing or future convertible securities, may result in substantial dilution to each of our stockholders by reducing that
stockholder's percentage ownership of our outstanding Common Stock.
Provisions in our certificate of incorporation, bylaws and under Delaware law might discourage, delay or prevent a change of control of our company or
changes in our management and, therefore, depress the trading price of our Common Stock.
Our certificate of incorporation and bylaws contain provisions that could depress the trading price of our Common Stock by acting to discourage, delay or
prevent a change of control of our company or changes in our management that the stockholders of our company may deem advantageous.
These provisions:
•
•
provide for a classified board of directors so that not all members of our Board are elected at one time;
authorize "blank check" preferred stock that our Board could issue to increase the number of outstanding shares to discourage a takeover attempt;
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•
•
•
•
prohibit stockholder action by written consent, which means that all stockholder actions must be taken at a meeting of our stockholders;
prohibit stockholders from calling a special meeting of our stockholders;
provide that the Board is expressly authorized to make, alter or repeal our bylaws; and
provide for advance notice requirements for nominations for elections to our Board or for proposing matters that can be acted upon by stockholders
at stockholder meetings.
In addition, we are subject to Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested" stockholder for a period of three years following the date on which the stockholder became an
"interested" stockholder and which may discourage, delay or prevent a change of control of our company.
Shareholder activists could cause a disruption to our business.
We have been and may in the future be subject to legal and business challenges in the operation of our company due to actions instituted by activist
shareholders or others, such as shareholder proposals, media campaigns, proxy contests and other such actions. Responding to proxy contests or such other
actions has been and could continue to be costly and time-consuming, disrupt our operations and divert the attention of our Board and senior management
from the pursuit of business strategies, which could adversely affect our results of operations and financial condition. Additionally, perceived uncertainties as
to our future direction as a result of shareholder activism or potential changes to the composition of our Board may lead to the perception of a change in the
direction of the business, loss of potential business opportunities, instability or lack of continuity. This may be exploited by our competitors, cause concern to
our current or potential customers, and make it more difficult to attract and retain qualified personnel. In addition, actions of activist shareholders may cause
significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying
fundamentals and prospects of our business.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our corporate headquarters is located in Reston, Virginia, where we occupy approximately 84,000 square feet of office space. We also lease space in various
locations throughout North America, South America, Europe, and Asia Pacific for sales and other personnel. If we require additional space, we believe that
we would be able to obtain such space on commercially reasonable terms.
Our other material locations, all of which are leased under operating leases, include the following:
•
•
•
•
Portland, Oregon
New York, New York
Chicago, Illinois
Amsterdam, Netherlands
As of December 31, 2019, we leased facilities in 38 locations worldwide, including approximately 49,000 square feet of subleased space in six properties.
In January 2020, we executed a sublease in Toronto, Canada for approximately 11,900 square feet.
For additional information regarding our obligations under operating and finance leases, refer to Footnote 8, Leases of the Notes to Consolidated Financial
Statements.
ITEM 3.
LEGAL PROCEEDINGS
For a discussion of material legal proceedings in which we are involved, please refer to Footnote 11, Commitments and Contingencies of the Notes to
Consolidated Financial Statements included in Part II, Item 8 of this 10-K, which is incorporated herein by reference.
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ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
MARKET INFORMATION
Our Common Stock trades on The Nasdaq Global Select Market under the symbol "SCOR".
HOLDERS
As of February 25, 2020, there were 96 stockholders of record of our Common Stock, although we believe that there are a significantly larger number of
beneficial owners of our Common Stock. We derived the number of stockholders by reviewing the listing of outstanding Common Stock recorded by our
transfer agent as of February 25, 2020.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on our Common Stock between December 31, 2014 and December 31, 2019 to the
cumulative total returns of the Nasdaq Composite Index, the S&P MidCap 400 Index and the Nasdaq Computer Index over the same period. This graph
assumes the investment of $100 at the closing price of the markets on December 31, 2014 in our Common Stock, the Nasdaq Composite Index, the S&P
MidCap 400 Index and the Nasdaq Computer Index, and assumes the reinvestment of dividends, if any. The comparisons shown in the following graph are
based upon historical data. We caution that the stock price performance shown in the graph below is not necessarily indicative of, nor is it intended to
forecast, the potential future performance of our Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN*
among comScore, Inc., The Nasdaq Composite Index, The S&P MidCap 400 Index
and The Nasdaq Computer Index
________________
*
$100 invested upon market close of The Nasdaq Global Select Market on December 31, 2014, including reinvestment of dividends.
The preceding Stock Performance Graph is not deemed filed with the SEC and shall not be incorporated by reference in any of our filings under the Securities
Act of 1933, as amended, or the Exchange Act, as amended whether made before or after the date hereof and irrespective of any general incorporation
language in any such securities filing.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The information relating to our equity compensation plans required by Item 5 is incorporated by reference to such information as set forth in Part III, Item 12,
"Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters."
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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The information required by Item 701 of Regulation S-K was previously included in Quarterly Reports on Form 10-Q filed on August 7, 2019 and November
6, 2019 and Current Reports on Form 8-K filed on April 1, June 24, June 26, July 1, October 1, and October 16, 2019.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
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ITEM 6.
SELECTED FINANCIAL DATA
The selected Consolidated Statements of Operations and Comprehensive Loss data and Consolidated Balance Sheets data displayed below is derived from our
audited Consolidated Financial Statements for the five-year period ended December 31, 2019. The selected financial data as of, and for the year ended,
December 31, 2015 was adjusted from the unaudited information previously furnished in our Current Report on Form 8-K on February 17, 2016. Item 6,
"Selected Financial Data" of our Annual Report on Form 10-K for the year ended December 31, 2017 (the "2017 10-K") sets forth information regarding the
applicable adjustments or restatements of our financial results for 2015. Footnote 1, Organization, of the Notes to Consolidated Financial Statements
contained in the 2017 10-K sets forth information regarding the applicable adjustments and restatement of our stockholders' equity as of January 1, 2015.
The selected financial data set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements and related notes
thereto included in this 10-K under the caption Item 8, Financial Statements and Supplementary Data.
(In thousands, except share and per share data)
Consolidated Statement of Operations and
Comprehensive Loss Data:
Revenues (2)
Total expenses from operations
Loss from operations
Non-operating (expenses) income, net
Income tax benefit (provision)
Net loss
Net loss per common share:
Basic and diluted
$
$
2019
2018
2017
2016 (1)
2015
Years Ended December 31,
$
388,645 $
419,482 $
403,549 $
399,460 $
699,112
(310,467)
(29,536)
1,007
558,418
(138,936)
(16,626)
(3,706)
699,052
(295,503)
11,393
2,717
531,302
(131,842)
10,662
4,007
(338,996) $
(159,268) $
(281,393) $
(117,173) $
270,803
345,898
(75,095)
(2,643)
(484)
(78,222)
(5.33) $
(2.76) $
(4.90) $
(2.10) $
(2.07)
Weighted-average number of shares used in per share calculations - Common Stock:
Basic and diluted
63,590,882
57,700,603
57,485,755
55,728,090
37,879,091
(1) Due to the Rentrak merger in January 2016, 2016 results include 11 months of Rentrak activity as compared to full-year results in the subsequent years.
(2) As discussed in Footnote 2, Summary of Significant Accounting Policies, in our 2018 10-K, revenue for the years ended December 31, 2017, 2016, and 2015 is not comparable to revenue for the
years ended December 31, 2019 and 2018 due to our adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606" or "Topic 606").
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(In thousands)
Consolidated Balance Sheets Data:
Cash, cash equivalents, restricted cash and marketable
securities
Total current assets
Total assets
Capital lease obligations and software license arrangements,
current and long-term (2) (3)
Finance lease liabilities, current and long-term (3)
Operating lease liabilities, current and long-term (3)
Senior secured convertible notes (4)
Financing derivatives (4)
Secured term note (5)
Warrants liability (6)
Total liabilities
Stockholders' equity
2019
2018
2017
2016(1)
As of December 31,
$
66,773 $
50,198 $
45,125 $
116,753 $
145,779
954,143
179,554
232,433
1,022,439
1,120,792
2015
(Unaudited)
146,986
247,263
446,196
153,983
723,695
950
4,250
49,261
184,075
21,587
12,463
7,725
464,721
258,974
5,417
13,162
28,578
32,299
—
—
177,342
26,100
—
—
402,576
551,567
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
365,947
656,492
215,939
904,853
184,018
262,178
(1) As discussed in Footnote 3, Business Combinations and Acquisitions in our 2018 10-K, we completed the Rentrak merger in January 2016.
(2) Amounts for December 31, 2019, 2018, 2017, and 2016 include software license obligations in the amount of $0.6 million, $1.8 million, $4.8 million, and $7.7 million respectively. Amount for
2015 includes capital lease obligations only.
(3) As discussed in Footnote 2, Summary of Significant Accounting Policies, we adopted ASC 842, Leases as of January 1, 2019.
(4) We entered into financing arrangements and issued senior secured convertible notes in 2018. Refer to Footnote 4, Long-term Debt, for additional details.
(5) We issued a secured term note in December 2019. Refer to Footnote 4, Long-term Debt, for additional details.
(6) We issued four series of liability-classified warrants in June 2019. Refer to Footnote 5, Stockholders' Equity, for additional details.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial
Statements and the related Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, or 10-K. In addition
to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and
assumptions. Our actual results and timing of selected events in future periods may differ materially from those anticipated or implied in these forward-
looking statements as a result of many factors, including those discussed under Item 1A, "Risk Factors," and elsewhere in this 10-K. See also "Cautionary
Note Regarding Forward-Looking Statements" at the beginning of this 10-K.
Overview
We are a global information and analytics company that measures advertising, content, and the consumer audiences of each, across media platforms. We
create our products using a global data platform that combines information on digital platforms (smartphones, tablets and computers), TV and movie screens
with demographics and other descriptive information. We have developed proprietary data science that enables measurement of person-level and household-
level audiences, removing duplicated viewing across devices and over time. This combination of data and methods enables a common standard for buyers and
sellers to transact on advertising. This helps companies across the media ecosystem better understand and monetize their audiences and develop marketing
plans and products to more efficiently and effectively reach those audiences. Our ability to unify behavioral and other descriptive data enables us to provide
audience ratings, advertising verification, and granular consumer segments that describe hundreds of millions of consumers. Our customers include digital
publishers, television networks, movie studios, content owners, advertisers, agencies and technology providers.
The platforms we measure include televisions, smartphones, computers, tablets, OTT devices and movie theaters. The information we analyze crosses
geographies, types of content and activities, including websites, mobile apps, video games, television and movie programming, e-commerce, and advertising.
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Results of Operations
The following table sets forth selected Consolidated Statements of Operations and Comprehensive Loss data as a percentage of revenues for each of the
periods indicated.
Years Ended December 31,
2019
2018
% of Revenue
% of Revenue
2017
% of Revenue
100.0 %
Dollars
403,549
$
(In thousands)
Revenues
Cost of revenues
Selling and marketing
Research and development
General and administrative
Investigation and audit related
Amortization of intangible assets
Dollars
388,645
199,622
89,145
61,802
66,419
4,305
30,076
100.0 % $
51.4 %
22.9 %
15.9 %
17.1 %
1.1 %
7.7 %
Impairment of goodwill and intangible assets
241,580
62.2 %
Dollars
419,482
200,220
108,395
76,979
84,535
38,338
32,864
—
5,250
11,837
100.0 % $
47.7 %
25.8 %
18.4 %
20.2 %
9.1 %
7.8 %
— %
1.3 %
2.8 %
193,605
130,509
89,023
74,651
83,398
34,823
—
82,533
10,510
Settlement of litigation, net
Restructuring
Total expenses from operations
Loss from operations
Interest expense, net
Other income (expense), net
Gain (loss) from foreign currency transactions
2,900
3,263
0.7 %
0.8 %
699,112
179.9 %
558,418
133.1 %
699,052
(310,467)
(79.9)%
(138,936)
(33.1)%
(295,503)
(31,526)
(8.1)%
(16,465)
1,654
336
0.4 %
0.1 %
(1,464)
1,303
(3.9)%
(0.3)%
0.3 %
(661)
15,205
(3,151)
(340,003)
(87.5)%
(155,562)
(37.1)%
(284,110)
1,007
0.3 %
(3,706)
(0.9)%
2,717
$ (338,996)
(87.2)% $ (159,268)
(38.0)% $ (281,393)
48.0 %
32.3 %
22.1 %
18.5 %
20.7 %
8.6 %
— %
20.5 %
2.6 %
173.2 %
(73.2)%
(0.2)%
3.8 %
(0.8)%
(70.4)%
0.7 %
(69.7)%
Loss before income taxes
Income tax benefit (provision)
Net loss
Revenues
Our products and services are organized around solution groups that address customer needs. We evaluate revenues around three solution groups:
•
•
Ratings and Planning provides measurement of the behavior and characteristics of audiences of content and advertising, across television and digital
platforms including computers, tablets, smartphones, and other connected devices. These products and services are designed to help customers find
the most relevant viewing audience, whether that viewing is linear, non-linear, online or on-demand.
Analytics and Optimization includes custom solutions, activation, lift and survey-based products that provide end-to-end solutions for planning,
optimization and evaluation of advertising campaigns and brand protection.
• Movies Reporting and Analytics measures movie viewership and box office results by capturing movie ticket sales in real time or near real time and
includes box office analytics, trend analysis and insights for movie studios and movie theater operators worldwide.
We categorize our revenue along these solution groups; however, our cost structure is tracked at the corporate level and not by our solution groups. These
costs include, but are not limited to employee costs, purchased data, operational overhead, data storage and technology that supports multiple solution groups.
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Revenues for the years ended December 31, 2019 and 2018 are as follows:
Years Ended December 31,
(In thousands)
Ratings and Planning
Analytics and Optimization
Movies Reporting and Analytics
Total revenues
$
$
2019
271,623
74,725
42,297
388,645
69.9% $
19.2%
10.9%
2018
285,355
92,380
41,747
68.0% $
(13,732)
22.0%
10.0%
(17,655)
550
100.0% $
419,482
100.0% $
(30,837)
% of Revenue
% of Revenue
$ Change
% Change
(4.8)%
(19.1)%
1.3 %
(7.4)%
Total revenues decreased by $30.8 million, or 7.4%, for the year ended December 31, 2019 as compared to the year ended December 31, 2018. The decrease
was driven by the Ratings and Planning and Analytics and Optimization solution groups.
Ratings and Planning revenue decreased by $13.7 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018. The
decrease was primarily driven by syndicated digital products, which declined 12% from 2019 to 2018. While retention of syndicated digital enterprise
customers remained high in 2019, revenue from our smaller and international syndicated digital customers declined and continued to be impacted by ongoing
industry changes in ad buying and consolidation. Syndicated digital revenue represented 51% and 55% of our Ratings and Planning revenue for 2019 and
2018, respectively. Revenue from vCE declined due to lower volumes of measured impressions as we transitioned to premium video content through our
CCR product offering. Offsetting those decreases were increased revenue from our cross-platform and TV offerings. Cross-platform revenue increased from
higher deliveries of data in 2019 versus 2018. TV revenue increased to 36% of Ratings and Planning revenue in 2019 as compared to 34% in 2018. TV
revenue grew as a result of higher local TV revenue due to new customers and expansion of existing relationships, offset in part by lower national TV
revenue, due in part to political revenue recognized in 2018 that did not recur in 2019.
Analytics and Optimization revenue decreased by $17.7 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018.
The decrease was primarily driven by lower sales and deliveries of digital custom solutions, survey and lift products in 2019. The decrease was offset by
increased revenue from Activation products, which continued to experience year-over-year growth.
Movies Reporting and Analytics revenue increased by $0.6 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018
due to growth in new product revenue.
Revenues for the years ended December 31, 2018 and 2017 are as follows:
Years Ended December 31,
(In thousands)
Ratings and Planning
Analytics and Optimization
Movies Reporting and Analytics
Total revenues
2018(1)
% of Revenue
% of Revenue
$ Change
% Change
$
$
285,355
92,380
41,747
419,482
68.0% $
22.0%
10.0%
2017
278,081
86,765
38,703
68.9% $
21.5%
9.6%
7,274
5,615
3,044
100.0% $
403,549
100.0% $
15,933
2.6%
6.5%
7.9%
3.9%
(1) As discussed in Footnote 2, Summary of Significant Accounting Policies, the revenue for the year ended December 31, 2018 is not comparable to the year ended December 31, 2017 due to our
adoption of ASC 606. Refer to our reconciliation of as reported revenue to compare the periods presented.
Total revenues increased by $15.9 million, or 3.9%, for the year ended December 31, 2018 as compared to the year ended December 31, 2017, with increases
across all three of our solution groups. Revenues for the year ended December 31, 2018 include $1.0 million related to the adoption of ASC 606, primarily
included in Analytics and Optimization.
Ratings and Planning revenue increased $7.3 million for the year ended December 31, 2018 as compared to the year ended December 31, 2017. The increase
was primarily from our TV products, which made up 34% of Ratings and Planning revenue in 2018 compared to 27% in 2017, due to increases in existing
customer contract values as well as the establishment of stand-alone selling price over certain distinct performance obligations in arrangements that include
the purchase and sale of services. The increase also included approximately $2.8 million related to the delivery of cross-platform products in certain
international markets. These increases were offset by lower revenue from our syndicated digital products, which decreased from 61% of Ratings and Planning
revenue in 2017 to 55% in 2018, as these products continued to be negatively impacted by ongoing industry changes in ad buying and consolidation.
Analytics and Optimization revenue increased by $5.6 million for the year ended December 31, 2018 as compared to the year ended December 31, 2017.
Revenue increased primarily due to increases in our emerging products, including Activation, which experienced significant growth, primarily in the latter
part of 2018. This increase was partially offset by lower revenue from our digital custom marketing solutions products.
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Movies Reporting and Analytics revenue increased by $3.0 million for the year ended December 31, 2018 as compared to the year ended December 31, 2017.
Revenue increased as our global footprint remained strong and our products continued to result in higher contract pricing. As we continued to collect data
from box office locations worldwide, our customers continued to expand and renew agreements.
Revenues by Geographic Location
Revenue from outside of the United States was $52.6 million, $60.1 million and $71.2 million for the years ended December 31, 2019, 2018, and 2017,
respectively. Revenue declines were due in part to our exit from certain countries as part of our restructuring activities. Please refer to Footnote 16,
Organizational Restructuring, of the Notes to Consolidated Financial Statements.
We generate the majority of our revenues from the sale and delivery of our products within the United States. For information with respect to our geographic
markets, refer to Footnote 14, Geographic Information, of the Notes to Consolidated Financial Statements. Our chief operating decision maker (our CEO)
does not evaluate the profit or loss from any separate geography.
We anticipate that revenues from our U.S. sales will continue to constitute a substantial and increasing portion of our revenues in future periods. We expect
our international revenues to continue to decline as a percentage of our total revenues as a result of growth in our domestic product offerings.
WPP Related Party Revenue
We provide WPP and its affiliates, in the normal course of business, services relating to our different product lines and receive various services from WPP and
its affiliates in supporting our data collection efforts. For the years ended 2019, 2018, and 2017, related party revenues with WPP and its affiliates were $15.9
million, $11.6 million and $13.2 million, respectively.
Cost of Revenues
Cost of revenues consists primarily of expenses related to producing our products, operating our network infrastructure, the recruitment, maintenance and
support of our consumer panels and amortization of capitalized fulfillment costs. Expenses associated with these areas include employee costs including
salaries, benefits, stock-based compensation and other related personnel costs of network operations, survey operations, custom analytics and technical
support, all of which are expensed as they are incurred. Cost of revenues also includes costs to obtain multichannel video programming distributor ("MVPD")
data sets and panel, census based and other data sets used in our products as well as operational costs associated with our data centers, including depreciation
expense associated with computer equipment and internally developed software that supports our panels and systems. Additionally, cost of revenues includes
allocated overhead, lease expense and other facilities-related costs.
Cost of revenues for the years ended December 31, 2019 and 2018 are as follows:
(In thousands)
Data costs
Employee costs
Systems and bandwidth costs
Panel costs
Lease expense and depreciation(1)
Sample and survey costs
Professional fees
Technology
Royalties and resellers
Other
Years Ended December 31,
2019
% of Revenue
2018
% of Revenue
$ Change
% Change
$
60,165
50,996
25,023
20,901
15,052
7,225
6,985
5,887
4,027
3,361
15.5% $
13.1%
6.4%
5.4%
3.9%
1.9%
1.8%
1.5%
1.0%
0.9%
53,248
57,490
27,033
22,670
12,753
6,295
5,470
6,492
3,389
5,380
12.7% $
13.7%
6.4%
5.4%
3.0%
1.5%
1.3%
1.5%
0.8%
1.3%
6,917
(6,494)
(2,010)
(1,769)
2,299
930
1,515
(605)
638
(2,019)
(598)
13.0 %
(11.3)%
(7.4)%
(7.8)%
18.0 %
14.8 %
27.7 %
(9.3)%
18.8 %
(37.5)%
(0.3)%
Total cost of revenues
$
199,622
51.4% $
200,220
47.7% $
(1)As discussed in Footnote 2, Summary of Significant Accounting Policies, lease expense and depreciation for the year ended December 31, 2019 is not comparable to the year ended December 31,
2018 due to our adoption of ASC 842.
Cost of revenues decreased by $0.6 million, or 0.3%, for the year ended December 31, 2019 as compared to the year ended December 31, 2018. The decrease
was attributable to a decrease in employee costs, systems and bandwidth, such as data storage costs, and panel costs and other costs offset by an increase in
data costs, lease expense, depreciation and professional fees.
Employee costs decreased $6.5 million due to reduced headcount and restructuring efforts as discussed in Footnote 16, Organizational Restructuring.
Systems and bandwidth costs decreased $2.0 million due to our ongoing technology transformation
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to reduce complexity, increase capacity, and transition to a cloud-based environment from data centers. Panel costs decreased $1.8 million due to lower costs
associated with incentive plans used in certain countries and the use of more cost-effective recruitment solutions. Other costs decreased $2.0 million due to
reduction in travel costs from lower headcount and certain license expenses that are now included in data costs. Offsetting these decreases was an increase in
data costs of $6.9 million due to increased costs associated with our long-term data contracts with MVPDs. We continued to invest in product solution
offerings through the acquisition of additional TV data. Lease expense and depreciation increased $2.3 million primarily due to increased depreciation related
to internally developed software. Professional fees increased $1.5 million due to an increase in data governance and technology consulting services to
improve operational processes.
Cost of revenues for the years ended December 31, 2018 and 2017 are as follows:
(In thousands)
Employee costs
Data costs
Systems and bandwidth costs
Panel costs
Lease expense and depreciation
Technology
Sample and survey costs
Professional fees
Royalties and resellers
Other
Total cost of revenues
Years Ended December 31,
2018
% of Revenue
2017
% of Revenue
$ Change
% Change
$
57,490
53,248
27,033
22,670
12,753
6,492
6,295
5,470
3,389
5,380
13.7% $
12.7%
6.4%
5.4%
3.0%
1.5%
1.5%
1.3%
0.8%
1.3%
63,143
40,324
20,803
23,966
17,479
5,369
5,845
6,053
3,271
7,352
15.6% $
10.0%
5.2%
5.9%
4.3%
1.3%
1.4%
1.5%
0.8%
1.8%
$
200,220
47.7% $
193,605
48.0% $
(5,653)
12,924
6,230
(1,296)
(4,726)
1,123
450
(583)
118
(1,972)
6,615
(9.0)%
32.1 %
29.9 %
(5.4)%
(27.0)%
20.9 %
7.7 %
(9.6)%
3.6 %
(26.8)%
3.4 %
Cost of revenues increased by $6.6 million, or 3.4%, for the year ended December 31, 2018 as compared to the year ended December 31, 2017. The increase
was largely attributable to increases in data and systems and bandwidth costs, offset by decreases in employee costs, lease expense and depreciation, panel
costs, and other costs.
Data costs increased $12.9 million primarily due to costs associated with the acquisition of data for distinct services provided under certain arrangements that
include the purchase and sale of services and increases in our long-term contracts with MVPDs. We continued to invest in product solution offerings through
the acquisition of additional TV data, as well as in our digital platform through the acquisition of additional mobile data during 2018. Systems and bandwidth
costs increased $6.2 million primarily as a result of our ongoing technology transformation to reduce complexity, increase capacity and transition to a cloud-
based environment from data centers.
These increases in expenses were offset by decreases in employee costs, rent and depreciation, and other costs. Employee costs declined $5.7 million,
primarily due to the capitalization of payroll costs for internal-use software development in 2018 totaling $3.7 million compared with no amounts capitalized
in 2017. In addition, employee costs decreased due to reduced headcount and restructuring efforts as discussed in Footnote 16, Organizational Restructuring,
offset by an increase in stock-based compensation expense. Lease expense and depreciation decreased $4.7 million due to assets fully depreciating in 2018.
Other cost of revenues decreased $2.0 million primarily due to reduced activity under our Digital Analytix ("DAx") transition services agreement as related
contracts wound down.
Selling and Marketing
Selling and marketing expenses consist primarily of employee costs, including salaries, benefits, commissions, stock-based compensation and other related
costs for personnel associated with sales and marketing activities, as well as costs related to online and offline advertising, industry conferences, promotional
materials, public relations, other sales and marketing programs and allocated overhead, which is comprised of lease expense and other facilities-related costs,
and depreciation expense generated by general purpose equipment and software.
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Selling and marketing expenses for the years ended December 31, 2019 and 2018 are as follows:
(In thousands)
Employee costs
Lease expense and depreciation(1)
Travel
Technology
Professional fees
Other
Years Ended December 31,
2019
% of Revenue
2018
% of Revenue
$ Change
% Change
$
71,979
18.5% $
87,591
20.9% $
(15,612)
5,690
3,260
2,726
2,521
2,969
1.5%
0.8%
0.7%
0.6%
0.8%
7,670
4,780
1,042
3,311
4,001
1.8%
1.1%
0.2%
0.8%
1.0%
(1,980)
(1,520)
1,684
(790)
(1,032)
(17.8)%
(25.8)%
(31.8)%
161.6 %
(23.9)%
(25.8)%
(17.8)%
Total selling and marketing expenses
$
89,145
22.9% $
108,395
25.8% $
(19,250)
(1)As discussed in Footnote 2, Summary of Significant Accounting Policies, lease expense and depreciation for the year ended December 31, 2019 is not comparable to the year ended December 31,
2018 due to our adoption of ASC 842.
Selling and marketing expenses decreased by $19.3 million, or 17.8%, for the year ended December 31, 2019 as compared to the year ended December 31,
2018. The decrease was attributable to a decrease in employee costs as well as lease expense and depreciation, travel and professional fees, offset by an
increase in technology costs.
Employee costs decreased $15.6 million due to reduced headcount and restructuring efforts as discussed in Footnote 16, Organizational Restructuring. Lease
expense and depreciation decreased $2.0 million as a result of various lease terminations and decreased depreciation expense as various assets reached the end
of their depreciable lives. Travel costs decreased $1.5 million from lower headcount while professional fees decreased $0.8 million from reduced use of
consultants. Offsetting these decreases in costs was an increase of $1.7 million in technology costs due certain license expenses that were previously included
in research and development expense.
Selling and marketing expenses for the years ended December 31, 2018 and 2017 are as follows:
Years Ended December 31,
(In thousands)
Employee costs
Lease expense and depreciation
Travel
Professional fees
Other
2018
% of Revenue
$
87,591
20.9% $
2017
100,236
7,670
4,780
3,311
5,043
1.8%
1.1%
0.8%
1.2%
10,304
6,926
6,551
6,492
% of Revenue
$ Change
% Change
24.8% $
(12,645)
2.6%
1.7%
1.6%
1.6%
(2,634)
(2,146)
(3,240)
(1,449)
(12.6)%
(25.6)%
(31.0)%
(49.5)%
(22.3)%
(16.9)%
Total selling and marketing expenses
$
108,395
25.8% $
130,509
32.3% $
(22,114)
Selling and marketing expenses decreased by $22.1 million, or 16.9%, for the year ended December 31, 2018 as compared to the year ended December 31,
2017. The decrease was the result of a decrease in employee costs, professional fees and lease expense and depreciation. Employee costs decreased $12.6
million, due to reduced headcount and restructuring efforts as discussed in Footnote 16, Organizational Restructuring and lower sales commissions, offset by
an increase in stock-based compensation. Lease expense and depreciation decreased $2.6 million due to assets fully depreciating in 2018. The decrease in
professional fees of $3.2 million was mainly due to the decreased use of consultants.
Research and Development
Research and development expenses include product development costs, consisting primarily of employee costs including salaries, benefits, stock-based
compensation and other related costs for personnel associated with research and development activities, third-party expenses to develop new products and
third-party data costs and allocated overhead, which is comprised of lease expense and other facilities-related costs, and depreciation expense related to
general purpose equipment and software.
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Research and development expenses for the years ended December 31, 2019 and 2018 are as follows:
Years Ended December 31,
(In thousands)
2019
% of Revenue
2018
% of Revenue
$ Change
% Change
Employee costs
Lease expense and depreciation(1)
Technology
Professional fees
Other
$
47,626
12.3% $
60,490
14.4% $
(12,864)
5,958
4,164
2,860
1,194
1.5%
1.1%
0.7%
0.3%
7,057
5,057
2,668
1,707
1.7%
1.2%
0.6%
0.4%
(1,099)
(893)
192
(513)
Total research and development expenses
$
61,802
15.9% $
76,979
18.4% $
(15,177)
(21.3)%
(15.6)%
(17.7)%
7.2 %
(30.1)%
(19.7)%
(1)As discussed in Footnote 2, Summary of Significant Accounting Policies, lease expense and depreciation for the year ended December 31, 2019 is not comparable to the year ended December 31,
2018 due to our adoption of ASC 842.
Research and development expenses decreased by $15.2 million, or 19.7%, for the year ended December 31, 2019 as compared to the year ended December
31, 2018. This is primarily attributable to a decrease in employee costs, lease expense and depreciation and technology costs.
Employee costs decreased $12.9 million due to reduced headcount and restructuring efforts as discussed in Footnote 16, Organizational Restructuring. Lease
expense and depreciation decreased $1.1 million as a result of various lease terminations and decreased depreciation expense as various assets reached the end
of their depreciable lives. Technology costs decreased $0.9 million due to certain license expenses that are now included in selling and marketing expense.
Research and development expenses for the years ended December 31, 2018 and 2017 are as follows:
(In thousands)
Employee costs
Lease expense and depreciation
Technology
Professional fees
Other
Years Ended December 31,
2018
% of Revenue
2017
% of Revenue
$ Change
% Change
$
60,490
14.4% $
71,527
17.7% $
(11,037)
7,057
5,057
2,668
1,707
1.7%
1.2%
0.6%
0.4%
7,729
4,736
2,351
2,680
1.9%
1.2%
0.6%
0.7%
(672)
321
317
(973)
(15.4)%
(8.7)%
6.8 %
13.5 %
(36.3)%
(13.5)%
Total research and development expenses
$
76,979
18.4% $
89,023
22.1% $
(12,044)
Research and development expenses decreased by $12.0 million, or 13.5%, for the year ended December 31, 2018 as compared to the year ended December
31, 2017. The decrease was primarily attributable to lower employee costs due to the capitalization of $5.1 million of payroll costs for internal-use software
development in 2018 compared with no amount capitalized in 2017. In addition, employee costs decreased due to reduced headcount and restructuring efforts
as discussed in Footnote 16, Organizational Restructuring, offset by an increase in stock-based compensation.
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General and Administrative
General and administrative expenses consist primarily of employee costs including salaries, benefits, stock-based compensation and other related costs, and
related expenses for executive management, finance, human capital, legal and other administrative functions, as well as professional fees, overhead, including
allocated overhead, which is comprised of lease expense and other facilities-related costs, depreciation expense related to general purpose equipment and
software, and expenses incurred for other general corporate purposes.
General and administrative expenses for the years ended December 31, 2019 and 2018 are as follows:
(In thousands)
Employee costs
Professional fees
Lease expense and depreciation(1)
Bad debt expense
Transition services agreement
Other
Years Ended December 31,
2019
% of Revenue
2018
% of Revenue
$ Change
% Change
$
34,435
18,385
2,491
727
667
9,714
8.9% $
4.7%
0.6%
0.2%
0.2%
2.5%
38,094
21,528
3,711
966
9,035
11,201
84,535
9.1% $
5.1%
0.9%
0.2%
2.2%
2.7%
(3,659)
(3,143)
(1,220)
(239)
(8,368)
(1,487)
20.2% $
(18,116)
(9.6)%
(14.6)%
(32.9)%
(24.7)%
(92.6)%
(13.3)%
(21.4)%
Total general and administrative expenses
$
66,419
17.1% $
(1)As discussed in Footnote 2, Summary of Significant Accounting Policies, lease expense and depreciation for the year ended December 31, 2019 is not comparable to the year ended December 31,
2018 due to our adoption of ASC 842.
General and administrative expenses decreased by $18.1 million, or 21.4%, for the year ended December 31, 2019 as compared to the year ended December
31, 2018. The decrease was largely attributable to a reduction in transition services agreement costs, employee costs, professional fees and lease depreciation
expense. Transition services agreement costs decreased $8.4 million as a result of the termination of a three-year DAx transition services agreement.
Employee costs decreased primarily due to reduced headcount and restructuring efforts as discussed in Footnote 16, Organizational Restructuring, partially
offset by a $3.3 million increase in severance expense related to the departure of certain executives in 2019. Professional fees decreased $3.1 million as a
result of lower audit and compliance costs, offset by transaction costs associated with the sale of shares of Common Stock and warrants in June 2019. Lease
expense and depreciation decreased $1.2 million as a result of decreased depreciation expense as various assets reached the end of their depreciable lives and
decreased lease expense from various lease terminations and executed sublease agreements.
General and administrative expenses for the years ended December 31, 2018 and 2017 are as follows:
(In thousands)
Employee costs
Professional fees
Transition services agreement
Lease expense and depreciation
Bad debt expense
Other
Total general and administrative expenses
Years Ended December 31,
2018
% of Revenue
2017
% of Revenue
$ Change
% Change
$
$
38,094
21,528
9,035
3,711
966
11,201
84,535
9.1% $
5.1%
2.2%
0.9%
0.2%
2.7%
20.2% $
30,362
17,383
11,004
3,148
983
11,771
74,651
7.5% $
4.3%
2.7%
0.8%
0.2%
2.9%
7,732
4,145
(1,969)
563
(17)
(570)
18.5% $
9,884
25.5 %
23.8 %
(17.9)%
17.9 %
(1.7)%
(4.8)%
13.2 %
General and administrative expenses increased by $9.9 million, or 13.2%, for the year ended December 31, 2018 as compared to the year ended December 31,
2017. Employee costs increased $7.7 million, primarily as a result of an increase in stock-based compensation expense of $6.7 million related to awards
granted under our 2018 Equity and Incentive Compensation Plan. We did not grant any stock-based awards in 2017. Professional fees increased $4.1 million
primarily due to our increased costs of audit, compliance and legal services. These increased costs were offset by a $2.0 million decrease in the DAx
transition services agreement costs due to the wind down of contracts in 2018 compared with 2017.
Investigation and Audit Related
Investigation and audit related expenses were $4.3 million, $38.3 million, and $83.4 million for the years ended December 31, 2019, 2018, and 2017,
respectively. Investigation expenses include professional fees associated with legal and forensic accounting services rendered in connection with the
previously disclosed internal Audit Committee investigation into matters related to the Company's revenue recognition practices, disclosures, internal
controls, corporate culture and employment practices prior to 2017. Audit related expenses consist of professional fees associated with accounting related
consulting services and external auditor fees
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associated with the audit of our Consolidated Financial Statements for the prior years. Litigation related expenses include legal fees associated with various
lawsuits or investigations, including those initiated either directly or indirectly as a result of the Audit Committee's investigation. The decrease in
investigation and audit related expenses in 2019 as compared to 2018 is due to the conclusion of the Audit Committee investigation and multi-year audit in
2018, as well as the resolution of related legal proceedings. We resolved a related SEC investigation in September 2019, and as such, we expect these costs to
be minimal in 2020.
Amortization of Intangible Assets
Amortization expense consists of charges related to the amortization of intangible assets associated with acquisitions, primarily our Rentrak merger in which
we acquired $170.3 million of finite-lived intangible assets. Amortization of intangible assets decreased by $2.8 million, or 8.5%, for 2019 as compared to
2018 due to the impairment of an intangible asset as described below. Amortization of intangible assets decreased by $2.0 million, or 5.6%, for 2018 as
compared to 2017 as a portion of these assets became fully amortized.
Impairment of Goodwill and Intangible Asset
In the second quarter of 2019, as a result of a sustained decline in our stock price and market capitalization, changes in management, and lower revenue,
among other factors, we performed an interim impairment review of our goodwill and long-lived assets. Our reporting unit did not pass the goodwill
impairment test, and as a result we recorded a $224.3 million impairment charge.
We also recorded an impairment charge related to our strategic alliance intangible asset. Changes in our projected revenue in certain non-U.S. geographic
markets due to the changing international competitive landscape as well as significant reductions in international staffing, resulted in a change in our long-
term view of the viability of the intangible asset. As such, our assessment yielded that the benefit of the strategic alliance would not be realized. The fair value
of the strategic alliance intangible asset was estimated using an income approach, resulting in an impairment charge for the full carrying value of the long-
lived asset of $17.3 million. While this was a non-cash charge, it is expected to reduce amortization expense by $3.0 million on an annualized basis.
For further information refer to Footnote 9, Goodwill and Intangible Assets and Item 7, Critical Accounting Policies.
Settlement of Litigation, Net
Settlement of litigation, net consists of gains and losses from the settlement of various litigation matters. The $2.9 million net settlement of litigation expense
for the year ended December 31, 2019 relates to the conclusion of the SEC investigation in September 2019. A civil monetary penalty of $5.0 million payable
to the SEC was offset by a clawback of $2.1 million from our former CEO, Serge Matta. The $5.3 million net settlement of litigation expense for the year
ended December 31, 2018 relates to the settlement and final resolution of a prior federal securities class action and shareholder derivative actions. The $82.5
million net settlement of litigation expense for the year ended December 31, 2017 primarily relates to the settlement of the federal securities class action
litigation, derivative actions, and Rentrak merger litigation.
Organizational Restructuring
We incurred restructuring expenses of $3.3 million, $11.8 million, and $10.5 million for the years ended December 31, 2019, 2018, and 2017, respectively,
related to significant reductions in headcount and reorganization of our business.
In 2019, we implemented two reduction in force plans in order to reduce costs and better align resources with business priorities.
In 2018, we implemented an organizational restructuring to reduce staffing levels and rationalize our portfolio of leased properties which resulted in the
termination of one operating lease, the extension of the lease related to our headquarters, and the sublease office space in various locations.
In 2017, we implemented an organizational restructuring to reduce staffing levels and exit certain geographic regions in order to decrease our global costs and
more effectively align our resources to business priorities.
Interest Expense, Net
Interest expense, net consists of interest income and interest expense. Interest income primarily consists of interest earned from our cash and cash equivalent
balances and imputed interest on our minimum commitment agreements with WPP plc and its affiliates. Interest expense primarily relates to interest on our
senior secured convertible notes ("Notes") and our finance leases of computer equipment and automobiles.
Interest expense, net, increased $15.1 million during 2019 to $31.5 million as compared to $16.5 million in 2018. Interest expense increased in 2019 primarily
as a result of the interest rate reset feature on the Notes. For additional information, refer to Item 7A, Quantitative and Qualitative Disclosures About Market
Risk. Interest on the Notes is payable, at our option, in cash, or, subject to certain conditions, through the issuance by us of shares of Common Stock.
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Interest expense, net, increased $15.8 million during 2018 to $16.5 million as compared to $0.7 million in 2017 as a result of the issuance of the Notes. The
increase is comprised of $11.0 million of interest, $1.0 million of amortization of deferred financing costs and $4.8 million from the amortization of the
discount on the Notes, offset by a decrease of $1.0 million in interest recognized on capital leases.
Other Income (Expense), Net
Other income (expense), net represents income and expenses incurred that are generally not recurring in nature or are not part of our normal operations.
Income from transition services represents reimbursement of costs incurred under the DAx transition services agreement and is offset as expense in cost of
revenues and general and administrative expenses.
The following is a summary of other income (expense), net:
(In thousands)
Change in fair value of financing derivatives
Change in fair value of warrants liability
Change in fair value of investment in equity securities
Transition services agreement income
Gain on forgiveness of obligation
Other
Total other income (expense), net
Years Ended December 31,
2019
2018
2017
5,100 $
(14,226) $
(2,411)
(2,324)
534
—
755
—
1,443
9,029
—
2,290
1,654 $
(1,464) $
—
—
—
11,080
4,000
125
15,205
$
$
Total other income, net for the year ended December 31, 2019 was $1.7 million as compared to total other expense, net of $1.5 million in 2018. The shift to
other income was primarily driven by the change in fair value of financing derivatives. Offsetting the increase to other income was a decrease in transition
services income, a decline in the fair value of equity securities (which we sold in 2019) and a decrease resulting from patent income in 2018 that was not
received in 2019.
Other expense, net of $1.5 million for the year ended December 31, 2018 compared to other income, net of $15.2 million for the year ended December 31,
2017 was driven primarily by the $14.2 million loss recorded as a result of changes in the fair value of the interest rate reset liability, notes option derivative
liability, and change of control derivative liability in 2018. Additionally, we had a $2.1 million reduction of income related to the DAx transition services
agreement due to the wind down of managed contracts, as well as debt forgiveness of $4.0 million in 2017 as we were released from our Strategic Partnership
Agreement with Adobe, Inc. with the remaining obligations forgiven. These decreases were offset in 2018 by a $2.0 million increase in patent income and a
$1.4 million increase due to a change in the fair value of equity securities.
Gain (Loss) from Foreign Currency Transactions
Our foreign currency transactions are recorded as a result of fluctuations in the exchange rate between the transactional currency and the functional currency
of foreign subsidiary transactions.
For the year ended December 31, 2019, the gain from foreign currency transactions was $0.3 million. The gain was primarily driven by fluctuations of the
average Chilean Peso against the U.S. Dollar exchange rate.
For the year ended December 31, 2018, the gain from foreign currency transactions was $1.3 million. The gain was primarily related to fluctuations in the
average U.S. Dollar to Euro, Canadian Dollar and Chilean Peso exchange rates.
For the year ended December 21, 2017, the loss from foreign currency transactions was $3.2 million and related to differences in the average U.S. Dollar to
Euro exchange rates.
Income Tax Benefit (Provision)
A valuation allowance has been established against our net U.S. federal and state deferred tax assets, and certain foreign deferred tax assets, including net
operating loss carryforwards. As a result, our income tax position is primarily related to foreign tax activity.
During the years ended December 31, 2019, 2018, and 2017, we recorded an income tax benefit (provision) of $1.0 million, $(3.7) million, and $2.7 million,
resulting in an effective tax rate of 0.3%, (2.4)%, and 1.0%, respectively. These effective tax rates differ from the U.S. federal statutory rate primarily due to
the effects of certain permanent items, foreign tax rate differences, and increases in the valuation allowance against our domestic deferred tax assets.
Included within the tax benefit for the year ended December 31, 2019 are income tax adjustments of $58.6 million related to the impairment of goodwill and
$15.2 million for permanent differences in the book and tax treatment of certain stock-based
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compensation, limitations on the deductibility of certain executive compensation, nondeductible interest expense on debt instruments and associated
derivatives, and other nondeductible expenses. Income tax expense of $17.3 million has also been included for the increase in valuation allowance recorded
against our deferred tax assets to offset the tax benefit of our operating losses in the U.S. and certain foreign jurisdictions.
Included within the tax expense for the year ended December 31, 2018, is an income tax adjustment of $19.7 million for permanent differences in the book
and tax treatment of certain stock-based compensation, limitations on the deductibility of certain executive compensation, nondeductible interest expense on
debt instruments and associated derivatives, and other nondeductible expenses. Income tax expense of $19.0 million has also been included for the increase in
valuation allowance recorded against our deferred tax assets to offset the tax benefit of our operating losses in the U.S. and certain foreign jurisdictions. We
completed our assessment of the TCJA provisions on our U.S. deferred taxes during 2018 and concluded that no material adjustments were required.
Included within the total tax benefit for the year ended December 31, 2017 is an income tax benefit of $8.3 million related to the impact of the TCJA
provisions on our U.S. deferred taxes, including the reduction in the corporate tax rate from 35% to 21% and a change in our valuation allowance assessment.
Also included is income tax expense of $126.1 million related to the increase in valuation allowance recorded against our deferred tax assets to offset the tax
benefit of our operating losses in the U.S. and certain foreign jurisdictions.
Non-GAAP Financial Measures
To provide investors with additional information regarding our financial results, and to comply with a covenant under our Notes (described below), we are
disclosing herein Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA") and non-GAAP net loss, each of which are non-
GAAP financial measures used by our management to understand and evaluate our core operating performance and trends. We believe that these non-GAAP
financial measures provide useful information to investors and others in understanding and evaluating our operating results, as they permit our investors to
view our core business performance using the same metrics that management uses to evaluate our performance.
EBITDA is defined as GAAP net income (loss) plus or minus interest, taxes, depreciation and amortization of intangible assets and finance leases. We define
Adjusted EBITDA as EBITDA plus or minus stock-based compensation expense as well as other items and amounts that we view as not indicative of our
core operating performance, specifically: charges for matters relating to the Audit Committee investigation, such as litigation and investigation-related costs,
costs associated with tax projects, audits, consulting and other professional fees; other legal proceedings specified in the Notes; settlement of certain
litigation; restructuring expense; transaction costs related to the issuance of equity securities; non-cash impairment charges; and non-cash changes in the fair
value of financing derivatives, warrants liability and investments in equity securities.
We define non-GAAP net loss as GAAP net income (loss) plus or minus stock-based compensation expense and amortization of intangible assets, as well as
other items and amounts that we view as not indicative of our core operating performance, specifically: charges for matters relating to the Audit Committee
investigation, such as litigation and investigation-related costs, costs associated with tax projects, audits, consulting and other professional fees; other legal
proceedings specified in the Notes; settlement of certain litigation; restructuring expense; transaction costs related to the issuance of equity securities; non-
cash impairment charges; and non-cash changes in the fair value of financing derivatives, warrants liability and investments in equity securities. We changed
our definition of non-GAAP net loss in 2018 to adjust for amortization of intangible assets, a change that is intended to better reflect our core operating
performance.
Our use of these non-GAAP financial measures has limitations as an analytical tool, and investors should not consider these measures in isolation or as a
substitute for analysis of our results as reported under GAAP. The limitations of such non-GAAP measures include the following:
•
•
•
•
•
•
Adjusted EBITDA does not reflect tax or interest payments that represent a reduction in cash available to us (or, in the case of interest paid in
Common Stock, that represent additional dilution to our existing stockholders);
Depreciation and amortization are non-cash charges and the assets being depreciated may have to be replaced in the future. Adjusted EBITDA does
not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
Adjusted EBITDA and non-GAAP net loss do not reflect cash payments relating to fees incurred in connection with issuance of equity securities,
restructuring, litigation and the Audit Committee investigation, such as litigation and investigation-related costs, costs associated with tax projects,
audits and other professional, consulting or other fees incurred in connection with our prior-year audits and certain legal proceedings, all of which
represent a reduction in cash available to us;
Adjusted EBITDA and non-GAAP net loss do not consider the impact of stock-based compensation and similar arrangements that represent dilution
to our existing stockholders;
Adjusted EBITDA and non-GAAP net loss do not consider impairment of goodwill and long-lived assets, which represents a decline in the value of
our assets;
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•
•
Adjusted EBITDA and non-GAAP net loss do not consider possible cash gains or losses related to our financing derivatives, warrants liability or
investment in equity securities; and
Other companies, including companies in our industry, may calculate any of these non-GAAP financial measures differently, which reduces their
usefulness as comparative measures.
Because of these and other limitations, you should consider Adjusted EBITDA and non-GAAP net loss alongside GAAP-based financial performance
measures, including GAAP revenue and various cash flow metrics, net income (loss) and our other GAAP financial results. Management addresses the
inherent limitations associated with using non-GAAP financial measures through disclosure of such limitations, presentation of our financial statements in
accordance with GAAP and a reconciliation of Adjusted EBITDA and non-GAAP net loss to the most directly comparable GAAP measure, net income (loss).
Under our Notes, we are required to disclose Consolidated EBITDA, a non-GAAP financial measure, on a quarterly basis. Consolidated EBITDA, as defined
for purposes of the Notes, was the same as Adjusted EBITDA as presented below.
The following table presents a reconciliation of net loss (GAAP) to Adjusted EBITDA for each of the periods identified:
(In thousands)
Net loss (GAAP)
Income tax (benefit) provision
Interest expense, net
Depreciation
Amortization expense of finance leases
Amortization of intangible assets
EBITDA
Adjustments:
Stock-based and expected awards compensation expense(3)
Investigation and audit related
Settlement of certain litigation, net(2)
Restructuring
Impairment of goodwill
Impairment of intangible asset
Other expense (income), net (1)
Adjusted EBITDA
Years Ended December 31,
2019
2018
2017
$
(338,996)
$
(159,268)
$
(281,393)
(1,007)
31,526
12,778
2,413
30,076
(263,210)
16,695
4,305
2,900
3,263
224,272
17,308
682
$
6,215 $
3,706
16,465
17,259
—
32,864
(88,974)
37,151
38,338
5,250
11,837
—
—
12,783
16,385 $
(2,717)
661
23,339
—
34,823
(225,287)
34,261
83,398
82,533
10,510
—
—
(4,125)
(18,710)
(1) In 2019 and 2018, adjustments to other income (expense), net, reflect non-cash changes in the fair value of financing derivatives, warrants liability and equity securities investment included in
other income (expense), net and certain legal expenses defined by the Notes and classified as general and administrative expenses on our Consolidated Statements of Operations and Comprehensive
Loss. Additionally, we recorded transaction costs related to the issuance of warrants, which costs were allocated to the warrants liability and recorded in general and administrative expenses in the
Consolidated Statements of Operations and Comprehensive Loss. The remaining transaction costs were recorded in additional paid-in capital in the Consolidated Balance Sheets. For more
information regarding this adjustment, see Footnote 5, Stockholders' Equity.
(2) Settlement of certain litigation, net includes settlement amounts incurred for certain legal proceedings defined by the Notes, which amounts are classified as general and administrative expenses
in the Consolidated Statements of Operations and Comprehensive Loss.
(3) 2017 includes $16.9 million related to a stock-based retention program that was settled in cash for employees who departed prior to issuance of equity.
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The following table presents a reconciliation of net loss (GAAP) to non-GAAP net loss for each of the periods identified:
(In thousands)
Net loss (GAAP)
Adjustments:
Stock-based and expected awards compensation expense(4)
Investigation and audit related
Amortization of intangible assets(3)
Settlement of certain litigation, net(2)
Restructuring
Impairment of goodwill
Impairment of intangible asset
Other expense (income), net (1)
Non-GAAP net loss
Years Ended December 31,
2019
2018
2017
$
(338,996)
$
(159,268)
$
(281,393)
16,695
4,305
30,076
2,900
3,263
224,272
17,308
682
$
(39,495) $
37,151
38,338
32,864
5,250
11,837
—
—
12,783
(21,045) $
34,261
83,398
34,823
82,533
10,510
—
—
(4,125)
(39,993)
(1) In 2019 and 2018, adjustments to other income (expense), net, reflect non-cash changes in the fair value of financing derivatives, warrants liability and equity securities investment included in
other income (expense), net and certain legal expenses defined by the Notes and classified as general and administrative expenses on our Consolidated Statements of Operations and Comprehensive
Loss. Additionally, we recorded transaction costs related to the issuance of warrants, which costs were allocated to the warrants liability and recorded in general and administrative expenses in the
Consolidated Statements of Operations and Comprehensive Loss. The remaining transaction costs were recorded in additional paid-in capital in the Consolidated Balance Sheets. For more
information regarding this adjustment, see Footnote 5, Stockholders' Equity.
(2) Settlement of certain litigation, net includes settlement amounts incurred for certain legal proceedings defined by the Notes, which amounts are classified as general and administrative expenses
in the Consolidated Statements of Operations and Comprehensive Loss.
(3) In 2018, amortization of intangible assets was added as an adjustment in our calculation of non-GAAP net loss. Prior year non-GAAP net loss has been recast to include this adjustment, which is
intended to better reflect our core operating performance.
(4) 2017 includes $16.9 million related to a stock-based retention program that was settled in cash for employees who departed prior to issuance of equity.
Liquidity and Capital Resources
The following table summarizes our cash flows:
(In thousands)
Consolidated Statements of Cash Flow Data:
Net cash used in operating activities
Net cash (used in) provided by investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Years Ended December 31,
2019
2018
2017
$
$
$
$
$
(4,636) $
(10,460) $
31,973 $
(302) $
16,575 $
(72,575) $
(13,814) $
93,119 $
(1,657) $
5,073 $
(56,405)
18,254
(7,518)
2,453
(43,216)
Our principal uses of cash historically consisted of cash paid for payroll and other operating expenses, payments related to investments in equipment,
primarily to support our consumer panels and technical infrastructure required to deliver our products and services and support our customers, and service of
our debt and lease facilities. We have also incurred significant professional fees relating to our Audit Committee's investigation, subsequent audit and
compliance efforts, management changes and various legal proceedings.
As of December 31, 2019, our principal sources of liquidity consisted of cash, cash equivalents and restricted cash totaling $66.8 million, including $20.2
million in restricted cash.
Our principal sources of liquidity have historically been our cash and cash equivalents, as well as cash flow generated from our operations. Our recent
operating losses, including the significant costs associated with the investigation and completing the audit of our prior years' consolidated financial
statements, resulted in a need to secure long-term financing. In 2018, we entered into agreements with funds affiliated with or managed by Starboard Value
LP (collectively, "Starboard"), pursuant to which we issued and sold to Starboard a total of $204.0 million in Notes as well as warrants to purchase shares of
our Common Stock in exchange for $100.0 million in cash and 4,000,000 shares of Common Stock. See "Senior Secured Convertible Notes" below.
Prior to April 2019, we paid our quarterly accrued interest liability on the Notes in cash. In April, July and October 2019, we paid our quarterly accrued
interest liability on the Notes through the issuance of Common Stock. In January 2020, we paid our quarterly accrued interest liability in cash; the amount
was accrued in short term liabilities as of December 31, 2019.
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In June 2019, we issued 2,728,513 shares of our Common Stock and four series of warrants in a private placement to CVI Investments, Inc. ("CVI") in
exchange for gross cash proceeds of $20.0 million. See "Sale of Common Stock and Warrants" below.
During the nine months ended September 30, 2019, we sold our investment in equity securities for total cash proceeds of $3.8 million, of which $3.1 million
was received in July 2019. See Footnote 2, Summary of Significant Accounting Policies for additional information.
In December 2019, we issued a secured term note ("Secured Term Note") for gross proceeds of $13.0 million. See "Secured Term Note" below.
Our liquidity could be negatively affected by a decrease in demand for our products and services or additional losses from operations, as well as payment of
expenses incurred in prior periods. Our liquidity could also be negatively affected if we elect to pay our interest liability on the Notes (currently set at 12.0%
per year) in cash in lieu of Common Stock. For additional information on our interest liability, see Footnote 4, Long-term Debt. Finally, our liquidity could be
significantly affected if we are unable to maintain compliance with the affirmative and negative covenants in our Notes, including the minimum cash balance
requirement described below. If we fail to comply with our covenants, we could be required to redeem the Notes at a premium. The source of funds for any
such redemption would be our available cash or, possibly, other financing. Based on our current plans, including actions within management's control, we do
not anticipate a breach of these covenants that would result in an event of default under the Notes; however, any such breach could have a material impact on
our liquidity.
We continue to be focused on maintaining flexibility in terms of sources, amounts and the timing of any potential financing, refinancing or strategic
transaction in order to best position the Company for future success. We believe that our sources of funding will be sufficient to satisfy our currently
anticipated requirements for at least the next 12 months. However, we cannot predict with certainty the outcome of our actions to generate liquidity, including
the availability of additional financing.
Restricted Cash
Restricted cash represents our requirement to collateralize the Secured Term Note, outstanding letters of credit, international payroll processing exposures and
lines of credit related to certain of our corporate credit card programs and international payroll processing exposures. As of December 31, 2019 and 2018, we
had $20.2 million and $6.1 million of restricted cash, respectively, with the increase due primarily to the issuance of the Secured Term Note.
Credit Facility
In 2018, we entered into a Security Agreement with Wells Fargo Bank, N.A. to issue standby letters of credit on our behalf. As of December 31, 2019, $3.3
million in letters of credit were outstanding and cash collateralized under the Security Agreement with Wells Fargo Bank, N.A.
Sale-Leaseback Financing Transaction
In June 2019, we entered into an arrangement with a vendor to sell and lease back certain previously acquired computer and other equipment. The
arrangement, which resulted in cash proceeds of $4.3 million, requires lease payments over a 24-month term for total consideration of $4.8 million, with
control of the equipment transferring to the vendor at the end of the lease term.
Sale of Common Stock and Warrants
On June 23, 2019, we entered into a Securities Purchase Agreement with CVI pursuant to which we sold to CVI for aggregate gross proceeds of $20.0 million
(i) 2,728,513 shares of Common Stock and (ii) Series A Warrants, Series B-1 Warrants, Series B-2 Warrants and Series C Warrants to initially purchase up to
11,654,033 shares of Common Stock (the "Private Placement"). On October 14, 2019, we issued 2,728,513 shares of Common Stock to CVI upon exercise by
CVI of the Series C Warrants. As a result of this exercise, the number of shares issuable under our Series A Warrants was increased by 2,728,513. On January
29, 2020, the Series B-1 Warrants expired unexercised.
For additional information on the Private Placement, refer to Footnote 5, Stockholders' Equity.
Senior Secured Convertible Notes
On January 16, 2018, we entered into certain agreements with Starboard, pursuant to which we issued and sold to Starboard $150.0 million in Notes in
exchange for $85.0 million in cash and 2,600,000 shares of Common Stock. We also agreed to issue to Starboard warrants to purchase 250,000 shares of
Common Stock at a price of $0.01 per share, as adjusted pursuant to the terms of the warrants. The warrants were issued on October 12, 2018 and exercised in
full on April 3, 2019 for 323,448 shares of Common Stock. On May 17, 2018, we issued and sold to Starboard $50.0 million of Notes in exchange for $15.0
million in cash and 1,400,000 shares of Common Stock. Later in 2018, we issued an aggregate of $4.0 million in Notes to Starboard, bringing the total
balance of Notes as of December 31, 2019 to $204.0 million.
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On November 6, 2019, we entered into an amendment with Starboard that prescribed the terms under which we may redeem the Notes for cash in the event of
a qualifying change of control, as defined in the amendment.
The Notes contain certain affirmative and restrictive covenants with which we must comply, including (i) covenants with respect to limitations on additional
indebtedness, (ii) limitations on liens, (iii) limitations on certain payments, (iv) maintenance of certain minimum cash balances ($40.0 million effective
August 6, 2019) and (v) the timely filing of certain disclosures with the SEC. We are in compliance with the Notes covenants as of December 31, 2019. As
discussed above, any breach of these covenants could have a significant negative effect on our liquidity.
For additional information about the terms of the Notes, refer to Footnote 4, Long-term Debt.
Secured Term Note
On December 31, 2019, our wholly owned subsidiary, Rentrak B.V., entered into an agreement with several third parties for the Secured Term Note in
exchange for gross proceeds of $13.0 million. The Secured Term Note matures on December 31, 2021 and has an annual interest rate of 9.75% that is payable
monthly in cash.
For additional information, refer to Footnote 4, Long-term Debt.
Operating Activities
Our primary source of cash provided by operating activities is revenues generated from sales of our Ratings and Planning, Analytics and Optimization, and
Movies Reporting and Analytics products and services. Our primary uses of cash from operating activities include personnel costs and costs related to data
and infrastructure used to develop and maintain our products and services. We have also incurred significant professional fees relating to the Audit
Committee's investigation, subsequent audit and compliance efforts, management changes, and various legal proceedings.
Cash used in operating activities is calculated by adjusting our net loss for changes in working capital, as well as by excluding non-cash items such as:
depreciation, non-cash operating lease expense, amortization expense of finance leases and intangible assets, impairment of goodwill and intangible asset,
stock-based compensation, deferred tax (benefit) provision, change in the fair value of financing derivatives, warrants liability and equity securities, non-cash
interest expense related to the Notes, accretion of debt discount, and amortization of deferred financing costs.
Net cash used in operating activities in 2019 was $4.6 million compared to net cash used of $72.6 million in 2018. The decrease in cash used in operating
activities during 2019 as compared to 2018 was primarily attributable to a decrease in cash operating expenses driven by lower investigation and audit related
expenses and headcount, and extended trade payables. This drove a net increase in operating assets and liabilities of $4.3 million for the year ended December
31, 2019 as compared to a net decrease of $23.2 million for the year ended December 31, 2018. In addition, there was a net decrease in cash used of $4.4
million related to interest payments made on the Notes in stock in lieu of cash during 2019.
Net cash used in operating activities in 2018 was $72.6 million compared to net cash used of $56.4 million in 2017. The increase in cash used in operating
activities during 2018 as compared to 2017 was primarily attributable to a $90.0 million increase in payments of our outstanding liabilities, driven by
investigation and audit related expenses, cash interest payments on the Notes and settlement of compensation liabilities.
Investing Activities
Cash used in investing activities primarily consists of payments related to capitalized internal-use software costs, purchases of computer and network
equipment to support our technical infrastructure, and furniture and equipment.
Net cash used in investing activities in 2019 was $10.5 million compared to net cash used in investing activities of $13.8 million in 2018. The decrease in
cash used in investing activities was attributable to $3.8 million in cash received from the sale of an equity security. Increased capitalized costs of $1.9 million
were offset by a $1.5 million decrease in purchases of property and equipment.
Net cash used in investing activities in 2018 was $13.8 million compared to net cash provided by investing activities of $18.3 million in 2017. The shift from
cash provided by investing activities to cash used in investing activities was mainly attributable to the sales of marketable securities in 2017 compared with
the increase in cash used for the development of internal-use software in 2018. We did not capitalize any internal-use software costs in 2017.
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Financing Activities
Net cash provided by financing activities in 2019 was $32.0 million compared to net cash provided by financing activities of $93.1 million in 2018. In 2019,
we raised gross cash proceeds of $20.0 million from the sale of shares of Common Stock and warrants in the Private Placement, $13.0 million from the
issuance of the Secured Term Note, and $4.3 million from a sale lease-back transaction. We also had a decrease of debt issuance costs of $5.1 million in 2019
compared to 2018. By comparison, in 2018 we generated gross cash proceeds of $100.0 million from the issuance of Notes, partially offset by a $9.7 million
decrease in proceeds from subscription receivables which ended in 2018.
Net cash provided by financing activities in 2018 was $93.1 million compared to net cash used in financing activities of $7.5 million in 2017. The change was
largely due to the cash proceeds of $100.0 million from the issuance of the Notes. These proceeds were offset by debt issuance costs of $5.1 million and the
use of $5.3 million of cash to cover minimum statutory withholding taxes due upon the vesting of certain restricted stock and restricted stock unit awards and
exercise of stock options in 2018.
Contractual Payment Obligations
We are subject to certain contractual arrangements that are long-term in nature.
The information set forth below summarizes our contractual obligations as of December 31, 2019 that are fixed and determinable.
(In thousands)
Operating lease obligations(1)
Finance lease obligations(2)
Sale-leaseback financing transaction(3)
Long-term debt obligations(4)
Unconditional purchase obligations with MVPDs(5)
Other long-term obligations(6)
Total
Total
Less Than
1 Year
1-3 Years
3-5
Years
More
Than 5
Years
$
75,059 $
12,739 $
21,107 $
18,489 $
22,724
4,966
3,669
217,000
102,609
3,860
2,161
2,247
—
41,035
2,114
2,783
1,422
217,000
43,052
1,746
22
—
—
18,522
—
—
—
—
—
—
$
407,163 $
60,296 $
287,110 $
37,033 $
22,724
(1) Operating lease obligations represent future lease commitments, primarily for real estate leases, accounted for under ASC 842. See Footnote 8, Leases for more information.
(2) Finance lease obligations represent future lease commitments, primarily for equipment leases, accounted for under ASC 842. See Footnote 8, Leases for more information.
(3) We entered into a sale-leaseback arrangement with a vendor in June 2019. See Footnote 4, Long-term Debt for more information.
(4) In 2018, we entered into several agreements with Starboard whereby we issued Notes in exchange for cash and shares of Common Stock. In 2019 our wholly owned subsidiary Rentrak B.V.,
entered into a Secured Term Note. See Footnote 4, Long-term Debt for more information.
(5) Unconditional purchase obligations with MVPDs include contractual arrangements with MVPDs for the purchase of TV viewing data that is used in our products, primarily reported in the
Ratings & Planning solution group. If these arrangements are canceled by the MVPDs, we have the ability to terminate contracts with our end customers. Commitments reflected herein relate to
purchases of data/future obligations after December 31, 2019.
(6) Other long-term obligations include future commitments for software licenses and the right to access cloud-based solutions under long-term contracts.
Future Capital Requirements
Our ability to generate cash is subject to our performance, general economic conditions, industry trends and other factors, including expenses from ongoing
compliance efforts and related to various legal proceedings, as well as trade payables and service of our debt and lease facilities. To the extent that our
existing cash, cash equivalents and operating cash flow, together with any proceeds from previous financing arrangements, are insufficient to fund our future
activities and requirements, we may need to raise additional funds through public or private equity or debt financing. If we issue additional equity securities in
order to raise additional funds or pay interest on the Notes, further dilution to existing stockholders may occur.
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements (as defined in Item 303 of Regulation S-K) other than certain purchase obligations with MVPDs, which
are disclosed in the Contractual Payment Obligations table above.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based on our Consolidated Financial Statements, which have been
prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP"). The preparation of these financial statements requires us to make
estimates, assumptions and judgments that affect the amounts reported in our Consolidated Financial Statements and the accompanying Notes to Consolidated
Financial Statements. We base our estimates on
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historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these
estimates.
While our significant accounting policies are described in more detail in the Notes to Consolidated Financial Statements included in Item 8 of this 10-K, we
believe the following accounting policies to be the most critical to the judgments and estimates used in the preparation of our Consolidated Financial
Statements.
Accounting for Warrants
During the second quarter of 2019, we issued warrants which were determined to be freestanding financial instruments that qualify for liability treatment as a
result of a net cash settlement feature associated with a cap on the issuance of shares under certain circumstances. Changes in the fair value of these
instruments are immediately recorded in other income (expense), net in the Consolidated Statements of Operations and Comprehensive Loss.
The fair value of the warrants is determined using a Monte Carlo simulation analysis within an option pricing model. The fair value estimate is determined
using an estimate for our credit rating, probability of change of control, dividend yield, risk-free rate, remaining term of the warrants and volatility. The
valuation is derived from techniques which utilize inputs, certain of which are significant and unobservable, that result in classification of the warrants as a
Level 3 fair value measurement.
The fair value of the warrants is estimated using forward projections of stock issuances with relative certainty and estimated cash payments at each exercise
date discounted back to the valuation date at rates commensurate with the remaining term of the related warrants. The primary sensitivity in the valuation of
each warrant liability is driven by our Common Stock price at the measurement date and the observable volatility of the Common Stock.
Refer to Footnote 6, Fair Value Measurements for the significant inputs used to determine the fair value of the warrants as of December 31, 2019.
Impairment of Long-Lived Assets
Our long-lived assets consist of property and equipment and finite-lived intangible assets. We evaluate our long-lived assets for impairment whenever events
or changes in circumstances indicate the carrying value of such assets may not be recoverable. If an indication of impairment is present, we compare the
estimated undiscounted future cash flows to be generated by the asset group to its carrying amount. Recoverability measurement and estimation of
undiscounted cash flows are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and
liabilities. If the undiscounted future cash flows are less than the carrying amount of the asset group, we record an impairment loss equal to the excess of the
asset group's carrying amount over its fair value. The fair value is determined based on valuation techniques such as a comparison to fair values of similar
assets or using a discounted cash flow analysis.
During the second quarter of 2019, we evaluated our strategic alliance asset group for recoverability. Our assessment considered the changes in our projected
revenue in certain non-U.S. geographic markets due to the changing international competitive landscape as well as significant reductions in international
staffing during the second quarter, which resulted in a change in our long-term view of the viability of the intangible asset. As such, our analysis yielded that
the benefit of the strategic alliance would not be realized, and the related investment would not be recoverable. The fair value of the strategic alliance
intangible asset was estimated using the income approach, resulting in a non-cash impairment charge for the full carrying value of the asset. Consequently, we
recorded a $17.3 million impairment charge during the year ended December 31, 2019 in our Consolidated Statements of Operations and Comprehensive
Loss.
Although we believe that the carrying values of our long-lived assets are appropriately stated, changes in strategy or market conditions, significant
technological developments or significant changes in legal or regulatory factors could significantly impact these judgments and require future adjustments to
recorded asset balances.
Revenue Recognition
We apply the provisions of Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers and all related appropriate guidance.
We recognize revenue under the core principle of depicting the transfer of promised goods and services to our customers in an amount that reflects the
consideration to which we expect to be entitled. In order to achieve that core principle, we apply the following five-step approach: (1) identify the contract
with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the
performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
Our contracts with customers may include multiple promised goods and services, consisting of the various services we offer. Contracts with multiple
performance obligations typically consist of a mix of subscriptions to online products, our online database and custom products and services. At contract
inception, we identify performance obligations by evaluating whether the promised
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goods and services are capable of being distinct within the context of the contract. Promised goods and services that are not distinct are combined until the
combined bundle of goods and services is distinct.
In general, transaction price is determined by estimating the fixed amount of consideration to which we are entitled for transfer of goods and services and all
relevant sources and components of variable consideration. Variable consideration is estimated based on the most likely amount or expected value approach.
Once we select a method to estimate variable consideration for a particular type of performance obligation, we will apply that method consistently. We will
constrain estimates of variable consideration only to the extent that it is probable that significant reversal in the amount of cumulative revenue recognized will
not occur.
Significant judgment is required to determine the stand-alone selling price ("SSP") for each performance obligation. We allocate transaction price to each
performance obligation based on relative SSP.
For the majority of our products and services, we apply an adjusted market assessment approach for the determination of SSP for identified performance
obligations. In general, we bundle multiple products and very few are sold on a standalone basis. We use rate cards and pricing calculators that are
periodically reviewed and updated to reflect the latest sales data and observable inputs by industry, channel, geography, customer size, and other relevant
groupings. Certain products are sold on a standalone basis in a narrow band of prices. If a product is sold outside of the narrow band of prices, it will be
assigned the midpoint of the narrow band for purposes of allocating transaction price on a relative SSP basis.
We recognize revenue when (or as) we satisfy a performance obligation by transferring promised goods or services to a customer. Customers may obtain the
control of promised goods or services over time or at a point in time.
We enter into a limited number of monetary contracts that involve both the purchase and sale of services with a single counterparty. We assess each contract
to determine if the revenue and expense should be presented gross or net. We recognize revenue for these contracts to the extent that SSP is established for
distinct services provided. Any excess consideration above the established standalone selling price of services is presented as an offset to cost of revenues in
the Consolidated Statements of Operations and Comprehensive Loss.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed when a business is acquired.
The valuation of goodwill involves the use of management's estimates and assumptions and can have a significant impact on future operating results.
Goodwill is not amortized but is evaluated for impairment at least annually, as of October 1, by comparing the fair value of a reporting unit to its carrying
value including goodwill recorded by the reporting unit.
We have one reporting unit. As such, we perform the impairment assessment for goodwill at the enterprise level. Goodwill is reviewed for possible
impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below
the carrying value. We initially assess qualitative factors to determine if it is necessary to perform the goodwill impairment review. We review the goodwill
for impairment if, based on our assessment of the qualitative factors, we determine that it is more likely than not that the fair value of its reporting unit is less
than the carrying value, or if we decide to bypass the qualitative assessment. We review the carrying value of our reporting unit utilizing a combination of the
discounted cash flow model and a market value approach. We make assumptions regarding estimated future cash flows, discount rates, long-term growth rates
and market values to determine the estimated fair value of its reporting unit.
A discounted cash flow analysis requires the use of various assumptions, including; expectations of future cash flows, growth rates, tax rates, and discount
rates in developing the present value of projected cash flows. The following assumptions are significant to our discounted cash flow analysis:
Projected financial performance: expected future cash flows and growth rates are based upon assumptions of our future revenue growth and
operating costs. Actual results of operations and cash flows will likely differ from those utilized in our discounted cash flow analysis, and it is
possible that those differences could be material. We monitor for events and circumstances that could negatively impact the key assumptions in
determining fair value, including long-term revenue growth projects, profitability, discount rates, volatility in our market capitalization, and general
industry, micro and macro-economic conditions.
Long-term growth rate: the long-term growth rate represents the rate at which our single reporting unit's earnings are expected to grow or losses to
decrease. Our assumed long-term growth rate was based on projected long-term inflation and gross domestic product growth estimates for the
countries in which we operate and a long-term growth estimate for our business and the industry in which we operate. The long-term growth rate
utilized in the 2019 annual impairment analysis was 3.0%.
Discount rate: our reporting unit's future cash flows are discounted at a rate that is consistent with our average weighted cost of capital that is likely
to be utilized by market participants. The weighted-average cost of capital is our estimate of the overall returns required by both debt and equity
investors, weighted by their respective contributions of capital. We used a 18.0% discount rate in the 2019 annual impairment analysis.
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In addition, we also use a market-based approach to estimate the value of our reporting unit. The market value is estimated by comparing our reporting unit to
publicly-traded companies and/or to publicly-disclosed business mergers and acquisitions in similar lines of business. The value of the business entity is
based on pricing multiples of certain financial parameters observed in the comparable companies.
We performed an interim analysis as of June 30, 2019 and determined that goodwill was impaired. Refer to Footnote 9, Goodwill and Intangible Assets for
further information. We completed our annual assessment on October 1, 2019, and there was no further impairment of goodwill at the assessment date.
Goodwill allocated to our single reporting unit as of December 31, 2019 was $416.4 million. As of our October 1, 2019 annual assessment, the estimated fair
value of our reporting unit exceeded its carrying value by approximately 6%. The projected long-term cash flows used in our fair value estimate are consistent
with our most recent operating plan and are dependent on the successful execution of our business plan, overall industry growth rates and the competitive
environment.
We monitor for events and circumstances that could negatively impact the key assumptions in determining fair value, including long-term revenue growth
projections, profitability, discount rates, volatility in our market capitalization, and general industry, market and macro-economic conditions. If the reporting
unit's future performance falls below our expectations, or there are negative revisions to other significant assumptions, including the long-term growth rate or
discount rate, we may need to record a material, non-cash goodwill impairment charge in a future period.
Derivative Financial Instruments
We have derivative financial instruments that are not hedges and do not qualify for hedge accounting. Changes in the fair value of these instruments are
immediately recorded in other income (expense), net in the Consolidated Statements of Operations and Comprehensive Loss.
The fair value of our interest rate reset derivative liability is determined using a with-and-without approach, using a standard binomial tree convertible bond
model. The fair value estimate is determined using an estimate for the Company's credit rating, the premium attributable to the payment-in-kind feature of the
Notes, and premium estimates for company-specific risk factors (together, the credit adjusted discount rate). The valuation is derived from techniques which
utilize inputs, certain of which are significant and unobservable, that result in classification of the interest rate reset derivative liability as a Level 3 fair value
measurement.
The fair values of change of control redemption derivative liabilities are determined using a probability adjusted binomial lattice model. The fair value
estimates are determined using management's estimate for the probability of change of control, credit adjusted discount rate, risk-free rate, and remaining
term of the redemption features. The valuations are derived from techniques which utilize inputs, certain of which are significant and unobservable, that result
in classification of the change of control redemption liabilities as Level 3 fair value measurements.
The fair values of our financing derivatives are estimated using forward projections and are discounted back at rates commensurate with the remaining term
of the related derivative. The primary sensitivity in the interest rate reset derivative liability is driven by our Common Stock price at the measurement date,
the observable volatility of the Common Stock, and the discount rate used to determine the present value of the instrument. The primary sensitivity for the
change of control redemption derivative liabilities is driven by the probability of a change of control.
Refer to Footnote 6, Fair Value Measurements for the significant inputs used to determine the fair value of the derivatives as of December 31, 2019.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. We are subject to
interest rate risk in connection with the Notes, and we hold derivative financial instruments and have outstanding warrants that are subject to market risk. We
also have foreign currency exchange rate risk from our global operations, although we do not believe this risk to be significant.
Interest rate risk
As a result of having $204.0 million aggregate principal amount of the Notes outstanding, which are convertible into shares of Common Stock at a conversion
price of $31.29 per share (the "Conversion Price"), we are subject to interest rate risk. As of December 31, 2019, the interest rate on the Notes was 12.0% per
year. The interest rate reset on January 30, 2020 and will remain at 12.0% (subject to certain conditions) until February 1, 2021 (the "Interest Reset Date"). On
the Interest Reset Date, the interest
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rate will reset based on the then-applicable Conversion Premium, which is calculated by dividing the Conversion Price by the arithmetic average of the
volume-weighted average trading prices of our Common Stock on each of the ten consecutive trading days immediately preceding the Interest Reset Date (the
"VWAP"). The interest rate is then determined in accordance with the table below, which includes theoretical VWAP calculations:
If the Conversion Premium
(as of the applicable
Interest Reset Date) is:
Implied VWAP
1.0 or less
$31.29 or higher
1.05
1.10
1.15
1.20
1.25
1.30
1.35
1.40
$29.80
$28.45
$27.21
$26.08
$25.03
$24.07
$23.18
$22.35
1.45 or higher
$21.58 or less
Then the Interest Rate from
the applicable Interest Reset
Date until the next
subsequent Interest Reset
Date shall be:
4.0%
4.3%
4.7%
5.0%
5.3%
5.7%
6.0%
8.0%
10.0%
12.0%
If the Conversion Premium is between two Conversion Premium amounts in the table above, the interest rate is determined by straight-line interpolation
between the interest rates for the higher and lower Conversion Premium amounts.
As discussed in Footnote 4, Long-term Debt, we have the ability, subject to certain conditions, to pay interest on the Notes through the issuance of PIK
Interest Shares, and we elected to do so for the interest payments made on April 1, 2019, July 1, 2019 and October 1, 2019.
Derivative financial instrument risk
The interest rate reset feature of the Notes represents a complex derivative financial instrument, which is classified as a liability in the Consolidated Balance
Sheets. This derivative is not considered a hedging instrument. We determine the fair value of our derivative financial instrument, relying in part on the work
of an independent valuation firm engaged by us to provide inputs as to the fair value of the liability, including the valuation models and assumptions used to
determine its fair value. For additional information on the determination of fair value, including the assumptions used in those determinations, refer to
Footnote 4, Long-term Debt and Footnote 6, Fair Value Measurements. As of December 31, 2019, the fair value of our interest rate reset derivative financial
instrument of $18.8 million was recorded in financing derivatives within the Consolidated Balance Sheets. Any changes in fair value of financing derivatives
are recorded to earnings and could affect our financial position and results of operations. A change in fair value of the interest rate reset derivative liability of
10% in either direction would result in a $1.9 million gain or loss recorded in earnings in our consolidated financial statements.
The fair value of our interest rate reset derivative liability relates to the interest rate reset feature of the Notes. Changes in the fair value of the interest rate
reset derivative liability are primarily driven by changes in the price and volatility of a share of our Common Stock. Generally, as our stock price decreases,
the fair value of the derivative liability will increase, although not in a linear relationship. Similar to an option, over time, and at each of the Interest Reset
Dates, the value of the interest rate reset derivative liability will decrease as the time to maturity shortens and each Interest Reset Date passes.
Warrants liability financial instrument risk
As a result of having $7.7 million in liability related to outstanding warrants as of December 31, 2019, which warrants are exercisable for shares of Common
Stock under certain conditions, we are subject to market risk. The value of each warrant, and the number of shares likely to be issued under the warrants, is
impacted by changes in the market price of our Common Stock. As of December 31, 2019, a 10% increase in our stock price would result in a $1.4 million
increase in the fair value of the warrants and a 90,924 increase in shares likely to be issued under the warrants, while a 10% decrease in our stock price would
result in a $1.3 million decrease in fair value of the warrants and a 77,007 decrease in shares likely to be issued under the warrants, in each case on an
aggregate basis.
For further information regarding our outstanding warrants, see Footnote 5, Stockholders' Equity.
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Foreign currency risk
We operate globally, and we predominantly generate revenues and expenses in local currencies. We operate in several countries in Europe, as well as
countries throughout South America and Asia Pacific. As such, we have exposure to adverse changes in exchange rates associated with revenues and
operating expenses of our foreign operations, but we believe this exposure is not material at this time. We have not engaged in any transactions that hedge
foreign currency exchange rate risk.
There can be no guarantee that exchange rates will remain constant in future periods. In addition to the impact from the U.S. Dollar to Euro exchange rate
movements, we are also impacted by the movements in the exchange rates between the U.S. Dollar and various South American, Asia Pacific and other
European currencies. We have evaluated and assessed the potential effect of this risk and believe that near-term changes in currency rates should not
materially affect our financial position, results of operations or cash flows. We performed a sensitivity analysis, assuming a 10% decrease or increase in the
value of foreign currencies in which we operate. Our analysis has determined that a 10% decrease in value would have resulted in a decrease to our operating
loss of approximately $6.0 million for 2019, and a 10% increase in value would have resulted in an increase to our operating loss of approximately $5.2
million for the year ended December 31, 2019.
As of December 31, 2019, of the total $66.8 million in cash and cash equivalents, including restricted cash, $27.3 million was held by foreign subsidiaries. Of
this amount, we believe $3.1 million could be subject to income tax withholding of 5% to 15% if the funds were repatriated to the U.S.
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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
comScore, Inc. Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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55
56
57
59
60
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of comScore, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of comScore, Inc. and subsidiaries (the "Company") as of December 31, 2019 and 2018, the
related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows, for each of the three years in the period ended
December 31, 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2020, expressed an unqualified opinion on the
Company's internal control over financial reporting.
Change in Accounting Principles
As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to adoption of
Accounting Standards Codification (ASC) 842, Leases. The Company adopted ASC 842 using the modified retrospective transition method with optional
transition relief.
As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for revenue recognition as of January 1, 2018 due to
adoption of Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. The Company adopted ASC 606 using the modified
retrospective method.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
McLean, Virginia
February 27, 2020
We have served as the Company's auditor since 2017.
55
Table of Contents
Assets
Current assets:
Cash and cash equivalents
Restricted cash
COMSCORE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
As of
As of
December 31, 2019
December 31, 2018
Accounts receivable, net of allowances of $1,919 and $1,597, respectively ($2,698 and $4,024 of accounts receivable
attributable to related parties, respectively)
Prepaid expenses and other current assets ($1,180 and $484 attributable to related parties)
Total current assets
Property and equipment, net
Operating right-of-use assets
Other non-current assets
Deferred tax assets
Intangible assets, net
Goodwill
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ($2,510 and $1,878 attributable to related parties, respectively)
Accrued expenses ($6,902 and $4,478 attributable to related parties, respectively)
Accrued litigation settlements
Contract liability ($1,519 and $2,521 attributable to related parties, respectively)
Customer advances
Warrant liability
Current operating lease liabilities
Deferred rent
Other current liabilities
Total current liabilities
Secured term note
Financing derivatives (related party)
Senior secured convertible notes (related party)
Non-current operating lease liabilities
Deferred rent
Deferred tax liabilities
Other non-current liabilities ($- and $251 attributable to related parties)
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value per share; 5,000,000 shares authorized at December 31, 2019 and 2018; no shares
issued or outstanding as of December 31, 2019 or 2018
Common stock, $0.001 par value per share; 150,000,000 shares authorized as of December 31, 2019 and 2018;
76,829,926 shares issued and 70,065,130 shares outstanding as of December 31, 2019, and 66,154,626 shares issued
and 59,389,830 shares outstanding as of December 31, 2018
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Treasury stock, at cost, and 6,764,796 shares as of December 31, 2019 and 2018
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying Notes to Consolidated Financial Statements.
56
$
$
$
46,590
$
20,183
71,853
15,357
153,983
31,693
36,689
2,979
2,374
79,559
416,418
723,695
$
44,804
$
55,507
3,575
58,158
9,886
7,725
6,764
—
3,818
190,237
12,463
21,587
184,075
42,497
—
287
13,575
464,721
—
70
1,609,358
(12,333)
(1,108,137)
(229,984)
258,974
$
723,695
$
44,096
6,102
75,609
19,972
145,779
27,339
—
8,898
3,991
126,945
641,191
954,143
29,836
58,140
3,500
64,189
6,688
—
—
1,884
4,699
168,936
—
26,100
177,342
—
10,304
5,527
14,367
402,576
—
59
1,561,208
(10,621)
(769,095)
(229,984)
551,567
954,143
Table of Contents
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
COMSCORE, INC.
Revenues (1)
Cost of revenues (1) (2) (3)
Selling and marketing (1) (2) (3)
Research and development (1) (2) (3)
General and administrative (1) (2) (3)
Investigation and audit related (1)
Amortization of intangible assets
Impairment of goodwill
Impairment of intangible asset (1)
Settlement of litigation, net
Restructuring (2)
Total expenses from operations
Loss from operations
Interest expense, net (1)
Other income (expense), net
Gain (loss) from foreign currency transactions
Loss before income taxes
Income tax benefit (provision)
Net loss
Net loss per common share:
Basic and diluted
Weighted-average number of shares used in per share calculation - Common
Stock:
Basic and diluted
Comprehensive loss:
Net loss
Other comprehensive (loss) income:
Foreign currency cumulative translation adjustment
Other
Total comprehensive loss
Years Ended December 31,
2019
2018
2017
$
388,645
$
419,482 $
403,549
199,622
89,145
61,802
66,419
4,305
30,076
224,272
17,308
2,900
3,263
699,112
(310,467)
(31,526)
1,654
336
(340,003)
1,007
200,220
108,395
76,979
84,535
38,338
32,864
—
—
5,250
11,837
558,418
(138,936)
(16,465)
(1,464)
1,303
(155,562)
(3,706)
(338,996)
$
(159,268) $
193,605
130,509
89,023
74,651
83,398
34,823
—
—
82,533
10,510
699,052
(295,503)
(661)
15,205
(3,151)
(284,110)
2,717
(281,393)
(5.33)
$
(2.76) $
(4.90)
63,590,882
57,700,603
57,485,755
(338,996)
$
(159,268) $
(281,393)
(1,712)
—
(4,397)
—
6,168
28
(340,708)
$
(163,665) $
(275,197)
$
$
$
$
(1) Transactions with related parties are included in the line items above as follows (refer to Footnote 15, Related Party Transactions, of the Notes to
Consolidated Financial Statements for additional information):
Revenues
Cost of revenues
Selling and marketing
Research and development
General and administrative
Investigation and audit related
Interest (expense) income, net
(2) Stock-based compensation expense is included in the line items above as follows:
57
Years Ended December 31,
2019
2018
2017
$
17,464
$
12,662 $
13,181
10,490
11,239
12,956
312
26
776
—
158
186
650
—
(23,494)
(16,023)
157
119
777
16,844
672
Table of Contents
Cost of revenues
Selling and marketing
Research and development
General and administrative
Restructuring
Total stock-based compensation expense
$
$
Years Ended December 31,
2019
2018
2017
$
6,349 $
1,852
3,615
1,981
9,247
(137)
16,558
$
9,452
6,580
14,770
468
37,619 $
1,766
5,247
2,270
8,031
—
17,314
(3) Excludes amortization of intangible assets, which is presented separately in the Consolidated Statements of Operations and Comprehensive Loss.
See accompanying Notes to Consolidated Financial Statements.
58
Table of Contents
COMSCORE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Treasury
stock, at
cost
Total
Stockholders'
Equity
Balance as of December 31, 2016
57,172,597 $
60 $
1,380,881 $
(12,420) $
(327,698) $ (135,970) $
Net loss
Foreign currency translation adjustment
Unrealized gain on marketable securities,
net of tax
Subscription Receivable
Restricted stock units vested
Payments for taxes related to net share
settlement of equity awards
Stock-based compensation
—
—
—
—
185,754
(69,304)
—
—
—
—
—
—
—
—
—
—
—
11,012
—
(1,514)
17,338
—
6,168
28
—
—
—
—
(281,393)
—
—
—
—
—
—
—
—
—
—
—
—
—
Balance as of December 31, 2017
57,289,047 $
60 $
1,407,717 $
(6,224) $
(609,091) $ (135,970) $
Adoption of ASC 606
Net loss
Foreign currency translation adjustment
Subscription Receivable
Common Stock warrants issued
—
—
—
—
—
Exercise of Common Stock options, net
222,229
—
—
—
—
—
—
—
—
—
10,254
5,545
2,855
Shares issued in connection with
settlement of litigation
Repurchase of Common Stock in
exchange for senior secured convertible
notes
Restricted stock units vested
Payments for taxes related to net share
settlement of equity awards
Stock-based compensation
4,024,115
4
90,764
(4,000,000)
2,077,253
(222,814)
—
(7)
2
—
—
—
15,816
(5,263)
33,520
—
—
(4,397)
—
—
—
—
—
—
—
—
(736)
(159,268)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(94,014)
—
—
—
Balance as of December 31, 2018
59,389,830 $
59 $
1,561,208 $
(10,621) $
(769,095) $ (229,984) $
Adoption of ASC 842
Net loss
Foreign currency translation adjustment
—
—
—
Issuance of Common Stock - CVI
2,728,513
Common Stock warrants exercised -
Starboard
Common Stock warrants exercised - CVI
Exercise of Common Stock options, net
Interest paid in Common Stock
Restricted stock units vested
Payments for taxes related to net share
settlement of equity awards
Stock-based compensation
323,448
2,728,513
68,259
4,057,129
854,998
(85,560)
—
—
—
—
3
—
3
—
4
1
—
—
—
—
—
8,159
—
5,482
1,191
17,370
4,610
(1,267)
12,605
—
—
(1,712)
—
—
—
—
—
—
—
—
(46)
(338,996)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Balance as of December 31, 2019
70,065,130 $
70 $
1,609,358 $
(12,333) $
(1,108,137) $ (229,984) $
See accompanying Notes to Consolidated Financial Statements.
59
904,853
(281,393)
6,168
28
11,012
—
(1,514)
17,338
656,492
(736)
(159,268)
(4,397)
10,254
5,545
2,855
90,768
(94,021)
15,818
(5,263)
33,520
551,567
(46)
(338,996)
(1,712)
8,162
—
5,485
1,191
17,374
4,611
(1,267)
12,605
258,974
Table of Contents
COMSCORE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Years Ended December 31,
2019
2018
2017
$
(338,996)
$
(159,268)
$
(281,393)
Depreciation
Non-cash operating lease expense
Amortization expense of finance leases
Amortization of intangible assets
Impairment of goodwill
Impairment of intangible asset
Provision for bad debts
Stock-based compensation
Deferred tax (benefit) provision
Change in fair value of financing derivatives
Change in fair value of warrant liability
Change in fair value of investment in equity securities
Non-cash interest expense on senior secured convertible notes (related party)
Accretion of debt discount
Amortization of deferred financing costs
Gain on forgiveness of obligation
Accrued litigation settlements to be settled in Common Stock
Other
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Insurance recoverable on litigation settlements
Accounts payable, accrued expenses, and other liabilities
Contract liability and customer advances
Deferred rent
Current operating lease liability
Net cash used in operating activities
Investing activities:
Sales of marketable securities
Purchases of property and equipment
Capitalized internal-use software costs
Net cash (used in) provided by investing activities
Financing activities:
Proceeds from borrowings on senior secured convertible notes (related party)
Debt issuance costs
Proceeds from secured term note
Secured term note issuance costs
Proceeds from private placement, net of issuance costs paid
Financing proceeds received on subscription receivable (related party)
Proceeds from sale-leaseback financing transaction
Proceeds from the exercise of stock options
Payments for taxes related to net share settlement of equity awards
60
12,778
5,369
2,413
30,076
224,272
17,308
727
16,558
(3,727)
(5,100)
2,411
2,324
17,374
6,242
1,078
—
—
(2)
2,738
2,198
—
10,438
(3,477)
—
(7,638)
(4,636)
3,776
(2,736)
(11,500)
(10,460)
—
—
13,000
(350)
19,752
—
4,252
1,191
(1,267)
17,259
—
—
32,864
—
—
966
37,619
2,019
14,226
—
(1,443)
—
4,812
955
—
—
568
4,707
(4,456)
10,000
(4,955)
(30,013)
1,565
—
(72,575)
—
(4,206)
(9,608)
(13,814)
100,000
(5,146)
—
—
—
9,679
—
2,855
(5,263)
23,339
—
—
34,823
—
—
983
17,314
(3,203)
—
—
—
—
—
—
(4,000)
90,800
192
14,529
4,067
(37,232)
85,001
(2,638)
1,013
—
(56,405)
28,436
(10,182)
—
18,254
—
—
—
—
—
11,012
—
—
(1,514)
Table of Contents
Principal payments on finance leases
Principal payments on capital lease and software license arrangements
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
Supplemental cash flow disclosures:
Interest paid ($3,046 and $7,484 of interest paid in 2019 and 2018 attributable to related
party, respectively)
Income taxes paid, net of refunds
Supplemental non-cash activities:
(2,535)
(2,070)
31,973
(302)
16,575
50,198
—
(9,006)
93,119
(1,657)
5,073
45,125
66,773
$
50,198
$
—
(17,016)
(7,518)
2,453
(43,216)
88,341
45,125
As of December 31,
2019
2018
2017
46,590
20,183
66,773
$
$
44,096
6,102
50,198
$
$
37,859
7,266
45,125
4,081 $
1,191
8,136 $
1,260
1,691
497
$
$
$
$
Assets acquired through finance leases and software obligations
Leasehold improvements acquired through lease incentives
Change in accounts payable and accrued expenses related to capital expenditures
Repurchase of Common Stock in exchange for senior secured convertible notes
Shares issued in connection with settlement of litigation
Insurance recovery on litigation settlement
Common Stock warrants issued with senior secured convertible notes
Fair value of financing derivatives issued with senior secured convertible notes
Notes Option derivative liability settlement
Modification of debt in consideration for the reduction of the senior secured convertible note
minimum cash balance requirement
Settlement of restricted stock unit liability
Fair value of warrants issued in private placement
4,277
2,050
456
—
—
—
—
—
—
—
4,611
10,798
1,737
—
1,149
94,021
90,768
27,232
5,733
17,574
5,700
4,000
15,818
—
191
—
336
—
—
—
—
—
—
—
—
—
See accompanying Notes to Consolidated Financial Statements.
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Table of Contents
1. Organization
COMSCORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
comScore, Inc., together with its consolidated subsidiaries (collectively, "Comscore" or the "Company"), headquartered in Reston, Virginia, is a global
information and analytics company that measures audiences, consumer behavior and advertising across media platforms.
Operating segments are defined as components of a business that can earn revenues and incur expenses for which discrete financial information is available
that is evaluated on a regular basis by the chief operating decision maker ("CODM"). The Company's CODM is its principal executive officer, who decides
how to allocate resources and assess performance. The Company has one operating segment. A single management team reports to the CODM, who manages
the entire business. The Company's CODM reviews consolidated results of operations to make decisions, allocate resources and assess performance and does
not evaluate the profit or loss from any separate geography or product line.
On March 31, 2019, Bryan Wiener resigned as the Company's Chief Executive Officer ("CEO") and director and Sarah Hofstetter resigned as the Company's
President, effective immediately. On the same day, the Company appointed Dale Fuller as Interim CEO, and Mr. Fuller assumed the role of CODM. On
November 4, 2019, Mr. Fuller resigned as Interim CEO and William Livek was appointed as CEO and Executive Vice Chairman, and Mr. Livek assumed the
role of CODM.
Uses and Sources of Liquidity and Management’s Plans
The Company's primary need for liquidity is to fund working capital requirements and capital expenditures of its business. Since 2017, the Company has
implemented certain organizational restructuring plans to reduce staffing levels, exit certain geographic regions, and rationalize its leased properties, to enable
the Company to decrease its global costs, more effectively align resources to business priorities, and maintain compliance with its financial covenants, as
described in Footnote 4, Long-Term Debt. For additional information related to the restructuring plans, refer to Footnote 16, Organizational Restructuring.
The Company has secured the following long-term financing in order to increase its available working capital and fund ongoing operations:
•
•
•
During 2018, the Company entered into certain agreements with funds affiliated with or managed by Starboard Value LP (collectively, "Starboard"),
pursuant to which the Company issued and sold to Starboard a total of $204.0 million in senior secured convertible notes as well as warrants to
purchase shares of the Company's common stock, par value $0.001 per share (the "Common Stock") in exchange for $100.0 million in cash and
4,000,000 shares of Common Stock. For additional information, refer to Footnote 4, Long-term Debt.
On June 26, 2019, the Company issued 2,728,513 shares of Common Stock and four series of warrants in a private placement to CVI Investments,
Inc. ("CVI") in exchange for gross cash proceeds of $20.0 million. On October 14, 2019, the Company issued 2,728,513 shares of Common Stock to
CVI upon exercise by CVI of the Series C warrant. For additional information, refer to Footnote 5, Stockholders' Equity.
On December 31, 2019, the Company's wholly owned subsidiary, Rentrak B.V., entered into an agreement with several third parties (collectively the
"Noteholder") for a secured term note (the "Secured Term Note") in exchange for gross proceeds $13.0 million. The Secured Term Note matures on
December 31, 2021, is cash collateralized, and has an annual interest rate of 9.75% that is payable monthly in arrears. For additional information,
refer to Footnote 4, Long-term Debt.
As of December 31, 2019, the Company was in compliance with its covenants under the senior secured convertible notes and the Secured Term Note.
Liquidity could be negatively affected by a decrease in demand for the Company's products and services or additional losses from operations, as well as
payment of expenses incurred in prior periods. Liquidity could also be negatively affected if the Company elects to pay its interest liability on the senior
secured convertible notes (currently set at 12.0% per year) in cash in lieu of Common Stock. Finally, liquidity could be significantly affected if the Company
is unable to maintain compliance with the affirmative and negative covenants in the senior secured convertible notes and the Secured Term Note, including
the minimum cash balance requirements.
The Company continues to be focused on maintaining flexibility in terms of sources, amounts, and the timing of any potential financing, refinancing or
strategic transaction, in order to best position the Company for future success. The Company believes that its sources of funding, after taking into account the
restructuring and financing transactions described above, as well as the availability of the rights offering described in Footnote 4, Long-term Debt, will be
sufficient to satisfy the Company's estimated liquidity needs and allow the Company to remain in compliance with its covenants under the senior secured
convertible notes and the Secured Term Note for at least one year after the date that these financial statements are issued. However, the Company cannot
62
Table of Contents
predict with certainty the outcome of its actions to generate liquidity, including the availability of additional financing, or whether such actions would
generate the expected liquidity as currently planned.
2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly-owned domestic and foreign subsidiaries. All
intercompany transactions and balances are eliminated upon consolidation.
Reclassification
Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. Specifically, current capital lease
obligations have been aggregated within other current liabilities on the Consolidated Balance Sheets. Non-current capital lease obligations have been
aggregated within other non-current liabilities on the Consolidated Balance Sheets.
Use of Estimates and Judgments in the Preparation of the Consolidated Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expense during the reporting periods.
Significant estimates and judgments are inherent in the analysis and the measurement of: management's standalone selling price ("SSP"), principal versus
agent revenue recognition, determination of performance obligations, determination of transaction price, including the determination of variable consideration
and allocation of transaction price to performance obligations, deferred tax assets and liabilities, including the identification and quantification of income tax
liabilities due to uncertain tax positions, the valuation and recoverability of goodwill and intangible assets, the determination of appropriate discount rates for
lease accounting, the probability of exercising either lease renewal or termination clauses, the assessment of potential loss from contingencies, the fair value
determination of financing-related liabilities and warrants, the allowance for doubtful accounts, and the valuation of options, performance-based and market-
based stock awards. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable
under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in
those estimates. The Company evaluates its estimates and assumptions on an ongoing basis.
Fair Value Measurements
The Company evaluates the fair value of certain assets and liabilities using the fair value hierarchy. Fair value is an exit price representing the amount that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based
measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering
such assumptions, the Company applies the three-tier GAAP value hierarchy which prioritizes the inputs used in measuring fair value as follows:
Level 1 - observable inputs such as quoted prices in active markets;
Level 2 - inputs other than the quoted prices in active markets that are observable either directly or indirectly;
Level 3 - unobservable inputs of which there is little or no market data, which require the Company to develop its own assumptions.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measure. The Company's
assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities
being measured and their placement within the fair value hierarchy.
For assets that are measured using quoted prices in active markets, the total fair value is the published market price per unit multiplied by the number of units
held, without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs are primarily valued by
reference to quoted prices of similar assets or liabilities in active markets, adjusted for any terms specific to that asset or liability.
Assets and liabilities that are measured at fair value on a non-recurring basis include property and equipment, operating right-of-use assets, intangible assets
and goodwill. The Company recognizes these items at fair value when they are considered to be impaired or upon initial recognition. The fair value of these
assets and liabilities are determined with valuation techniques using the best information available and may include quoted market prices, market comparables
and discounted cash flow models.
Fair Value of Financial Instruments
Due to their short-term nature, the carrying amounts reported in the Company's Consolidated Financial Statements approximate the fair value for cash and
cash equivalents, restricted cash including certificates of deposit, accounts receivable, accounts payable
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Table of Contents
and accrued expenses, the current portion of contract liability and customer advances. The carrying values of finance lease obligations approximate their fair
value as the interest rates for the lease term approximate market rates (Level 2).
The fair values of the Company's financing derivatives are estimated using forward projections and are discounted back at rates commensurate with the
remaining term of the related derivatives. The fair value of the interest reset liability is determined based on an estimate for the Company's credit rating, the
premium attributable to the payment-in-kind feature of the senior secured convertible notes ("Notes"), and premium estimates for company-specific risk
factors (together, the credit adjusted discount rate), the Company's Common Stock price at measurement date, the observable volatility of the Common Stock
and risk-free rate. The fair value of the change in control redemption derivative liabilities is determined based on the probability of change of control, credit
adjusted discount rate, and risk-free rate. The fair value of the Notes is determined using the credit adjusted discount rate, the Company's Common Stock
price at the valuation date, risk-free rate and volatility commensurate with the remaining term of the Notes.
Cash and Cash Equivalents
The Company considers highly liquid investments with an original maturity of three months or less at the time of purchase and qualifying money-market
funds as cash equivalents. Cash and cash equivalents are maintained with several financial institutions domestically and internationally. The combined
account balances held on deposit at each institution typically exceed Federal Deposit Insurance Corporation ("FDIC") insurance coverage and, as a result,
there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company monitors this credit risk and makes
adjustments to the concentrations as necessary.
Restricted Cash
Restricted cash represents the Company's cash collateral requirements under the Secured Term Note, outstanding letters of credit, international payroll
processing exposures, and corporate credit card obligations. As of December 31, 2019 and 2018, the Company had $20.2 million and $6.1 million of
restricted cash, respectively, of which $1.0 million was held in certificates of deposit as of both December 31, 2019 and 2018. As of December 31, 2019,
certificates of deposit in the amount of $0.9 million will mature within the next one year.
Allowance for Doubtful Accounts
The Company generally grants uncollateralized credit terms to its customers and maintains an allowance for doubtful accounts to reserve for uncollectible
receivables. Allowances are based on management's judgment, which considers historical collection experience, a specific review of all significant
outstanding receivables, an assessment of company-specific credit conditions and general economic conditions.
The following is a summary of the allowance for doubtful accounts:
(In thousands)
Beginning Balance
Additions
Recoveries
Write-offs
Ending Balance
Years Ended December 31,
2019
2018
$
(1,597) $
(727)
(481)
886
$
(1,919) $
(1,991)
(966)
(225)
1,585
(1,597)
Property and Equipment, net
Property and equipment is recorded at cost, net of accumulated depreciation, and is depreciated on a straight-line basis over the estimated useful lives of the
assets, ranging from 3 to 5 years. Assets under finance leases are recorded at their net present value at the commencement of the lease. Assets under finance
leases and leasehold improvements are amortized over the shorter of the related lease terms or their useful lives. Replacements and major improvements are
capitalized; maintenance and repairs are expensed as incurred.
Capitalized Software
Capitalized software, which is included in property and equipment, net, consists of costs to purchase and develop internal-use software, which the Company
uses to provide services to its clients. The costs to purchase and develop internal-use software are capitalized from the time that the preliminary project stage
is completed, and it is considered probable that the software will be used to perform the function intended, until the time the software is placed in service for
its intended use. Any costs incurred during
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subsequent efforts to upgrade and enhance the functionality of the software are also capitalized. Once this software is ready for use in the Company's
products, these costs are amortized on a straight-line basis over the estimated useful life of the software, which is typically assessed to be 3 to 5 years. During
the years ended December 31, 2019 and 2018 the Company capitalized $11.9 million and $9.6 million in internal-use software costs, respectively. The
Company depreciated $4.8 million and $1.3 million in capitalized internal-use software costs during the years ended December 31, 2019 and 2018,
respectively. No amounts were capitalized in 2017.
Certain costs incurred for implementation, setup, and other upfront activities in a hosting arrangement that is a service contract are capitalized within other
non-current assets in the Consolidated Balance Sheets. Once the implementation has been completed, the capitalized amounts are amortized on a straight-line
basis over the remaining noncancelable term of the hosting arrangement, including options to extend the hosting arrangement when it is reasonably certain the
options will be exercised. The Company capitalized $1.0 million of implementation costs in 2019. No expenses were recognized in 2019, 2018 or 2017.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed when a business is acquired.
The valuation of intangible assets and goodwill involves the use of management's estimates and assumptions and can have a significant impact on future
operating results. The Company initially records its intangible assets at fair value. Intangible assets with finite lives are amortized over their estimated useful
lives while goodwill is not amortized but is evaluated for impairment at least annually, as of October 1, by comparing the fair value of a reporting unit to its
carrying value including goodwill recorded by the reporting unit.
The Company has a single reporting unit. Accordingly, the impairment assessment for goodwill is performed at the enterprise level. Goodwill is reviewed for
possible impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting
unit below its carrying value. The Company initially assesses qualitative factors to determine if it is necessary to perform the goodwill impairment review.
Goodwill is reviewed for impairment if, based on an assessment of the qualitative factors, it is determined that it is more likely than not that the fair value of
the reporting unit is less than its carrying value, or the Company decides to bypass the qualitative assessment. The carrying value of the reporting unit is
reviewed utilizing a combination of the discounted cash flow model and a market value approach. The estimated fair value of a reporting unit is determined
based on assumptions regarding estimated future cash flows, discount rates, long-term growth rates and market values. Additionally, the Company considers
income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss.
The Company monitors for events and circumstances that could negatively impact the key assumptions in determining fair value, including long-term revenue
growth projections, profitability, discount rates, volatility in the Company's market capitalization, general industry, and market and macro-economic
conditions. It is possible that future changes in such circumstances, or in the variables associated with the judgments, assumptions and estimates used in
assessing the fair value of the reporting unit, would require the Company to record a non-cash impairment charge.
The Company performed an interim analysis as of June 30, 2019 and determined that goodwill was then impaired. Refer to Footnote 9, Goodwill and
Intangible Assets for further information. The Company completed its annual assessment on October 1, 2019, and there was no additional impairment of
goodwill at the assessment date. There were no goodwill impairment charges recognized during the years ended December 31, 2018 and 2017.
Intangible assets with finite lives are generally amortized using the straight-line method over the following useful lives:
Acquired methodologies/technology
Acquired software
Customer relationships
Intellectual property
Panel
Trade Names
Other
65
Useful Lives
(Years)
2 to 7
3
3 to 7
2 to 13
1 to 7
2 to 6
6 to 8
Table of Contents
Impairment of Long-Lived Assets
The Company's long-lived assets consist of property and equipment and finite-lived intangible assets. The Company evaluates its long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying value of such assets may not be recoverable. If an indication of impairment is
present, the Company compares the estimated undiscounted future cash flows to be generated by the asset group to its carrying amount. Recoverability
measurement and estimation of undiscounted cash flows are grouped at the lowest level for which identifiable cash flows are largely independent of the cash
flows of other assets and liabilities. If the undiscounted future cash flows are less than the carrying amount of the asset group, the Company records an
impairment loss equal to the excess of the asset group's carrying amount over its fair value. The fair value is determined based on valuation techniques such
as a comparison to fair values of similar assets or using a discounted cash flow analysis.
Although the Company believes that the carrying values of its long-lived assets are appropriately stated, changes in strategy or market conditions, significant
technological developments or significant changes in legal or regulatory factors could significantly impact these judgments and require adjustments to
recorded asset balances. The Company performed an interim analysis as of June 30, 2019, as events or changes in circumstances indicated the carrying value
of certain assets may not be recoverable, and determined that the Company's strategic alliance (the "strategic alliance") with WPP plc and its affiliates
("WPP") was impaired. Refer to Footnote 9, Goodwill and Intangible Assets for further information. There were no impairment charges recognized during the
years ended December 31, 2018 and 2017 or subsequent to June 30, 2019.
Accounting for Warrants
In June 2019, the Company issued warrants to CVI in connection with the private placement described above. The warrants were determined to be
freestanding financial instruments that qualify for liability treatment as a result of a net cash settlement feature associated with a cap on the issuance of shares
under certain circumstances. Changes in the fair value of these instruments are immediately recorded in other income (expense), net in the Consolidated
Statements of Operations and Comprehensive Loss.
The fair value of the warrants is determined using a Monte Carlo simulation analysis within an option pricing model. The fair value estimate is determined
using an estimate for the Company's cost of debt, probability of change of control, dividend yield, risk-free rate, remaining term of the warrants and volatility.
The fair values of the warrants are estimated using forward projections of stock issuances with relative certainty and estimated payments at each exercise date
discounted back to the valuation date with the remaining term of the related warrants. The primary sensitivity in the valuation of each warrant liability is
driven by the Common Stock price at the measurement date and the observable volatility of the Common Stock.
Equity Securities
The Company sold its remaining investment in equity securities during 2019 for gross cash proceeds of $3.8 million. Changes in the investment's fair value
were reported in other income (expense), net as they occurred; therefore, the sale of this investment did not result in a gain or loss in the Consolidated
Statements of Operations and Comprehensive Loss.
Leases
The Company applies the provisions of Accounting Standards Codification ("ASC") 842, Leases. The Company's lease portfolio is comprised of three major
classes. Real estate leases, which are the majority of the Company's leased assets, are accounted for as operating leases. Computer equipment and automobile
leases, which comprise the remaining two major lease classes in the Company's portfolio, are generally accounted for as finance leases.
The Company determines if an arrangement is a lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and
whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset. Right-of-use ("ROU") assets
and lease liabilities are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term.
Operating ROU assets also include the impact of any lease incentives.
For any leases in which an asset is not specifically identified, the Company performs a discrete analysis to identify whether there is an implicitly identified
asset based on the contractual or other known requirements, such as the presence of substantive substitution rights on the part of the supplier or the right of
the Company to sublease the asset. As part of this analysis, the Company also determines whether there are any restrictions on the use of the asset placed on
the Company that are not considered protective rights on the part of the supplier and thus would allow the Company to assume which specific assets have
been identified.
The Company identifies separate lease and non-lease components within the contract. Non-lease components primarily include payments for common-area
maintenance and management charges. The Company has elected to combine lease and non-lease payments and account for them together as a single lease
component, which increases the amount of the Company's ROU assets and lease liabilities.
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The interest rate used to determine the present value of the future lease payments is the Company's incremental borrowing rate, because the interest rate
implicit in the Company's leases is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized
basis with similar terms and payments, and in economic environments where the leased asset is located. The Company's current discount rates range from
13.6% to 14.6% depending on the term of the lease.
The Company's lease terms include periods under options to extend or terminate the lease when it is reasonably certain that the Company will exercise that
option. The Company considers contractual-based factors such as the nature and terms of the renewal or termination, asset-based factors such as physical
location of the asset and entity-based factors such as the importance of the leased asset to the Company's operations to determine the lease term. The
Company generally uses the base, non-cancelable, lease term when determining the ROU assets and lease liabilities.
Payments under the Company's lease arrangements are primarily fixed; however, certain lease agreements contain variable payments, which are expensed as
incurred and not included in the measurement of ROU assets and lease liabilities. These amounts include payments affected by changes in the Consumer
Price Index and payments for common-area maintenance, real estate taxes and utilities, which are based on usage or performance.
Operating leases are included in operating ROU assets, current operating lease liability, and non-current operating lease liability in the Consolidated Balance
Sheets. The Company recognizes lease expense for its operating leases on a straight-line basis over the term of the lease. Finance lease activity is included in
property and equipment, net; current finance lease liabilities are aggregated into other current liabilities; and non-current finance lease obligations are
aggregated in other non-current liabilities in the Company's Consolidated Balance Sheets. Finance ROU assets are amortized on a straight-line basis over their
estimated useful lives.
The execution of a sublease where remaining lease payments on the head lease exceed the anticipated sublease receipts reflects an indication of impairment
which suggests the carrying value of the ROU asset may not be recoverable. The Company treats operating lease ROU assets as financing transactions,
thereby excluding the operating lease liability and related lease payments from the head lease, for purposes of testing recoverability. The Company compares
the estimated undiscounted cash flows generated by the sublease to the current carrying value of the ROU asset. If the undiscounted cash flows are less than
the carrying value of the ROU asset, the Company records an impairment loss equal to the excess of the ROU asset's carrying value over its fair value
consistent with other long-lived assets.
Income from subleased properties is recognized on a straight-line basis and presented as a reduction of costs, allocated among operating expense line items, in
the Company's Consolidated Statements of Operations and Comprehensive Loss. In addition to sublease rent, variable non-lease costs such as common-area
maintenance and utilities are charged to subtenants over the duration of the lease for their proportionate share of these costs. These variable non-lease income
receipts are recognized in operating expenses as a reduction to costs incurred by the Company in relation to the head lease.
The Company determines the nature of a sale-leaseback transaction based on the determination of whether the transaction qualifies as a sale and whether there
is a transfer in the control of assets. If the transaction does not qualify as a sale, the Company recognizes the transaction as a failed sale-leaseback transaction
(financing arrangement). The Company records a financing obligation, and the assets that are included in the failed sale-leaseback transaction remain on the
Consolidated Balance Sheets until the end of the lease term.
Change in Accounting Policy
The Company adopted ASC 842, with an initial application date of January 1, 2019, using the modified retrospective transition method with optional
transition relief, under which the Company did not restate prior comparative periods and instead recorded an adjustment to stockholders' equity as of the date
of initial implementation for the cumulative impact of adoption.
As part of the transition, the Company implemented new internal controls and key system functionality to enable the preparation of financial information on
adoption, and elected the following practical expedients:
•
•
•
•
•
•
Not to reassess whether any expired or existing contracts are or contain leases.
Not to reassess the lease classification for any expired or existing leases.
Not to reassess initial direct costs for any existing leases.
The hindsight practical expedient in determining the lease term.
The practical expedient whereby the lease and non-lease components will not be separated for all classes of assets.
Not to record ROU assets and corresponding lease liabilities with a lease term of 12 months or less.
The Company has elected to net its sublease exit liabilities recognized under ASC 420, Exit or Disposal Cost Obligations as an adjustment to the opening
ROU asset for the corresponding head lease established upon the adoption of ASC 842. Sublease exit liabilities had a carrying value of $2.5 million as of
December 31, 2018.
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Upon adoption, ASC 842 had an impact on the Consolidated Balance Sheets but did not have an impact on the Consolidated Statements of Operations and
Comprehensive Loss. The adoption of ASC 842 impacted the Company's previously reported results as follows:
(In thousands)
Operating right-of-use assets
Property and equipment, net
Current capital lease obligations
Current restructuring accrual
Current deferred rent
Current operating lease liabilities
Non-current restructuring accrual
Non-current deferred rent
Non-current capital lease obligations
Non-current operating lease liabilities
Stockholders' equity
Foreign Currency
As previously reported as of
December 31, 2018
New lease standard
adjustments
As adjusted as of January 1,
2019
$
— $
42,472 $
27,339
2,421
5,479
1,884
—
1,810
10,304
1,182
—
551,567
(203)
(161)
(708)
(1,884)
7,846
(1,810)
(10,304)
3
49,333
(46)
42,472
27,136
2,260
4,771
—
7,846
—
—
1,185
49,333
551,521
Generally, the functional currency of the Company's foreign subsidiaries is the local currency. In those cases where the transaction is not denominated in the
functional currency, the Company revalues the transaction to the functional currency and records the translation gain or loss in the Company's Statements of
Operations and Comprehensive Loss. Assets and liabilities are translated at the current exchange rate as of the end of the year, and revenues and expenses are
translated at average exchange rates in effect during the year. The gain or loss resulting from the process of translating a foreign subsidiary's functional
currency financial statements into U.S. Dollars ("USD") is reflected as foreign currency cumulative translation adjustment and reported as a component of
accumulated other comprehensive loss. The translation adjustment for intercompany foreign currency loans that are permanent in nature are also recorded as
accumulated other comprehensive loss. Translation adjustments on intercompany accounts that are short term in nature are recorded as gain (loss) from
foreign currency transactions. For foreign entities where USD is the functional currency, re-measurement of gains and losses related to deferred tax assets and
liabilities are reflected in income tax provision in the Company's Statements of Operations and Comprehensive Loss.
Revenue Recognition
The Company applies the provisions of ASC 606, Revenue from Contracts with Customers, and all related applicable guidance. The Company recognizes
revenue under the core principle to depict the transfer of control to its customers in an amount reflecting the consideration to which it expects to be entitled. In
order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the
performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract,
and (5) recognize revenue when a performance obligation is satisfied.
The Company's contracts with customers may include multiple promised goods and services. Contracts with multiple performance obligations typically
consist of a mix of subscriptions to the Company's online database, customized data services, and delivery of periodic custom reports based on information
obtained from the database. In such cases, the Company identifies performance obligations by evaluating whether the promised goods and services are
capable of being distinct and distinct within the context of the contract at contract inception. Promised goods and services that are not distinct at contract
inception are combined as one performance obligation. Once the Company identifies the performance obligations, the Company will determine the
transaction price based on contractually fixed amounts and an estimate of variable consideration. The Company allocates the transaction price to each
performance obligation based on relative standalone selling price ("SSP"). Judgment is exercised to determine the SSP of each distinct performance
obligation. The Company will constrain estimates of variable consideration based on its expectation of recovery from the customer. Some sources of variable
consideration such as refunds, penalties, or allowances will reduce transaction price. In some instances, the Company may have non-cash consideration or
elements of consideration payable to the customer, which will also be included in the transaction price. These sources of variable consideration are relatively
infrequent and generally not significant. The Company recognizes revenue when (or as) it satisfies a performance obligation by transferring promised goods
or services to a customer. Customers may obtain the control of promised goods or services over time or at a point in time. The Company recognizes revenue
net of sales taxes remitted to government authorities. In general, transaction price is determined by estimating the fixed amount of consideration to which the
Company is entitled for transfer of goods and services and all relevant
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sources and components of variable consideration. Variable consideration is estimated based on the most likely amount or expected value approach,
depending on which method the Company expects to better predict the amount of consideration to which it will be entitled. Once the Company elects one of
the methods to estimate variable consideration for a particular type of performance obligation, the Company will apply that method consistently.
Subscription-based revenues are typically recognized on a straight-line basis over the access period, which ranges from three to thirty-six months. Revenue
for validated Campaign Essentials ("vCE") and Comscore Campaign Ratings ("CCR") is recognized over time, either on a time-elapsed basis, as the
Company is providing services that the customer is continuously consuming and receiving benefit from, or on an output method, such as volume of
impressions processed. Activation products vary in nature, and can be recognized over time, generally on an input method time-elapsed basis, as the
Company provides continuous tracking of activity. Other activation products are delivered at a point in time, based on custom attributes agreed upon by
customers and the Company.
The Company's customized data services are delivered in the form of custom recurring reports or ad hoc reports. Custom report performance obligations, in
general, are transferred at a point in time once the product has been delivered to the customer.
Survey products vary in nature and can be recognized at a point in time, generally on an output method report delivery basis, once the final report has been
delivered to the customer. Other survey products are recognized over time, generally on a time-elapsed basis, as the Company provides access to continuous
reporting on survey results through a user interface. Survey services consist of survey design with subsequent data collection, analysis and reporting.
For performance obligations satisfied at a point in time, the Company evaluates a number of factors to determine whether control of goods and services has
been transferred. The Company considers whether there is a present right to payment and whether the customer has accepted the asset. In many instances the
Company has objective evidence of the acceptance criteria, while in other cases the acceptance provisions are substantive, and the customer must
affirmatively signal acceptance. The preceding two factors are not the only factors that may be considered. Other considerations include, but are not limited
to, whether risks and rewards of ownership have been transferred for a particular product.
For the majority of its products and services, the Company applies an adjusted market assessment approach for the determination of SSP for identified
performance obligations. In general, the Company bundles multiple products and very few are sold on a standalone basis. The Company uses rate cards and
pricing calculators that are periodically reviewed and updated to reflect the latest sales data and observable inputs by industry, channel, geography, customer
size, and other relevant groupings. Certain products are sold on a standalone basis in a narrow band of prices. If a product is sold outside of the narrow band
of prices, it will be assigned the midpoint of the narrow band for purposes of allocating transaction price on a relative SSP basis.
Customers may have the right to cancel their contracts by providing a written notice of cancellation, although most subscription-based contracts are non-
cancelable. If a customer cancels its contract, the customer is generally not entitled to a refund for prior services. In the event a portion of a contract is
refundable, revenue recognition is delayed until the refund provision lapses. For multi-year contracts with annual price increases and no opt out clauses, the
total consideration for each of the years included in the contract term will be combined and recognized on a straight-line basis over the term of the contract.
The Company may enter into multiple contracts with a single counterparty at or near the same time. The Company will combine contracts and account for
them as a single contract when one or more of the following criteria are met: (i) the contracts are negotiated as a package with a single commercial objective,
(ii) consideration to be paid in one contract depends on the price or performance of the other contract, and (iii) goods or services promised are a single
performance obligation.
For transactions that involve third parties, the Company evaluates whether the Company is the principal, in which case the Company recognizes revenue on a
gross basis. If the Company is an agent, the Company recognizes revenue on a net basis. In certain countries, the Company may use third-party resellers to
sell its products and services. In these transactions, the Company is generally the principal as the Company controls the products and services and is primarily
responsible for providing them to the end user. The Company also has certain revenue share arrangements that involve the use of partner data in its sales to
end users or the use of its data in partner sales to end users. In these arrangements, the Company assesses which party controls the specified goods or services
before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in
establishing price.
The Company enters into a limited number of monetary contracts with multichannel video programming distributors ("MVPDs") that involve both the
purchase and sale of services with a single counterparty. The Company assesses each contract to determine if the revenue and expense should be presented
gross or net. The Company recognizes revenue for these contracts to the extent that SSP is established for distinct services provided. Any excess
consideration above the established SSP of services is presented as an offset to cost of revenues in the Consolidated Statements of Operations and
Comprehensive Loss.
Nonmonetary transactions represent data exchanges, which may consist of digital usage and general demographic data. The data obtained through
nonmonetary transactions differs from the data provided by the Company in the exchange. Under ASC 606, the transaction price of a nonmonetary exchange
that has commercial substance is based on the fair value of the non-cash consideration
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received. If an entity cannot reasonably estimate the fair value of the non-cash consideration received, then it uses the estimated selling price of the promised
goods or services. None of the nonmonetary transactions entered into by the Company met the requirements to recognize revenue or expense. Therefore, these
nonmonetary transactions are not reflected in the Consolidated Financial Statements.
Contract Balances
Accounts receivable are billed and unbilled amounts related to the Company's rights to consideration as performance obligations are satisfied when the rights
to payment become unconditional but for the passage of time.
Contract assets are included in prepaid expenses and other current assets within the Consolidated Balance Sheets. Contract assets represent the Company's
right to consideration in exchange for goods or services transferred to the customer either prior to the receipt of consideration or before payment is due.
Contract payments are generally due in advance for subscription-based services or prior to delivery of custom reports. If a contract exists under ASC 606,
advance payments are recorded as a contract liability or a customer advance until the performance obligations are satisfied and revenue is earned.
Contract liabilities relate to amounts billed in advance, or advance consideration received from customers, for which transfer of control of the good or service
occurs at a later point in time. Customer advances relate to amounts billed in advance, or advance considerations received from customers, for contracts with
termination rights for which transfer of control of the good or service occurs at a later point in time. Contract liabilities and customer advances to be
recognized in the succeeding twelve-month period are classified as current and the remaining amounts are classified as non-current liabilities within the
Consolidated Balance Sheets.
Transaction Price Allocated to the Remaining Performance Obligations
The Company elected an optional exemption to not disclose information about remaining performance obligations that have an original expected duration of
one year or less, or where the transaction price allocated to unsatisfied performance obligations for which variable consideration is allocated entirely to a
wholly unsatisfied performance obligation, or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance
obligation in accordance with the series guidance.
Costs to Obtain or Fulfill a Contract
The Company elected the practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period
of the assets is one year or less. These costs include commission programs to compensate employees for obtaining new contracts and are included in selling
and marketing expense.
Certain costs to fulfill are capitalized in relation to long-term contracts wherein the transfer of goods and services will occur at a point in time. In addition, the
Company capitalizes costs to fulfill for long-term contracts that are incurred during a setup period prior to transferring control of the good or service over
time. These costs include dedicated employees, subcontractors, and other third-party costs. The Company will assess capitalized costs to fulfill at each
reporting period for recoverability. These costs are included in cost of revenue and are recognized in the same manner as the corresponding performance
obligation.
Cost of Revenues
Cost of revenues consists primarily of costs to produce the Company's products including viewing data from MVPDs, census-based, panel and other third-
party data as well as costs to operate its network infrastructure including data center, data storage and compliance costs. Other costs include amortization of
capitalized fulfillment costs, employee costs including stock-based compensation, depreciation related to assets used to maintain the network and produce
products and allocated overhead, including rent and depreciation expenses generated by general purpose equipment and software.
Selling and Marketing
Selling and marketing expenses consist primarily of salaries, commissions, stock-based compensation, benefits and bonuses for personnel associated with
sales and marketing activities, as well as costs related to online and offline advertising, product management, seminars, promotional materials, public
relations, other sales and marketing programs, and allocated overhead, including rent and other facilities related costs, and depreciation.
Research and Development
Research and development expenses consist primarily of salaries, stock-based compensation, benefits and related costs for personnel associated with research
and development activities, as well as allocated overhead, including rent and other facilities related costs, and depreciation.
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General and Administrative
General and administrative expenses consist primarily of salaries, stock-based compensation, benefits and related costs for executive management, finance,
accounting, human capital, legal, information technology and other administrative functions, as well as professional fees and allocated overhead, including
rent and other facilities related costs, depreciation and expenses incurred for other general corporate purposes.
Investigation and Audit Related
Investigation expenses are professional fees associated with legal and forensic accounting services rendered as a result of an internal Audit Committee
investigation into matters related to the Company's revenue recognition practices, disclosures, internal controls, corporate culture and employment practices
prior to 2017. Audit related expenses consist of professional fees associated with accounting related consulting services and external auditor fees associated
with the audit of the Company's prior-year financial statements. Also included are litigation related expenses, which include legal fees associated with various
lawsuits or investigations that were initiated either directly or indirectly as a result of the Audit Committee's investigation.
Other Income (Expense), Net
The following is a summary of other income (expense), net:
(In thousands)
Change in fair value of financing derivatives
Change in fair value of warrants liability
Change in fair value of investment in equity securities
Transition services agreement income
Gain on forgiveness of obligation
Other
Total other income (expense), net
Years Ended December 31,
2019
$
5,100 $
2018
(14,226) $
2017
(2,411)
(2,324)
534
—
755
—
1,443
9,029
—
2,290
$
1,654 $
(1,464) $
—
—
—
11,080
4,000
125
15,205
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash and
accounts receivable. The Company maintains cash deposits with financial institutions that, from time to time, exceed applicable insurance limits. The
Company reduces this risk by maintaining such deposits with high quality financial institutions that management believes are creditworthy. With respect to
accounts receivable, credit risk is mitigated by the Company's ongoing credit evaluation of its customers' financial condition.
Debt Issuance Costs
The Company reflects debt issuance costs in the Consolidated Balance Sheets as a direct deduction from the gross amount of debt, consistent with the
presentation of a debt discount. Debt issuance costs are amortized to interest expense, net over the term of the underlying debt instrument, utilizing the
effective interest method.
Derivative Financial Instruments
The Company has derivative financial instruments that are not hedges and do not qualify for hedge accounting. Changes in the fair value of these instruments
are recorded in other income (expense), net in the Consolidated Statements of Operations and Comprehensive Loss.
Stock-Based Compensation
The Company estimates the fair value of stock-based awards on the date of grant. The fair value of stock options with only service conditions is determined
using the Black-Scholes option pricing model. The fair value of restricted stock units ("RSUs") and restricted stock awards is based on the closing price of the
Company's Common Stock on the date of grant. The Company amortizes the fair value of awards expected to vest on a straight-line basis over the requisite
service periods of the awards, which is generally the period from the grant date to the end of the vesting period. The determination of the fair value of the
Company's stock option awards is based on a variety of factors, including, but not limited to, the Company's Common Stock price, risk-free rate, expected
stock price volatility over the expected life of awards, dividend yield and actual and projected exercise behavior. Additionally, the
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Company has estimated forfeitures for stock-based awards at the dates of grant based on historical experience and adjusted for future expectation. The
Company performs a review of the forfeiture rate assumption at least annually or as deemed necessary if there are changes that could potentially significantly
impact the future rate of forfeiture of its stock-based awards. The forfeiture estimate is revised as necessary if actual forfeitures differ from these estimates.
The Company issues RSU awards with restrictions that lapse upon the passage of time (service vesting), achieving performance targets, fulfillment of market
conditions or a combination thereof. For those RSU awards with only service vesting, the Company recognizes compensation cost on a straight-line basis
over the service period. For awards with performance conditions only, or performance and service conditions, the Company starts recognizing compensation
cost over the remaining service period when it is probable the performance conditions will be met. Stock awards that contain performance vesting conditions
are excluded from diluted earnings per share computations until the contingency is met as of the end of that reporting period.
For awards with market conditions, the Company recognizes compensation cost over the remaining service period, with the effect of the market condition
reflected in the calculation of the award's fair value at grant date. The Company values awards with market conditions using certain valuation techniques,
such as a Monte Carlo simulation analysis. The Company determines the requisite service period based on the longer of the explicit service period and the
derived service period. Stock awards that contain market vesting conditions are included in the computations of diluted EPS reflecting the number of shares
that would be issued based on the current market price at the end of the period being reported on, if their effect is dilutive.
Under the Company's annual incentive compensation plan, the Company may grant immediate or future vesting RSUs to certain employees. For these awards,
stock-based compensation expense is recognized over the requisite service period, which generally precedes the grant date. The Company accrues stock-based
compensation expense for these awards until the date of grant.
Income Taxes
Income taxes are accounted for using the asset and liability method. Deferred income taxes are provided for temporary differences in recognizing certain
income, expense and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the difference
between the tax bases of assets and liabilities and their financial reporting amounts. Deferred tax assets and liabilities are measured by applying enacted
statutory tax rates applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized. Excess tax benefits and tax
deficiencies are recognized in the income tax provision in the period in which they occur.
The Company records a valuation allowance when it determines, based on available positive and negative evidence, that it is more-likely-than-not that some
portion or all of its deferred tax assets will not be realized. The Company determines the realizability of its deferred tax assets primarily based on the reversal
of existing taxable temporary differences and projections of future taxable income (exclusive of reversing temporary differences and carryforwards). In
evaluating such projections, the Company considers its history of profitability, the competitive environment, and general economic conditions. In addition, the
Company considers the time frame over which it would take to utilize the deferred tax assets prior to their expiration.
For certain tax positions, the Company uses a more-likely-than-not threshold based on the technical merits of the tax position taken. Tax positions that meet
the more-likely-than-not recognition threshold are measured at the largest amount of tax benefits determined on a cumulative probability basis, which are
more-likely-than-not to be realized upon ultimate settlement in the financial statements. The Company's policy is to recognize interest and penalties related to
income tax matters in income tax expense.
On December 22, 2017, U.S. tax reform legislation known as the Tax Cuts and Jobs Act (the "TCJA") was signed into law. As of December 31, 2018, the
Company's accounting for the TCJA has been completed. The Company has determined the effects of certain provisions, including but not limited to: a
reduction in the corporate tax rate from 35% to 21%, a limitation of the deductibility of certain officers' compensation, a limitation on the current deductibility
of net interest expense in excess of 30% of adjusted taxable income, a limitation of net operating losses generated after 2018 to 80% of taxable income, an
incremental tax (base erosion anti-abuse or "BEAT") on excessive amounts paid to foreign related parties, and a minimum tax on certain foreign earnings in
excess of 10% of the foreign subsidiaries tangible assets (global intangible low-taxed income or "GILTI"). As part of its GILTI review, the Company has
determined that it will account for GILTI income as it is generated (i.e., treat it as a period expense). Given the Company's loss position in the U.S. and the
valuation allowance recorded against its U.S. net deferred tax assets, these provisions have not had a material impact on the Company's financial statements.
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Loss Per Share
Basic net loss per common share excludes dilution for potential Common Stock issuances and is computed by dividing net loss by the weighted-average
number of shares of Common Stock outstanding for the period. 250,000 shares of Common Stock issuable upon the exercise of warrants ("penny warrants")
were included in the number of outstanding shares used for the computation of basic net loss per share prior to the exercise of those warrants on April 3,
2019. In periods with a reported net loss, the effect of anti-dilutive stock options, stock appreciation rights, restricted stock units, senior secured convertible
notes and warrants are excluded and diluted loss per share is equal to basic loss per share.
The following is a summary of the Common Stock equivalents for the securities outstanding during the respective periods that have been excluded from the
computation of diluted net loss per common share, as their effect would be anti-dilutive:
Stock options, stock appreciation rights, restricted stock units,
senior secured convertible notes and warrants
12,443,032
8,392,748
2,837,872
Years Ended December 31,
2019
2018
2017
Comprehensive Loss
Comprehensive loss consists of net loss, foreign currency translation adjustments and the unrealized gains on investments in marketable securities.
Accounting Standards Recently Adopted
In July 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity;
Derivatives and Hedging. This update was issued to address complexities in accounting for certain equity-linked financial instruments containing down round
features. The amendments in ASU 2017-11 change the classification analysis of these financial instruments (or embedded features) so that equity
classification is no longer precluded. The amendments in ASU 2017-11 are effective for annual reporting periods beginning after December 15, 2018,
including interim reporting periods within those annual reporting periods. Early adoption is permitted. The adoption of the standard did not have an impact on
the Consolidated Financial Statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects
from Accumulated Other Comprehensive Income. This update was issued to allow companies to reclassify tax effects stranded in accumulated other
comprehensive income as a result of tax reform to retained earnings. Companies that elect to reclassify these amounts must reclassify stranded tax effects for
all items accounted for in accumulated other comprehensive income. The amendments in ASU 2018-02 are effective for annual reporting periods beginning
after December 15, 2018, including interim reporting periods within those annual reporting periods. Early adoption is permitted. Upon adoption of the
standard, the Company did not elect to reclassify stranded tax effects to retained earnings. The adoption of the standard did not have an impact on the
Consolidated Financial Statements.
In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment
Accounting. This update was issued to allow companies to account for share-based payment transactions with non-employees in the same way as share-based
payment transactions with employees, with the main differences being the accounting for attribution and a contractual term election for valuing non-employee
equity share options. The amendments in ASU 2018-07 are effective for annual reporting periods beginning after December 15, 2018, including interim
reporting periods within those annual reporting periods. Per ASU 2018-07, this update should be applied on a modified retrospective basis via a cumulative
effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Early adoption is permitted only if the Company has adopted ASC
606, Revenue from Contracts with Customers. The adoption of the standard did not have an impact on the Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This update was issued to align the requirements for
capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs
incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments in ASU 2018-
15 are effective for annual periods beginning after December 15, 2019, including interim reporting periods within those annual periods. Early adoption is
permitted. The Company early adopted this standard, effective January 1, 2019, on a prospective basis. The adoption did not have an impact on the
Consolidated Financial Statements.
In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections. This update was issued to align the codification requirements with the
issuance of SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231
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and 33-10442, Investment Company Reporting Modernization, as well as other miscellaneous updates, including updates to XBRL taxonomy. The adoption
did not have an impact on the Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which simplifies the accounting for income taxes by eliminating certain
exemptions as well as a few other changes. The amendments are effective for fiscal years beginning after December 15, 2020, including interim periods
within those fiscal years. An entity is permitted to early adopt any removed or modified disclosures upon issuance of the update and to delay adoption of the
additional disclosures until their effective date. The Company is in the process of evaluating the guidance but does not believe that the adoption of this
standard will have a material impact on the Consolidated Financial Statements or related disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which removes and modifies certain disclosure requirements under
Topic 820. The amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. An entity is
permitted to early adopt any removed or modified disclosures upon issuance of the update and to delay adoption of the additional disclosures until their
effective date. The Company is in the process of evaluating the guidance but does not believe that the adoption of this standard will have a material impact on
the Consolidated Financial Statements or related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires the measurement and recognition of
expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss
model which requires consideration of forward-looking information to calculate credit loss estimates. These changes will result in an earlier recognition of
credit losses. The amendment is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The
Company's financial assets held at amortized cost include certificates of deposit, accounts receivable and contract assets. The Company will adopt the new
standard effective January 1, 2020 and does not expect the adoption of this standard will have a material impact on the Consolidated Financial Statements or
related disclosures.
3. Revenue Recognition
The following table presents the Company's revenue disaggregated by solution group, geographical market and timing of transfer of products and services.
The Company has one reportable segment in accordance with ASC 280, Segment Reporting; as such, the disaggregation of revenue below reconciles directly
to its unique reportable segment.
(In thousands)
By solution group:
Ratings and Planning
Analytics and Optimization
Movies Reporting and Analytics
Total
By geographical market:
United States
Europe
Latin America
Canada
Other
Total
By timing of revenue recognition:
Products and services transferred at a point in time
Products and services transferred over time
Total
74
$
$
$
$
$
Years Ended December 31,
2019
2018
$
271,623 $
74,725
42,297
388,645 $
285,355
92,380
41,747
419,482
336,087 $
359,379
30,619
10,326
7,046
4,567
34,623
13,179
7,882
4,419
388,645 $
419,482
93,036 $
295,609
388,645 $
113,583
305,899
419,482
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Contract Balances
The following table provides information about receivables, contract assets, contract costs, contract liabilities and customer advances from contracts with
customers:
(In thousands)
Accounts receivable, net
Current and non-current contract assets
Current and non-current contract costs
Current contract liability
Current customer advances
Non-current contract liability
As of
As of
December 31, 2019
December 31, 2018
$
71,853 $
1,035
799
58,158
9,886
291
75,609
2,438
1,402
64,189
6,688
508
Significant changes in the contract assets and the contract liabilities balances are as follows:
(In thousands)
Revenue recognized that was included in the contract liability balance at the beginning of
period
$
Cash received or amounts billed in advance and not recognized as revenue
Contract Liability (Current)
Years Ended December 31,
2019
2018
(58,918) $
53,881
(75,162)
60,040
Transaction Price Allocated to the Remaining Performance Obligations
As of December 31, 2019, approximately $230 million of revenue is expected to be recognized from remaining performance obligations that are unsatisfied
(or partially unsatisfied) for non-cancelable contracts. The Company expects to recognize revenue on approximately 64% of these remaining performance
obligations in 2020, and approximately 25% in 2021, with the remainder recognized thereafter.
Costs to Obtain or Fulfill a Contract
As of December 31, 2019 and 2018, the Company had $0.8 million and $1.4 million, respectively, in capitalized contract costs. For the years ended December
31, 2019 and 2018, amortized and expensed contract costs were $1.9 million and $2.3 million, respectively.
4. Long-term Debt
Issuance and Sale of Initial Notes
On January 16, 2018, the Company entered into certain agreements with Starboard, pursuant to which, among other things, the Company issued and sold to
Starboard $150.0 million of senior secured convertible notes (the "Initial Notes") in exchange for $85.0 million in cash and 2,600,000 shares of Common
Stock valued at $65.0 million. Based upon the fair value of the Common Stock on the closing date of the Initial Notes issuance, January 16, 2018, which was
$24.45 per share, the difference of $1.4 million was recorded as an issuance discount to the Initial Notes. The Company also granted to Starboard an option
(the "Notes Option") to acquire up to an additional $50.0 million in senior secured convertible notes (the "Option Notes" and together with the Initial Notes,
the "Notes") and agreed to grant Starboard warrants to purchase 250,000 shares of Common Stock at a price of $0.01 per share, as adjusted pursuant to the
terms of the warrants. The warrants were issued on October 12, 2018 and were exercised in full by Starboard on April 3, 2019 for 323,448 shares of Common
Stock.
The conversion price for the Notes (the "Conversion Price") is equal to a 30% premium to the volume weighted average trading prices ("VWAP") of the
Common Stock on each trading day during the 10 consecutive trading days commencing on January 16, 2018, subject to a Conversion Price floor of $28.00
per share. In accordance with the foregoing, the Conversion Price was set at $31.29 per share.
The Notes mature on January 16, 2022. Based upon the determination of the Conversion Price, interest on the Notes accrued at 6.0% per year through
January 30, 2019. On January 30, 2019, the interest rate reset to 12.0% through January 30, 2020. On each of January 30, 2020 and February 1, 2021, the
interest rate on the Notes will reset, and interest will thereafter accrue at a minimum of 4.0% per year and a maximum of 12.0% per year, based upon the
then-applicable conversion premium in accordance with the terms of the Notes. The interest rate remains at 12.0% based on the January 30, 2020 reset
calculation. The interest rate reset feature
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of the Initial Notes was determined by management to be a derivative instrument that qualifies for liability treatment. The derivative instrument is initially
measured at fair value and classified as a liability on the balance sheet, with subsequent changes in fair value being recorded in earnings. To determine the fair
value of the interest rate reset feature, management utilized a "with-and-without" convertible bond model, modified to incorporate the interest rate reset
feature, using the following key assumptions:
•
•
•
•
•
Credit Adjusted Discount Rate: The Company estimated a market-based discount rate of 25%.
Stock Price: The stock price was measured using the fair value of the Common Stock on the closing date of the Initial Notes issuance, January 16,
2018, which was $24.45 per share.
Volatility: Based on the historical volatility of the Company's Common Stock, determined to be 41.3% as of the valuation date.
Term: Based on the time period of the Notes maturity, 4 years.
Risk Free Rate: Assumed to be 2.2% based on the Federal Reserve bond yield.
Based upon the modified convertible bond model utilized by management, the fair value of the interest rate reset feature was determined to be $6.4 million as
of January 16, 2018 and was recognized as an issuance discount for the Initial Notes at inception.
Interest on the Initial Notes is payable on a quarterly basis in arrears beginning on April 1, 2018, at the option of the Company, in cash, or, subject to certain
conditions, through the issuance by the Company of additional shares of Common Stock (the "PIK Interest Shares"). Any PIK Interest Shares so issued will
be valued at the arithmetic average of the VWAP of the Common Stock on each trading day during the 10 consecutive trading days ending immediately
preceding the applicable interest payment date. On April 1, 2019, July 1, 2019 and October 1, 2019, the Company paid its quarterly accrued interest liability
on the Notes for the first, second and third quarters through the issuance of 243,261, 856,289 and 2,957,579 PIK Interest Shares, respectively. The Company
paid accrued interest of $6.1 million on January 2, 2020 in cash. The accrued interest was classified within accrued expenses in the Consolidated Financial
Statements as of December 31, 2019.
Management evaluated the Notes Option and determined that it met the definition of a derivative as it represented a written option. The Notes Option
qualified for liability treatment and was initially measured at fair value, with subsequent changes in fair value being recorded in earnings. To determine the
fair value of the Notes Option, management utilized an option pricing model as the option represents a put option that gains value as the underlying asset
(Common Stock) decreases in value. The following key assumptions were utilized in the Company's estimate of the fair value of the Notes Option derivative:
•
•
•
•
Stock Price: The stock price was measured using the fair value of the Common Stock on the closing date of the Initial Notes issuance, January 16,
2018, which was $24.45 per share.
Volatility: Based on the historical volatility of the Company's Common Stock, determined to be 38.4% as of the valuation date.
Term: Based on the time period of the Notes Option, 6 months.
Risk Free Rate: Assumed to be 1.6% based on the Federal Reserve bond yield with a term commensurate with the remaining life of the Notes
Option.
Based upon the option pricing model utilized, management estimated the fair value of the Notes Option as of January 16, 2018 to be $2.1 million. The fair
value was recognized as an issuance discount for the Initial Notes at inception.
The Initial Notes contain redemption provisions whereby, upon the occurrence of certain change of control transactions, a holder would have the right to
require the Company to redeem all or any portion of such holder's outstanding Initial Notes for cash at a price determined in accordance with the terms of the
Initial Notes (the "make-whole change of control redemption"). Management evaluated this make-whole change of control redemption feature and determined
that it represented an embedded derivative that must be bifurcated and accounted for separately from the Initial Notes. The make-whole change of control
derivative is treated as a liability, initially measured at fair value with subsequent changes in fair value recorded in earnings. Management utilized a
probability-adjusted binomial lattice model to determine the fair value of the make-whole change of control derivative, with the following key assumptions:
•
•
•
Probability: The Company utilized a range between 0% and 10% to estimate the likelihood of occurrence.
Term: Based on the time period of the feature, 4 years.
Risk Free Rate: Assumed to be 2.2% based on the U.S. Treasury bonds on the valuation date with a term commensurate with the remaining life of
the change of control derivative.
Based on the binomial lattice model, the Company determined the fair value of the make-whole redemption provision as of January 16, 2018 to be $4.4
million. The fair value was recognized as an issuance discount of the Initial Notes at inception. See "Notes Modifications" below.
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The Notes contain certain affirmative and restrictive covenants with which the Company must comply, including (i) covenants with respect to limitations on
additional indebtedness, (ii) limitations on liens, (iii) limitations on certain payments, (iv) maintenance of certain minimum cash balances (currently $40.0
million), and (v) the timely filing of certain disclosures with the SEC. The Company is in compliance with its debt covenants as of December 31, 2019.
In connection with the issuance of the Initial Notes, the Company also agreed to issue to Starboard warrants to purchase 250,000 shares of Common Stock at
a price of $0.01 per share, as adjusted pursuant to the terms of the warrants. The warrants were issued on October 12, 2018 and were exercisable for five years
from the date of issuance. The Company valued the warrants using the Black-Scholes model, with the following key assumptions:
•
•
•
•
Stock Price: The stock price was measured using fair value of the Common Stock on the closing date of the Initial Notes issuance, January 16, 2018,
which was $24.45 per share.
Volatility: The Company determined volatility to be 39.6% based on the historical volatility of its Common Stock daily volume weighted average
price with a look-back period commensurate with the term of the warrants.
Risk Free Rate: Assumed to be 2.4% based on U.S. Treasury bonds on the valuation date with a 5-year term.
Dividend Yield: Assumed to be zero based on the historical payout history of the Company.
Based on the Black-Scholes model, the Company determined that the fair value of the warrants as of January 16, 2018 was $6.1 million. The Company
recorded the warrants at allocated proceeds of $5.7 million, less allocated issuance costs of $0.2 million, as additional paid-in capital.
The cash proceeds and Common Stock received by the Company in exchange for the Initial Notes were net of a $20.1 million issuance discount and $4.6
million in third party debt issuance costs.
On August 8, 2018, the Company and Starboard entered into an amendment to the outstanding Notes to reduce the requirement to maintain certain minimum
cash balances. In connection with and as consideration for this modification, the Company issued to Starboard $2.0 million in additional aggregate principal
amount of senior secured convertible notes, $1.5 million of which was classified as additional Initial Notes. The terms of the additional notes are identical to
the terms of the Initial Notes, except with regard to the date from which interest began to accrue thereon, which is August 8, 2018. The amendment is treated
as a modification to the debt agreements and the costs related to the issuance of the additional notes were combined with the existing unamortized discount of
the Initial Notes on the modification date and will be amortized to interest expense over the remaining term of the modified debt. In connection with the
modification of the Notes, the Company recorded $0.2 million in additional derivative liabilities.
On November 13, 2018, the Company and Starboard entered into an agreement whereby the applicable period for the $20.0 million minimum cash balance
required to be maintained by the Company was extended until the earlier of August 9, 2019 or the date the Company filed its Form 10-Q for the quarterly
period ended June 30, 2019, subject to certain limitations. The agreement also modified the provisions of the Notes and the Registration Rights Agreement
between the Company and Starboard by revising the grace periods during which the Company would not be obligated to keep applicable registration
statements available for use by Starboard. In connection with, and as consideration for these amendments, the Company issued to Starboard $2.0 million in
additional aggregate principal amount of senior secured convertible notes, the terms of which are identical to the terms of the Initial Notes, except with regard
to the date from which interest began to accrue thereon, which is November 13, 2018. In connection with this modification, the Company recorded $0.2
million in additional derivative liabilities.
Additional modifications to the Initial Notes are described under "Notes Modifications" below.
Issuance and Sale of Option Notes
On May 17, 2018, the Notes Option was exercised by Starboard, pursuant to which the Company issued and sold to Starboard $50.0 million of Option Notes
in exchange for $15.0 million in cash and 1,400,000 shares of Common Stock valued at $35.0 million. Based upon the fair value of the Common Stock on the
closing date of the Option Notes issuance, May 17, 2018, which was $21.75 per share, the difference of $4.6 million was recorded as an issuance discount to
the Option Notes. The Option Notes have the same terms, including maturity, interest rate, convertibility, and security, as the Initial Notes, except with regard
to the date from which interest began to accrue thereon, which was May 17, 2018. Upon the exercise of the Notes Option, the derivative liability recorded for
the Notes Option at inception was settled. Management determined the fair value of the Notes Option immediately prior to settlement utilizing an option
pricing model using the following key assumptions:
•
•
•
Stock Price: The stock price was measured using the fair value of the Common Stock on the closing date of the Option Notes issuance, May 17,
2018, which was $21.75 per share.
Volatility: Based on the historical volatility of the Company's Common Stock, determined to be 26.3% as of the valuation date.
Term: Based on the time period of the expected exercise of the Notes Option, 0.16 years.
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•
Risk Free Rate: Assumed to be 1.8% based on the Federal Reserve bond yield with a term commensurate with the remaining life of the Notes
Option.
Based upon the option pricing model utilized, management estimated the fair value of the Notes Option as of May 17, 2018 to be $5.7 million. The loss
related to the change in fair value of $1.6 million was recorded in other income (expense), net on the Consolidated Statements of Operations and
Comprehensive Loss. The fair value of the Notes Option was recognized as an issuance premium for the Option Notes at inception.
The interest rate reset feature of the Option Notes was determined by management to be a derivative instrument that qualifies for liability treatment. The
derivative instrument is initially measured at fair value and classified as a liability on the balance sheet, with subsequent changes in fair value being recorded
in earnings. To determine the fair value of the interest rate reset feature, management utilized a "with-and-without" convertible bond model, modified to
incorporate the interest rate reset feature, using the following key assumptions:
•
•
•
•
•
Credit Adjusted Discount Rate: The Company estimated a market-based discount rate of 24%.
Stock Price: The stock price was measured using the fair value of the Common Stock on the closing date of the Option Notes issuance, May 17,
2018, which was $21.75 per share.
Volatility: Based on the historical volatility of the Company's Common Stock, determined to be 42.6% as of the valuation date.
Term: Based on the time period of the Option Notes maturity, 3.7 years.
Risk Free Rate: Assumed to be 2.8% based on the Federal Reserve bond yield.
Based upon the modified convertible bond model utilized by management, the fair value of the interest rate reset feature was determined to be $3.0 million as
of May 17, 2018 and was recognized as an issuance discount for the Option Notes at inception.
The Option Notes contain redemption provisions whereby, upon the occurrence of certain change of control transactions, a holder would have the right to
require the Company to redeem all or any portion of such holder's outstanding Option Notes for cash at a price determined in accordance with the terms of the
Option Notes. Management evaluated the make-whole change of control redemption feature and determined that it represented an embedded derivative that
must be bifurcated and accounted for separately from the Option Notes. The make-whole change of control derivative is treated as a liability, initially
measured at fair value with subsequent changes in fair value recorded in earnings. Management utilized a probability-adjusted binomial lattice model to
determine the fair value of the make-whole change of control derivative, with the following key assumptions:
•
•
•
Probability: The Company utilized a range between 0% and 10% to estimate the likelihood of occurrence.
Term: Based on the time period of the feature, 3.7 years.
Risk Free Rate: Assumed to be 2.8% based on U.S. Treasury bonds on the valuation date with a term commensurate with the remaining life of the
change of control derivative.
Based on the binomial lattice model, the Company determined the fair value of the make-whole redemption provision as of May 17, 2018 to be $1.2 million.
The fair value was recognized as an issuance discount of the Option Notes at inception. See "Notes Modifications" below.
The cash proceeds and Common Stock received by the Company in exchange for the Option Notes were net of a $3.1 million issuance discount and $0.2
million in third-party debt issuance costs.
On August 8, 2018, the Company and Starboard entered into an amendment to the outstanding Notes to reduce the requirement to maintain certain minimum
cash balances. In connection with the modification, the Company issued to Starboard $2.0 million in additional aggregate principal amount of senior secured
convertible notes, $0.5 million of which was classified as additional Option Notes. The terms of the additional notes are identical to the terms of the Option
Notes, except with regard to the date from which interest began to accrue thereon, which is August 8, 2018.
Additional modifications to the Option Notes are described under "Notes Modifications" below.
Notes Modifications
In accordance with the amendments described above, the minimum cash balance under the Notes covenant increased to $40.0 million upon filing of the
Company's quarterly report on Form 10-Q on August 6, 2019.
On November 6, 2019, the Company and Starboard entered into an additional amendment to the Notes. The terms of the Notes were amended to provide the
Company with an optional redemption right, whereby, in connection with a qualifying change of control pursuant to documentation entered into no later than
August 5, 2020, the Company has the right to redeem the Notes in full in cash at a price equal to the sum of (i) the aggregate outstanding principal amount of
the Notes, as of the consummation of the qualifying change of control, (ii) accrued interest, (iii) any other amounts owed pursuant to the Notes, and (iv) a
20% premium
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on the aggregate outstanding principal amount of the Notes (the "qualifying change of control redemption"). The amendment also provided for an adjustment
to the minimum cash balance required to be maintained by the Company. Upon execution of documentation providing for a qualifying change of control, the
$40.0 million minimum cash balance would be reduced, on a dollar for dollar basis, for each dollar of cash interest paid to the holders of the Notes, subject to
a $20.0 million minimum, until consummation of the qualifying change in control or, upon termination of the change in control, the shorter of 90 days after
such termination or the consummation of a financing that enables the Company to maintain a minimum cash balance of $40.0 million. The amendment also
modified the provisions of the Registration Rights Agreement between the Company and Starboard by revising the grace periods during which the Company
would not be obligated to keep applicable registration statements available for use by Starboard.
Management evaluated the qualifying change of control redemption feature, described above, and determined that it represented an embedded derivative that
must be bifurcated and accounted for separately from the Notes. The qualifying change of control derivative is treated as a liability, initially measured at fair
value with subsequent changes in fair value recorded in earnings. Management utilized a discounted cash flow model to determine the fair value of the
qualifying change of control derivative, with the following key assumptions:
•
•
•
Probability: The Company utilized a range between 0% and 5% to estimate the likelihood of occurrence.
Term: Based on the time period of the feature, 0.7 years.
Credit Adjusted Discount Rate: The Company estimated a market-based discount rate of 25.0%.
Based on the discounted cash flow model, the Company determined the fair value of the qualifying change of control redemption provision as of November 6,
2019 to be $1.2 million.
In determining the amount to be recognized as an issuance discount of the Notes, the Company compared the fair value of the make-whole change of control
redemption option of $2.2 million as of November 6, 2019 to the combined value of the make-whole and qualifying change of control redemption options
immediately after the modification. The combined value of both redemption options after modification was $2.8 million. The difference in fair value of $0.6
million is combined with the existing unamortized discount of the Notes on the modification date and is amortized to interest expense over the remaining term
of the modified debt. The Company recorded an additional $0.6 million in derivative liabilities due to this modification.
The balance of the Notes as of December 31, 2019 and 2018 was as follows:
As of
December 31, 2019
(In thousands, except interest rates)
Initial Notes, due January 16, 2022
Option Notes, due January 16, 2022
Total
Stated
Interest Rate
Effective
Interest Rate Face Value
Issuance
Discount
Deferred
Financing
Costs
Net Carrying
Value
12.0%
12.0%
18.8%
14.9%
$
153,500 $
(14,703) $
(2,706) $
136,091
50,500
(2,365)
(151)
47,984
$
204,000 $
(17,068) $
(2,857) $
184,075
(In thousands, except interest rates)
Initial Notes, due January 16, 2022
Option Notes, due January 16, 2022
Total
Stated
Interest Rate
Effective
Interest Rate Face Value
As of
December 31, 2018
Original
Issuance
Discount
Deferred
Financing
Costs
Net Carrying
Value
6.0%
6.0%
12.0%
$
153,500 $
(19,627) $
(3,724) $
130,149
8.5%
50,500
(3,096)
(211)
47,193
$
204,000 $
(22,723) $
(3,935) $
177,342
Due to the interest rate reset feature of the Notes, the potential future cash flows associated with the Notes are variable. Accordingly, the accretion schedule of
debt discount and the amortization schedule of debt issuance costs are updated annually to reflect periodic changes in the future cash flows using the effective
interest rate on a prospective basis.
The Company amortized $1.1 million in debt issuance costs and accreted $6.2 million in issuance discounts related to the total outstanding long-term debt
during the year ended December 31, 2019. The Company amortized $1.0 million in debt issuance costs and accreted $4.8 million in issuance discounts related
to the total outstanding long-term debt during the year ended December 31, 2018.
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The estimated fair value of the Notes, using Level 3 inputs based on interest rates available for debt with terms and maturities similar to the Company's
outstanding debt, was $172.4 million as of December 31, 2019.
Potential Rights Offering
Under the January 16, 2018 agreements with Starboard, the Company has the right to conduct a rights offering (the "Rights Offering") for up to $150.0
million in senior secured convertible notes (the "Rights Offering Notes"). Subject to the terms of the Rights Offering, if undertaken, the Company would
distribute to all of the Company's stockholders rights to acquire Rights Offering Notes. Stockholders who elect to participate in the Rights Offering could
elect to have up to 30% of the Rights Offering Notes they acquire pursuant thereto delivered through the sale to or exchange with the Company of shares of
Common Stock, with the per share value thereof equal to the closing price of the Common Stock on the last trading day immediately prior to the
commencement of the Rights Offering. The Rights Offering Notes would be substantially similar to the Notes, except, among other things, with respect to: (i)
the date from which interest thereon would begin to accrue and the maturity date thereof (which would be 4 years from the date of issuance of the Rights
Offering Notes) and (ii) the conversion price thereof, which would be equal to 130% of the closing price of the Common Stock on the last trading day
immediately prior to the commencement of the Rights Offering (subject to a conversion price floor of $28.00 per share). Starboard also agreed to enter into
one or more backstop commitment agreements, pursuant to which Starboard would backstop up to $100.0 million in aggregate principal amount of Rights
Offering Notes through the purchase of additional Notes, with such backstop obligation reduced by the amount of Option Notes purchased ($50.0 million).
The Company is not obligated to undertake the Rights Offering, and the Company does not currently intend to do so.
Guarantee and Security of Notes
The Notes are guaranteed by certain of the Company's direct and indirect wholly-owned domestic subsidiaries (the "Guarantors") and are secured by a
security interest in substantially all of the assets of the Company and the Guarantors, pursuant to a Guaranty, dated as of January 16, 2018, entered into by the
Guarantors, and a Pledge and Security Agreement, dated as of January 16, 2018, among the Company, the Guarantors and Starboard Value and Opportunity
Master Fund Ltd. as collateral agent.
Registration of Underlying Shares
Pursuant to the Registration Rights Agreement with Starboard, the Company filed a registration statement on Form S-1 with the SEC allowing for the resale
of the shares of Common Stock underlying the Notes, potential PIK Interest Shares, and warrants. In conjunction with this registration, WPP exercised its
right to have its shares of Common Stock included in the registration statement. The registration statement on Form S-1 was declared effective as of October
16, 2018. For additional information, refer to Footnote 15, Related Party Transactions.
On May 28, 2019, the Company filed a registration statement on Form S-3 with the SEC allowing for the resale of additional shares of Common Stock
underlying the Notes and potential PIK Interest Shares. The previously filed registration statement on Form S-1 was amended to convert into a registration
statement on Form S-3, and the amendment was declared effective as of June 24, 2019.
Issuance of Secured Term Note
On December 31, 2019 the Company's wholly owned subsidiary, Rentrak B.V., entered into an agreement with the Noteholder for the Secured Term Note for
aggregate gross proceeds of $13.0 million, less issuance costs of $0.5 million. The Secured Term Note, which is cash collateralized, matures on December 31,
2021 and has an annual interest rate of 9.75%. Interest is payable in arrears on the last business day of each calendar month commencing on January 31, 2020.
The Secured Term Note contains certain affirmative and restrictive covenants with which Rentrak B.V. must comply, including (i) maintenance of a minimum
cash collateral balance of $14.8 million, (ii) provision of certain financial statements, (iii) limitations on additional indebtedness and liens, (iv) limitations on
repayment of debt, (v) limitations on repurchase of stock, and (vi) limitations on disposition of assets. Rentrak B.V. is in compliance with the Secured Term
Note covenants as of December 31, 2019.
(In thousands, except interest rates)
Stated
Interest Rate
Effective
Interest Rate Face Value
Deferred
Financing
Costs
Net Carrying
Value
Secured Term Note
9.75%
12.2%
$
13,000 $
(537) $
12,463
As of
December 31, 2019
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The Company concluded that the carrying amount reported in the Consolidated Balance Sheet ($12.5 million) approximates the fair value of the Secured
Term Note as of December 31, 2019.
Revolving Credit Facility
On June 1, 2018, the Company entered into a Security Agreement with Wells Fargo Bank, N.A. to issue standby letters of credit. As of December 31, 2019,
$3.3 million in letters of credit are outstanding and are cash collateralized under the Security Agreement.
Failed Sale-Leaseback Transaction
In June 2019, the Company entered into a sale-leaseback arrangement with a vendor to provide $4.3 million in cash proceeds for previously acquired
computer and other equipment. The arrangement is repayable over a 24-month term for total consideration of $4.8 million, with control of the equipment
transferring to the vendor at the end of the leaseback term.
The Company concluded the leaseback would be classified as a financing lease. Therefore, the transaction was deemed a failed sale-leaseback and was
accounted for as a financing arrangement. The assets continue to be depreciated over their useful lives, and payments are allocated between interest expense
and repayment of the financing liability. The financing obligation is included within other current and other non-current liabilities on the Consolidated
Balance Sheets, with $1.8 million classified as short-term and $1.7 million classified as long-term as of December 31, 2019.
Future minimum payments related to the financing obligations under the failed sale-leaseback transaction as of December 31, 2019 are summarized below:
2020
2021
Total
5. Stockholders' Equity
2019 Issuance and Sale of Common Stock and Warrants
(In thousands)
2,247
1,422
3,669
$
$
On June 23, 2019, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with CVI, pursuant to which CVI agreed to
purchase (i) 2,728,513 shares of Common Stock (the "Initial Shares"), at a price of $7.33 per share and (ii) Series A Warrants, Series B-1 Warrants, Series B-2
Warrants and Series C Warrants, for aggregate gross proceeds of $20.0 million (the "Private Placement"). The Private Placement closed on June 26, 2019 (the
"Closing Date").
The Series B-1 Warrants were exercisable by the holders at any time prior to the six-month anniversary of the Closing Date, as adjusted pursuant to the terms
of the Series B-1 Warrants. The Series B-1 Warrants provided the holders the right to purchase an aggregate of up to 2,347,418 shares of Common Stock at an
exercise price equal to $8.52 and could have been exercised for cash only. The Series B-1 Warrants expired in January 2020.
The Series B-2 Warrants are exercisable by the holders at any time prior to the 12-month anniversary of the Closing Date, as adjusted pursuant to the terms of
the Series B-2 Warrants. The Series B-2 Warrants provide the holders the right to purchase an aggregate of up to 1,121,076 shares of Common Stock at an
exercise price equal to $8.92 and may be exercised for cash only. If all of the Series B-2 Warrants have not been exercised prior to their expiration date, the
Company will have the right, subject to prior notice to the holders and certain equity, volume and other conditions, to force the exercise of any unexercised
portion of the Series B-2 Warrants by such holders. Key conditions that may impact the ability of the Company to force the exercise of these warrants include
a $3.96 minimum for the VWAP of the Common Stock leading up to the forced exercise date, a minimum threshold for trading volume, and the maintained
effectiveness of a registration statement with the SEC. The forced exercise price for the Series B-2 Warrants, if applicable, will be 85.0% of the VWAP of the
Common Stock on the date immediately preceding the expiration date of the Series B-2 Warrants.
The Series A Warrants are exercisable for a period of five years from the Closing Date and are currently exercisable into 5,457,026 shares of Common Stock,
which is equal to the Initial Shares plus the number of shares issued pursuant to the exercise of the Series C Warrants (described below). The exercise price
for the Series A Warrants is $12.00. The Series A Warrants may be exercised for cash or through a net settlement feature.
The Series C Warrants are partially prepaid warrants (with a nominal remaining exercise price) that were not exercisable before September 21, 2019 and
expire 90 days after the first anniversary of the Closing Date. CVI exercised the Series C Warrants on October 10, 2019. Because the VWAP of the Common
Stock as of the date of exercise, discounted by 7.5%, was less than CVI's purchase price for the Initial Shares, the Company was required to issue to CVI a
number of shares of Common Stock equal to (i) (x) CVI's purchase price for the Initial Shares divided by (y) 92.5% of the VWAP of the Common Stock
leading up to September
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21, 2019, subject to a floor of 50.0% of the price per Initial Share, less (ii) the number of Initial Shares issued to CVI on the Closing Date. As a result of this
exercise, the Company issued 2,728,513 shares of Common Stock to CVI on October 14, 2019. In addition, the number of shares issuable under the
Company's Series A Warrants was increased by 2,728,513.
The exercise prices for the Series A and Series B-2 Warrants are subject to anti-dilution adjustment in certain circumstances. In addition, if and to the extent
the exercise of any warrants would, together with the issuances of the Initial Shares and the shares issued pursuant to the exercise of any other warrants, result
in the issuance of 20.0% or more of the outstanding Common Stock of the Company on the Closing Date (the "Exchange Cap"), the Company intends to, in
lieu of issuing such shares, settle the obligation to issue such shares in cash.
In addition, CVI will not have the right to exercise any warrants that would result in CVI beneficially owning more than 4.99% of the outstanding Common
Stock after giving effect to such exercise. CVI has the right, in its discretion, to raise this threshold up to 9.99% with 60 days' notice to the Company. If any
forced exercise of the Series B-2 Warrants would result in CVI beneficially owning more than 4.99% of the outstanding Common Stock, CVI will pay the
applicable forced exercise price and no shares of Common Stock will be issued, but instead the aggregate number of shares of Common Stock issuable upon
any exercise of the Series C Warrants will increase by an equal amount.
Pursuant to the transactions described above, the Company agreed to a 105-day lock-up period related to any future offering of equity or equity-linked
securities and also agreed to provide CVI with registration rights relating to the Initial Shares and any shares issuable upon the exercise of the warrants. On
June 26, 2019, the Company filed a prospectus supplement to its effective registration statement on Form S-3 to permit the resale of such shares.
Management determined each warrant to be a freestanding financial instrument that qualifies for liability treatment as a result of the net cash settlement
feature associated with the Exchange Cap provision. Each warrant is initially measured at fair value and classified as a current liability on the Consolidated
Balance Sheets, with subsequent changes in fair value recorded in earnings. To determine the fair value of each warrant, management utilized a Monte Carlo
simulation analysis within an option pricing model using the following key assumptions as of the Closing Date:
•
•
•
•
•
•
•
Stock price: The stock price was measured using the fair value of the Common Stock on the Closing Date, which was $5.57 per share.
Volatility: The Company determined volatility to be 50.0% based on (i) the historical volatility of the Common Stock daily volume weighted average
price with a look-back period commensurate with the term of the warrants and (ii) options-based implied volatility.
Term: Management determined the term based on the time period of each warrant's maturity, between six months and five years from the Closing
Date.
Change of control probability: The Company utilized a range between 0.0% and 10.0% to estimate the likelihood of occurrence.
Risk-free rate: Management assumed the risk-free rate to be between 1.7% and 2.1%, based on the U.S. Treasury bonds on the valuation date with
terms commensurate with the terms of each warrant.
Cost of debt: Management assumed the cost of debt to be between 16.7% and 18.7% based on a synthetic credit rating analysis.
Dividend yield: Management assumed the dividend yield to be zero based on the historical payout of the Company.
Certain estimates above represent Level 3 inputs within the fair value hierarchy. Based on the option pricing valuation model, the Company determined the
fair value of the warrants as of the Closing Date to be the following:
(in thousands)
Series A Warrants
Series B-1 Warrants (1)
Series B-2 Warrants
Series C Warrants (2)
Total
1) Series B-1 warrants expired in January 2020.
2) Series C warrants were exercised in October 2019.
Warrants Liability
3,862
328
376
6,232
10,798
$
$
The Company recorded $1.8 million in accrued transaction costs in 2019, of which approximately $0.8 million was allocated to the warrants liability and
recorded in general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Loss. The remaining transaction costs of
$1.0 million were recorded in additional paid-in capital in the Consolidated Balance Sheets.
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The estimated fair value of the warrants as of December 31, 2019 was $7.7 million. Refer to Footnote 6, Fair Value Measurements, for further information.
2007 Equity Incentive Plan
Pursuant to a merger agreement with Rentrak Corporation, upon the closing of the transaction in 2016, the Company assumed outstanding stock options under
the Rentrak Corporation Amended and Restated 2005 Stock Incentive Plan and assumed outstanding stock options, RSUs and a stock appreciation right
("SAR") under the Rentrak Corporation 2011 Incentive Plan, and such stock options, RSUs and SAR were automatically converted into stock options, RSUs
and SAR, respectively, with respect to shares of Common Stock, subject to appropriate adjustments to the number of shares and the exercise price (if
applicable) of each such award.
In 2017, the Company's 2007 Equity Incentive Plan (the "2007 Plan") reached the end of its ten-year term and expired.
2018 Equity and Incentive Compensation Plan
The Company's stockholders approved the 2018 Equity and Incentive Compensation Plan (the "2018 Plan") at the Company's 2018 Annual Meeting. Under
the 2018 Plan, the Company may grant option rights, appreciation rights, restricted stock awards, restricted stock units, performance shares and performance
units up to 10,650,000 shares of Common Stock. The aggregate number of shares of Common Stock available will be reduced by: (i) one share of Common
Stock for every one share of Common Stock subject to an award of option rights or appreciation rights granted under the 2018 Plan and (ii) two shares of
Common Stock for every one share of Common Stock subject to an award other than option rights or appreciation rights granted under the 2018 Plan. If any
award granted under the 2018 Plan (in whole or in part) is canceled or forfeited, expires, is settled in cash, or is unearned, the shares of Common Stock
subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, again be available at a rate of one
share of Common Stock for every one share of Common Stock subject to awards of option rights or appreciation rights and two shares of Common Stock for
every one share of Common Stock subject to awards other than of option rights or appreciation rights. Additionally, if, after December 31, 2017, any shares of
Common Stock subject to an award granted under the 2007 Plan are forfeited, or an award granted under the 2007 Plan (in whole or in part) is canceled or
forfeited, expires, is settled in cash, or is unearned, the shares of Common Stock subject to such award will, to the extent of such cancellation, forfeiture,
expiration, cash settlement, or unearned amount, be available for awards under the 2018 Plan at a rate of one share for every one share subject to such award.
The Company registered the securities under the 2018 Plan with the SEC effective June 1, 2018. The maximum number of shares available for issuance under
the 2018 Plan as of December 31, 2019 is 1,871,778.
Stock Options
During the year ended December 31, 2019, the Company's Compensation Committee approved and awarded 925,000 stock options under the 2018 Plan to
employees and consultants of the Company. The fair value of options at date of grant was estimated using the Black-Scholes method utilizing the following
assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life of options (in years)
0.0%
44.5% - 52.9%
1.3% - 2.7%
5.21
- 10.00
Dividend yield — The Company has never declared or paid a cash dividend on its Common Stock and has no plans to pay cash dividends in the foreseeable
future.
Expected volatility — Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is
expected to fluctuate (expected volatility) during a period. The Company considered the historical volatility of its stock price over a term similar to the
expected life of the options in determining expected volatility.
Risk-free interest rate — The Company used rates on the grant date of zero-coupon government bonds with maturities over periods covering the term of the
awards, converted to continuously compounded forward rates.
Expected life of the options — This is the period of time that the options granted are expected to remain outstanding.
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A summary of the options granted, exercised and expired during the years ended December 31, 2017, 2018 and 2019 is presented below:
Options outstanding as of December 31, 2016
Options expired
Options outstanding as of December 31, 2017
Options exercised (1)
Options expired
Options outstanding as of December 31, 2018
Options granted
Options exercised
Options forfeited
Options outstanding as of December 31, 2019
Options exercisable as of December 31, 2019
Number of
shares
Weighted-Average
Exercise Price
3,445,512 $
(1,260)
3,444,252
(347,752)
(2,050,587)
1,045,913
925,000
(68,259)
(363,687)
1,538,967 $
765,217 $
30.65
20.24
30.65
15.45
39.74
17.89
5.64
17.44
15.15
11.27
17.04
(1) Includes 125,523 options withheld to pay the exercise price for certain exercises during the year ended December 31, 2018.
The following table summarizes information about options outstanding as of December 31, 2019:
Range of Exercise Prices
$1.88 - 5.38
$10.00 - $19.31
$20.11 - $25.86
$40.80
Options Outstanding
Options Exercisable
Options Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
635,000 $
638,385
259,525
6,057
1,538,967 $
3.57
12.98
25.22
40.80
11.27
9.84
5.38
1.15
4.62
6.51
Options
Exercisable
81,250 $
418,385
259,525
6,057
765,217 $
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
2.57
14.42
25.22
40.80
17.04
9.70
3.26
1.15
4.62
3.24
The intrinsic value of exercised stock options is calculated based on the difference between the exercise price and the quoted market price of the Company's
Common Stock as of the close of the exercise date. There were 68,259 and 347,752 options exercised during the years ended December 31, 2019 and 2018,
respectively. There were no options exercised during 2017. The aggregate intrinsic value for all options exercisable was $0.2 million, $1.5 million, and $17.2
million under the Company's stock plans as of December 31, 2019, 2018, and 2017 respectively. The aggregate intrinsic value for all options outstanding was
$0.9 million, $0.7 million, and $17.2 million under the Company's stock plans as of December 31, 2019, 2018, and 2017, respectively. As of December 31,
2019, the total unrecognized compensation expense related to outstanding options is $1.9 million. There was no unrecognized compensation expense related
to outstanding options as of December 31, 2018 and 2017.
Stock Appreciation Rights ("SAR")
The Company assumed an as-converted SAR with respect to 86,250 shares of Common Stock originally granted pursuant to the terms of Rentrak Corporation
2005 Stock Incentive Plan at an as-converted base price of $12.61 per share. The SAR expired unexercised on June 15, 2019.
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Table of Contents
Stock Awards
The Company's outstanding stock awards are comprised of RSUs, including both time-based and performance-based RSUs.
A summary of the stock awards granted, vested and forfeited during the years ended December 31, 2017, 2018 and 2019 is presented as follows. RSU awards
with undelivered shares are classified as unvested until the date of delivery of the shares.
Unvested Stock Awards
Unvested as of December 31, 2016
Vested
Forfeited
Unvested as of December 31, 2017
Granted
Vested
Forfeited
Unvested as of December 31, 2018
Granted
Vested
Forfeited
Unvested as of December 31, 2019
Restricted
Stock Awards
Restricted
Stock Units
Number of
Shares
Underlying
Awards
3,748
(1,623)
—
2,125
—
(2,125)
—
—
—
—
—
—
1,042,385
(185,754)
(76,719)
779,912
2,872,408
(2,077,253)
(108,932)
1,466,135
2,578,866
(854,998)
(529,767)
2,660,236
Weighted
Average
Grant-Date Fair Value
37.16
1,046,133 $
(187,377)
(76,719)
782,037 $
2,872,408
(2,079,378)
(108,932)
1,466,135 $
2,578,866
(854,998)
(529,767)
2,660,236 $
36.45
38.48
37.22
22.53
27.55
29.50
22.62
7.56
23.96
18.47
8.42
The aggregate intrinsic value for all unvested RSUs outstanding was $12.1 million, $21.3 million, and $22.0 million as of December 31, 2019, 2018, and
2017, respectively.
During the year ended December 31, 2019, the Company's Compensation Committee approved and awarded 1,603,866 time-based RSUs (of which 206,108
RSUs related to the settlement of an accrued 2018 annual incentive plan liability) and 975,000 market-based RSUs, which were valued using a Monte Carlo
simulation analysis, to employees, directors and consultants of the Company. The Monte Carlo simulation analysis uses key assumptions including the
performance period, grant date stock price, performance-based vesting hurdles and achievement requirements. Of the time-based RSUs, 581,491 shares
vested immediately upon grant. The remaining time-based RSUs generally vest after one to three years contingent on continued service. The market-based
RSUs vest over up to ten years based on the achievement of certain stock price hurdles.
As of December 31, 2019, total unrecognized compensation expense related to unvested RSUs was $13.7 million, which the Company expects to recognize
over a weighted-average vesting period of approximately 5.06 years. The estimated forfeiture rate as of December 31, 2017, 2018, and 2019 was 10.0%.
Changes in the estimates and assumptions relating to forfeitures and subsequent grants may result in material changes in stock-based compensation expense in
the future.
During 2018, the Company's Compensation Committee approved and awarded 2,612,457 time-based RSUs, 191,800 performance-based RSUs, and 68,151
market-based RSUs under the 2018 Plan to employees, directors and consultants of the Company. Of the time-based RSUs, 1,493,288 vested immediately
upon grant, including 165,086 shares related to the compensation of the Company's former CEO as part of his retirement and transition services agreement.
The remaining time-based RSUs generally vest after three to four years contingent on continued service, and performance-based RSUs generally vest after
three years based on achievement of pre-established revenue and adjusted earnings before interest income, interest expense, income taxes, depreciation and
amortization (Adjusted EBITDA) goals. Market-based awards generally vest after three years based on the attainment of certain stock price hurdles.
Preferred Stock
The Company has 5,000,000 shares of $0.001 par value preferred stock authorized; no shares have been issued or were outstanding as of December 31, 2019
and 2018.
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6. Fair Value Measurements
The Company's financial instruments measured at fair value in the accompanying Consolidated Balance Sheets on a recurring basis consist of the following:
(In thousands)
Assets:
Money market funds (1)
Certificates of deposit (2)
Investment in equity securities
Total
Liabilities:
Financing derivatives: no hedging designation
(3)
Interest rate reset
Make-whole change of control
Qualifying change of control
Warrants Issued: (4)
Series A
Series B-2
Total
As of
December 31, 2019
As of
December 31, 2018
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$ 24,327 $
— $
— $
24,327 $ 6,037 $
— $
— $
6,037
—
—
1,009
—
—
—
1,009
—
—
6,100
986
—
—
—
986
6,100
$ 24,327 $
1,009 $
— $
25,336 $ 12,137 $
986 $
— $
13,123
$
— $
— $
18,800 $
18,800 $
— $
— $
23,300 $
23,300
—
—
—
—
—
—
—
—
1,600
1,187
1,600
1,187
7,508
217
7,508
217
—
—
—
—
—
—
—
—
2,800
2,800
—
—
—
—
—
—
$
— $
— $
29,312 $
29,312 $
— $
— $
26,100 $
26,100
(1) Level 1 cash equivalents are invested in money market funds that are intended to maintain a stable net asset value of $1.00 per share by investing in liquid, high quality U.S. Dollar-denominated
money market instruments with maturities less than three months.
(2) The Company’s certificates of deposit are recorded at their face value which approximates their fair value.
(3) The fair values of the financing derivatives are derived from techniques which utilize inputs, certain of which are significant and unobservable, that result in classification as Level 3 fair value
measurements.
(4) The fair values of the warrant liabilities are derived from techniques which utilize inputs, certain of which are significant and unobservable, that result in classification as Level 3 fair value
measurements. The fair value of the Series B-1 warrants was estimated as negligible as of December 31, 2019. The Series B-1 warrants expired without exercise on January 29, 2020.
The Company did not have any transfers between fair value measurement levels during the periods presented. There were no changes to the Company's
valuation methodologies during the years ended December 31, 2018 or 2019.
The following tables present the changes in the Company's recurring Level 3 fair value measurements for the financing derivatives for the years ended
December 31, 2019 and 2018:
(In thousands)
Balance as of December 31, 2017
Issuances
Total losses included in other income (expense), net (1)
Settlement (2)
Balance as of December 31, 2018
Issuances
Total gain included in other income (expense), net (3)
Balance as of December 31, 2019
$
$
Financing Derivative Liabilities
—
17,574
14,226
(5,700)
26,100
587
(5,100)
21,587
(1) Represents change in fair value of interest rate reset derivative liability $13.6 million loss, Notes Option derivative liability $3.3 million loss, and change of control derivative liability of $2.7
million gain. All changes in fair value were recorded in other income (expense), net in the Consolidated Statements of Operations and Comprehensive Loss.
(2) Represents settlement of the Notes Option derivative liability through the issuance of the Option Notes on May 17, 2018. The derivative was net settled with the Option Notes and recorded as an
issuance premium. Refer to Footnote 4, Long-term Debt, for further information.
(3) Represents $4.5 million gain due to change in fair value of interest rate reset derivative liability and $0.6 million gain due to change in fair value of the make-whole redemption derivative
liability. All gains were recorded in other income (expense), net in the Consolidated Statements of Operations and Comprehensive Loss.
The following tables present the changes in the Company's recurring Level 3 fair value measurements for the warrants liability for the year ended
December 31, 2019:
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(In thousands)
Balance as of December 31, 2018
Issuance of warrants liability
Settlement
Total losses included in other income (expense), net (1)
Balance as of December 31, 2019
$
$
Warrants Liability
—
10,798
(5,484)
2,411
7,725
(1) Represents $3.6 million loss due to change in fair value of the Series A Warrants, $0.3 million gain due to change in fair value of the Series B-1 Warrants, $0.2 million gain due to change in fair
value of the Series B-2 Warrants, and $0.7 million gain due to change in fair value of Series C Warrants. All gains and losses were recorded in other income (expense), net in the Consolidated
Statements of Operations and Comprehensive Loss.
The following table displays valuation techniques and the significant inputs, certain of which are unobservable, for the Company's Level 3 liabilities
measured at fair value as of December 31, 2019 and 2018:
Significant valuation technique
Significant valuation inputs
December 31, 2019
December 31, 2018
Fair value measurements
Interest rate reset derivative liability
Discounted cash flow
Discount rate
Make-whole change of control redemption
derivative liability
Option pricing model
Qualifying change of control redemption
derivative liability
Discounted cash flow
Stock price
Volatility
Term
Risk-free rate
Change of control
probability
Term
Risk-free rate
Change of control
probability
Term
Discount rate
Warrants liability(1)
Option pricing model
Stock price
Volatility
Term
Change of control
probability
Risk-free rate
Cost of debt
25.0%
$4.94
74.1%
2.04 years
1.6%
25.0%
$14.43
43.9%
3.04 years
2.5%
5.0 - 10.0%
0.0 - 10.0%
3.04 years
2.5%
2.04 years
1.6%
5.0%
0.60 years
25.0%
$4.94
65.0%
0.59 - 4.49 years
5.0 - 10.0%
1.6 - 1.7%
14.7 - 16.0%
(1) Warrants liability includes Series A and Series B-2.
The fair values of the Company's financing derivatives are estimated using forward projections and are discounted back at rates commensurate with the
remaining term of the related derivative. The primary sensitivity in the interest rate reset derivative liability is driven by the discount rate used to determine
the present value of the instrument, the Common Stock price at the measurement date and the observable volatility of the Common Stock. The primary
sensitivity for the make-whole and qualifying change of control redemption derivative liabilities is driven by the probability of the change of control.
The fair values of the Company's warrants liability are estimated using forward projections of stock issuances with relative certainty and estimated cash
payments at each exercise date discounted back to the valuation date at rates commensurate with the remaining term of the related warrants. The primary
sensitivity in the valuation of each warrant liability is driven by the Common Stock price at the measurement date and the observable volatility of the
Common Stock.
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7. Property and Equipment
(In thousands)
Computer equipment (including capital leases of $7,859 in 2018)
Capitalized internal-use software
Leasehold improvements
Computer software (including software license arrangements of $936 in 2019, and capital leases of
$684 in 2018)(2)
Finance leases
Office equipment, furniture, and other (including capital leases of $925 in 2018)
Total property and equipment
As of
As of
December 31,
December 31,
2019 (1)
2018
$
103,604 $
21,534
18,453
8,956
5,442
5,619
163,608
107,405
9,608
16,430
8,709
—
5,802
147,954
(120,615)
27,339
Less: accumulated depreciation and amortization (including software license arrangements of $400 in
2019, and capital leases of $5,685 in 2018)
Total property and equipment, net
$
(131,915)
31,693 $
(1) As discussed in Footnote 2, Summary of Significant Accounting Policies, property and equipment for the year ended December 31, 2018 may not be comparable to the year ended December 31,
2019 due to the adoption of ASC 842, Leases, as of January 1, 2019.
(2) In 2019, the Company reclassified any software licenses categorized as a capital lease in 2018 to software license arrangements.
For the years ended December 31, 2019, 2018, and 2017, depreciation expense was $12.8 million, $17.3 million, and $23.3 million respectively. In addition,
amortization expense from finance leases was $2.4 million for the year ended December 31, 2019.
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8. Leases
The Company has operating leases for real estate and finance leases for computer equipment and automobiles. These leases have remaining lease terms of one
year to eight years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within
one year. As of December 31, 2019, the weighted average remaining lease term for the Company's finance leases and operating leases was 2.42 years and
6.47 years, respectively. As of December 31, 2019, the weighted average discount rate for the Company's finance leases and operating leases was 14.6% and
13.6%, respectively.
The components of lease cost were as follows:
(In thousands)
Finance lease cost
Amortization of right-of-use assets (1)
Interest on lease liabilities
Total finance lease cost
Operating lease cost (1)
Fixed lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total operating lease cost
Year Ended
December 31, 2019
$
$
$
$
2,413
518
2,931
12,556
830
1,986
(1,857)
13,515
(1) The lease costs, net of sublease income, are reflected in the Consolidated Statements of Operations and Comprehensive Loss as follows:
(In thousands)
Cost of revenues
Selling and marketing
Research and development
General and administrative
Other information related to leases was as follows:
(In thousands)
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases
Operating cash flows from operating leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for lease obligations:
Right-of-use assets obtained in exchange for new finance lease liabilities
Right-of-use assets obtained in exchange for new operating lease liabilities
89
Year Ended December 31, 2019
Amortization of Right-of-
Use Assets
Operating Lease Cost
$
$
3,885
4,192
2,595
2,843
13,515
1,771 $
258
253
131
2,413 $
Year Ended
December 31, 2019
$
$
471
15,546
2,535
4,049
397
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Maturities of operating and finance lease liabilities as of December 31, 2019 were as follows:
(In thousands)
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: imputed interest
Total lease liabilities
Less: current lease liabilities
Total non-current lease liabilities
Operating Leases
Finance Leases
$
$
12,739 $
12,016
9,091
9,731
8,758
22,724
75,059
(25,798)
49,261
(6,764)
42,497 $
2,161
1,911
872
22
—
—
4,966
(716)
4,250
(1,720)
2,530
As of December 31, 2019, the Company subleases six real estate properties. One sublease has a noncancelable term of less than one year. One sublease is for
a noncancelable term of 36 months commencing in the first quarter of 2020. The Company expects to receive fixed lease payments in the amount of $1.5
million over the 36-month term.
The remaining four subleases are noncancelable and have remaining lease terms of one year to seven years. None of the four subleases contain any options to
renew or terminate the sublease agreement. Future expected cash receipts from these four subleases with a term greater than one year that have commenced as
of December 31, 2019 were as follows:
(In thousands)
2020
2021
2022
2023
2024
Thereafter
Total expected sublease receipts
Sublease Receipts
1,681
1,599
1,566
1,145
794
2,053
8,838
$
$
Disclosures Related to Periods Prior to Adoption of ASC 842
Capital Leases
Future minimum payments under capital leases with initial terms of one year or more as of December 31, 2018 were as follows:
(In thousands)
2019
2020
2021
2022
2023
Total minimum lease payments
Less amount representing interest
Present value of net minimum lease payments
Less current portion
Capital lease obligations, long-term
90
As of
December 31, 2018
2,582
744
417
76
44
3,863
260
3,603
2,421
1,182
$
$
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Operating Leases
Future minimum lease commitments and sublease receipts under non-cancelable lease agreements with initial terms of one year or more in effect as of
December 31, 2018 were as follows:
(In thousands)
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
9. Goodwill and Intangible Assets
Operating Lease
Commitment
Sublease Receipts
14,780 $
13,027
12,259
9,322
9,722
31,475
90,585 $
1,385
1,693
1,597
1,551
1,145
2,905
10,276
$
$
In 2019, the Company concluded it was more likely than not that the estimated fair value of its reporting unit was less than its carrying value. In its
assessment, the Company considered the sustained decline in the Company's stock price and market capitalization, changes in management, and lower
revenue, among other factors. Accordingly, the Company performed a quantitative goodwill impairment test as of June 30, 2019, relying in part on the work
of an independent valuation firm engaged by the Company to provide inputs as to the fair value of the reporting unit and to assist in the related calculations
and analysis.
The fair value of the reporting unit was determined using a combination of the discounted cash flow model and market value approach. The Company's
reporting unit failed the goodwill impairment test; and as a result, the Company recorded a $224.3 million impairment charge.
The change in the carrying value of goodwill is as follows:
(In thousands)
Balance as of December 31, 2017
Translation adjustments
Balance as of December 31, 2018
Translation adjustments
Impairment charge
Balance as of December 31, 2019
Goodwill
Accumulated Impairment
Total
$
$
$
$
$
642,424
(1,233)
641,191
(501)
(224,272)
640,690
(224,272)
416,418
In addition, the Company recorded a $17.3 million impairment charge related to its strategic alliance intangible asset during 2019. Changes in the Company's
projected revenue in certain non-U.S. geographic markets due to the changing international competitive landscape as well as significant reductions in
international staffing during the second quarter, resulted in a change in the Company's long-term view of the viability of the intangible asset. As such, the
Company's assessment yielded that the benefit of the strategic alliance would not be realized. The fair value of the strategic alliance intangible asset was
estimated using an income approach resulting in an impairment charge for the full carrying value of the long-lived asset of $17.3 million.
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The carrying values of the Company’s amortizable acquired intangible assets are as follows:
(In thousands)
Acquired
methodologies/technology
Customer relationships
Intellectual property
Acquired software
Trade names
Strategic alliance
Panel
Other
As of
December 31, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Accumulated
Impairment
Net
Carrying
Amount
Gross
Carrying
Amount
As of
December 31, 2018
Accumulated
Amortization
Net
Carrying
Amount
$
148,386 $
(86,771) $
— $
61,615 $
148,374 $
(66,690) $
40,143
14,372
9,287
768
30,100
3,123
600
(25,864)
(12,346)
(7,928)
(691)
(12,792)
(3,123)
(397)
—
—
—
—
(17,308)
—
—
14,279
2,026
1,359
77
—
—
203
40,127
14,366
9,287
775
30,100
3,107
600
(20,338)
(11,905)
(5,531)
(636)
(11,288)
(3,107)
(296)
81,684
19,789
2,461
3,756
139
18,812
—
304
Total intangible assets
$
246,779 $
(149,912) $
(17,308) $
79,559 $
246,736 $
(119,791) $
126,945
Amortization expense related to intangible assets was $30.1 million, $32.9 million, and $34.8 million for the years ended December 31, 2019, 2018, and
2017, respectively. There were no impairment charges recognized during the years ended December 31, 2018 and 2017.
The weighted-average remaining amortization period by major asset class as of December 31, 2019 is as follows:
Intellectual property
Customer relationships
Acquired methodologies/technology
Trade names
Acquired software
Other
The estimated future amortization of intangible assets is as follows:
2020
2021
2022
2023
2024
Total
10. Accrued Expenses
(In thousands)
Accrued data costs
Payroll and payroll-related
Accrued interest on senior secured convertible notes
Professional fees
Restructuring accrual
Other
Total accrued expenses
92
(In years)
4.7
2.6
2.4
1.2
0.9
1.3
(In thousands)
$
$
27,221
25,038
24,567
2,445
288
79,559
As of
As of
December 31,
December 31,
2019
2018
$
19,593
15,412 $
6,120
4,118
992
9,272
$
55,507 $
14,617
18,972
3,046
8,477
5,479
7,549
58,140
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11. Commitments and Contingencies
Contingencies
The Company is involved in various legal proceedings from time to time. The Company establishes reserves for specific legal proceedings when management
determines that the likelihood of an unfavorable outcome is probable, and the amount of loss can be reasonably estimated. The Company has also identified
certain other legal matters where an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made. In these cases,
the Company does not establish a reserve until it can reasonably estimate the loss. Legal fees are expensed as incurred. The outcomes of legal proceedings are
inherently unpredictable, subject to significant uncertainties, and could be material to the Company's operating results and cash flows for a particular period.
Privacy Class Action Litigation
On September 11, 2017, the Company and a wholly-owned subsidiary, Full Circle Studies, Inc., ("Full Circle"), received demand letters on behalf of named
plaintiffs and all others similarly situated alleging that the Company and Full Circle collected personal information from users under the age of 13 without
verifiable parental consent in violation of Massachusetts law and the federal Children's Online Privacy Protection Act. The letters alleged that the Company
and Full Circle collected such personal information by embedding advertising software development kits ("SDKs") in applications created or developed by
The Walt Disney Company. The letters sought monetary damages, attorneys' fees and damages under Massachusetts law. On June 4, 2018, the plaintiffs filed
amended complaints with the U.S. District Court for the Northern District of California adding the Company and Full Circle as defendants in a purported
class action (captioned Rushing, et al v. The Walt Disney Company, et al., Case No. 3:17-cv-04419-JD) against Disney, Twitter and other defendants, alleging
violations of California's constitutional right to privacy and intrusion upon seclusion law, New York's deceptive trade practices statute, and Massachusetts'
deceptive trade practices and right to privacy statutes. The complaints alleged damages in excess of $5.0 million, with any award to be apportioned among the
defendants. On February 26, 2020, the Company and Full Circle reached an agreement with the plaintiffs to settle the complaints in full, with no admission of
liability, in return for injunctive relief and payment of the plaintiffs' attorneys fees, to be covered by the Company's insurance.
Securities Class Action Litigation
On April 10, 2019, Sergii Bratusov, a purported shareholder of the Company, filed a putative class action complaint against the Company. The case, captioned
Bratusov v. comScore, Inc., et al., Case No. 19 Civ. 03210, was filed in the U.S. District Court for the Southern District of New York and also names the
Company's Chief Financial Officer, Gregory Fink, and the Company's former Chief Executive Officer, Bryan Wiener, as defendants. The complaint, which
was amended on September 30, 2019, purports to bring claims on behalf of all persons and entities that acquired securities of the Company between February
28, 2019 and August 7, 2019 and alleges that the Company, Mr. Wiener, and Mr. Fink violated Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder, by allegedly failing to disclose in public statements in February and March 2019 material information concerning a disagreement
relating to the Company's business strategy. The complaint also alleges that Mr. Wiener and Mr. Fink, acting as control persons of the Company, violated
Section 20(a) of the Exchange Act in connection with the Company's alleged failure to disclose material information. The complaint seeks a determination of
the propriety of the class, compensatory damages and the award of reasonable costs and expenses incurred in the action. The defendants deny any wrongdoing
or liability and intend to vigorously defend against these claims. Although the ultimate outcome of this matter is unknown, the Company believes that a
material loss was not probable or estimable as of December 31, 2019.
SEC Settlement
On September 24, 2019, the Company announced a settlement with the SEC, resolving a previously disclosed investigation into financial accounting and
disclosure practices between February 2014 and February 2016. The findings reached by the SEC related to revenue recognition and disclosure practices in
2014-2016, including contravention of civil antifraud and books and records provisions. The conduct occurred under prior management, including the
Company's former Chief Executive Officer, Serge Matta. In agreeing to the terms of the settlement, which included a civil monetary penalty of $5.0 million
and a cease-and-desist order (dated September 24, 2019) under Section 8A of the Securities Act of 1933 and Section 21C of the Exchange Act, the Company
neither admitted nor denied the SEC's allegations. A separate proceeding against Mr. Matta was announced by the SEC, pursuant to which Mr. Matta agreed
to pay a clawback to the Company of $2.1 million.
The SEC considered the Company's cooperation during the investigation and its significant remedial efforts, including replacing the former Chief Executive
Officer and other senior executives, constituting a new management team, implementing new and extensive internal control procedures and policies, and
implementing a new, comprehensive compliance management system. In its order, the SEC also noted that all senior management and directors who were
with the Company at the time of the conduct described in the order are no longer with the Company.
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Table of Contents
Mr. Matta's $2.1 million clawback was paid to the Company in September 2019. The Company's first payment to the SEC (of the same amount, $2.1 million)
was made in October 2019, to be followed by three equal payments of the remaining penalty amount plus post-judgment interest due 120, 240, and 360 days
after the entry of the SEC's order.
Export Controls Review
In March 2018, the Company became aware of possible violations of U.S. export controls and economic sanctions laws and regulations involving the
Company. The circumstances giving rise to these possible violations pertained to the Company's collection of survey data from panelists within U.S.
embargoed countries, as a part of the Company's larger global survey efforts not intentionally targeted at such countries. The Company filed a joint initial
notice of voluntary disclosure with the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC") and the U.S. Commerce Department’s
Bureau of Industry and Security ("BIS") and commenced an internal review to identify the causes and scope of transactions that could constitute violations of
the OFAC and BIS regulations. On May 31, 2018, the Company filed a final voluntary disclosure with OFAC and BIS. On September 10, 2018, the Company
was notified that BIS did not find a violation of export regulations and closed the matter. On September 13, 2019, OFAC issued a letter stating that although
potential violations may have occurred, OFAC had decided not to pursue a civil monetary penalty or take other enforcement action. The letter represented a
final enforcement response from OFAC. In its letter, OFAC noted that the Company had taken a number of remedial compliance measures and detailed the
compliance measures taken.
Other Matters
In addition to the matters described above, the Company is, and may become, a party to a variety of legal proceedings from time to time that arise in the
normal course of the Company's business. While the results of such legal proceedings cannot be predicted with certainty, management believes that, based on
current knowledge, the final outcome of any such current pending matters will not have a material adverse effect on the Company's financial position, results
of operations or cash flows. Regardless of the outcome, legal proceedings can have an adverse effect on the Company because of defense costs, diversion of
management resources and other factors.
Indemnification
The Company has entered into indemnification agreements with each of the Company's directors and certain officers, and the Company's amended and
restated certificate of incorporation requires it to indemnify each of its officers and directors, to the fullest extent permitted by Delaware law, who was or is a
party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was a
director or officer of the Company. The Company has paid and continues to pay legal counsel fees incurred by the present and former directors and officers
who are involved in legal proceedings that require indemnification.
Similarly, certain of the Company's commercial contracts require it to indemnify contract counterparties under specified circumstances, and the Company
may incur legal counsel fees and other costs in connection with these obligations.
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12. Income Taxes
The components of loss before income tax benefit (provision) are as follows:
(In thousands)
Domestic
Foreign
Total
Income tax (benefit) provision is as follows:
(In thousands)
Current:
Federal
State
Foreign
Total
Deferred:
Federal
State
Foreign
Total
Income tax (benefit) provision
Years Ended December 31,
2019
2018
2017
$
$
(316,479) $
(140,298) $
(23,524)
(15,264)
(340,003) $
(155,562) $
(258,735)
(25,375)
(284,110)
Years Ended December 31,
2019
2018
2017
$
$
$
$
$
— $
(42)
2,762
2,720 $
(1,189) $
(3,992)
1,454
(3,727) $
(1,007) $
— $
(119)
1,806
1,687 $
898 $
1,060
61
2,019 $
3,706 $
A reconciliation of the statutory U.S. income tax rate to the effective income tax rate is as follows:
Statutory federal tax rate
State taxes
Nondeductible items
Nondeductible interest and derivatives
Foreign rate differences
Change in statutory tax rates
Change in valuation allowance
Stock compensation
Executive compensation
Goodwill impairment
Subscription receivable
Other adjustments
Uncertain tax positions
Effective tax rate
Income Tax Benefit (Provision)
Years Ended December 31,
2019
2018
2017
21.0 %
1.1 %
(0.7)%
(1.5)%
(1.8)%
— %
(5.3)%
(1.2)%
(0.1)%
(10.7)%
— %
(0.5)%
— %
0.3 %
21.0 %
(2.8)%
(0.5)%
(4.0)%
(2.2)%
— %
(5.4)%
(5.6)%
(0.3)%
— %
(1.2)%
(1.0)%
(0.4)%
(2.4)%
The Company recognized an income tax benefit of $1.0 million during the year ended December 31, 2019, which is comprised of current tax expense of $2.7
million primarily related to foreign taxes and a deferred tax benefit of $3.7 million related to temporary differences between the tax treatment and GAAP
accounting treatment for certain items. Included within the total tax benefit is income tax expense of $17.3 million related to the increase in valuation
allowance recorded against the Company's deferred tax assets to offset the tax benefit of the Company's operating losses in the U.S. and certain foreign
jurisdictions. Also included in the total tax benefit are income tax adjustments of $58.6 million related to the impairment of goodwill and $15.2 million for
permanent differences in the book and tax treatment of certain stock-based compensation, limitations on the deductibility of certain executive compensation,
nondeductible interest expense on debt instruments and associated derivatives, and other nondeductible expenses.
95
(850)
(155)
1,491
486
(5,216)
1,120
893
(3,203)
(2,717)
35.0 %
(0.3)%
0.7 %
— %
(3.7)%
1.4 %
(30.8)%
(0.1)%
— %
— %
(1.3)%
(0.1)%
0.2 %
1.0 %
Table of Contents
These tax adjustments, along with state and local taxes and book losses in foreign jurisdictions where the income tax rate is substantially lower than the U.S.
federal statutory rate, are the primary drivers of the annual effective income tax rate.
The Company recognized an income tax expense of $3.7 million during the year ended December 31, 2018, which is comprised of current tax expense of $1.7
million primarily related to foreign taxes and a deferred tax expense of $2.0 million related to temporary differences between the tax treatment and GAAP
accounting treatment for certain items. Included within the total tax expense is an income tax expense of $19.0 million related to the increase in valuation
allowance recorded against the Company's deferred tax assets to offset the tax benefit of the Company's operating losses in the U.S. and certain foreign
jurisdictions. An income tax adjustment of $19.7 million has also been included for permanent differences in the book and tax treatment of certain stock-
based compensation, limitations on the deductibility of certain executive compensation, nondeductible interest expense on debt instruments and associated
derivatives, and other nondeductible expenses. These tax adjustments, along with state and local taxes and book losses in foreign jurisdictions where the
income tax rate is substantially lower than the U.S. federal statutory rate, are the primary drivers of the annual effective income tax rate.
The Company recognized an income tax benefit of $2.7 million during the year ended December 31, 2017, which is comprised of current tax expense of $0.5
million primarily related to foreign taxes and a deferred tax benefit of $3.2 million related to temporary differences between the tax treatment and GAAP
accounting treatment for certain items. Included within the total tax benefit is an income tax benefit of $8.3 million related to the impact of the TCJA
provisions on the Company's U.S. deferred taxes, including the reduction in the corporate tax rate from 35% to 21% and a change in the Company's valuation
allowance assessment. Also included is income tax expense of $126.1 million related to the increase in valuation allowance recorded against the Company's
deferred tax assets to offset the tax benefit of the Company's operating losses in the U.S. and certain foreign jurisdictions. An income tax adjustment of $2.5
million has also been included for permanent differences in the book and tax treatment of certain stock-based compensation, meals and entertainment and
other nondeductible expenses. These tax adjustments, along with having book losses in foreign jurisdictions where the income tax rate is substantially lower
than the U.S. federal statutory rate, are the primary drivers of the annual effective income tax rate.
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Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax reporting purposes. The components of net deferred income taxes are as follows:
(In thousands)
Deferred tax assets:
Net operating loss carryforwards
Deferred compensation
Tax credits
Deferred rent
Deferred revenues
Property and equipment
Goodwill
Tax contingencies
Accrued salaries and benefits
Capital leases
Allowance for doubtful accounts
Capital loss carryforwards
Litigation settlement
Other
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Intangible assets
Goodwill
Lease asset
Property and equipment
Subpart F income recapture
Outside basis difference
Other
Total deferred tax liabilities
Net deferred tax asset (liability)
Tax Valuation Allowance
As of
December 31,
2019
2018
$
212,253 $
8,146
2,945
—
5,095
—
2,462
1,127
2,406
16,772
453
266
225
2,409
254,559
(219,607)
34,952 $
(15,202) $
—
(11,219)
(5,134)
(1,224)
—
(86)
(32,865)
2,087 $
$
$
$
199,959
13,684
6,171
3,976
2,764
1,788
—
1,422
2,200
444
334
266
1,197
1,105
235,310
(200,366)
34,944
(23,886)
(9,987)
—
—
(1,404)
(152)
(1,051)
(36,480)
(1,536)
As of December 31, 2019, and 2018, the Company had a valuation allowance of $219.6 million and $200.4 million, respectively, against certain deferred tax
assets. The valuation allowance relates to the deferred tax assets of the Company's U.S. entities, including federal and state tax attributes and timing
differences, as well as the deferred tax assets of certain foreign subsidiaries. The increase in the valuation allowance during 2019 is primarily related to
operating losses incurred during the year. To the extent the Company determines that, based on the weight of available evidence, all or a portion of its
valuation allowance is no longer necessary, the Company will recognize an income tax benefit in the period such determination is made for the reversal of the
valuation allowance. If management determines that, based on the weight of available evidence, it is more-likely-than-not that all or a portion of the net
deferred tax assets will not be realized, the Company may recognize income tax expense in the period such determination is made to increase the valuation
allowance. It is possible that such reduction of or addition to the Company's valuation allowance may have a material impact on the Company's results from
operations.
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A summary of the deferred tax asset valuation allowance is as follows:
(In thousands)
Beginning Balance
Additions
Reductions
Ending Balance
As of
December 31,
2019
2018
$
$
200,366 $
19,832
(591)
219,607 $
181,334
19,356
(324)
200,366
Net Operating Loss and Credit Carryforwards
As of December 31, 2019, the Company had federal and state net operating loss carryforwards for tax purposes of $639.9 million and $1,391.3 million,
respectively. These net operating loss carryforwards begin to expire in 2022 for federal income tax purposes and are expiring annually for state income tax
purposes. The federal and certain state net operating losses generated after December 31, 2017 will have an indefinite carryforward period as a result of the
TCJA. As of December 31, 2019, the Company had an aggregate net operating loss carryforward for tax purposes related to its foreign subsidiaries of $5.1
million, which will begin to expire in 2024.
As of December 31, 2019, the Company had research and development credit carryforwards of $3.2 million which begin to expire in 2025.
Under the provisions of Internal Revenue Code Section 382, certain substantial changes in the Company's ownership may result in a limitation on the amount
of U.S. net operating loss carryforwards that can be utilized annually to offset future taxable income and taxes payable. A significant portion of the
Company's net operating loss carryforwards are subject to an annual limitation under Section 382 of the Internal Revenue Code. Additionally, despite the net
operating loss carryforwards, the Company may have a future tax liability due to foreign tax or state tax requirements.
Foreign Undistributed Earnings
As of December 31, 2019, the Company has certain foreign subsidiaries with accumulated undistributed earnings. The TCJA allows for a dividend received
deduction resulting in no material U.S. federal income tax upon repatriation of these earnings. The Company intends to indefinitely reinvest these earnings, as
well as future earnings from its foreign subsidiaries, to fund its international operations and therefore has not accrued any foreign withholding taxes or state
income taxes.
Uncertain Tax Positions
For uncertain tax positions, the Company uses a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax
positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefits determined on a cumulative probability
basis, which are more-likely-than-not to be realized upon ultimate settlement in the financial statements. The Company has unrecognized tax benefits, which
are tax benefits related to uncertain tax positions which have been or will be reflected in income tax filings that have not been recognized in the financial
statements due to potential adjustments by taxing authorities in the applicable jurisdictions. The Company's liabilities for unrecognized tax benefits, which
include interest and penalties, were $1.6 million as of both December 31, 2019 and 2018. The remaining unrecognized tax benefits have reduced deferred tax
balances. The amount of unrecognized tax benefits that, if recognized, would affect the Company's effective tax rate are $2.3 million, $2.5 million and $2.4
million as of December 31, 2019, 2018 and 2017, respectively, and include the federal tax benefit of state deductions. The Company anticipates that $0.4
million of unrecognized tax benefits will reverse during the next year due to the expiration of statutes of limitation.
Changes in the Company's unrecognized income tax benefits are as follows:
(In thousands)
Beginning balance
Increase related to tax positions of prior years
Increase related to tax positions of the current year
Decrease related to tax positions of prior years
Decrease due to lapse in statutes of limitations
Ending balance
As of December 31,
2019
2018
2017
$
2,560 $
2,508 $
14
53
(84)
(143)
167
90
(106)
(99)
$
2,400 $
2,560 $
3,608
81
88
(1,064)
(205)
2,508
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The Company recognizes interest and penalties related to income tax matters in income tax expense. As of both December 31, 2019 and 2018, accrued
interest and penalties on unrecognized tax benefits were $0.7 million. The Company or one of its subsidiaries files income tax returns in the U.S. federal
jurisdiction, and various state and foreign jurisdictions. For income tax returns filed by the Company, the Company is no longer subject to U.S. federal
examinations by tax authorities for years prior to 2016 or state and local tax examinations by tax authorities for years prior to 2015. Tax attribute
carryforwards may still be adjusted upon examination by tax authorities.
13. Employee Benefit Plans
The Company has a 401(k) plan for the benefit of all U.S. employees who meet certain eligibility requirements. This plan covers substantially all of the
Company's full-time U.S. employees. The Company contributed $1.1 million, $1.2 million and $1.3 million to the 401(k) plan for the years ended December
31, 2019, 2018 and 2017, respectively.
14. Geographic Information
The Company attributes revenues to customers based on the location of the customer. The composition of the Company's sales to customers between those in
the United States and those in other locations is as follows:
(In thousands)
United States
Europe
Latin America
Canada
Other
Total revenues
Years Ended December 31,
2019
2018
2017 (1)
$
336,087 $
359,379 $
332,344
30,619
10,326
7,046
4,567
34,623
13,179
7,882
4,419
$
388,645 $
419,482 $
43,218
13,460
9,273
5,254
403,549
(1) As discussed in Footnote 2, Summary of Significant Accounting Policies, of the 2018 10-K, revenue for 2017 is not comparable to 2019 and 2018 due to the adoption of ASC 606 on January 1,
2018.
The composition of the Company's property and equipment, net between those in the United States and those in other locations as of the end of each year are
as follows:
(In thousands)
United States
Europe
Latin America
Other
Total
As of December 31,
2019
2018
$
30,556 $
841
251
45
$
31,693 $
25,456
1,415
365
103
27,339
Of the Company's long-lived intangible assets, net, $79.5 million and $107.9 million were generated by or located in the United States for the years ended
December 31, 2019 and 2018, respectively. The Company also had $0.1 million and $19.0 million of long-lived intangible assets, net generated by or located
in Europe for the years ended December 31, 2019 and 2018, respectively.
15. Related Party Transactions
Transactions with WPP
As of December 31, 2019 (based on public filings), WPP owned 11,319,363 shares of the Company's outstanding Common Stock, representing 16.2%
ownership in the Company. On July 19, 2018, the Company filed a registration statement on Form S-1 with the SEC for the purpose of registering the shares
of Common Stock owned by WPP in order to fulfill the Company's contractual obligations under a stockholders' rights agreement entered into by the
Company and WPP in 2015. Refer to Footnote 4, Long-term Debt for more information. The Company provides WPP, in the normal course of business,
services amongst its different products and receives various services from WPP supporting the Company's data collection efforts. In early 2015, there were a
series of business and asset acquisitions and sales and issuances of Common Stock between the Company and WPP (giving rise to the stockholders' rights
agreement described above) as well as a Subscription Receivable agreement that the Company entered into with GroupM, a WPP subsidiary.
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In 2015, the Company and GroupM entered into an agreement in which GroupM agreed to a minimum commitment to purchase $20.9 million of the
Company's products over five years, which was recorded as Subscription Receivable as contra equity within additional paid-in capital on the Consolidated
Statements of Stockholders' Equity. In December 2017, the Company signed an amendment with GroupM in which GroupM agreed to purchase additional
subscription services for $17.8 million over three years, which was offset by the $3.7 million Subscription Receivable that remained as of December 31,
2017. Upon fully utilizing the Subscription Receivable in September 2018, the Company began recognizing revenue under the amendment as the Company
delivered products and services under the agreement. Total revenue recognized was $6.0 million and $2.0 million for the years ended December 31, 2019 and
2018, respectively.
In January 2016, as part of the Company's merger with Rentrak Corporation ("Rentrak"), the Company acquired two contracts with net present value of $14.5
million with WPP wholly-owned subsidiaries which were reflected as Subscription Receivable. The Company recorded the Subscription Receivable as contra
equity within additional paid-in capital on the Consolidated Statements of Stockholders' Equity. As cash was received on the Subscription Receivable,
additional paid-in capital was increased by the amount of cash received and the Company recognized imputed interest income. Effective August 31, 2018, the
Company terminated one legacy Rentrak agreement which was originally reflected in Subscription Receivable and concurrently signed a new arrangement for
$7.4 million for various subscription services over a three-year period. As of December 31, 2019, the balance of the Subscription Receivable is zero. The
Company recorded $2.3 million and $0.8 million in revenues in the Consolidated Statements of Operations and Comprehensive Loss for the years ended
December 31, 2019 and 2018, respectively.
The Company has a cancelable five-year agreement with Lightspeed, a WPP subsidiary, to conduct a proof of concept and follow-on program (the "Program")
to demonstrate the capability of designing and deploying a program to collect browsing and demographic data for individual participating households. The
agreement provides that the Company makes payments to Lightspeed of approximately $5.0 million per year through 2020. The Program is designed to be a
comprehensive data collection effort across multiple in-home devices (e.g., television, streaming devices, computers, mobile phones, tablets, gaming devices
and wearables) monitored via the installation of household internet routers ("Meters") in panelist households. The Meters collect and send the data back to the
Company for use in its Total Home Panel product. Under the terms of the Program, Lightspeed is paid to manage the operational aspects of panel recruitment,
compliance, inventory management, support and collection of panel demographic data.
The Company's results from transactions with WPP and its affiliates, as reflected in the Consolidated Statements of Operations and Comprehensive Loss, are
detailed below:
(In thousands)
Revenues (1)
Cost of revenues
Selling and marketing
Research and development
General and administrative
Interest income
Years Ended December 31,
2019
2018
2017
$
15,858 $
11,610 $
13,181
10,455
11,077
12,956
20
—
539
—
158
111
99
343
157
119
115
672
(1) The Company entered into certain agreements with WPP and its affiliates that were not characterized as revenue arrangements under GAAP. Accordingly, despite cash being received by the
Company under these agreements, no revenue was recognized during the year ended December 31, 2018 other than imputed interest income on the net present value of anticipated future cash
payments from WPP.
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The Company has the following balances related to transactions with WPP and its affiliates, as reflected in the Consolidated Balance Sheets:
(In thousands)
Assets
Accounts receivable, net
Prepaid expenses and other current assets
Liabilities
Accounts payable
Accrued expenses
Contract liability
Other non-current liabilities
Transactions with Starboard
$
$
As of December 31,
2019
2018
2,542 $
1,180
2,510 $
716
1,361
—
3,353
429
1,833
1,384
1,945
251
On January 16, 2018, the Company entered into certain agreements with Starboard, then a beneficial owner of more than five percent of the Company's
outstanding Common Stock. Refer to Footnote 4, Long-term Debt, for further information regarding these agreements and the Company's issuance of senior
secured convertible notes to Starboard in 2018. As a result of these agreements and the transactions contemplated thereby, Starboard ceased to be a beneficial
owner of more than five percent of the Company's outstanding Common Stock on January 16, 2018.
On April 18, 2018, the Company amended a prior agreement with Starboard, dated as of September 28, 2017 (the "September Agreement"), pertaining to the
membership and composition of the Company's Board of Directors (the "Board"). Pursuant to the amendment, the Company and Starboard agreed that,
effective as of the Company's annual meeting of stockholders on May 30, 2018, the size of the Board would be fixed at eight members. The amendment
further designated Starboard's "appointees" under the September Agreement. As of December 31, 2018, Starboard had no remaining right to designate any
directors to the Board.
Included in the Consolidated Statements of Operations and Comprehensive Loss, the Company recorded interest expense related to Starboard of $30.8 million
and $16.4 million during the years ended December 31, 2019 and 2018, respectively.
The Company has the following balances related to transactions with Starboard, as reflected in the Consolidated Balance Sheets:
(In thousands)
Accrued expenses
Financing derivatives
Senior secured convertible notes
16. Organizational Restructuring
$
As of December 31,
2019
2018
6,120 $
21,587
184,075
3,046
26,100
177,342
In December 2017, the Company implemented a reduction in force plan ("2017 Restructuring Plan") that resulted in the termination of approximately 10% of
its workforce. The reduction in force was implemented following management's determination to reduce its staffing levels and exit certain geographic
regions, in order to enable the Company to decrease its global costs and more effectively align resources to business priorities. Total restructuring expense
recognized for the 2017 Restructuring Plan was $11.8 million and this plan was complete as of December 31, 2018.
In June and December 2018, the Company's Board of Directors authorized management to implement additional reductions in its workforce (less than 10%)
and rationalize its portfolio of leased properties due to the reductions in headcount ("2018 Restructuring Plans"). This additional restructuring effort resulted
in the termination of one operating lease, the extension of the lease related to the Company's headquarters, and the sublease of three offices. In connection
with the 2018 Restructuring Plans, the Company incurred total exit-related costs of $8.1 million. $10.3 million was recorded in 2018, and $2.2 million was
reversed in 2019 related to an employee who ultimately did not exit the Company. These plans were complete as of December 31, 2019.
In May 2019, the Company implemented an additional reduction in force plan ("May 2019 Restructuring Plan") in order to reduce costs and more effectively
align resources with business priorities. Together with attrition, the May 2019 Restructuring Plan resulted in the termination of approximately 10% of the
Company's workforce. In connection with the May 2019 Restructuring Plan, the Company incurred total exit-related costs of $3.1 million during the year
ended December 31, 2019. The Company does not expect to incur any future expenses related to this plan.
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In August 2019, the Company implemented a further reduction in force plan ("August 2019 Restructuring Plan") in order to reduce costs and more effectively
align resources with business priorities. The August 2019 Restructuring Plan resulted in the termination of approximately 8% of the Company's workforce. In
connection with the August 2019 Restructuring Plan, the Company incurred total exit-related costs of $2.5 million.
As of December 31, 2019, the total remaining accrual for restructuring is $1.0 million, all of which is current. The tables below summarize the balance of
accrued restructuring expenses and the changes in the accrued amounts for each period presented.
2017 Restructuring Plan
(In thousands)
Restructuring expense
Payments
Foreign exchange
Accrued Balance as of December 31, 2017
Restructuring expense
Payments
Foreign exchange
Accrued Balance as of December 31, 2018
Payments
$
$
$
Accrued Balance as of December 31, 2019
$
Severance pay and
benefits
Other direct costs
Total
10,298
$
(1,340)
14
8,972 $
1,275
(10,180)
(1)
66
$
(66)
— $
212
$
—
—
212 $
—
—
—
212
$
(212)
— $
10,510
(1,340)
14
9,184
1,275
(10,180)
(1)
278
(278)
—
2018 Restructuring Plans
(In thousands)
Restructuring expense(1)
Payments
Foreign exchange
Accrued Balance as of December 31, 2018
Adoption of ASC 842(2)
Restructuring expense(3)
Payments
Accrued Balance as of December 31, 2019
$
$
$
Severance pay and benefits
$
7,145 $
Short-term lease exit and
other direct costs
Long-term lease exit and
other direct costs
Total
(2,652)
—
4,493 $
— $
(2,195)
(2,298)
— $
1,271 $
(561)
(2)
708 $
(708) $
—
—
— $
1,847 $
(37)
—
1,810 $
(1,810) $
—
—
— $
10,263
(3,250)
(2)
7,011
(2,518)
(2,195)
(2,298)
—
(1) During the year ended December 31, 2018, the Company recognized a reduction of $0.7 million of liability related to the write-off of certain lease-related liabilities, offset by $0.5 million in stock-
based compensation related to the termination of certain employees, $0.5 million in accelerated depreciation on assets located within subleased properties, and $0.1 million in other expenses.
(2) The Company adopted ASC 842, Leases, as of January 1, 2019. For additional details regarding the adoption, please refer to Footnote 2, Summary of Significant Accounting Policies.
(3) Restructuring expense decreased due to a reversal of planned executive compensation.
2019 Restructuring Plans
(In thousands)
Severance pay and benefits related restructuring
expense
Payments
Accrued Balance as of December 31, 2019
$
102
May 2019 Restructuring
Plan
August 2019
Restructuring Plan
3,141
(2,847)
294 $
2,454
(1,756)
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17. Quarterly Financial Information (Unaudited)
The following tables summarize quarterly financial data for 2019 and 2018. The Company's results of operations vary and may continue to fluctuate
significantly from quarter to quarter. The results of operations in any period should not necessarily be considered indicative of the results to be expected from
any future period.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
First
Second
Third
Fourth
2019
$
102,294 $
96,888 $
94,300 $
Revenues
Cost of revenues (1)
Gross profit
Selling and marketing (1)
Research and development (1)
General and administrative (1)
Investigation and audit related
Amortization of intangible assets
Impairment of goodwill
Impairment of intangible asset
Settlement of litigation, net
Restructuring
Total operating expenses
Loss from operations
Interest expense, net
Other income (expense), net
Gain (loss) from foreign currency transactions
Loss before income taxes
Income tax (provision) benefit
Net loss
Net loss per common share:
Basic and diluted
Weighted-average number of shares used in per share
calculation - Common Stock:
$
$
53,407
48,887
24,840
18,216
19,545
842
8,105
—
—
—
(70)
71,478
(22,591)
(6,759)
2,969
38
(26,343)
(1,171)
51,994
44,894
23,329
16,883
16,932
2,354
8,076
224,272
17,308
5,000
2,949
317,103
(272,209)
(8,242)
(3,081)
(464)
(283,996)
4,463
47,390
46,910
20,421
14,064
14,064
980
6,970
—
—
(2,100)
2,270
56,669
(9,759)
(8,175)
6,733
1,194
(10,007)
(552)
(27,514) $
(279,533) $
(10,559) $
95,163
46,831
48,332
20,555
12,639
15,878
129
6,925
—
—
—
(1,886)
54,240
(5,908)
(8,350)
(4,967)
(432)
(19,657)
(1,733)
(21,390)
(0.46) $
(4.61) $
(0.16) $
(0.31)
Basic and diluted
59,958,203
60,697,608
64,157,167
69,644,437
(1) Amortization of stock-based compensation expense is included in the line items above as follows:
Cost of revenues
Selling and marketing
Research and development
General and administrative
Restructuring
First
Second
Third
Fourth
$
848 $
636 $
396 $
1,316
726
4,063
—
1,087
668
1,913
(266)
756
469
1,392
129
Total stock-based compensation expense
$
6,953 $
4,038 $
3,142 $
(28)
456
118
1,879
—
2,425
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Revenues
Cost of revenues (1)
Gross profit
Selling and marketing (1)
Research and development (1)
General and administrative (1)
Investigation and audit related
Amortization of intangible assets
Settlement of litigation, net
Restructuring
Total operating expenses
Loss from operations
Interest expense, net
Other income (expense), net
(Loss) gain from foreign currency transactions
Loss before income taxes
Income tax (provision) benefit
Net loss
Net loss per common share:
Basic and diluted
Weighted-average number of shares used in per share
calculation - Common Stock:
$
$
First
Second
Third
Fourth
$
105,919 $
101,389 $
102,864 $
109,310
2018
47,254
58,665
25,905
18,716
18,661
31,867
8,544
—
1,257
104,950
(46,285)
(2,905)
77
(922)
(50,035)
(1,415)
51,526
49,863
29,647
20,889
28,699
4,883
8,266
5,250
3,833
101,467
(51,604)
(4,124)
807
1,045
(53,876)
(2,101)
49,446
53,418
24,866
18,742
18,707
696
7,896
—
51
70,958
(17,540)
(4,682)
(1,711)
(304)
(24,237)
(400)
(51,450) $
(55,977) $
(24,637) $
51,994
57,316
27,977
18,632
18,468
892
8,158
—
6,696
80,823
(23,507)
(4,754)
(637)
1,484
(27,414)
210
(27,204)
(0.93) $
(1.02) $
(0.42) $
(0.46)
Basic and diluted
55,227,046
55,192,741
58,212,306
59,116,831
(1) Stock-based compensation expense is included in the line items above as follows:
Cost of revenues
Selling and marketing
Research and development
General and administrative
Restructuring
First
Second
Third
Fourth
$
213 $
3,774 $
1,248 $
575
344
749
—
5,792
3,972
9,461
—
1,860
1,137
2,066
—
Total stock-based compensation expense
$
1,881 $
22,999 $
6,311 $
1,114
1,225
1,127
2,494
468
6,428
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ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation required by the Securities Exchange Act of 1934 (the "Exchange Act"), under the supervision and with the participation of our
principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of December 31, 2019. Based on this evaluation, our principal executive officer and
principal financial officer concluded that as of December 31, 2019, these disclosure controls and procedures were effective to provide reasonable assurance
that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the SEC's rules and forms and to provide reasonable assurance that such information is accumulated and communicated to
our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required
disclosure.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) of
the Exchange Act. Management, under the supervision and with the participation of our principal executive officer and principal financial officer, assessed the
effectiveness of our internal control over financial reporting as of December 31, 2019 based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of
December 31, 2019, our internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Deloitte & Touche LLP, an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of
December 31, 2019, and their report is included below. Deloitte & Touche LLP has also audited, and issued an unqualified opinion with respect to, our
Consolidated Financial Statements for 2019, which opinion is included in Item 8, "Financial Statements and Supplementary Data," of this 10-K.
Changes in Internal Control over Financial Reporting
Under Exchange Act Rules 13a-15(d) and 15d-15(d), management is required to evaluate, with the participation of our principal executive officer and
principal financial officer, any changes in internal control over financial reporting that occurred during each fiscal quarter that materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting. There were no changes in our internal control over financial reporting
during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Remediation Efforts to Address Material Weakness in Internal Control Over Financial Reporting
As discussed in Item 9A, Controls and Procedures, of the 2018 10-K, we identified a material weakness in the area of revenue accounting as of December 31,
2018 related to journal entries, evaluating evidence of product or service delivery, and account reconciliations related to unbilled revenue and deferred
revenue. Prior to December 31, 2018, we designed and implemented new controls to compensate for the complexity of our accounting for revenue contracts
and our dependence on manual processes. Due to the timing of the design and implementation of these controls during the fourth quarter of 2018, however,
there was insufficient time to consistently execute against their design as of December 31, 2018. During 2019, to remediate the material weakness described
above, we:
•
•
•
Enhanced controls related to manual journal entries to strengthen the completeness and accuracy of revenue-related entries;
Enhanced controls, including new automated reports, to demonstrate and verify evidence of product or service delivery;
Enhanced communication between financial and operating personnel to better monitor the status of product and service delivery;
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•
•
•
•
Centralized responsibility for product and service delivery under one department and implemented a monthly attestation process for key operating
personnel;
Implemented mandatory training for operational and revenue personnel who are responsible for product or service delivery and revenue recognition;
Enhanced controls over unbilled revenue and deferred revenue account reconciliations, including the review and timely analysis of reconciling items;
and
Implemented a business process review control that compares our actual results to our forecast and historical results.
We have completed the documentation, implementation and testing of the remediation actions described above, and as of September 30, 2019, management
determined that the material weakness identified in the 2018 10-K had been remediated.
Compliance Program
As discussed in Item 9A, Controls and Procedures, of the 2018 10-K, we have taken a number of actions to reinforce a culture of integrity, accountability, and
adherence to established internal controls, policies and procedures, including through formal communications, town hall meetings, and mandatory employee
training, which continued through 2019. We have a Compliance Coordinating Committee at the executive level that oversees our compliance program, which
includes a policies and procedures library, education and mandatory training, and monitoring for compliance and corrective action where appropriate. The
program also includes policies for receiving, evaluating and reporting on allegations of misconduct or noncompliance with our Code of Business Conduct and
Ethics and our Reporting and Non-Retaliation Policy (our corporate whistleblower program). We continue our focus on maintaining a strong "tone at the top"
and culture of compliance and control consciousness.
Inherent Limitation on the Effectiveness of Internal Controls
The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing,
implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of
internal control over financial reporting can only provide reasonable, not absolute, assurance that its objectives will be met. In addition, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate
for our business, but we cannot assure that such improvements will be sufficient to provide us with effective internal control over financial reporting in future
periods.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of comScore, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of comScore, Inc. and subsidiaries (the “Company”) as of December 31, 2019, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
financial statements as of and for the year ended December 31, 2019, of the Company and our report dated February 27, 2020, expressed an unqualified
opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of new accounting standards.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
McLean, Virginia
February 27, 2020
107
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ITEM 9B.
OTHER INFORMATION
Not applicable.
108
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PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Certain information regarding our directors and executive officers required by Item 10 of Part III is set forth in Item 1 of Part I "Business - Executive Officers
and Directors." Other information required by Item 10 of Part III, including information regarding any material changes to the process by which security
holders may recommend nominees to the Board of Directors, is included in our Proxy Statement relating to our 2020 Annual Meeting of Stockholders, and is
incorporated herein by reference. Information required by Item 10 of Part III regarding our Audit Committee is set forth in our Proxy Statement relating to
our 2020 Annual Meeting of Stockholders and is incorporated herein by reference. Information relating to our compliance with Section 16(a) of the Exchange
Act is set forth in our Proxy Statement relating to our 2020 Annual Meeting of Stockholders and is incorporated herein by reference.
We have adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer
or controller, and persons performing similar functions. We have posted the Code of Business Conduct and Ethics on our investor relations website under the
heading "Corporate Governance" at www.comscore.com. To the extent permissible under Nasdaq rules, we intend to disclose any amendments to our Code of
Business Conduct and Ethics, as well as waivers of the provisions thereof, on our investor relations website under the heading "Corporate Governance" at
www.comscore.com.
ITEM 11.
EXECUTIVE COMPENSATION
Information required by Item 11 of Part III is included in our Proxy Statement relating to our 2020 Annual Meeting of Stockholders and is incorporated herein
by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Information required by Item 12 of Part III is included in our Proxy Statement relating to our 2020 Annual Meeting of Stockholders and is incorporated herein
by reference.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by Item 13 of Part III is included in our Proxy Statement relating to our 2020 Annual Meeting of Stockholders and is incorporated herein
by reference.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by Item 14 of Part III is included in our Proxy Statement relating to our 2020 Annual Meeting of Stockholders and is incorporated herein
by reference.
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ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report on Form 10-K:
PART IV
(1) Financial statements and reports of our independent registered public accounting firm. See (i) Index to Consolidated Financial Statements at
Item 8 and (ii) Item 9A of this Annual Report on Form 10-K.
(2) All other schedules, for which provision is made in the applicable accounting regulations of the SEC, are omitted, as the required information
is inapplicable or the information is presented in the Consolidated Financial Statements and Notes to Consolidated Financial Statements in Item 8 of this
Annual Report on Form 10-K.
(3) Exhibits. The exhibits filed as part of this report are listed under "Exhibits" at subsection (b) of this Item 15.
(b) Exhibits
110
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EXHIBITS
Exhibit
No.
Exhibit
Document
3.1
3.2
3.3
3.4
3.5
4.1+
4.2+
4.3
4.4
4.5
4.6
4.7
4.8
4.9+
4.10
4.11
4.12
4.13
4.14
Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form S-1, as amended, filed June 12, 2007) (File No. 333-141740)
Certificate of Amendment of Amended and Restated Certificate of Incorporation of comScore, Inc. (incorporated by reference to Exhibit
4.2 to the Registrant's Registration Statement on Form S-8, filed June 4, 2018) (File No. 333-225400)
Certificate of Designation of Series A Junior Participating Preferred Stock of comScore, Inc., as filed with the Secretary of State of the
State of Delaware on February 9, 2017 (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed
February 9, 2017) (File No. 001-33520)
Certificate of Elimination of Series A Junior Participating Preferred Stock of comScore, Inc., as filed with the Secretary of State of the
State of Delaware on September 29, 2017 (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed
October 4, 2017) (File No. 001-33520)
Amended and Restated Bylaws of comScore, Inc (incorporated by reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 2018, filed August 10, 2018) (File No. 001-33520).
Form of Senior Secured Convertible Note (Initial Notes), as amended
Form of Senior Secured Convertible Note (Option Notes), as amended
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1, as
amended, filed June 12, 2007) (File No. 333-141740)
Series A Warrant Issued to CVI Investments, Inc. (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-
K, filed June 26, 2019) (File No. 001-33520)
Series B-1 Warrant Issued to CVI Investments, Inc. (incorporated by reference to Exhibit 4.2 to the Registrant's Current Report on Form
8-K, filed June 26, 2019) (File No. 001-33520)
Series B-2 Warrant Issued to CVI Investments, Inc. (incorporated by reference to Exhibit 4.3 to the Registrant's Current Report on Form
8-K, filed June 26, 2019) (File No. 001-33520)
Series C Warrant Issued to CVI Investments, Inc. (incorporated by reference to Exhibit 4.7 to the Registrant's Quarterly Report on Form
10-Q, filed August 07, 2019) (File No. 001-33520)
Registration Rights Agreement, dated June 26, 2019, between comScore, Inc and CVI Investments, Inc. (incorporated by reference to
Exhibit 4.5 to the Registrant's Current Report on Form 8-K, filed June 26, 2019) (File No. 001-33520)
Description of Securities
Voting Agreement, dated as of December 20, 2011, by and among comScore, Inc. and The Nielsen Company (US) LLC (incorporated by
reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed December 21, 2011) (File No. 001-33520)
Stockholders Rights Agreement, dated as of February 11, 2015, by and among comScore, Inc., WPP Group USA, Inc. and Cavendish
Square Holding B.V. (incorporated by reference to Exhibit (d)(3) to Cavendish Square Holding B.V.'s and WPP plc's Tender Offer
Statement on Schedule TO, filed February 20, 2015) (File No. 005-83687)
Voting Agreement, dated as of February 11, 2015, by and among comScore, Inc., WPP Group USA, Inc. and Cavendish Square Holding
B.V. (incorporated by reference to Exhibit (d)(4) to Cavendish Square Holding B.V.’s and WPP plc’s Tender Offer Statement on
Schedule TO, filed February 20, 2015) (File No. 005-83687)
Registration Rights Agreement, dated as of January 16, 2018, by and among comScore, Inc. and the investors listed on the Schedule of
Buyers attached thereto (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, filed January 16,
2018) (File No. 001-33520)
First Amendment to Senior Secured Convertible Notes, dated as of May 17, 2018, by and between comScore, Inc., Starboard Value and
Opportunity Master Fund Ltd. and each of the other investors listed on the signature pages attached thereto (incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed May 17, 2018) (File No. 001-33520)
111
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4.15
4.16
4.17
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11*
10.12*
10.13*
10.14*
10.15*
Second Amendment to Senior Secured Convertible Notes, dated as of August 8, 2018, by and between comScore, Inc., Starboard Value
and Opportunity Master Fund Ltd. and each of the other investors listed on the signature pages attached thereto (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed August 9, 2018) (File No. 001-33520)
Agreement, dated as of November 13, 2018, by and between comScore, Inc., Starboard Value and Opportunity Master Fund Ltd. and
each of the other investors listed on the signature pages attached thereto (incorporated by reference to Exhibit 10.1 to the Registrant's
Current Report on Form 8-K, filed on November 13, 2018) (File No. 001-33520)
Amendment Agreement, dated November 6, 2019, by and among comScore, Inc., Starboard Value LP and certain affiliates of Starboard
Value LP (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed November 6, 2019) (File No.
001-33520)
Patent Purchase, License and Settlement Agreement, dated as of December 20, 2011, by and among comScore, Inc., The Nielsen
Company (US) LLC and NetRatings LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K,
filed December 21, 2011) (File No. 001-33520)
Purchase Agreement, dated as of December 20, 2011, by and among comScore, Inc. and The Nielsen Company (US) LLC (incorporated
by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed December 21, 2011) (File No. 001-33520)
Stock Purchase Agreement, dated as of February 11, 2015, by and among Cavendish Square Holding B.V., WPP Group USA, Inc., CS
Worldnet Holding B.V. and comScore, Inc. (incorporated by reference to Exhibit (d)(1) to Cavendish Square Holding B.V.’s and WPP
plc’s Tender Offer Statement on Schedule TO, filed February 20, 2015) (File No. 005-83687)
Strategic Alliance Agreement, dated February 11, 2015, by and between comScore, Inc. and WPP Group USA, Inc. (incorporated by
reference to Exhibit (d)(5) to Cavendish Square Holding B.V.’s and WPP plc’s Tender Offer Statement on Schedule TO, filed February
20, 2015) (File No. 005-83687)
Purchase Agreement, dated as of April 1, 2015, by and between comScore, Inc. and Cavendish Square Holding B.V. (incorporated by
reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, filed April 3, 2015) (File No. 001-33520)
Securities Purchase Agreement, dated as of January 16, 2018, by and among comScore, Inc. and the investors listed on the Schedule of
Buyers attached thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed January 16,
2018) (File No. 001-33520)
Guaranty Agreement, dated as of January 16, 2018, made by the subsidiary guarantors signatory thereto (incorporated by reference to
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed January 16, 2018) (File No. 001-33520)
Pledge and Security Agreement, dated as of January 16, 2018, made by comScore, Inc., the subsidiaries signatory thereto and Starboard
Value and Opportunity Master Fund Ltd., as Collateral Agent (incorporated by reference to Exhibit 10.3 to the Registrant’s Current
Report on Form 8-K, filed January 16, 2018) (File No. 001-33520)
Deed of Lease between South of Market LLC (as Landlord) and comScore, Inc. (as Tenant), dated December 21, 2007 (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed February 5, 2008) (File No. 001-33520)
Amendment No. 6 to Deed of Lease, dated as of May 30, 2018, by and between South of Market LLC and comScore, Inc. (incorporated
by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed June 5, 2018) (File No. 001-33520)
2007 Equity Incentive Plan, as amended and restated September 8, 2014 (incorporated by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q, filed October 29, 2014) (File No. 001-33520)
Form of Notice of Grant of Stock Option under 2007 Equity Incentive Plan (incorporated by reference to Exhibit 10.7 to the Registrant’s
Registration Statement on Form S-1, filed April 2, 2007) (File No. 333-141740)
Form of Notice of Grant of Restricted Stock Units under 2007 Equity Incentive Plan (incorporated by reference to Exhibit 10.9 to the
Registrant’s Registration Statement on Form S-1, filed April 2, 2007) (File No. 333-141740)
2018 Equity and Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on
Form S-8, filed June 4, 2018) (File No. 333-225400)
Form of Restricted Stock Units Award Notice for Employees (incorporated by reference to Exhibit 10.3 to the Registrant’s Current
Report on Form 8-K, filed June 5, 2018) (File No. 001-33520)
112
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10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24
10.25*
10.26*
10.27*
10.28
10.29*
10.30*
Form of Restricted Stock Units and Common Stock Award Notice for Employees (incorporated by reference to Exhibit 10.4 to the
Registrant’s Current Report on Form 8-K, filed June 5, 2018) (File No. 001-33520)
Form of Restricted Stock Units Award Notice for Directors (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report
on Form 8-K, filed June 5, 2018) (File No. 001-33520)
Form of Common Stock Award Notice for Employees (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on
Form 8-K, filed June 5, 2018) (File No. 001-33520)
Form of Performance Restricted Stock Units Award Agreement for CEO/President (incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 2018, filed November 9, 2018) (File No. 001-33520)
Form of Performance Restricted Stock Units Award Agreement for Employees (incorporated by reference to Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 2018, filed November 9, 2018) (File No. 001-33520)
Form of Restricted Stock Units Award Agreement for Employees (incorporated by reference to Exhibit 10.5 to the Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 2018, filed November 9, 2018) (File No. 001-33520)
Form of Change of Control and Severance Agreement (CFO and General Counsel) (incorporated by reference to Exhibit 10.2 to the
Registrant's Current Report on Form 8-K, filed on September 10, 2018) (File No. 001-33520)
Form of Change of Control and Severance Agreement (Other Executive Officers) (incorporated by reference to Exhibit 10.3 to the
Registrant's Current Report on Form 8-K, filed on September 10, 2018) (File No. 001-33520)
Form of Indemnification Agreement for directors and executive officers (incorporated by reference to Exhibit 10.3 to the Registrant’s
Current Report on Form 8-K, filed October 4, 2017) (File No. 001-33520)
Letter Agreement, dated as of March 31, 2019, by and between comScore, Inc. and Dale Fuller (incorporated by reference to Exhibit
10.1 to the Registrant's Current Report on Form 8-K, filed April 1, 2019) (File No. 001-33520)
Separation Agreement, dated as of March 31, 2019, by and between comScore, Inc. and Bryan Wiener (incorporated by reference to
Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filed April 1, 2019) (File No. 001-33520)
Separation Agreement, dated as of March 31, 2019, by and between comScore, Inc. and Sarah Hofstetter (incorporated by reference to
Exhibit 10.3 to the Registrant's Current Report on Form 8-K, filed April 1, 2019) (File No. 001-33520)
Securities Purchase Agreement, dated as of June 23, 2019, by and among comScore, Inc. and CVI Investments, Inc. (incorporated by
reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed June 24, 2019) (File No. 001-33520)
Letter Agreement, dated November 4, 2019, between comScore, Inc. and William Livek (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q, filed November 6, 2019) (File No. 001-33520)
Consulting Agreement, dated November 8, 2019, by and between comScore, Inc. and Dale Fuller (incorporated by reference to Exhibit
10.1 to the Registrant's Current Report on Form 8-K, filed November 8, 2019) (File No. 001-33520)
10.31+*
Separation and General Release Agreement, dated as of November 5, 2019, by and between comScore, Inc. and Joseph Rostock
10.32+*
Change of Control and Severance Agreement, executed on September 28, 2015, by between comScore, Inc. and William Livek
10.33+*
Form of Stock Option Grant Notice and Stock Option Agreement under 2018 Equity and Incentive Compensation Plan
10.34+*
Form of Deferred Stock Units Award Agreement under 2018 Equity and Incentive Compensation Plan
10.35+*
Form of Performance Restricted Stock Units Award Agreement under 2018 Equity and Incentive Compensation Plan
10.36+*
Form of Restricted Stock Units Award Agreement under 2018 Equity and Incentive Compensation Plan
21.1+
List of Subsidiaries
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23.1+
31.1+
31.2+
32.1+
32.2+
Consent of Deloitte & Touche LLP
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded
within the Inline XBRL document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File - the cover page iXBRL tags are embedded within the Inline XBRL document
* Management contract or compensatory plan or arrangement.
+ Filed or furnished herewith
114
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ITEM 16.
FORM 10-K SUMMARY
None.
115
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
COMSCORE, INC.
/s/ William P. Livek
William P. Livek
Chief Executive Officer and Executive Vice Chairman
(Principal Executive Officer)
/s/ Gregory A. Fink
Gregory A. Fink
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
By:
By:
116
February 27, 2020
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
/s/ William P. Livek
William P. Livek
/s/ Gregory A. Fink
Gregory A. Fink
/s/ Brent D. Rosenthal
Brent D. Rosenthal
/s/ Joanne Bradford
Joanne Bradford
/s/ Irwin Gotlieb
Irwin Gotlieb
/s/ Jacques Kerrest
Jacques Kerrest
/s/ Kathleen Love
Kathleen Love
/s/ John K. Martin Jr.
John K. Martin Jr.
Title
Date
Chief Executive Officer and Executive Vice Chairman
February 27, 2020
(Principal Executive Officer)
Chief Financial Officer and Treasurer
February 27, 2020
(Principal Financial Officer and
Principal Accounting Officer)
Non-Executive Chairman
February 27, 2020
Director
Director
Director
Director
Director
117
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
Table of Contents
Exhibit 4.1
[FORM OF SENIOR SECURED CONVERTIBLE NOTE]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL SELECTED BY THE HOLDER, IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT, OR (II)
UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF
THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND
18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE
SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNT SET FORTH ON
THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.
COMSCORE, INC.
SENIOR SECURED CONVERTIBLE NOTE
Issuance Date: January 16, 2018
Original Principal Amount: U.S. $[●]
(Reflects the amendments dated May 17, 2018, August 8, 2018, November 13, 2018 and November 6, 2019)
FOR VALUE RECEIVED, comScore, Inc., a Delaware corporation (the "Company"), hereby promises to pay to
[BUYER] or registered assigns (the "Holder") in cash and/or in shares of Common Stock (as defined below) the amount set out
above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise,
the "Principal") when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case
in accordance with the terms hereof) and to pay interest ("Interest") on any outstanding Principal at the applicable Interest Rate
from the date set out above as the Issuance Date (the "Issuance Date") until the same becomes due and payable, whether upon an
Interest Date (as defined below), the Maturity Date, acceleration, conversion, redemption or otherwise (in each case in accordance
with the terms hereof). This Senior Secured Convertible Note (including all Senior Secured Convertible Notes issued in exchange,
transfer or replacement hereof, this "Note") is one of an issue of Senior Secured Convertible Notes issued pursuant to the Securities
Purchase Agreement on the Initial Closing Date (collectively, the "Notes"
and such other Senior Secured Convertible Notes, the "Other Notes"). Certain capitalized terms used herein are defined in Section
31.
(1)
PAYMENTS OF PRINCIPAL; PREPAYMENT. On the Maturity Date, the Company shall pay to
the Holder an amount in cash representing all outstanding Principal, any accrued and unpaid Interest and any accrued and unpaid
Late Charges (as defined in Section 24(b)) on such Principal and Interest. The "Maturity Date" shall be January 16, 2022, as may
be extended at the option of the Holder (i) in the event that, and for so long as, an Event of Default (as defined in Section 4(a)) shall
have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) or any event shall have
occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) that with the passage of time and
the failure to cure would result in an Event of Default and (ii) through the date that is ten (10) Business Days after the
consummation of a Change of Control in the event that a Change of Control is publicly announced or a Change of Control Notice
(as defined in Section 5(b)) is delivered prior to the Maturity Date. Other than as specifically permitted by this Note, the Company
may not prepay any portion of the outstanding Principal, accrued and unpaid Interest or accrued and unpaid Late Charges on
Principal and Interest, if any.
(2) INTEREST.
(a) Interest on this Note shall commence accruing on the Issuance Date at the Interest Rate and shall be
computed on the basis of a 360-day year and twelve 30-day months and shall be payable in arrears for each Calendar Quarter on the
first (1st) Business Day of each Calendar Quarter after the Issuance Date (each, an "Interest Date").
(b) Interest shall be payable on each Interest Date, to the record holder of this Note on the applicable
Interest Date, in whole or in part, in shares of Common Stock ("Interest Shares") so long as there is no Equity Conditions Failure
(other than as a result of the delivery of an Interest Blocker Notice (as defined below)) occurring on the applicable Interest Date;
provided, however, that the Company may, at its option following written notice to each holder of the Notes and any Additional
Notes on or prior to the applicable Interest Notice Due Date (the date such notice is delivered to the Holder and holders of Other
Notes and Additional Notes, the "Interest Notice Date"), elect to pay Interest on any Interest Date in cash ("Cash Interest") or in a
combination of Cash Interest and Interest Shares. Each Interest Election Notice shall specify the amount or percentage of Interest
that the Company will pay in respect of the Interest Date as Cash Interest and Interest Shares which amounts or percentages, as
applicable, when added together, must equal the applicable Interest (or 100% thereof, as applicable) due on such Interest Date. If
the Company elects (or is deemed to have elected by operation of this Section 2) the payment of applicable Interest in Interest
Shares, in whole or in part, and an Equity Conditions Failure (other than the delivery to the Company of an Interest Blocker Notice)
occurs at any time prior to the applicable Interest Date that is expected to last through the applicable Interest Date (which is not
waived in writing by the Holder), the Company shall provide the Holder a written notice to that effect by no later than the Trading
Day immediately following the Company having knowledge of such Equity Conditions Failure, indicating that unless the Holder
waives the Equity Conditions Failure in writing, the applicable portion of Interest as to which the Holder did not waive the Equity
Conditions shall be
2
paid as Cash Interest. If any portion of Interest for a particular Interest Date shall be paid in Interest Shares, then on the applicable
Interest Date, the Company shall issue to the Holder, such number of shares of Common Stock equal to (a) the amount of Interest
payable on the applicable Interest Date in Interest Shares divided by (b) the Interest Conversion Price as in effect on the applicable
Interest Date. All Interest Shares shall be fully paid and nonassessable shares of Common Stock (rounded to the nearest whole
share in accordance with Section 3(a)). Except as expressly provided in this Section 2, the Company shall pay the applicable
Interest in the same ratio of Interest Shares and Cash Interest on the Notes, the Other Notes and any Additional Notes. The
Company shall pay any and all taxes that may be payable with respect to the issuance and delivery to the Holder of shares of
Common Stock as Interest pursuant to this Section 2; provided, however, that the Holder shall be solely responsible for any transfer
taxes if the Interest Shares are to be registered, issued or delivered in the name of a Person other than the Holder.
(c) Notwithstanding the foregoing, if (i) the Company elects (or is deemed to have elected by operation of
this Section 2) to pay all or any portion of Interest due on any Interest Date in Interest Shares, (ii) the Company is permitted
pursuant to this Section 2 to pay all or any portion of Interest due on such Interest Date in Interest Shares if not for the delivery to
the Company of an Interest Blocker Notice and (iii) within two (2) Business Days following the applicable Interest Notice Date the
Holder has delivered to the Company a written notice (an "Interest Blocker Notice") (A) stating that such payment of Interest in
Interest Shares would result in a violation of Section 3(d), (B) specifying the portion of the applicable Interest with respect to which
the payment in Interest Shares would result in a violation of Section 3(d) if such payment of Interest in Interest Shares were
effected (such amount so specified is referred to herein as the "Designated Interest Amount") and (C) requesting the Company
hold the Designated Interest Amount issuable to the Holder in abeyance for the Holder until such time or times as its right thereto
would not result in the Holder and its other Attribution Parties exceeding the Maximum Percentage, at which time or times the
Company shall promptly upon written notice from the Holder deliver such Interest Shares to the extent as if there had been no such
limitation. Any Interest Shares held in abeyance pursuant to the provisions of this Section 2(c) shall satisfy the Company's
requirement to pay the applicable Interest corresponding to the number of Interest Shares so held in abeyance until the Company
receives a notice from the Holder instructing the Company that the Maximum Percentage no longer prevents the Holder from
receiving such Interest Shares.
(d) Prior to the payment of Interest on an Interest Date, Interest on this Note shall accrue at the Interest Rate
and be payable by way of inclusion of the Interest in the Conversion Amount (as defined in Section 3(b)(i)) on each Conversion
Date (as defined in Section 3(c)(i)) in accordance with Section 3(b)(i) and/or on each Redemption Date.
(3) CONVERSION OF NOTES. At any time or times after the first (1st) Trading Day following the Pricing Date
(as defined in Section 3(b)(ii)) (the "Initial Convertibility Date"), this Note shall be convertible into shares of Common Stock, on
the terms and conditions set forth in this Section 3.
Convertibility Date, the Holder shall be entitled to convert all
(a) Conversion Right. Subject to the provisions of Section 3(d), at any time or times on or after the Initial
3
or any portion of the outstanding and unpaid Conversion Amount into fully paid and nonassessable shares of Common Stock in
accordance with Section 3(c), at the Conversion Rate (as defined below). The Company shall not issue any fraction of a share of
Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock to the nearest whole share. The Company shall pay any and all
transfer, stamp and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion
of any Conversion Amount; provided, however, that the Holder shall be solely responsible for any transfer taxes if the shares of
Common Stock registrable, issuable or deliverable pursuant to a Conversion Notice are to be registered, issued or delivered in the
name of a Person other than the Holder.
(b) Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion
Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the
"Conversion Rate").
(i) "Conversion Amount" means the sum of (A) the portion of the Principal to be converted,
redeemed or otherwise with respect to which this determination is being made, (B) accrued and unpaid Interest with respect
to such Principal and (C) accrued and unpaid Late Charges, if any, with respect to such Principal and Interest.
(ii) "Conversion Price" means, as of any Conversion Date or other date of determination, a price
per share equal to the greater of: (A) 130% of the arithmetic average of the Weighted Average Price of the Common Stock
on each Trading Day during the ten (10) consecutive Trading Days commencing on the later of (x) the Initial Closing Date
and (y) the Public Announcement Date (the last date in such period, the "Pricing Date") (all such determinations to be
appropriately adjusted for any stock split, stock dividend, stock combination, reclassification or other similar transaction
occurring during such period) and (B) $28.00, subject to adjustment as provided herein and pursuant to Section 4(q) of the
Securities Purchase Agreement.
(c) Mechanics of Conversion.
(i) Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any
date on or after the Initial Convertibility Date (a "Conversion Date"), the Holder shall (A) deliver to the Company on such
date, a copy of an executed notice of conversion substantially in the form attached hereto as Exhibit I (the "Conversion
Notice") and (B) if required by Section 3(c)(iii), but without delaying the Company's requirement to deliver shares of
Common Stock on the applicable Share Delivery Date (as defined below), surrender this Note to a common carrier for
delivery to the Company as soon as practicable on or following such date (or an indemnification undertaking with respect to
this Note in the case of its loss, theft or destruction). No ink-original Conversion Notice shall be required, nor shall any
medallion guarantee (or other type of guarantee or notarization) of any Conversion Notice be required. On or before the first
(1st) Business Day following the date of receipt of a Conversion Notice, the Company shall transmit a confirmation of
receipt of such Conversion Notice to the Holder and the Company's transfer agent (the "Transfer Agent"). On or before the
second (2nd) Trading Day following the
4
date of receipt of a Conversion Notice (a "Share Delivery Date"), the Company shall, (x) if the Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, credit such aggregate
number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account
with DTC through its Deposit Withdrawal At Custodian system or (y) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a
certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the
Holder shall be entitled. If this Note is physically surrendered for conversion as required by Section 3(c)(iii) and the
outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the
Company shall as soon as practicable and in no event later than three (3) Business Days after receipt of this Note and at its
own expense, issue and deliver to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding
Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion
of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the
Conversion Date, irrespective of the date such shares of Common Stock are credited to the Holder's account with DTC or
the date of delivery of the certificates evidencing such shares of Common Stock, as the case may be.
(ii) Company's Failure to Timely Convert. If the Company shall fail on or prior to the applicable
Share Delivery Date to issue and deliver a certificate to the Holder (if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program), or credit the Holder's balance account with DTC (if the Transfer Agent is
participating in the DTC Fast Automated Securities Transfer Program), for the number of shares of Common Stock to
which the Holder is entitled upon the Holder's conversion of any Conversion Amount (a "Conversion Failure"), then the
Holder, upon written notice to the Company, may void its Conversion Notice with respect to, and retain or have returned, as
the case may be, any portion of this Note that has not been converted pursuant to such Conversion Notice; provided that the
voiding of a Conversion Notice shall not affect the Company's obligations to make any payments which may have accrued
prior to the date of such notice pursuant to this Section 3(c)(ii) or otherwise. In addition to the foregoing, if the Company
shall fail on or prior to the applicable Share Delivery Date to issue and deliver a certificate to the Holder, if the Transfer
Agent is not participating in the DTC Fast Automated Securities Transfer Program, or credit the Holder's balance account
with DTC, if the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, for the number of
shares of Common Stock to which the Holder is entitled upon the Holder's conversion of any Conversion Amount or on any
date of the Company's obligation to deliver shares of Common Stock as contemplated pursuant to clause (y) below, and if
after such Trading Day the Holder purchases (in an open market transaction or otherwise) Common Stock to deliver in
satisfaction of a sale by the Holder of Common Stock issuable upon such conversion that the Holder anticipated receiving
from the Company (a "Buy-In"), then the Company shall, within three (3) Trading Days after the Holder's request and in
the Holder's discretion, either (x) pay cash to the Holder in an amount equal to the Holder's total purchase price (including
brokerage commissions) for the shares of Common Stock so purchased (the
5
"Buy-In Price"), at which point the Company's obligation to issue and deliver such certificate or certificates or credit the
Holder's balance account with DTC for the shares of Common Stock to which the Holder is otherwise entitled upon the
Holder's conversion of the applicable Conversion Amount shall terminate, or (y) promptly honor its obligation to deliver to
the Holder a certificate or certificates representing such shares of Common Stock or credit the Holder's balance account
with DTC for such shares of Common Stock and pay cash to the Holder in an amount equal to the excess (if any) of the
Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Sale Price of the
Common Stock on the applicable Conversion Date. Nothing herein shall limit the Holder's right to pursue any other
remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver shares of Common Stock upon conversion of this
Note as required pursuant to the terms hereof.
(iii) Registration; Book-Entry. The Company shall maintain a register (the "Register") for the
recordation of the names and addresses of the holders of each Note and the Principal amount of the Notes (and stated
interest thereon) held by such holders (the "Registered Notes"). The entries in the Register shall be conclusive and binding
for all purposes absent manifest error. The Company and the holders of the Notes shall treat each Person whose name is
recorded in the Register as the owner of a Note for all purposes, including, without limitation, the right to receive payments
of Principal and Interest, if any, hereunder, notwithstanding notice to the contrary. A Registered Note may be assigned or
sold in whole or in part only by registration of such assignment or sale on the Register. Upon its receipt of a request to
assign or sell all or part of any Registered Note by the Holder, in form and substance reasonably satisfactory to the
Company, the Company shall record the information contained therein in the Register and issue one or more new Registered
Notes in the same aggregate Principal amount as the Principal amount of the surrendered Registered Note to the designated
assignee or transferee pursuant to Section 17. The Company shall be entitled to act and rely upon any such request without
inquiry as to the genuineness thereof, and without liability of any type or nature arising therefrom. Notwithstanding
anything to the contrary in this Section 3(c)(iii), the Holder may assign the Note or any portion thereof to an Affiliate of
such Holder or a Related Fund of such Holder without delivering a request to assign or sell such Note to the Company and
the recordation of such assignment or sale in the Register (a "Related Party Assignment"); provided, that (x) the Company
may continue to deal solely with such assigning or selling Holder unless and until such Holder has delivered a request, in
form and substance reasonably satisfactory to the Company, to assign or sell such Note or portion thereof to the Company
for recordation in the Register; and (y) such assigning or selling Holder shall, acting solely for this purpose as a non-
fiduciary agent of the Company, maintain a register (the "Related Party Register") comparable to the Register on behalf of
the Company, and any such assignment or sale shall be effective upon recordation of such assignment or sale in the Related
Party Register. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in
accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless
(A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company
with prior written
6
notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of
this Note. The Holder and the Company shall maintain records showing the Principal, Interest and Late Charges, if any,
converted and the dates of such conversions or shall use such other methods, reasonably satisfactory to the Holder and the
Company, so as not to require physical surrender of this Note upon conversion except as provided above.
(iv) Pro Rata Conversion; Disputes. In the event that the Company receives a Conversion Notice
relating to this Note and one or more holders of Other Notes or Additional Notes for the same Conversion Date and the
Company can convert some, but not all, of such portions of this Note, the Other Notes and the Additional Notes submitted
for conversion, the Company, subject to Section 3(d), shall convert from the Holder and each holder of Other Notes and
Additional Notes electing to have this Note, the Other Notes or Additional Notes converted on such date a pro rata amount
of such holder's portion of the Note, its Other Notes and/or Additional Notes submitted for conversion based on the
Principal amount of this Note, the Other Notes and/or Additional Notes submitted for conversion on such date by such
holder relative to the aggregate Principal amount of this Note and all Other Notes and Additional Notes submitted for
conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in
connection with a conversion of this Note, the Company shall issue to the Holder the number of shares of Common Stock
not in dispute and such dispute shall be resolved in accordance with Section 23.
(d) Beneficial Ownership Limitation. The Company shall not deliver any shares of Common Stock
pursuant to the terms and conditions of this Note, and the Holder shall not have the right to any shares otherwise issuable or
otherwise deliverable pursuant to the terms and conditions of this Note and any such delivery shall be null and void and
treated as if never made, to the extent that, immediately after giving effect to such issuance, the Holder together with its
other Attribution Parties collectively would beneficially own in excess of the Maximum Percentage of the number of shares
of Common Stock outstanding. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned by the Holder and its other Attribution Parties shall include the number of shares of Common Stock
beneficially owned by the Holder and all of its other Attribution Parties plus the number of shares of Common Stock
issuable pursuant to the terms of this Note with respect to which the determination of such sentence is being made, but shall
exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining,
nonconverted portion of this Note beneficially owned by the Holder or any of its other Attribution Parties and (ii) exercise
or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without
limitation, any convertible notes or convertible preferred stock or warrants, including any Additional Notes and Warrants)
beneficially owned by the Holder or any of its other Attribution Parties subject to a limitation on conversion or exercise
analogous to the limitation contained in this Section 3(d). For purposes of this Section 3(d), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act. For purposes of determining the number of outstanding
shares of Common Stock the Holder
7
may acquire pursuant to the terms of this Note without exceeding the Maximum Percentage, the Holder, absent other
knowledge, may rely on the number of outstanding shares of Common Stock as reflected in (i) the Company's most recent
Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public filing with the
SEC, as the case may be, (ii) a more recent public announcement by the Company or (iii) any other written notice by the
Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding (the "Reported
Outstanding Share Number"). If the Company receives a Conversion Notice from the Holder at a time when the actual
number of outstanding shares of Common Stock is less than the Reported Outstanding Share Number, the Company shall
notify the Holder in writing of the number of shares of Common Stock then outstanding and, to the extent that such
Conversion Notice would otherwise cause the Holder's beneficial ownership, as determined pursuant to this Section 3(d), to
exceed the Maximum Percentage, the Holder shall, within one (1) Business Day thereafter, notify the Company of a reduced
number of shares of Common Stock to be purchased pursuant to such Conversion Notice. The number of outstanding shares
of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company,
including this Note, by the Holder and any other Attribution Party since the date as of which the Reported Outstanding
Share Number was reported. In the event that the issuance of shares of Common Stock to the Holder upon conversion of
this Note would result in the Holder and its other Attribution Parties being deemed to beneficially own, in the aggregate,
more than the Maximum Percentage of the number of outstanding shares of Common Stock, the number of shares by which
the Holder's and its other Attribution Parties' aggregate beneficial ownership would exceed the Maximum Percentage (the
"Excess Shares") shall be deemed null and void and any portion of the Conversion Amount so converted shall be
reinstated, and the Holder shall not have the power to vote or to transfer the Excess Shares. Upon delivery of a written
notice to the Company, the Holder may from time to time increase or decrease the Maximum Percentage to any other
percentage not in excess of 9.99% as specified in such notice; provided that (i) any such increase in the Maximum
Percentage will not be effective until the sixty-first (61st) day after such notice is delivered to the Company and (ii) any such
increase or decrease will apply only to the Holder and its other Attribution Parties and not to any other holder of Notes that
is not an Attribution Party of the Holder. The provisions of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this Section 3(d) to the extent necessary to correct this paragraph (or
any portion of this paragraph) which may be defective or inconsistent with the intended beneficial ownership limitation
contained in this Section 3(d) or to make changes or supplements necessary or desirable to properly give effect to such
limitation. The limitation contained in this paragraph may not be waived and shall apply to a successor holder of this Note.
(4) RIGHTS UPON EVENT OF DEFAULT.
(a) Event of Default. Each of the following events shall constitute an "Event of Default":
8
(i) the failure of the applicable Registration Statement required to be filed pursuant to the
Registration Rights Agreement to be filed or declared effective within the applicable time periods specified in the
Registration Rights Agreement, or, at any time while the applicable Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the effectiveness of the applicable Registration
Statement lapses for any reason (including, without limitation, the issuance of a stop order) and such lapse continues for a
period of greater than ten (10) consecutive Trading Days or for more than an aggregate of twenty (20) Trading Days in any
365-day period or such Registration Statement is unavailable to any holder of the Notes for sale of all of such holder's
Registrable Securities in accordance with the terms of the Registration Rights Agreement (unless such unavailability is
during an Allowable Grace Period (as defined in the Registration Rights Agreement));
(ii) (A) the suspension of the Common Stock from trading on an Eligible Market, or, on or after
April 30, 2019, on a Qualified Market, for a period of more than five (5) consecutive Trading Days or for more than an
aggregate of ten (10) Trading Days in any 365-day period or (B) the failure of the Common Stock to be listed or quoted for
trading on an Eligible Market;
a Qualified Market;
(iii) the failure of the Common Stock to be listed or quoted for trading on or after April 30, 2019, on
(iv) the Company's delivery of written notice to the Holder or any holder of the Other Notes or any
Additional Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to
comply with a valid request for conversion of this Note, any Other Notes or any Additional Notes into shares of Common
Stock that is validly tendered in accordance with the provisions of this Note, the Other Notes or any Additional Notes, as
applicable, other than pursuant to Section 3(d) (and analogous provisions under the Other Notes and any Additional Notes);
(v) the Company's failure to pay to the Holder any amount of Principal, Interest, Late Charges or
other amounts when and as due under this Note (including, without limitation, the Company's failure to pay any redemption
amounts hereunder) or any other Transaction Document or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated hereby and thereby to which the Holder is a party, except, in the
case of a failure to pay any amounts other than Principal when and as due, in which case only if such failure continues for a
period of at least an aggregate of two (2) Business Days;
(vi) any default under any Indebtedness in an aggregate principal amount of more than $10,000,000
of the Company and/or any of its Subsidiaries other than with respect to this Note, any Other Notes or any Additional
Notes, the effect of which default is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent
on behalf of such holder or holders) to cause, with the giving of notice if required, such Indebtedness to be demanded or to
become due or to be repurchased, prepaid, defeased
9
or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be
made, prior to its stated maturity;
(vii) the Company or any of its domestic Subsidiaries, pursuant to or within the meaning of Title 11,
U.S. Code, or any similar Federal, foreign or state law for the relief of debtors (collectively, "Bankruptcy Law"), (A)
commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to
the appointment of a receiver, trustee, assignee, liquidator or similar official (a "Custodian"), (D) makes a general
assignment for the benefit of its creditors or (E) admits in writing that it is generally unable to pay its debts as they become
due;
(viii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A)
is for relief against the Company or any of its domestic Subsidiaries in an involuntary case, (B) appoints a Custodian of the
Company or any of its domestic Subsidiaries or (C) orders the liquidation of the Company or any of its domestic
Subsidiaries, and, in each case, continues undismissed or unstayed for sixty (60) days;
(ix) one or more judgments, orders or awards for the payment of money aggregating (above any
insurance coverage or indemnity from a credit worthy party so long as such insurance provider has been notified of the
claim and does not dispute coverage) in excess of $10,000,000 are rendered against the Company or any of its Subsidiaries
and which judgments, orders or awards are not, within sixty (60) days after the entry thereof, bonded, discharged or stayed
pending appeal, or are not discharged within sixty (60) days after the expiration of such stay;
(x) other than as specifically set forth in another clause of this Section 4(a), the Company or any of
its Subsidiaries breaches any covenant in any Transaction Document, and such breach, if curable, continues for a period of
at least an aggregate of thirty (30) calendar days after the earlier of (A) an authorized officer of the Company or such
Subsidiary becoming aware of such failure and (B) receipt by an authorized officer of the Company or such Subsidiary of a
notice from the Holder of such breach;
(xi) any representation, warranty, certification or statement of fact made or deemed made by the
Company or any Subsidiary herein, or in any other Transaction Document, shall be incorrect or misleading in any material
respect when made or deemed made;
(xii) any breach or failure in any respect to comply with Sections 14 or 15 of this Note;
(xiii) any material provision of any Security Document (as defined in the Securities Purchase
Agreement) shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding
on or enforceable against the Company or any Subsidiary party thereto, or ceases to give the Collateral Agent the Liens
purported to be created thereby or the validity or enforceability thereof shall be contested by the Company or any
Subsidiary, or a proceeding shall be commenced by the Company
10
or any Subsidiary or any governmental authority having jurisdiction over any of them, seeking to establish the invalidity or
unenforceability thereof, or the Company or any Subsidiary shall deny in writing that it has any liability or obligation
purported to be created under any Security Document;
(xiv) any material damage to, or loss, theft or destruction of, any Collateral or a material amount of
property of the Company, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God
or public enemy, or other casualty which causes, for more than fifteen (15) consecutive days, the cessation or substantial
curtailment of revenue producing activities at any facility of the Company or any Subsidiary, if any such event or
circumstance could reasonably be expected to have a Material Adverse Effect (as defined in the Securities Purchase
Agreement);
(xv) a false or inaccurate certification (including a false or inaccurate deemed certification) by the
Company that the Equity Conditions are satisfied or that there has been no Equity Conditions Failure or as to whether any
Event of Default has occurred (in each case other than any Equity Conditions Failure arising solely as a result of the
delivery to the Company of an Interest Blocker Notice);
(xvi) the Company's failure to file with the SEC any periodic or current reports due after the filing
with the SEC of the Form 10-K (as defined in Section 15(b)) in accordance with the Company's requirements under the
Exchange Act but only if such failure continues for a period of at least one (1) year;
(xvii) any Event of Default (as defined in the Other Notes) occurs with respect to any Other Notes;
or
Additional Notes.
(xviii) any Event of Default (as defined in the Additional Notes) occurs with respect to any
(b) Redemption Right. Upon the occurrence of an Event of Default with respect to this Note or any Other
Note, the Company shall promptly deliver written notice thereof (an "Event of Default Notice") to the Holder. At any time after
the earlier of the Holder's receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder
may require the Company to redeem (an "Event of Default Redemption") all, but not less than all, of this Note by delivering
written notice thereof (the "Event of Default Redemption Notice" and the date the Holder delivers an Event of Default
Redemption Notice to the Company, an "Event of Default Redemption Notice Date") to the Company, which Event of Default
Redemption Notice shall indicate that the Holder is electing to require the Company to redeem this Note. To the extent this Note is
subject to redemption by the Company pursuant to this Section 4(b), this Note shall be redeemed by the Company in cash at a price
equal to the greater of (i) the product of (x) the Redemption Premium and (y) the Conversion Amount being redeemed and (ii)
solely if there is an Equity Conditions Failure (that is not waived in writing by the Holder) during the period from the applicable
Event of Default Redemption Notice Date through and including the applicable Event of Default Redemption Date (as defined in
Section 10(a)), the product of (x) the Conversion Rate with respect to the Conversion Amount being redeemed and (y) the quotient
determined by dividing
11
(I) the greatest Closing Sale Price of the shares of Common Stock during the period beginning on the date immediately preceding
such Event of Default and ending on the date the Holder delivers the Event of Default Redemption Notice, by (II) the lowest
Conversion Price in effect during such period(the "Event of Default Redemption Price"). Redemptions required by this Section
4(b) shall be made in accordance with the provisions of Section 10. To the extent redemptions required by this Section 4(b) are
deemed or determined by a court of competent jurisdiction to be prepayments of the Note by the Company, such redemptions shall
be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 4, but subject to Section 3(d),
until the Event of Default Redemption Price (together with any interest thereon) is paid in full, the Conversion Amount submitted
for redemption under this Section 4(b) (together with any interest thereon) may be converted, in whole or in part, by the Holder into
Common Stock pursuant to Section 3. Any such converted Conversion Amount shall reduce the Event of Default Redemption
payment by an equivalent amount. The parties hereto agree that in the event of the Company's redemption of this Note under this
Section 4(b), the Holder's damages would be uncertain and difficult to estimate because of the parties' inability to predict future
interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder. Accordingly, any
Event of Default redemption premium due under this Section 4(b) is intended by the parties to be, and shall be deemed, a
reasonable estimate of the Holder's actual loss of its investment opportunity and not as a penalty.
(5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
(a) Assumption and Corporate Events. Upon the consummation of any Fundamental Transaction, the
Company shall cause any Successor Entity or Successor Entities to jointly and severally succeed to, and be added to the term
"Company" under this Note (so that from and after the consummation of such Fundamental Transaction, each and every provision
of this Note referring to the "Company" shall refer instead to each of the Company and the Successor Entity or Successor Entities,
jointly and severally), and the Successor Entity or Successor Entities, jointly and severally with the Company, may exercise every
right and power of the Company prior thereto and the Successor Entity or Successor Entities shall assume all of the obligations of
the Company prior thereto under this Note with the same effect as if the Company and such Successor Entity or Successor Entities,
jointly and severally, had been named as the Company in this Note. In addition to and not in substitution for any other rights
hereunder, prior to the occurrence or consummation of any Fundamental Transaction pursuant to which holders of shares of
Common Stock become entitled to receive securities, cash, assets or other property with respect to or in exchange for shares of
Common Stock (a "Corporate Event"), the Company shall provide that it shall be a required condition to the occurrence or
consummation of such Corporate Event that the Holder will have the right to receive upon conversion of this Note at any time after
the occurrence or consummation of the Corporate Event, shares of Common Stock or capital stock of a Successor Entity or, if so
elected by the Holder, in lieu of the shares of Common Stock (or other securities, cash, assets or other property) purchasable upon
the conversion of this Note prior to such Corporate Event, such shares of stock, securities, cash, assets or any other property
whatsoever (including warrants or other purchase or subscription rights and any shares of Common Stock) which the Holder would
have been entitled to receive upon the occurrence or consummation of such Corporate Event or the record, eligibility or other
determination date for the event resulting in such Corporate
12
Event, had this Note been converted immediately prior to such Corporate Event or the record, eligibility or other determination date
for the event resulting in such Corporate Event (without regard to any limitations on conversion of this Note). The provisions of
this Section 5(a) shall apply similarly and equally to successive Fundamental Transactions and Corporate Events.
(b) Redemption Right. As soon as practicable following the public announcement of the consummation of a
Change of Control, the Company shall deliver written notice thereof to the Holder (a "Change of Control Notice"). At any time
during the period beginning on the earlier to occur of (x) the Holder becoming aware of the consummation of a Change of Control
and (y) the Holder's receipt of a Change of Control Notice and ending thirty five (35) Trading Days after the date of the
consummation of such Change of Control, the Holder may require the Company to redeem (a "Change of Control Redemption")
all or any portion of this Note by delivering written notice thereof ("Change of Control Redemption Notice" and the date the
Holder delivers a Change of Control Redemption Notice to the Company, a "Change of Control Redemption Notice Date") to the
Company, which Change of Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to require the
Company to redeem. The portion of this Note subject to redemption pursuant to this Section 5(b) shall be redeemed by the
Company in cash at a price equal to the sum of (i) the greater of (x) 110% of the Conversion Amount being redeemed and (y) solely
if (a) the applicable Change of Control is a Make-Whole Change of Control or (b) there is an Equity Conditions Failure (that is not
waived in writing by the Holder) during the period from the applicable Change of Control Redemption Notice Date through and
including the applicable Change of Control Redemption Date (as defined in Section 10(a)), the product of (I) the Conversion
Amount being redeemed and (II) the quotient determined by dividing (A) the greatest Closing Sale Price of the shares of Common
Stock during the period beginning on the date immediately preceding the earlier to occur of (1) the consummation of the Change of
Control and (2) the public announcement of such Change of Control and ending on the date the Holder delivers the Change of
Control Redemption Notice, by (B) the lowest Conversion Price in effect during such period, and (ii) if the applicable Change of
Control is a Make-Whole Change of Control, the Make-Whole Change of Control Premium (the "Change of Control Redemption
Price"). Redemptions required by this Section 5 shall be made in accordance with the provisions of Section 10 and shall have
priority to payments to stockholders in connection with a Change of Control. To the extent redemptions required by this Section
5(b) are deemed or determined by a court of competent jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 5, but subject
to Section 3(d), until the Change of Control Redemption Price (together with any interest thereon) is paid in full, the Conversion
Amount submitted for redemption under this Section 5(b) (together with any interest thereon) may be converted, in whole or in
part, by the Holder into Common Stock pursuant to Section 3. Any such converted Conversion Amount shall reduce the
Conversion Amount submitted for redemption under this Section 5(b) by an equivalent amount. The parties hereto agree that in the
event of the Company's redemption of any portion of the Note under this Section 5(b), the Holder's damages would be uncertain
and difficult to estimate because of the parties' inability to predict future interest rates and the uncertainty of the availability of a
suitable substitute investment opportunity for the Holder. Accordingly, any Change of Control redemption premium due under this
Section 5(b) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder's actual loss of its investment
opportunity and not as a penalty.
13
(c) Qualifying Change of Control Redemption Right. Notwithstanding any Holder’s right to require a
Change of Control Redemption, delivery of any Change of Control Redemption Notice or anything else to the contrary in the
Notes, contemporaneously with, or within three (3) Business Days subsequent to, the consummation of a Qualifying Change of
Control, the Company may redeem this Note in full in cash at a price equal to the sum of (i) the aggregate outstanding Principal
amount of this Note as of the Qualifying Early Redemption Date (as defined in Section 10(a)), (ii) Interest accrued on such
Principal amount as of the Qualifying Early Redemption Date, (iii) any other amounts owed pursuant to the terms of this Note,
including, without limitation, any Late Charges, as of the Qualifying Early Redemption Date and (iv) 20% (the “Qualifying Early
Redemption Premium”) of the aggregate outstanding Principal amount of this Note as of the Qualifying Early Redemption Date
(for the avoidance of doubt, the Qualifying Early Redemption Premium shall only be applied to the aggregate outstanding Principal
amount of this Note as of the Qualifying Early Redemption Date) (the “Qualifying Early Redemption Price”). If the Company
elects to redeem this Note in connection with a Qualifying Change of Control, the Company shall (i) be deemed by virtue of public
announcement of such Qualifying Change of Control to have delivered an irrevocable notice thereof to the Holder (a “Qualifying
Early Redemption Notice”) unless the Company has provided earlier or contemporaneous written notice to the Holder that the
Company does not elect to redeem this Note in connection with such Qualifying Change of Control and (ii) simultaneously take the
same action with respect to all Other Notes and Additional Notes then outstanding. Redemptions required by this Section 5(c) shall
be made in accordance with the provisions of Section 10 and shall have priority to payments to stockholders in connection with a
Qualifying Change of Control. To the extent redemptions required by this Section 5(c) are deemed or determined by a court of
competent jurisdiction to be prepayments of the Note by the Company, such redemptions shall be deemed to be voluntary
prepayments. Notwithstanding anything to the contrary in this Section 5, but subject to Section 3(d), until the Qualifying Early
Redemption Price (together with any interest thereon) is paid in full, the Conversion Amount submitted for redemption under this
Section 5(c) (together with any interest thereon) may be converted, in whole or in part, by the Holder into Common Stock of
comScore, Inc. pursuant to Section 3 (for the avoidance of doubt, in the event any portion of this Note remains outstanding more
than two (2) Business Days after the consummation of a Qualifying Change of Control, Section 5(a) shall apply and the Holder
shall, among other things, be entitled to convert this Note into the capital stock of the Successor Entity in accordance with Section
5(a)). Any such converted Conversion Amount shall reduce the Conversion Amount subject to redemption under this Section 5(c)
by an equivalent amount. The parties hereto agree that in the event of the Company’s redemption of any portion of the Note under
this Section 5(c), the Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict
future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any Change of Control redemption premium due under this Section 5(c) is intended by the parties to be, and shall be
deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not as a penalty. Upon the Company’s
request and at the Company’s sole cost and expense, the Holder agrees to provide a customary payoff letter, in form and substance
reasonably satisfactory to the Company and the Holder, confirming the payoff of all obligations under this Note and the release of
all liens securing such obligations, which confirmations shall be contingent on the Holder’s receipt of the payment in full of the
applicable Qualifying Early Redemption Price,
14
and which payoff and release shall occur automatically upon such payment without further action by the Holder.
(6) ADJUSTMENTS TO THE CONVERSION PRICE.
(a) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock or Stock
Dividend. If the Company issues solely shares of Common Stock as a dividend or distribution on all or substantially all shares of
the Common Stock, or if the Company effects a stock split or a stock combination of the Common Stock (in each case excluding an
issuance solely pursuant to a Fundamental Transaction or other Corporate Event, as to which the provisions set forth in Section 5
will apply), then the Conversion Price will be adjusted based on the following formula:
CP1 = CP0 * OS0___
OS1
where:
CP0 = the Conversion Price in effect immediately before the open of business on the Ex-Dividend
Date for such dividend or distribution, or immediately before the open of business on the effective
date of such stock split or stock combination, as applicable;
CP1 = the Conversion Price in effect immediately after the open of business on such Ex-Dividend
Date or the open of business on such effective date, as applicable;
OS0 = the number of shares of Common Stock outstanding immediately before the open of business
on such Ex-Dividend Date or effective date, as applicable; and
OS1 = the number of shares of Common Stock outstanding immediately after giving effect to such
dividend, distribution, stock split or stock combination.
15
For the avoidance of doubt, pursuant to the definition of CP1 above, any adjustment to the Conversion Price made
pursuant to this Section 6(a) will become effective immediately after the open of business on such Ex-Dividend Date or the open of
business on such effective date, as applicable. If any dividend, distribution, stock split or stock combination of the type described in
this Section 6(a) is declared or announced, but not so paid or made, then the Conversion Price, if previously adjusted, will be
readjusted, effective as of the date the Board of Directors of the Company determines not to pay such dividend or distribution or to
effect such stock split or stock combination, to the Conversion Price that would then be in effect had such dividend, distribution,
stock split or stock combination not been declared or announced.
(b) Rights, Options and Warrants. If the Company distributes, to all or substantially all holders of Common
Stock, rights, options or warrants entitling such holders, for a period of not more than sixty (60) calendar days after the record date
of such distribution, to subscribe for or purchase shares of Common Stock at a price per share that is less than the average of the
Closing Sale Prices per share of Common Stock for the ten (10) consecutive Trading Days ending on, and including, the Trading
Day immediately before the date such distribution is publicly announced, then the Conversion Price will be decreased based on the
following formula:
CP1 = CP0 * OS + Y___
OS + X
where:
CP0 = the Conversion Price in effect immediately before the open of business on the Ex-Dividend
Date for such distribution;
CP1 = the Conversion Price in effect immediately after the open of business on such Ex-Dividend
Date;
OS = the number of shares of Common Stock outstanding immediately before the open of business
on such Ex-Dividend Date;
X = the total number of shares of Common Stock issuable pursuant to such rights, options or
warrants; and
Y = a number of shares of Common Stock obtained by dividing (x) the aggregate price payable to
exercise such rights, options or warrants by (y) the average of the Closing Sale Prices per share of
Common Stock for the ten (10) consecutive Trading Days ending on, and including, the Trading Day
immediately before the date such distribution is announced.
For the avoidance of doubt, any adjustment to the Conversion Price made pursuant to this Section 6(b) will be made
successively whenever any such rights, options or warrants are issued and, pursuant to the definition of CP1 above, will become
effective immediately after the open of business on the Ex-Dividend Date for the applicable distribution. To the extent that shares
16
of Common Stock are not delivered after the expiration of such rights, options or warrants (including as a result of such rights,
options or warrants not being exercised), the Conversion Price, if previously adjusted, will be readjusted effective as of such
expiration date to the Conversion Price that would then be in effect had the decrease to the Conversion Price for such distribution
been made on the basis of delivery of only the number of shares of Common Stock actually delivered upon exercise of such rights,
option or warrants. To the extent such rights, options or warrants are not so distributed, the Conversion Price will be readjusted
effective as of the date the Board of Directors of the Company determines not to distribute such rights, options or warrants, to the
Conversion Price that would then be in effect had the Ex-Dividend Date for the distribution of such rights, options or warrants not
occurred.
For purposes of this Section 6(b), in determining whether any rights, options or warrants entitle holders of Common
Stock to subscribe for or purchase shares of Common Stock at a price per share that is less than the average of the Closing Sale
Prices per share of Common Stock for the ten (10) consecutive Trading Days ending on, and including, the Trading Day
immediately before the date of the distribution of such rights, options or warrants is announced, and in determining the aggregate
price payable to exercise such rights, options or warrants, there will be taken into account any consideration the Company receives
for such rights, options or warrants and any amount payable on exercise thereof, with the value of such consideration, if not cash, to
be determined by the Board of Directors of the Company.
(c) Spin-Offs and Other Distributed Property.
(i) Distributions Other than Spin-Offs. If the Company distributes shares of its Capital Stock,
evidences of its indebtedness or other assets or property of the Company, or rights, options or warrants to
acquire Capital Stock of the Company or other securities, to all or substantially all holders of the Common
Stock, excluding:
17
(u) rights issued in the Rights Offering (as defined in the Securities Purchase Agreement);
(v) dividends, distributions, rights, options or warrants for which an adjustment to the Conversion
Price is required pursuant to Section 6(a) or 6(b);
(w) dividends or distributions paid exclusively in cash for which an adjustment to the Conversion
Price is required pursuant to Section 6(d);
(x) rights issued or otherwise distributed pursuant to a stockholder rights plan, except to the extent
provided in Section 6(g);
(y) Spin-Offs for which an adjustment to the Conversion Price is required pursuant to Section 6(c)(ii);
and
(z) a distribution solely pursuant to a Corporate Event, as to which the provisions set forth in Section
5 will apply,
then the Conversion Price will be decreased based on the following formula:
CP1 = CP0 * SP - FMV___
SP
where:
CR0 = the Conversion Price in effect immediately before the open of business on the Ex-Dividend
Date for such distribution;
CR1 = the Conversion Price in effect immediately after the open of business on such Ex-Dividend
Date;
SP = the average of the Closing Sale Prices per share of Common Stock for the ten (10) consecutive
Trading Days ending on, and including, the Trading Day immediately before such Ex-Dividend Date;
and
FMV = the fair market value (determined in the good faith judgment of the Board of Directors of the
Company), as of such Ex-Dividend Date, of the shares of Capital Stock, evidences of indebtedness,
assets, property, rights, options or warrants distributed per share of Common Stock pursuant to such
distribution;
provided, however, that if FMV is equal to or greater than SP, or if the difference between FMV and
SP is less than one dollar ($1.00), then, in lieu of the foregoing adjustment to the Conversion Price,
each
18
Holder will receive, at the same time and on the same terms as holders of Common Stock, the amount
and kind of shares of Capital Stock, evidences of indebtedness, assets, property, rights, options or
warrants that such Holder would have received if such Holder had owned, on such record date, a
number of shares of Common Stock equal to the principal amount of Notes held by such Holder on
the record date for such distribution divided by the Conversion Price in effect on such record date.
For the avoidance of doubt, pursuant to the definition of CP1 above, any adjustment to the Conversion Price
made pursuant to this Section 6(c)(i) will become effective immediately after the open of business on the Ex-Dividend Date for the
applicable distribution. To the extent such distribution is not so paid or made, or such rights, options or warrants are not exercised
before their expiration (including as a result of being redeemed or terminated), the Conversion Price, if previously adjusted, will be
readjusted effective as of the date the Board of Directors of the Company determines not to make or pay such distribution, to the
Conversion Price that would then be in effect had the adjustment been made on the basis of only the distribution, if any, actually
made or paid or on the basis of the distribution of only such rights, options or warrants, if any, that were actually exercised, if at all.
Subject to Section 6(g), if any such rights, options or warrants are exercisable only upon the occurrence of certain triggering events,
then the Conversion Price will not be adjusted pursuant to this Section 6(c)(i) until the earliest of these triggering events occurs.
(ii) Spin-Offs. If the Company distributes or dividends shares of stock of any class or series, or
similar equity interest, of or relating to an Affiliate, a Subsidiary or other business unit of the Company to all
or substantially all holders of the Common Stock, and such stock or equity interest is listed or quoted (or will
be listed or quoted upon the consummation of the transaction) on a U.S. national securities exchange (a
"Spin-Off"), then the Conversion Price will be increased based on the following formula:
CP1 = CP0 * MP ___
MP + FMV
where:
CP0 = the Conversion Price in effect immediately before the open of business on the Ex-Dividend
Date for such Spin-Off;
CP1 = the Conversion Price in effect immediately after the open of business on such Ex-Dividend
Date;
FMV = the average of the Closing Sale Prices of the stock or equity interests distributed per share of
Common Stock in such Spin-Off over the ten (10) consecutive Trading Day period (the "Spin-Off
Valuation Period") beginning on, and including, such Ex-Dividend
19
Date (such average to be determined as if references to Common Stock in the definitions of Closing
Sale Price and Trading Day were instead references to the number or units of such stock or equity
interests distributed per share of Common Stock in such Spin-Off); and
MP = the average of the Closing Sale Prices per share of Common Stock over the Spin-Off Valuation
Period.
The adjustment to the Conversion Price pursuant to this Section 6(c)(ii) will be calculated as of the close of business
on the last Trading Day of the Spin-Off Valuation Period but will be given effect immediately after the open of business on the Ex-
Dividend Date for the Spin-Off, with retroactive effect. If this Note is converted and the Conversion Date occurs during the Spin-
Off Valuation Period, then, in lieu of the foregoing adjustment to the Conversion Price, the Holder will receive, at the same time
and on the same terms as holders of Common Stock, the number of shares of stock or other equity interests that such Holder would
have received if such Holder had owned, on such record date, a number of shares of Common Stock equal to the principal amount
of Notes held by such Holder on the record date for Spin-Off divided by the Conversion Price in effect on such record date.
To the extent any dividend or distribution of the type set forth in this Section 6(c)(ii) is declared but not made or
paid, the Conversion Price, if previously adjusted, will be readjusted effective as of the date the Board of Directors of the Company
determines not to make or pay such dividend or distribution, to the Conversion Price that would then be in effect had the
adjustment been made on the basis of only the dividend or distribution, if any, actually made or paid.
holders of Common Stock, then the Conversion Price will be decreased based on the following formula:
(d) Cash Dividends or Distributions. If any cash dividend or distribution is made to all or substantially all
CP1 = CP0 * SP ___
SP - D
20
where:
CP0 = the Conversion Price in effect immediately before the open of business on the Ex-Dividend
Date for such dividend or distribution;
CR1 = the Conversion Price in effect immediately after the open of business on such Ex-Dividend
Date;
SP = the Closing Sale Price per share of Common Stock on the Trading Day immediately before such
Ex-Dividend Date; and
D = the cash amount distributed per share of Common Stock in such dividend or distribution;
provided, however, that if D is equal to or greater than SP, or if the difference between D and SP is
less than one dollar ($1.00), then, in lieu of the foregoing adjustment to the Conversion Price, the
Holder will receive, at the same time and on the same terms as holders of Common Stock, the amount
of cash that such Holder would have received if such Holder had owned, on such record date, a
number of shares of Common Stock equal to the principal amount of Notes held by such Holder on
the record date for such dividend or distribution divided by the Conversion Price in effect on such
record date. For the avoidance of doubt, pursuant to the definition of CP1 above, any adjustment to
the Conversion Price made pursuant to this Section 6(d) will become effective immediately after the
open of business on the Ex-Dividend Date for the applicable dividend or distribution.
To the extent any such dividend or distribution is declared but not made or paid, the Conversion Price, if previously
adjusted, will be readjusted effective as of the date the Board of Directors of the Company determines not to make or pay such
dividend or distribution, to the Conversion Price that would then be in effect had the adjustment been made on the basis of only the
dividend or distribution, if any, actually made or paid.
(e) Tender Offers or Exchange Offers. If the Company or any of its Subsidiaries makes a payment in
respect of a tender offer or exchange offer for shares of Common Stock, and the value (as determined as of the Expiration Time (as
defined below) in the judgment of the Board of Directors of the Company) of the cash and other consideration paid per share of
Common Stock in such tender or exchange offer exceeds the Closing Sale Price per share of Common Stock on the Trading Day
immediately after the last date (the "Expiration Date") on which tenders or exchanges may be made pursuant to such tender or
exchange offer (as it may be amended), then the Conversion Price will be decreased based on the following formula:
CP1 = CP0 * OS0 x SP ___
AC + (SP x OS1)
21
where:
CP0 = the Conversion Price in effect immediately before the time (the "Expiration Time") such
tender or exchange offer expires;
CP1 = the Conversion Price in effect immediately after the Expiration Time;
AC = the aggregate value (as determined as of the Expiration Time in the judgment of the Board of
Directors of the Company) of all cash and other consideration paid for shares of Common Stock
purchased in such tender or exchange offer;
OS0 = the number of shares of Common Stock outstanding immediately before the Expiration Time
(before giving effect to the purchase of all shares of Common Stock accepted for purchase or
exchange in such tender or exchange offer);
OS1 = the number of shares of Common Stock outstanding immediately after the Expiration Time
(excluding all shares of Common Stock accepted for purchase or exchange in such tender or
exchange offer); and
SP = the average of the Closing Sale Prices of Common Stock over the ten (10) consecutive Trading
Day period (the "Tender/Exchange Offer Valuation Period") beginning on, and including, the
Trading Day immediately after the Expiration Date.
The adjustment to the Conversion Price pursuant to this Section 6(e) will be calculated as of the close of business on
the last Trading Day of the Tender/Exchange Offer Valuation Period but will be given effect immediately after the Expiration Time,
with retroactive effect. If this Note is converted and the Conversion Date occurs during the Tender/Exchange Offer Valuation
Period, then, notwithstanding anything to the contrary in the Notes, the Company will, if necessary, delay the settlement of such
conversion until the second (2nd) Business Day after the last day of the Tender/Exchange Offer Valuation Period. To the extent
such tender or exchange offer is announced but not consummated (including as a result of the Company being precluded from
consummating such tender or exchange offer under applicable law), or any purchases or exchanges of shares of Common Stock in
such tender or exchange offer are rescinded, the Conversion Price, if previously adjusted, will be readjusted effective as of the date
the Board of Directors of the Company determines not to consummate such offer, to the Conversion Price that would then be in
effect had the adjustment been made on the basis of only the purchases or exchanges of shares of Common Stock, if any, actually
made, and not rescinded, in such tender or exchange offer.
(f) No Adjustments in Certain Cases. Notwithstanding anything to the contrary in this Section 6, the
Company will not be obligated to adjust the Conversion Price on account of a transaction or other event otherwise requiring an
adjustment pursuant to this Section
22
6 (other than a stock dividend, distribution, split or combination of the type set forth in Section 6(a) or a tender or exchange offer of
the type set forth in Section 6(e)) if each Holder participates, at the same time and on the same terms as holders of Common Stock,
and solely by virtue of being a Holder of Notes, in such transaction or event without having to convert such Holder's Notes and as if
such Holder held a number of shares of Common Stock equal to the quotient of (i) the aggregate principal amount (expressed in
thousands) of Notes held by the Holder on such date; divided by (ii) the Conversion Price in effect on the related record date,
effective date or Expiration Date, as applicable.
(g) Stockholder Rights Plans. If any shares of Common Stock are to be issued upon conversion of this Note
and, at the time of such conversion, the Company has in effect any stockholder rights plan, then the Holder will be entitled to
receive, in addition to, and concurrently with the delivery of, the consideration otherwise payable under this Note upon such
conversion, the rights set forth in such stockholder rights plan, unless such rights have separated from the Common Stock at or
prior to such time, in which case, and only in such case, the Conversion Price will be adjusted pursuant to Section 6(c)(1) on
account of such separation as if, at the time of such separation, the Company had made a distribution of the type referred to in such
Section to all holders of the Common Stock, subject to readjustment in accordance with such Section if such rights expire,
terminate or are redeemed.
(h) Voluntary Adjustment by Company. The Company may at any time during the term of this Note, with
the prior written consent of the Required Holders, reduce the then current Conversion Price to any amount and for any period of
time deemed appropriate by the Board of Directors of the Company.
(7) OPTIONAL REDEMPTION AT THE COMPANY'S ELECTION.
(a) General. At any time after January 16, 2021 (the "Company Optional Trigger Date"), so long as (i) the
arithmetic average of the Weighted Average Prices of the Common Stock for any thirty (30) consecutive Trading Days occurring
after the Company Optional Trigger Date (all such determinations to be appropriately adjusted for any stock split, stock dividend,
stock combination, reclassification or other similar transaction during such period) (a "Company Optional Measuring Period")
equaled or exceeded one hundred forty percent (140%) of the Conversion Price on the Issuance Date (as adjusted for any stock
dividend, stock split, stock combination, reclassification or similar transaction after the Subscription Date) and (ii) there has been
no Equity Conditions Failure during the period beginning on the applicable Company Optional Redemption Notice Date (as
defined below) through the applicable Company Optional Redemption Date (as defined below), the Company shall have the right
to redeem all or any portion of the Conversion Amount then remaining outstanding under this Note, the Other Notes and the
Additional Notes (a "Company Optional Redemption Amount") as designated in the applicable Company Optional Redemption
Notice on the applicable Company Optional Redemption Date (each as defined below) (a "Company Optional Redemption").
The portion of this Note, the Other Notes and any Additional Notes subject to redemption pursuant to this Section 7(a) shall be
redeemed by the Company on the applicable Company Optional Redemption Date in cash at a price equal to the 100% of the
Conversion Amount to be redeemed (a "Company Optional Redemption Price").
23
The Company may exercise its right to require redemption under this Section 7 by delivering within not more than ten (10) Trading
Days following the end of such Company Optional Measuring Period a written notice thereof to the Holder and all, but not less
than all, of the holders of the Other Notes and any Additional Notes (a "Company Optional Redemption Notice" and the date all
of the holders of the Notes received such notice is referred to as a "Company Optional Redemption Notice Date"). Each
Company Optional Redemption Notice shall be irrevocable. Each Company Optional Redemption Notice shall (i) state the date on
which the applicable Company Optional Redemption shall occur (a "Company Optional Redemption Date"), which date shall not
be less than ten (10) Trading Days nor more than thirty (30) Trading Days following the applicable Company Optional Redemption
Notice Date and (ii) state the aggregate Conversion Amount of the Notes which the Company has elected to redeem from the
Holder and all of the holders of the Other Notes and any Additional Notes pursuant to this Section 7(a) (and analogous provisions
under the Other Notes and any applicable Additional Notes) on the applicable Company Optional Redemption Date an Equity
Conditions Failure (other than as a result of the receipt by the Company of an Interest Blocker Notice) occurs between the
applicable Company Optional Redemption Notice Date and the applicable Company Optional Redemption Date and (iii) confirm
that there has been no Equity Conditions Failure during the period beginning on the applicable Company Optional Redemption
Date through the applicable Company Optional Redemption Notice Date. If the Company confirmed that there was no such Equity
Conditions Failure as of the applicable Company Optional Redemption Notice Date but an Equity Conditions Failure occurs
between the applicable Company Optional Redemption Notice Date and the applicable Company Optional Redemption Date (a
"Company Optional Redemption Interim Period"), the Company shall provide the Holder a subsequent notice to that effect. If
there is an Equity Conditions Failure (which is not waived in writing by the Holder) during such Company Optional Redemption
Interim Period, then the applicable Company Optional Redemption shall be null and void with respect to all or any part designated
by the Holder of the unconverted Company Optional Redemption Amount and the Holder shall be entitled to all the rights of a
holder of this Note with respect to such amount of the applicable Company Optional Redemption Amount. Notwithstanding
anything to the contrary in this Section 7, until the applicable Company Optional Redemption Price is paid, in full, the applicable
Company Optional Redemption Amount may be converted, in whole or in part, by the Holder into shares of Common Stock
pursuant to Section 3. All Conversion Amounts converted by the Holder after the applicable Company Optional Redemption
Notice Date shall reduce the applicable Company Optional Redemption Amount of this Note required to be redeemed on the
applicable Company Optional Redemption Date, unless the Holder otherwise indicates in the applicable Conversion Notice.
Company Optional Redemptions made pursuant to this Section 7 shall be made in accordance with Section 10. To the extent
redemptions required by this Section 7 are deemed or determined by a court of competent jurisdiction to be prepayments of the
Note by the Company, such redemptions shall be deemed to be voluntary prepayments. The parties hereto agree that in the event of
the Company's redemption of any portion of the Note under this Section 7, the Holder's damages would be uncertain and difficult to
estimate because of the parties' inability to predict future interest rates and the uncertainty of the availability of a suitable substitute
investment opportunity for the Holder. For the avoidance of doubt, any Conversion Amount that is subject to a Conversion Notice
delivered to the Company may no longer be subject to a Company Optional Redemption even if the shares issuable upon such
conversion have not been delivered on or prior to the applicable Company Optional Redemption Date.
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(b) Pro Rata Redemption Requirement. If the Company elects to cause a Company Optional Redemption
pursuant to Section 7(a), then it must simultaneously take the same action in the same proportion with respect to the Other Notes
and any Additional Notes. If the Company elects to cause a Company Optional Redemption pursuant to Section 7(a) (or similar
provisions under the Other Notes and the Additional Notes) with respect to less than all of the Conversion Amounts of the Notes
and any Additional Notes then outstanding, then the Company shall require redemption of a Conversion Amount from each of the
holders of the Notes and any Additional Notes equal to the product of (i) the aggregate Company Optional Redemption Amount of
Notes and the Additional Notes which the Company has elected to cause to be redeemed pursuant to Section 7(a), multiplied by (ii)
the fraction, the numerator of which is the sum of the aggregate Principal Amount of the Notes and any Additional Notes held by
such holder and the denominator of which is the sum of the aggregate Principal Amount of the Notes and any Additional Notes
held by all holders holding outstanding Notes and any Additional Notes (such fraction with respect to each holder is referred to as
its "Company Optional Redemption Allocation Percentage", and such amount with respect to each holder is referred to as its
"Pro Rata Company Optional Redemption Amount"). In the event that the initial holder of any Notes or Additional Notes shall
sell or otherwise transfer any of such holder's Notes or any Additional Notes, the transferee shall be allocated a pro rata portion of
such holder's Company Optional Redemption Allocation Percentage and Pro Rata Company Optional Redemption Amount.
(8) NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by
amendment of its Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Note, and will at all times in good faith carry out all of the provisions of this Note and
take all action as may be required to protect the rights of the Holder of this Note.
(9) RESERVATION OF AUTHORIZED SHARES.
(a) Reservation. The Company shall initially reserve out of its authorized and unissued shares of Common
Stock a number of shares of Common Stock for each of this Note, the Other Notes and any Additional Notes equal to the sum of (i)
130% of the Conversion Rate with respect to the Conversion Amount of each such Note as of the Issuance Date and (ii) 130% of
the maximum number of shares issuable as Interest Shares assuming all Interest through the Maturity Date is paid in Interest Shares
at the maximum possible Interest Rate. So long as any of this Note, the Other Notes and the Additional Notes are outstanding, the
Company shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of this Note, the Other Notes and any Additional Notes, the number of shares of Common
Stock specified above in this Section 9(a) as shall from time to time be necessary to effect the conversion of all of the Notes and
any Additional Notes then outstanding; provided, that at no time shall the number of shares of Common Stock so reserved be less
than the number of shares required to be reserved pursuant hereto (in each case, without regard to any limitations on conversions)
(the "Required Reserve Amount"). The initial number of shares of Common Stock reserved for conversions of this Note, the
Other Notes and the Additional Notes
25
and each increase in the number of shares so reserved shall be allocated pro rata among the Holder, the holders of the Other Notes
and the holders of any Additional Notes based on the Principal amount of this Note and the Other Notes held by each holder at the
Initial Closing (as defined in the Securities Purchase Agreement) or increase in the number of reserved shares, as the case may be
(the "Authorized Share Allocation"). In the event that a holder shall sell or otherwise transfer this Note, or a portion thereof, or
any of such holder's Other Notes or Additional Notes, each transferee shall be allocated a pro rata portion of such holder's
Authorized Share Allocation. Any shares of Common Stock reserved and allocated to the portion of the Note held by any Person
who ceases to hold any Notes shall be allocated to the portion of the Note held by the Holder and the remaining holders of Other
Notes and the Additional Notes, pro rata based on the then-outstanding Principal amount of this Note, the Other Notes and any
Additional Notes then held by such holders.
(b) Insufficient Authorized Shares. If at any time while any of the Notes remain outstanding the Company
does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to have reserved
for issuance upon conversion of the outstanding Notes at least a number of shares of Common Stock equal to the Required Reserve
Amount (an "Authorized Share Failure"), then the Company shall promptly take all action necessary to increase the Company's
authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the
Notes then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the
occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share
Failure, the Company shall either (x) obtain the written consent of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock and provide each stockholder with an information statement with respect thereto or (y) file
with the SEC a proxy statement for a meeting of its stockholders at which meeting the Company will seek the approval of its
stockholders for an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use commercially reasonable efforts to solicit its stockholders'
approval of such increase in authorized shares of Common Stock and to cause its Board of Directors to recommend to the
stockholders that they approve such proposal. Notwithstanding the foregoing, if during any such time of an Authorized Share
Failure, the Company is able to obtain the written consent of a majority of the shares of its issued and outstanding Common Stock
to approve the increase in the number of authorized shares of Common Stock, the Company may satisfy this obligation by
obtaining such consent and submitting for filing with the SEC an Information Statement on Schedule 14C. If, upon any conversion
of this Note, the Company does not have sufficient authorized shares to deliver in satisfaction of such conversion, then unless the
Holder elects to rescind such attempted conversion, the Holder may require the Company to pay to the Holder within three (3)
Trading Days of the applicable attempted conversion, cash in an amount equal to the product of (i) the number of shares of
Common Stock that the Company is unable to deliver pursuant to this Section 9, and (ii) the highest Closing Sale Price of the
Common Stock during the period beginning on the applicable Conversion Date and ending on the date the Company makes the
applicable cash payment.
(10) REDEMPTIONS.
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(a) Mechanics. The Company shall deliver the applicable Event of Default Redemption Price to the Holder
within three (3) Business Days after the Company's receipt of the Holder's Event of Default Redemption Notice (the "Event of
Default Redemption Date"). If the Holder has submitted a Change of Control Redemption Notice in accordance with Section 5(b),
the Company shall deliver the applicable Change of Control Redemption Price to the Holder (i) concurrently with the
consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and (ii)
within three (3) Business Days after the Company's receipt of such notice otherwise (such date, the "Change of Control
Redemption Date"). If the Company has delivered a Qualifying Early Redemption Notice to the Holders in accordance with
Section 5(c), the Company shall deliver the applicable Qualifying Early Redemption Price to the Holders concurrently with the
consummation of such Qualifying Change of Control (such date, the “Qualifying Early Redemption Date”). The Company shall
deliver the applicable Company Optional Redemption Price to the Holder on the applicable Company Optional Redemption Date.
The Company shall pay the applicable Redemption Price to the Holder on the applicable due date. In the event of a redemption of
less than all of the Conversion Amount of this Note and a surrender of this Note by the Holder, the Company shall promptly cause
to be issued and delivered to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal
which has not been redeemed and any accrued Interest on such Principal which shall be calculated as if no Redemption Notice has
been delivered. In the event that the Company does not pay the applicable Redemption Price to the Holder within the time period
required, at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option,
in lieu of redemption, to require the Company to promptly return to the Holder all or any portion of this Note representing the
Conversion Amount that was submitted for redemption and for which the applicable Redemption Price (together with any Late
Charges thereon) has not been paid. Upon the Company's receipt of such notice, (x) the applicable Redemption Notice shall be null
and void with respect to such Conversion Amount, (y) the Company shall immediately return this Note, or issue a new Note (in
accordance with Section 18(d)) to the Holder representing such Conversion Amount not redeemed and (z) the Conversion Price of
this Note or such new Note shall be adjusted to the Conversion Price as in effect on the date on which the applicable Redemption
Notice is voided. The Holder's delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice
shall not affect the Company's obligations to make any payments of Late Charges which have accrued prior to the date of such
notice with respect to the Conversion Amount subject to such notice.
(b) Redemption by Other Holders. Upon the Company's receipt of notice from any of the holders of the
Other Notes or any Additional Notes for redemption or repayment as a result of an event or occurrence substantially similar to the
events or occurrences described in Section 4(b) or Section 5(b) or pursuant to equivalent provisions set forth in the Other Notes or
any Additional Notes (each, an "Other Redemption Notice"), the Company shall promptly provide notice of such request. If the
Company receives a Redemption Notice and one or more Other Redemption Notices, during the seven (7) Business Day period
beginning on and including the date which is three (3) Business Days prior to the Company's receipt of the Holder's Redemption
Notice and ending on and including the date which is three (3) Business Days after the Company's receipt of the Holder's
Redemption Notice and the Company is unable to redeem all principal, interest and other amounts designated in such Redemption
Notice and such Other Redemption Notices received
27
during such seven (7) Business Day period, then the Company shall redeem a pro rata amount from the Holder and each holder of
the Other Notes and the Additional Notes (including the Holder) based on the outstanding Principal amount of this Note, the Other
Notes and any Additional Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption
Notices received by the Company during such seven (7) Business Day period.
(11) VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by
law and as expressly provided in this Note.
(12) SECURITY. This Note, the Other Notes and any Additional Notes are secured to the extent and in the manner
set forth in the Security Documents.
(13) RANK. All payments due under this Note (a) shall rank pari passu with all Other Notes, Additional Notes,
Rights Offering Notes, if any, Backstop Commitment Notes, if any, and Indebtedness described in clause (iii) of the definition of
Permitted Indebtedness, if any, and (b) shall be senior to all other Indebtedness of the Company and its Subsidiaries.
(14) NEGATIVE COVENANTS.
(a) Until all of the Notes and the Additional Notes have been converted, redeemed or otherwise satisfied in
accordance with their terms, the Company shall not, and the Company shall not permit any of its Subsidiaries without the prior
written consent of the Required Holders to, directly or indirectly:
Indebtedness; or
(i) incur or guarantee, assume or suffer to exist any Indebtedness, other than Permitted
(ii) allow or suffer to exist any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets (including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, "Liens") other than Permitted Liens.
(b) Solely in the event that the Company does not at the applicable time of determination satisfy the
Qualifying Conditions, the Company shall not, and the Company shall not permit any of its Subsidiaries without the prior written
consent of the Required Holders to, directly or indirectly:
(i) Redeem or repurchase any Equity Interests or other Junior Claims, or declare or pay any
dividend or other distributions of assets (or rights to acquire assets) to any or all holders of Equity Interests or other Junior Claims,
by way of return of capital or otherwise (including without limitation, any distribution of cash, stock or other securities, property,
Options, evidence of Indebtedness or any other assets by way of a dividend, spin off, reclassification, corporate rearrangement,
scheme of arrangement or other similar transaction) of the Company or any of its Subsidiaries (any of the foregoing, a "Restricted
Payment"), in each case other than:
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Indebtedness made by exchange for, or out of the proceeds of the substantially concurrent sale of, Refinancing Indebtedness;
(1) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of
(2) each Subsidiary may declare and make Restricted Payments to Persons that own Equity Interests
in such Subsidiary, ratably according to their respective holdings of the type of Equity Interest in respect of which such Restricted
Payment is being made;
distributions payable solely in Equity Interests of such Person;
(3) the Company and each Subsidiary may declare and make dividend payments or other
(4) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Equity
Interest of the Company or a Subsidiary made by exchange for or out of the proceeds of the substantially concurrent sale of Equity
Interests of the Company;
(5) a Restricted Payment to pay for the repurchase, retirement or other acquisition or retirement for
value of Equity Interests of the Company held by or on behalf of any future, present or former employee, director, manager or
consultant of the Company or any of its Subsidiaries (or permitted transferees, assigns, estates, trusts or heirs of such employee,
director, manager or consultant) either pursuant to any management equity plan or stock option plan or any other management or
employee benefit plan or agreement or upon the termination of such employee, director, manager or consultant's employment,
directorship or manager position; provided that the aggregate amount of Restricted Payments made under this clause (5) do not
exceed in any calendar year an amount equal to $1,000,000;
(6) purchases, repurchases, redemptions, defeasances or other acquisitions or retirements of Equity
Interests deemed to occur upon the exercise of stock options, warrants or other rights in respect thereof if such Equity Interests
represents a portion of the exercise price thereof; and
(7) additional Restricted Payments in an amount not to exceed $5,000,000 during any fiscal year or
$10,000,000 in the aggregate prior to the Maturity Date.
(15) AFFIRMATIVE COVENANTS.
(a) By no later than April 30, 2019, the Company shall have filed with the SEC one or more Annual
Reports on Form 10-K containing its audited financial statements for the fiscal years ended December 31, 2015, 2016 and 2017 in
accordance with the applicable requirements of the Exchange Act, the rules and regulations thereunder and the SEC's instructions
to Annual Reports on Form 10-K (the "Form 10-K").
(b) From and after the date the Company files the Form 10-K, on or before the date that the Company is
required to file any Quarterly Report on Form 10-Q or Annual Report on Form 10-K, the Company shall publicly disclose
Consolidated EBITDA with respect to the most recent completed financial period as to which such report relates.
29
aggregate amount equal to:
(c) The Company shall maintain on deposit cash and/or cash equivalents (as defined in GAAP) in an
(i) not less than $40,000,000 from and after the Initial Closing Date to and excluding the earlier to
occur of (x) the consummation of the Rights Offering (as defined in the Securities Purchase Agreement) and (y) the Maturity Date
(such earlier date, the “Cash Measuring Date”); provided, however, that, upon execution of the Qualifying Change of Control
Documentation, such amount shall be reduced on a dollar for dollar basis for each dollar of Cash Interest paid to the Holder and the
holders of the Other Notes and the Additional Notes from and after the execution of the Qualifying Change of Control
Documentation until the consummation of the applicable Qualifying Change of Control or the termination of the related Qualifying
Change of Control Documentation in accordance with its terms; provided, further, that in no event will such amount be reduced
pursuant to the immediately preceding proviso by more than $20,000,000; provided, further, that in the event that:
(x) such Qualifying Change of Control is consummated and the Holder does not receive the
payment in full of the applicable Qualifying Early Redemption Price within two (2) Business Days of consummation of such
Qualifying Change of Control, then on and after such consummation; or
(y) such Qualifying Change of Control is terminated in accordance with the terms of the related
Qualifying Change of Control Documentation (other than in a circumstance constituting a Superior Proposal Termination (as
defined below)), then on and after the shorter of (I) the ninetieth (90th) day after such termination and (II) the first date after such
termination when the Company consummates a financing that enables it to maintain on deposit cash and/or cash equivalents (as
defined in GAAP) in an aggregate amount equal to $40,000,000,
in each such case, such amount shall be restored to $40,000,000;
(ii) solely if the Cash Measuring Date is determined by clause (x) of such definition:
(1) not less than $75,000,000 from and after the Cash Measuring Date through and excluding
January 1, 2020; provided, however, that such amount shall be not less than $55,000,000 for the period, if any, from and after the
Cash Measuring Date to and excluding the earlier to occur of (a) the date the Company files the 2019 Q2 10-Q and (b) August 9,
2019; and
(2) not less than $50,000,000 from and after January 1, 2020 through and including the Maturity
Date.
or prior to the date that is five (5) Business Days following the Pricing Date.
(d) The Company shall deliver a Final Make-Whole Table (as defined in Section 31(oo)) to the Holder on
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(16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote of the Required Holders at
a meeting duly called for such purpose or the written consent without a meeting of the Required Holders shall be required for any
change or amendment or waiver of any provision to this Note, any of the Other Notes or any Additional Notes. Any change,
amendment or waiver by the Company and the Required Holders shall be binding on the Holder of this Note and all holders of the
Other Notes and the Additional Notes.
(17) TRANSFER. This Note and any shares of Common Stock issued upon conversion of this Note may be
offered, sold, assigned or transferred by the Holder without the consent of the Company, subject only to the provisions of Section
2(g) of the Securities Purchase Agreement.
(18) REISSUANCE OF THIS NOTE.
(a) Transfer. If this Note is to be transferred, the Holder shall surrender this Note to the Company,
whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section
18(d) and subject to Section 3(c)(iii)), registered as the Holder may request, representing the outstanding Principal being transferred
by the Holder and, if less than the entire outstanding Principal is being transferred, a new Note (in accordance with Section 18(d))
to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) following conversion or redemption of any portion of
this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note.
(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and
cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal.
(c) Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof
by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 18(d)) representing in
the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding
Principal as is designated by the Holder at the time of such surrender.
(d) Issuance of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of
this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the
Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 18(a) or Section 18(c), the Principal
designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such
issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date
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of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued and unpaid Interest and Late
Charges, if any, on the Principal and Interest of this Note, from the Issuance Date.
(19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and
any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive
relief), and nothing herein shall limit the Holder's right to pursue actual and consequential damages for any failure by the Company
to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, conversion, redemption
and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that
a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such breach, the Holder shall be entitled, in addition to
all other available remedies, to an injunction restraining such breach, without the necessity of showing economic loss and without
any bond or other security being required, to the fullest extent enforceable under applicable law.
(20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the
hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise
takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy,
reorganization, receivership of the Company or other proceedings affecting Company creditors' rights and involving a claim under
this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection
with such bankruptcy, reorganization, receivership or other proceeding, including, but not limited to, actual and reasonable
attorneys' fees and disbursements.
(21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the Company and all the
Buyers and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of
reference and shall not form part of, or affect the interpretation of, this Note.
(22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of
any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other right, power or privilege.
(23) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Closing Bid Price, the
Closing Sale Price or the Weighted Average Price or the arithmetic calculation of the Conversion Rate, the Conversion Price or any
Redemption Price, the Company shall submit the disputed determinations or arithmetic calculations within two (2) Business Days
of receipt, or deemed receipt, of the Conversion Notice or Redemption Notice or other event giving rise to such dispute, as the case
may be, to the Holder. If the Holder and the Company are unable
32
to agree upon such determination or calculation within three (3) Business Days of such disputed determination or arithmetic
calculation being submitted to the Holder, then the Company shall, within two (2) Business Days submit (a) the disputed
determination of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price to an independent, reputable
investment bank selected by the Holder and approved by the Company, such approval not to be unreasonably withheld, conditioned
or delayed, or (b) the disputed arithmetic calculation of the Conversion Rate, Conversion Price or any Redemption Price to an
independent, outside accountant, selected by the Holder and approved by the Company, such approval not to be unreasonably
withheld, conditioned or delayed. The Company, at the Company's expense, shall cause the investment bank or the accountant, as
the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than
ten (10) Business Days from the time it receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.
(24) NOTICES; PAYMENTS.
(a) Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein,
such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the foregoing, the Company shall give written notice to the
Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least ten (10) days prior to the date on which the Company closes its books or takes a
record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer
to holders of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or
liquidation, provided in each case that such information shall have been made known to the public prior to or in conjunction with
such notice being provided to the Holder.
(b) Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this
Note, such payment shall be made in lawful money of the United States of America via wire transfer of immediately available
funds to an account so designated by the Holder; provided, that the Holder, upon timely written notice to the Company, may elect to
receive a payment of cash by a check drawn on the account of the Company and sent via overnight courier service to such Person at
such address as previously provided to the Company in writing (which address, in the case of each of the Buyers, shall initially be
as set forth on the Schedule of Buyers attached to the Securities Purchase Agreement. Whenever any amount expressed to be due
by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day
which is a Business Day. Any amount of Principal or other amounts due under the Transaction Documents which is not paid when
due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the
rate of eighteen percent (18.0%) per annum from the date such amount was due until the same is paid in full ("Late Charge").
33
(25) CANCELLATION. After all Principal, any accrued Interest and any other amounts at any time owed on this
Note have been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.
(26) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives demand, notice, protest
and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note.
(27) GOVERNING LAW; JURISDICTION; JURY TRIAL. All questions concerning the construction, validity,
enforcement and interpretation of this Note shall be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein,
and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. The Company hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy thereof to the Company at the address set forth in
Section 9(f) of the Securities Purchase Agreement and agrees that such service shall constitute good and sufficient service of
process and notice thereof to the fullest extent enforceable under applicable law. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed or operate to
preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the
Company's obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment
or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION
CONTEMPLATED HEREBY.
(28) SEVERABILITY. If any provision of this Note is prohibited by law or otherwise determined to be invalid or
unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall
be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of
such provision shall not affect the validity of the remaining provisions of this Note so long as this Note as so modified continues to
express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature,
invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal
obligations of the Company or the Holder hereof or the practical realization of the benefits that would otherwise be conferred upon
the Company or the Holder hereof. The Company and the Holders will endeavor in good faith negotiations to replace the
34
prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of
the prohibited, invalid or unenforceable provision(s).
(29) DISCLOSURE. From and after the filing of the Form 10-K and provided that, at the applicable time of
determination, no individual affiliated with the Holder serving on the Board of Directors of the Company was appointed thereto,
including pursuant to Section 1(a) of the September Agreement, the Company will not provide to the Holder any information that
constitutes material non-public information of or relating to the Company or its Subsidiaries without the prior written consent of the
Holder. If and to the extent the Company does provide any such information, or the Holder otherwise comes into possession of
material non-public information relating to the Company or its Subsidiaries as a result of the receipt or delivery of any notice in
accordance with the terms hereof, the Company will comply with its obligations under Regulation FD under the Exchange Act. In
the absence of any disclosure by the Company pursuant thereto, the Holder shall be allowed to presume that all matters relating
thereto do not constitute material non-public information relating to the Company or its Subsidiaries.
(30) USURY. This Note is subject to the express condition that at no time shall the Company be obligated or
required to pay interest hereunder at a rate or in an amount which could subject the Holder to either civil or criminal liability as a
result of being in excess of the maximum interest rate or amount which the Company is permitted by applicable law to contract or
agree to pay. If by the terms of this Note, the Company is at any time required or obligated to pay interest hereunder at a rate or in
an amount in excess of such maximum rate or amount, the rate or amount of interest under this Note shall be deemed to be
immediately reduced to such maximum rate or amount and the interest payable shall be computed at such maximum rate or be in
such maximum amount and all prior interest payments in excess of such maximum rate or amount shall be applied and shall be
deemed to have been payments in reduction of the principal balance of this Note.
(31) CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings:
(a) "Acquired EBITDA" means with respect to any Acquired Entity or Business (any of the foregoing, a
"Pro Forma Entity") for any period, the amount for such period of Consolidated EBITDA of such Pro Forma Entity (determined as
if references to the Company and its Subsidiaries in the definition of the term "Consolidated EBITDA" were references to such Pro
Forma Entity and its Subsidiaries which will become Subsidiaries), all as determined on a consolidated basis for such Pro Forma
Entity.
(b) "Additional Closing Date" shall have the meaning set forth in the Securities Purchase Agreement.
any, issued by the Company pursuant to the Securities Purchase Agreement on an Additional Closing Date.
(c) "Additional Notes" means all Additional Notes (as defined in the Securities Purchase Agreement), if
35
(d) "Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls, is
controlled by, or is under common control with, such Person, it being understood for purposes of this definition that "control" of a
Person means the power directly or indirectly either to vote 10% or more of the stock having ordinary voting power for the election
of directors of such Person or direct or cause the direction of the management and policies of such Person whether by contract or
otherwise.
(e) "Attribution Parties" means, collectively, the following Persons: (i) any investment vehicle, including,
any funds, feeder funds or managed accounts, currently, or from time to time after the Issuance Date, directly or indirectly managed
or advised by the Holder's investment manager or any of its Affiliates or principals, (ii) any direct or indirect Affiliates of the
Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group together with the Holder or
any of the foregoing and (iv) any other Person whose beneficial ownership of the Company's Common Stock would or could be
aggregated with the Holder's and its Attribution Parties for purposes of Section 13(d) of the Exchange Act. For clarity, the purpose
of the foregoing is to subject collectively the Holder and its Attribution Parties to the Maximum Percentage.
(f) "Backstop Commitment Notes" any Notes issued in connection with the Buyer's backstop commitment
of the Rights Offering (as defined in the Securities Purchase Agreement) as contemplated in Section 1(e) of the Securities Purchase
Agreement.
(g) "Bloomberg" means Bloomberg Financial Markets.
The City of New York are authorized or required by law to remain closed.
(h) "Business Day" means any day other than Saturday, Sunday or other day on which commercial banks in
(i) "Buyer" shall have the meaning ascribed to such term in the Securities Purchase Agreement.
(j) "Calendar Quarter" means each of: the period beginning on and including January 1 and ending on and
including the next occurring March 31; the period beginning on and including April 1 and ending on and including the next
occurring June 30; the period beginning on and including July 1 and ending on and including the next occurring September 30; and
the period beginning on and including October 1 and ending on and including the next occurring December 31.
options, participations or other equivalents of or interests in (however designated) stock issued by that entity.
(k) "Capital Stock" means, for any entity, any and all shares, interests, rights to purchase, warrants,
(l) "Change of Control" means any Fundamental Transaction other than (i) any reorganization,
recapitalization or reclassification of the Common Stock in which holders of the Company's voting power immediately prior to
such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to
hold
36
publicly traded securities and, directly or indirectly, are, in all material respects, the holders of a majority of the voting power of the
surviving entity (or entities with the authority or voting power to elect the members of the Board of Directors (or their equivalent if
other than a corporation) of such entity or entities) after such reorganization, recapitalization or reclassification or (ii) pursuant to a
migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company.
(m) "Closing Bid Price" and "Closing Sale Price" means, for any security as of any date, the last closing
bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the
Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade
price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York
Time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such
security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price
or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the OTC Link or
"pink sheets" by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.). If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale
Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall
be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock
combination, reclassification or similar transaction occurring during the applicable calculation period.
(n) "Common Stock" means (i) shares of Common Stock, par value $0.001 per share of the Company, and
(ii) any share capital into which such Common Stock shall be changed or any share capital resulting from a reclassification of such
Common Stock.
(o) "Consolidated EBITDA" means, for any period, the Consolidated Net Income for such period plus:
(i) without duplication and to the extent already deducted (and not added back) in arriving at such
Consolidated Net Income (or, as applicable, to the extent not already included in Consolidated Net Income), the sum of the
following amounts for such period:
(1) total interest expense and, to the extent not reflected in such total interest expense, any losses on
swap obligations or other derivative instruments entered into for the purpose of hedging interest rate risk, net of interest income and
gains on such swap obligations or such derivative instruments, and bank and letter of credit fees and costs of surety bonds in
connection with financing activities,
37
franchise, excise and similar taxes paid or accrued during such period (including in respect of repatriated funds),
(2) provision for taxes based on income, profits or capital gains, including federal, foreign, state,
purchase accounting and amortization of deferred financing fees or costs),
(3) depreciation and amortization (including amortization of intangible assets established through
reserve for, potential cash charges in any future period),
(4) non-cash charges (excluding any non-cash charges which consists of or requires an accrual of, or
(5) extraordinary losses in accordance with GAAP,
(6) unusual or non-recurring charges (including litigation and investigation-related costs and
expenses, costs associated with tax projects/audits and professional, consulting or other fees) incurred in connection with the
Company's pending audit or any of the legal proceedings listed on Schedule 3(r) of the Securities Purchase Agreement,
after the Initial Closing),
(7) restructuring charges, accruals or reserves (including restructuring costs related to acquisitions
abandonments in the ordinary course of business),
(8) losses on asset sales, disposals or abandonments (other than asset sales, disposals or
(9) the amount of any net losses from discontinued operations in accordance with GAAP,
(10) any expenses, charges or losses that are covered by indemnification or other reimbursement
provisions in connection with any Investment, acquisition or any sale, conveyance, transfer or other disposition of assets, to the
extent actually reimbursed, or, so long as the Company has received notification from the applicable carrier that it intends to
indemnify or reimburse such expenses, charges or losses and that there exists reasonable evidence that such amount will in fact be
reimbursed by the insurer and only to the extent that such amount is (A) not denied by the applicable carrier in writing within 180
days and (B) in fact reimbursed within 365 days of the date of such evidence (with a deduction for any amount so added back to the
extent not so reimbursed within such 365 days), such expenses, charges or losses,
(11) to the extent covered by insurance and actually reimbursed, or, so long as the Company has
made a determination that there exists reasonable evidence that such amount will in fact be reimbursed by the insurer and only to
the extent that such amount is (A) not denied by the applicable carrier in writing within 180 days and (B) in fact reimbursed within
365 days of the date of such evidence (with a deduction for any amount so added back to the extent not so reimbursed within such
365 days), expenses, charges or losses with respect to liability or casualty event or business interruption,
38
Transaction Documents (including, without limitation, the Rights Offering);
(12) fees, costs and expenses incurred in connection with the transactions contemplated by the
(13) any fees and expenses incurred during such period, or any amortization thereof for such period,
in connection with any acquisition, investment, asset disposition, issuance or repayment of debt, issuance of equity securities,
refinancing transaction or amendment or other modification of any debt instrument (in each case, including any such transaction
consummated prior to the Initial Closing and any such transaction undertaken but not completed) and any charges or non-recurring
merger costs incurred during such period as a result of any such transaction,
less
as applicable, to the extent not already included in Consolidated Net Income), the sum of the following amounts for such period:
(ii) without duplication and to the extent included in arriving at such Consolidated Net Income (or,
(1) extraordinary gains in accordance with GAAP and unusual or non-recurring gains,
(2) non-cash gains,
abandonments in the ordinary course of business), and
(3) gains on asset sales, disposals or abandonments (other than asset sales, disposals or
(4) the amount of any net income from discontinued operations in accordance with GAAP,
accordance with GAAP, provided that, to the extent included in Consolidated Net Income,
in each case, as determined on a consolidated basis for the Company and its Subsidiaries in
(1) there shall be excluded in determining Consolidated EBITDA, without duplication, any net
unrealized gains and losses relating to mark-to-market of amounts denominated in foreign currencies resulting from the application
of FASB ASC 830;
(2) there shall be included in determining Consolidated EBITDA for any period, without
duplication, the Acquired EBITDA of any Person, property, business or asset acquired by the Company or any Subsidiary of the
Company during such period to the extent not subsequently sold, transferred or otherwise disposed of (but not including the
Acquired EBITDA of any related Person, property, business or assets to the extent not so acquired) (each such Person, property,
business or asset acquired, including pursuant to a transaction consummated prior to the Initial Closing, and not subsequently so
disposed of, an "Acquired Entity or Business"), in each case based on the Acquired EBITDA of such Pro Forma Entity for such
period (including the portion
39
thereof occurring prior to such acquisition or conversion) determined on a historical Pro Forma Basis;
(3) there shall be excluded in determining Consolidated EBITDA for any period the Disposed
EBITDA of any Person, property, business or asset sold, transferred or otherwise disposed of, closed or classified as discontinued
operations by the Company or any Subsidiary of the Company during such period (each such Person, property, business or asset so
sold, transferred or otherwise disposed of, closed or classified, a "Sold Entity or Business"), in each case based on the Disposed
EBITDA of such Sold Entity or Business for such period (including the portion thereof occurring prior to such sale, transfer,
disposition, closure, classification or conversion) determined on a historical Pro Forma Basis; and
effect of a change in accounting principles during such period to the extent included in Consolidated Net Income.
(4) there shall be excluded in determining Consolidated EBITDA for any period the cumulative
Subsidiaries for such period determined on a consolidated basis in accordance with GAAP.
(p) "Consolidated Net Income" means, for any period, the net income (loss) of the Company and its
(q) "Contingent Obligation" means, as to any Person, any direct or indirect liability, contingent or
otherwise, of that Person with respect to any Indebtedness, lease, dividend or other obligation of another Person if the primary
purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss with respect thereto.
(r) "Conversion Premium" means the quotient obtained by dividing (x) the Conversion Price in effect as
of the applicable date of determination, by (y) the arithmetic average of the ten (10) Weighted Average Prices of the Common
Stock on each Trading Day during the ten (10) consecutive Trading Days immediately preceding the applicable date of
determination. All such determinations to be appropriately adjusted for any stock split, stock dividend, stock combination,
reclassification or other similar transaction during such period.
convertible into or exercisable or exchangeable for shares of Common Stock.
(s) "Convertible Securities" means any stock or securities (other than Options) directly or indirectly
(t) "Disposed EBITDA" means with respect to any Sold Entity or Business for any period, the amount
for such period of Consolidated EBITDA of such Sold Entity or Business (determined as if references to the Company and its
Subsidiaries in the definition of the term "Consolidated EBITDA" (and in the component financial definitions used therein) were
references to such Sold Entity or Business and its Subsidiaries), all as determined on a consolidated basis for such Sold Entity or
Business.
40
(u) "Eligible Market" means the Principal Market, The New York Stock Exchange, the Nasdaq Capital
Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the NYSE American, the OTC QX, the OTC QB or the OTC
Pink.
(v) "Equity Conditions" means each of the following conditions: (i) either (x) one or more Registration
Statements covering all of the Interest Shares to be issued on the applicable Interest Date or the shares of Common Stock issuable
upon conversion of the Conversion Amount that is subject to the applicable Company Optional Redemption, as applicable, shall be
effective and available for the resale of such shares, in accordance with the terms of the Registration Rights Agreement or (y) all
Interest Shares issuable on the applicable Interest Date or the shares of Common Stock issuable upon conversion of the Conversion
Amount that is subject to the applicable Company Optional Redemption, as applicable, requiring the satisfaction of the Equity
Conditions, shall be eligible for sale without restriction or limitation pursuant to Rule 144 and without the need for registration
under any applicable federal or state securities laws; (ii) the Company shall have no knowledge of any fact that would cause (x) the
applicable Registration Statements required pursuant to the Registration Rights Agreement not to be effective and available for the
resale of the Interest Shares issuable on the applicable Interest Date or the shares of Common Stock issuable upon conversion of the
Conversion Amount that is subject to the applicable Company Optional Redemption, as applicable, requiring the satisfaction of the
Equity Conditions, in accordance with the terms of the Registration Rights Agreement or (y) the Interest Shares issuable on the
applicable Interest Date or the shares of Common Stock issuable upon conversion of the Conversion Amount that is subject to the
applicable Company Optional Redemption, as applicable, requiring the satisfaction of the Equity Conditions, not being eligible for
sale without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) (or
any successor thereto) promulgated under the Securities Act and any applicable state securities laws; (iii) the Interest Shares
issuable on the applicable Interest Date requiring the satisfaction of the Equity Conditions may be issued in full without violating
Section 3(d) hereof; (iv) the Interest Shares issuable on the applicable Interest Date or the shares of Common Stock issuable upon
conversion of the Conversion Amount that is subject to the applicable Company Optional Redemption, as applicable, requiring the
satisfaction of the Equity Conditions may be issued in full without violating the rules or regulations of the Principal Market; (v) the
Common Stock is designated for quotation on the Principal Market and shall not have been suspended from trading on such
exchange or market; and (vi) if the event requiring satisfaction of the Equity Conditions is a Company Optional Redemption, an
Event of Default Redemption or a Change of Control Redemption, from and after the applicable Company Optional Redemption
Notice, Event of Default Notice or Change of Control Notice, as applicable, the Company shall have delivered shares of Common
Stock pursuant to the terms of this Note to the Holder on a timely basis as set forth in Section 3(c) hereof.
applicable date of determination, the Equity Conditions have not each been satisfied (or waived in writing by the Holder).
(w) "Equity Conditions Failure" means that on the applicable date of determination through the
or preferred capital stock), equity interests, beneficial,
(x) "Equity Interests" means (a) all shares of capital stock (whether denominated as common capital stock
41
partnership or membership interests, joint venture interests, participations or other ownership or profit interests in or equivalents
(regardless of how designated) of or in a Person (other than an individual), whether voting or non-voting and (b) all securities
convertible into or exchangeable for any of the foregoing and all warrants, Options or other rights to purchase, subscribe for or
otherwise acquire any of the foregoing, whether or not presently convertible, exchangeable or exercisable.
(y) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(z) "Ex-Dividend Date" means the first date on which shares of the Common Stock trade on the applicable
Eligible Market, regular way, without the right to receive the issuance, dividend or distribution in question, from the Company or, if
applicable, from the seller of Common Stock on such Eligible Market (in the form of due bills or otherwise) as determined by such
Eligible Market.
(aa) "Fundamental Transaction" means (A) that the Company shall, directly or indirectly, including
through Subsidiaries, Affiliates or otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether or
not the Company is the surviving corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company and its "significant subsidiaries" (as defined in Rule 1-02 of
Regulation S-X), taken as a whole, to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make, or
allow the Company to be subject to or have its Common Stock be subject to or party to one or more Subject Entities making, a
purchase, tender or exchange offer that is accepted by the holders of greater than either (x) 50% of the outstanding shares of
Common Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all
Subject Entities making or party to, or Affiliated with any Subject Entities making or party to, such purchase, tender or exchange
offer were not outstanding; or (z) such number of shares of Common Stock such that all Subject Entities making or party to, or
Affiliated with any Subject Entity making or party to, such purchase, tender or exchange offer, become collectively the beneficial
owners (as defined in Rule 13d-3 under the Exchange Act) of greater than 50% of the outstanding shares of Common Stock, or (iv)
consummate a share purchase agreement or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with one or more Subject Entities whereby such Subject Entities, individually
or in the aggregate, acquire, either (x) greater than 50% of the outstanding shares of Common Stock, (y) greater than 50% of the
outstanding shares of Common Stock calculated as if any shares of Common Stock held by all the Subject Entities making or party
to, or Affiliated with any Subject Entity making or party to, such stock purchase agreement or other business combination were not
outstanding; or (z) such number of shares of Common Stock such that the Subject Entities become collectively the beneficial
owners (as defined in Rule 13d-3 under the Exchange Act) of greater than 50% of the outstanding shares of Common Stock, or (v)
reorganize, recapitalize or reclassify its Common Stock, (B) that the Company shall, directly or indirectly, including through
Subsidiaries, Affiliates or otherwise, in one or more related transactions allow any Subject Entity individually or the Subject
Entities in the aggregate to be or become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, whether through
42
acquisition, purchase, assignment, conveyance, tender, tender offer, exchange, reduction in outstanding shares of Common Stock,
merger, consolidation, business combination, reorganization, recapitalization, spin-off, scheme of arrangement, reorganization,
recapitalization or reclassification or otherwise in any manner whatsoever, of either (x) greater than 50% of the aggregate ordinary
voting power represented by issued and outstanding Common Stock, (y) greater than 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock not held by all such Subject Entities as of the Subscription Date calculated
as if any shares of Common Stock held by all such Subject Entities were not outstanding, or (z) a percentage of the aggregate
ordinary voting power represented by issued and outstanding shares of Common Stock or other equity securities of the Company
sufficient to allow such Subject Entities to effect a statutory short form merger or other transaction requiring other stockholders of
the Company to surrender their shares of Common Stock without approval of the stockholders of the Company or (C) directly or
indirectly, including through Subsidiaries, Affiliates or otherwise, in one or more related transactions, the issuance of or the
entering into any other instrument or transaction structured in a manner to circumvent, or that circumvents, the intent of this
definition in which case this definition shall be construed and implemented in a manner otherwise than in strict conformity with the
terms of this definition to the extent necessary to correct this definition or any portion of this definition which may be defective or
inconsistent with the intended treatment of such instrument or transaction.
effect on the Subscription Date.
(bb) "GAAP" means United States generally accepted accounting principles, consistently applied, as in
(cc) "Grace Period" shall have the meaning ascribed to such term in the Registration Rights Agreement.
(dd) "Group" means a "group" as that term is used in Section 13(d) of the Exchange Act and as defined in
Rule 13d-5 thereunder.
(ee) "Indebtedness" of any Person means, without duplication (i) all indebtedness for borrowed money, (ii)
all obligations issued, undertaken or assumed as the deferred purchase price of property or services, including (without limitation)
"capital leases" in accordance with GAAP (other than trade payables entered into in the ordinary course of business), (iii) all
reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all
obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of
such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are
limited to repossession or sale of such property), (vi) all monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, consistently applied for the periods covered thereby, is classified as a capital lease, (vii) all indebtedness
referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, deed of trust, lien, pledge, charge, security interest or other encumbrance
of any nature whatsoever in or upon any property or assets (including accounts and contract rights) with respect to any asset
43
or property owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, (with the amount of such indebtedness, in the case where the Person has not assumed or become
liable for the payment of such indebtedness) equal to the lesser of (x) the outstanding principal amount of such indebtedness and (y)
the fair market value of the assets securing such indebtedness) and (viii) all Contingent Obligations in respect of indebtedness of
others of the kinds referred to in clauses (i) through (vii) above.
(ff) "Initial Closing Date" shall have the meaning set forth in the Securities Purchase Agreement.
(gg) "Interest Conversion Price" means as of any Interest Date, that price which shall be the arithmetic
average of the Weighted Average Prices of the Common Stock on each Trading Day during the ten (10) consecutive Trading Days
immediately preceding the applicable Interest Date. All such determinations to be appropriately adjusted for any stock split, stock
dividend, stock combination, reclassification or other similar transaction occurring during such period.
(hh) "Interest Notice Due Date" means the fifteenth (15th) Trading Day prior to the applicable Interest
Date.
(ii) "Interest Reset Date" means each of (i) January 30, 2019, (ii) January 30, 2020, (iii) February 1, 2021
(each of the foregoing (i) through (iii), an "Anniversary Interest Reset Date") and (iv) any applicable Event of Default
Redemption Notice Date.
(jj) "Interest Rate" means:
If the Conversion Premium (as of
January 30, 2018 for the second column
and as of the applicable Interest Reset
Date for the third column) is:
1.0 or less
1.05
1.10
1.15
1.20
1.25
1.30
1.35
1.40
1.45 or higher
Then the Interest Rate (which shall be
determined on January 30, 2018) from
the Initial Issuance Date through the
first Interest Reset Date shall be:
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
8.0%
10.0%
12.0%
And the Interest Rate from the
applicable Interest Reset Date until the
next subsequent Interest Reset Date
shall be:
4.0%
4.3%
4.7%
5.0%
5.3%
5.7%
6.0%
8.0%
10.0%
12.0%
44
If the Conversion Premium is between two Conversion Premium amounts in the table above, the Interest Rate will be determined
by straight-line interpolation between the Interest Rates set forth for the higher and lower Conversion Premium amounts.
Upon a 10-K Filing Failure (as defined below), any applicable Interest Rate then in effect shall automatically be increased by an
additional 200 bps (e.g. from 4.7% to 6.7%). Such increased Interest Rate shall continue in effect until the next Anniversary
Interest Reset Date. Upon the next Anniversary Interest Reset Date, the Interest Rate will adjust according to table above; provided
that if the Company has not effected the 10-K Filing Remedy (as defined below) by such date, then the reset Interest Rate will be
further increased by 200 bps and will continue in effect until the next Anniversary Interest Reset Date, at which time this
mechanism will be repeated. For the avoidance of doubt, on any Anniversary Interest Reset Date where there is no 10-K Filing
Failure and where any applicable 10-K Filing Remedy has been effected, the reset Interest Rate will be determined according to the
table above without adding 200 bps. For purposes hereof, (i) the "10-K Filing Failure" means that the Company fails on or prior to
each April 30 while this Note is outstanding to have filed the Form 10-K and any subsequent required periodic or current reports
required to be filed by the Company prior to each such date under the Exchange Act (including audited financial statements for the
fiscal years ended prior to each such date) and (ii) a "10-K Filing Remedy" means the Company shall have filed with the SEC the
Form 10-K and all subsequent required periodic and current reports required to be filed under the Exchange Act be filed by the
Company prior to such date and there shall not exist any Event of Default.
In the event the Interest Rate shall be increased pursuant to Section 4(q) of the Securities Purchase Agreement, each applicable
Interest Rate amount set forth in the table above shall be adjusted by the same amount as the Interest Rate is adjusted as mutually
agreed upon by the Company and the Holder. Such further Interest Rate adjustments will then be according to the table as
increased.
(kk) "Junior Claims" means any Indebtedness or securities of the Company or any of its Subsidiaries of
any class junior in rank to the Notes and the Additional Notes in respect of the preferences as to distributions and payments upon a
Liquidation Event, including, without limitation, any Equity Securities of the Company or any of its Subsidiaries.
(ll) "Lead Investor" means Starboard Value and Opportunity Master Fund Ltd.
(mm) "Liquidation Event" means the voluntary or involuntary liquidation, dissolution or winding up of
the Company or such Subsidiaries the assets of which constitute all or substantially all of the assets of the business of the Company
and its Subsidiaries taken as a whole, in a single transaction or series of transactions, or adoption of any plan for the same.
(nn) "Make-Whole Change of Control" means any Change of Control in which more than ten percent
(10%) of the consideration received or to be received by the holders of Common Stock (excluding cash payments for fractional
shares or pursuant to dissenters rights), in connection with such transaction or event, consists of cash.
45
(oo) "Make-Whole Change of Control Premium" means a cash amount per $1,000 principal amount of
Notes being redeemed in a Make-Whole Change of Control determined by multiplying the applicable Make-Whole Stock Price (as
adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction occurring after the
Subscription Date) by the amount set forth in a table to be mutually agreed upon by the Company and the Holder which table shall
be determined based on the assumptions and methodology set forth on Schedule 31(oo) attached hereto and shall be in the format
set forth below and shall be deemed an integral part of this Note for all purposes hereof (the "Final Make-Whole Table"), with
such amount corresponding to the date of the Make-Whole Change of Control occurring after the date in the first column but prior
to the date, if any, on the immediately following row of the first column of the tables set forth in Schedule 31(oo) attached hereto or
in the Final Make-Whole Table:
Make-Whole Stock Price
$20.00
$25.00
$28.50
$30.00
$35.00
$37.05
$40.00
$45.00
$50.00
$55.00
Change of
Control
Redemption
Date
January
2018
January
2019
January
2020
January
2021
January
2022
5,
7,
7,
7,
5,
The exact Make-Whole Stock Price and Change of Control Redemption Date may not be set forth in Schedule 31(oo) attached
hereto or in the Final Make-Whole Table, in which case, if the Make-Whole Stock Price is between two such amounts in the Final
Make-Whole Table or the Change of Control Redemption Date is between two Change of Control Redemption Dates in the Final
Make-Whole Table, the applicable value will be determined by straight-line interpolation between the applicable value set forth for
the higher and lower Make-Whole Stock Prices and the earlier and later Change of Control Redemption Dates, as applicable, based
on a 365-day year.
In the event the Interest Rate and/or Conversion Price shall be adjusted pursuant to Section 4(q) of the Securities Purchase
Agreement, each Make-Whole Stock Price set forth in the Final Make-Whole Table shall be adjusted to reflect such adjustment(s)
as mutually agreed upon by the Company and the Holder based on the same assumptions and methodology used to determine the
Final Make-Whole Table, after which such adjusted Final Make-Whole Table shall be deemed an integral part of this Note for all
purposes hereof.
46
(pp) "Make-Whole Stock Price" means, for any Make-Whole Change of Control: (A) if the holders of
Common Stock receive only cash in consideration for their shares of Common Stock in such Make-Whole Change of Control, the
amount of cash paid per share of Common Stock in such Make-Whole Change of Control; and (B) in all other cases, the arithmetic
average of the Closing Sale Prices for the five (5) consecutive Trading Days ending on, and including, the Trading Day
immediately before the effective date of such Make-Whole Change of Control (all such determinations to be appropriately adjusted
for any stock split, stock dividend, stock combination, reclassification or other similar transaction during such period).
(qq) "Maximum Percentage" means, initially, 4.99%, which may be increased or decreased in accordance
with the provisions of Section 3(d); provided, however, that upon receipt by the Holder of a Company Optional Redemption
Notice, then unless the Holder elects a lower Maximum Percentage in accordance with the provisions of Section 3(d), the
Maximum Percentage shall immediately and automatically, without any further action by the Holder, be set at 9.99%.
or Convertible Securities.
(rr) "Options" means any rights, warrants or options to subscribe for or purchase shares of Common Stock
(ss) "Parent Entity" of a Person means an entity that, directly or indirectly, controls the applicable Person,
including such entity whose common capital stock or equivalent equity security is quoted or listed on an Eligible Market (or, if so
elected by the Required Holders, any other market, exchange or quotation system), or, if there is more than one such Person or such
entity, the Person or entity designated by the Required Holders or in the absence of such designation, such Person or entity with the
largest public market capitalization as of the date of consummation of the Fundamental Transaction.
(tt) "Permitted Indebtedness" means (i) Indebtedness evidenced by this Note, the Other Notes, the
Additional Notes, the Rights Offering Notes, if any, and Backstop Commitment Notes, if any, (ii) unsecured Indebtedness incurred
by the Company that is made expressly subordinate in right of payment to the Indebtedness evidenced by this Note, as reflected in a
written agreement acceptable to the Required Holders and approved by the Required Holders in writing, and which Indebtedness
does not provide at any time for (a) the payment, prepayment, repayment, repurchase or defeasance, directly or indirectly, of any
principal or premium, if any, thereon until ninety-one (91) days after the Maturity Date or later and (b) total interest and fees at a
rate in excess of 12.00% per annum, (iii) Indebtedness in an aggregate outstanding principal amount not to exceed $50,000,000
incurred under a revolving credit facility; (iv) Indebtedness with respect to capital leases in an aggregate principal amount not to
exceed $40,000,000, (v) Indebtedness secured by Permitted Liens described in clauses (iv) of the definition of Permitted Liens, (vi)
existing Indebtedness described on Schedule 31(tt) attached hereto as in effect on the Subscription Date, and any refinancings and
extensions thereof, provided that (A) the principal amount plus unpaid accrued interest and premium thereon and applicable
discounts, fees, commissions and expenses thereunder shall not be increased, (B) the maturity thereof is not earlier than ninety
(90) days after the Maturity Date, (C) if the Indebtedness being refinanced or extended is subordinated in right of payment to this
Note, the Other Notes and the Additional Notes or any
47
guarantees thereof, such refinanced or extended Indebtedness shall be subordinated in right of payment to this Note, the Other
Notes, any Additional Notes and any guarantees thereof on terms at least as favorable to the Holder as those contained in the
documentation governing the Indebtedness being refinanced or extended, (D) no refinanced or extended Indebtedness shall have
different obligors, or greater guarantees or security than, the Indebtedness being refinanced or extended and (E) if the Indebtedness
being refinanced or extended is secured by any Collateral, such refinanced or extended Indebtedness may be secured by such
Collateral on terms relating to such Collateral not materially less favorable to this Note, the Other Notes and any Additional Notes
than those contained in the documentation (including any intercreditor agreement) governing the Indebtedness being refinanced or
extended, (any such Indebtedness, "Refinancing Indebtedness"), (vii) intercompany Indebtedness among the Company and any
Subsidiaries, (viii) Indebtedness arising under swap or interest rate contracts entered into in the ordinary course of business, (ix)
Contingent Obligations in respect of Indebtedness otherwise permitted hereunder, (x) direct or Contingent Obligations arising
under surety bonds, letters of credit and similar instruments (including any related indemnity agreement) entered into in the
ordinary course of business and consistent with past practice, (xi) Indebtedness in respect of cash management agreements entered
into in the ordinary course of business, (xii) Indebtedness of foreign Subsidiaries not exceeding $10,000,000 in the aggregate at any
time outstanding, (xiii) Indebtedness under corporate credit cards in an aggregate outstanding principal amount not to exceed
$3,000,000, (xiv) Indebtedness of Persons acquired in an acquisition, provided that (x) such Indebtedness existed prior to such
acquisition and was not incurred in anticipation of such acquisition and (b) after giving effect to such acquisition, the Total Net
Leverage Ratio is equal to or less than immediately prior to such acquisition and (xv) additional Indebtedness in an aggregate
principal amount not to exceed $5,000,000.
(uu) "Permitted Liens" means (i) any Lien for taxes not yet due or delinquent or being contested in good
faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory
Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet more than sixty (60)
days overdue or delinquent, (iii) any Lien created by operation of law, such as materialmen's liens, mechanics' liens and other
similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being
contested in good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment acquired or held by the Company or
any of its Subsidiaries to secure the purchase price of such equipment or Indebtedness incurred solely for the purpose of financing
the acquisition or lease of such equipment, or (B) existing on such equipment at the time of its acquisition, provided that the Lien is
confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment, (v) Liens incurred in
connection with the extension, renewal or refinancing of the Indebtedness secured by Liens of the type described in clause (iv)
above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien
and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase, (vi) leases or subleases and
licenses and sublicenses granted to others in the ordinary course of the Company's business, not interfering in any material respect
with the business of the Company and its Subsidiaries taken as a whole, (vii) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payments of custom duties in connection with the importation of goods, (viii) Liens arising from
judgments,
48
decrees or attachments in circumstances not constituting an Event of Default under Section 4(a)(ix); (ix) Liens securing Permitted
Indebtedness described in clause (iv) of the definition of Permitted Indebtedness, (x) Liens securing existing Indebtedness
described on Schedule 31(tt) attached hereto as in effect on the Subscription Date, and Liens securing any refinancings and
extensions thereof provided that any collateral securing such refinancings or extensions is not broader than the collateral that is
subject to the Liens being refinanced or extended, (xi) pledges or deposits in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other social security legislation, (xii) deposits to secure performance of bids,
trade contracts and leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature
in the ordinary course of business, (xiii) normal and customary rights of setoff upon deposits of cash in favor of banks or other
depository institutions, (xiv) Liens deemed to exist in connection with investments in repurchase agreements in the ordinary course
of business, (xv) Liens arising on any real property as a result of eminent domain, condemnation or similar proceeding with respect
to such real property, (xvi) Liens on any cash deposits in connection with any letter of intent or purchase agreement relating to an
acquisition, (xvii) customary rights of first refusal, "tag-along" and "drag-along" rights with respect to any equity interests in any
joint venture, (xviii) Liens on assets of foreign Subsidiaries securing obligations of foreign Subsidiaries not exceeding $10,000,000
in the aggregate at any time outstanding, (xix) Liens arising under the Transaction Documents, (xx) additional Liens securing
obligations not exceeding $5,000,000 in the aggregate at any time outstanding, and (xxi) Liens securing Permitted Indebtedness
described in clause (iii) of the definition of Permitted Indebtedness, provided that such Liens are subject to an intercreditor
agreement in form and substance reasonably satisfactory to the Required Holders.
corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.
(vv) "Person" means an individual, a limited liability company, a partnership, a joint venture, a
(ww) "Post-Acquisition Period" shall mean, with respect to any Specified Transaction, the period
beginning on the date such Specified Transaction is consummated and ending on the last day of the 18th month immediately
following the date on which such Specified Transaction is consummated.
market for the Common Stock, then the principal Eligible Market on which the Common Stock is then traded.
(xx) "Principal Market" means the OTC Markets, or, if the OTC Markets is not the principal trading
(yy) "Pro Forma Basis," "Pro Forma Compliance" and "Pro Forma Effect" means, with respect to
compliance with any test or covenant hereunder, that all Specified Transactions and the following transactions in connection
therewith shall be deemed to have occurred as of the first day of the applicable period of measurement in such test or covenant: (a)
income statement items (whether positive or negative) attributable to the property or Person subject to such Specified Transaction,
(i) in the case of a sale, transfer or other disposition of all or substantially all equity interests in any Subsidiary of the Company or
any division, product line, or facility used for operations of the Company or any of its Subsidiaries, shall be excluded, and (ii) in the
case of a permitted acquisition or investment described in the definition of the term "Specified
49
Transaction," shall be included, (b) any retirement or repayment of Indebtedness and (c) any Indebtedness incurred or assumed by
the Company or any of its Subsidiaries in connection therewith and if such Indebtedness has a floating or formula rate, shall have
an implied rate of interest for the applicable period for purposes of this definition determined by utilizing the rate that is or would
be in effect with respect to such Indebtedness as at the relevant date of determination.
(zz) "Public Announcement Date" means (i) the Trading Day on which the Company first publicly
announces on or prior to 9:30 a.m. New York time certain historical metrics agreed to in writing by the Company and the Lead
Investor, including, among other metrics, the number of shares of Common Stock outstanding as of December 31, 2017, in
connection with the Initial Closing Date (the "Public Announcement") or (ii) in case the Company makes the Public
Announcement after 9:30 a.m. New York time, the first (1st) Trading Day immediately following the Public Announcement.
Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the NYSE American.
([[) "Qualified Market" means the Principal Market, The New York Stock Exchange, the Nasdaq Capital
Control Documentation.
(aaa) “Qualifying Change of Control” means a Change of Control pursuant to Qualifying Change of
(bbb) “Qualifying Change of Control Documentation” means definitive documentation (as the same may
be amended in accordance with its terms) providing for a Change of Control transaction, which documentation is initially entered
into no later than August 5, 2020; provided that if such documentation is terminated in accordance with its terms and in connection
with such termination the Company enters into definitive documentation providing for a different Change of Control transaction (a
“Superior Proposal Termination”), such subsequent documentation shall be deemed to constitute Qualifying Change of Control
Documentation.
(ccc) "Qualifying Conditions" means that both at the time of and immediately after the applicable
proposed action or omission to take any action, by the Company or any of its Subsidiary, each of the following conditions are
satisfied (or waived in writing by the Holder): (x) no Equity Conditions Failure has occurred, (ii) the Total Net Leverage Ratio is
less than or equal to 3:1 and (iii) the Form 10-K has been filed with the SEC.
(ddd) "Redemption Dates" means, collectively, the Event of Default Redemption Dates, the Change of
Control Redemption Dates, the Company Optional Redemption Dates and the Qualifying Early Redemption Date, each of the
foregoing, individually, a Redemption Date.
(eee) "Redemption Notices" means, collectively, the Event of Default Redemption Notices, the Change of
Control Redemption Notices, the Company Optional Redemption Notices and the Qualifying Early Redemption Notice, each of the
foregoing, individually, a Redemption Notice.
50
(fff) "Redemption Premium" means (i) in the event of an Event of Default set forth in Section 4(a)(iii) and
any Event of Default occurring at a time the Common Stock is not listed on a Qualified Market, 110% and (ii) in all other events,
100%.
(ggg) "Redemption Prices" means, collectively, the Event of Default Redemption Prices, the Change of
Control Redemption Prices, the Company Optional Redemption Prices and the Qualifying Early Redemption Price, each of the
foregoing, individually, a Redemption Price.
Agreement.
(hhh) "Registrable Securities" shall have the meaning ascribed to such term in the Registration Rights
(iii) "Registration Rights Agreement" means that certain registration rights agreement dated as of the
Subscription Date by and among the Company and the Buyers relating to, among other things, the registration for resale of the
shares of Common Stock issuable upon conversion of this Note, the Other Notes and any Additional Notes and upon any exercise
of the Warrants.
Agreement.
(jjj) "Registration Statement" shall have the meaning ascribed to such term in the Registration Rights
Affiliate of such Person.
(kkk) "Related Fund" means, with respect to any Person, a fund or account managed by such Person or an
the aggregate principal amount of the Notes and Additional Notes then outstanding.
(lll) "Required Holders" means the holders of Notes of Additional Notes representing at least a majority of
Agreement.
(mmm) "Rights Offering Notes" shall have the meaning ascribed to such term in the Securities Purchase
(nnn) "SEC" means the United States Securities and Exchange Commission.
(ooo) "Securities Act" means the Securities Act of 1933, as amended.
(ppp) "Securities Purchase Agreement" means that certain securities purchase agreement dated as of the
Subscription Date by and among the Company and the Buyers of the Notes pursuant to which the Company issued the Notes, the
Additional Notes and Warrants.
among the Company, Starboard Value LP and the other parties signatory thereto.
(qqq) "September Agreement" means that certain Agreement, dated as of September 28, 2017 by and
disposition of assets or property, incurrence or repayment of
(rrr) "Specified Transaction" means, with respect to any period, any investment, sale, transfer or other
51
indebtedness, restricted payment, or other event that by the terms hereof requires such test or covenant to be calculated on a "Pro
Forma Basis" or to be given "Pro Forma Effect."
Person, Persons or Group.
(sss) "Subject Entity" means any Person, Persons or Group or any Affiliate or associate of any such
(ttt) "Subscription Date" means January 16, 2018.
(uuu) "Subsidiary" shall have the meaning set forth in the Securities Purchase Agreement.
(vvv) "Successor Entity" means one or more Person or Persons (or, if so elected by the Required Holders,
the Company or Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or one or more Person or
Persons (or, if so elected by the Required Holders, the Company or the Parent Entity) with which such Fundamental Transaction
shall have been entered into.
(www) "Total Debt" shall mean, on any date of determination, the total Indebtedness of the Company and
its Subsidiaries at such time (excluding Indebtedness of the type described in clause (iii) of the definition of such term, except to
the extent of any unreimbursed drawings thereunder).
and cash equivalents (as defined in GAAP).
(xxx) "Total Net Debt" shall mean, on any date of determination, (a) Total Debt minus (b) unrestricted cash
(yyy) "Total Net Leverage Ratio" shall mean on any date of determination, the ratio of Total Net Debt on
such date to Consolidated EBITDA for the period of four consecutive fiscal quarters most recently ended on or prior to such date.
Each calculation of the Total Net Leverage Ratio hereunder shall be made on a Pro Forma Basis.
(zzz) "Trading Day" means any day on which the Common Stock is traded on the Principal Market, or, if
the Principal Market is not the principal trading market for the Common Stock on such day, then on the principal securities
exchange or securities market on which the Common Stock is then traded; provided that "Trading Day" shall not include any day
on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common
Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does
not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New
York Time).
([[[) "Transaction Documents" shall have the meaning set forth in the Securities Purchase Agreement.
include all warrants issued in exchange therefor or replacement thereof.
(aaaa) "Warrants" has the meaning ascribed to such term in the Securities Purchase Agreement, and shall
52
(bbbb) "Weighted Average Price" means, for any security as of any date, the dollar volume-weighted
average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York Time (or such other
time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or
such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg through its
"Volume at Price" functions, or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York
Time (or such other time as such market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York
Time (or such other time as such market publicly announces is the official close of trading) as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest Closing
Bid Price and the lowest closing ask price of any of the market makers for such security as reported in the OTC Link or "pink
sheets" by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.). If the Weighted Average Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the
fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon
the fair market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction occurring
during the applicable calculation period.
[Signature Page Follows]
53
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance Date set out
above.
comScore, Inc.
By:
Name:
Title:
Schedule 31(tt)
Permitted Indebtedness
comScore Inc:
Banc of America Leasing and Capital
Master Lease Agreement dated December 12, 2006
Lease Schedule #24 (3/31/15) - #27 (12/31/15)
$2,720,000
Dell Financial Services
Master Lease Agreement dated August 3, 2012
Lease Schedule #9 (2/1/15) – Lease Schedule #19 (1/1/17)
$5,320,000
Bank of America, N.A
Letters of Credit (Office Lease Security Deposit)
$3,475,000
comScore BV:
Dell Financial Services
European Master Lease Agreement dated July 23, 2012
Lease Schedule #3 (8/1/15)
$155,000
Schedule 31(oo)
Make-Whole Change of Control Premium
Example 1:
Example 2:
EXHIBIT I
COMSCORE, INC.
CONVERSION NOTICE
Reference is made to the Senior Secured Convertible Note (the "Note") issued to the undersigned by comScore, Inc., a Delaware
corporation (the "Company"). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the
Conversion Amount (as defined in the Note) below into shares of Common Stock, par value $0.001 per share (the "Common
Stock"), of the Company, as of the date specified below.
Date of Conversion:
Aggregate Conversion Amount to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock to be issued:
Please issue the Common Stock into which the Note is being converted in the following name and to the following address:
Issue to:
Facsimile Number and Electronic
Mail:
Authorization:
By:
Title:
Dated:
Account Number:
(if electronic book entry transfer)
Transaction Code Number:
(if electronic book entry transfer)
The Company hereby acknowledges this Conversion Notice and hereby directs American Stock Transfer & Trust
Company to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions
dated January __, 2018 from the Company and acknowledged and agreed to by American Stock Transfer & Trust Company.
ACKNOWLEDGMENT
comScore, Inc.
By:
Name:
Title:
Exhibit 4.2
[FORM OF SENIOR SECURED CONVERTIBLE NOTE]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL SELECTED BY THE HOLDER, IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT, OR (II)
UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF
THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND
18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE
SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNT SET FORTH ON
THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.
COMSCORE, INC.
SENIOR SECURED CONVERTIBLE NOTE
Issuance Date: May 17, 2018 Original Principal Amount: U.S. $[●]
(Reflects the amendments dated May 17, 2018, August 8, 2018, November 13, 2018 and November 6, 2019)
FOR VALUE RECEIVED, comScore, Inc., a Delaware corporation (the "Company"), hereby promises to pay to
[BUYER] or registered assigns (the "Holder") in cash and/or in shares of Common Stock (as defined below) the amount set out
above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise,
the "Principal") when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case
in accordance with the terms hereof) and to pay interest ("Interest") on any outstanding Principal at the applicable Interest Rate
from the date set out above as the Issuance Date (the "Issuance Date") until the same becomes due and payable, whether upon an
Interest Date (as defined below), the Maturity Date, acceleration, conversion, redemption or otherwise (in each case in accordance
with the terms hereof). This Senior Secured Convertible Note (including all Senior Secured Convertible Notes issued in exchange,
transfer or replacement hereof, this "Note") is one of an issue of Senior Secured Convertible Notes issued pursuant to the Securities
Purchase Agreement on the Additional Closing Date (collectively, the "Notes" and such other Senior Secured Convertible Notes,
the "Other Notes"). Certain capitalized terms used herein are defined in Section 31.
(1)
PAYMENTS OF PRINCIPAL; PREPAYMENT. On the Maturity Date, the Company shall pay to the
Holder an amount in cash representing all outstanding Principal, any accrued and unpaid Interest and any accrued and unpaid Late
Charges (as defined in Section 24(b)) on such Principal and Interest. The "Maturity Date" shall be January 16, 2022, as may be
extended at the option of the Holder (i) in the event that, and for so long as, an Event of Default (as defined in Section 4(a)) shall
have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) or any event shall have
occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) that with the passage of time and
the failure to cure would result in an Event of Default and (ii) through the date that is ten (10) Business Days after the
consummation of a Change of Control in the event that a Change of Control is publicly announced or a Change of Control Notice
(as defined in Section 5(b)) is delivered prior to the Maturity Date. Other than as specifically permitted by this Note, the Company
may not prepay any portion of the outstanding Principal, accrued and unpaid Interest or accrued and unpaid Late Charges on
Principal and Interest, if any.
(2) INTEREST.
(a) Interest on this Note shall commence accruing on the Issuance Date at the Interest Rate and shall be
computed on the basis of a 360-day year and twelve 30-day months and shall be payable in arrears for each Calendar Quarter on the
first (1st) Business Day of each Calendar Quarter after the Issuance Date (each, an "Interest Date").
(b) Interest shall be payable on each Interest Date, to the record holder of this Note on the applicable
Interest Date, in whole or in part, in shares of Common Stock ("Interest Shares") so long as there is no Equity Conditions Failure
(other than as a result of the delivery of an Interest Blocker Notice (as defined below)) occurring on the applicable Interest Date;
provided, however, that the Company may, at its option following written notice to each holder of the Notes and any Additional
Notes on or prior to the applicable Interest Notice Due Date (the date such notice is delivered to the Holder and holders of Other
Notes and Additional Notes, the "Interest Notice Date"), elect to pay Interest on any Interest Date in cash ("Cash Interest") or in a
combination of Cash Interest and Interest Shares. Each Interest Election Notice shall specify the amount or percentage of Interest
that the Company will pay in respect of the Interest Date as Cash Interest and Interest Shares which amounts or percentages, as
applicable, when added together, must equal the applicable Interest (or 100% thereof, as applicable) due on such Interest Date. If
the Company elects (or is deemed to have elected by operation of this Section 2) the payment of applicable Interest in Interest
Shares, in whole or in part, and an Equity Conditions Failure (other than the delivery to the Company of an Interest Blocker Notice)
occurs at any time prior to the applicable Interest Date that is expected to last through the applicable Interest Date (which is not
waived in writing by the Holder), the Company shall provide the Holder a written notice to that effect by no later than the Trading
Day immediately following the Company having knowledge of such Equity Conditions Failure, indicating that unless the Holder
waives the Equity Conditions Failure in writing, the applicable portion of Interest as to which the Holder did not waive the Equity
Conditions shall be paid as Cash Interest. If any portion of Interest for a particular Interest Date shall be paid in Interest Shares,
then on the applicable Interest Date, the Company shall issue to the Holder, such number of shares of Common Stock equal to (a)
the amount of Interest payable on the applicable Interest Date in Interest
2
Shares divided by (b) the Interest Conversion Price as in effect on the applicable Interest Date. All Interest Shares shall be fully
paid and nonassessable shares of Common Stock (rounded to the nearest whole share in accordance with Section 3(a)). Except as
expressly provided in this Section 2, the Company shall pay the applicable Interest in the same ratio of Interest Shares and Cash
Interest on the Notes, the Other Notes and any Additional Notes. The Company shall pay any and all taxes that may be payable
with respect to the issuance and delivery to the Holder of shares of Common Stock as Interest pursuant to this Section 2; provided,
however, that the Holder shall be solely responsible for any transfer taxes if the Interest Shares are to be registered, issued or
delivered in the name of a Person other than the Holder.
(c) Notwithstanding the foregoing, if (i) the Company elects (or is deemed to have elected by operation of
this Section 2) to pay all or any portion of Interest due on any Interest Date in Interest Shares, (ii) the Company is permitted
pursuant to this Section 2 to pay all or any portion of Interest due on such Interest Date in Interest Shares if not for the delivery to
the Company of an Interest Blocker Notice and (iii) within two (2) Business Days following the applicable Interest Notice Date the
Holder has delivered to the Company a written notice (an "Interest Blocker Notice") (A) stating that such payment of Interest in
Interest Shares would result in a violation of Section 3(d), (B) specifying the portion of the applicable Interest with respect to which
the payment in Interest Shares would result in a violation of Section 3(d) if such payment of Interest in Interest Shares were
effected (such amount so specified is referred to herein as the "Designated Interest Amount") and (C) requesting the Company
hold the Designated Interest Amount issuable to the Holder in abeyance for the Holder until such time or times as its right thereto
would not result in the Holder and its other Attribution Parties exceeding the Maximum Percentage, at which time or times the
Company shall promptly upon written notice from the Holder deliver such Interest Shares to the extent as if there had been no such
limitation. Any Interest Shares held in abeyance pursuant to the provisions of this Section 2(c) shall satisfy the Company's
requirement to pay the applicable Interest corresponding to the number of Interest Shares so held in abeyance until the Company
receives a notice from the Holder instructing the Company that the Maximum Percentage no longer prevents the Holder from
receiving such Interest Shares.
(d) Prior to the payment of Interest on an Interest Date, Interest on this Note shall accrue at the Interest Rate
and be payable by way of inclusion of the Interest in the Conversion Amount (as defined in Section 3(b)(i)) on each Conversion
Date (as defined in Section 3(c)(i)) in accordance with Section 3(b)(i) and/or on each Redemption Date.
(3) CONVERSION OF NOTES. At any time or times after the first (1st) Trading Day following the Pricing Date
(as defined in Section 3(b)(ii)) (the "Initial Convertibility Date"), this Note shall be convertible into shares of Common Stock, on
the terms and conditions set forth in this Section 3.
(a) Conversion Right. Subject to the provisions of Section 3(d), at any time or times on or after the Initial
Convertibility Date, the Holder shall be entitled to convert all or any portion of the outstanding and unpaid Conversion Amount
into fully paid and nonassessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined
below). The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the
3
issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share
of Common Stock to the nearest whole share. The Company shall pay any and all transfer, stamp and similar taxes that may be
payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount; provided,
however, that the Holder shall be solely responsible for any transfer taxes if the shares of Common Stock registrable, issuable or
deliverable pursuant to a Conversion Notice are to be registered, issued or delivered in the name of a Person other than the Holder.
(b) Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion
Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the
"Conversion Rate").
(i) "Conversion Amount" means the sum of (A) the portion of the Principal to be converted,
redeemed or otherwise with respect to which this determination is being made, (B) accrued and unpaid Interest with respect to such
Principal and (C) accrued and unpaid Late Charges, if any, with respect to such Principal and Interest.
(ii) "Conversion Price" means, as of any Conversion Date or other date of determination, a price
per share equal to the greater of: (A) 130% of the arithmetic average of the Weighted Average Price of the Common Stock on each
Trading Day during the ten (10) consecutive Trading Days commencing on the later of (x) the Initial Closing Date and (y) the
Public Announcement Date (the last date in such period, the "Pricing Date") (all such determinations to be appropriately adjusted
for any stock split, stock dividend, stock combination, reclassification or other similar transaction occurring during such period)
and (B) $28.00, subject to adjustment as provided herein.
(c) Mechanics of Conversion.
(i) Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any
date on or after the Initial Convertibility Date (a "Conversion Date"), the Holder shall (A) deliver to the Company on such date, a
copy of an executed notice of conversion substantially in the form attached hereto as Exhibit I (the "Conversion Notice") and (B)
if required by Section 3(c)(iii), but without delaying the Company's requirement to deliver shares of Common Stock on the
applicable Share Delivery Date (as defined below), surrender this Note to a common carrier for delivery to the Company as soon as
practicable on or following such date (or an indemnification undertaking with respect to this Note in the case of its loss, theft or
destruction). No ink- original Conversion Notice shall be required, nor shall any medallion guarantee (or other type of guarantee or
notarization) of any Conversion Notice be required. On or before the first (1st) Business Day following the date of receipt of a
Conversion Notice, the Company shall transmit a confirmation of receipt of such Conversion Notice to the Holder and the
Company's transfer agent (the "Transfer Agent"). On or before the second (2nd) Trading Day following the date of receipt of a
Conversion Notice (a "Share Delivery Date"), the Company shall, (x) if the Transfer Agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to
which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal At
Custodian system or (y) if the Transfer Agent is not participating in the DTC
4
Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be
entitled. If this Note is physically surrendered for conversion as required by Section 3(c)(iii) and the outstanding Principal of this
Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as
practicable and in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to
the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal not converted. The Person or
Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on the Conversion Date, irrespective of the date such shares of
Common Stock are credited to the Holder's account with DTC or the date of delivery of the certificates evidencing such shares of
Common Stock, as the case may be.
(ii) Company's Failure to Timely Convert. If the Company shall fail on or prior to the applicable
Share Delivery Date to issue and deliver a certificate to the Holder (if the Transfer Agent is not participating in the DTC Fast
Automated Securities Transfer Program), or credit the Holder's balance account with DTC (if the Transfer Agent is participating in
the DTC Fast Automated Securities Transfer Program), for the number of shares of Common Stock to which the Holder is entitled
upon the Holder's conversion of any Conversion Amount (a "Conversion Failure"), then the Holder, upon written notice to the
Company, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, any portion of this Note
that has not been converted pursuant to such Conversion Notice; provided that the voiding of a Conversion Notice shall not affect
the Company's obligations to make any payments which may have accrued prior to the date of such notice pursuant to this Section
3(c)(ii) or otherwise. In addition to the foregoing, if the Company shall fail on or prior to the applicable Share Delivery Date to
issue and deliver a certificate to the Holder, if the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, or credit the Holder's balance account with DTC, if the Transfer Agent is participating in the DTC Fast
Automated Securities Transfer Program, for the number of shares of Common Stock to which the Holder is entitled upon the
Holder's conversion of any Conversion Amount or on any date of the Company's obligation to deliver shares of Common Stock as
contemplated pursuant to clause (y) below, and if after such Trading Day the Holder purchases (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of Common Stock issuable upon such conversion that
the Holder anticipated receiving from the Company (a "Buy-In"), then the Company shall, within three (3) Trading Days after the
Holder's request and in the Holder's discretion, either (x) pay cash to the Holder in an amount equal to the Holder's total purchase
price (including brokerage commissions) for the shares of Common Stock so purchased (the "Buy-In Price"), at which point the
Company's obligation to issue and deliver such certificate or certificates or credit the Holder's balance account with DTC for the
shares of Common Stock to which the Holder is otherwise entitled upon the Holder's conversion of the applicable Conversion
Amount shall terminate, or (y) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such
shares of Common Stock or credit the Holder's balance account with DTC for such shares of Common Stock and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common
Stock, times (B) the Closing Sale Price of the Common Stock
5
on the applicable Conversion Date. Nothing herein shall limit the Holder's right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to
the Company's failure to timely deliver shares of Common Stock upon conversion of this Note as required pursuant to the terms
hereof.
(iii) Registration; Book-Entry. The Company shall maintain a register (the "Register") for the
recordation of the names and addresses of the holders of each Note and the Principal amount of the Notes (and stated interest
thereon) held by such holders (the "Registered Notes"). The entries in the Register shall be conclusive and binding for all purposes
absent manifest error. The Company and the holders of the Notes shall treat each Person whose name is recorded in the Register as
the owner of a Note for all purposes, including, without limitation, the right to receive payments of Principal and Interest, if any,
hereunder, notwithstanding notice to the contrary. A Registered Note may be assigned or sold in whole or in part only by
registration of such assignment or sale on the Register. Upon its receipt of a request to assign or sell all or part of any Registered
Note by the Holder, in form and substance reasonably satisfactory to the Company, the Company shall record the information
contained therein in the Register and issue one or more new Registered Notes in the same aggregate Principal amount as the
Principal amount of the surrendered Registered Note to the designated assignee or transferee pursuant to Section 17. The Company
shall be entitled to act and rely upon any such request without inquiry as to the genuineness thereof, and without liability of any
type or nature arising therefrom. Notwithstanding anything to the contrary in this Section 3(c)(iii), the Holder may assign the Note
or any portion thereof to an Affiliate of such Holder or a Related Fund of such Holder without delivering a request to assign or sell
such Note to the Company and the recordation of such assignment or sale in the Register (a "Related Party Assignment");
provided, that (x) the Company may continue to deal solely with such assigning or selling Holder unless and until such Holder has
delivered a request, in form and substance reasonably satisfactory to the Company, to assign or sell such Note or portion thereof to
the Company for recordation in the Register; and (y) such assigning or selling Holder shall, acting solely for this purpose as a non-
fiduciary agent of the Company, maintain a register (the "Related Party Register") comparable to the Register on behalf of the
Company, and any such assignment or sale shall be effective upon recordation of such assignment or sale in the Related Party
Register. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with
the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion
Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which
notice may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note. The
Holder and the Company shall maintain records showing the Principal, Interest and Late Charges, if any, converted and the dates of
such conversions or shall use such other methods, reasonably satisfactory to the Holder and the Company, so as not to require
physical surrender of this Note upon conversion except as provided above.
(iv) Pro Rata Conversion; Disputes. In the event that the Company receives a Conversion Notice
relating to this Note and one or more holders of Other Notes or Additional Notes for the same Conversion Date and the Company
can convert some, but not all, of such portions of this Note, the Other Notes and the Additional Notes submitted for conversion, the
Company, subject to Section 3(d), shall convert from the Holder and each holder of Other Notes
6
and Additional Notes electing to have this Note, the Other Notes or Additional Notes converted on such date a pro rata amount of
such holder's portion of the Note, its Other Notes and/or Additional Notes submitted for conversion based on the Principal amount
of this Note, the Other Notes and/or Additional Notes submitted for conversion on such date by such holder relative to the
aggregate Principal amount of this Note and all Other Notes and Additional Notes submitted for conversion on such date. In the
event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Note,
the Company shall issue to the Holder the number of shares of Common Stock not in dispute and such dispute shall be resolved in
accordance with Section 23.
(d) Beneficial Ownership Limitation. The Company shall not deliver any shares of Common Stock
pursuant to the terms and conditions of this Note, and the Holder shall not have the right to any shares otherwise issuable or
otherwise deliverable pursuant to the terms and conditions of this Note and any such delivery shall be null and void and treated as if
never made, to the extent that, immediately after giving effect to such issuance, the Holder together with its other Attribution
Parties collectively would beneficially own in excess of the Maximum Percentage of the number of shares of Common Stock
outstanding. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by the
Holder and its other Attribution Parties shall include the number of shares of Common Stock beneficially owned by the Holder and
all of its other Attribution Parties plus the number of shares of Common Stock issuable pursuant to the terms of this Note with
respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (i) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any
of its other Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any convertible notes or convertible preferred stock or warrants, including any
Additional Notes and Warrants) beneficially owned by the Holder or any of its other Attribution Parties subject to a limitation on
conversion or exercise analogous to the limitation contained in this Section 3(d). For purposes of this Section 3(d), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. For purposes of determining the number of
outstanding shares of Common Stock the Holder may acquire pursuant to the terms of this Note without exceeding the Maximum
Percentage, the Holder, absent other knowledge, may rely on the number of outstanding shares of Common Stock as reflected in (i)
the Company's most recent Annual Report on Form 10- K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other
public filing with the SEC, as the case may be, (ii) a more recent public announcement by the Company or (iii) any other written
notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding (the "Reported
Outstanding Share Number"). If the Company receives a Conversion Notice from the Holder at a time when the actual number of
outstanding shares of Common Stock is less than the Reported Outstanding Share Number, the Company shall notify the Holder in
writing of the number of shares of Common Stock then outstanding and, to the extent that such Conversion Notice would otherwise
cause the Holder's beneficial ownership, as determined pursuant to this Section 3(d), to exceed the Maximum Percentage, the
Holder shall, within one (1) Business Day thereafter, notify the Company of a reduced number of shares of Common Stock to be
purchased pursuant to such Conversion Notice. The number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the
7
Company, including this Note, by the Holder and any other Attribution Party since the date as of which the Reported Outstanding
Share Number was reported. In the event that the issuance of shares of Common Stock to the Holder upon conversion of this Note
would result in the Holder and its other Attribution Parties being deemed to beneficially own, in the aggregate, more than the
Maximum Percentage of the number of outstanding shares of Common Stock, the number of shares by which the Holder's and its
other Attribution Parties' aggregate beneficial ownership would exceed the Maximum Percentage (the "Excess Shares") shall be
deemed null and void and any portion of the Conversion Amount so converted shall be reinstated, and the Holder shall not have the
power to vote or to transfer the Excess Shares. Upon delivery of a written notice to the Company, the Holder may from time to time
increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% as specified in such notice; provided
that (i) any such increase in the Maximum Percentage will not be effective until the sixty-first (61st) day after such notice is
delivered to the Company and (ii) any such increase or decrease will apply only to the Holder and its other Attribution Parties and
not to any other holder of Notes that is not an Attribution Party of the Holder. The provisions of this paragraph shall be construed
and implemented in a manner otherwise than in strict conformity with the terms of this Section 3(d) to the extent necessary to
correct this paragraph (or any portion of this paragraph) which may be defective or inconsistent with the intended beneficial
ownership limitation contained in this Section 3(d) or to make changes or supplements necessary or desirable to properly give
effect to such limitation. The limitation contained in this paragraph may not be waived and shall apply to a successor holder of this
Note.
(4) RIGHTS UPON EVENT OF DEFAULT.
(a) Event of Default. Each of the following events shall constitute an "Event of Default":
(i) the failure of the applicable Registration Statement required to be filed pursuant to the
Registration Rights Agreement to be filed or declared effective within the applicable time periods specified in the Registration
Rights Agreement, or, at any time while the applicable Registration Statement is required to be maintained effective pursuant to the
terms of the Registration Rights Agreement, the effectiveness of the applicable Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) and such lapse continues for a period of greater than ten (10)
consecutive Trading Days or for more than an aggregate of twenty (20) Trading Days in any 365-day period or such Registration
Statement is unavailable to any holder of the Notes for sale of all of such holder's Registrable Securities in accordance with the
terms of the Registration Rights Agreement (unless such unavailability is during an Allowable Grace Period (as defined in the
Registration Rights Agreement));
(ii) (A) the suspension of the Common Stock from trading on an Eligible Market, or, on or after
April 30, 2019, on a Qualified Market, for a period of more than five (5) consecutive Trading Days or for more than an aggregate of
ten (10) Trading Days in any 365-day period or (B) the failure of the Common Stock to be listed or quoted for trading on an
Eligible Market;
a Qualified Market;
(iii) the failure of the Common Stock to be listed or quoted for trading on or after April 30, 2019, on
8
(iv) the Company's delivery of written notice to the Holder or any holder of the Other Notes or any
Additional Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to comply
with a valid request for conversion of this Note, any Other Notes or any Additional Notes into shares of Common Stock that is
validly tendered in accordance with the provisions of this Note, the Other Notes or any Additional Notes, as applicable, other than
pursuant to Section 3(d) (and analogous provisions under the Other Notes and any Additional Notes);
(v) the Company's failure to pay to the Holder any amount of Principal, Interest, Late Charges or
other amounts when and as due under this Note (including, without limitation, the Company's failure to pay any redemption
amounts hereunder) or any other Transaction Document or any other agreement, document, certificate or other instrument delivered
in connection with the transactions contemplated hereby and thereby to which the Holder is a party, except, in the case of a failure
to pay any amounts other than Principal when and as due, in which case only if such failure continues for a period of at least an
aggregate of two (2) Business Days;
(vi) any default under any Indebtedness in an aggregate principal amount of more than $10,000,000
of the Company and/or any of its Subsidiaries other than with respect to this Note, any Other Notes or any Additional Notes, the
effect of which default is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such
holder or holders) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be
repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such
Indebtedness to be made, prior to its stated maturity;
(vii) the Company or any of its domestic Subsidiaries, pursuant to or within the meaning of Title 11,
U.S. Code, or any similar Federal, foreign or state law for the relief of debtors (collectively, "Bankruptcy Law"), (A) commences
a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of
a receiver, trustee, assignee, liquidator or similar official (a "Custodian"), (D) makes a general assignment for the benefit of its
creditors or (E) admits in writing that it is generally unable to pay its debts as they become due;
(viii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A)
is for relief against the Company or any of its domestic Subsidiaries in an involuntary case, (B) appoints a Custodian of the
Company or any of its domestic Subsidiaries or (C) orders the liquidation of the Company or any of its domestic Subsidiaries, and,
in each case, continues undismissed or unstayed for sixty (60) days;
(ix) one or more judgments, orders or awards for the payment of money aggregating (above any
insurance coverage or indemnity from a credit worthy party so long as such insurance provider has been notified of the claim and
does not dispute coverage) in excess of $10,000,000 are rendered against the Company or any of its Subsidiaries and which
judgments, orders or awards are not, within sixty (60) days after the entry thereof, bonded, discharged or stayed pending appeal, or
are not discharged within sixty (60) days after the expiration of such stay;
9
(x) other than as specifically set forth in another clause of this Section 4(a), the Company or any of
its Subsidiaries breaches any covenant in any Transaction Document, and such breach, if curable, continues for a period of at least
an aggregate of thirty (30) calendar days after the earlier of (A) an authorized officer of the Company or such Subsidiary becoming
aware of such failure and (B) receipt by an authorized officer of the Company or such Subsidiary of a notice from the Holder of
such breach;
(xi) any representation, warranty, certification or statement of fact made or deemed made by the
Company or any Subsidiary herein, or in any other Transaction Document, shall be incorrect or misleading in any material respect
when made or deemed made;
(xii) any breach or failure in any respect to comply with Sections 14 or 15 of this Note;
(xiii) any material provision of any Security Document (as defined in the Securities Purchase
Agreement) shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or
enforceable against the Company or any Subsidiary party thereto, or ceases to give the Collateral Agent the Liens purported to be
created thereby or the validity or enforceability thereof shall be contested by the Company or any Subsidiary, or a proceeding shall
be commenced by the Company or any Subsidiary or any governmental authority having jurisdiction over any of them, seeking to
establish the invalidity or unenforceability thereof, or the Company or any Subsidiary shall deny in writing that it has any liability
or obligation purported to be created under any Security Document;
(xiv) any material damage to, or loss, theft or destruction of, any Collateral or a material amount of
property of the Company, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God or
public enemy, or other casualty which causes, for more than fifteen (15) consecutive days, the cessation or substantial curtailment
of revenue producing activities at any facility of the Company or any Subsidiary, if any such event or circumstance could
reasonably be expected to have a Material Adverse Effect (as defined in the Securities Purchase Agreement);
(xv) a false or inaccurate certification (including a false or inaccurate deemed certification) by the
Company that the Equity Conditions are satisfied or that there has been no Equity Conditions Failure or as to whether any Event of
Default has occurred (in each case other than any Equity Conditions Failure arising solely as a result of the delivery to the
Company of an Interest Blocker Notice);
(xvi) the Company's failure to file with the SEC any periodic or current reports due after the filing
with the SEC of the Form 10-K (as defined in Section 15(b)) in accordance with the Company's requirements under the Exchange
Act but only if such failure continues for a period of at least one (1) year;
(xvii) any Event of Default (as defined in the Other Notes) occurs with respect to any Other Notes;
or
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Additional Notes.
(xviii) any Event of Default (as defined in the Additional Notes) occurs with respect to any
(b) Redemption Right. Upon the occurrence of an Event of Default with respect to this Note or any Other
Note, the Company shall promptly deliver written notice thereof (an "Event of Default Notice") to the Holder. At any time after
the earlier of the Holder's receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder
may require the Company to redeem (an "Event of Default Redemption") all, but not less than all, of this Note by delivering
written notice thereof (the "Event of Default Redemption Notice" and the date the Holder delivers an Event of Default
Redemption Notice to the Company, an "Event of Default Redemption Notice Date") to the Company, which Event of Default
Redemption Notice shall indicate that the Holder is electing to require the Company to redeem this Note. To the extent this Note is
subject to redemption by the Company pursuant to this Section 4(b), this Note shall be redeemed by the Company in cash at a price
equal to the greater of (i) the product of (x) the Redemption Premium and (y) the Conversion Amount being redeemed and (ii)
solely if there is an Equity Conditions Failure (that is not waived in writing by the Holder) during the period from the applicable
Event of Default Redemption Notice Date through and including the applicable Event of Default Redemption Date (as defined in
Section 10(a)), the product of (x) the Conversion Rate with respect to the Conversion Amount being redeemed and (y) the quotient
determined by dividing (I) the greatest Closing Sale Price of the shares of Common Stock during the period beginning on the date
immediately preceding such Event of Default and ending on the date the Holder delivers the Event of Default Redemption Notice,
by (II) the lowest Conversion Price in effect during such period(the "Event of Default Redemption Price"). Redemptions required
by this Section 4(b) shall be made in accordance with the provisions of Section 10. To the extent redemptions required by this
Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 4, but subject
to Section 3(d), until the Event of Default Redemption Price (together with any interest thereon) is paid in full, the Conversion
Amount submitted for redemption under this Section 4(b) (together with any interest thereon) may be converted, in whole or in
part, by the Holder into Common Stock pursuant to Section 3. Any such converted Conversion Amount shall reduce the Event of
Default Redemption payment by an equivalent amount. The parties hereto agree that in the event of the Company's redemption of
this Note under this Section 4(b), the Holder's damages would be uncertain and difficult to estimate because of the parties' inability
to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any Event of Default redemption premium due under this Section 4(b) is intended by the parties to be, and shall be
deemed, a reasonable estimate of the Holder's actual loss of its investment opportunity and not as a penalty.
(5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
(a) Assumption and Corporate Events. Upon the consummation of any Fundamental Transaction, the
Company shall cause any Successor Entity or Successor Entities to jointly and severally succeed to, and be added to the term
"Company" under this Note (so that from and after the consummation of such Fundamental Transaction, each and every provision
of this
11
Note referring to the "Company" shall refer instead to each of the Company and the Successor Entity or Successor Entities, jointly
and severally), and the Successor Entity or Successor Entities, jointly and severally with the Company, may exercise every right
and power of the Company prior thereto and the Successor Entity or Successor Entities shall assume all of the obligations of the
Company prior thereto under this Note with the same effect as if the Company and such Successor Entity or Successor Entities,
jointly and severally, had been named as the Company in this Note. In addition to and not in substitution for any other rights
hereunder, prior to the occurrence or consummation of any Fundamental Transaction pursuant to which holders of shares of
Common Stock become entitled to receive securities, cash, assets or other property with respect to or in exchange for shares of
Common Stock (a "Corporate Event"), the Company shall provide that it shall be a required condition to the occurrence or
consummation of such Corporate Event that the Holder will have the right to receive upon conversion of this Note at any time after
the occurrence or consummation of the Corporate Event, shares of Common Stock or capital stock of a Successor Entity or, if so
elected by the Holder, in lieu of the shares of Common Stock (or other securities, cash, assets or other property) purchasable upon
the conversion of this Note prior to such Corporate Event, such shares of stock, securities, cash, assets or any other property
whatsoever (including warrants or other purchase or subscription rights and any shares of Common Stock) which the Holder would
have been entitled to receive upon the occurrence or consummation of such Corporate Event or the record, eligibility or other
determination date for the event resulting in such Corporate Event, had this Note been converted immediately prior to such
Corporate Event or the record, eligibility or other determination date for the event resulting in such Corporate Event (without
regard to any limitations on conversion of this Note). The provisions of this Section 5(a) shall apply similarly and equally to
successive Fundamental Transactions and Corporate Events.
(b) Redemption Right. As soon as practicable following the public announcement of the consummation of a
Change of Control, the Company shall deliver written notice thereof to the Holder (a "Change of Control Notice"). At any time
during the period beginning on the earlier to occur of (x) the Holder becoming aware of the consummation of a Change of Control
and (y) the Holder's receipt of a Change of Control Notice and ending thirty five (35) Trading Days after the date of the
consummation of such Change of Control, the Holder may require the Company to redeem (a "Change of Control Redemption")
all or any portion of this Note by delivering written notice thereof ("Change of Control Redemption Notice" and the date the
Holder delivers a Change of Control Redemption Notice to the Company, a "Change of Control Redemption Notice Date") to the
Company, which Change of Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to require the
Company to redeem. The portion of this Note subject to redemption pursuant to this Section 5(b) shall be redeemed by the
Company in cash at a price equal to the sum of (i) the greater of (x) 110% of the Conversion Amount being redeemed and (y) solely
if (a) the applicable Change of Control is a Make-Whole Change of Control or (b) there is an Equity Conditions Failure (that is not
waived in writing by the Holder) during the period from the applicable Change of Control Redemption Notice Date through and
including the applicable Change of Control Redemption Date (as defined in Section 10(a)), the product of (I) the Conversion
Amount being redeemed and (II) the quotient determined by dividing (A) the greatest Closing Sale Price of the shares of Common
Stock during the period beginning on the date immediately preceding the earlier to occur of (1) the consummation of the Change of
Control and (2) the public announcement of such Change of Control and ending on the date the
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Holder delivers the Change of Control Redemption Notice, by (B) the lowest Conversion Price in effect during such period, and (ii)
if the applicable Change of Control is a Make-Whole Change of Control, the Make-Whole Change of Control Premium (the
"Change of Control Redemption Price"). Redemptions required by this Section 5 shall be made in accordance with the provisions
of Section 10 and shall have priority to payments to stockholders in connection with a Change of Control. To the extent
redemptions required by this Section 5(b) are deemed or determined by a court of competent jurisdiction to be prepayments of the
Note by the Company, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in
this Section 5, but subject to Section 3(d), until the Change of Control Redemption Price (together with any interest thereon) is paid
in full, the Conversion Amount submitted for redemption under this Section 5(b) (together with any interest thereon) may be
converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3. Any such converted Conversion Amount
shall reduce the Conversion Amount submitted for redemption under this Section 5(b) by an equivalent amount. The parties hereto
agree that in the event of the Company's redemption of any portion of the Note under this Section 5(b), the Holder's damages would
be uncertain and difficult to estimate because of the parties' inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holder. Accordingly, any Change of Control redemption
premium due under this Section 5(b) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder's
actual loss of its investment opportunity and not as a penalty.
(c) Qualifying Change of Control Redemption Right. Notwithstanding any Holder’s right to require a
Change of Control Redemption, delivery of any Change of Control Redemption Notice or anything else to the contrary in the
Notes, contemporaneously with, or within three (3) Business Days subsequent to, the consummation of a Qualifying Change of
Control, the Company may redeem this Note in full in cash at a price equal to the sum of (i) the aggregate outstanding Principal
amount of this Note as of the Qualifying Early Redemption Date (as defined in Section 10(a)), (ii) Interest accrued on such
Principal amount as of the Qualifying Early Redemption Date, (iii) any other amounts owed pursuant to the terms of this Note,
including, without limitation, any Late Charges, as of the Qualifying Early Redemption Date and (iv) 20% (the “Qualifying Early
Redemption Premium”) of the aggregate outstanding Principal amount of this Note as of the Qualifying Early Redemption Date
(for the avoidance of doubt, the Qualifying Early Redemption Premium shall only be applied to the aggregate outstanding Principal
amount of this Note as of the Qualifying Early Redemption Date) (the “Qualifying Early Redemption Price”). If the Company
elects to redeem this Note in connection with a Qualifying Change of Control, the Company shall (i) be deemed by virtue of public
announcement of such Qualifying Change of Control to have delivered an irrevocable notice thereof to the Holder (a “Qualifying
Early Redemption Notice”) unless the Company has provided earlier or contemporaneous written notice to the Holder that the
Company does not elect to redeem this Note in connection with such Qualifying Change of Control and (ii) simultaneously take the
same action with respect to all Other Notes and Additional Notes then outstanding. Redemptions required by this Section 5(c) shall
be made in accordance with the provisions of Section 10 and shall have priority to payments to stockholders in connection with a
Qualifying Change of Control. To the extent redemptions required by this Section 5(c) are deemed or determined by a court of
competent jurisdiction to be prepayments of the Note by the Company, such redemptions shall be deemed to be voluntary
prepayments. Notwithstanding anything to the contrary in this Section 5, but subject to Section 3(d), until the
13
Qualifying Early Redemption Price (together with any interest thereon) is paid in full, the Conversion Amount submitted for
redemption under this Section 5(c) (together with any interest thereon) may be converted, in whole or in part, by the Holder into
Common Stock of comScore, Inc. pursuant to Section 3 (for the avoidance of doubt, in the event any portion of this Note remains
outstanding more than two (2) Business Days after the consummation of a Qualifying Change of Control, Section 5(a) shall apply
and the Holder shall, among other things, be entitled to convert this Note into the capital stock of the Successor Entity in
accordance with Section 5(a)). Any such converted Conversion Amount shall reduce the Conversion Amount subject to redemption
under this Section 5(c) by an equivalent amount. The parties hereto agree that in the event of the Company’s redemption of any
portion of the Note under this Section 5(c), the Holder’s damages would be uncertain and difficult to estimate because of the
parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity
for the Holder. Accordingly, any Change of Control redemption premium due under this Section 5(c) is intended by the parties to
be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not as a penalty. Upon
the Company’s request and at the Company’s sole cost and expense, the Holder agrees to provide a customary payoff letter, in form
and substance reasonably satisfactory to the Company and the Holder, confirming the payoff of all obligations under this Note and
the release of all liens securing such obligations, which confirmations shall be contingent on the Holder’s receipt of the payment in
full of the applicable Qualifying Early Redemption Price, and which payoff and release shall occur automatically upon such
payment without further action by the Holder.
(6) ADJUSTMENTS TO THE CONVERSION PRICE.
(a) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock or Stock
Dividend. If the Company issues solely shares of Common Stock as a dividend or distribution on all or substantially all shares of
the Common Stock, or if the Company effects a stock split or a stock combination of the Common Stock (in each case excluding an
issuance solely pursuant to a Fundamental Transaction or other Corporate Event, as to which the provisions set forth in Section 5
will apply), then the Conversion Price will be adjusted based on the following formula:
CP1 = CP0 * OS0
where:
OS1
CP0 = the Conversion Price in effect immediately before the open of business on the Ex-Dividend
Date for such dividend or distribution, or immediately before the open of business on the effective
date of such stock split or stock combination, as applicable;
14
CP1 = the Conversion Price in effect immediately after the open of business on such Ex-Dividend
Date or the open of business on such effective date, as applicable;
OS0 = the number of shares of Common Stock outstanding immediately before the open of business
on such Ex-Dividend Date or effective date, as applicable; and
OS1 = the number of shares of Common Stock outstanding immediately after giving effect to such
dividend, distribution, stock split or stock combination.
For the avoidance of doubt, pursuant to the definition of CP1 above, any adjustment to the Conversion Price made
pursuant to this Section 6(a) will become effective immediately after the open of business on such Ex-Dividend Date or the open
of business on such effective date, as applicable. If any dividend, distribution, stock split or stock combination of the type
described in this Section 6(a) is declared or announced, but not so paid or made, then the Conversion Price, if previously adjusted,
will be readjusted, effective as of the date the Board of Directors of the Company determines not to pay such dividend or
distribution or to effect such stock split or stock combination, to the Conversion Price that would then be in effect had such
dividend, distribution, stock split or stock combination not been declared or announced.
(b) Rights, Options and Warrants. If the Company distributes, to all or substantially all holders of Common
Stock, rights, options or warrants entitling such holders, for a period of not more than sixty (60) calendar days after the record date
of such distribution, to subscribe for or purchase shares of Common Stock at a price per share that is less than the average of the
Closing Sale Prices per share of Common Stock for the ten (10) consecutive Trading Days ending on, and including, the Trading
Day immediately before the date such distribution is publicly announced, then the Conversion Price will be decreased based on the
following formula:
CP1 = CP0 * OS + Y
where:
OS + X
CP0 = the Conversion Price in effect immediately before the open of business on the Ex-Dividend
Date for such distribution;
CP1 = the Conversion Price in effect immediately after the open of business on such Ex-Dividend
Date;
OS = the number of shares of Common Stock outstanding immediately before the open of business
on such Ex-Dividend Date;
15
X = the total number of shares of Common Stock issuable pursuant to such rights, options or
warrants; and
Y = a number of shares of Common Stock obtained by dividing (x) the aggregate price payable to
exercise such rights, options or warrants by (y) the average of the Closing Sale Prices per share of
Common Stock for the ten (10) consecutive Trading Days ending on, and including, the Trading
Day immediately before the date such distribution is announced.
For the avoidance of doubt, any adjustment to the Conversion Price made pursuant to this Section 6(b) will be
made successively whenever any such rights, options or warrants are issued and, pursuant to the definition of CP1 above, will
become effective immediately after the open of business on the Ex-Dividend Date for the applicable distribution. To the extent
that shares of Common Stock are not delivered after the expiration of such rights, options or warrants (including as a result of
such rights, options or warrants not being exercised), the Conversion Price, if previously adjusted, will be readjusted effective as
of such expiration date to the Conversion Price that would then be in effect had the decrease to the Conversion Price for such
distribution been made on the basis of delivery of only the number of shares of Common Stock actually delivered upon exercise of
such rights, option or warrants. To the extent such rights, options or warrants are not so distributed, the Conversion Price will be
readjusted effective as of the date the Board of Directors of the Company determines not to distribute such rights, options or
warrants, to the Conversion Price that would then be in effect had the Ex- Dividend Date for the distribution of such rights,
options or warrants not occurred.
For purposes of this Section 6(b), in determining whether any rights, options or warrants entitle holders of
Common Stock to subscribe for or purchase shares of Common Stock at a price per share that is less than the average of the
Closing Sale Prices per share of Common Stock for the ten (10) consecutive Trading Days ending on, and including, the Trading
Day immediately before the date of the distribution of such rights, options or warrants is announced, and in determining the
aggregate price payable to exercise such rights, options or warrants, there will be taken into account any consideration the
Company receives for such rights, options or warrants and any amount payable on exercise thereof, with the value of such
consideration, if not cash, to be determined by the Board of Directors of the Company.
(c) Spin-Offs and Other Distributed Property.
(i) Distributions Other than Spin-Offs. If the Company distributes shares of its Capital Stock,
evidences of its indebtedness or other assets or property of the Company, or rights, options or warrants to acquire Capital Stock of
the Company or other securities, to all or substantially all holders of the Common Stock, excluding:
(u)
rights issued in the Rights Offering (as defined in the Securities Purchase Agreement);
16
(v)
(w)
(x)
(y)
(z)
dividends, distributions, rights, options or warrants for which an adjustment to the Conversion
Price is required pursuant to Section 6(a) or 6(b);
dividends or distributions paid exclusively in cash for which an adjustment to the Conversion
Price is required pursuant to Section 6(d);
rights issued or otherwise distributed pursuant to a stockholder rights plan, except to the
extent provided in Section 6(g);
Spin-Offs for which an adjustment to the Conversion Price is required pursuant to Section
6(c)(ii); and
a distribution solely pursuant to a Corporate Event, as to which the provisions set forth in
Section 5 will apply,
then the Conversion Price will be decreased based on the following formula:
CP1 = CP0 * SP - FMV
where:
SP
CR0 = the Conversion Price in effect immediately before the open of business on the Ex-Dividend
Date for such distribution;
CR1 = the Conversion Price in effect immediately after the open of business on such Ex-Dividend
Date;
SP = the average of the Closing Sale Prices per share of Common Stock for the ten (10) consecutive
Trading Days ending on, and including, the Trading Day immediately before such Ex- Dividend
Date; and
FMV = the fair market value (determined in the good faith judgment of the Board of Directors of
the Company), as of such Ex-Dividend Date, of the shares of Capital Stock, evidences of
indebtedness, assets, property, rights, options or warrants distributed per share of Common Stock
pursuant to such distribution;
17
provided, however, that if FMV is equal to or greater than SP, or if the difference between FMV and
SP is less than one dollar ($1.00), then, in lieu of the foregoing adjustment to the Conversion Price,
each Holder will receive, at the same time and on the same terms as holders of Common Stock, the
amount and kind of shares of Capital Stock, evidences of indebtedness, assets, property, rights,
options or warrants that such Holder would have received if such Holder had owned, on such record
date, a number of shares of Common Stock equal to the principal amount of Notes held by such
Holder on the record date for such distribution divided by the Conversion Price in effect on such
record date.
For the avoidance of doubt, pursuant to the definition of CP1 above, any adjustment to the Conversion Price
made pursuant to this Section 6(c)(i) will become effective immediately after the open of business on the Ex-Dividend Date for
the applicable distribution. To the extent such distribution is not so paid or made, or such rights, options or warrants are not
exercised before their expiration (including as a result of being redeemed or terminated), the Conversion Price, if previously
adjusted, will be readjusted effective as of the date the Board of Directors of the Company determines not to make or pay such
distribution, to the Conversion Price that would then be in effect had the adjustment been made on the basis of only the
distribution, if any, actually made or paid or on the basis of the distribution of only such rights, options or warrants, if any, that
were actually exercised, if at all. Subject to Section 6(g), if any such rights, options or warrants are exercisable only upon the
occurrence of certain triggering events, then the Conversion Price will not be adjusted pursuant to this Section 6(c)(i) until the
earliest of these triggering events occurs.
(ii) Spin-Offs. If the Company distributes or dividends shares of stock of any class or series, or
similar equity interest, of or relating to an Affiliate, a Subsidiary or other business unit of the Company to all or substantially all
holders of the Common Stock, and such stock or equity interest is listed or quoted (or will be listed or quoted upon the
consummation of the transaction) on a U.S. national securities exchange (a "Spin-Off"), then the Conversion Price will be
increased based on the following formula:
CP1 = CP0 * MP
where:
MP + FMV
CP0 = the Conversion Price in effect immediately before the open of business on the Ex-Dividend
Date for such Spin-Off;
CP1 = the Conversion Price in effect immediately after the open of business on such Ex-Dividend
Date;
18
FMV = the average of the Closing Sale Prices of the stock or equity interests distributed per share of
Common Stock in such Spin-Off over the ten (10) consecutive Trading Day period (the "Spin-Off
Valuation Period") beginning on, and including, such Ex-Dividend Date (such average to be
determined as if references to Common Stock in the definitions of Closing Sale Price and Trading
Day were instead references to the number or units of such stock or equity interests distributed per
share of Common Stock in such Spin-Off); and
MP = the average of the Closing Sale Prices per share of Common Stock over the Spin-Off
Valuation Period.
The adjustment to the Conversion Price pursuant to this Section 6(c)(ii) will be calculated as of the close of
business on the last Trading Day of the Spin-Off Valuation Period but will be given effect immediately after the open of business
on the Ex-Dividend Date for the Spin-Off, with retroactive effect. If this Note is converted and the Conversion Date occurs during
the Spin-Off Valuation Period, then, in lieu of the foregoing adjustment to the Conversion Price, the Holder will receive, at the
same time and on the same terms as holders of Common Stock, the number of shares of stock or other equity interests that such
Holder would have received if such Holder had owned, on such record date, a number of shares of Common Stock equal to the
principal amount of Notes held by such Holder on the record date for Spin-Off divided by the Conversion Price in effect on such
record date.
To the extent any dividend or distribution of the type set forth in this Section 6(c)(ii) is declared but not made or
paid, the Conversion Price, if previously adjusted, will be readjusted effective as of the date the Board of Directors of the
Company determines not to make or pay such dividend or distribution, to the Conversion Price that would then be in effect had
the adjustment been made on the basis of only the dividend or distribution, if any, actually made or paid.
holders of Common Stock, then the Conversion Price will be decreased based on the following formula:
(d) Cash Dividends or Distributions. If any cash dividend or distribution is made to all or substantially all
CP1 = CP0 * SP
where:
SP - D
CP0 = the Conversion Price in effect immediately before the open of business on the Ex-Dividend
Date for such dividend or distribution;
19
CR1 = the Conversion Price in effect immediately after the open of business on such Ex-Dividend
Date;
SP = the Closing Sale Price per share of Common Stock on the Trading Day immediately before
such Ex-Dividend Date; and
D = the cash amount distributed per share of Common Stock in such dividend or distribution;
provided, however, that if D is equal to or greater than SP, or if the difference between D and SP is
less than one dollar ($1.00), then, in lieu of the foregoing adjustment to the Conversion Price, the
Holder will receive, at the same time and on the same terms as holders of Common Stock, the
amount of cash that such Holder would have received if such Holder had owned, on such record
date, a number of shares of Common Stock equal to the principal amount of Notes held by such
Holder on the record date for such dividend or distribution divided by the Conversion Price in effect
on such record date. For the avoidance of doubt, pursuant to the definition of CP1 above, any
adjustment to the Conversion Price made pursuant to this Section 6(d) will become effective
immediately after the open of business on the Ex-Dividend Date for the applicable dividend or
distribution.
To the extent any such dividend or distribution is declared but not made or paid, the Conversion Price, if previously
adjusted, will be readjusted effective as of the date the Board of Directors of the Company determines not to make or pay such
dividend or distribution, to the Conversion Price that would then be in effect had the adjustment been made on the basis of only
the dividend or distribution, if any, actually made or paid.
(e) Tender Offers or Exchange Offers. If the Company or any of its Subsidiaries makes a payment in
respect of a tender offer or exchange offer for shares of Common Stock, and the value (as determined as of the Expiration Time (as
defined below) in the judgment of the Board of Directors of the Company) of the cash and other consideration paid per share of
Common Stock in such tender or exchange offer exceeds the Closing Sale Price per share of Common Stock on the Trading Day
immediately after the last date (the "Expiration Date") on which tenders or exchanges may be made pursuant to such tender or
exchange offer (as it may be amended), then the Conversion Price will be decreased based on the following formula:
CP1 = CP0 * OS0 x SP
where:
AC + (SP x OS1)
20
CP0 = the Conversion Price in effect immediately before the time (the "Expiration Time") such
tender or exchange offer expires;
CP1 = the Conversion Price in effect immediately after the Expiration Time;
AC = the aggregate value (as determined as of the Expiration Time in the judgment of the Board of
Directors of the Company) of all cash and other consideration paid for shares of Common Stock
purchased in such tender or exchange offer;
OS0 = the number of shares of Common Stock outstanding immediately before the Expiration Time
(before giving effect to the purchase of all shares of Common Stock accepted for purchase or
exchange in such tender or exchange offer);
OS1 = the number of shares of Common Stock outstanding immediately after the Expiration Time
(excluding all shares of Common Stock accepted for purchase or exchange in such tender or
exchange offer); and
SP = the average of the Closing Sale Prices of Common Stock over the ten (10) consecutive Trading
Day period (the "Tender/Exchange Offer Valuation Period") beginning on, and including, the
Trading Day immediately after the Expiration Date.
The adjustment to the Conversion Price pursuant to this Section 6(e) will be calculated as of the close of business
on the last Trading Day of the Tender/Exchange Offer Valuation Period but will be given effect immediately after the Expiration
Time, with retroactive effect. If this Note is converted and the Conversion Date occurs during the Tender/Exchange Offer
Valuation Period, then, notwithstanding anything to the contrary in the Notes, the Company will, if necessary, delay the settlement
of such conversion until the second (2nd) Business Day after the last day of the Tender/Exchange Offer Valuation Period. To the
extent such tender or exchange offer is announced but not consummated (including as a result of the Company being precluded
from consummating such tender or exchange offer under applicable law), or any purchases or exchanges of shares of Common
Stock in such tender or exchange offer are rescinded, the Conversion Price, if previously adjusted, will be readjusted effective as
of the date the Board of Directors of the Company determines not to consummate such offer, to the Conversion Price that would
then be in effect had the adjustment been made on the basis of only the purchases or exchanges of shares of Common Stock, if
any, actually made, and not rescinded, in such tender or exchange offer.
(f) No Adjustments in Certain Cases. Notwithstanding anything to the contrary in this Section 6, the
Company will not be obligated to adjust the Conversion Price on account of a transaction or other event otherwise requiring an
adjustment pursuant to this Section 6 (other than a stock dividend, distribution, split or combination of the type set forth in Section
6(a)
21
or a tender or exchange offer of the type set forth in Section 6(e)) if each Holder participates, at the same time and on the same
terms as holders of Common Stock, and solely by virtue of being a Holder of Notes, in such transaction or event without having to
convert such Holder's Notes and as if such Holder held a number of shares of Common Stock equal to the quotient of (i) the
aggregate principal amount (expressed in thousands) of Notes held by the Holder on such date; divided by (ii) the Conversion Price
in effect on the related record date, effective date or Expiration Date, as applicable.
(g) Stockholder Rights Plans. If any shares of Common Stock are to be issued upon conversion of this Note
and, at the time of such conversion, the Company has in effect any stockholder rights plan, then the Holder will be entitled to
receive, in addition to, and concurrently with the delivery of, the consideration otherwise payable under this Note upon such
conversion, the rights set forth in such stockholder rights plan, unless such rights have separated from the Common Stock at or
prior to such time, in which case, and only in such case, the Conversion Price will be adjusted pursuant to Section 6(c)(1) on
account of such separation as if, at the time of such separation, the Company had made a distribution of the type referred to in such
Section to all holders of the Common Stock, subject to readjustment in accordance with such Section if such rights expire,
terminate or are redeemed.
(h) Voluntary Adjustment by Company. The Company may at any time during the term of this Note, with
the prior written consent of the Required Holders, reduce the then current Conversion Price to any amount and for any period of
time deemed appropriate by the Board of Directors of the Company.
(7) OPTIONAL REDEMPTION AT THE COMPANY'S ELECTION.
(a) General. At any time after January 16, 2021 (the "Company Optional Trigger Date"), so long as (i) the
arithmetic average of the Weighted Average Prices of the Common Stock for any thirty (30) consecutive Trading Days occurring
after the Company Optional Trigger Date (all such determinations to be appropriately adjusted for any stock split, stock dividend,
stock combination, reclassification or other similar transaction during such period) (a "Company Optional Measuring Period")
equaled or exceeded one hundred forty percent (140%) of the Conversion Price on the Issuance Date (as adjusted for any stock
dividend, stock split, stock combination, reclassification or similar transaction after the Subscription Date) and (ii) there has been
no Equity Conditions Failure during the period beginning on the applicable Company Optional Redemption Notice Date (as
defined below) through the applicable Company Optional Redemption Date (as defined below), the Company shall have the right
to redeem all or any portion of the Conversion Amount then remaining outstanding under this Note, the Other Notes and the
Additional Notes (a "Company Optional Redemption Amount") as designated in the applicable Company Optional Redemption
Notice on the applicable Company Optional Redemption Date (each as defined below) (a "Company Optional Redemption").
The portion of this Note, the Other Notes and any Additional Notes subject to redemption pursuant to this Section 7(a) shall be
redeemed by the Company on the applicable Company Optional Redemption Date in cash at a price equal to the 100% of the
Conversion Amount to be redeemed (a "Company Optional Redemption Price"). The Company may exercise its right to require
redemption under this Section 7 by delivering within
22
not more than ten (10) Trading Days following the end of such Company Optional Measuring Period a written notice thereof to the
Holder and all, but not less than all, of the holders of the Other Notes and any Additional Notes (a "Company Optional
Redemption Notice" and the date all of the holders of the Notes received such notice is referred to as a "Company Optional
Redemption Notice Date"). Each Company Optional Redemption Notice shall be irrevocable. Each Company Optional
Redemption Notice shall (i) state the date on which the applicable Company Optional Redemption shall occur (a "Company
Optional Redemption Date"), which date shall not be less than ten (10) Trading Days nor more than thirty (30) Trading Days
following the applicable Company Optional Redemption Notice Date and (ii) state the aggregate Conversion Amount of the Notes
which the Company has elected to redeem from the Holder and all of the holders of the Other Notes and any Additional Notes
pursuant to this Section 7(a) (and analogous provisions under the Other Notes and any applicable Additional Notes) on the
applicable Company Optional Redemption Date an Equity Conditions Failure (other than as a result of the receipt by the Company
of an Interest Blocker Notice) occurs between the applicable Company Optional Redemption Notice Date and the applicable
Company Optional Redemption Date and (iii) confirm that there has been no Equity Conditions Failure during the period beginning
on the applicable Company Optional Redemption Date through the applicable Company Optional Redemption Notice Date. If the
Company confirmed that there was no such Equity Conditions Failure as of the applicable Company Optional Redemption Notice
Date but an Equity Conditions Failure occurs between the applicable Company Optional Redemption Notice Date and the
applicable Company Optional Redemption Date (a "Company Optional Redemption Interim Period"), the Company shall
provide the Holder a subsequent notice to that effect. If there is an Equity Conditions Failure (which is not waived in writing by the
Holder) during such Company Optional Redemption Interim Period, then the applicable Company Optional Redemption shall be
null and void with respect to all or any part designated by the Holder of the unconverted Company Optional Redemption Amount
and the Holder shall be entitled to all the rights of a holder of this Note with respect to such amount of the applicable Company
Optional Redemption Amount. Notwithstanding anything to the contrary in this Section 7, until the applicable Company Optional
Redemption Price is paid, in full, the applicable Company Optional Redemption Amount may be converted, in whole or in part, by
the Holder into shares of Common Stock pursuant to Section 3. All Conversion Amounts converted by the Holder after the
applicable Company Optional Redemption Notice Date shall reduce the applicable Company Optional Redemption Amount of this
Note required to be redeemed on the applicable Company Optional Redemption Date, unless the Holder otherwise indicates in the
applicable Conversion Notice. Company Optional Redemptions made pursuant to this Section 7 shall be made in accordance with
Section 10. To the extent redemptions required by this Section 7 are deemed or determined by a court of competent jurisdiction to
be prepayments of the Note by the Company, such redemptions shall be deemed to be voluntary prepayments. The parties hereto
agree that in the event of the Company's redemption of any portion of the Note under this Section 7, the Holder's damages would be
uncertain and difficult to estimate because of the parties' inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holder. For the avoidance of doubt, any Conversion Amount that
is subject to a Conversion Notice delivered to the Company may no longer be subject to a Company Optional Redemption even if
the shares issuable upon such conversion have not been delivered on or prior to the applicable Company Optional Redemption
Date.
23
(b) Pro Rata Redemption Requirement. If the Company elects to cause a Company Optional Redemption
pursuant to Section 7(a), then it must simultaneously take the same action in the same proportion with respect to the Other Notes
and any Additional Notes. If the Company elects to cause a Company Optional Redemption pursuant to Section 7(a) (or similar
provisions under the Other Notes and the Additional Notes) with respect to less than all of the Conversion Amounts of the Notes
and any Additional Notes then outstanding, then the Company shall require redemption of a Conversion Amount from each of the
holders of the Notes and any Additional Notes equal to the product of (i) the aggregate Company Optional Redemption Amount of
Notes and the Additional Notes which the Company has elected to cause to be redeemed pursuant to Section 7(a), multiplied by (ii)
the fraction, the numerator of which is the sum of the aggregate Principal Amount of the Notes and any Additional Notes held by
such holder and the denominator of which is the sum of the aggregate Principal Amount of the Notes and any Additional Notes
held by all holders holding outstanding Notes and any Additional Notes (such fraction with respect to each holder is referred to as
its "Company Optional Redemption Allocation Percentage", and such amount with respect to each holder is referred to as its
"Pro Rata Company Optional Redemption Amount"). In the event that the initial holder of any Notes or Additional Notes shall
sell or otherwise transfer any of such holder's Notes or any Additional Notes, the transferee shall be allocated a pro rata portion of
such holder's Company Optional Redemption Allocation Percentage and Pro Rata Company Optional Redemption Amount.
(8) NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by
amendment of its Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Note, and will at all times in good faith carry out all of the provisions of this Note and
take all action as may be required to protect the rights of the Holder of this Note.
(9) RESERVATION OF AUTHORIZED SHARES.
(a) Reservation. The Company shall initially reserve out of its authorized and unissued shares of Common
Stock a number of shares of Common Stock for each of this Note, the Other Notes and any Additional Notes equal to the sum of (i)
130% of the Conversion Rate with respect to the Conversion Amount of each such Note as of the Issuance Date and (ii) 130% of
the maximum number of shares issuable as Interest Shares assuming all Interest through the Maturity Date is paid in Interest Shares
at the maximum possible Interest Rate. So long as any of this Note, the Other Notes and the Additional Notes are outstanding, the
Company shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of this Note, the Other Notes and any Additional Notes, the number of shares of Common
Stock specified above in this Section 9(a) as shall from time to time be necessary to effect the conversion of all of the Notes and
any Additional Notes then outstanding; provided, that at no time shall the number of shares of Common Stock so reserved be less
than the number of shares required to be reserved pursuant hereto (in each case, without regard to any limitations on conversions)
(the "Required Reserve Amount"). The initial number of shares of Common Stock reserved for conversions of this Note, the
Other Notes and the Additional Notes
24
and each increase in the number of shares so reserved shall be allocated pro rata among the Holder, the holders of the Other Notes
and the holders of any Additional Notes based on the Principal amount of this Note and the Other Notes held by each holder at the
Initial Closing (as defined in the Securities Purchase Agreement) or increase in the number of reserved shares, as the case may be
(the "Authorized Share Allocation"). In the event that a holder shall sell or otherwise transfer this Note, or a portion thereof, or
any of such holder's Other Notes or Additional Notes, each transferee shall be allocated a pro rata portion of such holder's
Authorized Share Allocation. Any shares of Common Stock reserved and allocated to the portion of the Note held by any Person
who ceases to hold any Notes shall be allocated to the portion of the Note held by the Holder and the remaining holders of Other
Notes and the Additional Notes, pro rata based on the then- outstanding Principal amount of this Note, the Other Notes and any
Additional Notes then held by such holders.
(b) Insufficient Authorized Shares. If at any time while any of the Notes remain outstanding the Company
does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to have reserved
for issuance upon conversion of the outstanding Notes at least a number of shares of Common Stock equal to the Required Reserve
Amount (an "Authorized Share Failure"), then the Company shall promptly take all action necessary to increase the Company's
authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the
Notes then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the
occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share
Failure, the Company shall either (x) obtain the written consent of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock and provide each stockholder with an information statement with respect thereto or (y) file
with the SEC a proxy statement for a meeting of its stockholders at which meeting the Company will seek the approval of its
stockholders for an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use commercially reasonable efforts to solicit its stockholders'
approval of such increase in authorized shares of Common Stock and to cause its Board of Directors to recommend to the
stockholders that they approve such proposal. Notwithstanding the foregoing, if during any such time of an Authorized Share
Failure, the Company is able to obtain the written consent of a majority of the shares of its issued and outstanding Common Stock
to approve the increase in the number of authorized shares of Common Stock, the Company may satisfy this obligation by
obtaining such consent and submitting for filing with the SEC an Information Statement on Schedule 14C. If, upon any conversion
of this Note, the Company does not have sufficient authorized shares to deliver in satisfaction of such conversion, then unless the
Holder elects to rescind such attempted conversion, the Holder may require the Company to pay to the Holder within three (3)
Trading Days of the applicable attempted conversion, cash in an amount equal to the product of (i) the number of shares of
Common Stock that the Company is unable to deliver pursuant to this Section 9, and (ii) the highest Closing Sale Price of the
Common Stock during the period beginning on the applicable Conversion Date and ending on the date the Company makes the
applicable cash payment.
(10) REDEMPTIONS.
25
(a) Mechanics. The Company shall deliver the applicable Event of Default Redemption Price to the Holder
within three (3) Business Days after the Company's receipt of the Holder's Event of Default Redemption Notice (the "Event of
Default Redemption Date"). If the Holder has submitted a Change of Control Redemption Notice in accordance with Section 5(b),
the Company shall deliver the applicable Change of Control Redemption Price to the Holder (i) concurrently with the
consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and (ii)
within three (3) Business Days after the Company's receipt of such notice otherwise (such date, the "Change of Control
Redemption Date"). If the Company has delivered a Qualifying Early Redemption Notice to the Holders in accordance with
Section 5(c), the Company shall deliver the applicable Qualifying Early Redemption Price to the Holders concurrently with the
consummation of such Qualifying Change of Control (such date, the “Qualifying Early Redemption Date”). The Company shall
deliver the applicable Company Optional Redemption Price to the Holder on the applicable Company Optional Redemption Date.
The Company shall pay the applicable Redemption Price to the Holder on the applicable due date. In the event of a redemption of
less than all of the Conversion Amount of this Note and a surrender of this Note by the Holder, the Company shall promptly cause
to be issued and delivered to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal
which has not been redeemed and any accrued Interest on such Principal which shall be calculated as if no Redemption Notice has
been delivered. In the event that the Company does not pay the applicable Redemption Price to the Holder within the time period
required, at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option,
in lieu of redemption, to require the Company to promptly return to the Holder all or any portion of this Note representing the
Conversion Amount that was submitted for redemption and for which the applicable Redemption Price (together with any Late
Charges thereon) has not been paid. Upon the Company's receipt of such notice, (x) the applicable Redemption Notice shall be null
and void with respect to such Conversion Amount, (y) the Company shall immediately return this Note, or issue a new Note (in
accordance with Section 18(d)) to the Holder representing such Conversion Amount not redeemed and (z) the Conversion Price of
this Note or such new Note shall be adjusted to the Conversion Price as in effect on the date on which the applicable Redemption
Notice is voided. The Holder's delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice
shall not affect the Company's obligations to make any payments of Late Charges which have accrued prior to the date of such
notice with respect to the Conversion Amount subject to such notice.
(b) Redemption by Other Holders. Upon the Company's receipt of notice from any of the holders of the
Other Notes or any Additional Notes for redemption or repayment as a result of an event or occurrence substantially similar to the
events or occurrences described in Section 4(b) or Section 5(b) or pursuant to equivalent provisions set forth in the Other Notes or
any Additional Notes (each, an "Other Redemption Notice"), the Company shall promptly provide notice of such request. If the
Company receives a Redemption Notice and one or more Other Redemption Notices, during the seven (7) Business Day period
beginning on and including the date which is three (3) Business Days prior to the Company's receipt of the Holder's Redemption
Notice and ending on and including the date which is three (3) Business Days after the Company's receipt of the Holder's
Redemption Notice and the Company is unable to redeem all principal, interest and other amounts designated in such Redemption
Notice and such Other Redemption Notices received
26
during such seven (7) Business Day period, then the Company shall redeem a pro rata amount from the Holder and each holder of
the Other Notes and the Additional Notes (including the Holder) based on the outstanding Principal amount of this Note, the Other
Notes and any Additional Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption
Notices received by the Company during such seven (7) Business Day period.
(11) VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by
law and as expressly provided in this Note.
(12) SECURITY. This Note, the Other Notes and any Additional Notes are secured to the extent and in the manner
set forth in the Security Documents.
(13) RANK. All payments due under this Note (a) shall rank pari passu with all Other Notes, Additional Notes,
Rights Offering Notes, if any, Backstop Commitment Notes, if any, and Indebtedness described in clause (iii) of the definition of
Permitted Indebtedness, if any, and (b) shall be senior to all other Indebtedness of the Company and its Subsidiaries.
(14) NEGATIVE COVENANTS.
(a) Until all of the Notes and the Additional Notes have been converted, redeemed or otherwise satisfied in
accordance with their terms, the Company shall not, and the Company shall not permit any of its Subsidiaries without the prior
written consent of the Required Holders to, directly or indirectly:
Indebtedness; or
(i) incur or guarantee, assume or suffer to exist any Indebtedness, other than Permitted
(ii) allow or suffer to exist any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets (including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, "Liens") other than Permitted Liens.
(b) Solely in the event that the Company does not at the applicable time of determination satisfy the
Qualifying Conditions, the Company shall not, and the Company shall not permit any of its Subsidiaries without the prior written
consent of the Required Holders to, directly or indirectly:
(i) Redeem or repurchase any Equity Interests or other Junior Claims, or declare or pay any
dividend or other distributions of assets (or rights to acquire assets) to any or all holders of Equity Interests or other Junior Claims,
by way of return of capital or otherwise (including without limitation, any distribution of cash, stock or other securities, property,
Options, evidence of Indebtedness or any other assets by way of a dividend, spin off, reclassification, corporate rearrangement,
scheme of arrangement or other similar transaction) of the Company or any of its Subsidiaries (any of the foregoing, a "Restricted
Payment"), in each case other than:
27
Indebtedness made by exchange for, or out of the proceeds of the substantially concurrent sale of, Refinancing Indebtedness;
(1) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of
(2) each Subsidiary may declare and make Restricted Payments to Persons that own Equity Interests
in such Subsidiary, ratably according to their respective holdings of the type of Equity Interest in respect of which such Restricted
Payment is being made;
distributions payable solely in Equity Interests of such Person;
(3) the Company and each Subsidiary may declare and make dividend payments or other
(4) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Equity
Interest of the Company or a Subsidiary made by exchange for or out of the proceeds of the substantially concurrent sale of Equity
Interests of the Company;
(5) a Restricted Payment to pay for the repurchase, retirement or other acquisition or retirement for
value of Equity Interests of the Company held by or on behalf of any future, present or former employee, director, manager or
consultant of the Company or any of its Subsidiaries (or permitted transferees, assigns, estates, trusts or heirs of such employee,
director, manager or consultant) either pursuant to any management equity plan or stock option plan or any other management or
employee benefit plan or agreement or upon the termination of such employee, director, manager or consultant's employment,
directorship or manager position; provided that the aggregate amount of Restricted Payments made under this clause (5) do not
exceed in any calendar year an amount equal to $1,000,000;
(6) purchases, repurchases, redemptions, defeasances or other acquisitions or retirements of Equity
Interests deemed to occur upon the exercise of stock options, warrants or other rights in respect thereof if such Equity Interests
represents a portion of the exercise price thereof; and
(7) additional Restricted Payments in an amount not to exceed $5,000,000 during any fiscal year or
$10,000,000 in the aggregate prior to the Maturity Date.
(15) AFFIRMATIVE COVENANTS.
(a) By no later than April 30, 2019, the Company shall have filed with the SEC one or more Annual
Reports on Form 10-K containing its audited financial statements for the fiscal years ended December 31, 2015, 2016 and 2017 in
accordance with the applicable requirements of the Exchange Act, the rules and regulations thereunder and the SEC's instructions
to Annual Reports on Form 10-K (the "Form 10-K").
(b) From and after the date the Company files the Form 10-K, on or before the date that the Company is
required to file any Quarterly Report on Form 10-Q or Annual Report on Form 10-K, the Company shall publicly disclose
Consolidated EBITDA with respect to the most recent completed financial period as to which such report relates.
28
aggregate amount equal to:
(c) The Company shall maintain on deposit cash and/or cash equivalents (as defined in GAAP) in an
(i) not less than $40,000,000 from and after the Initial Closing Date to and excluding the earlier to
occur of (x) the consummation of the Rights Offering (as defined in the Securities Purchase Agreement) and (y) the Maturity Date
(such earlier date, the “Cash Measuring Date”); provided, however, that, upon execution of the Qualifying Change of Control
Documentation, such amount shall be reduced on a dollar for dollar basis for each dollar of Cash Interest paid to the Holder and the
holders of the Other Notes and the Additional Notes from and after the execution of the Qualifying Change of Control
Documentation until the consummation of the applicable Qualifying Change of Control or the termination of the related Qualifying
Change of Control Documentation in accordance with its terms; provided, further, that in no event will such amount be reduced
pursuant to the immediately preceding proviso by more than $20,000,000; provided, further, that in the event that:
(x) such Qualifying Change of Control is consummated and the Holder does not receive the
payment in full of the applicable Qualifying Early Redemption Price within two (2) Business Days of consummation of such
Qualifying Change of Control, then on and after such consummation; or
(y) such Qualifying Change of Control is terminated in accordance with the terms of the related
Qualifying Change of Control Documentation (other than in a circumstance constituting a Superior Proposal Termination (as
defined below)), then on and after the shorter of (I) the ninetieth (90th) day after such termination and (II) the first date after such
termination when the Company consummates a financing that enables it to maintain on deposit cash and/or cash equivalents (as
defined in GAAP) in an aggregate amount equal to $40,000,000,
in each such case, such amount shall be restored to $40,000,000;
(ii) solely if the Cash Measuring Date is determined by clause (x) of such definition:
(1) not less than $75,000,000 from and after the Cash Measuring Date through and excluding
January 1, 2020; provided, however, that such amount shall be not less than $55,000,000 for the period, if any, from and after the
Cash Measuring Date to and excluding the earlier to occur of (a) the date the Company files the 2019 Q2 10-Q and (b) August 9,
2019; and
(2) not less than $50,000,000 from and after January 1, 2020 through and including the Maturity
Date.
(16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote of the Required Holders at
a meeting duly called for such purpose or the written consent without a meeting of the Required Holders shall be required for any
change or amendment or waiver of any provision to this Note, any of the Other Notes or any Additional Notes. Any change,
amendment or waiver by the Company and the Required Holders shall be binding on the Holder of this Note and all holders of the
Other Notes and the Additional Notes.
29
(17) TRANSFER. This Note and any shares of Common Stock issued upon conversion of this Note may be
offered, sold, assigned or transferred by the Holder without the consent of the Company, subject only to the provisions of Section
2(g) of the Securities Purchase Agreement.
(18) REISSUANCE OF THIS NOTE.
(a) Transfer. If this Note is to be transferred, the Holder shall surrender this Note to the Company,
whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section
18(d) and subject to Section 3(c)(iii)), registered as the Holder may request, representing the outstanding Principal being transferred
by the Holder and, if less than the entire outstanding Principal is being transferred, a new Note (in accordance with Section 18(d))
to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) following conversion or redemption of any portion of
this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note.
(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and
cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal.
(c) Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof
by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 18(d)) representing in
the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding
Principal as is designated by the Holder at the time of such surrender.
(d) Issuance of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms of
this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the
Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 18(a) or Section 18(c), the Principal
designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such
issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date of this Note, (iv)
shall have the same rights and conditions as this Note, and (v) shall represent accrued and unpaid Interest and Late Charges, if any,
on the Principal and Interest of this Note, from the Issuance Date.
(19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and
any of the other Transaction
30
Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall
limit the Holder's right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this
Note. Amounts set forth or provided for herein with respect to payments, conversion, redemption and the like (and the computation
thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any
other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach, the Holder shall be entitled, in addition to all other available
remedies, to an injunction restraining such breach, without the necessity of showing economic loss and without any bond or other
security being required, to the fullest extent enforceable under applicable law.
(20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the
hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise
takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy,
reorganization, receivership of the Company or other proceedings affecting Company creditors' rights and involving a claim under
this Note, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection
with such bankruptcy, reorganization, receivership or other proceeding, including, but not limited to, actual and reasonable
attorneys' fees and disbursements.
(21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the Company and all the
Buyers and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of
reference and shall not form part of, or affect the interpretation of, this Note.
(22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of
any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other right, power or privilege.
(23) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Closing Bid Price, the
Closing Sale Price or the Weighted Average Price or the arithmetic calculation of the Conversion Rate, the Conversion Price or any
Redemption Price, the Company shall submit the disputed determinations or arithmetic calculations within two (2) Business Days
of receipt, or deemed receipt, of the Conversion Notice or Redemption Notice or other event giving rise to such dispute, as the case
may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation within three (3)
Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall,
within two (2) Business Days submit (a) the disputed determination of the Closing Bid Price, the Closing Sale Price or the
Weighted Average Price to an independent, reputable investment bank selected by the Holder and approved by the Company, such
approval not to be unreasonably withheld, conditioned or delayed, or (b) the disputed arithmetic calculation of the Conversion Rate,
Conversion
31
Price or any Redemption Price to an independent, outside accountant, selected by the Holder and approved by the Company, such
approval not to be unreasonably withheld, conditioned or delayed. The Company, at the Company's expense, shall cause the
investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and
the Holder of the results no later than ten (10) Business Days from the time it receives the disputed determinations or calculations.
Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.
(24) NOTICES; PAYMENTS.
(a) Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein,
such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the foregoing, the Company shall give written notice to the
Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least ten (10) days prior to the date on which the Company closes its books or takes a
record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer
to holders of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or
liquidation, provided in each case that such information shall have been made known to the public prior to or in conjunction with
such notice being provided to the Holder.
(b) Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this
Note, such payment shall be made in lawful money of the United States of America via wire transfer of immediately available
funds to an account so designated by the Holder; provided, that the Holder, upon timely written notice to the Company, may elect to
receive a payment of cash by a check drawn on the account of the Company and sent via overnight courier service to such Person at
such address as previously provided to the Company in writing (which address, in the case of each of the Buyers, shall initially be
as set forth on the Schedule of Buyers attached to the Securities Purchase Agreement. Whenever any amount expressed to be due
by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day
which is a Business Day. Any amount of Principal or other amounts due under the Transaction Documents which is not paid when
due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the
rate of eighteen percent (18.0%) per annum from the date such amount was due until the same is paid in full ("Late Charge").
(25) CANCELLATION. After all Principal, any accrued Interest and any other amounts at any time owed on this
Note have been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.
(26) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives demand, notice, protest
and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note.
32
(27) GOVERNING LAW; JURISDICTION; JURY TRIAL. All questions concerning the construction, validity,
enforcement and interpretation of this Note shall be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein,
and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. The Company hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy thereof to the Company at the address set forth in
Section 9(f) of the Securities Purchase Agreement and agrees that such service shall constitute good and sufficient service of
process and notice thereof to the fullest extent enforceable under applicable law. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed or operate to
preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the
Company's obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment
or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION
CONTEMPLATED HEREBY.
(28) SEVERABILITY. If any provision of this Note is prohibited by law or otherwise determined to be invalid or
unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall
be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of
such provision shall not affect the validity of the remaining provisions of this Note so long as this Note as so modified continues to
express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature,
invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal
obligations of the Company or the Holder hereof or the practical realization of the benefits that would otherwise be conferred upon
the Company or the Holder hereof. The Company and the Holders will endeavor in good faith negotiations to replace the
prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of
the prohibited, invalid or unenforceable provision(s).
(29) DISCLOSURE. From and after the filing of the Form 10-K and provided that, at the applicable time of
determination, no individual affiliated with the Holder serving on the Board of Directors of the Company was appointed thereto,
including pursuant to Section 1(a) of the September Agreement, the Company will not provide to the Holder any information that
constitutes material non-public information of or relating to the Company or its Subsidiaries without the prior written consent of the
Holder. If and to the extent the Company does provide any such
33
information, or the Holder otherwise comes into possession of material non-public information relating to the Company or its
Subsidiaries as a result of the receipt or delivery of any notice in accordance with the terms hereof, the Company will comply with
its obligations under Regulation FD under the Exchange Act. In the absence of any disclosure by the Company pursuant thereto,
the Holder shall be allowed to presume that all matters relating thereto do not constitute material non-public information relating to
the Company or its Subsidiaries.
(30) USURY. This Note is subject to the express condition that at no time shall the Company be obligated or
required to pay interest hereunder at a rate or in an amount which could subject the Holder to either civil or criminal liability as a
result of being in excess of the maximum interest rate or amount which the Company is permitted by applicable law to contract or
agree to pay. If by the terms of this Note, the Company is at any time required or obligated to pay interest hereunder at a rate or in
an amount in excess of such maximum rate or amount, the rate or amount of interest under this Note shall be deemed to be
immediately reduced to such maximum rate or amount and the interest payable shall be computed at such maximum rate or be in
such maximum amount and all prior interest payments in excess of such maximum rate or amount shall be applied and shall be
deemed to have been payments in reduction of the principal balance of this Note.
(31) CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings:
(a) "Acquired EBITDA" means with respect to any Acquired Entity or Business (any of the foregoing, a
"Pro Forma Entity") for any period, the amount for such period of Consolidated EBITDA of such Pro Forma Entity (determined as
if references to the Company and its Subsidiaries in the definition of the term "Consolidated EBITDA" were references to such Pro
Forma Entity and its Subsidiaries which will become Subsidiaries), all as determined on a consolidated basis for such Pro Forma
Entity.
(b) "Additional Closing Date" shall have the meaning set forth in the Securities Purchase Agreement.
(c) "Additional Notes" means all Initial Notes issued by the Company pursuant to the Securities Purchase
Agreement on the Initial Closing Date.
(d) "Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls, is
controlled by, or is under common control with, such Person, it being understood for purposes of this definition that "control" of a
Person means the power directly or indirectly either to vote 10% or more of the stock having ordinary voting power for the election
of directors of such Person or direct or cause the direction of the management and policies of such Person whether by contract or
otherwise.
(e) "Attribution Parties" means, collectively, the following Persons: (i) any investment vehicle, including,
any funds, feeder funds or managed accounts, currently, or from time to time after the Issuance Date, directly or indirectly managed
or advised by the Holder's investment manager or any of its Affiliates or principals, (ii) any direct or indirect Affiliates of the
34
Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group together with the Holder or
any of the foregoing and (iv) any other Person whose beneficial ownership of the Company's Common Stock would or could be
aggregated with the Holder's and its Attribution Parties for purposes of Section 13(d) of the Exchange Act. For clarity, the purpose
of the foregoing is to subject collectively the Holder and its Attribution Parties to the Maximum Percentage.
(f) "Backstop Commitment Notes" any Notes issued in connection with the Buyer's backstop commitment
of the Rights Offering (as defined in the Securities Purchase Agreement) as contemplated in Section 1(e) of the Securities Purchase
Agreement.
(g) "Bloomberg" means Bloomberg Financial Markets.
The City of New York are authorized or required by law to remain closed.
(h) "Business Day" means any day other than Saturday, Sunday or other day on which commercial banks in
(i) "Buyer" shall have the meaning ascribed to such term in the Securities Purchase Agreement.
(j) "Calendar Quarter" means each of: the period beginning on and including January 1 and ending on and
including the next occurring March 31; the period beginning on and including April 1 and ending on and including the next
occurring June 30; the period beginning on and including July 1 and ending on and including the next occurring September 30; and
the period beginning on and including October 1 and ending on and including the next occurring December 31.
options, participations or other equivalents of or interests in (however designated) stock issued by that entity.
(k) "Capital Stock" means, for any entity, any and all shares, interests, rights to purchase, warrants,
(l) "Change of Control" means any Fundamental Transaction other than (i) any reorganization,
recapitalization or reclassification of the Common Stock in which holders of the Company's voting power immediately prior to
such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to
hold publicly traded securities and, directly or indirectly, are, in all material respects, the holders of a majority of the voting power
of the surviving entity (or entities with the authority or voting power to elect the members of the Board of Directors (or their
equivalent if other than a corporation) of such entity or entities) after such reorganization, recapitalization or reclassification or (ii)
pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company.
(m) "Closing Bid Price" and "Closing Sale Price" means, for any security as of any date, the last closing
bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the
Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade
35
price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York
Time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such
security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price
or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the OTC Link or
"pink sheets" by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.). If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale
Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall
be resolved pursuant to Section 23. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock
combination, reclassification or similar transaction occurring during the applicable calculation period.
(n) "Common Stock" means (i) shares of Common Stock, par value $0.001 per share of the Company, and
(ii) any share capital into which such Common Stock shall be changed or any share capital resulting from a reclassification of such
Common Stock.
(o) "Consolidated EBITDA" means, for any period, the Consolidated Net Income for such period plus:
(i) without duplication and to the extent already deducted (and not added back) in arriving at such
Consolidated Net Income (or, as applicable, to the extent not already included in Consolidated Net Income), the sum of the
following amounts for such period:
(1) total interest expense and, to the extent not reflected in such total interest expense, any losses on
swap obligations or other derivative instruments entered into for the purpose of hedging interest rate risk, net of interest income and
gains on such swap obligations or such derivative instruments, and bank and letter of credit fees and costs of surety bonds in
connection with financing activities,
franchise, excise and similar taxes paid or accrued during such period (including in respect of repatriated funds),
(2) provision for taxes based on income, profits or capital gains, including federal, foreign, state,
purchase accounting and amortization of deferred financing fees or costs),
(3) depreciation and amortization (including amortization of intangible assets established through
reserve for, potential cash charges in any future period),
(4) non-cash charges (excluding any non-cash charges which consists of or requires an accrual of, or
36
(5) extraordinary losses in accordance with GAAP,
(6) unusual or non-recurring charges (including litigation and investigation-related costs and
expenses, costs associated with tax projects/audits and professional, consulting or other fees) incurred in connection with the
Company's pending audit or any of the legal proceedings listed on Schedule 3(r) of the Securities Purchase Agreement,
after the Initial Closing),
(7) restructuring charges, accruals or reserves (including restructuring costs related to acquisitions
abandonments in the ordinary course of business),
(8) losses on asset sales, disposals or abandonments (other than asset sales, disposals or
(9) the amount of any net losses from discontinued operations in accordance with GAAP,
(10) any expenses, charges or losses that are covered by indemnification or other reimbursement
provisions in connection with any Investment, acquisition or any sale, conveyance, transfer or other disposition of assets, to the
extent actually reimbursed, or, so long as the Company has received notification from the applicable carrier that it intends to
indemnify or reimburse such expenses, charges or losses and that there exists reasonable evidence that such amount will in fact be
reimbursed by the insurer and only to the extent that such amount is (A) not denied by the applicable carrier in writing within 180
days and (B) in fact reimbursed within 365 days of the date of such evidence (with a deduction for any amount so added back to the
extent not so reimbursed within such 365 days), such expenses, charges or losses,
(11) to the extent covered by insurance and actually reimbursed, or, so long as the Company has
made a determination that there exists reasonable evidence that such amount will in fact be reimbursed by the insurer and only to
the extent that such amount is (A) not denied by the applicable carrier in writing within 180 days and (B) in fact reimbursed within
365 days of the date of such evidence (with a deduction for any amount so added back to the extent not so reimbursed within such
365 days), expenses, charges or losses with respect to liability or casualty event or business interruption,
Transaction Documents (including, without limitation, the Rights Offering);
(12) fees, costs and expenses incurred in connection with the transactions contemplated by the
(13) any fees and expenses incurred during such period, or any amortization thereof for such period,
in connection with any acquisition, investment, asset disposition, issuance or repayment of debt, issuance of equity securities,
refinancing transaction or amendment or other modification of any debt instrument (in each case, including any such transaction
consummated prior to the Initial Closing and any such transaction undertaken but not completed) and any charges or non-recurring
merger costs incurred during such period as a result of any such transaction,
37
less
as applicable, to the extent not already included in Consolidated Net Income), the sum of the following amounts for such period:
(ii) without duplication and to the extent included in arriving at such Consolidated Net Income (or,
(1) extraordinary gains in accordance with GAAP and unusual or non-recurring gains,
(2) non-cash gains,
abandonments in the ordinary course of business), and
(3) gains on asset sales, disposals or abandonments (other than asset sales, disposals or
(4) the amount of any net income from discontinued operations in accordance with GAAP,
accordance with GAAP, provided that, to the extent included in Consolidated Net Income,
in each case, as determined on a consolidated basis for the Company and its Subsidiaries in
(1) there shall be excluded in determining Consolidated EBITDA, without duplication, any net
unrealized gains and losses relating to mark-to-market of amounts denominated in foreign currencies resulting from the application
of FASB ASC 830;
(2) there shall be included in determining Consolidated EBITDA for any period, without
duplication, the Acquired EBITDA of any Person, property, business or asset acquired by the Company or any Subsidiary of the
Company during such period to the extent not subsequently sold, transferred or otherwise disposed of (but not including the
Acquired EBITDA of any related Person, property, business or assets to the extent not so acquired) (each such Person, property,
business or asset acquired, including pursuant to a transaction consummated prior to the Initial Closing, and not subsequently so
disposed of, an "Acquired Entity or Business"), in each case based on the Acquired EBITDA of such Pro Forma Entity for such
period (including the portion thereof occurring prior to such acquisition or conversion) determined on a historical Pro Forma Basis;
(3) there shall be excluded in determining Consolidated EBITDA for any period the Disposed
EBITDA of any Person, property, business or asset sold, transferred or otherwise disposed of, closed or classified as discontinued
operations by the Company or any Subsidiary of the Company during such period (each such Person, property, business or asset so
sold, transferred or otherwise disposed of, closed or classified, a "Sold Entity or Business"), in each case based on the Disposed
EBITDA of such Sold Entity or Business for such period (including the portion thereof occurring prior to such sale, transfer,
disposition, closure, classification or conversion) determined on a historical Pro Forma Basis; and
38
effect of a change in accounting principles during such period to the extent included in Consolidated Net Income.
(4) there shall be excluded in determining Consolidated EBITDA for any period the cumulative
Subsidiaries for such period determined on a consolidated basis in accordance with GAAP.
(p) "Consolidated Net Income" means, for any period, the net income (loss) of the Company and its
(q) "Contingent Obligation" means, as to any Person, any direct or indirect liability, contingent or
otherwise, of that Person with respect to any Indebtedness, lease, dividend or other obligation of another Person if the primary
purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss with respect thereto.
(r) "Conversion Premium" means the quotient obtained by dividing (x) the Conversion Price in effect as
of the applicable date of determination, by (y) the arithmetic average of the ten (10) Weighted Average Prices of the Common
Stock on each Trading Day during the ten (10) consecutive Trading Days immediately preceding the applicable date of
determination. All such determinations to be appropriately adjusted for any stock split, stock dividend, stock combination,
reclassification or other similar transaction during such period.
convertible into or exercisable or exchangeable for shares of Common Stock.
(s) "Convertible Securities" means any stock or securities (other than Options) directly or indirectly
(t) "Disposed EBITDA" means with respect to any Sold Entity or Business for any period, the amount for
such period of Consolidated EBITDA of such Sold Entity or Business (determined as if references to the Company and its
Subsidiaries in the definition of the term "Consolidated EBITDA" (and in the component financial definitions used therein) were
references to such Sold Entity or Business and its Subsidiaries), all as determined on a consolidated basis for such Sold Entity or
Business.
(u) "Eligible Market" means the Principal Market, The New York Stock Exchange, the Nasdaq Capital
Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the NYSE American, the OTC QX, the OTC QB or the OTC
Pink.
(v) "Equity Conditions" means each of the following conditions: (i) either (x) one or more Registration
Statements covering all of the Interest Shares to be issued on the applicable Interest Date or the shares of Common Stock issuable
upon conversion of the Conversion Amount that is subject to the applicable Company Optional Redemption, as applicable, shall be
effective and available for the resale of such shares, in accordance with the terms of the Registration Rights Agreement or (y) all
Interest Shares issuable on the applicable Interest Date or the shares of Common Stock issuable upon conversion of the Conversion
Amount that is subject to the applicable Company Optional Redemption, as applicable, requiring the satisfaction of the
39
Equity Conditions, shall be eligible for sale without restriction or limitation pursuant to Rule 144 and without the need for
registration under any applicable federal or state securities laws; (ii) the Company shall have no knowledge of any fact that would
cause (x) the applicable Registration Statements required pursuant to the Registration Rights Agreement not to be effective and
available for the resale of the Interest Shares issuable on the applicable Interest Date or the shares of Common Stock issuable upon
conversion of the Conversion Amount that is subject to the applicable Company Optional Redemption, as applicable, requiring the
satisfaction of the Equity Conditions, in accordance with the terms of the Registration Rights Agreement or (y) the Interest Shares
issuable on the applicable Interest Date or the shares of Common Stock issuable upon conversion of the Conversion Amount that is
subject to the applicable Company Optional Redemption, as applicable, requiring the satisfaction of the Equity Conditions, not
being eligible for sale without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with
Rule 144(c)(1) (or any successor thereto) promulgated under the Securities Act and any applicable state securities laws; (iii) the
Interest Shares issuable on the applicable Interest Date requiring the satisfaction of the Equity Conditions may be issued in full
without violating Section 3(d) hereof; (iv) the Interest Shares issuable on the applicable Interest Date or the shares of Common
Stock issuable upon conversion of the Conversion Amount that is subject to the applicable Company Optional Redemption, as
applicable, requiring the satisfaction of the Equity Conditions may be issued in full without violating the rules or regulations of the
Principal Market; (v) the Common Stock is designated for quotation on the Principal Market and shall not have been suspended
from trading on such exchange or market; and (vi) if the event requiring satisfaction of the Equity Conditions is a Company
Optional Redemption, an Event of Default Redemption or a Change of Control Redemption, from and after the applicable
Company Optional Redemption Notice, Event of Default Notice or Change of Control Notice, as applicable, the Company shall
have delivered shares of Common Stock pursuant to the terms of this Note to the Holder on a timely basis as set forth in Section
3(c) hereof.
applicable date of determination, the Equity Conditions have not each been satisfied (or waived in writing by the Holder).
(w) "Equity Conditions Failure" means that on the applicable date of determination through the
(x) "Equity Interests" means (a) all shares of capital stock (whether denominated as common capital stock
or preferred capital stock), equity interests, beneficial, partnership or membership interests, joint venture interests, participations or
other ownership or profit interests in or equivalents (regardless of how designated) of or in a Person (other than an individual),
whether voting or non-voting and (b) all securities convertible into or exchangeable for any of the foregoing and all warrants,
Options or other rights to purchase, subscribe for or otherwise acquire any of the foregoing, whether or not presently convertible,
exchangeable or exercisable.
(y) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
Eligible Market, regular way, without the right to receive
(z) "Ex-Dividend Date" means the first date on which shares of the Common Stock trade on the applicable
40
the issuance, dividend or distribution in question, from the Company or, if applicable, from the seller of Common Stock on such
Eligible Market (in the form of due bills or otherwise) as determined by such Eligible Market.
(aa) "Fundamental Transaction" means (A) that the Company shall, directly or indirectly, including
through Subsidiaries, Affiliates or otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether or
not the Company is the surviving corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company and its "significant subsidiaries" (as defined in Rule 1-02 of
Regulation S-X), taken as a whole, to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make, or
allow the Company to be subject to or have its Common Stock be subject to or party to one or more Subject Entities making, a
purchase, tender or exchange offer that is accepted by the holders of greater than either (x) 50% of the outstanding shares of
Common Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all
Subject Entities making or party to, or Affiliated with any Subject Entities making or party to, such purchase, tender or exchange
offer were not outstanding; or (z) such number of shares of Common Stock such that all Subject Entities making or party to, or
Affiliated with any Subject Entity making or party to, such purchase, tender or exchange offer, become collectively the beneficial
owners (as defined in Rule 13d-3 under the Exchange Act) of greater than 50% of the outstanding shares of Common Stock, or (iv)
consummate a share purchase agreement or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with one or more Subject Entities whereby such Subject Entities, individually
or in the aggregate, acquire, either (x) greater than 50% of the outstanding shares of Common Stock, (y) greater than 50% of the
outstanding shares of Common Stock calculated as if any shares of Common Stock held by all the Subject Entities making or party
to, or Affiliated with any Subject Entity making or party to, such stock purchase agreement or other business combination were not
outstanding; or (z) such number of shares of Common Stock such that the Subject Entities become collectively the beneficial
owners (as defined in Rule 13d-3 under the Exchange Act) of greater than 50% of the outstanding shares of Common Stock, or (v)
reorganize, recapitalize or reclassify its Common Stock, (B) that the Company shall, directly or indirectly, including through
Subsidiaries, Affiliates or otherwise, in one or more related transactions allow any Subject Entity individually or the Subject
Entities in the aggregate to be or become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, whether through acquisition, purchase, assignment, conveyance, tender, tender offer, exchange, reduction in outstanding
shares of Common Stock, merger, consolidation, business combination, reorganization, recapitalization, spin-off, scheme of
arrangement, reorganization, recapitalization or reclassification or otherwise in any manner whatsoever, of either (x) greater than
50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock, (y) greater than 50% of the
aggregate ordinary voting power represented by issued and outstanding Common Stock not held by all such Subject Entities as of
the Subscription Date calculated as if any shares of Common Stock held by all such Subject Entities were not outstanding, or (z) a
percentage of the aggregate ordinary voting power represented by issued and outstanding shares of Common Stock or other equity
securities of the Company sufficient to allow such Subject Entities to effect a statutory short form merger or other transaction
requiring other stockholders of the Company to surrender their shares of Common Stock without approval of the stockholders of
the Company or (C) directly or indirectly,
41
including through Subsidiaries, Affiliates or otherwise, in one or more related transactions, the issuance of or the entering into any
other instrument or transaction structured in a manner to circumvent, or that circumvents, the intent of this definition in which case
this definition shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this definition
to the extent necessary to correct this definition or any portion of this definition which may be defective or inconsistent with the
intended treatment of such instrument or transaction.
effect on the Subscription Date.
(bb) "GAAP" means United States generally accepted accounting principles, consistently applied, as in
(cc) "Grace Period" shall have the meaning ascribed to such term in the Registration Rights Agreement.
(dd) "Group" means a "group" as that term is used in Section 13(d) of the Exchange Act and as defined in
Rule 13d-5 thereunder.
(ee) "Indebtedness" of any Person means, without duplication (i) all indebtedness for borrowed money, (ii)
all obligations issued, undertaken or assumed as the deferred purchase price of property or services, including (without limitation)
"capital leases" in accordance with GAAP (other than trade payables entered into in the ordinary course of business), (iii) all
reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all
obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of
such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are
limited to repossession or sale of such property), (vi) all monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, consistently applied for the periods covered thereby, is classified as a capital lease, (vii) all indebtedness
referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, deed of trust, lien, pledge, charge, security interest or other encumbrance
of any nature whatsoever in or upon any property or assets (including accounts and contract rights) with respect to any asset or
property owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, (with the amount of such indebtedness, in the case where the Person has not assumed or become
liable for the payment of such indebtedness) equal to the lesser of (x) the outstanding principal amount of such indebtedness and (y)
the fair market value of the assets securing such indebtedness) and (viii) all Contingent Obligations in respect of indebtedness of
others of the kinds referred to in clauses (i) through (vii) above.
(ff) "Initial Closing Date" shall have the meaning set forth in the Securities Purchase Agreement.
average of the Weighted Average Prices of the Common Stock on
(gg) "Interest Conversion Price" means as of any Interest Date, that price which shall be the arithmetic
42
each Trading Day during the ten (10) consecutive Trading Days immediately preceding the applicable Interest Date. All such
determinations to be appropriately adjusted for any stock split, stock dividend, stock combination, reclassification or other similar
transaction occurring during such period.
(hh) "Interest Notice Due Date" means the fifteenth (15th) Trading Day prior to the applicable Interest
Date.
(ii) "Interest Reset Date" means each of (i) January 30, 2019, (ii) January 30, 2020, (iii) February 1, 2021
(each of the foregoing (i) through (iii), an "Anniversary Interest Reset Date") and (iv) any applicable Event of Default
Redemption Notice Date.
(jj) "Interest Rate" means:
If the Conversion Premium
Then the Interest Rate
And the Interest Rate from
(as of January 30, 2018 for
(which shall be determined
the applicable Interest Reset
the second column and as of
on January 30, 2018) from
Date until the next
the applicable Interest Reset
the Issuance Date
subsequent Interest Reset
Date for the third column)
through the first Interest
Date shall be:
is:
Reset Date shall be:
1.0 or less
1.05
6.0%
6.0%
43
4.0%
4.3%
1.10
1.15
1.20
1.25
1.30
1.35
1.40
6.0%
6.0%
6.0%
6.0%
6.0%
8.0%
10.0%
44
4.7%
5.0%
5.3%
5.7%
6.0%
8.0%
10.0%
1.45 or higher
12.0%
12.0%
If the Conversion Premium is between two Conversion Premium amounts in the table above, the Interest Rate will be determined
by straight-line interpolation between the Interest Rates set forth for the higher and lower Conversion Premium amounts.
Upon a 10-K Filing Failure (as defined below), any applicable Interest Rate then in effect shall automatically be increased by an
additional 200 bps (e.g. from 4.7% to 6.7%). Such increased Interest Rate shall continue in effect until the next Anniversary
Interest Reset Date. Upon the next Anniversary Interest Reset Date, the Interest Rate will adjust according to table above; provided
that if the Company has not effected the 10-K Filing Remedy (as defined below) by such date, then the reset Interest Rate will be
further increased by 200 bps and will continue in effect until the next Anniversary Interest Reset Date, at which time this
mechanism will be repeated. For the avoidance of doubt, on any Anniversary Interest Reset Date where there is no 10-K Filing
Failure and where any applicable 10-K Filing Remedy has been effected, the reset Interest Rate will be determined according to the
table above without adding 200 bps. For purposes hereof, (i) the "10-K Filing Failure" means that the Company fails on or prior to
each April 30 while this Note is outstanding to have filed the Form 10-K and any subsequent required periodic or current reports
required to be filed by the Company prior to each such date under the Exchange Act (including audited financial statements for the
fiscal years ended prior to each such date) and (ii) a "10-K Filing Remedy" means the Company shall have filed with the SEC the
Form 10-K and all subsequent required periodic and current reports required to be filed under the Exchange Act be filed by the
Company prior to such date and there shall not exist any Event of Default.
(kk) "Junior Claims" means any Indebtedness or securities of the Company or any of its Subsidiaries of
any class junior in rank to the Notes and the Additional Notes in respect of the preferences as to distributions and payments upon a
Liquidation Event, including, without limitation, any Equity Securities of the Company or any of its Subsidiaries.
(ll) "Lead Investor" means Starboard Value and Opportunity Master Fund Ltd.
(mm) "Liquidation Event" means the voluntary or involuntary liquidation, dissolution or winding up
of the Company or such Subsidiaries the assets of which constitute all or substantially all of the assets of the business of the
Company and its Subsidiaries
45
taken as a whole, in a single transaction or series of transactions, or adoption of any plan for the same.
(nn) "Make-Whole Change of Control" means any Change of Control in which more than ten percent
(10%) of the consideration received or to be received by the holders of Common Stock (excluding cash payments for fractional
shares or pursuant to dissenters rights), in connection with such transaction or event, consists of cash.
(oo) "Make-Whole Change of Control Premium" means a cash amount per $1,000 principal amount of
Notes being redeemed in a Make-Whole Change of Control determined by multiplying the applicable Make-Whole Stock Price (as
adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction occurring after the
Subscription Date) by the amount set forth in the table below (the "Final Make-Whole Table"), with such amount corresponding
to the date of the Make-Whole Change of Control occurring after the date in the first column but prior to the date, if any, on the
immediately following row of the first column of the Final Make-Whole Table:
Make-Whole Stock Price
Date
$
20.00
$
23.62
$
25.00
$
28.50
$
30.00
$
31.29
$
January 5, 2018
January 7, 2019
January 7, 2020
January 7, 2021
January 5, 2022
5.32
4.21
3.21
2.37
0.00
6.19
5.10
3.96
2.82
0.00
6.20
5.21
4.13
3.01
0.00
7.44
6.49
5.34
4.06
0.00
7.67
7.15
5.96
4.60
0.00
8.65
7.71
6.50
5.07
0.00
35.00 $ 37.05 $ 40.00 $ 45.00 $ 50.00 $ 55.00
6.79
5.87
4.64
3.09
0.00
2.89
2.26
1.40
0.00
0.00
3.95
3.17
2.11
0.00
0.00
5.08
4.23
3.06
1.36
0.00
6.00
5.10
3.89
2.28
0.00
0.00
1.62
2.10
0.94
0.00
The exact Make-Whole Stock Price and Change of Control Redemption Date may not be set forth in the Final Make-Whole Table,
in which case, if the Make-Whole Stock Price is between two such amounts in the Final Make-Whole Table or the Change of
Control Redemption Date is between two Change of Control Redemption Dates in the Final Make-Whole Table, the applicable
value will be determined by straight-line interpolation between the applicable value set forth for the higher and lower Make-Whole
Stock Prices and the earlier and later Change of Control Redemption Dates, as applicable, based on a 365-day year.
(pp) "Make-Whole Stock Price" means, for any Make-Whole Change of Control: (A) if the holders of
Common Stock receive only cash in consideration for their shares of Common Stock in such Make-Whole Change of Control, the
amount of cash paid per share of
46
Common Stock in such Make-Whole Change of Control; and (B) in all other cases, the arithmetic average of the Closing Sale
Prices for the five (5) consecutive Trading Days ending on, and including, the Trading Day immediately before the effective date of
such Make-Whole Change of Control (all such determinations to be appropriately adjusted for any stock split, stock dividend, stock
combination, reclassification or other similar transaction during such period).
(qq) "Maximum Percentage" means, initially, 4.99%, which may be increased or decreased in accordance
with the provisions of Section 3(d); provided, however, that upon receipt by the Holder of a Company Optional Redemption
Notice, then unless the Holder elects a lower Maximum Percentage in accordance with the provisions of Section 3(d), the
Maximum Percentage shall immediately and automatically, without any further action by the Holder, be set at 9.99%.
or Convertible Securities.
(rr) "Options" means any rights, warrants or options to subscribe for or purchase shares of Common Stock
(ss) "Parent Entity" of a Person means an entity that, directly or indirectly, controls the applicable Person,
including such entity whose common capital stock or equivalent equity security is quoted or listed on an Eligible Market (or, if so
elected by the Required Holders, any other market, exchange or quotation system), or, if there is more than one such Person or such
entity, the Person or entity designated by the Required Holders or in the absence of such designation, such Person or entity with the
largest public market capitalization as of the date of consummation of the Fundamental Transaction.
(tt) "Permitted Indebtedness" means (i) Indebtedness evidenced by this Note, the Other Notes, the
Additional Notes, the Rights Offering Notes, if any, and Backstop Commitment Notes, if any, (ii) unsecured Indebtedness incurred
by the Company that is made expressly subordinate in right of payment to the Indebtedness evidenced by this Note, as reflected in a
written agreement acceptable to the Required Holders and approved by the Required Holders in writing, and which Indebtedness
does not provide at any time for (a) the payment, prepayment, repayment, repurchase or defeasance, directly or indirectly, of any
principal or premium, if any, thereon until ninety-one (91) days after the Maturity Date or later and (b) total interest and fees at a
rate in excess of 12.00% per annum, (iii) Indebtedness in an aggregate outstanding principal amount not to exceed $50,000,000
incurred under a revolving credit facility; (iv) Indebtedness with respect to capital leases in an aggregate principal amount not to
exceed $40,000,000, (v) Indebtedness secured by Permitted Liens described in clauses (iv) of the definition of Permitted Liens, (vi)
existing Indebtedness described on Schedule 31(tt) attached hereto as in effect on the Subscription Date, and any refinancings and
extensions thereof, provided that (A) the principal amount plus unpaid accrued interest and premium thereon and applicable
discounts, fees, commissions and expenses thereunder shall not be increased, (B) the maturity thereof is not earlier than ninety (90)
days after the Maturity Date, (C) if the Indebtedness being refinanced or extended is subordinated in right of payment to this Note,
the Other Notes and the Additional Notes or any guarantees thereof, such refinanced or extended Indebtedness shall be
subordinated in right of payment to this Note, the Other Notes, any Additional Notes and any guarantees thereof on terms at least as
favorable to the Holder as those contained in the documentation governing the
47
Indebtedness being refinanced or extended, (D) no refinanced or extended Indebtedness shall have different obligors, or greater
guarantees or security than, the Indebtedness being refinanced or extended and (E) if the Indebtedness being refinanced or extended
is secured by any Collateral, such refinanced or extended Indebtedness may be secured by such Collateral on terms relating to such
Collateral not materially less favorable to this Note, the Other Notes and any Additional Notes than those contained in the
documentation (including any intercreditor agreement) governing the Indebtedness being refinanced or extended, (any such
Indebtedness, "Refinancing Indebtedness"), (vii) intercompany Indebtedness among the Company and any Subsidiaries, (viii)
Indebtedness arising under swap or interest rate contracts entered into in the ordinary course of business, (ix) Contingent
Obligations in respect of Indebtedness otherwise permitted hereunder, (x) direct or Contingent Obligations arising under surety
bonds, letters of credit and similar instruments (including any related indemnity agreement) entered into in the ordinary course of
business and consistent with past practice, (xi) Indebtedness in respect of cash management agreements entered into in the ordinary
course of business, (xii) Indebtedness of foreign Subsidiaries not exceeding $10,000,000 in the aggregate at any time outstanding,
(xiii) Indebtedness under corporate credit cards in an aggregate outstanding principal amount not to exceed $3,000,000, (xiv)
Indebtedness of Persons acquired in an acquisition, provided that (x) such Indebtedness existed prior to such acquisition and was
not incurred in anticipation of such acquisition and (b) after giving effect to such acquisition, the Total Net Leverage Ratio is equal
to or less than immediately prior to such acquisition and (xv) additional Indebtedness in an aggregate principal amount not to
exceed $5,000,000.
(uu) "Permitted Liens" means (i) any Lien for taxes not yet due or delinquent or being contested in good
faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory
Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet more than sixty (60)
days overdue or delinquent, (iii) any Lien created by operation of law, such as materialmen's liens, mechanics' liens and other
similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being
contested in good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment acquired or held by the Company or
any of its Subsidiaries to secure the purchase price of such equipment or Indebtedness incurred solely for the purpose of financing
the acquisition or lease of such equipment, or (B) existing on such equipment at the time of its acquisition, provided that the Lien is
confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment, (v) Liens incurred in
connection with the extension, renewal or refinancing of the Indebtedness secured by Liens of the type described in clause (iv)
above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien
and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase, (vi) leases or subleases and
licenses and sublicenses granted to others in the ordinary course of the Company's business, not interfering in any material respect
with the business of the Company and its Subsidiaries taken as a whole, (vii) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payments of custom duties in connection with the importation of goods, (viii) Liens arising from
judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 4(a)(ix); (ix) Liens securing
Permitted Indebtedness described in clause (iv) of the definition of Permitted Indebtedness, (x) Liens securing existing
Indebtedness described on Schedule 31(tt) attached hereto
48
as in effect on the Subscription Date, and Liens securing any refinancings and extensions thereof provided that any collateral
securing such refinancings or extensions is not broader than the collateral that is subject to the Liens being refinanced or extended,
(xi) pledges or deposits in the ordinary course of business in connection with workers' compensation, unemployment insurance and
other social security legislation, (xii) deposits to secure performance of bids, trade contracts and leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature in the ordinary course of business, (xiii) normal and
customary rights of setoff upon deposits of cash in favor of banks or other depository institutions, (xiv) Liens deemed to exist in
connection with investments in repurchase agreements in the ordinary course of business, (xv) Liens arising on any real property as
a result of eminent domain, condemnation or similar proceeding with respect to such real property, (xvi) Liens on any cash deposits
in connection with any letter of intent or purchase agreement relating to an acquisition, (xvii) customary rights of first refusal, "tag-
along" and "drag-along" rights with respect to any equity interests in any joint venture, (xviii) Liens on assets of foreign
Subsidiaries securing obligations of foreign Subsidiaries not exceeding $10,000,000 in the aggregate at any time outstanding, (xix)
Liens arising under the Transaction Documents, (xx) additional Liens securing obligations not exceeding $5,000,000 in the
aggregate at any time outstanding, and (xxi) Liens securing Permitted Indebtedness described in clause (iii) of the definition of
Permitted Indebtedness, provided that such Liens are subject to an intercreditor agreement in form and substance reasonably
satisfactory to the Required Holders.
corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.
(vv) "Person" means an individual, a limited liability company, a partnership, a joint venture, a
(ww) Intentionally omitted.
market for the Common Stock, then the principal Eligible Market on which the Common Stock is then traded.
(xx) "Principal Market" means the OTC Markets, or, if the OTC Markets is not the principal trading
(yy) "Pro Forma Basis," "Pro Forma Compliance" and "Pro Forma Effect" means, with respect to
compliance with any test or covenant hereunder, that all Specified Transactions and the following transactions in connection
therewith shall be deemed to have occurred as of the first day of the applicable period of measurement in such test or covenant: (a)
income statement items (whether positive or negative) attributable to the property or Person subject to such Specified Transaction,
(i) in the case of a sale, transfer or other disposition of all or substantially all equity interests in any Subsidiary of the Company or
any division, product line, or facility used for operations of the Company or any of its Subsidiaries, shall be excluded, and (ii) in the
case of a permitted acquisition or investment described in the definition of the term "Specified Transaction," shall be included, (b)
any retirement or repayment of Indebtedness and (c) any Indebtedness incurred or assumed by the Company or any of its
Subsidiaries in connection therewith and if such Indebtedness has a floating or formula rate, shall have an implied rate of interest
for the applicable period for purposes of this definition determined by utilizing the rate that is or would be in effect with respect to
such Indebtedness as at the relevant date of determination.
49
(zz) "Public Announcement Date" means (i) the Trading Day on which the Company first publicly
announces on or prior to 9:30 a.m. New York time certain historical metrics agreed to in writing by the Company and the Lead
Investor, including, among other metrics, the number of shares of Common Stock outstanding as of December 31, 2017, in
connection with the Initial Closing Date (the "Public Announcement") or (ii) in case the Company makes the Public
Announcement after 9:30 a.m. New York time, the first (1st) Trading Day immediately following the Public Announcement.
Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the NYSE American.
([[) "Qualified Market" means the Principal Market, The New York Stock Exchange, the Nasdaq Capital
Control Documentation.
(aaa) “Qualifying Change of Control” means a Change of Control pursuant to Qualifying Change of
(bbb) “Qualifying Change of Control Documentation” means definitive documentation (as the same may
be amended in accordance with its terms) providing for a Change of Control transaction, which documentation is initially entered
into no later than August 5, 2020; provided that if such documentation is terminated in accordance with its terms and in connection
with such termination the Company enters into definitive documentation providing for a different Change of Control transaction (a
“Superior Proposal Termination”), such subsequent documentation shall be deemed to constitute Qualifying Change of Control
Documentation.
(ccc) "Qualifying Conditions" means that both at the time of and immediately after the applicable
proposed action or omission to take any action, by the Company or any of its Subsidiary, each of the following conditions are
satisfied (or waived in writing by the Holder): (x) no Equity Conditions Failure has occurred, (ii) the Total Net Leverage Ratio is
less than or equal to 3:1 and (iii) the Form 10-K has been filed with the SEC.
(ddd) "Redemption Dates" means, collectively, the Event of Default Redemption Dates, the Change of
Control Redemption Dates, the Company Optional Redemption Dates and the Qualifying Early Redemption Date, each of the
foregoing, individually, a Redemption Date.
(eee) "Redemption Notices" means, collectively, the Event of Default Redemption Notices, the Change of
Control Redemption Notices, the Company Optional Redemption Notices and the Qualifying Early Redemption Notice, each of the
foregoing, individually, a Redemption Notice.
(fff) "Redemption Premium" means (i) in the event of an Event of Default set forth in Section 4(a)(iii) and
any Event of Default occurring at a time the Common Stock is not listed on a Qualified Market, 110% and (ii) in all other events,
100%.
Control Redemption Prices, the Company Optional Redemption
(ggg) "Redemption Prices" means, collectively, the Event of Default Redemption Prices, the Change of
50
Prices and the Qualifying Early Redemption Price, each of the foregoing, individually, a Redemption Price.
Agreement.
(hhh) "Registrable Securities" shall have the meaning ascribed to such term in the Registration Rights
(iii) "Registration Rights Agreement" means that certain registration rights agreement dated as of the
Subscription Date by and among the Company and the Buyers relating to, among other things, the registration for resale of the
shares of Common Stock issuable upon conversion of this Note, the Other Notes and any Additional Notes and upon any exercise
of the Warrants.
Agreement.
(jjj) "Registration Statement" shall have the meaning ascribed to such term in the Registration Rights
Affiliate of such Person.
(kkk) "Related Fund" means, with respect to any Person, a fund or account managed by such Person or an
the aggregate principal amount of the Notes and Additional Notes then outstanding.
(lll) "Required Holders" means the holders of Notes of Additional Notes representing at least a majority of
Agreement.
(mmm) "Rights Offering Notes" shall have the meaning ascribed to such term in the Securities Purchase
(nnn) "SEC" means the United States Securities and Exchange Commission.
(ooo) "Securities Act" means the Securities Act of 1933, as amended.
(ppp) "Securities Purchase Agreement" means that certain securities purchase agreement dated as of the
Subscription Date by and among the Company and the Buyers of the Notes pursuant to which the Company issued the Notes, the
Additional Notes and Warrants.
among the Company, Starboard Value LP and the other parties signatory thereto.
(qqq) "September Agreement" means that certain Agreement, dated as of September 28, 2017 by and
(rrr) "Specified Transaction" means, with respect to any period, any investment, sale, transfer or other
disposition of assets or property, incurrence or repayment of indebtedness, restricted payment, or other event that by the terms
hereof requires such test or covenant to be calculated on a "Pro Forma Basis" or to be given "Pro Forma Effect."
(sss) "Subject Entity" means any Person, Persons or Group or any Affiliate or associate of any such
Person, Persons or Group.
(ttt) "Subscription Date" means January 16, 2018.
51
(uuu) "Subsidiary" shall have the meaning set forth in the Securities Purchase Agreement.
(vvv) "Successor Entity" means one or more Person or Persons (or, if so elected by the Required Holders,
the Company or Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or one or more Person or
Persons (or, if so elected by the Required Holders, the Company or the Parent Entity) with which such Fundamental Transaction
shall have been entered into.
(www) "Total Debt" shall mean, on any date of determination, the total Indebtedness of the Company and
its Subsidiaries at such time (excluding Indebtedness of the type described in clause (iii) of the definition of such term, except to
the extent of any unreimbursed drawings thereunder).
and cash equivalents (as defined in GAAP).
(xxx) "Total Net Debt" shall mean, on any date of determination, (a) Total Debt minus (b) unrestricted cash
(yyy) "Total Net Leverage Ratio" shall mean on any date of determination, the ratio of Total Net Debt on
such date to Consolidated EBITDA for the period of four consecutive fiscal quarters most recently ended on or prior to such date.
Each calculation of the Total Net Leverage Ratio hereunder shall be made on a Pro Forma Basis.
(zzz) "Trading Day" means any day on which the Common Stock is traded on the Principal Market, or, if
the Principal Market is not the principal trading market for the Common Stock on such day, then on the principal securities
exchange or securities market on which the Common Stock is then traded; provided that "Trading Day" shall not include any day
on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common
Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does
not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New
York Time).
([[[) "Transaction Documents" shall have the meaning set forth in the Securities Purchase Agreement.
include all warrants issued in exchange therefor or replacement thereof.
(aaaa) "Warrants" has the meaning ascribed to such term in the Securities Purchase Agreement, and shall
(bbbb) "Weighted Average Price" means, for any security as of any date, the dollar volume-weighted
average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York Time (or such other
time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or
such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg through its
"Volume at Price" functions, or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York
Time (or
52
such other time as such market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or
such other time as such market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar
volume- weighted average price is reported for such security by Bloomberg for such hours, the average of the highest Closing Bid
Price and the lowest closing ask price of any of the market makers for such security as reported in the OTC Link or "pink sheets"
by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.). If the Weighted Average Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market
value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair
market value of such security, then such dispute shall be resolved pursuant to Section 23. All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction occurring
during the applicable calculation period.
[Signature Page Follows]
53
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance Date set out
above.
COMSCORE, INC.
By:
Name:
Title:
[Signature Page to Note]
Schedule 31(tt)
Permitted Indebtedness
comScore Inc:
Banc of America Leasing and Capital
Master Lease Agreement dated December 12, 2006
Lease Schedule #24 (3/31/15) - #27 (12/31/15)
$2,720,000
Dell Financial Services
Master Lease Agreement dated August 3, 2012
Lease Schedule #9 (2/1/15) – Lease Schedule #19 (1/1/17)
$5,320,000
Bank of America, N.A
Letters of Credit (Office Lease Security Deposit)
$3,475,000
comScore BV:
Dell Financial Services
European Master Lease Agreement dated July 23, 2012
Lease Schedule #3 (8/1/15)
$155,000
EXHIBIT I
COMSCORE, INC.
CONVERSION NOTICE
Reference is made to the Senior Secured Convertible Note (the "Note") issued to the undersigned by comScore, Inc., a Delaware
corporation (the "Company"). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the
Conversion Amount (as defined in the Note) below into shares of Common Stock, par value $0.001 per share (the "Common
Stock"), of the Company, as of the date specified below.
Date of Conversion:
Aggregate Conversion Amount to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock to be issued:
Please issue the Common Stock into which the Note is being converted in the following name and to the following address:
Issue to:
Facsimile Number and Electronic Mail:
Authorization:
By:
Title:
Dated:
Account Number:
(if electronic book entry transfer)
Transaction Code Number:
(if electronic book entry transfer)
The Company hereby acknowledges this Conversion Notice and hereby directs American Stock Transfer & Trust
Company to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions
dated January __, 2018 from the Company and acknowledged and agreed to by American Stock Transfer & Trust Company.
ACKNOWLEDGMENT
COMSCORE, INC.
By:
Name:
Title:
DESCRIPTION OF SECURITIES
Exhibit 4.9
The following is a summary of the material terms of our securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). The summary is subject to and qualified in its entirety by reference to our amended and restated certificate of incorporation and bylaws,
each of which is incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this exhibit is a part. The following also summarizes
certain provisions of the Delaware General Corporation Law (the “DGCL”) and is subject to and qualified in its entirety by reference to the DGCL.
General
Our authorized capital stock consists of 150,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par
value $0.001 per share, all of which shares of preferred stock are undesignated.
Common Stock
Each holder of our common stock is entitled to one vote for each share on all matters to be voted upon by the stockholders, and there are no cumulative
rights. Subject to any preferential rights of any outstanding preferred stock, holders of our common stock are entitled to receive ratably the dividends, if any,
as may be declared from time to time by the board of directors out of funds legally available therefor. If there is a liquidation, dissolution or winding up of our
company, holders of our common stock would be entitled to share in our assets remaining after the payment of liabilities and any preferential rights of any
outstanding preferred stock.
In all matters, other than the election of directors and except as otherwise required by law, the affirmative vote of the majority of shares present or
represented by proxy at a meeting and entitled to vote on the subject matter shall be the act of the stockholders. Directors are elected by a plurality of the
votes of the shares present in person or represented by proxy and entitled to vote on the election of directors.
Holders of our common stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking fund
provisions applicable to the common stock. The outstanding shares of common stock are fully paid and non-assessable. The rights, preferences and privileges
of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we
may designate and issue in the future.
Our common stock is listed on the Nasdaq Global Select Market under the symbol SCOR. The transfer agent and registrar for the common stock is
American Stock Transfer & Trust Company, LLC. Its address is 59 Maiden Lane, Plaza Level, New York, NY 10038, and its telephone number is (800) 937-
5449.
Warrants
In June 2019, we issued warrants, including Series A and Series B-2 Warrants, to CVI Investments, Inc. (“CVI”) in connection with a private
placement that closed on June 26, 2019 (the “Closing Date”).
The Series A Warrants are exercisable for a period of five years from the Closing Date and are currently exercisable into 5,457,026 shares of common
stock. The exercise price for the Series A Warrants is $12.00.
The Series B-2 Warrants are exercisable by the holders at any time prior to the twelve-month anniversary of the Closing Date, as adjusted pursuant to
the terms of the Series B-2 Warrants. The Series B-2 Warrants provide the holders the right to purchase an aggregate of up to 1,121,076 shares of common
stock at an exercise price of $8.92.
If all of the Series B-2 Warrants have not been exercised prior to their expiration date, we will have the right, subject to prior notice to the holders and
certain equity, volume and other conditions, to force the exercise of any unexercised portion of the Series B-2 Warrants by such holders. The forced exercise
price for the Series B-2 Warrants,
Exhibit 4.9
if applicable, will be 85.0% of the VWAP of our common stock on the date immediately preceding the expiration date of the Series B-2 Warrants.
The exercise prices for the Series A and Series B-2 Warrants are subject to anti-dilution adjustment in certain circumstances. In addition, if and to the
extent the exercise of any warrants would, together with the issuances of common stock to CVI on the Closing Date and the shares issued pursuant to the
exercise of any other warrants, result in the issuance of 20.0% or more of our outstanding common stock on the Closing Date, then we intend to, in lieu of
issuing such shares, settle the obligation to issue such shares in cash. CVI may not exercise such warrants to the extent (but only to the extent) it or any of its
affiliates would beneficially own a number of shares of our common stock which would exceed 4.99%. CVI has the right, in its discretion, to raise this
threshold up to 9.99% with 60 days' notice to us.
Applicable Forum, Venue, and Jurisdiction
Our bylaws establish the Court of Chancery in the State of Delaware as the exclusive forum for any derivative action or proceeding brought by or on
behalf of the company, any action asserting a breach of fiduciary duty by a director, officer or employee of the company to the company or its stockholders,
any action asserting a claim under the DGCL, our amended and restated certificate of incorporation or bylaws, or any action asserting a claim governed by the
internal affairs doctrine unless otherwise agreed to by us.
However, the exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act of 1933, as
amended, or the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction. To the extent any such claims may be based upon
federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the
Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for the federal and state
courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
Effect of Certain Provisions of our Amended and Restated Certificate of Incorporation and Bylaws and the Delaware Anti-Takeover Statute
Some provisions of Delaware law and our amended and restated certificate of incorporation and bylaws contain provisions that could make the following
transactions more difficult:
•
•
•
acquisition of us by means of a tender offer;
acquisition of us by means of a proxy contest or otherwise; or
removal of our incumbent officers and directors
These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids and to promote stability in our
management. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors.
Amended and Restated Certificate of Incorporation and Bylaws
Our amended and restated certificate of incorporation and our bylaws provide for the following:
•
Undesignated Preferred Stock. The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue one or more
series of preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of the company.
These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of us.
Exhibit 4.9
•
•
•
•
•
Stockholder Meetings. Our charter documents provide that a special meeting of stockholders may be called only by resolution adopted by the board
of directors, the chairman of the board of directors or the chief executive officer.
Requirements for Advance Notification of Stockholder Nominations and Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of
directors or a committee of the board of directors.
Board Classification. Our board of directors is divided into three classes. The directors in each class serve for a three-year term, one class being
elected each year by our stockholders. This system of electing and removing directors may tend to discourage a third party from making a tender
offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the
directors.
Limits on Ability of Stockholders to Act by Written Consent. We have provided in our certificate of incorporation that our stockholders may not act by
written consent. This limit on the ability of our stockholders to act by written consent may lengthen the amount of time required to take stockholder
actions. As a result, a holder controlling a majority of our capital stock would not be able to amend our bylaws or remove directors without holding a
meeting of our stockholders called in accordance with our bylaws.
Amendment of Certificate of Incorporation and Bylaws. The amendment of the above provisions of our amended and restated certificate of
incorporation and bylaws requires approval by holders of at least two-thirds of our outstanding capital stock entitled to vote generally in the election
of directors.
Delaware Anti-Takeover Statute
We are subject to Section 203 of the DGCL, which prohibits a Delaware corporation from engaging in any business combination with any interested
stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions:
•
•
•
before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder
becoming an interested stockholder;
upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the voting stock
outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by persons who are directors and also
officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer; or
on or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of the
stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
In general, Section 203 defines business combination to include the following:
•
•
•
any merger or consolidation involving the corporation and the interested stockholder;
any sale, lease, exchange, mortgage, transfer, pledge or other disposition of 10% or more of either the assets or outstanding stock of the corporation
involving the interested stockholder;
subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder;
•
•
any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits by or through the
corporation.
In general, Section 203 defines interested stockholder as an entity or person who, together with affiliates and associates, beneficially owns, or within
three years prior to the determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the corporation.
Exhibit 4.9
SEPARATION AND GENERAL RELEASE AGREEMENT
Exhibit 10.31
This Separation and General Release Agreement (“Agreement”) is made as of the 5th day of November, 2019, (the
“Signature Date”) between comScore, Inc. (“Company”), a Delaware corporation, and Joseph Rostock (“Executive”).
WHEREAS, Company employed Executive as Chief Information and Technology Officer;
WHEREAS, Executive and Company are parties to that certain Change of Control and Severance Agreement effective as of
September 7, 2018, (the “Severance Agreement”);
WHEREAS, Executive and Company have come to the mutual decision that it is in their respective best interests that
Executive’s employment with Company be terminated, and Executive and Company desire to set forth the terms of Executive’s
separation from the Company; and
WHEREAS, the Company wishes to have the opportunity to retain Executive for a period of time, as set forth below, for
the purpose of transitioning his duties prior to his separation from employment.
THEREFORE, in consideration of the mutual promises contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, the undersigned, intending to be legally bound, state and
agree as provided below.
1.
Separation. Executive and Company mutually agree that Executive has resigned from his position as Chief Information
and Technology Officer as of November 5, 2019 (the “Resignation Date”). The Parties further agree that Executive shall remain
employed with the Company through December 31, 2019 (the “Separation Date”) in order to provide transitional support. Effective
as of the Resignation Date, Executive is also deemed to have resigned from all other elected, appointed or otherwise held positions
within the Company or from any organization in which he represents the Company. Executive further agrees to execute promptly
upon request by the Company any additional documents to effect the provisions of this Section l .
2.
Payments, Benefits and Perquisites. Provided that Executive does not revoke and complies with (and continues to
comply with) all terms of this Agreement, including but not limited to his obligations under Paragraphs 6, 7, 8 and 18 of this
Agreement, and fulfills all obligations thereunder, Executive will be entitled to the following benefits set forth in parts
(a), (c), and (f) of this Paragraph 2. In addition, the Executive will receive or be eligible for the pay or benefits described in parts
(b), (d) and (e) of this Paragraph 2. Subject to the provisions set forth in this Paragraph 2:
Exhibit 10.31
a. The Company will continue to pay Executive his annual base salary of $375,000.00 less applicable taxes and
withholdings as required by law (“Severance Payments”), in accordance with the Company’s current normal payroll
cycle, beginning on the first pay period after the Separation Date and continuing for a period of 12 months, unless
Executive has materially breached any provision of this Agreement.
b. The Company will pay Executive for all accrued salary and all accrued and unused paid time off earned through the
Separation Date, subject to standard payroll deductions and withholdings, on the Company’s ordinary payroll date
next-following the Separation Date.
c. The Company agrees that Executive will be eligible to receive an annual bonus in connection with the Short-Term
Incentive Plan, if any such bonus is awarded, at the same rate and at the same time as is awarded to other similarly
situated executives.
d. Executive’s health insurance will terminate on the last day of the month in which the Separation Date occurs. If
eligible, Executive may thereafter elect to continue Executive’s health benefits under the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended (“COBRA”) or state insurance laws, if applicable, at Executive’s
own expense (or, if Executive enters into this Agreement, at the Company’s expense as provided in paragraph 2(g)
below). Notice of Executive’s COBRA rights will be sent to Executive under separate cover. Executive’s rights to
elect such coverage are not contingent upon his entering into this Agreement.
e. Executive agrees that, within 10 days following the Separation Date, Executive will submit Executive’s final
documented expense reimbursement statement reflecting all business expenses he incurred through the Separation
Date, if any, for which Executive seeks reimbursement. The Company will reimburse Executive for these expenses
pursuant to its regular business practice.
f.
If Executive elects continuation coverage pursuant to COBRA within the period prescribed pursuant to COBRA for
Executive and Executive’s eligible
Exhibit 10.31
dependents, and for so long as Executive has not yet elected replacement coverage, then the Company will pay the
COBRA premiums for such coverage (at the coverage levels in effect immediately prior to Executive’s termination)
for a period of 12 months following the Separation Date. Executive agrees to notify Company when he has elected
replacement coverage.
g. Executive expressly understands and acknowledges that the Company agrees to provide the above-stated payments
and benefits in parts (a), (c) and (f) of this Paragraph 2 in exchange for Executive’s compliance with the terms set out
in this Agreement. Executive further acknowledges and agrees that he is not entitled to receive payment of any of the
benefits set forth in parts (a), (c), or (f) of this Paragraph 2 absent execution of this Agreement. Executive
understands and agrees that the Company shall not provide any of the consideration set forth in this Agreement
(including without limitation the payments or additional benefits listed in this Paragraph 2) until after the Separation
Date. If Executive materially fails to comply with any of his obligations under this Agreement during the term for
payment described above, Executive understands and acknowledges that the Company may cease making any of the
above described payments and benefits. Executive also acknowledges that if any payments are made to him under
the terms of this Agreement, but are suspended as a result of a material breach by Executive of any provision of this
Agreement, including but not limited to his continuing obligations under Paragraphs 6, 7, 8 and 18, then the
payments made to Executive are satisfactory and adequate consideration for the covenants and releases made by
Executive herein.
3. Other Compensation or Benefits. Executive acknowledges that, except as expressly provided in this Agreement,
Executive is not entitled to and will not receive any additional compensation, severance, or benefits from the Company after the
Separation Date other than vested compensation or benefits under the Company’s employee benefit plans in accordance with the
respective terms thereof. Executive acknowledges that he is not entitled to any stock options, restricted stock, restricted stock units
or other equity awards from the Company.
4.
Compensation Clawback. Executive acknowledges and agrees that, in addition to any other rights the Company may
have, if the Company is required to claw back any incentive or other compensation pursuant to the Sarbanes-Oxley Act, the Dodd-
Frank Wall Street Reform and Consumer Protection Act, any regulations promulgated thereunder, or any other laws or regulations
that may apply to Executive whether in effect now or in the future, the Company shall be entitled to cease any Severance Payments,
and apply those Severance Payment amounts
Exhibit 10.31
toward any such claw back. Nothing in this Agreement shall prevent Executive from commencing an action to challenge a
termination of his Severance Payments if he believes (i) the Company was not required to claw back his Severance Payments or (ii)
the Company terminated the Severance Payments in breach of this Agreement. In addition, nothing in this Agreement shall prevent
or waive Executive’s ability or right to contest or defend against any claim made against him for disgorgement, penalties, fines,
forfeiture, or the return of any compensation or benefits of any kind in any government inquiry or proceeding or in any litigation
brought against the Company or the Executive.
5.
Return of Company Property. Executive agrees to return all Company Property that Executive has in his possession to
the Company no later than ten (10) business days following the Separation Date. Executive further agrees not to retain any
Company documents or any copies thereof except as provided below. “Company Property” shall include, but not be limited to:
Company files; manuals; notes; drawings; records; business plans and forecasts; financial information; specifications; computer-
recorded information; tangible property (including, but not limited to: computers; smart phones; cell phones; PDAs); credit cards;
entry cards; identification badges and keys; and any materials of any kind that contain or embody any proprietary or confidential
information of the Company (and all reproductions thereof). Notwithstanding the foregoing, (a) Executive and his counsel may
retain copies of documents relating to this Agreement, his employment relationship with the Company, and his benefits,
compensation and equity interests; and (b) Executive’s counsel (and any experts engaged by such counsel) may retain any
Company documents provided to such counsel by the Company, by the Executive or by counsel for any party for the purpose of
assisting in their defense of Executive in any government inquiries or proceedings or in any litigation brought against the Company
or Executive (the “permitted purposes”) and any copies thereof, provided that Executive’s counsel and experts use such Company
documents only for the permitted purposes, maintain the confidentiality of such Company documents (including, if they must be
filed in court, filing then-I under seal if possible), and return them to the Company when they are no longer needed for the
permitted purposes (or, in the case of Company documents reflecting Executive’s attorneys’ work product or attorney-client
communications between Executive and his attorneys, certifying their destruction when they are no longer legally required to be
maintained), and provided further that Executive and his counsel return to the Company promptly upon request, and share with no
other party without the Company’s express written consent, any Company documents containing the Company’s attorney-client
privileged information or attorney work product of the Company’s counsel.
6.
Proprietary Information and Noncompetition Obligations. Executive acknowledges his continuing obligations under
the At-Will Employment, Confidential Information, Invention Assignment and Arbitration Agreement executed by Executive (the
Exhibit 10.31
“Confidentiality Agreement”), a copy of which is attached hereto as Exhibit A, including but not limited to, Executive’s obligations
related to confidentiality and noninterference with personnel relations. Notwithstanding anything herein or in Exhibit A to the
contrary, Executive shall not be held liable under this Agreement, Exhibit A or any other agreement or any federal or state trade
secret law for making any confidential disclosure of a Company trade secret or other confidential information to a government
official or an attorney for purposes of reporting a suspected violation of law or regulation, or in a court filing under seal.
7.
Reaffirmation of Release. On the Separation Date or within 21 days thereafter, Executive shall execute the Release
Agreement that is attached as Exhibit C (the “Confirming Release”), and return his executed Confirming Release to the Company
pursuant to the Notice provision set forth in Section 21 below, so that it is received by Company no later than 21 days after the
Separation Date. Executive acknowledges and agrees that this provides sufficient time to consider the Confirming Release, and he
has knowingly and voluntarily waived any longer period of time to consider the Confirming Release that was set forth in the
Severance Agreement.
8.
Cooperation. Executive is permitted to cooperate fully and truthfully with any government authority conducting an
investigation into any potential violation of any law or regulation. Nothing in this Agreement is intended to or shall prohibit
Executive from providing such cooperation. Executive also agrees to provide reasonable cooperation and assistance to the
Company and/or its Board of Directors or any committees thereof in any formal or informal investigation into or litigation
involving matters which Executive has relevant knowledge to the extent reasonably requested. Executive agrees and acknowledges
that such assistance and cooperation may include, but not be limited to, providing all relevant information and documents
reasonably available to Executive about matters on which he worked. Executive agrees to make himself reasonably available to the
Company or its representatives at a mutually agreeable time for interviews and meetings regarding any matter relating to his
employment or matters on which he worked while employed at the Company as may be reasonably requested. The Company shall
reimburse Executive for the reasonable expenses he incurs in the course of cooperating with such Company requests.
9.
Release of All Claims. Except as otherwise set forth in this Agreement, Executive hereby releases, acquits and discharges
the Company and its affiliates, and their officers, directors, agents, servants, employees, attorneys, shareholders, successors and
assigns (collectively, the “Released Parties”), of and from any and all claims, liabilities, demands, causes of action, costs, expenses,
attorneys’ fees, damages, indemnities (except those indemnification rights excluded below) and obligations of every kind and
nature, in law, equity or otherwise, known or unknown, suspected or unsuspected, disclosed and undisclosed, arising
Exhibit 10.31
out of or in any way related to any and all agreements, events, acts or conduct executed or occurring at any time prior to and
including the date on which Executive executes this Agreement, including but not limited to: all such claims and demands directly
or indirectly arising out of or in any way connected with Executive’s employment with the Company or the termination of that
employment; claims or demands related to salary, incentive payments, commissions, stock, stock options, or any other ownership
interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation
(including under the Severance Agreement); claims pursuant to federal, state or local law, statute or cause of action including, but
not limited to, the federal Civil Rights Act of 1964, as amended; the Age Discrimination in Employment Act, as amended (the
“ADEA”); the federal Americans with Disabilities Act of 1990, as amended; tort law; contract law; wrongful discharge;
discrimination; harassment; fraud; defamation; emotional distress; and breach of the implied covenant of implied good faith and
fair dealing.
EXECUTIVE HEREBY ACKNOWLEDGES AND AGREES THAT
THIS RELEASE IS A GENERAL RELEASE AND THAT BY
SIGNING THIS AGREEMENT, EXECUTIVE IS EXPRESSLY WAIVING ALL RIGHTS FOR ALL KNOWN AND
UNKNOWN CLAIMS.
Nothing in this Agreement shall be construed to prohibit Executive from commencing, instituting, participating, providing truthful
information, or otherwise assisting in any investigation or proceeding conducted by the Equal Employment Opportunity
Commission, the National Labor Relations Board, the Securities and Exchange Commission or any other government agency;
provided, however, that by signing this Agreement, Executive agrees to waive and release any right Executive may have to recover
monetary relief or compensation from the Released Parties in connection with any such proceeding or investigation. For the
avoidance of doubt, nothing herein prevents Executive from receiving any whistleblower or similar award. Further, this release
shall not be deemed to affect a release of any claim that may not be released by law, including rights to unemployment or workers
compensation, and rights to vested benefits governed by ERISA, nor shall it be deemed to affect a release of any right to enforce
the terms of this Agreement or any rights Executive may have to indemnification under the Indemnification Agreement (attached
hereto as Exhibit B), the Company’s By-Laws or applicable law.
Executive understands that this Agreement: (i) does not preclude him from challenging the validity of this Agreement,
including the waiver and release provisions, under the ADEA; and (ii) does not waive any rights or claims which first arise after the
Signature Date.
Exhibit 10.31
Executive represents and warrants that Executive has not previously filed or joined in any claim released herein.
10. Waiver and Release Acknowledgement. Executive acknowledges that Executive is knowingly and voluntarily making
the above waiver and release. Executive also acknowledges that the consideration given for the waiver and the release in the
preceding paragraphs hereof is in addition to anything of value to which Executive was already entitled. Executive further
acknowledges that:
a. Executive has been and is advised to consult an attorney regarding this Agreement prior to executing it and that he
has been given sufficient time to do so;
b. Executive has received full and adequate consideration for this Agreement, including the waiver and release herein;
and
c. Executive fully understands and acknowledges the significance and consequences of this Agreement and represents
by his signature that the terms of this Agreement are fully understood and voluntarily accepted by him. This
Agreement has been individually negotiated by Executive and is not part of a group exit incentive or other group
employment termination program.
11. Acknowledgment Regarding the Age Discrimination in Employment Act and, specifically, 29 U.S.C. 626(f).
Executive understands that as part of this Agreement, he voluntarily and knowingly waives rights or claims under the ADEA, and
acknowledges that the knowing and voluntary waiver of his claims is in accordance with the ADEA, and, specifically, 29 U.S.C.
6260.
12. Acceptance and Revocation. This Agreement was presented to Executive for review and consideration on November 5,
2019 (“Review Date”). Executive understands that he has had at least twenty-one (21) days from the Review Date within which to
decide whether to sign this Agreement and return it to Company. Executive agrees and understands that any changes to this
Agreement that may be negotiated between Executive and Company, whether material or immaterial, will not restart the time
Executive has to consider and sign the Agreement.
Executive understands that he may sign and return the Agreement at any time before the expiration of the twenty-one (21) day
period, Executive further understands that he has seven (7) days after signing this Agreement to revoke it in writing submitted to
Carol DiBattiste, General Counsel & Chief Compliance, Privacy and People Officer, at
Exhibit 10.31
cdibattiste@comscore.com (“Revocation Period”). This Agreement shall not become effective until (I) Executive has signed the
Agreement, and (2) the Revocation Period has expired without Company having received written notice of a revocation (“Effective
Date”).
13.
Enforcement. Except as otherwise provided herein, if any action at law or in equity is necessary to enforce or interpret
the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements
in addition to any other relief to which such party may be entitled.
14. Costs. The parties intend that each shall bear its own costs, if any, that may have been incurred relating to this
Agreement.
15. No Admission of Liability. This Agreement is not an admission of liability by any party.
16. Notice. In the event that any notice is to be given to any party under this Agreement, it shall be given by certified mail,
return receipt requested, and addressed to the party as follows:
To Company:
To Executive:
comScore, Inc.
Attention: General Counsel
11950 Democracy Drive, Suite 600
Reston, VA 20190
Joseph Rostock
______________________
______________________
17. Continuing Obligations. The parties agree that the terms of the Confidentiality Agreement, attached hereto as Exhibit A,
and the Indemnification Agreement, attached hereto as Exhibit B, continue in full force and effect. For the avoidance of doubt,
nothing herein alters: (i) Executive’s rights or obligations with respect to indemnification as set forth in the Company’s By-Laws or
applicable law; or (ii) Executive’s obligations and the Company’s rights under the Confidentiality Agreement as stated above in
Paragraph 6.
18.
Section 409A. It is intended that all amounts or benefits provided under this Agreement comply with or be exempt from
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and treasury regulations relating thereto, so as not
to subject Executive to the payment of any interest and tax penalty which may be imposed under Section 409A of the Code, and
this Agreement shall be interpreted, construed, and administered accordingly; provided, however, that the Company and the other
Released Parties shall not be responsible
Exhibit 10.31
for any taxes, penalties, interest or other losses or expenses incurred by Executive due to any failure to comply with Section 409A
of the Code. In furtherance thereof, the terms of this Agreement, to the extent necessary, may be modified to be exempt from and
so comply with Section 409A of the Code. Each payment under this Agreement as a result of the separation of Executive’s service
shall be considered a separate payment for purposes of Section 409A of the Code.
19. Miscellaneous. This Agreement, along with Exhibit A and Exhibit B, constitutes the full and entire understanding and
agreement between the parties regarding the subjects hereof. For the avoidance of doubt, Executive acknowledges and agrees that
the Company’s entry into this Agreement (and its willingness to make available the consideration set forth in Section 2(a), (c), and
(f) above) has resulted in the full and final satisfaction of any and all rights that Executive ever could have pursuant to the
Severance Agreement, and Executive shall not be entitled to any payments pursuant to the Severance Agreement, as: (i) neither the
Company nor its affiliates shall be deemed to have any further obligations under the Severance Agreement; and (ii) Executive’s
sole right to, and eligibility for, severance pay is set forth herein. This Agreement is entered into without reliance on any promise or
representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or
representations. This Agreement may not be modified or amended except in writing signed by both Executive and a duly
authorized officer of the Company. This Agreement shall bind the heirs, personal representatives, successors and assigns of both
Executive and the Company, and inure to the benefit of both Executive and the Company, their heirs, successors and assigns.
Executive represents and warrants that Executive has not previously assigned or transferred, or purported to assign or transfer, to
any person or entity, any of the claims released herein and Executive agrees to indemnify and hold harmless the Released Parties
from any claim, demand, debt, obligation, liability, cost, expense, right of action or cause of action based on, arising out of or in
assignment. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination
will not affect any other provision of this Agreement and the provision in question shall be modified by the court so as to be
rendered enforceable. This Agreement shall be governed in all respects by the laws of the Commonwealth of Virginia, without
reference to its choice of law rules. This Agreement may be signed electronically and in counterparts.
The undersigned state that they have carefully read this Agreement, that they know and understand its terms, and they sign it freely.
Signatures on Following Page
November 5, 2019
Exhibit 10.31
COMPANY:
COMSCORE, INC.
Carol DiBattiste
General Counsel & Chief Compliance, Privacy and People Officer
EXECUTIVE:
Joseph Rostock
Exhibit 10.31
EXHIBIT A
(At-Will Employment, Confidential Information, Invention Assignment and Arbitration
Agreement)
Exhibit 10.31
EXHIBIT B
(Indemnification Agreement)
Exhibit 10.31
EXHIBIT C
CONFIRMING RELEASE AGREEMENT
This Confirming Release Agreement (the “Confirming Release”) is that certain Confirming Release referenced in Section 7 of the
Separation and General Release Agreement (the “Separation Agreement”), entered into by and between comScore, Inc., a
Delaware corporation (the “Company”), and Joseph Rostock (“Executive”). Unless sooner revoked by Executive pursuant to the
terms of Section 5 below, Executive’s acceptance of this Confirming Release becomes irrevocable and this Confirming Release
becomes effective on the eighth day after Executive signs it. Capitalized terms used herein that are not otherwise defined have the
meanings assigned to them in the Separation Agreement. In signing below, Executive agrees as follows:
1. Release of Claims. (a) For good and valuable consideration, including the Company’s agreement to provide the consideration set
forth in Section 2(a), (c), and (e) of the Separation Agreement (and any portion thereof), Executive hereby forever releases,
discharges and acquits the Company, its present and former subsidiaries and other affiliates, and each of the foregoing entities’
respective past, present and future subsidiaries, affiliates, stockholders, members, partners, directors, officers, managers,
employees, agents, attorneys, heirs, predecessors, successors and representatives in their personal and representative capacities,
as well as all employee benefit plans maintained by the Company or any of its affiliates and all fiduciaries and administrators of
any such plans, in their personal and representative capacities (collectively, the “Confirming Released Parties”), from liability
for, and Executive hereby waives, any and all claims, damages, or causes of action of any kind related to Executive’s
employment with any Confirming Released Party, the termination of such employment, ownership of the Company and any
other acts or omissions related to any matter on or prior to the time that Executive executes this Confirming Release, whether
arising under federal or state laws or the laws of any other jurisdiction, including (i) any alleged violation through such date of:
(A) any federal, state or local anti-discrimination or anti-retaliation law, including the Age Discrimination in Employment Act of
1967 (including as amended by the Older Workers Benefit Protection Act), Title VII of the Civil Rights Act of 1964, the Civil
Rights Act of 1991, Sections 1981 through 1988 of Title 42 of the United States Code, and the Americans with Disabilities Act
of 1990; (B) the Executive Retirement Income Security Act of 1974 (“ERISA”); (C) the Immigration Reform Control Act; (D)
the National Labor Relations Act; (E) the Occupational Safety and Health Act; (F) the Family and Medical Leave Act of 1993;
(G) any federal, state or local wage and hour law; (H) the Securities Act of 1933; (I) the Securities
Exhibit 10.31
Exchange Act of 1934; (J) the Investment Advisers Act of 1940; (K) the Investment Company Act of 1940; (L) the Private
Securities Litigation Reform Act of 1995; (M) the Sarbanes-Oxley Act of 2002; (N) the Wall Street Reform and Consumer
Protection Act of 2010; (O) any applicable state employment and securities laws; (P) any other local, state or federal law,
regulation, ordinance or orders which may have afforded any legal or equitable causes of action of any nature; or (Q) any public
policy, contract, tort, or common law claim or claim for defamation, emotional distress, fraud or misrepresentation of any kind;
(ii) any allegation for costs, fees, or other expenses including attorneys’ fees incurred in, or with respect to, a Further Released
Claim; (iii) any and all rights, benefits, or claims Executive may have under any employment contract (including the Severance
Agreement), incentive or compensation plan or agreement or under any other benefit plan, program or practice; and (iv) any
claim for compensation, damages or benefits of any kind not expressly set forth in the Separation Agreement (collectively, the
“Further Released Claims”). This Confirming Release is not intended to indicate that any such claims exist or that, if they do
exist, they are meritorious. Rather, Executive is simply agreeing that any and all potential claims of this nature that Executive
may have against any of the Confirming Released Parties, regardless of whether they actually exist, are expressly settled,
compromised and waived.
THIS RELEASE INCLUDES MATTERS ATTRIBUTABLE TO THE SOLE OR PARTIAL NEGLIGENCE (WHETHER
GROSS OR SIMPLE) OR OTHER FAULT, INCLUDING STRICT LIABILITY, OF ANY OF THE RELEASED
PARTIES.
(b) In no event shall the Further Released Claims include (i) any claim that arises after Executive signs this Confirming Release,
(ii) any claim to vested benefits under an employee benefit plan that is subject to ERISA or (iii) any claim to indemnification
under the Indemnification Agreement that arises after Executive signs this Confirming Release. Further notwithstanding this
release of liability, nothing in this Confirming Release prevents Executive from filing any non-legally waivable claim (including
a challenge to the validity of this Confirming Release) with any Governmental Agencies or participating in any investigation or
proceeding conducted by any Governmental Agency or cooperating with such an agency or providing documents or other
information to a Governmental Agency; however, Executive understands and agrees that, to the extent permitted by law,
Executive is waiving any and all rights to recover any monetary or personal relief from a Confirming Released Party as a result
of such Governmental Agency proceeding or subsequent legal actions. Further notwithstanding this release of liability, nothing
in this Confirming Release limits Executive’s right to receive an award for information provided to a Governmental Agency.
Exhibit 10.31
2. Representations and Warranties Regarding Claims. Executive hereby represents and warrants that, as of the date on which he
signs this Confirming Release, he has not filed any claims, complaints, charges, or lawsuits against any of the Confirming
Released Parties with any governmental agency or with any state or federal court or arbitrator for, or with respect to, a matter,
claim, or incident that occurred or arose out of one or more occurrences that took place on or prior to the date on which
Executive signs this Confirming Release. Executive hereby further represents and warrants that he has not made any assignment,
sale, delivery, transfer, or conveyance of any rights Executive has asserted or may have against any of the Confirming Released
Parties with respect to any Further Released Claim.
3. Satisfaction of Severance Obligations; Receipt of Leaves, Bonuses, and Other Compensation. Executive acknowledges and
agrees that, with the exception of any base salary earned by him in the pay period that immediately preceded the Separation Date
(if such base salary has not been paid as of the time that Executive executes this Confirming Release), any reasonable business
expenses incurred by Executive in accordance with the Company’s applicable procedures and policies regarding reimbursable
business expenses for which he has not been reimbursed prior to the Separation date, and any sums to which he may be entitled
following the date that he signs this Confirming Release pursuant to Section 2(a), (c), and (e) of the Separation Agreement, he
has been paid in full all bonuses, been provided all benefits, and otherwise received all wages, compensation, and other sums
that he has been owed by each Confirming Released Party. Executive further acknowledges and agrees that he has received or
has waived all leaves (paid and unpaid) that he has been entitled to receive from each Confirming Released Party.
4.
acknowledges that:
Executive’s Acknowledgments. By executing and delivering
this Confirming Release, Executive expressly
(a) Executive has carefully read this Confirming Release and has had sufficient time (and at least 21 days) to consider it;
(b) Executive is receiving, pursuant to the Separation Agreement and his execution of this Confirming Release, consideration
in addition to anything of value to which Executive is already entitled;
(c) Executive has been advised, and hereby is advised in writing, to discuss this Confirming Release with an attorney of
Executive’s choice and Executive has had an adequate opportunity to do so prior to executing this Confirming Release;
(d) Executive fully understands the final and binding effect of this Confirming Release; the only promises made to Executive
to sign this Confirming Release are those contained
Exhibit 10.31
herein and in the Separation Agreement; and Executive is signing this Confirming Release knowingly, voluntarily and of
Executive’s own free will, and Executive understands and agrees to each of the terms of this Confirming Release; and
(e) The only matters relied upon by Executive and causing Executive to sign this Confirming Release are the provisions set
forth in writing within the four corners of this Confirming Release and the Separation Agreement (and, to the extent referenced
therein, the NDA).
5. Revocation Right. Notwithstanding the initial effectiveness of this Confirming Release, Executive may revoke the delivery
(and therefore the effectiveness) of this Confirming Release within the seven-day period beginning on the date Executive
executes this Confirming Release (such seven day period being referred to herein as the “Confirming Release Revocation
Period”). To be effective, such revocation must be in writing signed by Executive and must be received by the Company, care
of Carol DiBattiste at 11950 Democracy Drive, Suite 600, Reston, Virginia 20190 (e-mail: cdibattiste@comscore.com) so that it
is received by Carol DiBattiste before 11:59 p.m. EST, on the last day of the Confirming Release Revocation Period. If an
effective revocation is delivered in the foregoing manner and timeframe, then no consideration shall be provided to Executive
pursuant to Section 2(a), (c), and (e) of the Separation Agreement, and the release of claims set forth in Section 1 of this
Confirming Release shall be of no force or effect, and all remaining provisions of the Separation Agreement and this
Confirming Release shall remain in full force and effect.
6. Return of Property. Executive represents and warrants that Executive has returned to the Company all property belonging to
the Company or any other Released Party, including all documents, computer files and other electronically stored information,
client materials and other materials provided to Executive by the Company or any other Released Party in the course of his
employment, and Executive further represents and warrants that Executive has not maintained a copy of any such materials in
any form.
EXECUTIVE HAS CAREFULLY READ THIS CONFIRMING RELEASE, FULLY UNDERSTANDS HIS AGREEMENT, AND
SIGNS IT AS HIS OWN FREE ACT.
_______________________________________
Joseph Rostock
____________________________
Date
COMSCORE, INC.
CHANGE OF CONTROL AND SEVERANCE AGREEMENT
Exhibit 10.32
This Change of Control and Severance Agreement (the “Agreement”) is made and entered into by and between William
Livek (“Executive”) and comScore, Inc., a Delaware corporation (the “Company”), effective as of the date of closing of the
Company’s acquisition of Rentrak Corporation (the “Effective Date”).
RECITALS
1.
The Compensation Committee of the Board of Directors of the Company (the “Committee”) believes that it is in
the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and
objectivity of Executive, to provide Executive with an incentive to continue his/her employment, and to motivate Executive to
maximize the value of the Company for the benefit of its stockholders.
2.
The Committee believes that it is imperative to provide Executive with certain severance benefits upon
Executive’s termination of employment under certain circumstances. These benefits will provide Executive with enhanced financial
security and incentive and encouragement to remain with the Company.
3.
Certain capitalized terms used in the Agreement are defined in Section 6 below.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
1.
Term of Agreement. This Agreement will have an initial term of three (3) years commencing on the Effective Date
(the “Initial Term”). On the third anniversary of the Effective Date, this Agreement will renew automatically for additional three (3)
year terms (each an “Additional Term” and together with the Initial Term, the “Term”), unless either party provides the other party
with written notice of non-renewal at least sixty (60) days prior to the date of automatic renewal; provided, however, that if the
Company enters into a definitive agreement to be acquired and the transactions contemplated thereby would result in the
occurrence of a Change of Control if consummated, then the Company will no longer be permitted to provide Executive with
written notice to not renew this Agreement, and if the Change of Control is consummated, the Agreement will continue in effect
through the longer of the date that is twelve (12) months following the effective date of the Change of Control or the remainder of
the Term then in effect (for purposes of clarification, it will be possible for the Term of the Agreement to automatically extend after
the Company enters into the definitive agreement, but before the Change of Control is consummated). If the definitive agreement is
terminated without the transactions contemplated thereby having been
Exhibit 10.32
consummated and at the time of such termination there is at least twelve (12) months remaining in the Term, the Agreement will
continue in effect for the remainder of the Term then in effect, but if there is less than twelve (12) months remaining in the Term
then in effect, the Agreement will automatically extend for an additional three (3) years from the date the definitive agreement is
terminated. If Executive becomes entitled to benefits under Section 3 during the term of this Agreement, the Agreement will not
terminate until all of the obligations of the parties hereto with respect to this Agreement have been satisfied.
2.
At-Will Employment. The Company and Executive acknowledge that Executive’s employment is and will
continue to be at-will, as defined under applicable law. If Executive’s employment terminates for any reason, Executive will not be
entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, the payment of
accrued but unpaid wages or other compensation, as required by law, as may otherwise be available in accordance with the
Company’s established employee plans, and any unreimbursed reimbursable expenses, and this Agreement supersedes all prior
agreements or arrangements relating to the same.
3.
Severance Benefits.
(a) Termination without Cause or Resignation for Good Reason Prior to a Change of Control. If the Company
terminates Executive’s employment with the Company without Cause or if Executive resigns from such employment for Good
Reason, and such termination occurs prior to a Change of Control, then subject to Section 4, Executive will receive the following:
reimbursements, wages, and other benefits due to Executive under any Company-provided plans, policies, and arrangements.
(i) Accrued Compensation. The Company will pay Executive all accrued but unpaid vacation, expense
(ii) Severance Payment. Executive will be paid continuing payments of severance pay at a rate equal to
Executive’s annual base salary, as then in effect, for two years from the date of such termination of employment, to be paid
periodically in accordance with the Company’s normal payroll policies.
(iii) Continued Executive Benefits. If Executive elects continuation coverage pursuant to the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) within the time period prescribed pursuant to COBRA for
Executive and Executive’s eligible dependents, then the Company will reimburse Executive for the COBRA premiums for such
coverage (at the coverage levels in effect immediately prior to Executive’s termination) until the earlier of (A) a period coincident
with the severance benefit period set forth above (two years) from the date of termination, or (B) the date upon which Executive
and/or Executive’s eligible dependents become covered under similar plans. The reimbursements will be made by the Company to
Executive consistent with the Company’s normal expense reimbursement policy. Notwithstanding the foregoing, should the
Company determine in its sole discretion that it cannot provide the above
Exhibit 10.32
COBRA benefits without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health
Service Act), the Company will in lieu thereof provide to the Executive a taxable monthly payment for the same period in an
amount equal to the monthly COBRA premium Executive would be required to pay to continue his or her group health coverage in
effect on the date of his or her termination of employment (which amount will be based on the premium for the first month of
COBRA coverage), which payments will be made regardless of whether the Executive elects COBRA continuation coverage.
(b) Termination without Cause or Resignation for Good Reason in Connection with a Change of Control. If the
Company terminates Executive’s employment with the Company without Cause or if Executive resigns from such employment for
Good Reason, and such termination occurs on or within twelve (12) months after a Change of Control, then subject to Section 4,
Executive will receive the following:
reimbursements, wages, and other benefits due to Executive under any Company-provided plans, policies, and arrangements.
(i) Accrued Compensation. The Company will pay Executive all accrued but unpaid vacation, expense
(ii) Severance Payment. Executive will receive a lump sum payment (less applicable withholding taxes)
equal to two years of Executive’s annual base salary as in effect immediately prior to Executive’s termination date or, if greater, at
the level in effect immediately prior to the Change of Control.
(iii) Continued Executive Benefits. If Executive elects continuation coverage pursuant to the COBRA
within the time period prescribed pursuant to COBRA for Executive and Executive’s eligible dependents, then the Company will
reimburse Executive for the COBRA premiums for such coverage (at the coverage levels in effect immediately prior to Executive’s
termination) until the earlier of (A) a period coincident of two years from the date of termination, or (B) the date upon which
Executive and/or Executive’s eligible dependents become covered under similar plans. The reimbursements will be made by the
Company to Executive consistent with the Company’s normal expense reimbursement policy. Notwithstanding the foregoing,
should the Company determine in its sole discretion that it cannot provide the above COBRA benefits without potentially violating
applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company will in lieu thereof
provide to the Executive a taxable monthly payment for the same period in an amount equal to the monthly COBRA premium
Executive would be required to pay to continue his or her group health coverage in effect on the date of his or her termination of
employment (which amount will be based on the premium for the first month of COBRA coverage), which payments will be made
regardless of whether the Executive elects COBRA continuation coverage.
and unvested Equity Awards as of the date of the Change of Control
(iv) Vesting Acceleration of Equity Awards. One hundred percent (100%) of Executive’s then outstanding
Exhibit 10.32
will become vested in full and otherwise will remain subject to the terms and conditions of the applicable Equity Award agreement.
(c) Vesting Acceleration of Equity Awards Following Change of Control. If Executive remains employed by or
continues to provide services to the Company through the one-year anniversary of a Change of Control, one hundred percent
(100%) of Executive’s then outstanding and unvested Equity Awards as of the date of the Change of Control will become vested in
full and otherwise will remain subject to the terms and conditions of the applicable Equity Award agreement.
(d) Voluntary Resignation; Termination for Cause. If Executive’s employment with the Company terminates (i)
voluntarily by Executive (other than for Good Reason during the period that is on or within twelve (12) months after a Change of
Control) or (ii) for Cause by the Company, then Executive will not be entitled to receive severance or other benefits except for
those (if any) as may then be established under the Company’s then existing severance and benefits plans and practices or pursuant
to other written agreements with the Company.
(e) Disability; Death. If the Company terminates Executive’s employment as a result of Executive’s Disability, or
Executive’s employment terminates due to his or her death, then Executive will not be entitled to receive any other severance or
other benefits, except for those (if any) as may then be established under the Company’s then existing written severance and
benefits plans and practices or pursuant to other written agreements with the Company.
(f) Exclusive Remedy. In the event of a termination of Executive’s employment as set forth in Section 3(a) and
(b) of this Agreement, the provisions of Section 3 are intended to be and are exclusive and in lieu of any other rights or remedies to
which Executive or the Company otherwise may be entitled, whether at law, tort or contract, in equity, or under this Agreement
(other than the payment of accrued but unpaid wages, as required by law, and any unreimbursed reimbursable expenses). Executive
will be entitled to no benefits, compensation or other payments or rights upon a termination of employment other than those
benefits expressly set forth in Section 3 of this Agreement.
4.
Conditions to Receipt of Severance
(a) Release of Claims Agreement. The receipt of any severance payments or benefits pursuant to this Agreement is
subject to Executive signing and not revoking a separation agreement and release of claims in a form acceptable to the Company
(the “Release”), which must become effective and irrevocable no later than the sixtieth (60th) day following Executive’s termination
of employment (the “Release Deadline”). If the Release does not become effective and irrevocable by the Release Deadline,
Executive will forfeit any right to severance payments or benefits under this Agreement. In no event will severance payments or
benefits be paid or provided until the Release actually becomes effective and irrevocable. Except as required by Section 4(c),
Exhibit 10.32
any severance payments or benefits under this Agreement will be paid, or, in the case of installments, will commence, in the first
payroll following the effective date of the Release, but not later than fourteen (14) days following the effective date of the Release.
(b) Confidential Information and Invention Assignment Agreements. Executive’s receipt of any payments or benefits
under Section 3 will be subject to Executive continuing to comply with the terms of the At Will Employment, Confidential
Information, Invention Assignment and Arbitration Agreement most recently entered into, between the Company and Executive, as
such agreement may be amended from time to time.
(c) Section 409A.
(i) Notwithstanding anything to the contrary in this Agreement, no severance pay or benefits to be paid or
provided to Executive, if any, pursuant to this Agreement that, when considered together with any other severance payments or
separation benefits, are considered deferred compensation under Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”), and the final regulations and any guidance promulgated thereunder (“Section 409A”) (together, the “Deferred
Payments”) will be paid or otherwise provided until Executive has a “separation from service” within the meaning of Section
409A. Similarly, no severance payable to Executive, if any, pursuant to this Agreement that otherwise would be exempt from
Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9) will be payable until Executive has a “separation from
service” within the meaning of Section 409A.
(ii) It is intended that none of the severance payments under this Agreement will constitute “Deferred
Payments” but rather will be exempt from Section 409A as a payment that would fall within the “short-term deferral period” as
described in Section 4(c)(iv) below or resulting from an involuntary separation from service as described in Section 4(c)(v) below.
However, any severance payments or benefits under this Agreement that would be considered Deferred Payments will be paid on,
or, in the case of installments, will not commence until, the sixtieth (60th) day following Executive’s separation from service, or, if
later, such time as required by Section 4(c)(iii). Except as required by Section 4(c)(iii), any installment payments that would have
been made to Executive during the sixty (60) day period immediately following Executive’s separation from service but for the
preceding sentence will (60th) be paid to Executive on the sixtieth (60 ) day following Executive’s separation from service and the
remaining payments shall be made as provided in this Agreement.
(iii) Notwithstanding anything to the contrary in this Agreement, if Executive is a “specified employee”
within the meaning of Section 409A at the time of Executive’s termination (other than due to death), then the Deferred Payments, if
any, that are payable within the first six (6) months following Executive’s separation from service, will become payable on the first
payroll date that occurs on or after the date six (6) months and one (1) day following the date of Executive’s separation from
service. All subsequent Deferred Payments, if any, will be payable
Exhibit 10.32
in accordance with the payment schedule applicable to each payment or benefit. Notwithstanding anything herein to the contrary, if
Executive dies following Executive’s separation from service, but before the six (6) month anniversary of the separation from
service, then any payments delayed in accordance with this paragraph will be payable in a lump sum as soon as administratively
practicable after the date of Executive’s death and all other Deferred Payments will be payable in accordance with the payment
schedule applicable to each payment or benefit. Each payment and benefit payable under this Agreement is intended to constitute a
separate payment under Section 1.409A-2(b)(2) of the Treasury Regulations.
(iv) Any amount paid under this Agreement that satisfies the requirements of the “short-term
deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations will not constitute Deferred Payments for purposes of
clause (i) above.
(v) Any amount paid under this Agreement that qualifies as a payment made as a result of an involuntary
separation from service pursuant to Section 1.409A1(b)(9)(iii) of the Treasury Regulations that does not exceed the Section 409A
Limit (as defined below) will not constitute Deferred Payments for purposes of clause (i) above.
(vi) The foregoing provisions are intended to comply with the requirements of Section 409A so that none of
the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A,
and any ambiguities herein will be interpreted to so comply. The Company and Executive agree to work together in good faith to
consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid
imposition of any additional tax or income recognition before actual payment to Executive under Section 409A.
5.
Limitation on Payments. In the event that the severance and other benefits provided for in this Agreement or
otherwise payable to Executive (i) constitute “parachute payments” within the meaning of Section 280G of the Code, and (ii) but
for this Section 5, would be subject to the excise tax imposed by Section 4999 of the Code, then Executive’s benefits under Section
3 will be either:
(a) delivered in full, or
(b) delivered as to such lesser extent which would result in no portion of such benefits being subject to excise tax
under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local
income taxes and the excise tax imposed by Section 4999, results in the receipt by Executive on an after-tax basis, of the greatest
amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code. If a
reduction in severance and other benefits constituting “parachute payments” is necessary so that benefits are delivered to a lesser
extent, reduction will occur in the following order: (i) reduction of cash payments; (ii) cancellation of awards granted “contingent
on
Exhibit 10.32
a change in ownership or control” (within the meaning of Code Section 280G), (iii) cancellation of accelerated vesting of equity
awards; (iv) reduction of employee benefits. In the event that acceleration of vesting of equity award compensation is to be
reduced, such acceleration of vesting will be cancelled in the reverse order of the date of grant of Executive’s equity awards.
Unless the Company and Executive otherwise agree in writing, any determination required under this Section 5 will be
made in writing by the Company’s independent public accountants immediately prior to a Change of Control or such other person
or entity to which the parties mutually agree (the “Accountants”), whose determination will be conclusive and binding upon
Executive and the Company. For purposes of making the calculations required by this Section 5, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company and Executive will furnish to the Accountants
such information and documents as the Accountants may reasonably request in order to make a determination under this Section.
The Company will bear all costs the Accountants may incur in connection with any calculations contemplated by this Section 5.
6.
Definition of Terms. The following terms referred to in this Agreement will have the following meanings:
(a) Cause. “Cause” will mean:
dishonesty by Executive;
(i) Executive’s indictment, plea of nolo contendere or conviction, of any felony or of any crime involving
(ii) a material breach by Executive of Executive’s duties or of a Company policy; or
(iii) a commission of any act of dishonesty, embezzlement, theft, fraud or misconduct by Executive with
respect to the Company, any of which in the good faith and reasonable determination of the Board or the Compensation Committee
of the Board (the “Compensation Committee”) is materially detrimental to the Company, its business or its reputation.
(b) Change of Control. “Change of Control” will mean the occurrence of any
of the following events:
(i) Change in Ownership of the Company. A change in the ownership
of the Company which occurs on the date that any one person, or more than one person acting as a group (“Person”), acquires
ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than 50% of the total
voting power of the stock of the Company, except that any change in the ownership of the stock of the Company as a result of a
private financing of the Company that is approved by the Board of Directors (the “Board”) will not be considered a Change of
Control; or
Exhibit 10.32
(ii) Change in Effective Control of the Company. A change in the
effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any twelve
(12) month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to
the date of the appointment or election. For purposes of this clause (ii), if any Person is considered to be in effective control of the
Company, the acquisition of additional control of the Company by the same Person will not be considered a Change of Control; or
(iii) Change in Ownership of a Substantial Portion of the Company’s Assets. A change in the ownership of
a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve
(12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have
a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company
immediately prior to such acquisition or acquisitions. For purposes of this subsection 6(b)(iii), gross fair market value means the
value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities
associated with such assets.
For these purposes, persons will be considered to be acting as a group if they are
owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction
with the Company.
Notwithstanding the foregoing provisions of this definition, a transaction will not
be deemed a Change of Control unless the transaction qualifies as a change in control event within the meaning of Section 409A.
(c) Disability. “Disability” will mean that Executive is unable to engage in
any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to
result in death or can be expected to last for a continuous period of not less than twelve (12) months. Termination resulting from
Disability may only be effected after at least thirty (30) days’ written notice by the Company of its intention to terminate
Executive’s employment. In the event that Executive resumes the performance of substantially all of his or her duties hereunder
before the termination of his or her employment becomes effective, the notice of intent to terminate will automatically be deemed
to have been revoked.
(d) Equity Awards. “Equity Awards” will mean an Executive’s then unvested
outstanding stock options, stock appreciation rights, restricted stock units and other Company equity compensation awards.
(e) Good Reason. “Good Reason” will mean Executive’s termination of employment within ninety (90) days
following the expiration of any cure period (discussed below) following the occurrence of one or more of the following, without
Executive’s consent:
Exhibit 10.32
reduction program effective for all of the Company’s senior level executives);
(i) A material diminution in the Executive’s base compensation (unless such reduction is done as part of a
(ii) A material reduction of Executive’s authority or responsibilities,
relative to Executive’s authority or responsibilities in effect immediately prior to such reduction, or, following a Change of Control,
a change in the Executive’s reporting position. Any change which results in Executive’s ceasing to serve as the Executive Vice
Chairman and President of a publicly held company (other than as the result of his voluntary resignation not at the request of the
successor or its parent) will be deemed to constitute a material change or reduction in Executive’s authority and responsibilities
constituting grounds for a Good Reason termination; or
than fifty (50) miles away from Executive’s workplace in effect immediately prior to such relocation.
(iii) the relocation of Executive’s primary workplace to a location more
In addition, in order for a voluntary termination to be considered a termination for “Good Reason,” Executive must provide written
notice to the Company of the existence of one or more of the above conditions within ninety (90) days of its initial existence and
the Company must be provided at least thirty (30) days from the notice to remedy the condition.
(f) Section 409A Limit. “Section 409A Limit” will mean the lesser of two (2)
times: (i) Executive’s annualized compensation based upon the annual rate of pay paid to
Executive during the Executive’s taxable year preceding the Executive’s taxable year of Executive’s termination of employment as
determined under, and with such adjustments as are set forth in, Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and any Internal
Revenue Service guidance issued with respect thereto; or (ii) the maximum amount that may be taken into account under a
qualified plan pursuant to Section 401(a)(17) of the Code for the year in which Executive’s employment is terminated.
7.
Successors.
(a) The Company’s Successors. Any successor to the Company (whether
direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the
Company’s business and/or assets will assume the obligations under this Agreement and agree expressly to perform the obligations
under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in
the absence of a succession. For all purposes under this Agreement, the term “Company” will include any successor to the
Company’s business and/or assets which executes and delivers the assumption agreement described in this Section 7 or which
becomes bound by the terms of this Agreement by operation of law.
(b) Executive’s Successors. The terms of this Agreement and all rights of Executive hereunder will inure to the
benefit of, and be enforceable by, Executive’s personal or
Exhibit 10.32
legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
8.
Notice.
(a) General. Notices and all other communications contemplated by this Agreement will be in writing and will be
deemed to have been duly given when sent electronically or personally delivered when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid or when delivered by a private courier service such as UPS, DHL or Federal Express
that has tracking capability. In the case of Executive, notices will be sent to the e-mail address or addressed to Executive at the
home address, in either case which Executive most recently communicated to the Company in writing. In the case of the Company,
electronic notices will be sent to the e-mail address of the Chief Executive Officer and the General Counsel and mailed notices will
be addressed to its corporate headquarters, and all notices will be directed to the attention of its Chief Executive Officer and
General Counsel.
(b) Notice of Termination. Any termination by the Company for Cause or by Executive for Good Reason will be
communicated by a notice of termination to the other party hereto given in accordance with Section 8 of this Agreement. Such
notice will indicate the specific termination provision in this Agreement relied upon, will set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination under the provision so indicated, and will specify the termination date
(which will be not more than ninety (90) days after the giving of such notice).
9.
Miscellaneous Provisions.
(a) No Duty to Mitigate. Executive will not be required to mitigate the
amount of any payment contemplated by this Agreement, nor will any such payment be reduced by any earnings that Executive
may receive from any other source.
(b) Waiver. No provision of this Agreement will be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing and signed by Executive and by an authorized
officer of the Company (other than Executive). No waiver by either party of any breach of, or of compliance with, any condition or
provision of this Agreement by the other party will be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(c) Headings. All captions and section headings used in this Agreement are
for convenient reference only and do not form a part of this Agreement.
(d) Entire Agreement. This Agreement constitutes the entire agreement of the
parties hereto and supersedes in their entirety all prior representations, understandings, undertakings or agreements (whether oral or
written and whether expressed or implied) of the parties with respect
Exhibit 10.32
to the subject matter hereof. No waiver, alteration, or modification of any of the provisions of this Agreement will be binding
unless in writing and signed by duly authorized representatives of the parties hereto and which specifically mention this
Agreement.
(e) Choice of Law. The validity, interpretation, construction and performance
of this Agreement will be governed by the laws of the Commonwealth of Virginia (with the exception of its conflict of laws
provisions). Any claims or legal actions by one party against the other arising out of the relationship between the parties
contemplated herein (whether or not arising under this Agreement) will be commenced or maintained in any state or federal court
located in the jurisdiction where Executive resides, and Executive and the Company hereby submit to the jurisdiction and venue of
any such court
(f) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement will not affect the validity or enforceability of any other provision hereof, which will remain in full
force and effect.
(g) Withholding. All payments made pursuant to this Agreement will be
subject to withholding of applicable income, employment and other taxes.
(h) Counterparts. This Agreement may be executed in counterparts, each of
which will be deemed an original, but all of which together will constitute one and the same instrument.
[Signature Page to Follow]
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its
duly authorized officer, as of the day and year set forth below.
Exhibit 10.32
COMPANY
COMSCORE, INC.
EXECUTIVE
By:
Name:
Title:
Date:
Christiana Lin
EVP, General Counsel Chief Privacy Officer
September 28, 2015
By:
Name: William Livek
Date:
September 28, 2015
COMSCORE, INC.
Stock Option Grant Notice
Exhibit 10.33
Pursuant to the terms and conditions of the comScore, Inc. 2018 Equity and Incentive Compensation Plan, as may be
amended from time to time (the “Plan”), comScore, Inc., a Delaware corporation (the “Company”), hereby grants to the individual
listed below (“you” or the “Grantee”) the right and option to purchase all or any part of the number of shares of Common Stock set
forth below (“Option”) on the terms and conditions set forth herein (this “Grant Notice”) and in the Stock Option Agreement
attached hereto as Exhibit A (the “Agreement”) and the Plan, each of which is incorporated herein by reference. Capitalized terms
used but not defined herein shall have the meanings set forth in the Plan.
Type of Option:
Non-Qualified Stock Option
Grantee:
Date of Grant:
Total Number of Shares Subject
to this Option:
Exercise Price:
Expiration Date:
Vesting Schedule:
Subject to the Agreement, the Plan and the other terms and conditions set forth herein, this
Option shall vest and become exercisable in accordance with the following schedule, so long
as you remain in continuous service with the Company or a Subsidiary from the Date of Grant
through each such vesting date:
[Notwithstanding the foregoing, this Option shall immediately become fully vested if, within
one year following a Change in Control your service relationship with the Company or a
Subsidiary is terminated (i) by the Company without Cause (as defined in your Change of
Control and Severance Agreement with the Company (the “COC/Severance Agreement”)) or
(ii) by you for Good Reason (as defined in the COC/Severance Agreement).]
By your signature below, you agree to be bound by the terms and conditions of the Plan, the Agreement and this Grant
Notice. You acknowledge that you have reviewed the Agreement, the Plan and this Grant Notice in their entirety and fully
understand all provisions of the Agreement, the Plan and this Grant Notice. You hereby agree to accept as binding, conclusive and
final all decisions or interpretations of the Committee regarding any questions or determinations that arise under the Agreement, the
Plan or this Grant Notice. This Grant Notice may be executed in one or more counterparts (including electronic and facsimile
counterparts), each of which shall be deemed to be an original, but all of which together shall constitute one and the same
agreement.
IN ORDER TO RECEIVE THE BENEFITS OF THE AGREEMENT AND THIS GRANT NOTICE, AND FOR THE AWARD
TO BE EFFECTIVE, GRANTEE MUST ACCEPT THE AWARD
IN THE COMPANY’S ONLINE EQUITY
ADMINISTRATION SYSTEM. IF GRANTEE FAILS TO SATISFY THE ACCEPTANCE REQUIREMENT WITHIN 90 DAYS
AFTER THE DATE OF GRANT, THEN (1) THE AGREEMENT AND THIS GRANT NOTICE WILL BE OF NO FORCE OR
EFFECT AND THE OPTION GRANTED HEREIN WILL BE AUTOMATICALLY FORFEITED TO THE COMPANY
WITHOUT CONSIDERATION, AND (2) NEITHER GRANTEE NOR THE COMPANY WILL HAVE ANY FUTURE RIGHTS
OR OBLIGATIONS UNDER THIS AGREEMENT.
[SIGNATURES ON FOLLOWING PAGE]
Exhibit 10.33
2
IN WITNESS WHEREOF, the Company has caused this Grant Notice to be executed by an officer thereunto duly
authorized, and the Grantee has executed this Grant Notice, effective for all purposes as provided above.
Exhibit 10.33
COMSCORE, INC.
By:
Name:
Title:
GRANTEE
Name:
SIGNATURE PAGE TO
STOCK OPTION GRANT NOTICE
EXHIBIT A
Stock Option Agreement
Exhibit 10.33
This Stock Option Agreement (together with the Grant Notice to which this Agreement is attached, this “Agreement”) is
made as of the Date of Grant set forth in the Grant Notice to which this Agreement is attached by and between comScore, Inc., a
Delaware corporation (the “Company”), and [●] (the “Grantee”). Capitalized terms used but not specifically defined herein shall
have the meanings specified in the Plan or the Grant Notice.
1.
Award. Effective as of the Date of Grant set forth in the Grant Notice (the “Date of Grant”), the Company hereby
irrevocably grants to the Grantee the right and option (“Option”) to purchase all or any part of an aggregate of the number of shares
of Common Stock set forth in the Grant Notice on the terms and conditions set forth herein and in the Plan, which Plan is
incorporated herein by reference as a part of this Agreement. In the event of any conflict between the terms of this Agreement and
the Plan, the Plan shall control. This Option constitutes an Option Right under the Plan and shall be treated as an option that is not
intended to be an Incentive Stock Option.
2.
Exercise Price. The exercise price of each share of Common Stock subject to this Option shall be the exercise
price set forth in the Grant Notice (the “Exercise Price”), which has been determined to be not less than the Market Value per
Share on the Date of Grant. For all purposes of this Agreement, the Market Value per Share shall be determined in accordance with
the provisions of the Plan.
3.
Exercise of Option.
(a) Subject to the earlier expiration of this Option as provided herein, this Option may be exercised, by (i)
providing written notice to the Company in the form prescribed by the Committee from time to time at any time and from time to
time after the Date of Grant, which notice shall be delivered to the Company in the form, and in the manner, designated by the
Committee from time to time, and (ii) paying the Exercise Price in full in a manner permitted by Section 3(d); provided, however,
that this Option shall not be exercisable for more than the percentage of the aggregate number of shares of Common Stock subject
to this Option with respect to which this Option has become vested and exercisable pursuant to the vesting schedule set forth in the
Grant Notice or as provided in this Section 3.
(b) This Option may be exercised only while the Grantee remains an employee or other service provider of the
Company or a Subsidiary and will terminate and cease to be exercisable upon a termination of the Grantee’s continuous service
with the Company or a Subsidiary, except that:
(i) Termination Due to Death or Disability. Upon a termination of the Grantee’s service with the Company
or a Subsidiary due to the Grantee’s death or Disability (as defined in the [Grantee’s Change of Control and Severance
Agreement with the Company (the “COC/Severance Agreement”)]), then the portion of this Option that is vested may be
A-1
Exhibit 10.33
exercised by the Grantee (or the Grantee’s estate or the person who acquires this Option by will or the laws of descent and
distribution or otherwise by reason of the death of the Grantee) at any time during the period ending on the earlier to occur
of (A) the date that is one year following the date of such termination or (B) the Expiration Date set forth in the Grant
Notice (the “Expiration Date”).
(ii) Termination Without Cause or Resignation. Upon a termination of the Grantee’s service with the
Company or a Subsidiary (A) by the Company or a Subsidiary without Cause (as defined in the COC/Severance
Agreement) or (B) by the Grantee, then the portion of this Option that is vested may be exercised by the Grantee (or the
Grantee’s estate or the person who acquires this Option by will or the laws of descent and distribution or otherwise by
reason of the death of the Grantee) at any time during the period ending on the earlier to occur of (x) the date that is 90 days
following the date of such termination or (y) the Expiration Date.
(iii) Termination for Cause. Upon a termination of the Grantee’s service with the Company or a Subsidiary
by the Company or a Subsidiary for Cause, then this Option shall immediately terminate and cease to be exercisable as of
the date of such termination.
(iv) Extension of Exercisability. If the exercise of this Option within the applicable time periods set forth
above is prevented by the provisions of Section 8, this Option will remain exercisable until 30 days after the date the
Grantee is notified by the Company that this Option is exercisable, but in any event no later than the Expiration Date. If a
sale of shares acquired upon the exercise of this Option would subject the Grantee to suit under Section 16(b) of the
Exchange Act, then this Option will remain exercisable until the earliest to occur of (A) the 30th day following the date on
which a sale of such shares by the Grantee would no longer be subject to such suit or (B) the Expiration Date set forth in the
Grant Notice. The Company makes no representation as to the tax consequences of any such delayed exercise. The Grantee
should consult with the Grantee’s own tax advisor as to the tax consequences of any such delayed exercise.
(c) This Option shall not be exercisable in any event after the Expiration Date set forth in the Grant Notice.
(d) The Exercise Price for the shares of Common Stock as to which this Option is exercised shall be paid in full at
the time of exercise (i) in cash (including check, bank draft or money order payable to the order of the Company or wire transfer of
immediately available funds), (ii) if permitted by the Committee in its sole discretion, by delivering or constructively tendering to
the Company shares of Common Stock having a Market Value per Share equal to the Exercise Price (provided such shares used for
this purpose must have been held by the Grantee for such minimum period of time as may be established from time to time by the
Committee to avoid adverse accounting consequences), (iii) if permitted by the Committee in its sole discretion, through a
“cashless exercise” in accordance with a Company-established policy or program for the same, (iv) if permitted by the Committee
in its sole discretion, by “net issuance exercise” pursuant to which the Company reduces the number of shares of Common Stock
otherwise deliverable upon
A-2
Exhibit 10.33
exercise of this Option by a number of shares with an aggregate Market Value per Share equal to the aggregate Exercise Price at the
time of exercise or (v) any combination of the foregoing. No fraction of a share of Common Stock shall be issued by the Company
upon exercise of an Option or accepted by the Company in payment of the exercise price thereof; rather, the Grantee shall provide a
cash payment for such amount as is necessary to effect the issuance and acceptance of only whole shares of Common Stock.
4.
Service Relationship. For purposes of this Agreement, “continuous service” (or substantially similar terms)
means the absence of any interruption or termination of the Grantee’s service as an Employee, Director or consultant to the
Company or a Subsidiary. Continuous service shall not be considered interrupted or terminated in the case of transfers between
locations of the Company and its Subsidiaries. Further, continuous service shall not be considered interrupted or terminated in the
case of the Grantee’s cessation of service as an Employee, Director or consultant to the Company or a Subsidiary (each, a
“Participant Class”) so long as the Grantee continues serving in another Participant Class. Without limiting the scope of the
preceding sentence, it is expressly provided that the Grantee shall be considered to have terminated service with the Company (a)
when the Grantee ceases to be in the service of any of the Company, a Subsidiary, or a corporation or other entity (or a parent or
subsidiary of such corporation or other entity) assuming or substituting a new option for this Option or (b) at the time of the
termination of the “Subsidiary” status under the Plan of the corporation or other entity that engages the Grantee.
5.
Rights as a Stockholder.
(a) The Grantee shall have no rights of ownership in the Common Stock underlying this Option (including no
rights to receive dividends) and no right to vote the Common Stock underlying this Option until the date on which the Common
Stock underlying this Option is issued or transferred to the Grantee pursuant to Section 3 above.
(b) The obligations of the Company under this Agreement will be merely that of an unfunded and unsecured
promise of the Company to deliver Common Stock in the future, and the rights of the Grantee will be no greater than that of an
unsecured general creditor. No assets of the Company will be held or set aside as security for the obligations of the Company under
this Agreement.
6.
Adjustments. This Option and the number of shares of Common Stock underlying this Option, and the other
terms and conditions of the grant evidenced by this Agreement, are subject to mandatory adjustment, including as provided in
Section 11 of the Plan.
7.
Withholding Taxes.
(a) To the extent that the Company is required to withhold federal, state, local or foreign taxes or other amounts in
connection with the delivery to the Grantee of Common Stock or any other payment to the Grantee or any other payment or vesting
event under this Agreement, the Grantee agrees that the Grantee will satisfy such requirement in a manner determined by the
Committee prior to any payment to the Grantee, including a “sell to cover” transaction through a bank or broker. It shall be a
condition to the obligation of the Company to make any such delivery
A-3
Exhibit 10.33
or payment that the Grantee has satisfied such requirement in the form or manner specified by the Company. In no event will the
market value of the Common Stock to be withheld, sold and/or delivered pursuant to this Section 7 to satisfy applicable
withholding taxes exceed the maximum amount of taxes or other amounts that could be required to be withheld without creating
adverse accounting treatment for the Company with respect to this award, as determined by the Committee.
(b) The Grantee acknowledges that there may be adverse tax consequences upon the receipt, vesting or exercise of
this award or disposition of the underlying shares and that the Grantee has been advised, and hereby is advised, to consult a tax
advisor. The Grantee represents that the Grantee is in no manner relying on the Board, the Committee, the Company or a
Subsidiary or any of their respective managers, directors, officers, employees or authorized representatives (including attorneys,
accountants, consultants, bankers, lenders, prospective lenders and financial representatives) for tax advice or an assessment of
such tax consequences.
8.
Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal and
state securities laws and the requirements of any stock exchange or market system upon which the Common Stock may then be
listed; provided, however, notwithstanding any other provision of the Plan and this Agreement, the Company shall not be obligated
to issue any Common Stock pursuant to this Agreement if the issuance thereof would result in a violation of any such law.
9.
Acknowledgements Regarding Section 409A of the Code. The Grantee understands that if the Exercise Price of
the Common Stock under this Option is less than the fair market value of the Company’s common stock on the Date of Grant of
this Option, then the Grantee may incur adverse tax consequences under Section 409A of the Code. The Grantee acknowledges and
agrees that (a) the Grantee is not relying upon any determination by the Company, any Subsidiary or any of their respective
employees, directors, managers, officers, attorneys or agents (collectively, the “Company Parties”) of the fair market value on the
Date of Grant of this Option, (b) the Grantee is not relying upon any written or oral statement or representation of any of the
Company Parties regarding the tax effects associated with the Grantee’s execution of this Agreement and the Grantee’s receipt,
holding and exercise of this Option, and (c) in deciding to enter into this Agreement, the Grantee is relying on the Grantee’s own
judgment and the judgment of the professionals of the Grantee’s choice with whom the Grantee has consulted. The Grantee hereby
releases, acquits and forever discharges the Company Parties from all actions, causes of actions, suits, debts, obligations, liabilities,
claims, damages, losses, costs and expenses of any nature whatsoever, known or unknown, on account of, arising out of, or in any
way related to the tax effects associated with the Grantee’s execution of this Agreement and the Grantee’s receipt, holding and
exercise of this Option.
10.
Headings; References; Interpretation. Headings are for convenience only and are not deemed to be part of this
Agreement. The words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to
this Agreement as a whole, and not to any particular provision of this Agreement. All references herein to Sections shall, unless the
context requires a different construction, be deemed to be references to the Sections of this Agreement. The word “or” as used
herein is not exclusive and is deemed to have the meaning “and/or.” All references to “including” shall be construed as meaning
“including without limitation.”
A-4
Exhibit 10.33
Unless the context requires otherwise, all references herein to a law, agreement, instrument or other document shall be deemed to
refer to such law, agreement, instrument or other document as amended, supplemented, modified and restated from time to time to
the extent permitted by the provisions thereof. All references to “dollars” or “$” in this Agreement refer to United States dollars.
Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural and vice versa. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party hereto, whether under any rule of construction or otherwise. On
the contrary, this Agreement has been reviewed by each of the parties hereto and shall be construed and interpreted according to the
ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of the parties hereto. Any reference in
this Agreement to Section 409A of the Code will also include any proposed, temporary or final regulations, or any other guidance,
promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.
11.
No Right to Future Awards or Employment. The grant of the Option under this Agreement to the Grantee is a
voluntary, discretionary award being made on a one-time basis and it does not constitute a commitment to make any future awards.
The grant of this Option and any payments made hereunder will not be considered salary or other compensation for purposes of any
severance pay or similar allowance, except as otherwise required by law. Nothing contained in this Agreement shall confer upon
the Grantee any right to be employed or remain employed by the Company or any of its Subsidiaries, nor limit or affect in any
manner the right of the Company or any of its Subsidiaries to terminate the employment or adjust the compensation of the Grantee.
12.
Relation to Other Benefits. Any economic or other benefit to the Grantee under this Agreement or the Plan shall
not be taken into account in determining any benefits to which the Grantee may be entitled under any profit-sharing, retirement or
other benefit or compensation plan maintained by the Company or any of its Subsidiaries and shall not affect the amount of any life
insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or any of its
Subsidiaries.
13.
Entire Agreement; Amendment. This Agreement constitutes the entire agreement of the parties with regard to
the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties
with respect to this Option; provided, however, that the terms of this Agreement shall not modify and shall be subject to the terms
and conditions of any employment, consulting and/or severance agreement between the Company (or a Subsidiary or other entity)
and the Grantee in effect as of the date a determination is to be made under this Agreement. Without limiting the scope of the
preceding sentence, except as provided therein, all prior understandings and agreements, if any, among the parties hereto relating to
the subject matter hereof are hereby null and void and of no further force and effect. Any amendment to the Plan shall be deemed to
be an amendment to this Agreement to the extent that the amendment is applicable hereto, and the Committee has the right to
amend, alter, suspend, discontinue or cancel this Option, prospectively or retroactively; provided, however, that (a) no amendment
shall adversely affect the rights of the Grantee under this Agreement without the Grantee’s written consent, and (b) the Grantee’s
consent shall not be required to an amendment that is deemed necessary by the
A-5
Exhibit 10.33
Company to ensure compliance with Section 409A of the Code or Section 10D of the Exchange Act.
14.
Severability and Waiver. In the event that one or more of the provisions of this Agreement shall be invalidated
for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other
provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable. Waiver by any party of any
breach of this Agreement or failure to exercise any right hereunder shall not be deemed to be a waiver of any other breach or right.
The failure of any party to take action by reason of such breach or to exercise any such right shall not deprive the party of the right
to take action at any time while or after such breach or condition giving rise to such rights continues.
15.
Relation to Plan. This Agreement is subject to the terms and conditions of the Plan. In the event of any
inconsistency between the provisions of this Agreement and the Plan, the Plan shall govern. The Committee acting pursuant to the
Plan, as constituted from time to time, shall, except as expressly provided otherwise herein or in the Plan, have the right to
determine any questions which arise in connection with this Agreement.
16.
Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to this Option and
the Grantee’s participation in the Plan, or future awards that may be granted under the Plan, by electronic means or request the
Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by
electronic delivery and, if requested, agrees to participate in the Plan through an online or electronic system established and
maintained by the Company or another third party designated by the Company.
17.
Governing Law. This Agreement shall be governed by and construed with the internal substantive laws of the
State of Delaware, without giving effect to any principle of law that would result in the application of the law of any other
jurisdiction.
18.
Successors and Assigns. Without limiting Section 21 hereof, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Grantee, and the
successors and assigns of the Company.
19.
Acknowledgement. The Grantee acknowledges that the Grantee (a) has received a copy of the Plan, (b) has had
an opportunity to review the terms of this Agreement and the Plan, (c) understands the terms and conditions of this Agreement and
the Plan and (d) agrees to such terms and conditions.
20.
Counterparts. The Grant Notice may be executed in one or more counterparts, each of which shall be deemed to
be an original but all of which together will constitute one and the same agreement. Delivery of an executed counterpart of the
Grant Notice by facsimile or in electronic format shall be effective as delivery of a manually executed counterpart of the Grant
Notice.
A-6
Exhibit 10.33
21.
Restrictions on Transfer of Option. Subject to Section 15 of the Plan, this Option shall not be transferable by
the Grantee other than by will or pursuant to the laws of descent and distribution, and this Option shall be exercisable, during the
Grantee’s lifetime, only by the Grantee.
22.
Company Recoupment of Awards. Notwithstanding anything in this Agreement to the contrary, the Grantee
acknowledges and agrees that this Agreement and the award described herein are subject to the terms and conditions of the
Company’s clawback policy (if any) as may be in effect from time to time specifically to implement Section 10D of the Exchange
Act and any applicable rules or regulations promulgated thereunder (including applicable rules and regulations of any national
securities exchange on which the Common Stock may be traded).
23.
Notices. All notices and other communications under this Agreement shall be in writing and shall be delivered to
the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
If to the Company, unless otherwise designated by the Company in a written notice to the Grantee (or other holder):
comScore, Inc.
Attn: General Counsel
11950 Democracy Drive, Suite 600
Reston, Virginia 20190
If to the Grantee, at the Grantee’s last known address on file with the Company.
Any notice that is delivered personally or by overnight courier or telecopier in the manner provided herein shall be deemed to have
been duly given to the Grantee when it is mailed by the Company or, if such notice is not mailed to the Grantee, upon receipt by the
Grantee. Any notice that is addressed and mailed in the manner herein provided shall be conclusively presumed to have been given
to the party to whom it is addressed at the close of business, local time of the recipient, on the fourth day after the day it is so
placed in the mail.
[Remainder of Page Intentionally Blank]
A-7
COMSCORE, INC.
Deferred Stock Units Award Agreement
Exhibit 10.34
This DEFERRED STOCK UNITS AWARD AGREEMENT (this “Agreement”) is made as of [●] (the “Date of Grant”), by
and between comScore, Inc., a Delaware corporation (the “Company”), and [●] (the “Grantee”).
1.
Certain Definitions. Capitalized terms used, but not otherwise defined, in this Agreement will have the meanings
given to such terms in the comScore, Inc. 2018 Equity and Incentive Compensation Plan (the “Plan”).
2. Grant of DSUs. Subject to and upon the terms, conditions and restrictions set forth in this Agreement and in the Plan,
pursuant to authorization under a resolution of the Committee, the Company has granted to the Grantee as the Date of Grant [●]
deferred stock units (“DSUs”), which shall constitute an award of Restricted Stock Units under the Plan. Each DSU shall represent
the right of the Grantee to receive one share of Common Stock subject to and upon the terms and conditions of this Agreement. The
DSUs covered by this Agreement are fully vested and nonforfeitable.
3. Restrictions on Transfer of DSUs. Subject to Section 15 of the Plan, neither the DSUs evidenced hereby nor any
interest therein or in the shares of Common Stock underlying such DSUs shall be transferable prior to payment to the Grantee
pursuant to Section 4 hereof other than by will or pursuant to the laws of descent and distribution.
4. Form and Time of Payment of DSUs.
(a) Payment for the DSUs shall be made in the form of Common Stock. The DSUs will become payable upon the
earlier to occur of the following:
(i) The Grantee’s “separation from service” with the Company and its Subsidiaries within the meaning of
Section 409A(a)(2)(A)(i) of the Code; or
(ii) The occurrence of a Change in Control, so long as such Change in Control qualifies as a “change in
control event” within the meaning of Section 409A(a)(2)(A)(v) of the Code.
The date of settlement of the DSUs that become payable pursuant to this Section 4(a) shall be (A) as soon as administratively
practicable following (but no later than 30 days following) the date that is six months following the Grantee’s separation from
service if the DSUs become payable pursuant to clause (i) above, or (B) the date of the occurrence of the Change in Control, if the
DSUs become payable pursuant to clause (ii) above.
(b) The Company’s obligations to the Grantee with respect to the DSUs will be satisfied in full upon the issuance
or transfer of Common Stock corresponding to such DSUs.
5. Dividend Equivalents; Voting and Other Rights.
Exhibit 10.34
(a) The Grantee shall have no rights of ownership in the Common Stock underlying the DSUs and no right to vote
the Common Stock underlying the DSUs until the date on which the Common Stock underlying the DSUs is issued or transferred
to the Grantee pursuant to Section 4 above.
(b) From and after the Date of Grant and until the time when the DSUs are paid in accordance with Section 4
hereof, on the date that the Company pays a cash dividend (if any) to holders of Common Stock generally, the Grantee shall be
credited with cash per DSU equal to the amount of such dividend. Any amounts credited pursuant to the immediately preceding
sentence shall be subject to the same applicable terms and conditions (including payment) as apply to the DSUs based on which the
dividend equivalents were credited, and such amounts shall be paid in cash at the same time as the DSUs to which they relate are
settled.
(c) The obligations of the Company under this Agreement will be merely that of an unfunded and unsecured
promise of the Company to deliver Common Stock in the future, and the rights of the Grantee will be no greater than that of an
unsecured general creditor. No assets of the Company will be held or set aside as security for the obligations of the Company under
this Agreement.
6. Adjustments. The DSUs and the number of shares of Common Stock issuable for each DSU, and the other terms and
conditions of the grant evidenced by this Agreement, are subject to mandatory adjustment, including as provided in Section 11 of
the Plan.
7. Withholding Taxes. To the extent that the Company is required to withhold federal, state, local or foreign taxes or other
amounts in connection with the delivery to the Grantee of Common Stock or any other payment to the Grantee or any other
payment event under this Agreement, the Grantee agrees that the Grantee will satisfy such requirement in a manner determined by
the Committee prior to any payment to the Grantee, including but not limited to a “sell to cover” transaction through a bank or
broker. It shall be a condition to the obligation of the Company to make any such delivery or payment that the Grantee has satisfied
such requirement in the form or manner specified by the Company. In no event will the market value of the Common Stock to be
withheld, sold and/or delivered pursuant to this Section 7 to satisfy applicable withholding taxes exceed the maximum amount of
taxes or other amounts that could be required to be withheld without creating adverse accounting treatment for the Company with
respect to the award of DSUs covered by this Agreement, as determined by the Committee.
8. Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal and state
securities laws; provided, however, notwithstanding any other provision of the Plan and this Agreement, the Company shall not be
obligated to issue any Common Stock pursuant to this Agreement if the issuance thereof would result in a violation of any such
law.
9. Compliance with or Exemption from Section 409A of the Code. To the extent applicable, it is intended that this
Agreement and the Plan comply with the provisions of Section 409A of the Code. This Agreement and the Plan shall be
administered in a manner consistent with this intent, and any provision that would cause this Agreement or the Plan to fail to
satisfy Section 409A of the Code shall have no force or effect until amended to comply with Section 409A of the
2
Exhibit 10.34
Code (which amendment may be retroactive to the extent permitted by Section 409A of the Code and may be made by the
Company without the consent of the Grantee). Notwithstanding the foregoing, the Company makes no representations that the
payments and benefits provided under this Agreement comply with Section 409A of the Code, and in no event shall the Company
be liable for all or any portion of any taxes, penalties, interest, or other expenses that may be incurred by the Grantee on account of
non-compliance with Section 409A of the Code.
10. Interpretation. Any reference in this Agreement to Section 409A of the Code will also include any proposed,
temporary or final regulations, or any other guidance, promulgated with respect to such Section by the U.S. Department of the
Treasury or the Internal Revenue Service.
11. No Right to Future Awards or Employment. The grant of the DSUs under this Agreement to the Grantee is a
voluntary, discretionary award being made on a one-time basis and it does not constitute a commitment to make any future awards.
The grant of the DSUs and any payments made hereunder will not be considered salary or other compensation for purposes of any
severance pay or similar allowance, except as otherwise required by law. Nothing contained in this Agreement shall confer upon
the Grantee any right to be employed or remain employed by the Company or any of its Subsidiaries, nor limit or affect in any
manner the right of the Company or any of its Subsidiaries to terminate the employment or adjust the compensation of the Grantee.
12. Relation to Other Benefits. Any economic or other benefit to the Grantee under this Agreement or the Plan shall not
be taken into account in determining any benefits to which the Grantee may be entitled under any profit-sharing, retirement or other
benefit or compensation plan maintained by the Company or any of its Subsidiaries and shall not affect the amount of any life
insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or any of its
Subsidiaries.
13. Entire Agreement; Amendments. This Agreement constitutes the entire agreement of the parties with respect to the
subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with
respect to the grant of the DSUs. Without limiting the scope of the preceding sentence, all prior understandings and agreements
among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect. Any
amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable
hereto, and the Committee has the right to amend, alter, suspend, discontinue or cancel the DSUs, prospectively or retroactively;
provided, however, that (a) no amendment shall adversely affect the rights of the Grantee under this Agreement without the
Grantee’s written consent, and (b) the Grantee’s consent shall not be required to an amendment that is deemed necessary by the
Company to ensure compliance with Section 409A of the Code or Section 10D of the Exchange Act.
14. Severability and Waiver. In the event that one or more of the provisions of this Agreement shall be invalidated for
any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other
provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable. Waiver by any party of any
breach of this Agreement or failure to exercise any right hereunder shall not be deemed to be a
3
Exhibit 10.34
waiver of any other breach or right. The failure of any party to take action by reason of such breach or to exercise any such right
shall not deprive the party of the right to take action at any time while or after such breach or condition giving rise to such right
continues.
15. Relation to Plan. This Agreement is subject to the terms and conditions of the Plan. In the event of any inconsistency
between the provisions of this Agreement and the Plan, the Plan shall govern. The Committee acting pursuant to the Plan, as
constituted from time to time, shall, except as expressly provided otherwise herein or in the Plan, have the right to determine any
questions which arise in connection with this Agreement, and the resolution of any such questions by the Committee shall be final
and binding on the Grantee and the Company.
16. Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to the DSUs and the
Grantee’s participation in the Plan, or future awards that may be granted under the Plan, by electronic means or request the
Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by
electronic delivery and, if requested, agrees to participate in the Plan through an online or electronic system established and
maintained by the Company or another third party designated by the Company.
17. Governing Law. This Agreement shall be governed by and construed with the internal substantive laws of the State of
Delaware, without giving effect to any principle of law that would result in the application of the law of any other jurisdiction.
18. Successors and Assigns. Without limiting Section 3 hereof, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Grantee, and the successors
and assigns of the Company.
19. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument. Delivery of an executed counterpart of the Agreement by facsimile or
in electronic format shall be effective as delivery of a manually executed counterpart of the Agreement.
20. Acknowledgement. The Grantee acknowledges that the Grantee (a) has received a copy of the Plan, (b) has had an
opportunity to review the terms of this Agreement and the Plan, (c) understands the terms and conditions of this Agreement and the
Plan and (d) agrees to such terms and conditions.
21. Company Recoupment of Awards. Notwithstanding anything in this Agreement to the contrary, the Grantee
acknowledges and agrees that this Agreement and the award described herein are subject to the terms and conditions of the
Company’s clawback policy (if any) as may be in effect from time to time specifically to implement Section 10D of the Exchange
Act and any applicable rules or regulations promulgated thereunder (including applicable rules and regulations of any national
securities exchange on which the Common Stock may be traded).
IN ORDER TO RECEIVE THE BENEFITS OF THIS AGREEMENT, AND FOR THE AWARD TO BE EFFECTIVE,
GRANTEE MUST ACCEPT THE AWARD IN THE COMPANY’S ONLINE
4
EQUITY ADMINISTRATION SYSTEM. IF GRANTEE FAILS TO SATISFY THE ACCEPTANCE REQUIREMENT WITHIN
90 DAYS AFTER THE DATE OF GRANT, THEN (1) THIS AGREEMENT WILL BE OF NO FORCE OR EFFECT AND THE
AWARD GRANTED HEREIN WILL BE AUTOMATICALLY FORFEITED TO THE COMPANY WITHOUT
CONSIDERATION, AND (2) NEITHER GRANTEE NOR THE COMPANY WILL HAVE ANY FUTURE RIGHTS OR
OBLIGATIONS UNDER THIS AGREEMENT.
Exhibit 10.34
[SIGNATURES ON FOLLOWING PAGE]
5
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by an officer thereunto duly
authorized, and the Grantee has executed this Agreement, effective for all purposes as provided above.
Exhibit 10.34
COMSCORE, INC.
By:
Name:
Title:
GRANTEE
Name:
SIGNATURE PAGE TO
DEFERRED STOCK UNITS AWARD AGREEMENT
COMSCORE, INC.
Performance Restricted Stock Units Award Agreement
This PERFORMANCE RESTRICTED STOCK UNITS AWARD AGREEMENT (this “Agreement”) is made as of [●] (the
“Date of Grant”), by and between comScore, Inc., a Delaware corporation (the “Company”), and [●] (the “Grantee”).
Exhibit 10.35
1.
Certain Definitions. Capitalized terms used, but not otherwise defined, in this Agreement will have the meanings
given to such terms in the comScore, Inc. 2018 Equity and Incentive Compensation Plan (the “Plan”).
2.
Grant of PRSUs. Subject to and upon the terms, conditions and restrictions set forth in this Agreement and in the
Plan, pursuant to authorization under a resolution of the Committee, the Company has granted to the Grantee as of the Date of
Grant [●] performance-based Restricted Stock Units (“PRSUs”), which shall constitute an award of Performance Shares under the
Plan. Subject to the degree of attainment of the performance goals established for these PRSUs as set forth in Sections 5(a) and
5(b), the Grantee may earn up to a maximum of 100% of the PRSUs. Each earned PRSU shall then represent the right of the
Grantee to receive one share of Common Stock subject to and upon the terms and conditions of this Agreement.
3.
Payment of PRSUs. The PRSUs will become payable in accordance with the provisions of Section 6 of this
Agreement if the Restriction Period lapses and Grantee’s right to receive payment for the PRSUs becomes nonforfeitable (“Vest,”
“Vesting” or “Vested”) in accordance with Section 5 of this Agreement.
4.
Restrictions on Transfer of PRSUs. Subject to Section 15 of the Plan, neither the PRSUs evidenced hereby nor
any interest therein or in the shares of Common Stock underlying such PRSUs shall be transferable prior to payment to the Grantee
pursuant to Section 6 hereof other than by will or pursuant to the laws of descent and distribution.
5.
Earning and Vesting of PRSUs.
(a) Performance Periods. Subject to the terms and conditions of this Agreement, a number of PRSUs determined
in accordance with Section 5(b) shall Vest on [●] (each such date, a “Vesting Date” and each [●] period ending on each Vesting
Date, a “Performance Period”) to the extent that the Stock-Price Hurdle (as defined below) is achieved during such Performance
Period, subject to the Grantee’s continuous service with the Company or a Subsidiary through the applicable Vesting Date. For
purposes of this Agreement, “continuous service” (or substantially similar terms) means the absence of any interruption or
termination of the Grantee’s service as an Employee, Director or consultant to the Company or a Subsidiary. Continuous service
shall not be considered interrupted or terminated in the case of transfers between locations of the Company and its Subsidiaries.
Further, continuous service shall not be considered interrupted or terminated in the case of the Grantee’s cessation of service as an
Employee, Director or consultant to the Company or a Subsidiary (each, a “Participant Class”), so long as the Grantee continues
serving in another Participant Class.
(b) Performance Goals. A number of PRSUs will be earned based on achievement of the Stock-Price Hurdle
during each applicable Performance Period as follows:
Stock-Price Hurdle
[●]
Percentage of PRSUs That Vest
[●]
Following each Vesting Date, the Committee shall determine whether and to what extent the Stock-Price Hurdle goals have been
satisfied as of such time for the applicable Performance Period and shall determine the number of PRSUs that shall become Vested
under this Agreement. As used herein, “Stock-Price Hurdle” means the highest Market Value per Share that is maintained during
any period of 65 consecutive trading days that fall within the applicable Performance Period. For purposes of this Agreement, any
Stock-Price Hurdle that is achieved during a period of 65 consecutive trading days that commences in one Performance Period and
ends in another Performance Period will be deemed to have been achieved in the later Performance Period. Further, following
achievement of any Stock-Price Hurdle during one Performance Period, the number of PRSUs earned with respect to such Stock-
Price Hurdle cannot subsequently be earned upon achievement of the same Stock-Price Hurdle during any subsequent Performance
Period.
(c) Change in Control. Notwithstanding Sections 5(a) or 5(b), if at any time before the PRSUs have become fully
Vested or forfeited, a Change in Control occurs, then on the date of such Change in Control, the PRSUs shall become Vested (to the
extent they have not already become Vested) by applying the per share price paid in connection with the Change in Control as the
“Stock-Price Hurdle” for purposes of determining attainment of the performance goals described in Section 5(b). Any PRSUs that
do not become Vested as of such time shall be immediately forfeited.
(d) Certain Terminations of Employment. Notwithstanding Section 5(a), upon the termination of the Grantee’s
service with the Company at any time before the PRSUs have become fully Vested or forfeited (i) by the Company without Cause
(as defined in the Grantee’s Change of Control and Severance Agreement with the Company (the “COC/Severance Agreement”)),
(ii) by the Grantee, or (iii) as a result of the Grantee’s death or Disability (as defined in the COC/Severance Agreement), the PRSUs
shall become Vested (to the extent they have not already become Vested) based on achievement, if any, of the Stock-Price Hurdle
during the period beginning on the most recent Vesting Date preceding the date of such termination and ending on the date of such
termination. Any PRSUs that do not become Vested as of such time shall be immediately forfeited.
(e) Forfeiture. Any PRSUs that have not Vested or become forfeited pursuant to Section 5 as of the end of the
tenth anniversary of the Date of Grant will be forfeited automatically and without further notice after the end of such tenth
anniversary (or earlier, with respect to all PRSUs covered under this Agreement that have not previously become Vested, if, and on
such date that, the Grantee ceases to be in continuous service with the Company or a Subsidiary prior to the tenth anniversary of the
Date of Grant for any reason).
2
6.
Form and Time of Payment of PRSUs.
(a) [Payment for the PRSUs, after and to the extent they have become nonforfeitable (“Vested PRSUs”), shall be
made in the form of Common Stock. To the extent the PRSUs are Vested PRSUs on the dates set forth in clauses (i) and (ii) below
and to the extent such Vested PRSUs have not previously been settled, the PRSUs will become payable upon the earlier to occur of
the following:
(i) The Grantee’s “separation from service” with the Company and its Subsidiaries within the meaning of
Section 409A(a)(2)(A)(i) of the Code; or
(ii) The occurrence of a Change in Control, so long as such Change in Control qualifies as a “change in
control event” within the meaning of Section 409A(a)(2)(A)(v) of the Code.
Subject to Section 6(b) below, the date of settlement of the Vested PRSUs that become payable pursuant to this Section 6(a) shall
be (A) as soon as administratively practicable following (but no later than 30 days following) the date of the Grantee’s separation
from service, if the Vested PRSUs become payable pursuant to clause (i) above, or (B) the date of the occurrence of the Change in
Control, if the Vested PRSUs become payable pursuant to clause (ii) above.
(b) If the PRSUs become payable on the Grantee’s “separation from service” with the Company and its
Subsidiaries within the meaning of Section 409A(a)(2)(A)(i) of the Code and the Grantee is a “specified employee” as determined
pursuant to procedures adopted by the Company in compliance with Section 409A of the Code, then, to the extent necessary to
comply with Section 409A of the Code, payment for the PRSUs shall be made on the first payroll date that occurs on or after the
date six months and one day following the date of the Grantee’s “separation from service.” Notwithstanding the foregoing, if the
Grantee dies following the Grantee’s “separation from service,” but before the six-month anniversary of the “separation from
service,” then any payment delayed in accordance with this Section 6(b) will be payable as soon as administratively practicable
after the date of the Grantee’s death.] [(a) Payment for the PRSUs, after and to the extent they have Vested, shall be made in the
form of shares of Common Stock. Payment of Vested PRSUs that Vest on or prior to [●] shall be made (i) on the first March 10
following the Vesting Date if the PRSUs vest in accordance with Section 5(a), (ii) as soon as practicable following the date that
such PRSUs Vest if the PRSUs Vest in accordance with Section 5(c), but no later than March 15 of the calendar year following the
calendar year in which the Change in Control occurs, and (iii) on the first March 10 following the end of the then-applicable
Performance Period if the PRSUs vest in accordance with Section 5(d). Payment of Vested PRSUs that Vest during the
Performance Period ending on [●] shall be made on [●]. If the date of settlement referenced in this Section 6(a) is not a trading day,
then such settlement date shall be deemed to mean the first trading date after such date. For the avoidance of doubt, the PRSUs
shall in all events be paid no later than required to satisfy the short-term deferral exemption under Section 409A of the Code.]
[(b)][(c)] The Company’s obligations to the Grantee with respect to the PRSUs will be satisfied in full upon the
issuance or transfer of Common Stock corresponding to any such earned PRSUs.
3
7.
Dividend Equivalents; Voting and Other Rights.
(a) The Grantee shall have no rights of ownership in the Common Stock underlying the PRSUs and no right to vote
the Common Stock underlying the PRSUs until the date on which the Common Stock underlying the PRSUs is issued or
transferred to the Grantee pursuant to Section 6 above.
(b) From and after the Date of Grant and until the earlier of (i) the time when the PRSUs Vest and are paid in
accordance with Section 6 hereof or (ii) the time when the Grantee’s right to receive Common Stock in payment of the PRSUs is
forfeited in accordance with Section 5 hereof, on the date that the Company pays a cash dividend (if any) to holders of Common
Stock generally, the Grantee shall be credited with cash per PRSU equal to the amount of such dividend. Any amounts credited
pursuant to the immediately preceding sentence shall be subject to the same applicable terms and conditions (including Vesting,
payment and forfeitability) as apply to the PRSUs based on which the dividend equivalents were credited, and such amounts shall
be paid in cash at the same time as the PRSUs to which they relate are settled.
(c) The obligations of the Company under this Agreement will be merely that of an unfunded and unsecured
promise of the Company to deliver Common Stock in the future, and the rights of the Grantee will be no greater than that of an
unsecured general creditor. No assets of the Company will be held or set aside as security for the obligations of the Company under
this Agreement.
8.
Adjustments. The PRSUs and the number of shares of Common Stock issuable for each PRSU and the other
terms and conditions of the grant evidenced by this Agreement are subject to mandatory adjustment, including as provided in
Section 11 of the Plan.
9.
Withholding Taxes. To the extent that the Company is required to withhold federal, state, local or foreign taxes or
other amounts in connection with the delivery to the Grantee of Common Stock or any other payment to the Grantee or any other
payment or vesting event under this Agreement, the Grantee agrees that the Grantee will satisfy such requirement in a manner
determined by the Committee prior to any payment to the Grantee, including but not limited to a “sell to cover” transaction through
a bank or broker. It shall be a condition to the obligation of the Company to make any such delivery or payment that the Grantee
has satisfied such requirement in the form or manner specified by the Company. In no event will the market value of the Common
Stock to be withheld, sold and/or delivered pursuant to this Section 9 to satisfy applicable withholding taxes exceed the maximum
amount of taxes or other amounts that could be required to be withheld without creating adverse accounting treatment for the
Company with respect to the award of PRSUs covered by this Agreement, as determined by the Committee.
10.
Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal and
state securities laws; provided, however, notwithstanding any other provision of the Plan and this Agreement, the Company shall
not be obligated to issue any Common Stock pursuant to this Agreement if the issuance thereof would result in a violation of any
such law.
4
11.
Compliance with or Exemption from Section 409A of the Code. To the extent applicable, it is intended that
this Agreement and the Plan comply with or be exempt from the provisions of Section 409A of the Code. This Agreement and the
Plan shall be administered in a manner consistent with this intent, and any provision that would cause this Agreement or the Plan to
fail to satisfy Section 409A of the Code shall have no force or effect until amended to comply with or be exempt from Section
409A of the Code (which amendment may be retroactive to the extent permitted by Section 409A of the Code and may be made by
the Company without the consent of the Grantee). Notwithstanding the foregoing, the Company makes no representations that the
payments and benefits provided under this Agreement comply with Section 409A of the Code, and in no event shall the Company
be liable for all or any portion of any taxes, penalties, interest, or other expenses that may be incurred by the Grantee on account of
non-compliance with Section 409A of the Code.
12.
Interpretation. Any reference in this Agreement to Section 409A of the Code will also include any proposed,
temporary or final regulations, or any other guidance, promulgated with respect to such Section by the U.S. Department of the
Treasury or the Internal Revenue Service.
13.
No Right to Future Awards or Employment. The grant of the PRSUs under this Agreement to the Grantee is a
voluntary, discretionary award being made on a one-time basis and it does not constitute a commitment to make any future awards.
The grant of the PRSUs and any payments made hereunder will not be considered salary or other compensation for purposes of any
severance pay or similar allowance, except as otherwise required by law. Nothing contained in this Agreement shall confer upon
the Grantee any right to be employed or remain employed by the Company or any of its Subsidiaries, nor limit or affect in any
manner the right of the Company or any of its Subsidiaries to terminate the employment or adjust the compensation of the Grantee.
14.
Relation to Other Benefits. Any economic or other benefit to the Grantee under this Agreement or the Plan shall
not be taken into account in determining any benefits to which the Grantee may be entitled under any profit-sharing, retirement or
other benefit or compensation plan maintained by the Company or any of its Subsidiaries and shall not affect the amount of any life
insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or any of its
Subsidiaries.
15.
Entire Agreement; Amendments. This Agreement constitutes the entire agreement of the parties with respect to
the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties
with respect to the grant of the PRSUs; provided, however, that the terms of this Agreement shall not modify the application of the
COC/Severance Agreement to the Grantee’s other awards under the Plan. Without limiting the scope of the preceding sentence,
except as provided therein, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter
hereof are hereby null and void and of no further force and effect. Any amendment to the Plan shall be deemed to be an amendment
to this Agreement to the extent that the amendment is applicable hereto, and the Committee has the right to amend, alter, suspend,
discontinue or cancel the PRSUs, prospectively or retroactively; provided, however, that (a) no amendment shall adversely affect
the rights of the Grantee under this Agreement without the Grantee’s written consent, and (b) the Grantee’s consent shall not be
5
required to an amendment that is deemed necessary by the Company to ensure compliance with Section 409A of the Code or
Section 10D of the Exchange Act.
16.
Severability and Waiver. In the event that one or more of the provisions of this Agreement shall be invalidated
for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other
provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable. Waiver by any party of any
breach of this Agreement or failure to exercise any right hereunder shall not be deemed to be a waiver of any other breach or right.
The failure of any party to take action by reason of such breach or to exercise any such right shall not deprive the party of the right
to take action at any time while or after such breach or condition giving rise to such right continues.
17.
Relation to Plan. This Agreement is subject to the terms and conditions of the Plan. In the event of any
inconsistency between the provisions of this Agreement and the Plan, the Plan shall govern. The Committee acting pursuant to the
Plan, as constituted from time to time, shall, except as expressly provided otherwise herein or in the Plan, have the right to
determine any questions which arise in connection with this Agreement, and the resolution of any such questions by the Committee
shall be final and binding on the Grantee and the Company.
18.
Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to the PRSUs and
the Grantee’s participation in the Plan, or future awards that may be granted under the Plan, by electronic means or request the
Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by
electronic delivery and, if requested, agrees to participate in the Plan through an online or electronic system established and
maintained by the Company or another third party designated by the Company.
19.
Governing Law. This Agreement shall be governed by and construed with the internal substantive laws of the
State of Delaware, without giving effect to any principle of law that would result in the application of the law of any other
jurisdiction.
20.
Successors and Assigns. Without limiting Section 4 hereof, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Grantee, and the
successors and assigns of the Company.
21.
Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but
all of which together will constitute one and the same instrument. Delivery of an executed counterpart of the Agreement by
facsimile or in electronic format shall be effective as delivery of a manually executed counterpart of the Agreement.
22.
Acknowledgement. The Grantee acknowledges that the Grantee (a) has received a copy of the Plan, (b) has had
an opportunity to review the terms of this Agreement and the Plan, (c) understands the terms and conditions of this Agreement and
the Plan and (d) agrees to such terms and conditions.
6
23.
Company Recoupment of Awards. Notwithstanding anything in this Agreement to the contrary, the Grantee
acknowledges and agrees that this Agreement and the award described herein are subject to the terms and conditions of the
Company’s clawback policy (if any) as may be in effect from time to time specifically to implement Section 10D of the Exchange
Act and any applicable rules or regulations promulgated thereunder (including applicable rules and regulations of any national
securities exchange on which the Common Stock may be traded).
IN ORDER TO RECEIVE THE BENEFITS OF THIS AGREEMENT, AND FOR THE AWARD TO BE EFFECTIVE,
GRANTEE MUST ACCEPT THE AWARD IN THE COMPANY’S ONLINE EQUITY ADMINISTRATION SYSTEM. IF
GRANTEE FAILS TO SATISFY THE ACCEPTANCE REQUIREMENT WITHIN 90 DAYS AFTER THE DATE OF GRANT,
THEN (1) THIS AGREEMENT WILL BE OF NO FORCE OR EFFECT AND THE AWARD GRANTED HEREIN WILL BE
AUTOMATICALLY FORFEITED TO THE COMPANY WITHOUT CONSIDERATION, AND (2) NEITHER GRANTEE NOR
THE COMPANY WILL HAVE ANY FUTURE RIGHTS OR OBLIGATIONS UNDER THIS AGREEMENT.
[SIGNATURES ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by an officer thereunto duly
authorized, and the Grantee has executed this Agreement, effective for all purposes as provided above.
COMSCORE, INC.
By:
Name:
Title:
GRANTEE
Name:
7
COMSCORE, INC.
Restricted Stock Units Award Agreement
Exhibit 10.36
This RESTRICTED STOCK UNITS AWARD AGREEMENT (this “Agreement”) is made as of [●] (the “Date of Grant”),
by and between comScore, Inc., a Delaware corporation (the “Company”), and [●] (the “Grantee”).
1.
Certain Definitions. Capitalized terms used, but not otherwise defined, in this Agreement will have the meanings
given to such terms in the comScore, Inc. 2018 Equity and Incentive Compensation Plan (the “Plan”).
2. Grant of RSUs. Subject to and upon the terms, conditions and restrictions set forth in this Agreement and in the Plan,
pursuant to authorization under a resolution of the Committee, the Company has granted to the Grantee as of the Date of Grant [●]
Restricted Stock Units (“RSUs”). Each RSU shall represent the right of the Grantee to receive one share of Common Stock subject
to and upon the terms and conditions of this Agreement.
3. Restrictions on Transfer of RSUs. Subject to Section 15 of the Plan, neither the RSUs evidenced hereby nor any
interest therein or in the Common Stock underlying such RSUs shall be transferable prior to payment to the Grantee pursuant to
Section 5 hereof other than by will or pursuant to the laws of descent and distribution.
4. Vesting of RSUs. The RSUs covered by this Agreement shall become nonforfeitable and payable to the Grantee
pursuant to Section 5 hereof on [●], so long as the Grantee remains in continuous service with the Company or a Subsidiary until
each such date (the period from the Date of Grant until the last such vesting date, the “Vesting Period”). Subject to the terms of the
Plan, [and except as otherwise provided in any employment, severance, change in control or similar agreement between the Grantee
and the Company or any Subsidiary], RSUs that do not so become nonforfeitable will be forfeited, including if the Grantee ceases
to be in continuous service with the Company or a Subsidiary prior to the end of the Vesting Period. For purposes of this
Agreement, “continuous service” (or substantially similar terms) means the absence of any interruption or termination of the
Grantee’s service as an Employee, Director or consultant to the Company or a Subsidiary. Continuous service shall not be
considered interrupted or terminated in the case of transfers between locations of the Company and its Subsidiaries. Further,
continuous service shall not be considered interrupted or terminated in the case of the Grantee’s cessation of service as an
Employee, Director or consultant to the Company or a Subsidiary (each, a “Participant Class”), so long as the Grantee continues
serving in another Participant Class. [Notwithstanding the foregoing, provided that any of the RSUs covered by this Agreement
have not yet become vested pursuant to the above schedule, any such unvested RSUs shall immediately become fully vested if,
within one year following a Change in Control, the Grantee’s service relationship with the Company is terminated (i) by the
Company without Cause (as defined in the Grantee’s Change of Control and Severance Agreement with the Company (the
“COC/Severance Agreement”)) or (ii) by the Grantee for Good Reason (as defined in the COC/Severance Agreement), and any
such termination date shall be treated as a Vesting Date for purposes of this Agreement.]
5. Form and Time of Payment of RSUs.
(a) [Payment for the RSUs, after and to the extent they have become nonforfeitable (“Vested RSUs”), shall be
made in the form of Common Stock. To the extent the RSUs are Vested RSUs on the dates set forth in clauses (i) and (ii) below and
to the extent such Vested RSUs have not previously been settled, the Vested RSUs will become payable upon the earlier to occur of
the following:
(i) The Grantee’s “separation from service” with the Company and its Subsidiaries within the meaning of
Section 409A(a)(2)(A)(i) of the Code; or
(ii) The occurrence of a Change in Control, so long as such Change in Control qualifies as a “change in
control event” within the meaning of Section 409A(a)(2)(A)(v) of the Code and occurs on or following the applicable
Vesting Date relating to such RSUs.
Subject to Section 5(b) below, the date of settlement of the Vested RSUs that become payable pursuant to this Section 5(a) shall be
(A) as soon as administratively practicable following (but no later than 30 days following) the date of the Grantee’s separation from
service if the Vested RSUs become payable pursuant to clause (i) above, or (B) the date of the occurrence of the Change in Control,
if the Vested RSUs become payable pursuant to clause (ii) above.
(b) If the RSUs become payable on the Grantee’s “separation from service” with the Company and its Subsidiaries
within the meaning of Section 409A(a)(2)(A)(i) of the Code and the Grantee is a “specified employee” as determined pursuant to
procedures adopted by the Company in compliance with Section 409A of the Code, then, to the extent necessary to comply with
Section 409A of the Code, payment for the RSUs shall be made on the first payroll date that occurs on or after the date six months
and one day following the date of the Grantee’s “separation from service.” Notwithstanding the foregoing, if the Grantee dies
following the Grantee’s “separation from service,” but before the six-month anniversary of the “separation from service,” then any
payment delayed in accordance with this Section 5(b) will be payable as soon as administratively practicable after the date of the
Grantee’s death.] [(a) Payment for the RSUs, after and to the extent they have become nonforfeitable, shall be made in the form
of Common Stock. Payment shall be made as soon as administratively practicable following the date that the RSUs become
nonforfeitable pursuant to Section 4 hereof (but, unless the Grantee enters into a deferral arrangement in accordance with
procedures established by the Company, in no event later than required to satisfy the short-term deferral exemption under Section
409A of the Code).]
[(b)][(c)] The Company’s obligations to the Grantee with respect to the RSUs will be satisfied in full upon the
issuance or transfer of Common Stock corresponding to such RSUs.
6. Dividend Equivalents; Voting and Other Rights.
(a) The Grantee shall have no rights of ownership in the Common Stock underlying the RSUs and no right to vote
the Common Stock underlying the RSUs until the date
2
on which the Common Stock underlying the RSUs is issued or transferred to the Grantee pursuant to Section 5 above.
(b) From and after the Date of Grant and until the earlier of (i) the time when the RSUs are paid in accordance with
Section 5 hereof or (ii) the time when the Grantee’s right to receive Common Stock in payment of the RSUs is forfeited in
accordance with Section 4 hereof, on the date that the Company pays a cash dividend (if any) to holders of Common Stock
generally, the Grantee shall be credited with cash per RSU equal to the amount of such dividend. Any amounts credited pursuant to
the immediately preceding sentence shall be subject to the same applicable terms and conditions (including vesting, payment and
forfeitability) as apply to the RSUs based on which the dividend equivalents were credited, and such amounts shall be paid in cash
at the same time as the RSUs to which they relate are settled.
(c) The obligations of the Company under this Agreement will be merely that of an unfunded and unsecured
promise of the Company to deliver Common Stock in the future, and the rights of the Grantee will be no greater than that of an
unsecured general creditor. No assets of the Company will be held or set aside as security for the obligations of the Company under
this Agreement.
7. Adjustments. The RSUs and the number of shares of Common Stock issuable for each RSU, and the other
terms and conditions of the grant evidenced by this Agreement, are subject to mandatory adjustment, including as provided in
Section 11 of the Plan.
8. Withholding Taxes. To the extent that the Company is required to withhold federal, state, local or foreign taxes
or other amounts in connection with the delivery to the Grantee of Common Stock or any other payment to the Grantee or any other
payment or vesting event under this Agreement, the Grantee agrees that the Grantee will satisfy such requirement in a manner
determined by the Committee prior to any payment to the Grantee, including but not limited to a “sell to cover” transaction through
a bank or broker. It shall be a condition to the obligation of the Company to make any such delivery or payment that the Grantee
has satisfied such requirement in the form or manner specified by the Company. In no event will the market value of the Common
Stock to be withheld, sold and/or delivered pursuant to this Section 8 to satisfy applicable withholding taxes exceed the maximum
amount of taxes or other amounts that could be required to be withheld without creating adverse accounting treatment for the
Company with respect to the award of RSUs covered by this Agreement, as determined by the Committee.
9. Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal and
state securities laws; provided, however, notwithstanding any other provision of the Plan and this Agreement, the Company shall
not be obligated to issue any Common Stock pursuant to this Agreement if the issuance thereof would result in a violation of any
such law.
10. Compliance with or Exemption from Section 409A of the Code. To the extent applicable, it is intended that this
Agreement and the Plan comply with or be exempt from the provisions of Section 409A of the Code. This Agreement and the Plan
shall be administered in a manner consistent with this intent, and any provision that would cause this Agreement or the Plan
3
to fail to satisfy Section 409A of the Code shall have no force or effect until amended to comply with or be exempt from Section
409A of the Code (which amendment may be retroactive to the extent permitted by Section 409A of the Code and may be made
by the Company without the consent of the Grantee). Notwithstanding the foregoing, the Company makes no representations that
the payments and benefits provided under this Agreement comply with Section 409A of the Code, and in no event shall the
Company be liable for all or any portion of any taxes, penalties, interest, or other expenses that may be incurred by the Grantee on
account of non-compliance with Section 409A of the Code.
11. Interpretation. Any reference in this Agreement to Section 409A of the Code will also include any proposed,
temporary or final regulations, or any other guidance, promulgated with respect to such Section by the U.S. Department of the
Treasury or the Internal Revenue Service.
12. No Right to Future Awards or Employment. The grant of the RSUs under this Agreement to the Grantee is a
voluntary, discretionary award being made on a one-time basis and it does not constitute a commitment to make any future awards.
The grant of the RSUs and any payments made hereunder will not be considered salary or other compensation for purposes of any
severance pay or similar allowance, except as otherwise required by law. Nothing contained in this Agreement shall confer upon
the Grantee any right to be employed or remain employed by the Company or any of its Subsidiaries, nor limit or affect in any
manner the right of the Company or any of its Subsidiaries to terminate the employment or adjust the compensation of the Grantee.
13. Relation to Other Benefits. Any economic or other benefit to the Grantee under this Agreement or the Plan shall not
be taken into account in determining any benefits to which the Grantee may be entitled under any profit-sharing, retirement or other
benefit or compensation plan maintained by the Company or any of its Subsidiaries and shall not affect the amount of any life
insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or any of its
Subsidiaries.
14. Entire Agreement; Amendments. This Agreement constitutes the entire agreement of the parties with respect to the
subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with
respect to the grant of the RSUs; provided, however, that the terms of this Agreement shall not modify and shall be subject to the
terms and conditions of any employment, consulting and/or severance agreement between the Company (or a Subsidiary or other
entity) and the Grantee in effect as of the date a determination is to be made under this Agreement. Without limiting the scope of
the preceding sentence, except as provided therein, all prior understandings and agreements, if any, among the parties hereto
relating to the subject matter hereof are hereby null and void and of no further force and effect. Any amendment to the Plan shall be
deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto, and the Committee has the
right to amend, alter, suspend, discontinue or cancel the RSUs, prospectively or retroactively; provided, however, that (a) no
amendment shall adversely affect the rights of the Grantee under this Agreement without the Grantee’s written consent, and (b) the
Grantee’s consent shall not be required to an amendment that
4
is deemed necessary by the Company to ensure compliance with Section 409A of the Code or Section 10D of the Exchange Act.
15. Severability and Waiver. In the event that one or more of the provisions of this Agreement shall be invalidated for
any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other
provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable. Waiver by any party of any
breach of this Agreement or failure to exercise any right hereunder shall not be deemed to be a waiver of any other breach or right.
The failure of any party to take action by reason of such breach or to exercise any such right shall not deprive the party of the right
to take action at any time while or after such breach or condition giving rise to such right continues.
16. Relation to Plan. This Agreement is subject to the terms and conditions of the Plan. In the event of any inconsistency
between the provisions of this Agreement and the Plan, the Plan shall govern. The Committee acting pursuant to the Plan, as
constituted from time to time, shall, except as expressly provided otherwise herein or in the Plan, have the right to determine any
questions which arise in connection with this Agreement.
17. Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to the RSUs and the
Grantee’s participation in the Plan, or future awards that may be granted under the Plan, by electronic means or request the
Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by
electronic delivery and, if requested, agrees to participate in the Plan through an online or electronic system established and
maintained by the Company or another third party designated by the Company.
18. Governing Law. This Agreement shall be governed by and construed with the internal substantive laws of the State of
Delaware, without giving effect to any principle of law that would result in the application of the law of any other jurisdiction.
19. Successors and Assigns. Without limiting Section 3 hereof, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Grantee, and the successors
and assigns of the Company.
20. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument. Delivery of an executed counterpart of the Agreement by facsimile or
in electronic format shall be effective as delivery of a manually executed counterpart of the Agreement.
21. Acknowledgement. The Grantee acknowledges that the Grantee (a) has received a copy of the Plan, (b) has had an
opportunity to review the terms of this Agreement and the Plan, (c) understands the terms and conditions of this Agreement and the
Plan and (d) agrees to such terms and conditions.
22. Company Recoupment of Awards. Notwithstanding anything in this Agreement to the contrary, the Grantee
acknowledges and agrees that this Agreement and the award described
5
herein are subject to the terms and conditions of the Company’s clawback policy (if any) as may be in effect from time to time
specifically to implement Section 10D of the Exchange Act and any applicable rules or regulations promulgated thereunder
(including applicable rules and regulations of any national securities exchange on which the Common Stock may be traded).
IN ORDER TO RECEIVE THE BENEFITS OF THIS AGREEMENT, AND FOR THE AWARD TO BE EFFECTIVE,
GRANTEE MUST ACCEPT THE AWARD IN THE COMPANY’S ONLINE EQUITY ADMINISTRATION SYSTEM. IF
GRANTEE FAILS TO SATISFY THE ACCEPTANCE REQUIREMENT WITHIN 90 DAYS AFTER THE DATE OF GRANT,
THEN (1) THIS AGREEMENT WILL BE OF NO FORCE OR EFFECT AND THE AWARD GRANTED HEREIN WILL BE
AUTOMATICALLY FORFEITED TO THE COMPANY WITHOUT CONSIDERATION, AND (2) NEITHER GRANTEE NOR
THE COMPANY WILL HAVE ANY FUTURE RIGHTS OR OBLIGATIONS UNDER THIS AGREEMENT.
[SIGNATURES ON FOLLOWING PAGE]
6
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by an officer thereunto duly
authorized, and the Grantee has executed this Agreement, effective for all purposes as provided above.
COMSCORE, INC.
By:
Name:
Title:
GRANTEE
By:
Name:
SIGNATURE PAGE TO
RESTRICTED STOCK UNITS AWARD AGREEMENT
Exhibit 21.1
Name of Subsidiary Jurisdiction of Incorporation .
Rentrak Corporation Oregon, U.S.A.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-144281, 333-155355, 333-159126, 333-166349, 333-172838,
333-179625, 333-186764, 333-194010, 333-202221, 333-209310, and 333-225400 on Form S-8 and Registration Statement Nos. 333-226246
and 333-231778 on Form S-3 of our reports dated February 27, 2020, relating to the financial statements of comScore, Inc. and subsidiaries (the
“Company”) and the effectiveness of the Company’s internal control over financial reporting appearing in this Annual Report on Form 10-K for
the year ended December 31, 2019.
Exhibit 23.1
/s/ Deloitte & Touche LLP
McLean, Virginia
February 27, 2020
Exhibit 31.1
I, William P. Livek, certify that:
1. I have reviewed this Annual Report on Form 10-K of comScore, Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
/s/ William P. Livek
William P. Livek
Chief Executive Officer
(Principal Executive Officer)
Date: February 27, 2020
Exhibit 31.2
I, Gregory A. Fink, certify that:
1. I have reviewed this Annual Report on Form 10-K of comScore, Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting
/s/ Gregory A. Fink
Gregory A. Fink
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: February 27, 2020
Certification Pursuant to 18 U.S.C. Section 1350
Exhibit 32.1
In connection with the Annual Report of comScore, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2019, as filed with the Securities
and Exchange Commission (the “SEC”) on the date hereof (the “Report”), I, William P. Livek, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon
request.
/s/ William P. Livek
William P. Livek
Chief Executive Officer
(Principal Executive Officer)
Date: February 27, 2020
Certification Pursuant to 18 U.S.C. Section 1350
Exhibit 32.2
In connection with the Annual Report of comScore, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2019, as filed with the Securities
and Exchange Commission (the “SEC”) on the date hereof (the “Report”), I, Gregory A. Fink, Chief Financial Officer and Treasurer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon
request.
/s/ Gregory A. Fink
Gregory A. Fink
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: February 27, 2020