Upland Software
Annual Report 2015

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KUpland Software, Inc. - UPLDFiled: March 30, 2016 (period: December 31, 2015)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-Kx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015OR¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934Commission File Number 001-36720 Upland Software, Inc.(Exact name of registrant as specified in its charter)Delaware27-2992077(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification Number)401 Congress Ave., Suite 1850Austin, Texas 78701(512) 960-1010(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredCommon Stock, par value $0.0001 per share The NASDAQ Global MarketSecurities registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate 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 xIndicate 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 periodthat the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer¨Accelerated filer¨ Non-accelerated filerx (Do not check if a smaller reporting company)Smaller reporting company¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No xThe aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $66.5 million based upon the closing price of $9.22 of suchcommon stock on The NASDAQ Global Market on June 30, 2015 (the last business day of the registrant’s most recently completed second fiscal quarter). Shares of common stockSource: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.held as of June 30, 2015 by each director and executive officer of the registrant, as well as shares held by each holder of 10% of the common stock known to the registrant, have beenexcluded for purposes of the foregoing calculation. This determination of affiliate status is not a conclusive determination for other purposes.As of March 24, 2016, 16,751,448 shares of the registrant’s Common Stock were outstanding. Documents incorporated by reference:Certain portions, as expressly described in this Annual Report on Form 10-K, of the registrant’s Proxy Statement for the 2016 Annual Meeting of the Stockholders, to be filed not laterthan 120 days after the end of the year covered by this Annual Report, are incorporated by reference into Part III of this Annual Report where indicated.TABLE OF CONTENTS PART I Item 1.Business4Item 1A.Risk Factors15Item 1B.Unresolved Staff Comments35Item 2.Properties35Item 3.Legal Proceedings36Item 4.Mine Safety Disclosures36 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities37Item 6.Selected Financial Data38Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations42Item 7A.Quantitative and Qualitative Disclosures about Market Risk73Item 8.Financial Statements and Supplementary Data75 Report of Independent Registered Public Accounting Firm76 Consolidated Financial Statements77 Consolidated Balance Sheets77 Consolidated Statements of Operations78 Consolidated Statements of Comprehensive Loss79 Consolidated Statements of Common Stockholders' Equity (Deficit)80 Consolidated Statements of Cash Flows81 Notes to the Consolidated Financial Statements82Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure112Item 9A.Controls and Procedures112Item 9B.Other Information112 PART III Item 10.Directors, Executive Officers and Corporate Governance112Item 11.Executive Compensation113Item 12.Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters113Item 13.Certain Relationships and Related Transactions and Director Independence Item 14.Principal Accountant Fees and Services113 PART IV Item 15.Exhibits and Financial Statement Schedules113SIGNATURES1141Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART ISpecial Note Regarding Forward Looking StatementsThis Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21Eof the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally relate to future events or our futurefinancial or operating performance. Forward-looking statements may be identified by the use of forward-looking words such as “anticipate,” “believe,”“may,” “will,” “continue,” “seek,” “estimate,” “intend,” “hope,” “predict,” “could,” “should,” “would,” “project,” “plan,” “expect” or the negative or pluralof these words or similar expressions, although not all forward-looking statements contain these words. These forward-looking statements include, but are notlimited to, statements concerning the following:•our financial performance and our ability to achieve or sustain profitability or predict future results;•our ability to attract and retain customers;•our ability to deliver high-quality customer service;•the growth of demand for enterprise work management applications;•our plans regarding, and our ability to effectively manage, our growth;•our plans regarding future acquisitions and our ability to consummate and integrate acquisitions;•maintaining our senior management team and key personnel;•our ability to maintain and expand our direct sales organization;•the performance of our resellers;•our ability to obtain financing in the future on acceptable terms or at all;•our ability to adapt to changing market conditions and competition;•our ability to successfully enter new markets and manage our international expansion;•the operation and reliability of our third-party data centers;•our ability to adapt to technological change and continue to innovate;•economic and financial conditions;•our ability to integrate our applications with other software applications;•maintaining and expanding our relationships with third parties;•costs associated with defending intellectual property infringement and other claims;•our ability to maintain, protect and enhance our brand and intellectual property;•our ability to comply with privacy laws and regulations;•our expectations with respect to revenue, cost of revenue and operating expenses in future periods;•our expectations with regard to trends, such as seasonality, which affect our business;•our expectations as to the payment of dividends;•our plans with respect to foreign currency exchange risk and inflation;•our beliefs regarding how our applications benefit customers and what our competitive strengths are; and•other risk factors included under “Risk Factors” in this Annual Report on Form 10-K.2Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained inthis Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect ourbusiness, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks,uncertainties, and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover,we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us topredict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. We cannotassure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, orcircumstances could differ materially from those described in the forward-looking statements.The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. Weundertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the dateof this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actuallyachieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-lookingstatements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investmentswe may make.All references to “Upland,” “we,” “us” or “our” mean Upland Software, Inc.3Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 1. BusinessWe are a leading provider of cloud-based enterprise work management software. We define enterprise work management software as softwareapplications that enable organizations to plan, manage and execute projects and work. Our applications are easy-to-use, highly scalable and offer real-timecollaboration for knowledge workers distributed on a local or global scale. Our applications address enterprise work challenges in the following categories:•Project and Information Technology (IT) Financial Management. Enables customers to manage their organization’s projects, professional workforceand IT costs.•Workflow Automation. Enables customers to automate document-intensive workflows among internal functional areas as well as with their partnersand supply chain.•Digital Engagement. Enables customers to effectively engage with their customers, prospects and community via the web and mobile technologies.We sell our software applications primarily through a direct sales organization comprised of inside sales and field sales personnel. In addition to ourdirect sales organization, we have an indirect sales organization, which sells to distributors and value-added resellers. We employ a land-and-expand go-to-market strategy. After we demonstrate the value of an initial application to an organization, our sales and account management teams work to expand theadoption of that initial application across the organization, and cross-sell additional applications to address other enterprise work management needs of theorganization. Our customer success organization supports our direct sales efforts by managing the post-sale customer lifecycle.Our subscription agreements are typically sold either on a per-seat basis or on a minimum contracted volume basis with overage fees billed in arrears,depending on the application being sold. We service customers ranging from large global corporations and government agencies to small- and medium-sizedbusinesses. We have more than 2,000 customers with over 235,000 users across a broad range of industries, including financial services, retail, technology,manufacturing, education, consumer goods, media, telecommunications, government, food and beverage, healthcare and life sciences.We have achieved significant growth and scale in a relatively short period of time. Through a series of acquisitions, we have established a diversefamily of software applications under the Upland brand, each of which addresses a specific enterprise work management need. For the twelve months endedDecember 31, 2015 compared to the twelve months ended December 31, 2014, our total revenue grew from $64.6 million to $69.9 million, representing an8% period-over-period growth rate. On a constant currency basis, total revenue increased by $8.3 million, or 13%. For the twelve months ended December 31,2015 compared to the twelve months ended December 31, 2014, our subscription and support revenue grew from $48.6 million to $57.2 million, representingan 18% period-over-period growth rate. On a constant currency basis, subscription and support revenue increased by $11.0 million, or 23%. See Note 16 ofthe Notes to Condensed Consolidated Financial Statements for more information regarding our revenue as it relates to domestic and foreign operations.Our operating results in a given period can fluctuate based on the mix of subscription and support, perpetual license and professional services revenue.For the twelve months ended December 31, 2015 and 2014, our subscription and support revenue accounted for 82% and 75% of total revenue, respectively.Our customer agreements for program and portfolio management, project management and collaboration, and professional services automation typically aresold on a per-seat basis with terms varying from one to three years, paid in advance. Our customer agreements for workflow automation and enterprise contentmanagement and financial management historically have been sold on a volume basis with a one-year term, paid in advance. We generally seek to enter intomulti-year contracts with our customers when possible. In each case, our customer agreements provide us with revenue visibility over a number of quarters.We typically negotiate the total number of seats or total minimum contracted volume a customer is entitled to use as part of its subscription, but these seats orminimum contracted volume may not be fully utilized over the term of the agreement. In addition, where customers exceed the minimum contracted volume,additional overage fees are billed in arrears.Historically, we have sold certain of our applications under perpetual licenses, which also are paid in advance. For the twelve months ended December31, 2015 and 2014, our perpetual license revenue accounted for 4% and 4% of total revenue, respectively. We expect perpetual license revenue to decrease asa percentage of revenue in the future. The support agreements related to our perpetual licenses are one-year in duration and entitle the customer to4Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.support and unspecified upgrades. The revenue related to such support agreements is included as part of our subscription and support revenue.Professional services revenue consists of fees related to implementation, data extraction, integration and configuration and training on our applications.For the twelve months ended December 31, 2015 and 2014, our professional services revenue accounted for 14% and 21% of total revenue, respectively. Weexpect professional services revenue to decrease as a percentage of revenue in future periods due to customer expansion initiatives which have driven morefocus on expanding existing customer recurring revenue and less focus on new customer professional service projects.We have historically experienced seasonality in terms of when we enter into customer agreements. We sign a significantly higher percentage ofagreements with new customers, and renew agreements with existing customers, in the fourth quarter of each calendar year as our customers tend to followbudgeting cycles at the end of the calendar year. Our cash flow from operations has historically been higher in the first quarter of each calendar year than inother quarters. This seasonality is reflected to a much lesser extent, and sometimes is not immediately apparent, in our revenue, due to the fact that we deferrevenue recognition. In addition, seasonality may be difficult to observe in our financial results during periods in which we acquire businesses as such resultstypically are most significantly impacted by such acquisitions. We expect this seasonality to continue, or possibly increase in the future, which may causefluctuations in our operating results and financial metrics.To support continued growth, we intend to pursue acquisitions of complementary technologies, products and businesses to enhance the features andfunctionalities of our applications, expand our customer base and provide access to new markets and increased benefits of scale. We will prioritizeacquisitions within the enterprise functions we currently serve, including information technology, process excellence, finance, professional services andmarketing, as well as pursue acquisitions that serve other enterprise functions. Consistent with our growth strategy, we have made a total of nine acquisitionsin the four years ending December 31, 2015.We completed our initial public offering in November 2014 and our common stock is listed on the Nasdaq Global Market under the symbol“UPLD.”Industry BackgroundA Rapidly Changing Business EnvironmentThe continued growth of an information-based economy driven by technological innovation and globalization is causing a fundamental change inthe business environment and the way work is done. To be successful, organizations must be able to quickly adapt to changes in this complex and rapidlyevolving environment and optimize the utilization of their people, time and money. These changes have given rise to a large and growing group ofknowledge workers who operate in dynamic work settings as part of geographically dispersed and virtual teams. To be successful, these knowledge workersmust quickly synthesize, analyze and act on large amounts of information and collaborate effectively at any time, from anywhere and on any device.Legacy Processes and Systems are InsufficientMany organizations continue to utilize manual processes and traditional tools, such as paper-based techniques, spreadsheets and email, as well aslegacy on-premise enterprise systems, to manage knowledge work. The limitations of these processes and systems include siloed and disparate information,limited visibility and transparency, poor collaboration among teams, lost productivity and misalignment of work efforts and overall business objectives. Inaddition, legacy on-premise enterprise systems can be expensive and time intensive to implement, inflexible and difficult to use, and costly to upgrade andmaintain. Today, legacy processes and systems are being disrupted and replaced by cloud-based enterprise work management software that improvesvisibility, collaboration and productivity.5Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The Impact of Cloud-Based Enterprise Work Management SoftwareEnterprise work management software is an emerging category of software applications that enable organizations to effectively plan, manage andexecute projects and work in order to maximize work capacity, productivity and profitability. Recently, cloud computing and SaaS have begun to transformenterprise work management with rapid speed-to-value, low total cost of ownership and reduced financial risk. As a result of these benefits, the annual growthrate of the SaaS market is expected to be significantly greater than the worldwide application software market.The enterprise-grade applications market is growing at an accelerated rate. According to IDC, the market for enterprise applications is expected toreach $201.7 billion by 2019, representing a 6.6% CAGR. IDC estimates that the worldwide demand for public cloud will grow at a compound annual growthrate of 15.6% by 2019. Comparatively, the worldwide on-premise application software market will grow at a CAGR of 3.9%. By 2019, IDC postulates cloud-based software will have a significant business impact, driving growth and accounting for at least $1 of every $4.59 spent on software-as-a-service.We believethe ability of cloud-based software to deliver a flexible, scalable, cost-efficient, easy-to-use and collaborative platform to knowledge workers distributed on alocal or global scale will significantly accelerate the adoption of cloud-based enterprise work management software applications.Cloud-based enterprise work management software applications can increase work capacity, productivity and profitability by reducing manualprocesses and isolated silos of information, and by enhancing collaboration across organizations. While cloud-based enterprise work management softwareapplications may be adopted on an individual basis, we believe they deliver the greatest value when multiple applications are deployed, as an end-to- endmanagement process for prioritizing, allocating, managing and monitoring resources and work throughout the enterprise. We provide a diverse offering ofsoftware applications that address a broad range of enterprise work management needs.We currently participate in various areas of enterprise work management, including the markets that IDC identifies as worldwide project andportfolio management, worldwide business process management software, worldwide financial performance and strategy management applications,worldwide collaborative applications and worldwide content management software. Within these markets our family of cloud-based software applicationsaddress enterprise work functions in program and portfolio management, project management and collaboration, workflow automation and enterprise contentmanagement, professional services automation and financial management. While these markets today are largely served by legacy on-premise enterprisesystems, we believe there will continue to be increased market adoption of cloud-based enterprise work management software applications.The Upland ApproachOur software applications are designed for the way people work today. Unlike legacy solutions, our applications have been developed with theunique requirements of today’s knowledge worker in mind. We enable knowledge workers to interact, collaborate and make business decisions using real-time information from a wide variety of sources, at any time, from anywhere and on any device.Our award-winning family of cloud-based software applications deliver the functionality required to effectively plan, manage and execute projectsand work. Our innovative applications allow our customers to more effectively manage the rapid pace of change and complexity in today’s workenvironment. Our applications are highly scalable, flexible and secure and provide our customers with a modern and intuitive user experience. Organizationscurrently use our applications in the following functional areas:•Information Technology. Information technology departments use our applications to manage a variety of information technology activities andresources, such as projects and application portfolios. Our applications help information technology departments ensure they are delivering againstthe objectives of the business by helping to select and prioritize the right investments, gain greater control of resource demand and allocation, andtrack and report benefit realization. Our applications enable executives to gain better insight into information technology spending to help preventcost overruns and understand the nature of consumption. By enabling information technology teams to make more informed decisions with real-time visibility across the complete information technology portfolio, our6Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.applications empower information technology departments to shift from a cost center to a more strategic enterprise function.•Process Excellence and Operations. Process excellence, Lean Six Sigma and similar functional groups within organizations use our applications tofacilitate critical process improvement efforts. Our applications help provide high-level visibility and tracking of process excellence programs,automate processes and streamline workflows while improving process governance. Process improvement and similar business transformationinitiatives continue to be a key driver of corporate performance, especially among large global corporations.•Finance. Finance departments use our applications as a cost allocation tool to assess and validate proposed investments and initiatives of aparticular line of business, as well as increase the visibility and governance of capital expenditures and cost-cutting projects and deepen theunderstanding of actual resource utilization and costs. Our applications help improve collaboration between finance departments and particularlines of business, in addition to streamlining compliance and accounting workflows.•Professional Services. Professional services organizations, such as consulting or software development firms, employ our applications to streamlineservice delivery and optimize utilization of billable resources. In addition, service- oriented departments within organizations, such as customerservice and support teams, utilize our applications to more effectively budget, plan and track provision of services and improve capacity planningand forecasting.•Marketing. Marketing teams employ our applications to enhance their overall marketing effectiveness. We offer applications that help customersbuild their online and mobile brand presence, engage their target audiences, collaborate on the creation and publication of content, and gainincreased control over marketing workflows, activities and budgets. Our applications empower marketing and communications organizations tomore effectively manage the influx of projects, information, processes and systems necessary to meet today’s modern marketing requirements.We believe our applications benefit customers in the following ways:•Our applications enable our customers to more effectively align programs, initiatives, investments and projects with overall business objectives,helping ensure the right work is done at the right time. This alignment drives increased productivity and optimizes the allocation and utilization ofpeople, time and money within organizations.•Our applications help customers to more effectively manage projects and tasks by enabling real-time visibility, collaboration, structured workflowsand access to the right content and information. This provides teams of distributed workers with clarity into priorities and expectations as well asthe tools to execute effectively, resulting in increased productivity, transparency, accountability, and the ability to respond rapidly to change.•Our applications collect and make available real-time data regarding the planning, management and execution of projects and work processesacross teams and business units This enables a more complete view of teams, projects and resources at anytime from anywhere.•Our applications provide analytics and reporting capabilities that transform disparate data in real-time into actionable intelligence, enabling usersto make better informed business decisions. Our applications enable organizations to conduct dynamic and sophisticated “what-if” and scenarioanalyses that can improve their ability to respond effectively to changing business conditions.•Customers can easily access our cloud-based applications with an Internet browser. Our applications do not require large up-front softwareexpenditures or significant ongoing infrastructure or information technology support. In addition, our applications have modern look and feel thathelps provide a consistent user experience across our applications.•Our applications are highly configurable, which provides us with flexibility to meet the unique business requirements of individual customers. Ourapplications are also scalable and are able to support large7Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.deployments while maintaining required performance levels. We provide tools to help our customers manage the critical elements of applicationsecurity, including authentication, authorization and regulatory compliance.Our Competitive StrengthsThe following competitive strengths are keys to our success:•Large, attractive customer base. Our customer base is highly diverse and spans a broad array of industries, including financial services, retail,technology, manufacturing, education, consumer goods, media, telecommunications, government, food and beverage, healthcare and life sciences.We service customers of varying size, ranging from large global corporations and government agencies to small- and medium-sized businesses. Wehave a highly referenceable customer base that we leverage to help us acquire new customers. We have over 2,000 customers, with no customeraccounting for more than 3% of our revenue.•Diversified family of software applications. We offer a family of software applications that addresses a broad range of enterprise work managementneeds, from strategic planning to task execution. We believe this benefits our customers as compared to many of our cloud-based competitors whooffer only a single point solution for a more limited and discrete work management need. Our applications address the information technology,process excellence, finance, professional services and marketing functions within organizations.•Recurring revenue model with high visibility. We believe we have a highly attractive operating model due to the recurring nature of oursubscription revenue, which results in greater visibility and predictability of future revenue and enhances our ability to effectively manage ourbusiness. In addition, the cloud-based nature of our model accommodates significant additional business volume with limited incremental costs,providing us with opportunities to improve our operating margins.•Proven M&A capability. We have a proven ability to successfully identify, acquire and integrate complementary businesses to grow our company,as evidenced by the eleven acquisitions we have completed since the beginning of 2012. We have a dedicated and experienced corporatedevelopment team that continually monitors hundreds of companies in order to maintain a robust pipeline of potential acquisition candidates. Webelieve that our acquisition experience and strategy gives us a competitive advantage in identifying additional opportunities to expand our familyof software applications to better serve our customers.•Experienced, proven management team. Our management team has significant operating experience and previously occupied key leadership rolesat both private and public companies. In addition, our management’s extensive knowledge of the industry and experience in building businessesorganically and through strategic acquisitions has enabled us to quickly establish a leading position within the enterprise work managementsoftware market.•Cloud-based platform. We deliver our software applications and functionality primarily through the cloud, with no hardware or softwareinstallation required by our customers. This delivery model allows us to provide reliable, cost-effective applications to our customers, addsubscribers with minimal incremental expense and deploy new functionality and upgrades quickly and efficiently. We believe our cloud-baseddelivery model provides us with a competitive advantage over legacy processes and on-premise systems.•Commitment to customer success. We have a dedicated customer success organization whose mission is to drive adoption, value realization,retention and loyalty across our customer base. Our focus on enabling our customers’ success is a key reason our annual net dollar retention rate was90% in fiscal 2015. Our commitment to customer success has enabled us to expand our footprint within organizations and facilitate the ongoingadoption of our enterprise work management software applications.8Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our Strategy for GrowthOur objective is to be the world’s leading provider of enterprise work management software. The key elements of our strategy for growth are asfollows:•Increase sales to existing customers. We believe there is a significant opportunity to expand the adoption of our applications within existingcustomers, particularly within divisions or departments that have not previously used our applications. We also intend to cross-sell additionalapplications to our existing customers, as very few of our customers currently use more than one of our applications. In addition, we intend to addnew applications to our family of applications that will address additional functions within the enterprise work management spectrum. We believethese initiatives will significantly increase the value of our platform to our customers, further strengthen our competitive position and driveincreased adoption of multiple applications by our customers.•Add new customers. We maintain direct sales and marketing capabilities in order to further grow our customer base. We also maintain indirect saleschannels through alliances with strategic partners that can leverage our applications with complementary services and technologies they provide.In addition, we continue to expand the range of integrations between our software and third-party applications and platforms, which we believemake our applications more attractive to a broader audience of potential customers.•Acquire complementary software businesses. We intend to pursue acquisitions of complementary technologies, products and businesses to enhancethe features and functionality of our applications, expand our customer base and provide access to new markets and increased benefits of scale. Ourdedicated and experienced corporate development team continually monitors hundreds of companies in order to maintain a robust pipeline ofpotential acquisition candidates, many of which are smaller scale or address only limited enterprise work management challenges, which oftenoperate outside the scope of some of our larger competitors. We believe that our acquisition experience and strategy gives us a competitiveadvantage in identifying additional opportunities to expand our family of cloud-based applications to better serve our customers. We will prioritizeacquisitions within the enterprise functions we currently serve, including Project & IT Management, Workflow Automation and DigitalEngagement.•Expand globally. We believe there is a significant opportunity to grow sales of our applications globally. In fiscal 2015, 2014, and 2013,approximately 19%, 22% and 24%, respectively, of our revenue was derived from sales outside the United States. Over the next several years, wewill continue to evaluate growth opportunities outside the United States through selective acquisitions, the hiring of additional sales personnel andentering into strategic partnerships.•Improve and enhance applications. We will continue to invest in research and development and work closely with our customers to identify andimprove new applications, features and functionalities that address customer requirements across the enterprise work management spectrum. Wealso intend to continue to expand the breadth of our applications with additional analytics, third-party integrations and social and mobilecapabilities to meet the evolving needs of today’s knowledge workers.Our ProductsWe provide a family of cloud-based enterprise work management software applications under the Upland brand. Our applications are easy-to-deploy,highly configurable, scalable, flexible and secure. We provide applications for the information technology, process excellence, finance, professional servicesand marketing functions within organizations, as described below.Program and Portfolio Management. Our program and portfolio management application is used by our customers to gain high-level visibilityacross their organizations and improve their top-down governance of programs, initiatives, investments and projects without necessitating the detailed taskand resource tracking required by legacy project management systems. Our customers use these capabilities to:•gather, develop and assess ideas and proposed investments;9Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•prioritize and select projects and investments according to business value and strategic fit;•more effectively allocate resources in alignment with business objectives;•respond quickly to change with real-time visibility into status and the ability to evaluate the impact of potential changes; and•gauge performance against strategic objectives, execution-level indicators and financial metrics.Our program and portfolio management application currently is used within the information technology, finance and process excellence functions oforganizations.Project Management and Collaboration. Our project management and collaboration application is used by our customers to improve collaborationand the execution of projects, unstructured work and unscheduled tasks. Our customers use these capabilities to:•plan and schedule projects and work in order to improve resource utilization;•gain real-time visibility into work status, issues and risks;•track costs associated with projects and work; and•increase the quality and speed of execution with customizable templates and workflows.Our project management and collaboration application currently is used within the information technology, marketing and professional servicesfunctions of organizations.Workflow Automation and Enterprise Content Management. Our workflow automation and enterprise content management applications are used byour customers to automate document-based workflows by capturing, storing and routing content, assigning work tasks and creating audit trails for operationssuch as healthcare records, loan processing, human resource processes and accounts receivable and payable processing. Our customers use these capabilitiesto:•empower collaboration by providing a way for employees, suppliers and partners to access, share and update content from anywhere;•streamline workflows by creating custom rules to process and route content for approval;•automatically capture, index, classify and organize enterprise content in a secure, central repository with document retention policies to meetbusiness and compliance requirements; and•apply and enforce document retention policies to meet business and compliance requirements.Our workflow automation and enterprise content management applications are currently used within the information technology, finance, marketingand process excellence functions of organizations.Digital Engagement Management. Our digital engagement applications are used by customers to connect and communicate with their target marketsin order to build brand relationships or drive a particular program outcome via website and mobile devices, providing a timely and highly relevant customerexperience. Additionally, our digital engagement management applications are used by enterprise marketers and media companies to create, maintain anddeliver websites that enhance and influence customer engagement. These applications empower non-technical staff to create, manage, publish, analyze andrefine content and social media assets without information technology intervention. Our customers use these capabilities to:•streamline the process for creating and managing website content;•deliver more relevant, personalized content to website visitors based on the tracking of individual visitor behavior.•integrate user-generated content, such as polls, surveys, blogs, ratings and comments, into their websites;•engage entire target audiences with one-on-one text message conversations to achieve optimal results;•reach the correct person at exactly the right moment through list segmentation and scheduling;10Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•provide timely alerts and reminders on important events based on user preferences;•respond to users instantly, answering questions via text message;•manage all mobile communications from a single place, keeping track of all users and actions;•analyze campaign performance at all levels and every action;•run surveys, polls and quizzes to gather information and engage users; and•ensure security and privacy of information through comprehensive policies, procedures and technical controls.Professional Services Automation. Our professional services automation applications are used by customers to more effectively manage their projectand service-based knowledge workers to better manage employee-related expenses and client billing while improving scheduling, utilization and alignmentof human capital. Our customers use these capabilities to:•create resource capacity plans;•align available skills, expertise and capacity with project requirements;•more efficiently plan and schedule projects;•track resource and expense allocation for specific projects, activity types or budget categories;•analyze workforce performance;•streamline timesheet review, approval and reporting processes;•manage time, travel and entertainment expenses; and•streamline project cost reporting, billing and revenue recognition processes.Our professional services automation applications currently are used within the information technology, marketing, finance, and professionalservices functions of organizations.Financial Management. Our financial management application is used by our customers to gain visibility into the cost, quality and value of servicesthe information technology and finance functions deliver to organizations. This increased transparency helps our customers improve alignment duringplanning and budgeting processes, and validate proposed investments and initiatives of a particular line of business. Our customers use these capabilities to:•quantify and understand the total cost of ownership of information technology applications and services;•establish product and unit-costing metrics for benchmarking and/or chargeback;•provide information technology and finance departments with the ability to chargeback business units for applications and services, includingcloud services, based on metered consumption;•provide business managers with insights into their consumption of information technology services to better utilize information technologyservices with business goals and objectives;•leverage utilization and capacity metrics for “what-if” analysis and modeling;•analyze fixed versus variable information technology-related costs to identify opportunities for savings; and•support demand-based budgeting and forecasting processes.Our financial management application currently is used within the information technology and finance functions of organizations.CustomersWe have more than 2,000 customers with over 235,000 users. Our customers operate in a wide variety of11Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.industries, including financial services, retail, technology, manufacturing, education, consumer goods, media, and telecommunications, government, foodand beverage, healthcare and life sciences, chemicals and travel and hospitality. No customer represented more than 3% of our revenue as of December 31,2015.SalesWe sell our software applications primarily through a direct sales organization comprised of inside sales and field sales personnel. We employ aland-and-expand go-to-market strategy. After we demonstrate the value of an initial application to an organization, our sales and account management teamswork to expand the adoption of that initial application across the organization, as well as cross-sell additional applications to address other enterprise workmanagement needs of the organization. Our direct sales team is organized by product line of business. All of our direct sales personnel sell our applicationsand professional services across multiple industries.MarketingOur marketing activities are designed to build awareness of the Upland brand and the individual product brands, generate thought leadership andcreate demand, resulting in leads and opportunities for our sales organizations. Our marketing programs target decision makers and influencers participatingin a buying cycle, including the chief information officer, the chief marketing officer, the chief financial officer, the director of process excellence and otherkey technology and business managers. Our principal marketing programs include:•use of our website to provide information about us and our software applications, as well as educational opportunities for potential customers;•field marketing events for customers and prospective customers;•participation in, and sponsorship of, executive events, trade shows and industry events;•our user conferences;•integrated digital marketing campaigns, including email, online advertising, blogs and webinars;•public relations, analyst relations and social media initiatives; and•sales representatives who respond to incoming leads to convert them into new sales opportunities.Customer SuccessOur customer success organization is structured to manage all aspects of our post-sale customer lifecycle. This organization consists of dedicatedteams with a mission to drive adoption of our applications, value realization, retention and loyalty across our customer base. Our customer successorganization has four core functional areas with strategic focus on customer relationship management:•Customer Care. Our customer care team assists customers throughout their lifecycle with the Upland family of applications by making serviceofferings available to all customers as part of their standard customer agreements, including webinars, user group meetings and conferences. Inparticular, we hold a user conference featuring a variety of keynote and customer speakers, panelists and presentations. Conference attendees alsogain insight into our recent application enhancements and participate in interactive sessions that give them the opportunity to express opinions onnew features and functionality.•Professional Services. Our professional services team is responsible for coordinating all activities relating to the implementation, transition and on-boarding of new customers and assisting new customers with the addition of new applications to their accounts. Typical professional servicesengagements vary in length from a few weeks to several months depending on the size and scope of the engagement and are in addition to servicesprovided under our standard customer agreement and are fee-based. In addition, our project managers and consultants work closely with ourcustomers to provide services that help customers maximize the utility of our applications. Our continuing education services, known as UplandUniversity, provide our clients with access to product tutorials and information on new applications and platform features, as well as offer tailoredtraining programs to meet specific client needs.12Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•Account Management. We assign each customer a regionally aligned account team with a relationship manager who functions as the customer’ssingle point of contact and advocate within Upland. Our account management teams are trained on all of our applications and work closely with therelationship manager to ensure that our customers receive high-quality consultative service.•Customer Support. We offer support from all of our office locations, as well as our offshore Center of Excellence in Egypt and India, to help ourcustomers maximize the return on their investment in our applications. We provide 24/7 customer support around the world through our onlinecustomer support portal. In addition, our customer support team manages and administers the Upland customer community forum and knowledgebase repository.Our customer success organization manages programs to reinforce the ongoing business value of our applications and promote the Upland“customer for life” program. These service offerings include:•Health Checks and Program Reviews: Engages core users and business buyer sponsors to deliver a detailed scorecard and recommendation report.•Advisory and Retained Services: Provides access to a specific customer success contact with priority scheduling and periodic checkpoints.•System Deployment and Adoption Analysis: Analyzes system configuration and usage patterns, resulting in best practice recommendations onimproving user adoption and compliance.•Consumption Review and Recommendations: Delivers best practice recommendations for implementation strategy and a roadmap proposal foraligning the system with customers’ evolving process maturity to increase application usage.•Success Services Program: Provides three service-level options tailored to maximize customers’ value relative to their specific needs.Technology and OperationsOur cloud-based family of applications utilizes a multi-tenant architecture and our customers access our applications using a secure Internetconnection through a standard web browser. We rely on generally available off-the-shelf software licensed from third parties. Our applications are easy todeploy, highly configurable, scalable, flexible and secure and provide our customers with a modern and intuitive user experience.We use storage area network hardware at our data center locations that has been designed for high performance and data-loss prevention. We believethese systems have the capability and scalability to enable us to meet our anticipated growth for the foreseeable future.We employ a modular application architecture to balance customer workloads across multiple servers and to provide a flexible method for scalingcustomers without impacting other parts of the server environment. This architecture is designed to allow us to provide the high levels of uptime required byour customers. We employ capacity planning techniques to ensure we have required capacity for our forecasted growth.We offer high levels of security by segregating each customer’s data from the data of other customers and by limiting access to our platform to onlythose individuals authorized by our customers. We maintain a formal and comprehensive security program designed to ensure the security and integrity ofcustomer data, protect against security threats or data breaches, and prevent unauthorized access to the data of our customers. We strictly regulate and limitall access to servers and networks at our production and remote backup facilities. Periodic security audits are conducted by an external third-party andinclude firewall penetration testing and vulnerability scans. In addition, sensitive customer data is encrypted. Encrypted backup files are transmitted oversecure connections to a redundant server storage device in a secondary data center. Our data center facilities employ advanced measures to ensure physicalintegrity, including redundant power and cooling systems, and advanced fire and flood prevention.All users are authenticated, authorized and validated before they can access our system. Users must have a valid user ID and associated password tolog onto our user interface. Our configurable security model allows different groups of users to have different levels of access to our applications. Securitygroups and policies are13Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.delivered or can be created based on a customer’s unique access requirements.We currently serve our customers from secure, third-party, American National Standards Institute Tier 3 data center facilities, located in the UnitedStates and other countries. Our data centers are designed to host computer systems with fully redundant subsystems and compartmentalized security zones.While we procure and operate all infrastructure equipment delivering our applications, third parties operate the data centers that we use. These facilitiesprovide 24/7 security, biometric access controls, systems security, redundant networking, N+1 power and environmental controls. Our contracts with thesethird party data center providers are typically for a term of three years. While we believe that these data centers have sufficient capacity to meet ouranticipated growth for the foreseeable future, we have instituted a new initiative to consolidate our data centers for higher efficiency.We voluntarily obtain third-party security examinations relating to security and data privacy in accordance with the Service Organization Control(SOC) and Statement on Standards for Attestation Engagements (SSAE) No. 16, Reporting on Controls at a Service Organization. Our SOC examination isconducted every year by an independent third-party auditor and addresses, among other areas, our physical and environmental safeguards for production datacenters, data availability and integrity procedures, change management procedures and logical security procedures.Research and DevelopmentWe focus our research and development efforts on customer-driven innovation, third-party integrations and continually enhancing the performance,reliability, security, usability, and scalability of our applications.In addition to internal resources, we utilize partners, contractors and offshore resources to improve efficiencies and our ability to deliver. Ourresearch and development expenses were $15.8 million, $26.2 million, $10.3 million in fiscal years 2015, 2014, and 2013, respectively. See audited financialstatement Note 17 Related Party Transactions regarding an $11.2 million charge to research and development costs in fiscal 2014.CompetitionThe overall market for enterprise work management software is rapidly evolving and subject to changing technology, shifting customer needs andfrequent introductions of new applications. The intensity and nature of our competition varies significantly across our range of enterprise work managementapplications. We believe there are a limited number of direct competitors that provide a comprehensive cloud-based enterprise work management softwareoffering. However, we face competition both from point solution providers, including legacy on-premise enterprise systems, and other cloud-based workmanagement software vendors that may address one or more of the functional elements of our applications, but are not designed to address a broad range ofenterprise work management needs. In addition, we face competition from manual processes and traditional tools, such as paper-based techniques,spreadsheets and email.We believe the principal competitive factors in our market include the following:•breadth and depth of application functionality;•ease of deployment and use of applications;•total cost of ownership;•levels of customer support satisfaction;•brand awareness and reputation;•capability for configurability, integration, scalability and reliability of applications;•ability to innovate and respond to customer needs rapidly; and•level of integration among applications and with other enterprise systems.We believe that we compete favorably on the basis of these factors. Our ability to remain competitive will14Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.largely depend on the strength of our applications, the effectiveness of our sales and marketing efforts, the quality of our customer success organization andour ability to acquire complementary technologies, products and businesses to enhance the features and functionality of our applications.Intellectual Property and Proprietary RightsWe rely on a combination of trademark, copyright, trade secret and patent laws in the United States and other jurisdictions as well as confidentialityprocedures and contractual provisions to protect our intellectual property. We believe the duration of our patents is adequate relative to the expected lives ofour service offerings.EmployeesAs of December 31, 2015, we had 342 employees, with the majority of our employees being located in the United States or Canada. None of ouremployees are covered by a collective bargaining agreement. We have never experienced a strike or similar work stoppage, and we consider our relationswith our employees to be good.Legal ProceedingsFrom time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to anylegal proceedings that we believe would, individually or taken together, have a material adverse effect on our business, operating results, financial conditionor cash flows.Information about Segment and Geographic RevenueWe operate and manage our business as a single operating segment. See our consolidated financial statements for a discussion of revenues, operatingloss, net loss and total assets. The Company’s revenues are principally generated in the United States, which accounted for 81%, 76%, and 75% ofconsolidated revenues for the years ended December 31, 2015, 2014, and 2013, respectively. Revenues from international business accounted for 19%, 22%,and 24% of consolidated revenues for the years ended December 31, 2015, 2014, and 2013, respectively. See Note 16 of the Notes to CondensedConsolidated Financial Statements for more information regarding our revenue as it relates to domestic and foreign operations.Available InformationWe were incorporated in Delaware in 2010. Our principal executive offices are located at 401 Congress Avenue, Suite 1850, Austin, TX 78701. Ourtelephone number at that location is (855) 944-7526. Our website address is www.uplandsoftware.com. Information on our website is not part of this reportand should not be relied upon in determining whether to make an investment decision. The inclusion of our website address in this report does not includeor incorporate by reference into this report any information on our website.Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnishedpursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through our website as soon asreasonably practicable after they are electronically filed with or furnished to the SEC. The public may read and copy the materials we file with the SEC atthe SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public ReferenceRoom by calling the SEC at 1-800-SEC-0330. Additionally the SEC maintains an internet site that contains reports, proxy and information statements andother information. The address of the SEC’s website is www.sec.gov.Item 1A.Risk Factors15Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Risks Related to Our BusinessWe have a limited operating history and may be unable to achieve or sustain profitability or accurately predict our future results.We were formed in July 2010 and acquired our first business and commenced operations in September 2011. Prior to September 2011, our businessactivity was devoted to raising capital, building infrastructure and reviewing potential acquisitions. As such, we have a very limited operating history ofselling our products and professional services to third parties. Our limited operating history makes it difficult to evaluate our current business and futureprospects and may increase the risk of your investment. We incurred net losses of $13.7 million, $20.1 million and $9.2 million in fiscal 2015, 2014, and2013, respectively. As of December 31, 2015, we had an accumulated deficit of $48.9 million. Our losses in prior periods and accumulated deficit reflect theinvestments we have made to date to grow our business. We expect to have significant operating expenses in the future to further support and grow ourbusiness, including expanding the range of integrations between our software and third-party applications and platform, expanding our direct and indirectsales capabilities, pursuing acquisitions of complementary businesses, investing in our data center infrastructure and research and development andincreasing our international presence, and as a result we may be unable to achieve or sustain profitability or accurately predict our future results. You shouldnot consider our recent growth in revenue as indicative of our future performance, and we cannot assure you that we will achieve profitability in the future,nor that if we do become profitable, we will sustain profitability.Our growth is dependent on our ability to retain existing customers and secure additional subscriptions and cross-sell opportunities from existingcustomers, and nonrenewals and downgrades could harm our future operating results.In order for us to improve our operating results, it is important that our customers renew or upgrade their agreements with us when the applicablecontract term expires, which is typically one to three years for subscription agreements and one year for perpetual license agreements, and also purchaseadditional applications from us. Upon expiration, customers can renew their existing subscriptions, upgrade their subscriptions to add more seats oradditional minimum contracted volume, downgrade their subscriptions to fewer seats or lower minimum contracted volume or not renew. A renewalconstitutes renewing an existing contract for an application under the same terms and an upgrade includes purchasing additional seats or volume under anexisting contract. We may also cross-sell additional applications to existing customers. Our ability to grow revenue and achieve profitability depends, in part,on customer renewals, upgrades and cross-sales to existing customers exceeding downgrades and nonrenewals. However, we may not be able to increase ourpenetration within our existing customer base as anticipated and we may not otherwise retain subscriptions from existing customers. Our customers maychoose to not renew or upgrade their subscriptions, or may downgrade, because of several factors, including dissatisfaction with our prices, features orperformance relative to competitive offerings, reductions in our customers’ spending levels, unused seats or volume or limited adoption or use of ourapplications. In addition, we may not be successful in cross-selling new applications to our existing customers. If our customers do not upgrade or renew theirsubscriptions or purchase additional applications from us, or if they downgrade their subscriptions, our revenue may grow more slowly than expected or maydecline, and our financial performance may be adversely affected.Any failure to offer high-quality customer service may adversely affect our relationships with our customers and our financial results.Our customers depend on our customer success organization to manage the post-sale customer lifecycle, including to implement new applications forour customers, provide training and ongoing education services and resolve technical issues relating to our applications. We may be unable to respondquickly enough to accommodate short-term increases in demand for our customer success services. We also may be unable to modify the format of ourcustomer success services to compete with changes in similar services provided by our competitors. Increased customer demand for these services, withoutcorresponding revenue, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on the reliablefunctional operation of our applications, our business reputation and positive recommendations from our existing customers. Any failure to maintain high-quality customer service, or a market perception that we do not maintain high-quality customer service, could adversely affect our reputation, our ability tosell our applications to existing and prospective customers and our business, operating results and financial position.16Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.If the market for cloud-based enterprise work management applications develops more slowly than we expect, or declines, our business could be adverselyaffected.The market for cloud-based enterprise work management applications is not as mature as the market for legacy on-premise enterprise systems, and it isuncertain whether cloud-based applications will achieve and sustain high levels of customer demand and market acceptance. Our success will depend to asubstantial extent on increased adoption of cloud-based applications, and of our enterprise work management software applications in particular. Many largeorganizations have invested substantial personnel and financial resources to integrate legacy on-premise enterprise systems into their businesses, andtherefore may be reluctant or unwilling to migrate to cloud-based applications or away from their traditional vendors or to new practices because of theorganizational changes often required to successfully implement new enterprise work management systems. In addition, we do not know whether theadoption of enterprise work management software will continue to grow and displace manual processes and traditional tools, such as paper-based techniques,spreadsheets and email. It is difficult to predict customer adoption rates and demand for our applications, the future growth rate and size of the cloud-basedsoftware application market or the entry of competitive products. The expansion of the cloud-based software application market depends on a number offactors, including the cost, performance and perceived value associated with cloud-based applications, as well as the ability of cloud-based applicationcompanies to address security and privacy concerns. If other cloud-based software application providers experience security incidents, loss of customer data,disruptions in delivery or other problems, the market for cloud-based applications as a whole, including our enterprise work management applications, maybe negatively affected. If cloud-based applications do not achieve widespread adoption, or there is a reduction in demand for cloud-based applicationscaused by a lack of customer acceptance, technological challenges, weakening economic conditions, security or privacy concerns, competing technologiesand products, decreases in corporate spending or otherwise, our revenues may decrease and our business could be adversely affected.If we fail to manage our growth effectively, we may be unable to execute our business plan and maintain high levels of customer satisfaction.We have recently experienced a period of rapid growth in our personnel and operations. In particular, we increased our number of full-time employeesfrom three as of December 31, 2011 to 342 as of December 31, 2015, and have also increased the size of our customer base. In addition, our revenue grew from$712,000 in fiscal 2011 to $69.9 million in fiscal 2015. Acquisitions are a primary component of our growth strategy and, as a result, we anticipate that wewill continue to experience further rapid growth in our personnel and operations in the future. Our growth has placed, and future growth will place, asignificant strain on our managerial, administrative, operational, financial and other resources. To manage the expected growth of our personnel andoperations, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. Failure toeffectively manage our growth could result in difficulty or delays in deploying our applications, declines in quality or customer satisfaction, increases incosts, difficulties in introducing new features or other operational difficulties, and any of these difficulties could adversely impact our business performanceand results of operations.We have made and expect to continue to make acquisitions as a primary component of our growth strategy. We may not be able to identify suitableacquisition candidates or consummate acquisitions on acceptable terms, or we may be unable to successfully integrate acquisitions, which could disruptour operations and adversely impact our business and operating results.A primary component of our growth strategy has been to acquire complementary businesses to grow our company. For example, we acquired thebusinesses of PowerSteering Software, Inc., Tenrox Inc. and LMR Solutions, LLC, dba EPM Live, in fiscal 2012 and the businesses of FileBound Solutions,Inc. and Marex Group Inc., ComSci, LLC, and Clickability Inc., in fiscal 2013, the businesses of Solution Q Inc. and Mobile Commons, Inc., in fiscal 2014,and Ultriva Inc., in fiscal 2015. We intend to continue to pursue acquisitions of complementary technologies, products and businesses as a primarycomponent of our growth strategy to enhance the features and functionality of our applications, expand our customer base and provide access to new marketsand increase benefits of scale. Acquisitions involve certain known and unknown risks that could cause our actual growth or operating results to differ fromour expectations. For example:•we may not be able to identify suitable acquisition candidates or to consummate acquisitions on acceptable terms;17Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•we may pursue international acquisitions, which inherently pose more risks than domestic acquisitions;•we compete with others to acquire complementary products, technologies and businesses, which may result in decreased availability of, orincreased price for, suitable acquisition candidates;•we may not be able to obtain the necessary financing, on favorable terms or at all, to finance any or all of our potential acquisitions;•we may ultimately fail to consummate an acquisition even if we announce that we plan to acquire a technology, product or business; and•acquired technologies, products or businesses may not perform as we expect and we may fail to realize anticipated revenue and profits.In addition, our acquisition strategy may divert management’s attention away from our existing business, resulting in the loss of key customers oremployees, and expose us to unanticipated problems or legal liabilities, including responsibility as a successor for undisclosed or contingent liabilities ofacquired businesses or assets.If we fail to conduct due diligence on our potential targets effectively, we may, for example, not identify problems at target companies or fail torecognize incompatibilities or other obstacles to successful integration. Our inability to successfully integrate future acquisitions could impede us fromrealizing all of the benefits of those acquisitions and could severely weaken our business operations. The integration process may disrupt our business and, ifnew technologies, products or businesses are not implemented effectively, may preclude the realization of the full benefits expected by us and could harmour results of operations. In addition, the overall integration of new technologies, products or businesses may result in unanticipated problems, expenses,liabilities and competitive responses. The difficulties integrating an acquisition include, among other things:•issues in integrating the target company’s technologies, products or businesses with ours;•incompatibility of marketing and administration methods;•maintaining employee morale and retaining key employees;•integrating the cultures of both companies;•preserving important strategic customer relationships;•consolidating corporate and administrative infrastructures and eliminating duplicative operations; and•coordinating and integrating geographically separate organizations.In addition, even if the operations of an acquisition are integrated successfully, we may not realize the full benefits of the acquisition, including thesynergies, cost savings or growth opportunities that we expect. These benefits may not be achieved within the anticipated time frame, or at all.Further, acquisitions may cause us to:•issue common stock that would dilute our current stockholders’ ownership percentage;•use a substantial portion of our cash resources;•increase our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition;•assume liabilities for which we do not have indemnification from the former owners; further, indemnification obligations may be subject todispute or concerns regarding the creditworthiness of the former owners;•record goodwill and non-amortizable intangible assets that are subject to impairment testing and potential impairment charges;•experience volatility in earnings due to changes in contingent consideration related to acquisition earn-out liability estimates;•incur amortization expenses related to certain intangible assets;•lose existing or potential contracts as a result of conflict of interest issues;•become subject to adverse tax consequences or deferred compensation charges;18Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•incur large and immediate write-offs; or•become subject to litigation.We depend on our senior management team and the loss of one or more key personnel or an inability to attract and retain highly skilled personnel mayimpair our ability to grow our business.Our success depends in part upon the continued services of our key executive officers, including John T. McDonald, Michael D. Hill, and TimothyW. Mattox, as well as other key personnel. We do not have employment agreements with most of our executive officers or other key personnel that requirethem to continue to work for us for any specified period and, therefore, they may terminate employment with us at any time with no advance notice. Thereplacement of our senior management team or other key personnel likely would involve significant time and costs, and the loss of these employees maysignificantly delay or prevent the achievement of our business objectives.We face intense competition for qualified individuals from numerous technology and software companies. If we fail to attract and retain suitablyqualified individuals, including software engineers and sales personnel, our ability to implement our business plan and develop and maintain ourapplications could be adversely affected. As a result, our ability to compete would decrease, our operating results would suffer and our revenue woulddecrease.Failure to maintain and expand our sales organization may negatively impact our revenue growth.We sell our applications primarily through a direct sales organization comprised of inside sales and field sales personnel. In addition, we have anindirect sales organization, which sells to distributors and value-added resellers. Growing sales to both new and existing customers is in part dependent onour ability to maintain and expand our sales force. Identifying, recruiting and training additional sales personnel requires significant time, expense andattention. It can take several quarters or longer before our sales representatives are fully-trained and productive. Our business may be adversely affected if ourefforts to expand and train our sales organization do not generate a corresponding increase in revenue. In particular, if we are unable to hire, develop andretain sales personnel or if our new sales personnel are unable to achieve expected sales productivity levels in a reasonable period of time or at all, ourrevenue may grow more slowly than expected or decline and our business may be harmed.Because we generally recognize revenue from our customers over the terms of their agreements but incur most costs associated with generating suchagreements in advance, rapid growth in our customer base may increase our losses in the short-term.Expenses associated with acquiring customers, such as the expenses related to our sales organizations and related commissions, are generallyexpensed as incurred while most of our revenue is recognized ratably over the life of the applicable agreements. Therefore, increased sales will result in ourrecognition of more costs than revenue during the early periods covered by such agreements, even in cases where the agreements are expected to be profitablefor us over their full terms. As a result, even if we are successful in increasing our customer base, our short-term operating results may suffer.We recognize revenue from customers over the term of the related agreement; therefore, downturns or upturns in our business may not be immediatelyreflected in our operating results.We recognize revenue from customer agreements ratably over the terms of these agreements. As a result, a significant portion of the revenue wereport in each quarter is generated from customer agreements entered into during previous periods, which is reflected as deferred revenue on our balancesheet. Consequently, a decline in new or renewed agreements, or a downgrade of renewed agreements to fewer seats or less minimum contracted volume, inany one quarter may not be fully reflected in our revenue in that quarter. Such a decline, however, will negatively affect our revenue in future quarters.Accordingly, the effect of significant downturns in sales and market acceptance of our applications, and potential changes in our pricing policies or rates ofrenewals, may not be fully reflected in our results of operations until future periods. Similarly, it would be difficult for us to rapidly increase our revenuethrough new sales, renewals and upgrades of existing customer agreements, or through additional cross-selling opportunities, in a given period due to thetiming of revenue recognition inherent in our subscription model.Perpetual license revenue is unpredictable and a material increase or decrease in perpetual license revenue from period to period can produce substantialvariation in the total revenue and earnings we recognize in a given period.19Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Perpetual license revenue reflects the revenue recognized from sales of perpetual licenses relating to our workflow automation and enterprise contentmanagement applications to new customers and additional licenses for such applications to existing customers. We generally recognize the license feeportion of the arrangement in advance. Perpetual licenses of our workflow automation and enterprise content management applications are sold throughthird-party resellers and, as such, the timing of sales of perpetual licenses is difficult to predict with the timing of recognition of associated revenueunpredictable. A material increase or decrease in the sale of perpetual licenses from period to period could produce substantial variation in the revenue werecognize. Accordingly, comparing our perpetual license revenue on a period to period basis may not be a meaningful indicator of a trend or future results.Our quarterly operating results may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of research analysts or investors,which could cause our stock price to decline and you may lose part or all of your investment.Our quarterly operating results may fluctuate as a result of a variety of factors, many of which are outside of our control. Accordingly, the results ofany one quarter may not fully reflect the underlying performance of our business and should not be relied upon as an indication of future performance. If ourquarterly operating results or outlook fall below the expectations of research analysts or investors, the price of our common stock could decline substantially.Fluctuations in our quarterly operating results or outlook may be due to a number of factors, including, but not limited to:•the extent to which our existing customers purchase additional seats or volume for our applications and the timing and terms of those purchases;•the extent to which our existing customers renew their customer agreements for our applications and the timing and terms of those renewals;•the extent to which we cross-sell additional applications to our existing customers and the timing and terms of such cross-selling;•the addition or loss of customers, including through acquisitions or consolidations;•the extent to which new customers are attracted to our applications to satisfy their enterprise work management needs;•the rate of adoption and market acceptance of enterprise work management applications;•the mix of our revenue, particularly between product and professional services revenue, for which the timing of revenue recognition issubstantially different;•changes in the gross profit we realize on our applications and professional services due to our differing revenue recognition policies applicableto subscription and product and professional services revenue and other variables;•the extent to which we enter into multi-year contracts, in which the support fees are typically paid in advance;•the number and size of new customers and the number and size of renewals in a particular period;•changes in our pricing policies or those of our competitors;•the mix of applications sold during a period;•the timing and expenses related to the acquisition of technologies, products or businesses and potential future charges for impairment ofgoodwill from such acquisitions;•the amount and timing of operating expenses, including those related to the maintenance and expansion of our business, operations andinfrastructure;•the amount and timing of expenses related to the development of new products and technologies, including enhancements to our applications;•the amount and timing of commissions earned by our sales personnel;•the timing and success of new applications introduced by us or new offerings offered by our competitors;•the length of our sales cycles;20Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•changes in the competitive dynamics of our industry, including consolidation among competitors, customers or strategic collaborators;•our ability to manage our existing business and future growth, including increases in the number of customers using our applications;•the seasonality of our business or cyclical fluctuations in our industry;•the timing and expenses related to any international expansion efforts we may undertake and the success of such efforts;•various factors related to disruptions in access and delivery of our cloud-based applications, errors or defects in our applications, privacy anddata security and exchange rate fluctuations, each of which is described elsewhere in these risk factors; and•general economic, industry and market conditions.We may need financing in the future, and any additional financing may result in restrictions on our operations or substantial dilution to our stockholders.We may seek to renegotiate or refinance our loan facility, and we may be unable to do so on acceptable terms or at all.We have funded our operations since inception primarily through equity financings, cash from operations and cash available under our loan facility.We may need to raise funds in the future, for example, to expand our business, acquire complementary businesses, develop new technologies, respond tocompetitive pressures or react to unanticipated situations. We may try to raise additional funds through public or private financings, strategic relationships orother arrangements. Our ability to obtain debt or equity funding will depend on a number of factors, including market conditions, our operating performanceand investor interest. Additional funding may not be available to us on acceptable terms or at all. If adequate funds are not available, we may be required toreduce expenditures, including curtailing our growth strategies, reducing our product-development efforts or foregoing acquisitions. If we succeed in raisingadditional funds through the issuance of equity or convertible securities, it could result in substantial dilution to existing stockholders. If we raise additionalfunds through the issuance of debt securities or preferred stock, these new securities would have rights, preferences and privileges senior to those of theholders of our common stock. In addition, any debt financing obtained by us in the future or issuance of preferred stock could involve restrictive covenantsrelating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital andto pursue business opportunities, including potential acquisitions. Additionally, we may need to renegotiate the terms of our loan facility, and our lendermay be unwilling to do so, or may agree to such changes subject to additional restrictive covenants on our operations and ability to raise capital.Our loan facility contains operating and financial covenants that may restrict our business and financing activities.On May 14, 2015, we entered into a $60 million loan facility with Wells Fargo Capital Finance. The facility is comprised of a $25 million term loan, a$10 million revolving credit facility and a $10 million delayed draw term loan for acquisitions. Additionally, the facility provides for an uncommitted $15million accordion loan to further support future acquisitions and an additional $10 million of subordinated seller notes for acquisitions. As of December 31,2015, there was $24.4 million outstanding under the credit facility, all of which was outstanding under the term loan portion and none was outstanding underthe revolving portion of the credit facility.Our obligations and the obligations of the co-borrowers and any guarantors under the Wells Fargo loan facility are secured by a security interest insubstantially all of our assets and assets of the co-borrowers’ and of any guarantors, including intellectual property. The terms of the credit facility limits,among other things, our ability to•sell, lease, license or otherwise dispose of assets;•undergo a change in control;•consolidate or merge with or into other entities;•make or own loans, investments and acquisitions;•create, incur or assume guarantees in respect of obligations of other persons;21Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•create, incur or assume liens and other encumbrances; or•pay dividends or make distributions on, or purchase or redeem, our capital stock.Furthermore, the Wells Fargo loan facility requires us and our subsidiaries to comply with certain financial covenants. The operating and otherrestrictions and covenants in the loan facility, and in any future financing arrangements that we may enter into, may restrict our ability to finance ouroperations, engage in certain business activities, or expand or fully pursue our business strategies, or otherwise limit our discretion to manage our business.Our ability to comply with these restrictions and covenants may be affected by events beyond our control, and we may not be able to meet those restrictionsand covenants. A breach of any of the restrictions and covenants could result in a default under the loan facility or any future financing arrangements, whichcould cause any outstanding indebtedness under the loan facility or under any future financing arrangements to become immediately due and payable, andresult in the termination of commitments to extend further credit.If we are unable to increase market awareness of our company and our applications, our revenue may not continue to grow, or may decline.Market awareness of our company and our applications is essential to our ability to generate new leads for expanding our business and ourcontinued growth. If we fail to sufficiently invest in our marketing programs or they are unsuccessful in creating market awareness of our company and ourapplications, our revenue may grow more slowly than expected or may decline and our financial performance may be adversely affected.The markets in which we participate are intensely competitive, and if we do not compete effectively, our operating results could be adversely affected.The overall market for enterprise work management software is rapidly evolving and subject to changing technology, shifting customer needs andfrequent introductions of new applications. The intensity and nature of our competition varies significantly across our family of enterprise work managementsoftware applications. Many of our competitors and potential competitors are larger and have greater brand name recognition, longer operating histories,larger marketing budgets and significantly greater resources than we do. Some of our smaller competitors may offer applications on a stand-alone basis at alower price than us due to lower overhead or other factors, while some of our larger competitors may offer applications at a lower price in an attempt to cross-sell additional products in the future or retain a customer using a different application.We believe there are a limited number of direct competitors that provide a comprehensive enterprise work management software offering. However,we face competition both from point solution providers, including legacy on-premise enterprise systems, and other cloud-based work management softwarevendors that may address one or more of the functional elements of our applications, but are not designed to address a broad range of enterprise workmanagement needs. In addition, we face competition from manual processes and traditional tools, such as paper-based techniques, spreadsheets and email.If our competitors’ products, services or technologies become more accepted than our enterprise work management applications, if they aresuccessful in bringing their products or services to market earlier than ours, or if their products or services are more technologically capable than ours, ourrevenues could be adversely affected.Mergers of, or other strategic transactions by, our competitors could weaken our competitive position or reduce our revenue.If one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adverselyaffect our ability to compete effectively. In order to take advantage of customer demand for cloud-based software applications, vendors of legacy systems areexpanding their cloud-based enterprise workplace management applications through acquisitions and organic development. A potential result of suchexpansion is that certain of our current or potential competitors may be acquired by third parties with greater available resources and the ability to furtherinvest in product improvements and initiate or withstand substantial price competition. Our competitors also may establish or strengthen cooperativerelationships with our current or future value-added resellers, third-party consulting firms or other parties with whom we have relationships, thereby22Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.limiting our ability to promote our applications. Disruptions in our business caused by these events could reduce our revenue.Our growth and long-term success depends in part on our ability to expand our international sales and operations.A core component of our growth strategy is international expansion. For fiscal 2015 and 2014, we generated approximately 19% and 22% ,respectively, of our revenue from sales outside the United States. We currently maintain international offices and have sales, marketing, support or researchand development personnel in Canada and the United Kingdom. As we continue to expand our international footprint, we will be increasingly susceptible tothe risks associated with international operations. We have a limited operating history outside of the United States and Canada and our ability to manage ourinternational operations successfully requires significant resources and management attention and is subject to particular challenges of supporting a rapidlygrowing business in an environment of diverse cultures, languages, customs, legal systems, alternative dispute systems and economic, political andregulatory systems. In addition, we expect to incur significant costs associated with expanding our international operations, including hiring personnelinternationally. The risks and challenges associated with doing business internationally and our international expansion include:•uncertain political and economic climates;•lack of familiarity and burdens of complying with foreign laws, accounting and legal standards, regulatory requirements, tariffs and otherbarriers;•unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions;•lack of experience in connection with the localization of our applications, including translation into foreign languages and adaptation for localpractices, and associated expenses and regulatory requirements;•difficulties in adapting to differing technology standards;•longer sales cycles and accounts receivable payment cycles and difficulties in collecting accounts receivable;•difficulties in managing and staffing international operations, including differing legal and cultural expectations for employee relationshipsand increased travel, infrastructure and legal compliance costs associated with international operations;•fluctuations in exchange rates that may increase the volatility of our foreign-based revenue and expenses;•potentially adverse tax consequences, including the complexities of foreign value-added tax, goods and services tax and other transactionaltaxes;•reduced or varied protection for intellectual property rights in some countries;•difficulties in managing and adapting to differing cultures and customs;•data privacy laws which require that customer data be stored and processed in a designated territory subject to laws different than the UnitedStates;•new and different sources of competition as well as laws and business practices favoring local competitors and local employees;•compliance with anti-bribery laws, including compliance with the Foreign Corrupt Practices Act;•increased financial accounting and reporting burdens and complexities; and•restrictions on the repatriation of earnings.Further, our international expansion efforts may be hindered by lower levels of cloud adoption and increased price sensitivity for our applications orother cloud-based offerings in international markets. As a result of these and other factors, international expansion may be more difficult, take longer and notgenerate the results we anticipate, which could negatively impact our growth and business.Fluctuations in the exchange rate of foreign currencies could result in losses on currency transactions.23Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Our customers are generally invoiced in the currency of the country in which they are located. In addition, we incur a portion of our operatingexpenses in foreign currencies, including Canadian dollars, British pounds and Euros, and in the future, as we expand into other foreign countries, we expectto incur operating expenses in other foreign currencies. In addition, our customers are generally invoiced in the currency of the country in which they arelocated. We are exposed to foreign exchange rate fluctuations as the financial results of our international operations are translated from the local functionalcurrency into U.S. dollars upon consolidation. A decline in the U.S. dollar relative to foreign functional currencies would increase our non-U.S. revenue andimprove our operating results. Conversely, if the U.S. dollar strengthens relative to foreign functional currencies, our revenue and operating results would beadversely affected. We have not previously engaged in foreign currency hedging. If we decide to hedge our foreign currency exchange rate exposure, we maynot be able to hedge effectively due to lack of experience, unreasonable costs or illiquid markets.Our sales cycles can be lengthy and variable, which may cause changes in our operating results.Our sales cycle can vary substantially from customer to customer. A number of factors influence the length and variability of our sales cycles,including, for example:•the need to educate potential customers about the uses and benefits of our applications;•the duration of the commitment customers make in their agreements with us, which are typically one to three years;•the discretionary nature of potential customers’ purchasing and budget cycles and decisions;•the competitive nature of potential customers’ evaluation and purchasing processes;•the functionality demands of potential customers;•fluctuations in the enterprise work management needs of potential customers;•the announcement or planned introduction of new products by us or our competitors; and•the purchasing approval processes of potential customers.Our sales cycles can make it difficult to predict the quarter in which revenue from a new customer may first be recognized. We may incur significantsales and marketing expenses and invest significant time and effort in anticipation of a sale that may never occur or only occur in a smaller amount or at alater date than anticipated. Delays inherent to our sales cycles could cause significant variability in our revenue and operating results for any particularperiod.We have a limited history with our pricing models and, as a result, we may be forced to change the prices we charge for our applications or the pricingmodels upon which they are based.We have limited experience with respect to determining the optimal prices and pricing models for certain of our applications and certain geographicmarkets. As the markets for our applications mature, or as competitors introduce products or services that compete with ours, including bundling competingofferings with additional products or services, we may be unable to attract new customers at the same price or based on the same pricing models as we haveused historically. As a result, in the future we may be required to reduce our prices, which could adversely affect our financial performance. In addition, wemay offer volume price discounts based on the number of seats purchased by a customer or the number of our applications purchased by a customer, whichwould effectively reduce the prices we charge for our applications. Also, we may be unable to renew existing customer agreements or enter into new customeragreements at the same prices or upon the same terms that we have historically, which could have a material adverse effect on our financial position.Any disruption of service at the data centers that house our equipment and deliver our applications could harm our business.While we procure and operate all infrastructure equipment delivering our applications, third parties operate the data centers that we use. While wecontrol and have access to our servers and all of the other components of our network that are located in our external data centers, we do not control theoperation of these data centers and we are therefore vulnerable to disruptions, power outages or other issues the data centers experience. We have experiencedand expect that we will in the future experience interruptions, delays and outages in service and availability from time to time.24Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The owners of our data centers have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable torenew these agreements on commercially reasonable terms, or if one of our data center operators is acquired, we may be required to transfer our servers andother infrastructure to new data centers, and we may incur significant costs and possible service interruption in connection with doing so.Our data centers are vulnerable to damage or interruption from human error, malicious acts, earthquakes, hurricanes, tornadoes, floods, fires, war,terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events. For example, certain of our data centers arelocated in an area known for seismic activity, increasing our susceptibility to the risk that an earthquake could significantly harm the operations of thisfacility. The occurrence of a natural disaster or an act of terrorism, vandalism or other misconduct, a decision to close the data centers without adequate noticeor other unanticipated problems could result in lengthy interruptions in availability of our applications.Any changes in third-party service levels at our data centers or any errors, defects, disruptions or other performance problems with our applicationscould harm our reputation and may damage our customers’ businesses. Interruptions in availability of our applications might reduce our revenue, cause us toissue credits to customers, subject us to potential liability, and cause customers to terminate their subscriptions or decide not to renew their subscriptions withus.If we fail to adequately manage our data center infrastructure capacity, our existing customers may experience service outages and our new customersmay experience delays in the deployment of our applications.We have experienced significant growth in the number of seats and volume of data that our hosting infrastructure supports. We seek to maintainsufficient excess capacity in our operations infrastructure to meet the needs of all of our customers. We also seek to maintain excess capacity to facilitate therapid provision of new customer deployments and the expansion of existing customer deployments. However, obtaining new data center infrastructurerequires lead time. If we do not accurately predict our infrastructure capacity requirements with sufficient lead time, our customers could experience serviceimpairment that may subject us to financial penalties and liabilities and cause us to lose customers. If our data center infrastructure capacity fails to keep pacewith increased subscriptions, customers may experience delays or reductions in the quality of our service as we seek to obtain additional capacity, whichcould harm our reputation and harm our business.Security breaches may harm our business.Our applications involve the storage and transmission of our customers’ proprietary and confidential information, including personal or identifyinginformation regarding their employees and customers. Any security breaches, unauthorized access, unauthorized usage, virus or similar breach or disruptioncould result in loss of confidential information, damage to our reputation, early termination of our contracts, litigation, regulatory investigations, indemnityobligations or other liabilities. If our security measures or those of our third-party data centers are breached as a result of third-party action, employee error,malfeasance or otherwise and, as a result, someone obtains unauthorized access to customer data, our reputation will be damaged, our business may suffer andwe could incur significant liability. Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are notidentified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any orall of these issues could negatively affect our ability to attract new customers, cause existing customers to elect not to renew or upgrade their subscriptions,result in reputational damage or subject us to third-party lawsuits, regulatory fines or other action or liability, which could adversely affect our operatingresults.Our success depends on our ability to adapt to technological change and continue to innovate.The overall market for enterprise work management software is rapidly evolving and subject to changing technology, shifting customer needs andfrequent introductions of new applications. Our ability to attract new customers and increase revenue from existing customers will depend in large part on ourability to develop or acquire new applications and enhance and improve existing applications. To achieve market acceptance for our applications, we musteffectively anticipate and offer applications that meet changing customer demands in a timely manner. Customers may require features and capabilities thatour current applications do not have. We may25Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.experience difficulties that could delay or prevent our development, acquisition or implementation of new applications and enhancements.If we are unable to successfully develop or acquire new enterprise work management capabilities and functionality, enhance our existingapplications to anticipate and meet customer preferences, sell our applications into new markets or adapt to changing industry standards in enterprise workmanagement, our revenue and results of operations would be adversely affected.Adverse economic conditions may reduce our customers’ ability to spend money on information technology or enterprise work management software, orour customers may otherwise choose to reduce their spending on information technology or enterprise work management software, which may adverselyimpact our business.Our business depends on the overall demand for information technology and enterprise work management software spend and on the economichealth of our current and prospective customers. If worldwide economic conditions become unstable, our existing customers and prospective customers mayre-evaluate their decision to purchase our applications. Weak global economic conditions or a reduction in information technology or enterprise workmanagement software spending by our customers, could harm our business in a number of ways, including longer sales cycles and lower prices for ourapplications.We rely on third-party software that is required for the development and deployment of our applications, which may be difficult to obtain or which couldcause errors or failures of our applications.We rely on software licensed from or hosted by third parties to offer our applications. In addition, we may need to obtain licenses from third partiesto use intellectual property associated with the development of our applications, which might not be available to us on acceptable terms, or at all. Any loss ofthe right to use any software required for the development, maintenance and delivery of our applications could result in delays in the provision of ourapplications until equivalent technology is either developed by us, or, if available, is identified, obtained and integrated, which could harm our business.Any errors or defects in third-party software could result in errors or a failure of our applications, which could harm our business.If our applications contain serious errors or defects we may lose revenue and market acceptance and we may incur costs to defend or settle productliability claims.Complex software applications such as ours often contain errors or defects, particularly when first introduced or when new versions or enhancementsare released. Our current and future applications may contain serious defects.Since our customers use our applications for critical business purposes, defects or other performance problems could negatively impact ourcustomers and could result in:•loss or delayed market acceptance and sales;•breach of warranty or product liability claims;•sales credits or refunds for prepaid amounts related to unused subscription services;•canceled contracts and loss of customers;•diversion of development and customer service resources; and•injury to our reputation.The costs incurred in correcting any material errors or defects might be substantial and could adversely affect our operating results. Although ourcustomer agreements typically contain provisions designed to limit our exposure to certain of the claims above, existing or future laws or unfavorablejudicial decisions could negate these limitations. Even if not successful, a product liability claim brought against us would likely be a distraction tomanagement, time-consuming and costly to resolve, and could seriously damage our reputation in the marketplace, making it harder for us to sell ourapplications. Additionally, our errors and omissions insurance may be inadequate or may not be available in the future on acceptable terms, or at all, and ourpolicy may not cover all claims made against us and defending a suit, regardless of its merit, could be costly and divert management’s attention.26Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.If we fail to integrate our applications with other software applications and competitive or adjacent offerings that are developed by others, or fail to makeour applications available on mobile and other handheld devices, our applications may become less marketable, less competitive or obsolete and ouroperating results could be harmed.Our applications integrate with a variety of other software applications, and also with competing and adjacent third-party offerings, and we need tocontinuously modify and enhance our platform to adapt to changes in cloud-enabled hardware, software, networking, browser and database technologies.Any failure of our applications to integrate effectively with other software applications and product offerings could reduce the demand for our applications orresult in customer dissatisfaction and harm to our business. If we are unable to respond to changes in the applications and tools with which our applicationsintegrate in a cost-effective manner, our applications may become less marketable, less competitive or obsolete. Competitors may also impede our attempts tocreate integration between our applications and competitive offerings, which may decrease demand for our applications. In addition, an increasing number ofindividuals within organizations are utilizing devices other than personal computers, such as mobile phones, tablets and other handheld devices, to accessthe Internet and corporate resources and to conduct business. If we cannot effectively make our applications available on these devices, we may experiencedifficulty attracting and retaining customers.If we fail to develop and maintain relationships with third parties, our business may be harmed.Our business depends in part on the development and maintenance of technology integration, joint sales and reseller relationships. Maintainingrelationships with third parties requires significant time and resources, as does integrating third-party content and technology. Further, third parties may notperform as expected under any relationships that we may enter into, and we may have disagreements or disputes with third parties that could negatively affectour brands and reputation. If we are unsuccessful in establishing or maintaining relationships with third parties, our ability to compete in the marketplace orto grow our revenue could be impaired and our operating results could suffer.Our use of open source software could negatively affect our ability to sell our applications and subject us to possible litigation.A portion of our applications incorporate open source software, and we expect to continue to incorporate open source software in the future. Few ofthe licenses applicable to open source software have been interpreted by courts, and their application to the open source software integrated into ourproprietary software may be uncertain. Moreover, we cannot provide any assurance that we have not incorporated additional open source software in ourapplications in a manner that is inconsistent with the terms of the license or our current policies and procedures. If we fail to comply with these licenses, wemay be subject to certain requirements, including requirements that we offer our applications that incorporate the open source software for no cost, that wemake available source code for modifications or derivative works we create based upon, incorporating or using the open source software and that we licensesuch modifications or derivative works under the terms of applicable open source licenses. If an author or other third party that distributes such open sourcesoftware were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expensesdefending against such allegations and could be subject to significant damages, enjoined from the sale of our applications that contained the open sourcesoftware and required to comply with the foregoing conditions, which could disrupt the distribution and sale of some of our applications. In addition, therehave been claims challenging the ownership of open source software against companies that incorporate open source software into their products. As a result,we could be subject to suits by parties claiming infringement due to the reliance by our applications on certain open source software. Litigation could becostly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and developmentresources to change our applications.Certain of our operating results and financial metrics are difficult to predict as a result of seasonality.We have historically experienced seasonality in terms of when we enter into customer agreements. We sign a significantly higher percentage ofagreements with new customers, and renew agreements with existing customers, in the fourth quarter of each calendar year as our customers tend to followbudgeting cycles at the end of the calendar year. Our cash flow from operations has historically been higher in the first quarter of each calendar year than inother quarters. This seasonality is reflected to a much lesser extent, and sometimes is not immediately apparent, in our revenue, due to the fact that we deferrevenue recognition. In addition, seasonality may be difficult27Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.to observe in our financial results during periods in which we acquire businesses as such results typically are most significantly impacted by suchacquisitions. We expect this seasonality to continue, or possibly increase in the future, which may cause fluctuations in our operating results and financialmetrics. If our quarterly operating results or outlook fall below the expectations of research analysts or investors, the price of our common stock could declinesubstantially.We could incur substantial costs as a result of any claim of infringement of another party’s intellectual property rights.In recent years, there has been significant litigation involving patents and other intellectual property rights in our industry. Companies providingsoftware are increasingly bringing and becoming subject to suits alleging infringement of proprietary rights, particularly patent rights, and to the extent wegain greater market visibility, we face a higher risk of being the subject of intellectual property infringement claims. We do not have a significant patentportfolio, which could prevent us from deterring patent infringement claims through our own patent portfolio, and our competitors and others may now andin the future have significantly larger and more mature patent portfolios than we have. The risk of patent litigation has been amplified by the increase in thenumber of a type of patent holder, which we refer to as a non-practicing entity, whose sole business is to assert such claims and against whom our ownintellectual property portfolio may provide little deterrent value. We could incur substantial costs in prosecuting or defending any intellectual propertylitigation. If we sue to enforce our rights or are sued by a third-party that claims that our applications infringe its rights, the litigation could be expensive andcould divert our management resources.In addition, in most instances, we have agreed to indemnify our customers against claims that our applications infringe the intellectual propertyrights of third parties. Our business could be adversely affected by any significant disputes between us and our customers as to the applicability or scope ofour indemnification obligations to them. Any intellectual property litigation to which we might become a party, or for which we are required to provideindemnification, may require us to do one or more of the following:•cease selling or using applications that incorporate the intellectual property that we allegedly infringe;•make substantial payments for legal fees, settlement payments or other costs or damages;•obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology; or•redesign the allegedly infringing applications to avoid infringement, which could be costly, time-consuming or impossible.If we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual propertyinfringement claims against us or any obligation to indemnify our customers for such claims, such payments or actions could harm our business.We could incur substantial costs in protecting our intellectual property from infringement, and any failure to protect our intellectual property couldimpair our business.Our success and ability to compete depend in part upon our intellectual property. We seek to protect the source code for our proprietary software andother proprietary technology and information under a combination of copyright, trade secrets and patent law, and we seek to protect our brands throughtrademark law. Our policy is to enter into confidentiality agreements, or agreements with confidentiality provisions, with our employees, consultants, vendorsand customers and to control access to our software, documentation and other proprietary information. Despite these precautions, it may be possible forunauthorized parties to copy our software or other proprietary technology or information, or to develop similar software independently.Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our applications or to obtain and useinformation that we regard as proprietary. Policing unauthorized use of our applications is difficult, and we are unable to determine the extent to which piracyof our software exists or will occur in the future. Litigation may be necessary in the future to enforce our intellectual property rights, protect our trade secrets,determine the validity and scope of the proprietary rights of others or defend against claims of infringement or invalidity. Such litigation could be costly,time-consuming and distracting to management, result in28Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.a diversion of resources or the narrowing or invalidation of portions of our intellectual property and have a material adverse effect on our business, operatingresults and financial condition. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuitsattacking the validity and enforceability of our intellectual property rights or alleging that we infringe the counterclaimant’s own intellectual property. Thesesteps may be inadequate to protect our intellectual property. Third parties may challenge the validity or ownership of our intellectual property, and thesechallenges could cause us to lose our rights, in whole or in part, to such intellectual property or narrow its scope such that it no longer provides meaningfulprotection. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of ourintellectual property. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard asproprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer anddisclosure of our applications may be unenforceable under the laws of certain jurisdictions and foreign countries. Further, the laws of some countries do notprotect proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities, our exposure tounauthorized copying, transfer and use of our applications and proprietary technology or information may increase.There can be no assurance that our means of protecting our proprietary rights will be adequate or that our competitors will not independentlydevelop similar technology. If we fail to meaningfully protect our intellectual property, our business, brands, operating results and financial condition couldbe materially harmed.Unanticipated changes in our effective tax rate or challenges by tax authorities could harm our future results.We are subject to income taxes in the United States and various non-U.S. jurisdictions. Our effective tax rate could be adversely affected by changesin the allocation of our pre-tax earnings and losses among countries with differing statutory tax rates, in certain non-deductible expenses as a result ofacquisitions, in the valuation of our deferred tax assets and liabilities, or in federal, state, local or non-U.S. tax laws and accounting principles, includingincreased tax rates, new tax laws or revised interpretations of existing tax laws and precedents. In particular, the United States is currently considering variouschanges to the U.S. taxation of international business activities, which, if enacted, could impact the U.S. taxation of our non-U.S. earnings as well as our cashmaintained outside the United States. Increases in our effective tax rate would adversely affect our operating results.In addition, we may be subject to income tax audits by various tax jurisdictions throughout the world, many of which have not established clearguidance on the tax treatment of cloud-based companies. The application of tax laws in such jurisdictions may be subject to diverging and sometimesconflicting interpretations by tax authorities in these jurisdictions. Although we believe our income tax liabilities are reasonably estimated and accounted forin accordance with applicable laws and principles, an adverse resolution of one or more uncertain tax positions in any period could have a material impact onthe results of operations for that period.Taxing authorities may successfully assert that we should have collected or in the future should collect additional sales and use taxes, and we could besubject to liability with respect to past or future sales, which could adversely affect our results of operations.We have not historically filed sales and use tax returns or collected sales and use taxes in all jurisdictions in which we have sales, based on our beliefthat such taxes are not applicable. Taxing authorities may seek to impose such taxes on us, including for past sales, which could result in penalties andinterest. Any such tax assessments may adversely affect the results of our operations.Taxing authorities could reallocate our taxable income among our subsidiaries, which could increase our consolidated tax liability.We conduct integrated operations internationally through subsidiaries in various tax jurisdictions pursuant to transfer pricing arrangements betweenour subsidiaries and between our subsidiaries and us. If two or more affiliated companies are located in different countries, the tax laws or regulations of eachcountry generally require that transfer prices be the same as those between unrelated companies dealing at arms’ length and that contemporaneousdocumentation is maintained to support the transfer prices. While we believe that we operate in compliance with applicable transfer pricing laws and intendto continue to do so, our transfer pricing procedures are not binding on applicable tax authorities. If tax authorities in any of these countries were tosuccessfully challenge29Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.our transfer prices as not reflecting arms’ length transactions, they could require us to adjust our transfer prices and thereby reallocate our income to reflectthese revised transfer prices, which could result in a higher tax liability to us. Such reallocations may subject us to interest and penalties that would increaseour consolidated tax liability and could adversely affect our financial condition, results of operations and cash flows.Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.As of December 31, 2015, we had federal net operating loss carryforwards of approximately $70 million and research and development creditcarryforwards of approximately $1.2 million, which begin expiring in 2017. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended,or the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs ifthere is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules applyunder state tax laws. Based on analysis of acquired net operating losses, utilization of our net operating losses will be subject to annual limitations. Theannual limitation will result in the expiration of $16.2 million of net operating losses and $0.8 million of credit carryforwards before utilization. In the eventthat it is determined that we have in the past experienced additional ownership changes, or if we experience one or more ownership changes as a result offuture transactions in our stock, then we may be further limited in our ability to use our net operating loss carryforwards and other tax assets to reduce taxesowed on the net taxable income that we earn. Any such limitations on the ability to use our net operating loss carryforwards and other tax assets couldadversely impact our business, financial condition and operating results.Changes in laws or regulations related to the Internet may diminish the demand for our applications and any failure of the Internet infrastructure couldhave a negative impact on our business.We deliver our cloud-based applications through the Internet. Federal, state or foreign government bodies or agencies have in the past adopted, andmay in the future adopt, laws or regulations affecting data privacy and the use of the Internet. In addition, government agencies or private organizations maybegin to impose taxes, fees or other charges for accessing the Internet or on commerce conducted via the Internet. Increased enforcement of existing laws andregulations, as well as any laws, regulations or changes that may be adopted or implemented in the future, could limit the growth of the use of cloud-basedapplications or communications generally, result in a decline in the use of the Internet and the viability of cloud-based applications such as ours and reducethe demand for our applications.The success of our enterprise work management software applications depends on the development and maintenance of the Internet infrastructure.This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security, as well as the timely development ofcomplementary products for providing reliable Internet access and services. The Internet has experienced, and is likely to continue to experience, significantgrowth in the amount of traffic and may be unable to support such demands. In addition, problems caused by viruses, worms, malware and similar programsmay harm the performance of the Internet. Any outages and delays in the Internet could reduce the level of usage of our services, which could materiallyadversely affect our business, financial condition, results of operations and prospects.Privacy concerns and laws or other domestic or foreign regulations may reduce the effectiveness of our applications and adversely affect our business.Our customers can use our applications to collect, use and store personal or identifying information regarding their customers and employees.Federal, state and foreign government bodies and agencies have adopted, are considering adopting or may adopt laws and regulations regarding thecollection, use, storage and disclosure of personal information obtained from individuals. The costs of compliance with, and other burdens imposed by, suchlaws and regulations that are applicable to the businesses of our customers may limit the use and adoption of our applications and reduce overall demand, orlead to significant fines, penalties or liabilities for any noncompliance with such privacy laws. For example, the European Union and many countries inEurope have stringent privacy laws and regulations that may impact our ability to profitably operate in certain European countries. Furthermore, privacyconcerns may cause our customers to resist providing the personal data necessary to allow them to use our applications effectively. Even the perception ofprivacy concerns, whether or not valid, may inhibit market adoption30Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.of our applications in certain industries. All of these domestic and international legislative and regulatory initiatives may adversely affect our customers’ability to process, handle, store, use and transmit demographic and personal information from their customers and employees, which could reduce demand forour applications.In addition to government activity, privacy advocacy groups and the technology and other industries are considering various new, additional ordifferent self-regulatory standards that may place additional burdens on us. If the processing of personal information were to be curtailed in this manner, ourapplications would be less effective, which may reduce demand for our applications and adversely affect our business.We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensingrequirements and subject us to liability if we are not in compliance with applicable laws.Our applications are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customsregulations and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. Exportsof our applications must be made in compliance with these laws and regulations. If we fail to comply with these laws and regulations, we and certain of ouremployees could be subject to substantial civil or criminal penalties, including: the possible loss of export or import privileges; fines, which may be imposedon us and responsible employees or managers; and, in extreme cases, the incarceration of responsible employees or managers. Obtaining the necessaryauthorizations, including any required license, for a particular sale may be time-consuming, is not guaranteed and may result in the delay or loss of salesopportunities. In addition, changes in our applications or changes in applicable export or import regulations may create delays in the introduction and sale ofour applications in international markets, prevent our customers with international operations from deploying our applications or, in some cases, prevent theexport or import of our applications to certain countries, governments or persons altogether. Any change in export or import regulations, shift in theenforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could also resultin decreased use of our applications, or in our decreased ability to export or sell our applications to existing or potential customers with internationaloperations. Any decreased use of our applications or limitation on our ability to export or sell our applications would likely adversely affect our business.Furthermore, we incorporate encryption technology into certain of our applications. Various countries regulate the import of certain encryptiontechnology, including through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our applicationsor could limit our customers’ ability to implement our applications in those countries. Encrypted applications and the underlying technology may also besubject to export control restrictions. Governmental regulation of encryption technology and regulation of imports or exports of encryption products, or ourfailure to obtain required import or export approval for our applications, when applicable, could harm our international sales and adversely affect ourrevenue. Compliance with applicable regulatory requirements regarding the export of our applications, including with respect to new releases of ourapplications, may create delays in the introduction of our applications in international markets, prevent our customers with international operations fromdeploying our applications throughout their globally-distributed systems or, in some cases, prevent the export of our applications to some countriesaltogether.Moreover, U.S. export control laws and economic sanctions programs prohibit the shipment of certain products and services to countries,governments and persons that are subject to U.S. economic embargoes and trade sanctions. Even though we take precautions to prevent our applications frombeing shipped or provided to U.S. sanctions targets, our applications and services could be shipped to those targets or provided by third parties despite suchprecautions. Any such shipment could have negative consequences, including government investigations, penalties and reputational harm.If we are unable to implement and maintain effective internal controls over financial reporting in the future, investors may lose confidence in the accuracyand completeness of our financial reports and the market price of our common stock may be negatively affected.As a public company, we are required to maintain internal controls over financial reporting and to report any material weaknesses in such internalcontrols. Section 404 of the Sarbanes-Oxley Act, requires that we evaluate31Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.and determine the effectiveness of our internal controls over financial reporting. Our independent registered public accounting firm will not be required toformally attest to the effectiveness of our internal control over financial reporting until the later of our second annual report or the first annual report requiredto be filed with the SEC following the date we are no longer an “emerging growth company” as defined in the JOBS Act. If we have a material weakness inour internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We are inthe process of designing and implementing the internal controls over financial reporting required to comply with this obligation, which process will be timeconsuming, costly and complicated. We may need additional finance and accounting personnel with certain skill sets to assist us with the reportingrequirements we will encounter as a public company and to support our anticipated growth. In addition, implementing internal controls may distract ourofficers and employees, entail substantial costs to modify our existing processes and take significant time to complete.In the future, if we identify material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements ofSection 404 of the Sarbanes-Oxley Act in a timely manner, if we are unable to assert that our internal controls over financial reporting are effective, or if ourindependent registered public accounting firm is not required to express an opinion due to the provisions of the JOBS Act or is unable to express an opinionas to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financialreports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the stock exchange onwhich our securities are listed, the Securities and Exchange Commission, or the SEC, or other regulatory authorities, which could require additional financialand management resources.We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, whichcould harm our operating results.As a public company, we will incur significant legal, accounting, investor relations and other expenses that we did not incur as a private company,including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with current corporategovernance requirements, including requirements under Section 404 and other provisions of the Sarbanes-Oxley Act, as well as rules implemented by theSEC and the exchange on which we list our common stock. We expect these rules and regulations to substantially increase our legal and financialcompliance costs and to make some activities more time-consuming and costly. We are unable to currently estimate these costs with any degree of certainty.We also expect that, as a public company, it will be more difficult and more expensive for us to obtain director and officer liability insurance, and we may berequired to incur substantially higher costs to obtain coverage or to accept reduced policy limits and coverage. As a result, it may be more difficult for us toattract and retain qualified individuals to serve on our board of directors or as our executive officers.We are an “emerging growth company,” and any decision on our part to comply with certain reduced disclosure requirements applicable to emerginggrowth companies could make our common stock less attractive to investors.We are an “emerging growth company,” as defined in the JOBS Act and, for as long as we continue to be an emerging growth company, we maychoose to take advantage of certain exemptions from various reporting requirements applicable to other public companies including, but not limited to: notbeing required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 ofthe Sarbanes-Oxley Act; reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and exemptionsfrom the requirements to hold a nonbinding advisory vote on executive compensation and to obtain stockholder approval of any golden parachute paymentsnot previously approved. We may take advantage of these provisions for up to five years or such earlier time that we are no longer an “emerging growthcompany.” We will remain an “emerging growth company” for up to five years, although, we would cease to be an “emerging growth company” upon theearliest of the first fiscal year following the fifth anniversary of the consummation of our initial public offering; the first fiscal year after our annual grossrevenue is $1 billion or more; the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debtsecurities; or the date on which we are deemed to be a “large accelerated filer” as defined in the Securities Exchange Act of 1934, or the Exchange Act. To theextent we take advantage of any of these reduced reporting burdens in this Annual Report or in future filings, the information that we provide our securityholders may be different than you might get from other public companies in which you hold equity interests. We cannot predict if32Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as aresult, there may be a less active trading market for our common stock and our stock price may be more volatile.Under Section 107(b) of the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as thosestandards apply to private companies. We are choosing to “opt out” of such extended transition period, however, and, as a result, we will comply with new orrevised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of theJOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable. Therequirements of being a public company may strain our resources and divert management’s attentionRisks Related to Ownership of Our Common StockThe market price of our common stock may be volatile, which could result in substantial losses for investors.The market price of our common stock could be subject to significant fluctuations. Some of the factors that may cause the market price of ourcommon stock to fluctuate include:•actual or anticipated changes in the estimates of our operating results that we provide to the public, our failure to meet these projections orchanges in recommendations by securities analysts that elect to follow our common stock;•price and volume fluctuations in the overall equity markets from time to time;•significant volatility in the market price and trading volume of comparable companies;•changes in the market perception of enterprise work management software generally or in the effectiveness of our applications in particular;•disruptions in our services due to computer hardware, software or network problems;•announcements of technological innovations, new products, strategic alliances or significant agreements by us or by our competitors;•announcements of new customer agreements or upgrades and customer downgrades or cancellations or delays in customer purchases;•litigation involving us;•our ability to successfully consummate and integrate acquisitions;•investors’ general perception of us;•recruitment or departure of key personnel;•sales of our common stock by us or our stockholders;•fluctuations in the trading volume of our shares or the size of our public float; and•general economic, legal, industry and market conditions and trends unrelated to our performance.In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been broughtagainst that company. Because of the potential volatility of our stock price, we may become the target of securities litigation in the future. If we were tobecome involved in securities litigation, it could result in substantial costs, divert management’s attention and resources from our business and adverselyaffect our business.33Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.If securities or industry analysts do not publish, or cease publishing, research or reports about us, our business or our market, if they publish negativeevaluations of our stock, or if we fail to meet the expectations of analysts, the price of our stock and trading volume could decline.The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, ourbusiness, our market or our competitors. If few analysts commence coverage of us, the trading price of our stock would likely decrease if one or more of theanalysts covering our business downgrade their evaluation of our stock, the price of our stock could decline. If one or more of these analysts cease to coverour stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline. Furthermore, if our operating results fail tomeet analysts’ expectations our stock price would likely decline.Sales of a substantial number of shares of our common stock in the public market by our existing stockholders could cause our stock price to fall.The price of our common stock could decline if there are substantial sales of our common stock in the public stock market. Certain of ourstockholders have rights, subject to some conditions, to require us to file registration statements covering up to 6,834,476 shares or to include such shares inregistration statements that we may file for ourselves or other stockholders. We also have registered shares of common stock that we may issue under ourstock-based compensation plans, which can be freely sold in the public market upon issuance, subject to the lock-up agreements and the restrictions imposedon our affiliates under Rule 144 under the Securities Act.Our existing directors, executive officers and principal stockholders have substantial control over us, which could limit your ability to influence theoutcome of key transactions, including a change of control.As of December 31, 2015, our directors, executive officers, principal stockholders and their affiliates beneficially owned or controlled, directly orindirectly, a majority of our outstanding common stock. As a result, these stockholders, acting together, could have significant influence over the outcome ofmatters submitted to our stockholders for approval, including the election or removal of directors, any amendments to our certificate of incorporation orbylaws and any merger, consolidation or sale of all or substantially all of our assets, and over the management and affairs of our company. This concentrationof ownership may also have the effect of delaying or preventing a change in control of our company or discouraging others from making tender offers for ourshares and might affect the market price of our common stock.Because we do not expect to pay any dividends on our common stock for the foreseeable future, our investors may never receive a return on theirinvestment.We do not anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable future. Instead, we plan to retain anyearnings to maintain and expand our existing operations. In addition, our ability to pay cash dividends is currently limited by the terms of our existing loanfacility, which prohibits our payment of dividends on our capital stock without prior consent, and any future credit facility may contain terms prohibiting orlimiting the amount of dividends that may be declared or paid on our common stock. Accordingly, investors must rely on sales of their common stock afterprice appreciation, which may never occur, as the only way to realize any return on their investment.Anti-takeover provisions in our amended and restated certificate of incorporation and our amended and restated bylaws, as well as provisions of Delawarelaw, might discourage, delay or prevent a change in control of our company or changes in our board of directors or management and, therefore, depressthe trading price of our common stock.Provisions in our certificate of incorporation and bylaws, as amended and restated , will contain provisions that may depress the market price of ourcommon stock by acting to discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, includingtransactions in which you might otherwise receive a premium for your shares of our common stock. These provisions may also prevent or frustrate attempts byour stockholders to replace or remove members of our board of directors or our management. These provisions include the following:•our certificate of incorporation provides for a classified board of directors with staggered three-year terms so that not all members of our board ofdirectors are elected at one time;34Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•directors may be removed by stockholders only for cause;•our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, deathor removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;•special meetings of our stockholders may be called only by our Chief Executive Officer, our board of directors or holders of not less than themajority of our issued and outstanding capital stock limiting the ability of minority stockholders to take certain actions without an annualmeeting of stockholders;•our stockholders may not act by written consent unless the action to be effected and the taking of such action by written consent are approvedin advance by our board of directors and, as a result, a holder, or holders, controlling a majority of our capital stock would generally not be ableto take certain actions without holding a stockholders’ meeting;•our certificate of incorporation prohibits cumulative voting in the election of directors. This limits the ability of minority stockholders to electdirector candidates;•stockholders must provide timely notice to nominate individuals for election to the board of directors or to propose matters that can be actedupon at an annual meeting of stockholders and, as a result, these provisions may discourage or deter a potential acquirer from conducting asolicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us; and•our board of directors may issue, without stockholder approval, shares of undesignated preferred stock, making it possible for our board ofdirectors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law,which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock from engaging in certain business combinations with us.Any provision of our certificate of incorporation and bylaws or Delaware law that has the effect of delaying or deterring a change in control couldlimit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors arewilling to pay for our common stock. The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might bewilling to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood thatyou could receive a premium for your common stock in an acquisition.Item 1B.Unresolved Staff CommentsNone.Item 2.PropertiesOur principal corporate offices are located in Austin, Texas where we occupy approximately 9,896 square feet of space under a sublease that expiresin March 2020. We occupy additional leased facilities for operations of approximately 16,987 square feet in Montreal, Quebec; approximately 22,950 squarefeet in Lincoln, Nebraska; approximately 9,645 square feet in Carlsbad, California; approximately 7,740 square feet in San Francisco, California; andapproximately 7,488 square feet in Toronto, Ontario.We also occupy additional leased facilities of less than 5,000 square feet each for operations in Medford, Massachusetts; Iselin, New Jersey;Brooklyn, New York; Cupertino, California; and London, England. We believe that our facilities are adequate for our current needs and that suitableadditional or substitute space will be available as needed to accommodate planned expansion of our operations. 35Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 3. Legal ProceedingsFrom time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to anylegal proceedings that we believe would, individually or taken together, have a material adverse effect on our business, operating results, financial conditionor cash flows.Item 4.Mine Safety DisclosuresNot applicable.36Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket InformationOur common stock is traded on the NASDAQ Global Market, or NASDAQ, under the symbol “UPLD”.On March 24, 2016, there were 72 holders of record of our common stock. Because many of our shares of common stock are held by brokers and otherinstitutions on behalf of stockholders, this number is not indicative of the total number of stockholders represented by these stockholders of record.The table below sets forth the high and low sales prices per share of our common stock as reported on the NASDAQ for the periods indicated: Sales Price Per ShareYear Ended December 31, 2015Low HighFourth quarter$6.77 $8.12Third Quarter$7.59 $9.18Second Quarter$5.91 $9.22First Quarter$6.81 $10.05Fourth quarter (from November 6, 2014)$8.60 $12.20We have never declared or paid dividends on our common stock. We do not expect to pay dividends on our common stock for the foreseeable future.Instead, we anticipate that all of our earnings will be used for the operation and growth of our business. Any future determination to declare cash dividendswould be subject to the discretion of our board of directors and would depend upon various factors, including our results of operations, financial conditionand liquidity requirements, restrictions that may be imposed by applicable law and our contracts and other factors deemed relevant by our board of directors.In addition, the terms of our loan facility currently restrict our ability to pay dividends.Performance GraphNotwithstanding any statement to the contrary in any of our filings with the SEC, the following information shall not be deemed “filed” with the SEC or“soliciting material” under the Securities Exchange Act of 1934 and shall not be incorporated by reference into any such filings irrespective of any generalincorporation language contained in such filing.The following graph compares the total cumulative stockholder return on our common stock with the total cumulative return of the NASDAQ ComputerTechnology Index and the S&P 500 Composite Index during the period commencing on November 6, 2014, the initial trading day of our common stock, andending on December 31, 2015. The graph assumes a $100 investment at the beginning of the period in our common stock, the stocks represented in the S&P500 Composite Index and the stocks represented in NASDAQ Computer Technology Index, and reinvestment of any dividends. The Computer TechnologyIndex is designed to represent a cross section of widely-held U.S. corporations involved in various phases of the computer industry. The Index is market-value (capitalization) weighted, based on the aggregate market value of its 27 component stocks. Historical stock price performance should not be reliedupon as an indication of future stock price performance.37Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Recent Sales of Unregistered SecuritiesAs previously disclosed, on November 13, 2015, the Company acquired all outstanding shares of Ultriva, Inc., a cloud-based supply chain work managementsoftware provider. The purchase price consideration included approximately 179,000 shares of the Company’s common stock and up to an additional $0.2million in shares are being held for 12 months by us as security for indemnification claims. Such issuance was made pursuant to an exemption underRegulation D, as promulgated under the Securities Act.Issuer Purchases of Equity SecuritiesNone.Equity Compensation Plan InformationFor information regarding securities authorized for issuance under equity compensation plans, see Part III, Item 12 of this Annual Report on Form 10-K.Item 6.Selected Financial DataThe following selected historical consolidated financial data below should be read in conjunction with Item 7: “Management’s Discussion andAnalysis of Financial Condition and Results of Operations,” our consolidated financial statements and the related notes appearing in Item 8: “FinancialStatements and Supplementary Data” of this Annual Report on Form 10-K to fully understand factors that may affect the comparability of the informationpresented below.The consolidated statements of operations data for the years ended December 31, 2015, 2014, and 2013 and the selected consolidated balance sheetdata as of December 31, 2015 and 2014 are derived from our audited consolidated financial statements appearing in Item 8: “Financial Statements andSupplementary Data” of this Annual Report on Form 10-K. The statement of operations data for the year ended December 31, 2012 and the selectedconsolidated balance sheet data as of December 31, 2013 and 2012 are derived from our consolidated financial statements not included in this Annual Reporton Form 10-K. To obtain further information about our historical results, including our historical acquisitions, for which results of operations are included inour38Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.consolidated financial statements beginning on the dates of acquisition, you should read the following selected consolidated financial data in conjunctionwith our consolidated financial statements and related notes, the information in the section of this filing titled “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and the other financial information included elsewhere in this filing. Our historical results are not necessarilyindicative of the results to be expected in the future, and our interim results are not necessarily indicative of the results to be expected in the future. Year Ended December 31, 2015 2014 2013 2012 (dollars in thousands, except share and per share data)Consolidated Statements of Operations Data:Revenue: Subscription and support$57,193 $48,625 $30,887 $18,281Perpetual license2,805 2,787 2,003 641Total product revenue59,998 51,412 32,890 18,922Professional services9,913 13,162 8,303 3,841Total revenue69,911 64,574 41,193 22,763Cost of revenue: Subscription and support19,586 14,042 7,787 4,189Professional services7,085 9,079 5,680 3,121Total cost of revenue26,671 23,121 13,467 7,310Gross profit43,240 41,453 27,726 15,453Operating expenses: Sales and marketing12,965 14,670 10,625 6,331Research and development15,778 26,165 10,340 5,308Refundable Canadian tax credits(470) (1,094) (583) (728)General and administrative18,201 13,561 6,832 4,574Depreciation and amortization4,534 4,310 3,670 1,812Acquisition-related expenses2,455 2,186 1,461 1,933Total operating expenses53,463 59,798 32,345 19,230Loss from operations(10,223) (18,345) (4,619) (3,777)Other expense: Interest expense, net(1,858) (1,951) (2,797) (528)Other income (expense), net(544) 101 (431) (65)Total other expense(2,402) (1,850) (3,228) (593)Loss before provision for income taxes(12,625) (20,195) (7,847) (4,370)Provision for income taxes(1,039) 78 (708) 72Loss from continuing operations(13,664) (20,117) (8,555) (4,298)Income (loss) from discontinued operations— — (642) 1,791Net loss$(13,664) $(20,117) $(9,197) $(2,507)Preferred stock dividends and accretion— (1,524) (98) (44)Net loss attributable to common shareholders$(13,664) $(21,641) $(9,295) $(2,551)Net loss per common share: 39Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Loss from continuing operations per common share, basic and diluted$(0.91) $(4.43) $(7.23) $(5.78)Income (loss) from discontinued operations per common share, basic anddiluted$— $— $(0.54) $2.39Net loss per common share, basic and diluted$(0.91) $(4.43) $(7.77) $(3.39)Weighted-average common shares outstanding, basic and diluted14,939,601 4,889,901 1,196,668 751,416 December 31, 2015 2014 2013 2012 (dollars in thousands)Consolidated Balance Sheet Data: Cash and cash equivalents$18,473 $30,988 $4,703 3,892Property and equipment, net6,001 3,930 3,942 1,407Intangible assets, net31,526 34,751 34,747 26,388Goodwill47,422 45,146 33,630 21,093Total assets122,414 135,686 94,847 67,808Deferred revenue19,939 21,376 17,036 16,502Total liabilities62,144 64,289 60,191 44,495Redeemable convertible preferred stock— — 50,538 27,492Total stockholders’ equity (deficit)60,270 71,397 (15,882) (4,179) Year Ended December 31, 2015 2014 2013 2012 (in thousands, except %)Other Financial Data: Annualized recurring revenue value at year-end(1)$58,918 $56,800 $49,061 $27,093Annual net dollar retention rate(2)90% 96% 90% n/aAdjusted EBITDA(3)$4,143 $4,213 $3,576 $3,998(1)Annualized recurring revenue value as of December 31 equals the monthly value of our recurring revenue contracts measured as of December 31 multiplied by 12. See“Management’s Discussion and Analysis of Financial Condition and Results of Operations-Key Metrics” for additional discussion of this key metric.(2)We define annual net dollar retention rate as of December 31 as the aggregate annualized recurring revenue value at December 31 from those customers that were alsocustomers as of December 31 of the prior fiscal year, divided by the aggregate annualized recurring revenue value from all customers as of December 31 of the prior fiscalyear. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Key Metrics” for additional discussion of this key metric.(3)We monitor our Adjusted EBITDA to help us evaluate the effectiveness and efficiency of our operations. Adjusted EBITDA is a non-GAAP financial measure. Wedefine Adjusted EBITDA as net income (loss), calculated in accordance with GAAP, plus net income (loss) from discontinued operations, depreciation and amortizationexpense, interest expense, net, other expense (income), net, provision for income taxes, stock-based compensation expense, acquisition-related expenses, non-recurringlitigation costs, and one-time purchase accounting adjustments to fair value deferred revenue acquired in business combinations. Prior to the filing of this Annual Reporton Form 10-K, we did not include purchase accounting adjustments for deferred revenue as a component of Adjusted EBITDA, and as such, the prior year AdjustedEBITDA amounts presented herein have been recast to reflect the inclusion of purchase accounting adjustments for deferred revenue.40Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The following table presents a reconciliation of net loss to Adjusted EBITDA: Year Ended December 31, 2015 2014 2013 2012 (dollars in thousands)Net Loss$(13,664) $(20,117) $(9,197) $(2,507)Net income (loss) from discontinued operations— — 642 (1,791)Depreciation and amortization expense8,451 7,457 5,310 2,472Interest expense, net1,858 1,951 2,797 528Other expense (income), net544 (101) 431 65Provision for income taxes1,039 (78) 708 (72)Stock-based compensation expense2,741 1,077 498 92Acquisition-related expense2,455 2,186 1,461 1,933Stock-based compensation expense - related party vendor— 11,220 — —Nonrecurring litigation expense406 256 — —Purchase accounting deferred revenue discount313 362 926 3,278Adjusted EBITDA$4,143 $4,213 $3,576 $3,998We believe that Adjusted EBITDA provides useful information to management, investors and others in understanding and evaluating our operatingresults for the following reasons:•Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items thatcan vary substantially from company to company depending upon their financing, capital structures and the method by which assets were acquired;•our management uses Adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, in the preparation of our annualoperating budget, as a measure of our operating performance, to assess the effectiveness of our business strategies and to communicate with ourboard of directors concerning our financial performance because Adjusted EBITDA eliminates the impact of items that we do not considerindicative of our core operating performance; and•Adjusted EBITDA provides more consistency and comparability with our past financial performance, facilitates period-to-period comparisons ofour operations and also facilitates comparisons with other companies, many of which use similar non-GAAP financial measures to supplement theirGAAP results.Adjusted EBITDA should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented inaccordance with GAAP. The use of Adjusted EBITDA as an analytical tool has limitations such as:•depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the future andAdjusted EBITDA does not reflect cash requirements for such replacements; however, much of the depreciation and amortization currently reflectedrelates to amortization of acquired intangible assets as a result of business combination purchase accounting adjustments, which will not need to bereplaced in the future;•Adjusted EBITDA may not reflect changes in, or cash requirements for, our working capital needs or contractual commitments;•Adjusted EBITDA does not reflect the potentially dilutive impact of stock-based compensation;•Adjusted EBITDA does not reflect interest or tax payments that could reduce cash available for use; and•other companies, including companies in our industry, might calculate Adjusted EBITDA or similarly titled measures differently, which reducestheir usefulness as comparative measures.41Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Because of these limitations, you should consider Adjusted EBITDA together with other financial performance measures, including various cashflow metrics, net loss and our other GAAP results.The following tables present stock-based compensation, depreciation and amortization included in the respective line items in our Consolidated Statement ofOperations: Year Ended December 31, 2015 2014 2013 2012 (dollars in thousands)Stock-based compensation: Cost of revenue$42 $49 $16 $—Research and development203 61 12 —Sales and marketing65 39 15 —General and administrative2,431 928 455 92Total$2,741 $1,077 $498 $92 Year Ended December 31, 2015 2014 2013 2012 (dollars in thousands)Depreciation: Cost of Revenue$1,800 $1,303 $455 $—General and administrative452 987 348 325Total$2,252 $2,290 $803 $325 Year Ended December 31, 2015 2014 2013 2012 (dollars in thousands)Amortization: Cost of Revenue$2,116 $1,844 $1,185 $662General and administrative4,083 3,323 3,322 1,487Total$6,199 $5,167 $4,507 $2,149Item 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsYou should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financialstatements and the notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statementsthat reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors thatcould cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Item 1A:“Risk Factors.”This section and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties. Forward-looking statements may be identified by the use of forward-looking words such as “anticipate,” “believe,” “may,” “will,” “continue,” “seek,” “estimate,”“intend,” “hope,” “predict,” “could,” “should,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions,although not all forward-looking statements contain these words. Forward-looking statements are not guarantees of future performance and our actualresults may differ significantly from the results discussed in the42Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the subsection entitled Item 1A:“Risk Factors” above, which are incorporated herein by reference. The following discussion should be read in conjunction with the consolidated financialstatements and notes thereto included in Item 8: “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. All informationpresented herein is based on our fiscal calendar. Unless otherwise stated, references in this report to particular years or quarters refer to our fiscal yearsended December 31 and the associated quarters of those fiscal years. We assume no obligation to revise or update any forward-looking statements for anyreason, except as required by law.OverviewWe are a leading provider of cloud-based enterprise work management software. We define enterprise work management software as softwareapplications that enable organizations to plan, manage and execute projects and work. Our family of applications enables users to manage their projects,professional workforce and IT investments, automate document-intensive business processes and effectively engage with their customers, prospects andcommunity via the web and mobile technologies.The continued growth of an information-based economy driven by technological innovation and globalization is causing a fundamental shift in theway work is done. These changes have given rise to a large and growing group of knowledge workers who operate in dynamic work environments as part ofgeographically dispersed and virtual teams. McKinsey estimates that, as of May, 2013, there were more than 200 million knowledge workers globally. Webelieve that manual processes and legacy on- premise enterprise systems are insufficient to address the needs of the modern work environment. In order forknowledge workers to be successful, they need to interact with intuitive enterprise work systems in a collaborative way, including real-time access at anytime, from anywhere and on any device. Today, legacy processes and systems are being disrupted and replaced by cloud-based enterprise work managementsoftware that improves visibility, collaboration and productivity.In response to these changes, we are helping transform how work gets done by providing organizations and their knowledge workers with softwareapplications that better align resources with business objectives and increase visibility, governance, collaboration, quality of customer experience andresponsiveness to changes in the business environment. This results in increased work capacity, higher productivity, better execution and greater levels ofcustomer engagement. Our applications are easy-to-use, highly scalable and offer real-time collaboration for knowledge workers distributed on a local orglobal scale. Our applications address enterprise work challenges in the following categories:•Project and Information Technology (IT) Financial Management. Enables customers to manage their organization’s projects, professionalworkforce and IT costs.•Workflow Automation. Enables customers to automate document-intensive workflows among internal functional areas as well as with their partnersand supply chain.•Digital Engagement. Enables customers to effectively engage with their customers, prospects and community via the web and mobile technologies.We sell our software applications primarily through a direct sales organization comprised of inside sales and field sales personnel. In addition to ourdirect sales organization, we have an indirect sales organization, which sells to distributors and value-added resellers. We employ a land-and-expand go-to-market strategy. After we demonstrate the value of an initial application to an organization, our sales and account management teams work to expand theadoption of that initial application across the organization, as well as cross-sell additional applications to address other enterprise work management needs ofthe organization. Our customer success organization supports our direct sales efforts by managing the post-sale customer lifecycle.Our subscription agreements are typically sold either on a per-seat basis or on a minimum contracted volume basis with overage fees billed in arrears,depending on the application being sold. We service customers ranging from large global corporations and government agencies to small- and medium-sizedbusinesses. We have more than 2,000 customers with over 235,000 users across a broad range of industries,43Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.including financial services, retail, technology, manufacturing, education, consumer goods, media, telecommunications, government, food and beverage,healthcare and life sciences.We have achieved significant growth and scale in a relatively short period of time. Through a series of acquisitions, we have established a diversefamily of software applications under the Upland brand, each of which addresses a specific enterprise work management need. Our revenue has grown from$22.8 million in fiscal 2012 to $69.9 million in fiscal 2015, representing a 207% period-over-period growth rate. See Note 16 of the Notes to ConsolidatedFinancial Statements for more information regarding our revenue as it relates to domestic and foreign operations.Our operating results in a given period can fluctuate based on the mix of subscription and support, perpetual license and professional servicesrevenue. For the years ended December 31, 2015, 2014, and 2013, our subscription and support revenue accounted for 82%, 75% and 75%, respectively ofour total revenue in both periods. Our customer agreements for program and portfolio management, project management and collaboration, and professionalservices automation typically are sold on a per-seat basis with terms varying from one to three years, paid in advance. Our customer agreements for workflowautomation and enterprise content management and financial management historically have been sold on a volume basis with a one-year term, paid inadvance. We generally seek to enter into multi-year contracts with our customers when possible. In each case, our customer agreements provide us withrevenue visibility over a number of quarters. We typically negotiate the total number of seats or total minimum contracted volume a customer is entitled touse as part of its subscription, but these seats or minimum contracted volume may not be fully utilized over the term of the agreement. In addition, wherecustomers exceed the minimum contracted volume, additional overage fees are billed in arrears.Historically, we have sold certain of our applications under perpetual licenses, which also are paid in advance. For the years ended December 31,2015, 2014, and 2013, our perpetual license revenue accounted for 4%, 4%, and 5% of our total revenue, respectively. We expect perpetual license revenueto decrease as a percentage of revenue in the future. The support agreements related to our perpetual licenses are one-year in duration and entitle the customerto support and unspecified upgrades. The revenue related to such support agreements is included as part of our subscription and support revenue.Professional services revenue consists of fees related to implementation, data extraction, integration and configuration and training on ourapplications. For the years ended December 31, 2015, 2014, and 2013, our professional services revenue accounted for 14%, 21%, and 20%, respectively. Weexpect the proportional revenue contribution of product and professional services revenue to shift more to product revenue and less to professional servicesrevenue in future periods.We have historically experienced seasonality in terms of when we enter into customer agreements. We sign a significantly higher percentage ofagreements with new customers, and renew agreements with existing customers, in the fourth quarter of each calendar year as our customers tend to followbudgeting cycles at the end of the calendar year. Our cash flow from operations has historically been higher in the first quarter of each calendar year than inother quarters. This seasonality is reflected to a much lesser extent, and sometimes is not immediately apparent, in our revenue, due to the fact that we deferrevenue recognition. In addition, seasonality may be difficult to observe in our financial results during periods in which we acquire businesses as such resultstypically are most significantly impacted by such acquisitions. We expect this seasonality to continue, or possibly increase in the future, which may causefluctuations in our operating results and financial metrics.To support continued growth, we intend to pursue acquisitions of complementary technologies, products and businesses to enhance the features andfunctionalities of our applications, expand our customer base and provide access to new markets and increased benefits of scale. We will prioritizeacquisitions within the enterprise functions we currently serve, including information technology, process excellence, finance, professional services andmarketing, as well as pursue acquisitions that serve other enterprise functions. Consistent with our growth strategy, we made nine acquisitions in the fouryears ending December 31, 2015.2012 AcquisitionsPowerSteering. In February 2012, we acquired the business of PowerSteering Software, Inc., or PowerSteering, a provider of cloud-based programand portfolio management software, for $13.0 million. The44Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.acquisition of PowerSteering enabled our customers to gain high-level visibility across their organizations and improve top-down governance inmanagement of programs, initiatives, investments and projects.Tenrox. In February 2012, we acquired the business of Tenrox Inc., or Tenrox, a provider of cloud-based professional services automation software,for $15.3 million. The acquisition of Tenrox provided us with additional access to the professional services market and provided our customers with theability to more effectively manage their knowledge workers to better track work, expenses and client billing while improving scheduling, utilization andalignment of human capital. In addition, following the Tenrox acquisition, we began selling Timesheet.com, a Tenrox product for professional servicesautomation, as a separate application.EPM Live. In November 2012, we acquired the business of LMR Solutions, LLC, dba EPM Live, or EPM Live, a provider of cloud-based andperpetual license-based project management and collaboration software, with a combination of cash, seller notes and equity, for total consideration of $7.7million. The acquisition of EPM Live added a software application focused on improving collaboration and the execution of both projects and unstructuredwork.2013 AcquisitionsFileBound. In May 2013, we acquired the businesses of FileBound Solutions, Inc. and Marex Group, Inc., together FileBound, a provider of cloud-based and perpetual license-based workflow automation and enterprise content management software, with a combination of cash, seller notes and equity, fortotal consideration of $14.7 million. The acquisition of FileBound provided our customers the ability to automate document-based workflows and controlaccess and distribution of their content to boost productivity, encourage collaboration and improve compliance.ComSci. In November 2013, we acquired the business of ComSci LLC, or ComSci, a provider of cloud-based financial management software, with acombination of cash and equity, for total consideration of $7.6 million, with additional contingent consideration payable if certain performance targets areachieved. The acquisition of ComSci enabled our customers to have visibility into the cost, quality and value of internal services delivered within theirorganizations.Clickability. In December 2013, we acquired the business of Clickability, Inc., or Clickability, a cloud-based platform for web content management,for $12.3 million. The acquisition of Clickability provided an enterprise content management software application that is used by enterprise marketers andmedia companies to create, maintain and deliver websites that shape visitor experiences and empower non-technical staff to create, management, publish,analyze and refine content and social media assets without information technology intervention. For accounting purposes, the acquisition of Clickability wasrecorded as of December 31, 2013 and, accordingly, the operations of Clickability had no impact on our statement of operations.2014 AcquisitionsSolution Q. In November 2014, the Company acquired 100% of the outstanding capital of Solution Q Inc. (Solution Q) for total purchaseconsideration of $6.1 million, which includes cash of $4.5 million, net of $0.4 million of cash acquired, and 150,977 shares of the Company’s common stockwith a fair value of $1.6 million. Solution Q provides mid-market organizations an easy-to-use, turnkey solution for their project management and portfoliovisibility needs. Revenues recorded since the acquisition date for the year ended December 31, 2014 were approximately $0.3 million.Mobile Commons. In December 2014, the Company acquired 100% of the outstanding capital of Mobile Commons, Inc. (Mobile Commons) for totalpurchase consideration of $10.2 million including cash of $5.7 million, net of $0.3 million of cash acquired, 386,253 shares of common stock valued at $4.5million and excluding potential additional consideration for incremental additional revenue described below. The Company agreed to pay additionalconsideration of up to $1.5 million in both cash and common stock to the selling shareholders of Mobile Commons based on the achievement of certainincremental revenue targets during fiscal 2015. The acquisition-date fair value of the contingent payment was measured based on the probability-adjustedpresent value of the consideration expected to be transferred, which amounted to $0.5 million. Mobile Commons’ enterprise-class application drives andmanages digital engagement through two-way SMS programs and campaigns. Revenues recorded since the acquisition date for the year ended December 31,2014 were45Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.approximately $0.5 million.2015 AcquisitionsUltriva. On November 13, 2015, the Company acquired 100% of the outstanding capital of Ultriva, Inc. (Ultriva) for total purchase consideration of$7.2 million, which includes cash of $5.6 million, net of $0.4 million of cash acquired, 179,298 shares of the Company’s common stock with a fair value of$1.4 million, and an additional $200,000 in shares of common stock, subject to indemnification claims, one year from the date of the acquisition. Ultrivaprovides cloud-based supply chain work management software. Revenues recorded since the acquisition date for the year ended December 31, 2015 wereapproximately $0.5 million.2016 AcquisitionsLeadlander. On January 7, 2016, Upland completed its purchase of substantially all of the assets of a California-based website analytics provider.The purchase price consideration paid was approximately $8.2 million in cash payable at closing (net of $0.2 million of cash acquired) and a $1.2 millioncash holdback payable in 12 months (subject to indemnification claims). The foregoing excludes additional potential earnout payments tied toperformance-based conditions. In addition to the cash consideration described above, the Asset Purchase Agreement included a contingent shareconsideration component pursuant to which Upland expects to issue an aggregate ofapproximately $2.4 million in shares of its common stock to the seller after July 7, 2016 based on certain minimal post-closing performance-basedconditions.Hipcricket. On March 14, 2016, Upland completed its purchase of substantially all of the assets of Hipcricket, Inc., a cloud-based mobile messagingsoftware provider. The consideration paid to the seller consisted of our issuance of one million shares of our common stock and the transfer of our EPM Liveproduct business. The value of the shares on the closing date of the transaction was approximately $6.2 million and the fair value of our EPM Live productbusiness was approximately $6.0 million. Prior to the transaction, Hipcricketwas owned by an affiliate of ESW Capital, LLC, which is a shareholder of Upland. Raymond James & Co. provided a fairness opinion to Upland inconnection with the transaction.Our acquisitions may have a material adverse impact on our results of operations, including a potential material adverse impact on our cost ofrevenue in the short term, as we seek to integrate our acquired businesses over the following six to twelve months in order to achieve additional operatingefficiencies. In addition, as we grow our business, we continue to face many challenges and risks. We might encounter difficulties identifying, acquiring andintegrating complementary products, technologies and businesses. Over time, as competition increases we may experience pricing pressure. We also mayexperience seat downgrades or a reduction in minimum contracted volume that could negatively impact our business. Seat downgrades or reductions inminimum contracted volume could occur for several reasons, including dissatisfaction with our prices or features relative to competitive offerings, reductionsin our customers’ spending levels, unused seats or minimum contracted volume or limited adoption by our customers of our applications. Our strategicinitiatives will require expenditure of capital and the attention of management, and we may not succeed in executing on our growth plan.Additionally, while cloud computing and SaaS have begun to transform enterprise work management for many organizations, other organizations,particularly those with legacy on-premise systems, have been slower to adopt cloud-based enterprise work management software applications such as ours.Until such organizations are ready to transition to cloud-based systems, we may face challenges in convincing such organizations to adopt our cloud-basedenterprise work management applications or be required to make on-premise systems available instead of our cloud-based systems.Initial Public OfferingIn November 2014, we completed an initial public offering (the “IPO”), in connection with which we issued 3,846,154 shares of common stock forproceeds of $38.8 million, net of underwriting discounts and commissions and other offering costs. See Note 11 to the audited consolidated financialstatements included elsewhere in this Annual Report for further details.46Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Key MetricsIn addition to the GAAP financial measures described below in “—Components of Operating Results,” we regularly review the following keymetrics to evaluate and identify trends in our business, measure our performance, prepare financial projections and make strategic decisions: Year Ended December 31, 2015 2014 2013 2012 (in thousands, except %)Other Financial Data: Annualized recurring revenue value at year-end(1)$58,918 $56,800 $49,061 $27,093Annual net dollar retention rate(2)90% 96% 90% n/aAdjusted EBITDA(3)$4,143 $4,213 $3,576 $3,998(1)Annualized recurring revenue. The value as of December 31 equals the monthly value of our recurring revenue contracts measured as of December31 multiplied by 12. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Key Metrics” for additionaldiscussion of this key metric.(2)Annual net dollar retention rate. We define annual net dollar retention rate as of December 31 as the aggregate annualized recurring revenue valueat December 31 from those customers that were also customers as of December 31 of the prior fiscal year, divided by the aggregate annualizedrecurring revenue value from all customers as of December 31 of the prior fiscal year. See “Management’s Discussion and Analysis of FinancialCondition and Results of Operations-Key Metrics” for additional discussion of this key metric.(3)Adjusted EBITDA. We monitor our Adjusted EBITDA to help us evaluate the effectiveness and efficiency of our operations. Adjusted EBITDA is anon-GAAP financial measure. We define Adjusted EBITDA as net income (loss), calculated in accordance with GAAP, plus net income (loss) fromdiscontinued operations, depreciation and amortization expense, interest expense, net, other expense (income), net, provision for income taxes,stock-based compensation expense, acquisition-related expenses, non-recurring litigation costs, and purchase accounting adjustments for deferredrevenue. Prior to the filing of this Annual Report on Form 10-K, we did not include purchase accounting adjustments for deferred revenue as acomponent of Adjusted EBITDA, and as such, the prior year Adjusted EBITDA amounts presented herein have been recast to reflect the inclusion ofpurchase accounting adjustments for deferred revenue.47Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The following table presents a reconciliation of net loss from continuing operations, the most comparable GAAP measure, to Adjusted EBITDA foreach of the periods indicated. Year Ended December 31, 2015 2014 2013 2012 (dollars in thousands)Net loss$(13,664) $(20,117) $(9,197) $(2,507)Income (loss) from discontinued operations— — 642 (1,791)Depreciation and amortization expense8,451 7,457 5,310 2,472Interest expense, net1,858 1,951 2,797 528Other expense (income), net544 (101) 431 65Provision for income taxes1,039 (78) 708 (72)Stock-based compensation expense2,741 1,077 498 92Acquisition-related expenses2,455 2,186 1,461 1,933Stock-based compensation expense --- related party vendor— 11,220 — —Non-recurring litigation costs406 256 — —Purchase accounting deferred revenue discount313 362 926 3,278Adjusted EBITDA$4,143 $4,213 $3,576 $3,998We believe that Adjusted EBITDA provides useful information to management, investors and others in understanding and evaluating our operatingresults for the following reasons:•Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to itemsthat can vary substantially from company to company depending upon their financing, capital structures and the method by which assets wereacquired;•our management uses Adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, in the preparation of our annualoperating budget, as a measure of our operating performance, to assess the effectiveness of our business strategies and to communicate withour board of directors concerning our financial performance because Adjusted EBITDA eliminates the impact of items that we do not considerindicative of our core operating performance;•Adjusted EBITDA provides more consistency and comparability with our past financial performance, facilitates period-to-period comparisonsof our operations and also facilitates comparisons with other companies, many of which use similar non-GAAP financial measures tosupplement their GAAP results; and•Adjusted EBITDA should not be considered as an alternative to net loss or any other measure of financial performance calculated andpresented in accordance with GAAP. The use of Adjusted EBITDA as an analytical tool has limitations such as:•depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the futureand Adjusted EBITDA does not reflect cash requirements for such replacements; however, much of the depreciation and amortization currentlyreflected relates to amortization of acquired intangible assets as a result of business combination purchase accounting adjustments, which willnot need to be replaced in the future;•Adjusted EBITDA may not reflect changes in, or cash requirements for, our working capital needs or contractual commitments;•Adjusted EBITDA does not reflect the potentially dilutive impact of stock-based compensation;•Adjusted EBITDA does not reflect interest or tax payments that could reduce cash available for use; and,48Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•other companies, including companies in our industry, might calculate Adjusted EBITDA or similarly titled measures differently, whichreduces their usefulness as comparative measures.Because of these limitations, you should consider Adjusted EBITDA together with other financial performance measures, including various cashflow metrics, net loss and our other GAAP results.Components of Operating ResultsRevenueSubscription and support revenue. We derive our subscription revenue from fees paid to us by our customers for use of our cloud-based applications.We recognize the revenue associated with subscription agreements ratably over the term of the agreement, provided all criteria required for revenuerecognition have been met. Our subscription agreements are typically one to three years.Our support revenue consists of maintenance fees associated with our perpetual licenses and hosting fees paid to us by our customers. Typically,when purchasing a perpetual license, a customer also purchases maintenance for which we charge a fee, priced as a percentage of the perpetual license fee.Maintenance agreements include the right to support and unspecified upgrades. We recognize the revenue associated with maintenance ratably over the termof the contract. In limited instances, at the customer’s option, we may host the software purchased by a customer under a perpetual license on systems at ourthird-party data centers.Perpetual license revenue. Perpetual license revenue reflects the revenue recognized from sales of perpetual licenses to new customers andadditional perpetual licenses to existing customers. We generally recognize the license fee portion of the arrangement in advance, provided all revenuerecognition criteria are satisfied. Our perpetual license agreements are typically one year.Professional services revenue. Professional services revenue consists of fees related to implementation, data extraction, integration andconfiguration and training on our applications. We generally recognize the revenue associated with these professional services on a time and materials basisas we deliver the services or provide training to our customers.Cost of RevenueCost of product revenue. Cost of product revenue consists primarily of personnel and related costs of our customer success and operations teams,including salaries, benefits, bonuses, payroll taxes, stock-based compensation and allocated overhead, as well as software license fees, hosting costs, Internetconnectivity and depreciation expenses directly related to delivering our applications. We expect that cost of revenues may increase in the future dependingon the growth rate of our new customers and billings and our need to support the implementation, hosting and support of those new customers. We intend tocontinue to invest additional resources in expanding the delivery capability of our applications. As we add data center capacity and support personnel inadvance of anticipated growth, our cost of product revenue will increase and if such anticipated revenue growth does not occur, our product gross profit willbe adversely affected both in terms of absolute dollars and as a percentage of total revenues in any particular quarterly or annual period. Our cost of productrevenue is generally expensed as the costs are incurred.Cost of professional services revenue. Cost of professional services revenue consists primarily of personnel and related costs, including salaries,benefits, bonuses, payroll taxes, stock-based compensation and allocated overhead, as well as the costs of contracted third-party vendors and reimbursableexpenses. As most of our personnel are employed on a full-time basis, our cost of professional services revenue is largely fixed in the short-term, while ourprofessional services revenue may fluctuate, leading to fluctuations in professional services gross profit. We expect that cost of professional services as apercentage of total revenues could fluctuate from period to period depending on the growth of our professional services business, the timing of sales ofapplications, and any associated costs relating to the delivery of services. Our cost of professional services revenue is generally expensed as costs areincurred.49Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Operating ExpensesOur operating expenses are classified into six categories: sales and marketing, research and development, refundable Canadian tax credits, generaland administrative, depreciation and amortization and acquisition-related expenses. For each category, other than refundable Canadian tax credits anddepreciation and amortization, the largest expense component is personnel and related costs, which includes salaries, employee benefit costs, bonuses,commissions, stock-based compensation and payroll taxes. Operating expenses also include allocated overhead costs for facilities, which are allocated toeach department based on relative department headcount. Operating expenses are generally recognized as incurred.Sales and marketing. Sales and marketing expenses primarily consist of personnel and related costs for our sales and marketing staff, includingsalaries, benefits, commissions, bonuses, payroll taxes, stock-based compensation and allocated overhead, as well as costs of promotional events, corporatecommunications, online marketing, product marketing and other brand-building activities. We expense sales commissions when the initial customer contractis signed and upon any renewal as our obligation to pay a sales commission arises at these times. Sales and marketing expenses may fluctuate as a percentageof total revenues for a variety of reasons including due to the timing of such expenses, in any particular quarterly or annual period.Research and development. Research and development expenses primarily consist of personnel and related costs of our research and developmentstaff, including salaries, benefits, bonuses, payroll taxes, stock-based compensation, allocated overhead and costs of certain third-party contractors. Researchand development costs related to the development of our software applications are generally recognized as incurred. For example, we are parties to atechnology services agreement pursuant to which we generally recognize expenses for services as they are received. See Note 17 of the Notes to ConsolidatedFinancial Statements for more information regarding how expenses under such agreement are recognized. We have devoted our product development effortsprimarily to enhancing the functionality, and expanding the capabilities, of our applications.Refundable Canadian tax credits. Investment tax credits are accounted for as a reduction of research and development costs. Credits are accrued inthe year in which the research and development costs of the capital expenditures are incurred, provided that we are reasonably certain that the credits will bereceived. The investment tax credit must be examined and approved by the tax authorities, and it is possible that the amounts granted will differ from theamounts recorded.General and administrative. General and administrative expenses primarily consist of personnel and related costs for our executive, administrative,finance, information technology, legal, accounting and human resource staff, including salaries, benefits, bonuses, payroll taxes, stock-based compensation,allocated overhead, professional fees and other corporate expenses. We have recently incurred, and expect to continue to incur, additional expenses as wegrow our operations and operate as a newly public company, including higher legal, corporate insurance, accounting and auditing expenses, and theadditional costs of enhancing and maintaining our internal control environment through the adoption of new corporate policies. General and administrativeexpenses may fluctuate as a percentage of revenue, and overtime we expect that general and administrative expenses will decrease as a percent of revenue dueto operational efficiencies.Depreciation and amortization. Depreciation and amortization expenses primarily consist of depreciation and amortization of acquired intangibleassets as a result of business combination purchase accounting adjustments. The valuation of identifiable intangible assets reflects management’s estimatesbased on, among other factors, use of established valuation methods. Customer relationships are valued using an income approach, which estimates fair valuebased on the earnings and cash flow capacity of the subject asset and are amortized over a 10-year period. The value of the trade name intangibles aredetermined using a relief from royalty method, which estimates fair value based on the value the owner of the asset receives from not having to pay a royaltyto use the asset and are amortized over mostly a three-year period. Developed technology is valued using a cost-to-recreate approach and is amortized over afour- to seven-year period.Acquisition-related expenses. Acquisition-related expenses consist of one-time costs in connection with each of our acquisitions, including legalfees, accounting fees, financing fees, restructuring costs, integration costs and other transactional fees and bonuses. We intend to continue executing ourfocused strategy of acquisitions to50Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.enhance the features and functionality of our applications, expand our customer base and provide access to new markets and increased benefits of scale.Total Other ExpenseTotal other expense consists primarily of changes in the estimated fair value of our preferred stock warrant liabilities, amortization of deferredfinancing costs over the term of the related loan facility and interest expense on outstanding debt, including amortization of debt discount and effect ofbeneficial conversion features in our convertible promissory notes payable.Income TaxesBecause we have not generated domestic net income in any period to date, we have recorded a full valuation allowance against our domestic netdeferred tax assets, exclusive of tax deductible goodwill. We have historically not recorded any material provision for federal or state income taxes, otherthan deferred taxes related to tax deductible goodwill and current taxes in certain separate company filing states. The balance of the tax provision for fiscalyears ended December 31, 2015, 2014, and 2013, outside of tax deductible goodwill and current taxes in separate filing states, is related to foreign incometaxes, primarily operations of our Canadian subsidiaries. Realization of any of our domestic deferred tax assets depends upon future earnings, the timing andamount of which are uncertain. Based on analysis of acquired net operating losses, utilization of our net operating losses will be subject to annual limitationsdue to the ownership change rules under the Internal Revenue Code of 1986, as amended, or the Code, and similar state provisions. In the event we havesubsequent changes in ownership, the availability of net operating losses and research and development credit carryovers could be further limited.51Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Results of OperationsConsolidated Statements of Operations DataThe following tables set forth our results of operations for the specified periods, as well as our results of operations for the specified periods as apercentage of revenue. The period-to-period comparisons of results of operations are not necessarily indicative of results for future periods. Year Ended December 31, 2015 2014 2013 AmountPercent ofRevenue AmountPercent ofRevenue AmountPercent ofRevenue (dollars in thousands, except share and per share data)Revenue: Subscription and support$57,193 82 % $48,625 75 % $30,887 75 %Perpetual license2,805 4 % 2,787 4 % 2,003 5 %Total product revenue59,998 86 % 51,412 79 % 32,890 80 %Professional services9,913 14 % 13,162 21 % 8,303 20 %Total revenue69,911 100 % 64,574 100 % 41,193 100 %Cost of revenue: Subscription and support (1)(2)19,586 28 % 14,042 22 % 7,787 19 %Professional services7,085 10 % 9,079 14 % 5,680 14 %Total cost of revenue26,671 38 % 23,121 36 % 13,467 33 %Gross profit43,240 62 % 41,453 64 % 27,726 67 %Operating expenses: Sales and marketing (1)12,965 19 % 14,670 23 % 10,625 26 %Research and development (1)15,778 23 % 26,165 41 % 10,340 25 %Refundable Canadian tax credits(470) (1)% (1,094) (2)% (583) (1)%General and administrative (1)18,201 26 % 13,561 21 % 6,832 17 %Depreciation and amortization4,534 6 % 4,310 7 % 3,670 9 %Acquisition-related expenses2,455 3 % 2,186 3 % 1,461 3 %Total operating expenses53,463 76 % 59,798 93 % 32,345 79 %Loss from operations(10,223) (14)% (18,345) (29)% (4,619) (12)%Other Expense: Interest expense, net(1,858) (3)% (1,951) (3)% (2,797) (7)%Other expense, net(544) — % 101 — % (431) (1)%Total other expense(2,402) (3)% (1,850) (3)% (3,228) (8)%Loss before provision for income taxes(12,625) (17)% (20,195) (32)% (7,847) (20)%Provision for income taxes(1,039) (3)% 78 1 % (708) (1)%Loss from continuing operations(13,664) (20)% (20,117) (31)% (8,555) (21)%Income (loss) from discontinued operations— — (642) Net loss$(13,664) (20)% $(20,117) (31)% $(9,197) (21)%Preferred stock dividends and accretion— — % (1,524) (3)% (98) (2)%Net loss attributable to common shareholders (3)$(13,664) (20)% $(21,641) (34)% $(9,295) (23)%Net loss per common share: Loss from continuing operations per common share, basic and diluted$(0.91) $(4.43) $(7.23) Loss from discontinued operations per common share, basic anddiluted$— $— $(0.54) Loss per common share, basic and diluted$(0.91) $(4.43) $(7.77) Weighted-average common shares outstanding, basic and diluted (3)14,939,601 4,889,901 1,196,668 52Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(1)Includes stock-based compensation.(2)Includes depreciation and amortization of $3,916,000, $3,147,000, and $1,640,000 in 2015, 2014, and 2013, respectively.(3)See Note 8 to our consolidated financial statements included elsewhere in this 10-K for a discussion and reconciliation of historical net loss attributable to common stockholders and weighted average sharesoutstanding for historical basic and diluted net loss per share calculations.53Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Comparison of Fiscal Years Ended December 31, 2015 and 2014RevenueYear Ended December 31,20152014ChangeAmountPercent of RevenueAmountPercent of RevenueAmount% Change(dollars in thousands)Revenue:Subscription and support$57,19382%$48,62575%$8,56818 %Perpetual license2,8054%2,7874%181 %Total product revenue59,99886%51,41279%8,58617 %Professional services9,91314%13,16221%(3,249)(25)%Total revenue$69,911100%$64,574100%$5,3378 %Total revenue was $69.9 million in 2015, compared to $64.6 million in 2014, an increase of $5.3 million, or 8%. Of the increase in total revenue,$11.2 million was due to the acquisitions we closed in 2014 and 2015. The organic business' total revenue decreased by $2.3 million in 2015 compared to2014 due to the change in the foreign currency exchange rate between the Canadian dollar versus the U.S. dollar for those periods. Therefore, on a constantcurrency basis, our organic total revenue decreased by $3.6 million, or 6%. This decline in organic revenue is primarily due to the decline in professionalservices revenues in accordance with our plan to focus on growing higher margin recurring revenues and de-emphasizing lower-margin professional servicesrevenues.Subscription and support revenue was $57.2 million in 2015, compared to $48.6 million in 2014, an increase of $8.6 million, or 18%. Of theincrease in subscription and support revenue, $10.1 million was due to the acquisitions we closed in 2014 and 2015. Subscription and support revenue forthe organic business declined by $1.9 million in 2015 compared to 2014 due to the change in the foreign currency exchange rate between the Canadiandollar versus the U.S. dollar for those periods. Therefore, on a constant currency basis, our organic subscription and support revenue increased by $0.4million, or 1%.Perpetual license revenue was $2.8 million in 2015, compared to $2.8 million in 2014, remaining relatively flat year-over-year. The acquisitions weclosed in late 2014 contributed a $0.3 million increase in perpetual license revenue in 2015 as compared to 2014. This increase was offset by a $0.3 milliondecrease in the organic portion of our business.Professional services revenue was $9.9 million in 2015, compared to $13.2 million in 2014, a decrease of $3.3 million, or 25%. The acquisitions weclosed in 2014 and 2015 contributed a $0.8 million increase to professional services revenue. The organic portion of our professional services businessdecreased by $0.4 million in 2015 compared to 2014 due to the change in the foreign currency exchange rate between the Canadian dollar versus the U.S.dollar for those periods. Therefore, on a constant currency basis, our organic professional services revenue decreased by $3.7 million, or 28%. As mentionedabove, this is in accordance with our plan to focus on growing higher margin recurring revenues and de-emphasizing lower-margin professional servicesrevenues.54Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Cost of Revenue and Gross Profit PercentageYear Ended December 31,20152014ChangeAmountPercent of RevenueAmountPercent of RevenueAmount% Change(dollars in thousands)Cost of revenue:Subscription and support (1)$19,58628%$14,04222%$5,54439 %Professional services7,08510%9,07914%(1,994)(22)%Total cost of revenue26,67138%23,12136%3,55015 %Gross profit$43,24062%$41,45364%$1,7874 %(1) Includes depreciation and amortization expense as follows:Depreciation$1,8003%$1,3032%$49738 %Amortization$2,1163%$1,8443%$27215 %Cost of subscription and support revenue was $19.6 million in 2015, compared to $14.0 million in 2014, an increase of $5.6 million, or 39%. Of theincrease in cost of subscription and support revenue, $3.5 million was due to the acquisitions we closed in 2014 and 2015. The acquisitions contributed acost increase primarily due to a $1.3 million increase in hosting cost, $0.9 million in personnel and related cost, $0.6 million in software cost, and $0.3million in amortization of intangibles. Cost of subscription and support revenue for the organic portion of our business increased $2.1 million primarily dueto a $1.2 million increase in personnel and related costs largely due to investment in the customer support and customer success organizations, $0.5 millionincrease in depreciation expense for data center and hosting equipment, and $0.3 million in data center hosting fees.Cost of professional services revenue was $7.1 million in 2015, compared to $9.1 million in 2014, a decrease of $2.0 million, or 22%. Of thedecrease in cost of professional services revenue, the organic business decreased $2.6 million primarily due to a $1.7 million decrease in personnel andrelated cost, $0.5 million decrease in contractor fees, and $0.3 million decrease in employee operational bonus, most of which are the result of our plannedoperating efficiencies. The acquisitions we closed in 2014 and 2015 contributed an increase in cost primarily due to a $0.6 million increase to cost ofprofessional services revenue. The primary component of cost of professional services revenue from the acquisitions was due to $0.4 million in personnel andrelated costs.Operating ExpensesSales and Marketing ExpenseYear Ended December 31,20152014ChangeAmountPercent of RevenueAmountPercent of RevenueAmount% Change(dollars in thousands)Sales and marketing$12,96519%$14,67023%$(1,705)(12)%Sales and marketing expense was $13.0 million in 2015, compared to $14.7 million in 2014, a decrease of $1.7 million, or 12%. Of the decrease insales and marketing expense, $3.4 million was attributable to the organic business primarily due to a $1.5 million decrease in sales and solution consultantpersonnel and related cost, $0.6 million decrease in marketing program expense, $0.4 million decrease in sales commission expense, $0.4 million decrease inmarketing trade show expense, and a $0.3 million decrease in bad debt expense, most of which are the result of our planned operating efficiencies. Theacquisitions we closed in 2014 and 2015 contributed an increase of55Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.$1.7 million in sales and marketing expense primarily due to $0.8 million in personnel and related costs, $0.3 million in sales commissions, $0.3 million inmarketing programs, and $0.1 million in contractor fees.Research and Development ExpenseYear Ended December 31,20152014ChangeAmountPercent of RevenueAmountPercent of RevenueAmount% Change(dollars in thousands)Research and development:Research and development$15,77823 %$26,16541 %$(10,387)(40)%Refundable Canadian tax credits(470)(1)%(1,094)(2)%624(57)%Total research and development$15,30822 %$25,07139 %$(9,763)(39)%Research and development expense was $15.8 million in 2015, compared to $26.2 million in 2014, a decrease of $10.4 million, or 40%. In January2014, we issued 1,803,574 shares of common stock in connection with an amendment of a technology services agreement with a related party and took anon-cash charge of $11.2 million. Our agreement with the related party is viewed as a fixed purchase commitment contract that obligates us to annualpurchase commitments even if we do not take delivery of the contracted services. Since the amended agreement still requires payments for future services thatwe believe are not discounted from amounts charged to other customers, we believe the fair value of the common stock consideration provided to the relatedparty to amend the agreement does not represent an asset and, accordingly, was expensed immediately. The remaining $1.1 million decrease in research anddevelopment expense for our organic business was primarily due to a decrease in personnel and related cost in the product development organization, most ofwhich are the result of our planned operating efficiencies. The acquisitions we closed in 2014 and 2015 contributed a $1.9 million increase in research anddevelopment expense primarily due to $1.6 million in personnel and related cost largely for product development and quality assurance.Refundable Canadian tax credits were $0.5 million in 2015 compared to $1.1 million in 2014, a decrease of $0.6 million, or 57%. This decrease isprimarily due to the favorable Canadian Revenue Agency tax audit results that were recognized in the fourth quarter of 2014. General and Administrative ExpenseYear Ended December 31,20152014ChangeAmountPercent of RevenueAmountPercent of RevenueAmount% Change(dollars in thousands)General and administrative$18,20126%$13,56121%$4,64034%General and administrative expense was $18.2 million in 2015, compared to $13.6 million in 2014, an increase of $4.6 million, or 34%. Of theincrease in general and administrative expenses, $2.5 million is from the organic businesses primarily due to a $1.9 million increase in personnel and relatedcost, $1.5 million increase in employee stock-based compensation expense, and $0.3 million increase in business insurance, all of which is primarily due tocost increases necessary to operate as a public company. The organic cost increases were partially offset by a $0.5 million decrease in facility and other officerelated costs, $0.5 million decrease in outsourced professional service fees, and $0.1 million decrease in recruiter fees, most of which are the result of ourplanned operating efficiencies. The remaining $2.1 million increase in general and administrative expense was attributable to the acquisitions we closed in2014 and 2015 primarily due to personnel and related costs.56Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Depreciation and Amortization ExpenseYear Ended December 31,20152014ChangeAmountPercent of RevenueAmountPercent of RevenueAmount% Change(dollars in thousands)Depreciation and amortization:Depreciation$4521%$9872%$(535)(54)%Amortization4,0835%3,3235%76023 %Total depreciation and amortization$4,5346%$4,3107%$2245 %Depreciation and amortization expense was $4.5 million in 2015, compared to $4.3 million in 2014, an increase of $0.2 million, or 5%. Theacquisitions we closed in 2014 and 2015 contributed a $0.9 million increase with the majority resulting from amortization of intangibles expense. Theorganic businesses realized a $0.7 million decrease in depreciation of equipment and other depreciable assets primarily due to planned operating efficiencies.Acquisition-related ExpenseYear Ended December 31,20152014ChangeAmountPercent of RevenueAmountPercent of RevenueAmount% Change(dollars in thousands)Acquisition-related expense$2,4554%$2,1863%$26912%One-time acquisition-related expense was $2.5 million in 2015, compared to $2.2 million in 2014, an increase of $0.3 million, or 12%. The one-timeacquisition-related expenses vary by acquisition and these costs are expensed as incurred such that the one-time acquisition-related expenses from ouracquisition in late 2013 were expensed in both 2013 and 2014, such costs for our acquisitions in late 2014 were expensed in both 2014 and 2015, and muchof the one-time acquisition-related expenses for our acquisition in late 2015 were expensed in 2015. As a result, year-over-year comparisons of theseexpenses are not necessarily meaningful due to their one-time nature.57Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Other Expense, netYear Ended December 31,20152014ChangeAmountPercent of RevenueAmountPercent of RevenueAmount% Change(dollars in thousands)Other Expense:Interest expense, net$(1,858)(3)%$(1,951)(3)%$93(5)%Other income (expense), net(544)— %101— %(645)(639)%Total other expense$(2,402)(3)%$(1,850)(3)%$(552)30 %Interest expense was $1.9 million in 2015, compared to $2.0 million for 2014, a decrease of $0.1 million, or 5%.Other expense was $0.5 million in 2015, compared to other income of $0.1 million in 2014, an increase of $0.6 million, or 639%. The increase inother expense was primarily due to loss on foreign currency translation.(Provision for) Benefit from Income TaxesYear Ended December 31,20152014ChangeAmountPercent of RevenueAmountPercent of RevenueAmount% Change(dollars in thousands)(Provision for) Benefit from IncomeTaxes$(1,039)(1)%$78—%$(1,117)(1,432)%Provision for income taxes was $1.0 million in 2015, compared to the benefit from income taxes of $0.1 million in 2014, an increase in provision forincome taxes of $1.1 million, or 1,432%. In 2015, we recorded income taxes that were principally attributable to state and foreign taxes, other than deferredtaxes related to tax deductible goodwill. The foreign provision for income taxes in 2015 is attributable to net income generated in excess of net operatingloss carryforwards and reduction of tax credit carryforwards in Canada. Because we have not generated domestic net income in any period to date, we haverecorded a full valuation allowance against our domestic net deferred tax assets, exclusive of tax deductible goodwill. Realization of any of our domesticdeferred tax assets depends upon future earnings, the timing and amount of which are uncertain. Based on analysis of acquired net operating losses,utilization of our net operating losses will be subject to annual limitations due to the ownership change rules under the Code and similar state provisions. Inthe event we have subsequent changes in ownership, the availability of net operating losses and research and development credit carryovers could be furtherlimited. See Note 6 of the Notes to Consolidated Financial Statements for more information regarding our income taxes as they relate to foreign and domesticoperations.58Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Comparison of Fiscal Years Ended December 31, 2014 and 2013Revenue Year Ended December 31, 2014 2013 Change Amount Percent of Revenue Amount Percent of Revenue Amount % Change (dollars in thousands)Revenue: Subscription and support$48,625 75% $30,887 75% $17,738 57%Perpetual license2,787 4% 2,003 5% 784 39%Total product revenue51,412 79% 32,890 80% 18,522 56%Professional services13,162 21% 8,303 20% 4,859 59%Total revenue$64,574 100% $41,193 100% $23,381 57%Total revenue was $64.6 million in 2014, compared to $41.2 million in 2013, an increase of $23.4 million, or 57%. Of the increase in total revenue,$21.7 million was due to the 2013 and 2014 acquisitions. The remaining $1.7 million increase in total revenue was due to the organic portion of ourbusiness. Additionally, total revenue from our Canada operations were $1.2 million lower in 2014 compared to 2013 due to the change in the foreigncurrency exchange rate between the Canadian dollar versus the U.S. dollar for those periods. Therefore, on a constant currency basis, our organic revenueincreased organically by $2.9 million, or 7%.Subscription and support revenue increased $17.7 million, or 57%, in 2014 as compared to 2013. Of the increase in subscription and supportrevenue, $17.3 million was due to the 2013 and 2014 acquisitions. The organic portion of our business contributed $0.4 million to the subscription andsupport revenue. Additionally, subscription and support revenue from our Canada operations were $0.9 million lower in 2014 compared to 2013 due to thechange in the foreign currency exchange rate between the Canadian dollar versus the U.S. dollar for those periods. Therefore, on a constant currency basis,our organic subscription and support revenue increased organically by $1.3 million, or 4%.Perpetual license revenue increased $0.8 million, or 39%, in 2014 as compared to 2013. The 2013 and 2014 acquisitions contributed $0.9 million inperpetual license revenue in 2014 as compared to 2013. This increase was partially offset by a $0.1 million decrease in the organic portion of our business.Additionally, perpetual license revenue from our Canada operations were $0.1 million lower in 2014 compared to 2013 due to the change in the foreigncurrency exchange rate between the Canadian dollar versus the U.S. dollar for those periods.Professional services revenue increased $4.9 million, or 59%, in 2014 as compared to 2013. Of the increase in professional services revenue, $3.6million was due to the 2013 and 2014 acquisitions. The organic portion of our business contributed an increase of $1.3 million to professional servicesrevenue. Additionally, professional services revenue from our Canada operations were $0.2 million lower in 2014 compared to 2013 due to the change in theforeign currency exchange rate between the Canadian dollar versus the U.S. dollar for those periods. Therefore, on a constant currency basis, our organicprofessional services revenue increased organically by $1.5 million, or 18%.59Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Cost of Revenue and Gross Margin Year Ended December 31, 2014 2013 Change Amount Percent of Revenue Amount Percent of Revenue Amount % Change (dollars in thousands)Cost of revenue: Subscription and support (1)$14,042 22% $7,787 19% $6,255 80%Professional services9,079 14% 5,680 14% 3,399 60%Total cost of revenue23,121 36% 13,467 33% 9,654 72%Gross profit$41,453 64% $27,726 67% $13,727 50% (1) Includes depreciation and amortization expense as follows: Depreciation$1,303 2% $455 1% $848 186%Amortization$1,844 3% $1,185 3% $659 56%Cost of subscription and support revenue was $14.0 million in 2014, compared to $7.8 million in 2013, an increase of $6.3 million, or 80%. Of theincrease in cost of subscription and support revenue, $5.3 million was due to the 2013 and 2014 acquisitions. The acquisitions contributed a $1.4 millionincrease in travel and related costs, a $1.3 million increase in depreciation and amortization, a $1.2 million increase in personnel and related costs, a $0.8million increase in data center hosting fees, a $0.4 million increase in software fees, a $0.1 million increase in contractor fees, and a $0.1 million increase inthe facility allocation. Cost of subscription and support revenue for the organic portion of our business increased $1.0 million primarily due to a $1.2 millionincrease in personnel and related costs, a $0.5 million increase in server license and software fees, a $0.4 million increase in contractor fees, a $0.2 millionincrease in data center hosting fees, and a $0.2 million increase in depreciation and amortization. These increases were partially offset by a $1.5 milliondecrease in travel and related costs and a $0.1 million decrease in recruiting fees.Cost of professional services revenue was $9.1 million in 2014, compared to $5.7 million in 2013, an increase of $3.4 million, or 60%. Of theincrease in cost of professional services revenue, $2.3 million was due to the 2013 and 2014 acquisitions. The acquisitions contributed a $1.3 millionincrease in personnel and related costs and a $1.0 million increase in contractor fees. Cost of professional services revenue for the organic portion of ourbusiness increased $1.1 million primarily due to a $0.5 million increase in personnel and related costs, a $0.4 million increase in other operating expensesprimarily due to an accounting reclass entry within cost of revenue, and a $0.2 million increase in contractors.60Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Operating Expenses Year Ended December 31, 2014 2013 Change Amount Percent of Revenue Amount Percent of Revenue Amount % Change (dollars in thousands)Sales and marketing$14,670 23% $10,625 26% $4,045 38%Sales and marketing expense was $14.7 million for 2014, compared to $10.6 million for 2013, an increase of $4.0 million, or 38%. Of the increase insales and marketing, $2.6 million was attributable to the 2013 and 2014 acquisitions. The increase from acquisitions was due to a $1.9 million increase inpersonnel and related costs, a $0.4 million increase in marketing programs and trade shows, a $0.2 million increase in contractor fees, and a $0.1 millionincrease in bad debt expense. Sales and marketing expense for the organic portion of our business increased $1.4 million primarily due to a $0.3 millionincrease in contractor fees, a $0.3 million increase in personnel and related costs, a $0.2 million increase in software fees, a $0.2 million increase in travel andrelated costs, a $0.1 million increase in recruiting fees, and a $0.1 million increase in marketing subscriptions. Year Ended December 31, 2014 2013 Change Amount Percent of Revenue Amount Percent of Revenue Amount % Change (dollars in thousands)Research and development: Research and development$26,165 41 % $10,340 25 % $15,825 153%Refundable Canadian tax credits(1,094) (2)% (583) (1)% (511) 88%Total research and development$25,071 39 % $9,757 24 % $15,314 157%Research and development expense was $26.2 million for 2014, compared to $10.3 million for 2013, an increase of $15.8 million, or 153%. InJanuary 2014, we issued 1,803,574 shares of common stock in connection with an amendment of a technology services agreement with a related party andtook a non-cash charge of $11.2 million. Our agreement with the related party is viewed as a fixed purchase commitment contract that obligates us to annualpurchase commitments even if we do not take delivery of the contracted services. Since the amended agreement still requires payments for future services thatwe believe are not discounted from amounts charged to other customers, we believe the fair value of the common stock consideration provided to the relatedparty to amend the agreement does not represent an asset and, accordingly, was expensed immediately. The remaining $1.0 million increase in research anddevelopment expense for our organic businesses was primarily due to a $0.7 million increase in personnel and related costs, a $0.1 million increase in traveland related costs, and a $0.1 million increase in software and equipment expense. The 2013 and 2014 acquisitions contributed a $3.6 million increase inresearch and development expense primarily due to a $3.2 million increase in personnel and related costs, and a $0.3 million increase in contractor fees.Refundable Canadian tax credits were $1.1 million for 2014 compared to $0.6 million for 2013 an increase of $0.5 million, or 88%. This increase isprimarily due to favorable Canadian Revenue Agency tax audit results.61Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Year Ended December 31, 2014 2013 Change Amount Percent of Revenue Amount Percent of Revenue Amount % Change (dollars in thousands)General and administrative$13,561 21% $6,832 17% $6,729 98%General and administrative expense was $13.6 million for 2014, compared to $6.8 million for 2013, an increase of $6.7 million, or 98%. Of theincrease in general and administrative expenses, $4.0 million is from the organic businesses due to a $1.0 million increase in outsourced legal (including$0.3 million of non-recurring litigation costs incurred during the quarter ended December 31, 2014), audit, tax, and human resource fees, a $1.0 millionincrease in contractor fees, a $0.5 million increase in recruiting fees, a $0.5 million increase in employee stock-based compensation expense, a $0.4 millionincrease in management fee allocations, a $0.4 million increase in software and equipment related expenses, and a $0.2 million increase in travel and relatedcosts. The remaining $2.7 million increase in general and administrative expense was attributable to the 2013 and 2014 acquisitions. The acquisitionscontributed a $1.5 million increase in personnel and related costs, a $0.8 million increase in facility and other office related expenses, a $0.2 million increasein contractor fees, and a $0.1 million increase in recruiting and outsourced service fees. Year Ended December 31, 2014 2013 Change Amount Percent of Revenue Amount Percent of Revenue Amount % Change (dollars in thousands)Depreciation and amortization: Depreciation$987 2% $348 1% $639 184%Amortization3,323 5% 3,322 8% 1 —%Total depreciation and amortization$4,310 7% $3,670 9% $640 17%Depreciation and amortization expense was $4.3 million for 2014, compared to $3.7 million for 2013, an increase of $0.6 million, or 17%. The 2013and 2014 acquisitions contributed $1.3 million to the increase with the majority resulting from amortization expense. The organic businesses contributed a$0.7 million decrease primarily due to the $1.1 million impairment charge of the PowerSteering trade name that occurred in 2013. See Note 5 of the Notes toConsolidated Financial Statements for more information regarding the impairment charge which is noted in Goodwill and Other Intangible Assets. Year Ended December 31, 2014 2013 Change Amount Percent of Revenue Amount Percent of Revenue Amount % Change (dollars in thousands)Acquisition-related expense$2,186 3% $1,461 3% $725 50%One-time acquisition related expense was $2.2 million for 2014, compared to $1.5 million for 2013, an increase of $0.7 million, or 50%. Theincrease was due to acquisition-related expenses for the acquisitions we closed in late 2013, being incurred partially in 2014, and the acquisitions we closedin late 2014 also being incurred and accrued in 2014.62Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Other Expense, net Year Ended December 31, 2014 2013 Change Amount Percent of Revenue Amount Percent of Revenue Amount % Change (dollars in thousands)Other Expense: Interest expense, net$(1,951) (3)% $(2,797) (7)% $846 (30)%Other income (expense), net101 — % (431) (1)% 532 (123)%Total other expense$(1,850) (3)% $(3,228) (8)% $1,378 (43)%Interest expense was $2.0 million for 2014, compared to $2.8 million for 2013, a decrease in interest expense of $0.8 million, or 30%. The decreasewas primarily due to the effect of a beneficial conversion feature on convertible promissory notes payable which resulted in higher non-cash interest expensefor 2013.Other income was $0.1 million for 2014, compared to other expense of $0.4 million for 2013, a decrease in expense of $0.5 million, or 123%. Thedecrease in other expense was primarily due to gains on foreign currency translation.Benefit from (Provision for) Income Taxes Year Ended December 31, 2014 2013 Change Amount Percent of Revenue Amount Percent of Revenue Amount % Change (dollars in thousands)Benefit from (provision for) IncomeTaxes$78 1% $(708) (1)% $786 (111)%Benefit from income taxes was $0.1 million for 2014, compared to the provision for income taxes of $0.7 million for 2013, a decrease in provisionfor income taxes of $0.8 million, or 111%. In 2014 and 2013, we recorded income taxes that were principally attributable to state and foreign taxes, otherthan deferred taxes related to tax deductible goodwill. The foreign benefit for income taxes in 2014 is attributable to changes in deferred taxes, primarilygeneration of a net operating loss for the current year in Canada. Because we have not generated domestic net income in any period to date, we have recordeda full valuation allowance against our domestic net deferred tax assets, exclusive of tax deductible goodwill. Realization of any of our domestic deferred taxassets depends upon future earnings, the timing and amount of which are uncertain. Based on analysis of acquired net operating losses, utilization of our netoperating losses will be subject to annual limitations due to the ownership change rules under the Code and similar state provisions. In the event we havesubsequent changes in ownership, the availability of net operating losses and research and development credit carryovers could be further limited.63Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Liquidity and Capital ResourcesTo date, we have financed our operations primarily through capital raising, both through private placements of preferred stock and common stockand sales of our common stock in our initial public offering, cash from operating activities, and to a lesser extent, borrowing under our loan facility and theissuance of seller notes. As of December 31, 2015, we had cash and cash equivalents of $18.5 million, $20.0 million of available borrowings under our loanfacility, and $24.4 million of borrowings outstanding under our loan facility. See further discussion under the heading Loan Facility Note 7 to the auditedconsolidated financial statements included elsewhere in this Annual Report for further details.On November 12, 2014, the Company completed its initial public offering, or IPO, of 3,846,154 shares of common stock, at a price of $12.00 pershare, before underwriting discounts and commissions. The Company sold all of such shares. The IPO generated net proceeds of approximately $42.9 million,after deducting underwriting discounts and commissions. Expenses incurred by us for the IPO were approximately $4.1 million and were recorded against theproceeds received from the IPO. The Company has used, and plans to use, the proceeds to finance growth by investing in or acquiring complementarycompanies, products, or technologies, growing sales of its applications globally, and improving and enhancing its applications.The following table summarizes our cash flows for the periods indicated (including cash flows from discontinued operations):Year Ended December 31,2015 2014 2013(dollars in thousands)Consolidated Statements of Cash Flow Data: Net cash provided by (used in) operating activities$(1,503) $1,177 $(239)Net cash used in investing activities(9,411) (7,078) (28,565)Net cash provided by (used in) financing activities(1,221) 32,384 29,564Effect of exchange rate fluctuations on cash(380) (198) 51Change in cash and cash equivalents(12,515) 26,285 811Cash and cash equivalents, beginning of period30,988 4,703 3,892Cash and cash equivalents, end of period$18,473 $30,988 $4,703Cash Flows from Operating ActivitiesCash used in operating activities is significantly influenced by the amount of cash we invest in personnel and infrastructure to support theanticipated growth of our business. Our operating assets and liabilities consist primarily of receivables from clients and unbilled professional services,accounts payable and accrued expenses and deferred revenues. The volume of professional services rendered and the related timing of collections on thosebookings, as well as payments of our accounts payable and accrued payroll and related benefits affect these account balances.Our cash provided by operating activities for the year ended 2015 primarily reflects our net loss of $13.7 million, offset by non-cash expenses thatincluded $8.5 million of depreciation and amortization, $0.2 million of deferred income taxes, $1.0 million of foreign currency re-measurement loss, $0.4million of non-cash interest expense, and $2.7 million of non-cash stock compensation expense. Working capital sources of cash included a $0.7 milliondecrease in accounts receivable, a $1.9 million decrease in prepaids and other, and a $0.2 million increase in accounts payable. These sources of cash wereoffset by a $2.8 million decrease in accrued expenses and other liabilities and a $0.6 million decrease in deferred revenue.Our cash provided by operating activities for the year ended 2014 primarily reflects our net loss of $20.1 million, offset by non-cash expenses thatincluded a $11.2 million charge for the 1,803,574 shares of common stock64Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.issued to DevFactory, $7.5 million of depreciation and amortization, $0.6 million of non-cash interest expense, and $1.1 million of non-cash stockcompensation expense. Working capital sources of cash included a $0.5 million decrease in prepaids and other assets, a $2.6 million increase in deferredrevenue, and a $0.6 million increase in accounts payable. These sources of cash were offset by a $1.6 million increase in accounts receivable and a $0.9million decrease in accrued expenses and other liabilities .Our cash used in operating activities for fiscal 2013 primarily reflects our net loss of $9.2 million, offset by non-cash expenses that included $5.6million of depreciation and amortization, $1.6 million of non-cash interest expense, and $0.5 million of non-cash stock compensation expense. Workingcapital sources of cash included $2.9 million decrease in accounts receivable and $2.2 million of increases in accrued expenses and other liabilities. Thesesources of cash were offset by a $1.6 million increase in prepaids and other, a $1.1 million decrease in accounts payable, and a $1.0 million decrease indeferred revenue. A substantial source of cash is provided as a result of invoicing for subscriptions in advance, which is recorded as deferred revenue, and isincluded on our consolidated balance sheet as a liability. Deferred revenue consists of the unearned portion of booked fees for our software subscriptions andsupport, which is amortized into revenue in accordance with our revenue recognition policy. We assess our liquidity, in part, through an analysis of newsubscriptions booked, expected cash receipts on new and existing subscriptions, and our ongoing operating expense requirements.Cash Flows from Investing ActivitiesOur primary investing activities have consisted of acquisitions of complementary technologies, products and businesses. As our business grows, weexpect our primary investing activities to continue to further expand our family of software applications and infrastructure and support additional personnel.For fiscal 2015, 2014 and 2013 cash used in investing activities for business combinations consisted of $7.7 million, $6.2 million and $28.2 million,respectively. In addition, for fiscal 2015, 2014 and 2013, we used $1.0 million, $0.9 million and $0.3 million, respectively, for the purchases of property andequipment.Cash Flows from Financing ActivitiesOur primary financing activities have consisted of capital raised to fund our operations as well as proceeds from debt obligations entered into tofinance our operations. For fiscal 2015, cash provided by financing activities consisted primarily of $24.1 million in proceeds from debt, offset by $23.9million for repayment of debt. For fiscal 2014, cash provided by financing activities consisted primarily of $38.8 million in proceeds from the issuance ofcommon stock, net of issuance costs in our November, 2014 IPO and $5.7 million in proceeds from debt, offset by $10.9 million for repayment of debt. Forfiscal 2013, cash provided by financing activities consisted primarily of $19.7 million in proceeds from the issuance of preferred stock and $28.0 million inproceeds from debt, offset by $17.5 million for repayment of debt.Loan and Security AgreementsOn May 14, 2015, Upland Software, Inc. (the “Company”) entered into a Credit Agreement (the “Credit Agreement”) with a consortium of lenders(the “Lenders”), Wells Fargo Capital Finance, as agent, providing for a secured credit facility (the “Loan Facility”) that replaces and refinances (i) theCompany’s existing Loan and Security Agreement dated March 5, 2012 between the Company and Comerica Bank, as amended (the “U.S. ComericaAgreement”) and (ii) an existing Canadian Loan and Security Agreement dated February 10, 2012 with Comerica Bank, as amended (the “CanadianComerica Agreement”).As of December 31, 2015, there was (i) $0.0 million in U.S. revolving loans outstanding under the Credit Agreement, (ii) $0.0 million drawn on theCanadian revolving credit facility, (iii) $18.5 million in U.S. term loans outstanding under the Credit Agreement; and (iv) $5.9 million in Canadian termloans outstanding under the Credit Agreement.LoansThe Credit Agreement provides for up to $60.0 million of financing credit as outlined below.65Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The Credit Agreement provides (i) a U.S. revolving credit facility in an aggregate principal amount of up to $9.0 million (the “U.S. Revolver”), (ii) aU.S. term loan facility in an aggregate principal amount of up to $19.0 million (the “U.S. Term Loan”), (iii) a delayed draw term loan facility in an aggregateprincipal amount of up to $10.0 million (the “DDTL”). (iv) a Canadian revolving credit facility in an aggregate principal amount of up to $1.0 million (the“Canadian Revolver” and, together with the U.S. Revolver, the “Revolver”); and (ii) a Canadian term loan facility in an aggregate principal amount of up to$6.0 million (the “Canadian Term Loan” and, together with the U.S. Term Loan, the “Term Loan”).The Credit Agreement also includes provisions for optional, uncommitted increases in the maximum size of the loan facility available under theCredit Agreement by an aggregate principal amount of $15.0 million upon the satisfaction of the terms and conditions set forth in the Credit Agreement.In addition, the Credit Agreement permits the Borrowers to incur subordinated, unsecured indebtedness owing to sellers in connection with theconsummation of one or more permitted acquisitions upon the satisfaction of the terms and conditions set forth in the Credit Agreement so long as theaggregate principal amount for all such subordinated, unsecured indebtedness does not exceed $10.0 million at any one time outstanding.Terms of RevolverLoans under the Revolver are available up to the lesser of (i) $10.0 million (the “Maximum Revolver Amount”) or (ii) the result of (a) 0.80multiplied by (subject to step-downs beginning June 30, 2016) of certain subsidiaries' recurring revenues on a trailing twelve month basis, minus (b) theoutstanding balance of the Term Loans and any swing line loans made under the Credit Agreement (such amount, the “Credit Amount”). The Revolverprovides a subfacility whereby Borrowers may request letters of credit (the “Letters of Credit”) in an aggregate amount not to exceed, at any one timeoutstanding, $0.5 million and $0.25 million, from the U.S & Canadian facilities, respectively. The aggregate amount of outstanding Letters of Credit arereserved against the credit availability under the Maximum Revolver Amount and the Credit Amount.Loans under the Revolver may be borrowed, repaid and reborrowed until May 14, 2020 (the “Maturity Date”), at which time all amounts borrowedunder the Credit Agreement must be repaid.Terms of Term LoansThe Term Loans are repayable, on a quarterly basis beginning September 30, 2015, by an amount equal to 5.0% per annum of the original principalamount of such loan. Any amount remaining unpaid is due and payable in full on the Maturity Date.Terms of Delay Draw Term LoanPursuant to the terms of the Credit Agreement, the DDTL is to be used to finance acquisitions. The DDTL can be drawn upon until May 14, 2017.The DDTL is repayable, on a quarterly basis, by an amount equal to 5.0% per annum of the original funded amount of the DDTL. Any amount remainingunpaid would be due and payable in full on the Maturity Date.Other Terms of Loan FacilityAt the option of the Company, U.S. loans accrue interest at a per annum rate based on (i) the U.S. base rate plus a margin ranging from 3.0% to 4.0%depending on the leverage ratio or (ii) the LIBOR rate determined in accordance with the Credit Agreement (based on 1, 2, 3 or 6-month interest periods) plusa margin ranging from 4.0% to 5.0% depending on the leverage ratio. The U.S. base rate is a rate equal to the highest of the federal funds rate plus a marginequal to 0.5%, the LIBOR rate for a 1-month interest period plus 1.0% and Wells Fargo Capital Finance’s prime rate.At the option of the Company, the Canadian loans accrue interest at a per annum rate based on (i) the Canadian prime rate or the U.S. base rate plus amargin ranging from 3.0% to 4.0% depending on the leverage ratio or (ii) the LIBOR rate determined in accordance with the Credit Agreement (based on 1, 2,3 or 6-month interest periods) (or the Canadian BA rate determined in accordance with the Credit Agreement for obligations in Canadian dollars) plus amargin ranging from 4.0% to 5.0% depending on the leverage ratio.66Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Accrued interest on the loans will be paid monthly, or, with respect to loans that are accruing interest based on the LIBOR rate or Canadian BA rate,at the end of the applicable LIBOR or Canadian BA interest rate period.Lenders are entitled to a premium (the “Prepayment Premium”) in the event of certain prepayments of the loans in an amount equal to (i) from May14, 2015 to May 14, 2016, 2.0% times the sum of (a) the Maximum Revolver Amount plus (b) the outstanding principal amount of the Term Loan and DDTLon the date immediately prior to the date of the prepayment (such sum, the “Prepayment Amount”) (ii) from May 14, 2016 to May 14, 2017, 1.0% times thePrepayment Amount and (iii) during the period from and after May 14, 2017 to the Maturity Date, 0.0% times the Prepayment Amount. The Company mayalso be subject to prepayment fees in the case of commitment reductions of the Revolver and also may be obligated to prepay loans upon the occurrence ofcertain events.The Company is also obligated to pay other customary servicing fees, letter of credit fees and unused credit facility fees.The Loan Facility contains customary affirmative and negative covenants. The negative covenants limit the ability of the Company and itssubsidiaries to, among other things (in each case subject to customary exceptions for a credit facility of this size and type):•Incur additional indebtedness or guarantee indebtedness of others;•Create liens on their assets;•Make investments, including certain acquisitions;•Enter into mergers or consolidations;•Dispose of assets;•Pay dividends and make other distributions on the Company’s capital stock, and redeem and repurchase the Company’s capital stock;•Enter into transactions with affiliates; and•Prepay indebtedness or make changes to certain agreements.The Loan Facility also contains financial covenants that require certain subsidiaries to maintain (i) a minimum liquidity of $10.0 million (whichshall be $8.0 million once the Company achieves trailing four quarters adjusted EBITDA of at least $8.0 million) at all times. This covenant is subsequentlyreplaced by certain other financial covenants that are required to be met based on various levels of operating results of the U.S. and Canadian subsidiaries.These financial covenants become more restrictive starting September 30, 2017. If an event of default occurs, at the election of the Lenders, a default interestrate shall apply on all obligations during an event of default, at a rate per annum equal to 2.00% above the applicable interest rate.The Loan Facility limits the Company's ability to buyback its capital stock, subject to restrictions including a minimum liquidity requirement of$20.0 million before and after any such buyback.Termination of Prior Credit AgreementsOn May 14, 2015, the Company terminated the U.S. Comerica Agreement and the Canadian Comerica Agreement. In conjunction with theterminations, the Company expensed unamortized deferred financing costs of $0.2 million.Interest Rate and Financing CostsCash interest costs averaged 5.2% under the new Credit Agreement for the year ended December 31, 2015. In addition, the Company incurred $1.2million of financing costs associated with the Credit Agreement in the year ended December 31, 2015. These financing costs will be amortized to non-cashinterest expense over the term of the Credit Agreement.67Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Contractual Payment ObligationsThe following table summarizes our future contractual obligations as of December 31, 2015 (in thousands):Contractual ObligationsPayment Due by Period Total Less than 1 Year 1-3 Years 3-5 Years More Than 5YearsDebt Obligations24,874 1,750 2,500 20,624 —Capital Lease Obligations4,782 1,845 2,447 490 —Operating Lease Obligations5,229 1,874 2,410 944 —Purchase Commitments2,308 2,308 Total37,193 7,778 7,357 22,058 —Future debt maturities of long-term debt exclude debt discounts and consist of obligations under the Company's U.S. Loan Agreement, Canadian LoanAgreement, and seller notes.The Company leases office space under operating leases that expire between 2015 and 2020. The company also leases computer equipment under capitalleases.The Company has an outstanding purchase commitment in 2016 for software development services pursuant to a technology services agreement in theamount of $2.3 million. The agreement has an initial term that expires on December 31, 2017, with an option for either party to renew annually for up to fiveyears. For years after 2016, the purchase commitment amount for software development services will be equal to the prior year purchase commitmentincreased (decreased) by the percentage change in total revenue for the prior year as compared to the preceding year. For example, if 2016 total revenuesincrease by 10% as compared to 2015 total revenues, then the 2017 purchase commitment will increase by approximately $230,000 from the 2016 purchasecommitment amount to approximately $2.5 million.The Company has a letter of credit for an office lease with a bank in the amount of $100,000.Off-Balance Sheet ArrangementsDuring the years ended December 31, 2015, 2014, and 2013, we did not have any relationships with unconsolidated organizations or financialpartnerships, such as structured finance or special-purpose entities, that would have been established for the purpose of facilitating off-balance sheetarrangements or other contractually narrow or limited purposes.Critical Accounting Policies and the Use of EstimatesWe prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States. The preparationof consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costsand expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable underthe circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between ourestimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believethat the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the moresignificant areas involving management’s judgments and estimates.68Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The following critical accounting policies reflect significant judgments and estimates used in the preparation of our consolidated financialstatements:•revenue recognition and deferred revenue;•stock-based compensation;•income taxes; and•business combinations and the recoverability of goodwill and long-lived assets.Revenue RecognitionThe Company derives revenue from product revenue, consisting of subscription, support and perpetual licenses, and professional services revenues. TheCompany recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery of the product or services hasoccurred, no Company obligations with regard to implementation considered essential to the functionality remain, the fee is fixed or determinable andcollectability is probable.Subscription and Support RevenueThe Company derives subscription revenues by providing its software-as-a-service solution to customers in which the customer does not have the right totake possession of the software, but can use the software for the contracted term. The Company accounts for these arrangements as service contracts.Subscription and support revenues are recognized on a straight-line basis over the term of the contractual arrangement, typically one to three years. Amountsthat have been invoiced and that are due are recorded in deferred revenue or revenue, depending on when the criteria for revenue recognition are met. Revenue from usage-based services are recognized in the month in which such usage is reported.The Company may provide hosting services to customers who purchased a perpetual license. Such hosting services are recognized ratably over the applicableterm of the arrangement. These hosting arrangements are typically for a period of one to three years.Software maintenance agreements provide technical support and the right to unspecified upgrades on an if-and-when-available basis. Revenue frommaintenance agreements is recognized ratably over the life of the related agreement, which is typically one year.Perpetual License RevenueThe Company also records revenue from the sales of proprietary software products under perpetual licenses. For license agreements in which customeracceptance is a condition to earning the license fees, revenue is not recognized until acceptance occurs. The Company’s products do not require significantcustomization. Revenue on arrangements with customers who are not the ultimate users (primarily resellers) is not recognized until the product is delivered tothe end user. Perpetual licenses are sold along with software maintenance and, sometimes, hosting agreements. When vendor specific objective evidence(VSOE) of fair value exists for the software maintenance and hosting agreement, the perpetual license is recognized under the residual method whereby thefair value of the undelivered software maintenance and hosting agreement is deferred and the remaining contract value is recognized immediately for thedelivered perpetual license. When VSOE of fair value does not exist for the either the software maintenance or hosting agreement, the entire contract value isrecognized ratably over the underlying software maintenance and/or hosting period.Professional Services RevenueProfessional services provided with perpetual licenses consist of implementation fees, data extraction, configuration, and training. The Company’simplementation and configuration services do not involve significant customization of the software and are not considered essential to the functionality.Revenues from professional services are recognized as such services are provided when VSOE of fair value exists for such services and all undeliveredelements such as software maintenance and/or hosting agreements. VSOE of fair value for services is based upon the price charged when these services aresold separately, and is typically an hourly rate. When VSOE of fair value does not exist for software maintenance and/or hosting agreements, revenues fromprofessional services are recognized ratably over the underlying software maintenance and/or hosting period.69Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Professional services, when sold with the subscription arrangements, are accounted for separately when these services have value to the customer on astandalone basis and there is objective and reliable evidence of fair value for each deliverable. When accounted for separately, revenues are recognized as theservices are rendered for time and material contracts. For those arrangements where the elements do not qualify as a separate unit of accounting, the Companyrecognizes professional services ratably over the contractual life of the related application subscription arrangement. Currently, all professional services areaccounted for separately as all have value to the customer on a standalone basis.Multiple Element ArrangementsThe Company enters into arrangements with multiple-element that generally include subscriptions and implementation and other professional services.For multiple-element arrangements, arrangement consideration is allocated to deliverables based on their relative selling price. In order to treat deliverablesin a multiple-element arrangement as separate units of accounting, the elements must have standalone value upon delivery. If the elements have standalonevalue upon delivery, each element must be accounted for separately. The Company’s subscription services have standalone value as such services are oftensold separately. In determining whether implementation and other professional services have standalone value apart from the subscription services, theCompany considers various factors including the availability of the services from other vendors. The Company has concluded that the implementationservices included in multiple-element arrangements have standalone value. As a result, when implementation and other professional services are sold in amultiple-element arrangement, the arrangement consideration is allocated to the identified separate units based on a relative selling price hierarchy. Theselling price for a element is based on its VSOE of selling price, if available, third-party evidence of selling price, or TPE, if VSOE is not available or bestestimate of selling price, or BESP, if neither VSOE nor TPE is available. The Company has not established VSOE for its subscription services due to lack ofpricing consistency, the introduction of new services and other factors. The Company has determined that TPE is not a practical alternative due to differencesin its service offerings compared to other parties and the availability of relevant third-party pricing information. Accordingly, the Company uses BESP todetermine the relative selling price.The Company determined BESP by considering its overall pricing objectives and market conditions. Significant pricing practices taken into considerationinclude the Company’s discounting practices, the size and volume of its transactions, customer characteristics, price lists, go-to-market strategy, historicalstandalone sales and agreement prices. As the Company’s go-to-market strategies evolve, it may modify its pricing practices in the future, which could resultin changes in relative selling prices, and include both VSOE and BESP.Deferred RevenueDeferred revenue represents either customer advance payments or billings for which the aforementioned revenue recognition criteria have not yet been met.Stock-Based CompensationStock options awarded to employees and directors are measured at fair value at each grant date. The Company accounts for stock-based compensation inaccordance with authoritative accounting principles which require all share-based compensation to employees, including grants of employee stock options,to be recognized in the financial statements based on their estimated fair value. Compensation expense is determined under the fair value method using theBlack-Scholes option pricing model and recognized ratably over the period the awards vest. The Black-Scholes option pricing model used to compute share-based compensation expense requires extensive use of accounting judgment and financial estimates. Items requiring estimation include the expected termoption holders will retain their vested stock options before exercising them, the estimated volatility of the Company’s common stock price over the expectedterm of each stock option, and the number of stock options that will be forfeited prior to the completion of their vesting requirements. Application ofalternative assumptions could result in significantly different share-based compensation amounts being recorded in the financial statements. The followingtable summarizes the weighted-average grant-date fair value of options granted in 2015, 2014, and 2013 and the assumptions used to develop their fairvalues. As there was no public market for its common stock prior to November 2014, the Company estimates the volatility of its common stock based on thevolatility of publicly traded70Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.shares of comparable companies' common stock. The Company's decision to use the volatility of comparable stock was based upon the Company'sassessment that this information is more representative of future stock price trends than the Company's historical volatility. The Company estimates theexpected term using the simplified method, which calculates the expected term as the midpoint between the vesting date and the contractual termination dateof each award. The dividend yield assumption is based on historical and expected future dividend payouts. The risk-free interest rate is based on observedmarket interest rates appropriate for the term of each options. Year Ended December 31, 2015 2014 2013Weighted average grant-date fair value ofoptions$3.01 $3.76 $0.91Expected volatility42.5% - 44.0% 54.1% - 55.2% 53.3%Risk-free interest rate1.7% - 1.9% 1.6% - 1.9% 1.6%Expected life in years5.93 6.29 6.29Dividend yield— — —Income TaxesThe Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for theexpected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to berecovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities will be recognized in the period that includes the enactment date.A valuation allowance is established against the deferred tax assets to reduce their carrying value to an amount that is more likely than not to be realized.The Company accounts for uncertainty of income taxes based on a “more likely than not” threshold for the recognition and derecognition of tax positions,which includes the accounting for interest and penalties.Goodwill and Other IntangiblesGoodwill arises from business combinations and is measured as the excess of the cost of the business acquired over the sum of the acquisition-date fair valueof tangible and identifiable intangible assets acquired, less any liabilities assumed.Goodwill is evaluated for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value may not berecoverable. The events and circumstances considered by the Company include the business climate, legal factors, operating performance indicators andcompetition.The Company evaluates the recoverability of goodwill using a two-step impairment process tested at the reporting unit level. The Company has onereporting unit for goodwill impairment purposes. In the first step, the fair value of the reporting unit is compared to the book value, including goodwill. In thecase that the fair value is less than the book value, a second step is performed that compares the implied fair value of goodwill to the book value of goodwill.The fair value for the implied goodwill is determined based on the difference between the fair value of the reporting unit and the net fair value of theidentifiable assets and liabilities, excluding goodwill. If the implied fair value of the goodwill is less than the book value, the difference is recognized as animpairment charge in the consolidated statement of operations. No goodwill impairment charges were recorded during the years ended December 31, 2015,2014, or 2013.Identifiable intangible assets consist of customer relationships, marketing-related intangible assets and developed technology. Intangible assets with definitelives are amortized over their estimated useful lives on a straight-line basis. The straight-line method of amortization represents the Company’s best estimateof the distribution of the economic value of the identifiable intangible assets.71Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of intangible assets may not berecoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, asignificant change in the extent or manner in which an asset is used or any other significant adverse change that would indicate that the carrying amount ofan asset or group of assets may not be recoverable. The Company evaluates the recoverability of intangible assets by comparing their carrying amounts to thefuture net undiscounted cash flows expected to be generated by the intangible assets. If such intangible assets are considered to be impaired, the impairmentto be recognized is measured as the amount by which the carrying amount of the intangible assets exceeds the fair value of the assets.The Company determines fair value based on discounted cash flows using a discount rate commensurate with the risk inherent in the Company’s currentbusiness model for the specific intangible asset being valued. The Company determined there was an impairment of the PowerSteering trade name of $1.1million during 2013. There were no such impairments during 2015 and 2014.Other Key Accounting PoliciesWe also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understandingour results. See Note 2 “Summary of Significant Accounting Policies” to the consolidated financial statements included in this Annual Report. Of thosepolicies, we believe that the accounting policies enumerated above involve the greatest degree of complexity and exercise of judgment by our management.We evaluate our estimates, judgments and assumptions on an ongoing basis, and while we believe that our estimates, judgments and assumptions arereasonable, they are based upon information available at the time. Actual results may differ significantly from these estimates under different assumptions,judgments or conditions.Under Section 107(b) of the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time asthose standards apply to private companies. We are choosing to “opt out” of such extended transition period, however, and, as a result, we will comply withnew or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards isirrevocable.Recent Accounting PronouncementsIn May 2014, the FASB issued FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenuerecognition requirements in ASC 605, Revenue Recognition. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict thetransfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange forthose goods or services. The guidance provides a five-step process to achieve that core principle. ASU 2014-09 requires disclosures enabling users offinancial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Additionally,qualitative and quantitative disclosures are required about contracts with customers, significant judgments and changes in judgments, and assets recognizedfrom the costs to obtain or fulfill a contract. In August 2015, the FASB issued FASB ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606):Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periodsbeginning after December 15, 2017, including interim periods within that reporting period, using one of two retrospective application methods. Earlyapplication is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reportingperiod. The Company is currently evaluating the effect that the adoption of ASU 2014-09 and ASU 2015-14 will have on its financial statements as well asthe timing and method of adoption.In August 2014, the FASB issued FASB ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure ofUncertainties about an Entity's Ability to Continue as a Going Concern. The new standard provides guidance around management's responsibility to evaluatewhether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new72Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. Theadoption of this standard is not expected to have a material impact on our financial statements.In April 2015, the FASB issued FASB ASU No. 2015-03 Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of DebtIssuance Costs. Under this revised guidance, debt issuance costs should be presented in the balance sheet as a direct deduction from the carrying value of theassociated debt, consistent with the presentation of a debt discount. The recognition and measurement guidance for debt issuance costs are not affected bythe amendments in this update. This revised guidance is effective for annual periods beginning after December 15, 2015, and interim periods within thosefiscal years, with early adoption permitted. The Company has adopted this standard in the second quarter of 2015. The December 31, 2014 balance sheet wasretrospectively adjusted to reclassify $0.1 million from Other non-current assets to a reduction of the Notes payable liability.In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-PeriodAdjustments. ASU 2015-16 eliminates the requirement that an acquirer in a business combination account for measurement-period adjustmentsretrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment.The guidance is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, withearly adoption permitted. The Company has adopted this standard as of January 1, 2015 and such adoption did not have a significant effect on theCompany's financial statements.In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17eliminates the requirement for an entity to separate deferred income taxes and liabilities into current and noncurrent amounts in a classified statement offinancial position. To simplify the presentation of deferred income taxes, the amendments in this Update require that deferred tax liabilities and assets beclassified as noncurrent in a classified statement of financial position. The guidance is effective for public business entities for fiscal years beginningafter December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the effect that theadoption of ASU 2015-17 will have on its financial statements.Item 7A. Quantitative and Qualitative Disclosures About Market RiskWe have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business.These risks primarily include interest rate, foreign exchange and inflation risks, as well as risks relating to changes in the general economic conditions in thecountries where we conduct business. The statement of operations impact is mitigated by having an offsetting liability in deferred revenue to partially orcompletely offset against the outstanding receivable if an account should become uncollectible. Our cash balances are kept in customary operating accounts,a portion of which are insured by the Federal Deposit Insurance Corporation, and uninsured money market accounts. The majority of our cash balances inmoney market accounts are with Wells Fargo, our lender under our loan facility. To date, we have not used derivative instruments to mitigate the impact ofour market risk exposures. We also have not used, nor do we intend to use, derivatives for trading or speculative purposes.Interest Rate RiskOur exposure to market risk for changes in interest rates primarily relates to our cash equivalents and any variable rate indebtedness.The primary objective of our investment activities is to preserve principal while maximizing yields without significantly increasing risk. Thisobjective is accomplished currently by making diversified investments, consisting only of money market mutual funds and certificates of deposit.Any draws under our loan and security agreements bear interest at a variable rate tied to the prime rate. As of December 31, 2015, we had a principalbalance of $18.5 million under our U.S. Loan Agreement and $5.9 million73Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.under our Canadian Loan Agreement. As of December 31, 2014, we had a principal balance of $16.5 million under our U.S. Loan Agreement and $0.4 millionunder our Canadian Loan Agreement.Foreign Currency Exchange RiskOur results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. In addition, we incur a portionof our operating expenses in foreign currencies, including Canadian dollars, British pounds and Euros, and in the future as we expand into other foreigncountries, we expect to incur operating expenses in other foreign currencies. In addition, our customers are generally invoiced in the currency of the countryin which they are located. We are exposed to foreign exchange rate fluctuations as the financial results of our international operations are translated from thelocal functional currency into U.S. dollars upon consolidation. A decline in the U.S. dollar relative to foreign functional currencies would increase our non-U.S. revenue and improve our operating results. Conversely, if the U.S. dollar strengthens relative to foreign functional currencies, our revenue and operatingresults would be adversely affected. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would haveresulted in a change in revenue of $1.3 million for the year ended December 31, 2015. To date, we have not engaged in any hedging strategies. As ourinternational operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in foreign currency exchange rates.InflationWe do not believe that inflation had a material effect on our business, financial condition or results of operations in the last three fiscal years. If ourcosts were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability orfailure to do so could harm our business, financial condition and results of operations.74Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Item 8.Financial Statements and Supplementary DataUPLAND SOFTWARE, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm76Consolidated Balance Sheets77Consolidated Statements of Operations78Consolidated Statements of Comprehensive Loss79Consolidated Statements of Stockholders' Equity (Deficit)80Consolidated Statements of Cash Flows81Notes to Consolidated Financial Statements8275Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Report of Independent Registered Public Accounting FirmThe Board of Directors and Shareholders of Upland Software, Inc.We have audited the accompanying consolidated balance sheets of Upland Software, Inc. (the “Company”) as of December 31, 2015 and 2014, and therelated consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the three years in the periodended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion onthese financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engagedto perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Upland Software, Inc. atDecember 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31,2015, in conformity with U.S. generally accepted accounting principles./s/ Ernst & Young LLPAustin, TexasMarch 30, 2016 76Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Upland Software, Inc.Consolidated Balance Sheets(in thousands, except share and per share amounts)December 31, 2015 December 31, 2014Assets Current assets: Cash and cash equivalents$18,473 $30,988Accounts receivable, net of allowance of $581 and $890 at December 31, 2015 and 2014, respectively13,972 14,559Prepaid and other2,603 2,069Total current assets35,048 47,616Canadian tax credits receivable2,018 3,959Property and equipment, net6,001 3,930Intangible assets, net31,526 34,751Goodwill47,422 45,146Other assets399 284Total assets$122,414 $135,686Liabilities and stockholders’ equity Current liabilities: Accounts payable$2,548 $2,258Accrued compensation2,441 2,372Accrued expenses and other5,173 4,304Deferred revenue19,931 21,182Due to seller2,409 4,365Current maturities of notes payable (includes unamortized discount of $250 and $38 at December 31, 2015 and2014, respectively, based on imputed interest rate of 6.6%)1,500 10,964Total current liabilities34,002 45,445Commitments and contingencies (Note 9) Canadian tax credit liability to sellers368 1,616Notes payable, less current maturities (includes unamortized discount of $758 and $117 at December 31, 2015 and2014, respectively, based on imputed interest rate of 6.6%)22,366 12,327Deferred revenue8 194Noncurrent deferred tax liability, net2,818 3,006Other long-term liabilities2,582 1,701Total liabilities62,144 64,289Stockholders’ equity: Common stock, $0.0001 par value; 50,000,000 shares authorized: 15,746,288 and 15,249,118 shares issued andoutstanding as of December 31, 2015 and 2014 respectively2 2Additional paid-in capital112,447 108,337Accumulated other comprehensive loss(3,289) (1,716)Accumulated deficit(48,890) (35,226)Total stockholders’ equity60,270 71,397Total liabilities and stockholders’ equity$122,414 $135,686See accompanying notes.77Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Upland Software, Inc.Consolidated Statements of Operations(in thousands, except share and per share amounts)Year Ended December 31, 2015 2014 2013Revenue: Subscription and support$57,193 $48,625 $30,887Perpetual license2,805 2,787 2,003Total product revenue59,998 51,412 32,890Professional services9,913 13,162 8,303Total revenue69,911 64,574 41,193Cost of revenue: Subscription and support19,586 14,042 7,787Professional services7,085 9,079 5,680Total cost of revenue26,671 23,121 13,467Gross profit43,240 41,453 27,726Operating expenses: Sales and marketing12,965 14,670 10,625Research and development15,778 26,165 10,340Refundable Canadian tax credits(470) (1,094) (583)General and administrative18,201 13,561 6,832Depreciation and amortization4,534 4,310 3,670Acquisition-related expenses2,455 2,186 1,461Total operating expenses53,463 59,798 32,345Loss from operations(10,223) (18,345) (4,619)Other expense: Interest expense, net(1,858) (1,951) (2,797)Other income (expense), net(544) 101 (431)Total other expense(2,402) (1,850) (3,228)Loss before provision for income taxes(12,625) (20,195) (7,847)Provision for income taxes(1,039) 78 (708)Loss from continuing operations(13,664) (20,117) (8,555)Income (loss) from discontinued operations, net of tax of $0, $0, and $642 for 2015,2014, and 2013, respectively— — (642)Net loss$(13,664) $(20,117) $(9,197)Preferred stock dividends and accretion— (1,524) (98)Net loss attributable to common shareholders$(13,664) $(21,641) $(9,295)Net loss per common share: Loss from continuing operations per common share, basic and diluted$(0.91) $(4.43) $(7.23)Income (loss) from discontinued operations per common share, basic and diluted$— $— $(0.54)Net loss per common share, basic and diluted$(0.91) $(4.43) $(7.77)Weighted-average common shares outstanding, basic and diluted14,939,601 4,889,901 1,196,668See accompanying notes.78Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Upland Software, Inc.Consolidated Statements of Comprehensive Loss(in thousands)Year Ended December 31, 2015 2014 2013Net loss$(13,664) $(20,117) $(9,197)Foreign currency translation adjustment(1,573) (943) (669)Comprehensive loss$(15,237) $(21,060) $(9,866)See accompanying notes.79Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Upland Software, Inc.Consolidated Statement of Stockholders’ Equity (Deficit)(in thousands, except share amounts)Common Stock AdditionalPaid-InCapital AccumulatedOtherComprehensiveLoss AccumulatedDeficit TotalStockholders’Equity (Deficit) Shares Amount Balance at December 31, 20121,695,720 $— $— $(104) $(4,075) $(4,179)Issuance of common stock in business combination155,599 — 275 — — 275Accretion of preferred stock— — (47) — — (47)Preferred stock dividends— — (51) — — (51)Stock-based compensation— — 98 — — 98Distribution associated with spin-off— — (275) — (1,837) (2,112)Foreign currency translation adjustment— — — (669) — (669)Net loss— — — — (9,197) (9,197)Balance at December 31, 20131,851,319 — — (773) (15,109) (15,882)Issuance of common stock upon conversion ofpreferred stock6,834,476 1 52,312 — — 52,313Issuance of common stock in initial public offering3,846,154 1 38,845 — — 38,846Issuance of common stock to related party (Note 17)1,803,574 — 11,219 — — 11,219Issuance of common stock in business combination577,486 — 6,146 — — 6,146Issuance of restricted stock335,673 — — — — —Exercise of stock options436 — 1 — — 1Accretion of preferred stock— — (70) — — (70)Preferred stock dividends— — (1,454) — — (1,454)Stock-based compensation— — 729 — — 729Conversion of warrants from preferred to common— — 609 — — 609Foreign currency translation adjustment— — — (943) — (943)Net loss— — — — (20,117) (20,117)Balance at December 31, 201415,249,118 2 108,337 (1,716) (35,226) 71,397Issuance of common stock in business combination233,679 — 1,386 — — 1,386Issuance of stock under Company plans, net ofshares withheld for tax263,491 — 27 — — 27Issuance of stock, net of issuance costs— — (44) — — (44)Stock-based compensation— — 2,741 — — 2,741Other comprehensive loss— — — (1,573) — (1,573)Net loss— — — — (13,664) (13,664)Balance at December 31, 201515,746,288 $2 $112,447 $(3,289) $(48,890) $60,270See accompanying notes.80Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Upland Software, Inc.Consolidated Statements of Cash Flows(in thousands) Year Ended December 31, 2015 2014 2013Operating activities Net loss $(13,664) $(20,117) $(9,197)Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 8,451 7,457 5,595Deferred income taxes 207 (295) (104)Foreign currency re-measurement loss 981 — —Non-cash interest and other expense 376 589 1,585Non-cash stock compensation expense 2,741 1,077 498Stock-based compensation—related party vendor — 11,220 —Changes in operating assets and liabilities, net of purchase business combinations: Accounts receivable 741 (1,579) 2,941Prepaids and other 1,873 484 (1,617)Accounts payable 157 639 (1,113)Accrued expenses and other liabilities (2,796) (924) 2,176Deferred revenue (570) 2,626 (1,003)Net cash provided by (used in) operating activities (1,503) 1,177 (239)Investing activities Purchase of property and equipment (956) (861) (263)Purchase of customer relationships (791) — —Purchase business combinations, net of cash acquired (7,664) (6,217) (28,175)Cash included in distribution of spin-off — — (127)Net cash provided by (used in) investing activities (9,411) (7,078) (28,565)Financing activities Payments on capital leases (1,020) (541) (351)Proceeds from notes payable, net of issuance costs 24,083 5,685 28,036Payments on notes payable (23,907) (10,910) (17,516)Issuance of preferred stock, net of issuance costs — (97) 19,716Issuance of common stock, net of issuance costs (18) 38,846 —Additional consideration paid to sellers of businesses (359) (599) (321)Net cash provided by (used in) financing activities (1,221) 32,384 29,564Effect of exchange rate fluctuations on cash (380) (198) 51Change in cash and cash equivalents (12,515) 26,285 811Cash and cash equivalents, beginning of period 30,988 4,703 3,892Cash and cash equivalents, end of period $18,473 $30,988 $4,703Supplemental disclosures of cash flow information Cash paid for interest $1,523 $1,382 $1,221Cash paid for taxes $314 $252 $287Noncash investing and financing activities Notes payable issued to sellers in business combination $— $— $3,500Equipment acquired pursuant to capital lease obligations $3,428 $1,572 $649See accompanying notes.81Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Upland Software, Inc.Notes to Consolidated Financial Statements1. Organization and Nature of OperationsUpland Software, Inc. (“Upland” or the “Company”) is a leading provider of cloud-based enterprise work management software. Upland’s softwareapplications help organizations better optimize the allocation and utilization of their people, time and money. Upland provides a family of cloud-basedenterprise work management software applications for the information technology, process excellence, finance, professional services and marketing functionswithin organizations. Upland’s software applications address a broad range of enterprise work management needs, from strategic planning to task execution.2. Summary of Significant Accounting PoliciesBasis of PresentationThese consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, or GAAP. Thecondensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts andtransactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to confirm to the current period presentation.Use of EstimatesThe preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, andthe reported amounts of revenues and expenses. Significant items subject to such estimates include allowance for doubtful accounts, stock-basedcompensation, acquired intangible assets, the useful lives of intangible assets and property and equipment, and income taxes. In accordance with GAAP,management bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances.Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ from thoseestimates.Cash and Cash EquivalentsCash and cash equivalents consist of cash deposits and liquid investments with original maturities of three months or less when purchased. Cash equivalentsare stated at cost, which approximates market value, because of the short maturity of these instruments.Accounts Receivable and Allowance for Doubtful AccountsThe Company extends credit to the majority of its customers. Issuance of credit is based on ongoing credit evaluations by the Company of customers’financial condition and generally requires no collateral. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Invoicesgenerally require payment within 30 days from the invoice date. The Company generally does not charge interest on past due payments, although theCompany's contracts with its customers usually allow it to do so.The Company maintains an allowance for doubtful accounts to reserve for potential uncollectible receivables. The allowance is based upon thecreditworthiness of the Company’s customers, the customers’ historical payment experience, the age of the receivables and current market conditions.Provisions for potentially uncollectible accounts are recorded in sales and marketing expenses. The Company writes off accounts receivable balances to theallowance for doubtful accounts when it becomes likely that they will not be collected.82Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The following table presents the changes in the allowance for doubtful accounts (in thousands): Year Ended December 31, 2015 2014 2013Balance at beginning of year$890 $454 $321Provision412 829 725Acquisitions— 400 295Writeoffs, net of recoveries(721) (793) (887)Balance at end of year$581 $890 $454Concentrations of Credit Risk and Significant CustomersFinancial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents and accounts receivable. The Company’s cashand cash equivalents are placed with high-quality financial institutions, which, at times, may exceed federally insured limits. The Company has notexperienced any losses in these accounts, and the Company does not believe it is exposed to any significant credit risk related to cash and cash equivalents.The Company provides credit, in the normal course of business, to a number of its customers. The Company performs periodic credit evaluations of itscustomers and generally does not require collateral. No individual customer represented more than 10% of total revenues or more than 10% of accountsreceivable in the years ended December 31, 2015, 2014, or 2013.Property and EquipmentProperty and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation of property and equipment is computed using thestraight-line method over each asset’s useful life. Leasehold improvements are amortized over the shorter of the lease term or of the estimated useful lives ofthe related assets. Upon retirement or disposal, the cost of each asset and the related accumulated depreciation are removed from the accounts and anyresulting gain or loss is credited or charged to income. Repairs, maintenance, and minor replacements are expensed as incurred. The estimated useful lives ofproperty and equipment are as follows:Computer hardware and equipment3 - 5 yearsPurchased software and licenses3 - 5 yearsFurniture and fixtures7 yearsLeasehold improvementsLesser of estimated useful life or lease termGoodwill and Other IntangiblesGoodwill arises from business combinations and is measured as the excess of the cost of the business acquired over the sum of the acquisition-date fair valueof tangible and identifiable intangible assets acquired, less any liabilities assumed.Goodwill is evaluated for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value may not berecoverable. The events and circumstances considered by the Company include the business climate, legal factors, operating performance indicators andcompetition.The Company evaluates the recoverability of goodwill using a two-step impairment process tested at the reporting unit level. The Company has onereporting unit for goodwill impairment purposes. In the first step, the fair value of the reporting unit is compared to the book value, including goodwill. In thecase that the fair value is less than the book value, a second step is performed that compares the implied fair value of goodwill to the book value of goodwill.The fair value for the implied goodwill is determined based on the difference between the fair value of the reporting unit and the net fair value of theidentifiable assets and liabilities, excluding goodwill. If the implied fair83Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.value of the goodwill is less than the book value, the difference is recognized as an impairment charge in the consolidated statement of operations. Nogoodwill impairment charges were recorded during the years ended December 31, 2015, 2014, or 2013.Identifiable intangible assets consist of customer relationships, marketing-related intangible assets and developed technology. Intangible assets with definitelives are amortized over their estimated useful lives on a straight-line basis. The straight-line method of amortization represents the Company’s best estimateof the distribution of the economic value of the identifiable intangible assets.Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of intangible assets may not berecoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, asignificant change in the extent or manner in which an asset is used or any other significant adverse change that would indicate that the carrying amount ofan asset or group of assets may not be recoverable. The Company evaluates the recoverability of intangible assets by comparing their carrying amounts to thefuture net undiscounted cash flows expected to be generated by the intangible assets. If such intangible assets are considered to be impaired, the impairmentto be recognized is measured as the amount by which the carrying amount of the intangible assets exceeds the fair value of the assets.The Company determines fair value based on discounted cash flows using a discount rate commensurate with the risk inherent in the Company’s currentbusiness model for the specific intangible asset being valued. The Company determined there was an impairment of the PowerSteering trade name of $1.1million during 2013. There were no such impairments during 2015 and 2014.Long-Lived AssetsLong-lived assets are reviewed for impairment whenever events or circumstances indicate their carrying value may not be recoverable. When such events orcircumstances arise, an estimate of future undiscounted cash flows produced by the asset, or the appropriate grouping of assets, is compared to the asset'scarrying value to determine whether impairment exists. If the asset is determined to be impaired, the impairment loss is measured based on the excess of itscarrying value over its fair value. Assets to be disposed of are reported at the lower of the carrying value or net realizable value. No indicators of impairmentwere identified during the years ended December 31, 2015, 2014, or 2013. Software Development CostsSoftware development costs are expensed as incurred until the point the Company establishes technological feasibility. Technological feasibility isestablished upon the completion of a working model. Costs incurred by the Company between establishment of technological feasability and the point atwhich the product is ready for general release are capitalized, subject to their recoverability, and amortized over the economic life of the related products.Because the Company believes its current process for developing its software products essentially results in the completion of a working product concurrentwith the establishment of technological feasibility, no software development costs have been capitalized to date. There were no software development costsrequired to be capitalized under ASC 985-20, Costs of Software to be Sold, Leased or Marketed, and under ASC 350-40, Internal-Use Software.Canadian Tax CreditsCanadian tax credits related to current expenses are accounted for as a reduction of the research and development costs. Such credits relate to the Company'soperations in Canada and are not dependent upon taxable income. Credits are accrued in the year in which the research and development costs or the capitalexpenditures are incurred, provided the Company is reasonably certain that the credits will be received. The government credit must be examined andapproved by the tax authorities, and it is possible that the amounts granted will differ from the amounts recorded.Deferred Financing Costs84Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The Company capitalizes underwriting, legal, and other direct costs incurred related to the issuance of debt, which are recorded as deferred charges andamortized to interest expense over the term of the related debt using the effective interest rate method. Upon the extinguishment of the related debt, anyunamortized capitalized deferred financing costs are recorded to interest expense. In 2014, the Company wrote off approximately $0.4 million of deferredfinancing costs associated with a financing facility no longer required after the initial public offering. In 2013, the Company wrote off approximately $0.2million of deferred financing costs in connection with the refinancing of its debt facility. In 2015, the Company wrote off approximately $0.2 million ofdeferred financing costs associated with its Comerica facility replaced by the new Wells Fargo facility.Fair Value of Financial InstrumentsThe Company accounts for financial instruments in accordance with the authoritative guidance on fair value measurements and disclosures for financialassets and liabilities. This guidance defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosuresabout fair value measurements. The guidance also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.These tiers include Level 1, defined as observable inputs, such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices inactive markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore,requiring an entity to develop its own assumptions.The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, and accounts payable, long–term debt andwarrant liabilities. The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value, primarily due to shortmaturities. The carrying values of the Company’s debt instruments approximated their fair value based on rates currently available to the Company. Thecarrying values of warrant liabilities are marked to the market at each reporting period.Revenue RecognitionThe Company derives revenue from product revenue, consisting of subscription, support and perpetual licenses, and professional services revenues. TheCompany recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery of the product or services hasoccurred, no Company obligations with regard to implementation considered essential to the functionality remain, the fee is fixed or determinable andcollectability is probable.Subscription and Support RevenueThe Company derives subscription revenues by providing its software-as-a-service solution to customers in which the customer does not have the right totake possession of the software, but can use the software for the contracted term. The Company accounts for these arrangements as service contracts.Subscription and support revenues are recognized on a straight-line basis over the term of the contractual arrangement, typically one to three years. Amountsthat have been invoiced and that are due are recorded in deferred revenue or revenue, depending on when the criteria for revenue recognition are met. Revenue from usage-based services are recognized in the month in which such usage is reported.The Company may provide hosting services to customers who purchased a perpetual license. Such hosting services are recognized ratably over the applicableterm of the arrangement. These hosting arrangements are typically for a period of one to three years.Software maintenance agreements provide technical support and the right to unspecified upgrades on an if-and-when-available basis. Revenue frommaintenance agreements is recognized ratably over the life of the related agreement, which is typically one year.85Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Perpetual License RevenueThe Company also records revenue from the sales of proprietary software products under perpetual licenses. For license agreements in which customeracceptance is a condition to earning the license fees, revenue is not recognized until acceptance occurs. The Company’s products do not require significantcustomization. Revenue on arrangements with customers who are not the ultimate users (primarily resellers) is not recognized until the product is delivered tothe end user. Perpetual licenses are sold along with software maintenance and, sometimes, hosting agreements. When vendor specific objective evidence(VSOE) of fair value exists for the software maintenance and hosting agreement, the perpetual license is recognized under the residual method whereby thefair value of the undelivered software maintenance and hosting agreement is deferred and the remaining contract value is recognized immediately for thedelivered perpetual license. When VSOE of fair value does not exist for the either the software maintenance or hosting agreement, the entire contract value isrecognized ratably over the underlying software maintenance and/or hosting period.Professional Services RevenueProfessional services provided with perpetual licenses consist of implementation fees, data extraction, configuration, and training. The Company’simplementation and configuration services do not involve significant customization of the software and are not considered essential to the functionality.Revenues from professional services are recognized as such services are provided when VSOE of fair value exists for such services and all undeliveredelements such as software maintenance and/or hosting agreements. VSOE of fair value for services is based upon the price charged when these services aresold separately, and is typically an hourly rate. When VSOE of fair value does not exist for software maintenance and/or hosting agreements, revenues fromprofessional services are recognized ratably over the underlying software maintenance and/or hosting period.Professional services, when sold with the subscription arrangements, are accounted for separately when these services have value to the customer on astandalone basis and there is objective and reliable evidence of fair value for each deliverable. When accounted for separately, revenues are recognized as theservices are rendered for time and material contracts. For those arrangements where the elements do not qualify as a separate unit of accounting, the Companyrecognizes professional services ratably over the contractual life of the related application subscription arrangement. Currently, all professional services areaccounted for separately as all have value to the customer on a standalone basis.Multiple Element ArrangementsThe Company enters into arrangements with multiple-element that generally include subscriptions and implementation and other professional services.For multiple-element arrangements, arrangement consideration is allocated to deliverables based on their relative selling price. In order to treat deliverablesin a multiple-element arrangement as separate units of accounting, the elements must have standalone value upon delivery. If the elements have standalonevalue upon delivery, each element must be accounted for separately. The Company’s subscription services have standalone value as such services are oftensold separately. In determining whether implementation and other professional services have standalone value apart from the subscription services, theCompany considers various factors including the availability of the services from other vendors. The Company has concluded that the implementationservices included in multiple-element arrangements have standalone value. As a result, when implementation and other professional services are sold in amultiple-element arrangement, the arrangement consideration is allocated to the identified separate units based on a relative selling price hierarchy. Theselling price for a element is based on its VSOE of selling price, if available, third-party evidence of selling price, or TPE, if VSOE is not available or bestestimate of selling price, or BESP, if neither VSOE nor TPE is available. The Company has not established VSOE for its subscription services due to lack ofpricing consistency, the introduction of new services and other factors. The Company has determined that TPE is not a practical alternative due to differencesin its service offerings compared to other parties and the availability of relevant third-party pricing information. Accordingly, the Company uses BESP todetermine the relative selling price.The Company determined BESP by considering its overall pricing objectives and market conditions. Significant pricing practices taken into considerationinclude the Company’s discounting practices, the size and volume of its transactions, customer characteristics, price lists, go-to-market strategy, historicalstandalone sales and agreement86Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.prices. As the Company’s go-to-market strategies evolve, it may modify its pricing practices in the future, which could result in changes in relative sellingprices, and include both VSOE and BESP.Deferred RevenueDeferred revenue represents either customer advance payments or billings for which the aforementioned revenue recognition criteria have not yet been met.Messaging-related RevenueThe Company recognizes subscription revenue for its digital engagement application which provides short code connectivity for its two-way SMS programsand campaigns. The Company evaluates whether it is appropriate to recognize revenue based on the gross amount billed to its customers for these services. Since the Company is primarily obligated in these transactions, has latitude in establishing prices associated with its messaging program managementservices, is responsible for fulfillment of the transaction, and has credit risk, revenue is recorded on a gross basis. While none of the factors individually areconsidered presumptive or determinative, in reaching conclusions on gross versus net revenue recognition, the Company places the most weight on theanalysis of whether or not it is the primary obligor in the arrangement.Cost of RevenueCost of revenue primarily consists of salaries and related expenses (e.g. bonuses, employee benefits, and payroll taxes) for personnel directly involved in thedelivery of services and products directly to customers. Cost of revenue also includes the amortization of acquired technology.Customer Contract Acquisition CostsCosts associated with the acquisition or origination of customer contracts are expensed as incurred.Customer Relationship Acquisition CostsCosts associated with the acquisition or origination of customer relationships are capitalized as customer relationship assets as incurred and amortized overthe life of the acquired contracts.Advertising CostsAdvertising costs are expensed in the period incurred. Advertising expenses included in sales and marketing expense were $347,000 $283,000 and $175,000for the years ended December 31, 2015, 2014, or 2013, respectively. Advertising costs are recorded in sales and marketing expenses in the accompanyingconsolidated statement of operations.Income TaxesThe Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for theexpected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to berecovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities will be recognized in the period that includes the enactment date.A valuation allowance is established against the deferred tax assets to reduce their carrying value to an amount that is more likely than not to be realized.The Company accounts for uncertainty of income taxes based on a “more likely than not” threshold for the recognition and derecognition of tax positions,which includes the accounting for interest and penalties.Stock-Based CompensationStock options awarded to employees and directors are measured at fair value at each grant date. The Company accounts for stock-based compensation inaccordance with authoritative accounting principles which require all87Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.share-based compensation to employees, including grants of employee stock options, to be recognized in the financial statements based on their estimatedfair value. Compensation expense is determined under the fair value method using the Black-Scholes option pricing model and recognized ratably over theperiod the awards vest. The Black-Scholes option pricing model used to compute share-based compensation expense requires extensive use of accountingjudgment and financial estimates. Items requiring estimation include the expected term option holders will retain their vested stock options before exercisingthem, the estimated volatility of the Company’s common stock price over the expected term of each stock option, and the number of stock options that willbe forfeited prior to the completion of their vesting requirements. Application of alternative assumptions could result in significantly different share-basedcompensation amounts being recorded in the financial statements. The following table summarizes the weighted-average grant-date fair value of optionsgranted in 2015, 2014, and 2013 and the assumptions used to develop their fair values. As there was no public market for its common stock prior toNovember 2014, the Company estimates the volatility of its common stock based on the volatility of publicly traded shares of comparable companies'common stock. The Company's decision to use the volatility of comparable stock was based upon the Company's assessment that this information is morerepresentative of future stock price trends than the Company's historical volatility. The Company estimates the expected term using the simplified method,which calculates the expected term as the midpoint between the vesting date and the contractual termination date of each award. The dividend yieldassumption is based on historical and expected future dividend payouts. The risk-free interest rate is based on observed market interest rates appropriate forthe term of each options. Year Ended December 31, 2015 2014 2013Weighted average grant-date fair value ofoptions$3.01 $3.76 $0.91Expected volatility42.5% - 44.0% 54.1% - 55.2% 53.3%Risk-free interest rate1.7% - 1.9% 1.6% - 1.9% 1.6%Expected life in years5.93 6.29 6.29Dividend yield— — —Comprehensive LossThe Company utilizes the guidance in Accounting Standards Codification (ASC) Topic 220, Comprehensive Income, for the reporting and display ofcomprehensive loss and its components in the consolidated financial statements. Comprehensive loss comprises net loss and cumulative foreign currencytranslation adjustments. The accumulated comprehensive loss as of December 31, 2015, 2014, and 2013 was due to foreign currency translation adjustments.Foreign Currency TransactionsResults of operations for foreign subsidiaries are translated in United State dollars using the average exchange rates on a monthly basis during the year. Theassets and liabilities of those subsidiaries are translated into United States dollars using the exchange rates at the balance sheet date. The related translationadjustments are recorded in a separate component of stockholders' equity in accumulated other comprehensive loss. Foreign currency transaction gains andlosses are included in the statements of operations and include the impact of revaluation of certain foreign currency denominated net assets or liabilities heldinternationally. For the years ended December 31, 2015, 2014, and 2013, foreign currency transaction losses were $515,000, $2,000 and $550,000,respectively.Basic and Diluted Net Loss per Common ShareThe Company uses the two-class method to compute net loss per common share because the Company has issued securities, other than common stock, thatcontractually entitle the holders to participate in dividends and earnings of the Company. The two-class method requires earnings for the period to beallocated between common stock and participating securities based upon their respective rights to receive distributed and undistributed earnings. Holders88Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.of the Company’s Series A, B, B-1, B-2 and C preferred stock are entitled, on a pari passu basis, to receive dividends when, as, and if declared by the board ofdirectors, prior and in preference to any declaration or payment of any dividend on the common stock until such time as the total dividends paid on eachshare of Series A, B, B-1, B-2 and C preferred stock is equal to the original issue price of the shares. As a result, all series of the Company’s preferred stock areconsidered participating securities. All of the outstanding preferred stock was converted to common stock upon the Company's initial public offering inNovember 2014.Under the two-class method, for periods with net income, basic net income per common share is computed by dividing the net income attributable tocommon stockholders by the weighted-average number shares of common stock outstanding during the period. Net income attributable to commonstockholders is computed by subtracting from net income the portion of current year earnings that the participating securities would have been entitled toreceive pursuant to their dividend rights had all of the year’s earnings been distributed. No such adjustment to earnings is made during periods with a netloss, as the holders of the participating securities have no obligation to fund losses. Diluted net loss per common share is computed under the two-classmethod by using the weighted-average number of shares of common stock outstanding plus, for periods with net income attributable to commonstockholders, the potential dilutive effects of stock options and warrants. In addition, the Company analyzes the potential dilutive effect of the outstandingparticipating securities under the if-converted method when calculating diluted earnings per share, in which it is assumed that the outstanding participatingsecurities convert into common stock at the beginning of the period. The Company reports the more dilutive of the approaches as its diluted net income pershare during the period. Due to net losses for the years ended December 31, 2015, 2014, and 2013, basic and diluted net loss per share were the same, as theeffect of all potentially dilutive securities would have been anti-dilutive.Recent Accounting PronouncementsIn May 2014, the FASB issued FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenuerecognition requirements in ASC 605, Revenue Recognition. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict thetransfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange forthose goods or services. The guidance provides a five-step process to achieve that core principle. ASU 2014-09 requires disclosures enabling users offinancial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Additionally,qualitative and quantitative disclosures are required about contracts with customers, significant judgments and changes in judgments, and assets recognizedfrom the costs to obtain or fulfill a contract. In August 2015, the FASB issued FASB ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606):Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periodsbeginning after December 15, 2017, including interim periods within that reporting period, using one of two retrospective application methods. Earlyapplication is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reportingperiod. The Company is currently evaluating the effect that the adoption of ASU 2014-09 and ASU 2015-14 will have on its financial statements.In August 2014, the FASB issued FASB ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure ofUncertainties about an Entity's Ability to Continue as a Going Concern. The new standard provides guidance around management's responsibility to evaluatewhether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new standard iseffective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. The adoption ofthis standard is not expected to have a material impact on the Company's financial statements.In April 2015, the FASB issued FASB ASU No. 2015-03 Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of DebtIssuance Costs. Under this revised guidance, debt issuance costs should be presented in the balance sheet as a direct deduction from the carrying value of theassociated debt, consistent with the presentation of a debt discount. The recognition and measurement guidance for debt issuance costs are not affected bythe amendments in this update. This revised guidance is effective for annual periods beginning after December 15, 2015, and interim periods within thosefiscal years, with early adoption permitted.89Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The Company has adopted this standard in the second quarter of 2015. The December 31, 2014 balance sheet was retrospectively adjusted to reclassify $0.1million from Other non-current assets to a reduction of the Notes payable liability.In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-PeriodAdjustments. ASU 2015-16 eliminates the requirement that an acquirer in a business combination account for measurement-period adjustmentsretrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment.The guidance is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, withearly adoption permitted. The Company has adopted this standard as of January 1, 2015 and such adoption did not have a significant effect on theCompany's financial statements.In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17eliminates the requirement for an entity to separate deferred income taxes and liabilities into current and noncurrent amounts in a classified statement offinancial position. To simplify the presentation of deferred income taxes, the amendments in this Update require that deferred tax liabilities and assets beclassified as noncurrent in a classified statement of financial position. The guidance is effective for public business entities for fiscal years beginningafter December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the effect that theadoption of ASU 2015-17 will have on its financial statements.In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The core change with ASU 2016-2 is the requirement for the recognition oflease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The new standard is effective for fiscal years,and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating theeffect that the adoption of ASU 2016-02 will have on its financial statements.3. Acquisitions2013 AcquisitionsOn May 16, 2013, the Company acquired 100% of the outstanding capital of FileBound Solutions, Inc. and Marex Group, Inc. (together FileBound) for totalpurchase consideration of $14.7 million, which includes cash at closing of $182,000, notes payable to the seller of $3,500,000 (at present rate) and 106,572shares of the Company’s series B-1 preferred stock with a fair value of $624,000. FileBound provides cloud-based enterprise content management softwareproducts that enable customers to automate document-based workflows and control access and distribution of their content to boost productivity, encouragecollaboration and improve compliance. Revenues recorded since the acquisition date for the year ended December 31, 2013 were approximately $4,959,000.On November 7, 2013, the Company acquired 100% of the outstanding interest of ComSci, LLC. (ComSci) for total purchase consideration of $7.6 million,which includes cash at closing of $104,000, 155,599 shares of the Company’s common stock, 155,598 shares of the company’s B-2 preferred stock with a fairvalue of $949,000, and $750,000 to be paid in November 2014. ComSci provides cloud-based financial management software products that enableorganizations to have visibility into the cost, quality, and value of internal services delivered within their organizations. Revenues recorded since theacquisition date for the year ended December 31, 2013 were approximately $937,000.On December 23, 2013, the Company acquired 100% of the outstanding capital of Clickability, Inc. (Clickability) for total purchase consideration of $12.3million. Clickability provides cloud-based enterprise content management software products that are used by enterprise marketers and media companies tocreate, maintain and deliver web sites that shape visitor experiences and empower nontechnical staff to create, manage, publish, analyze and refine contentand social media assets without IT intervention. For accounting purposes, the acquisition of Clickability was recorded on December 31, 2013 and,accordingly, the operations of Clickability had no impact on the Company’s statement of operations. The operations of Clickability from90Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.December 23, 2013 to December 31, 2013 were not material.2014 AcquisitionsOn November 21, 2014, the Company acquired 100% of the outstanding capital of Solution Q Inc. (Solution Q) for total purchase consideration of $6.1million, which includes cash of $4.5 million, net of $0.4 million of cash acquired, and 150,977 shares of the Company’s common stock with a fair value of$1.6 million. Solution Q provides mid-market organizations an easy-to-use, turnkey solution for their project management and portfolio visibility needs.Revenues recorded since the acquisition date for the year ended December 31, 2014 were approximately $0.3 million.On December 10, 2014, the Company acquired 100% of the outstanding capital of Mobile Commons, Inc. (Mobile Commons) for total purchaseconsideration of $10.2 million including cash of $5.7 million, net of $0.3 million of cash acquired, 386,253 shares of common stock valued at $4.5 millionand excluding potential additional consideration for incremental additional revenue described below. The Company agreed to pay additional considerationof up to $1.5 million in both cash and common stock to the selling shareholders of Mobile Commons based on the achievement of certain incrementalrevenue targets during fiscal 2015. The acquisition-date fair value of the contingent payment was measured based on the probability-adjusted present valueof the consideration expected to be transferred, which amounted to $0.5 million. Mobile Commons’ enterprise-class application drives and manages digitalengagement through two-way SMS programs and campaigns. Revenues recorded since the acquisition date for the year ended December 31, 2014 wereapproximately $0.5 million.2015 AcquisitionsOn November 13, 2015, the Company acquired 100% of the outstanding capital of Ultriva, Inc. (Ultriva) for total purchase consideration of $7.2 million,which includes cash of $5.6 million, net of $0.4 million of cash acquired, 179,298 shares of the Company’s common stock with a fair value of $1.4 million,and an additional $200,000 in shares of common stock, subject to indemnification claims, one year from the date of the acquisition. Ultriva provides cloud-based supply chain work management software. Revenues recorded since the acquisition date for the year ended December 31, 2015 were approximately $0.5million.The Company recorded the purchase of the acquisitions described above using the acquisition method of accounting and, accordingly, recognized the assetsacquired and liabilities assumed at their fair values as of the date of the acquisition. The results of operations of the acquisitions are included in theCompany’s consolidated results of operations beginning with the date of the acquisition. The purchase price allocations for the 2015 acquisitions arepreliminary as the Company has not obtained and evaluated all of the detailed information necessary to finalize the opening balance sheet amounts,including an analysis of acquired accounts receivable, accrued expenses and deferred revenue balances. Management has recorded the purchase priceallocations based upon acquired company information that is currently available. Management expects to finalize its purchase price allocations in mid-2016.The following condensed table presents the acquisition-date fair value of the assets acquired and liabilities assumed for the acquisitions (in thousands):91Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Ultriva Solution Q MobileCommons FileBound ComSci ClickabilityYear Acquired2015 2014 2014 2013 2013 2013 Cash$383 $352 $286 $182 $104 $—Accounts receivable737 893 1,242 1,940 951 1,773Other current assets41 24 147 153 47 297Canadian tax credit receivable— 71 — — — —Property and equipment16 28 54 927 61 1,519Customer relationships1,820 2,230 1,620 3,600 2,000 4,400Trade name140 100 130 320 180 250Technology960 540 1,150 2,040 810 2,500Goodwill4,700 5,206 7,244 7,188 3,851 3,401Other assets32 14 47 21 8 —Total assets acquired8,829 9,458 11,920 16,371 8,012 14,140Accounts payable(197) (52) (313) (113) (260) (154)Accrued expense and other(284) (223) (463) (266) (106) (100)Deferred tax liabilities— (428) — — — —Deferred revenue(760) (2,242) (144) (1,342) (78) (1,605)Canadian tax credit liability to seller— (39) — — — —Total liabilities assumed(1,241) (2,984) (920) (1,721) (444) (1,859)Total consideration$7,588 $6,474 $11,000 $14,650 $7,568 $12,281Tangible assets were valued at their respective carrying amounts, which approximates their estimated fair value. The valuation of identifiable intangibleassets reflects management’s estimates based on, among other factors, use of established valuation methods. Customer relationships were valued using anincome approach, which estimates fair value based on the earnings and cash flow capacity of the subject asset. The value of the marketing-related intangibleswas determined using a relief-from-royalty method, which estimates fair value based on the value the owner of the asset receives from not having to pay aroyalty to use the asset. Developed technology was valued using a cost-to-recreate approach.Goodwill for FileBound, and ComSci is deductible for tax purposes.4. Fair Value MeasurementsFair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction betweenmarket participants as of the measurement date. Fair Value Measurements at December 31, 2014 Level 1 Level 2 Level 3 TotalLiabilities: Earnout consideration liability$— $— $500 $500 Fair Value Measurements at December 31, 2015 Level 1 Level 2 Level 3 TotalLiabilities: Earnout consideration liability$— $— $500 $50092Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.In November 2014, the outstanding warrants were converted to preferred stock, then the preferred stock was converted to common stock and the fair value ofthe corresponding liability was reclassed to additional paid-in capital. The following table presents additional information about liabilities measured at fairvalue on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value:Ending balance at December 31, 2013$525Change in fair value of preferred stock warrants83Conversion of preferred stock warrants to common warrants and to common stock(608)Earnout consideration liability500Ending balance at December 31, 2014500Ending balance at December 31, 2015$500The fair value of the earnout consideration was determined using the Binary Option model based on the present value of the probability-weighted earnoutconsideration.DebtThe Company believes the carrying value of its long-term debt at December 31, 2015 approximates its fair value based on the variable interest rate feature orbased upon interest rates currently available to the Company.”The estimated fair value of our debt at December 31, 2015 and 2014 is $24,874 and $23,446, respectively, based on valuation methodologies using interestrates currently available to the Company which are Level 2 inputs.5. Goodwill and Other Intangible AssetsChanges in the Company’s goodwill balance for each of the two years ended December 31, 2015 are summarized in the table below (in thousands):Balance at December 31, 2013$33,630Acquired in business combinations12,313Foreign currency translation adjustment(797)Balance at December 31, 2014$45,146Acquired in business combinations4,700Adjustment due to finalization of 2014 business combination(120)Foreign currency translation adjustment(2,304)Balance at December 31, 2015$47,422Intangible assets, net, include the estimated acquisition-date fair values of customer relationships, marketing-related assets, and developed technology thatthe Company recorded as part of its business acquisitions purchases and from acquisitions of customer relationships. The following is a summary of theCompany’s intangible assets, net (in thousands): Estimated UsefulLife (Years) GrossCarrying Amount AccumulatedAmortization Net CarryingAmountDecember 31, 2015 Customer relationships1-10 $31,848 $9,054 $22,794Trade name1-3 2,909 2,476 433Developed technology4-7 13,808 5,509 8,299Total intangible assets $48,565 $17,039 $31,52693Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Estimated UsefulLife (Years) GrossCarrying Amount AccumulatedAmortization Net CarryingAmountDecember 31, 2014 Customer relationships10 $30,053 $5,813 $24,240Trade name1-3 2,812 2,027 785Developed technology4-7 13,305 3,579 9,726Total intangible assets $46,170 $11,419 $34,751The following table summarizes the Company’s weighted-average amortization period, in total and by major finite-lived intangible asset class, byacquisition during the year ended December 31 (in years): 2015 2014Customer relationships9.3 9.7Trade name2.9 2.8Developed technology6.4 6.4Total weighted-average amortization period8.1 8.4The Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances thatmight result in either a diminished fair value or revised useful life. In 2013, management changed its intention to use the PowerSteering trade name on aCompany-wide basis and, accordingly, changed the useful life of such trade name from indefinite to a definite life of three years. As a result, the Companyrecorded an amortization charge of $1.1 million in 2013 related to the PowerSteering trade name. Management has determined there have been no otherindicators of impairment or change in the useful life during the years ended December 31, 2015, 2014, and 2013. Total amortization expense was $6.1million, $5.2 million, and $4.8 million during the years ended December 31, 2015, 2014, and 2013, respectively.Estimated annual amortization expense for the next five years and thereafter is as follows (in thousands): AmortizationExpenseYear ending December 31: 2016$6,62620175,53720185,22820194,38920203,3942021 and thereafter6,352Total$31,52694Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.6. Income TaxesThe Company's loss from continuing operations before income taxes for the years ended December 31, was as follows (in thousands): 2015 2014 2013Income (loss) before provision for income taxes: United States$(13,254) $(18,455) $(9,267)Foreign629 (1,740) 1,420 $(12,625) $(20,195) $(7,847)The components of the provision (benefit) for income taxes attributable to continuing operations are as follows (in thousands): 2015 2014 2013Current Federal$— $— $—State(100) 54 18Foreign932 163 1,136Total Current$832 $217 $1,154 Deferred Federal$293 $300 $(417)State31 10 (67)Foreign(117) (605) 38Total Deferred207 (295) (446) $1,039 $(78) $70895Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.As of December 31, 2015, the Company had federal net operating loss carryforwards of approximately $70 million. and research and development creditcarryforwards of approximately $1.2 million. The net operating loss and credit carryforwards will expire beginning in 2017, if not utilized. Utilization of thenet operating losses and tax credits may be subject to substantial annual limitation due to the “change of ownership” provisions of the Internal RevenueCode of 1986. The annual limitation will result in the expiration of approximately $16.2 million of net operating losses and $0.8 million of creditcarryforwards before utilization.Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes. Significant components of the Company’s deferred taxes as of December 31 are as follows (inthousands): 2015 2014Deferred tax assets: Current deferred tax assets: Accrued expenses and allowances$793 $733Deferred revenue671 549Other22 62Valuation allowance for current deferred tax assets(1,183) (964)Net current deferred tax assets303 380Noncurrent deferred tax assets: Intangible assets —Stock compensation582 350Net operating loss and tax credit carryforwards20,871 16,755Other174 61Valuation allowance for noncurrent deferred tax assets(17,324) (12,143)Net noncurrent deferred tax assets$4,303 $5,023Deferred tax liabilities: Current deferred tax liabilities: Prepaid expenses$(1) $(1)Total current deferred tax liabilities(1) (1)Noncurrent deferred tax liabilities: Stock compensation— —Capital expenses(2) (202)Intangible assets(6,481) (7,217)Goodwill(561) (252)Tax credit carryforwards(379) (737)Total noncurrent deferred tax liabilities(7,423) (8,408)Net current deferred tax asset$302 $379Net noncurrent deferred tax liability$(3,120) $(3,385)Net deferred taxes$(2,818) $(3,006)Due to the uncertainty surrounding the timing of realizing the benefits of its domestic favorable tax attributes in future tax returns, the Company has placed avaluation allowance against its domestic net deferred tax asset, exclusive of goodwill. During the year ended December 31, 2015 and 2014, the valuationallowance increased by approximately $5.4 million and $7.5 million, respectively, due primarily to operations and acquisitions.96Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The Company’s provision for income taxes differs from the expected tax expense (benefit) amount computed by applying the statutory federal income taxrate of 34% to income before taxes due to the following: 2015 2014 2013Federal statutory rate34.0 % 34.0 % 34.0 %State taxes, net of federal benefit3.5 3.5 4.3Tax credits(0.2) (1.1) (5.3)Effect of foreign operations(2.2) 0.1 2.0Stock compensation(2.9) — —Permanent items and other(3.3) (1.7) (13.7)Tax carryforwards not benefited(37.1) (34.4) (30.3) (8.2)% 0.4 % (9.0)%Under ASC 740-10, Income Taxes - Overall, the Company periodically reviews the uncertainties and judgments related to the application of complex incometax regulations to determine income tax liabilities in several jurisdictions. The Company uses a “more likely than not” criterion for recognizing an asset forunrecognized income tax benefits or a liability for uncertain tax positions. The Company has determined it has the following unrecognized assets orliabilities related to uncertain tax positions as of December 31, 2015. The Company does not anticipate any significant changes in such uncertainties andjudgments during the next 12 months. To the extent the Company is required to recognize interest and penalties related to unrecognized tax liabilities, thisamount will be recorded as an accrued liability, (in thousands).In the fourth quarter of 2015, the Company recorded approximately $399,000 of additional income tax expense for tax matters that related to prior periods.The Company has concluded that the correction of the error in prior period amounts is not material to the current period or any previously reported periods.Balance at January 1, 2013$70Additional based on tax positions related to the current year—Additions for tax positions of prior years—Reductions for tax positions of prior years(7)Settlements—Balance at December 31, 2013$63Additional based on tax positions related to the current year—Additions for tax positions of prior years—Reductions for tax positions of prior years(10)Settlements—Balance at December 31, 2014$53Additional based on tax positions related to the current year—Additions for tax positions of prior years568Reductions for tax positions of prior years—Settlements—Balance at December 31, 2015$621Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not materially impact the Company’s effective tax rate.If the Company were to recognize unrecognized tax benefits as of December 31, 2015, $399,000 would impact the effective tax rate.The Company’s assessment of its unrecognized tax benefits is subject to change as a function of the Company’s financial statement audit.97Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2015, the Company had noaccrued interest or penalties related to uncertain tax positions.The Company and its subsidiaries file tax returns in the U.S. federal jurisdiction and in several state and foreign jurisdictions. The Company is no longersubject to U.S. federal income tax examinations for years ending before December 31, 2012 and is no longer subject to state and local or foreign income taxexaminations by tax authorities for years ending before December 31, 2011. The Company is not currently under audit for federal, state or any foreignjurisdictions.7. DebtLong-term debt consisted of the following at December 31, 2015 and 2014 (in thousands): December 31, 2015 2014Senior secured loans (includes unamortized discount of $1,008 and $155 at December 31, 2015 and December31, 2014, respectively, based on imputed interest rate of 6.6%)$23,366 $16,791Revolving credit facility— 3,000Seller notes due 2015— 3,000Seller notes due 2016500 500 23,866 23,291Less current maturities(1,500) (10,964)Total long-term debt$22,366 $12,327Loan and Security AgreementsLoan and Security AgreementsOn May 14, 2015, Upland Software, Inc. (the “Company”) entered into a Credit Agreement (the “Credit Agreement”) with a consortium of lenders (the“Lenders”), Wells Fargo Capital Finance, as agent, providing for a secured credit facility (the “Loan Facility”) that replaces and refinances (i) the Company’sexisting Loan and Security Agreement dated March 5, 2012 between the Company and Comerica Bank, as amended (the “U.S. Comerica Agreement”) and (ii)an existing Canadian Loan and Security Agreement dated February 10, 2012 with Comerica Bank, as amended (the “Canadian Comerica Agreement”).As of December 31, 2015, there was (i) $0.0 million in U.S. revolving loans outstanding under the Credit Agreement, (ii) $0.0 million drawn on the Canadianrevolving credit facility, (iii) $18.5 million in U.S. term loans outstanding under the Credit Agreement; and (iv) $5.9 million in Canadian term loansoutstanding under the Credit Agreement.LoansThe Credit Agreement provides for up to $60.0 million of financing credit as outlined below.The Credit Agreement provides (i) a U.S. revolving credit facility in an aggregate principal amount of up to $9.0 million (the “U.S. Revolver”), (ii) a U.S. termloan facility in an aggregate principal amount of up to $19.0 million (the “U.S. Term Loan”), (iii) a delayed draw term loan facility in an aggregate principalamount of up to $10.0 million (the “DDTL”). (iv) a Canadian revolving credit facility in an aggregate principal amount of up to $1.0 million (the “CanadianRevolver” and, together with the U.S. Revolver, the “Revolver”); and (ii) a Canadian term loan facility in an aggregate principal amount of up to $6.0 million(the “Canadian Term Loan” and, together with the U.S. Term Loan, the “Term Loan”).The Credit Agreement also includes provisions for optional, uncommitted increases in the maximum size of the loan facility available under the CreditAgreement by an aggregate principal amount of $15.0 million upon the98Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.satisfaction of the terms and conditions set forth in the Credit Agreement.In addition, the Credit Agreement permits the Borrowers to incur subordinated, unsecured indebtedness owing to sellers in connection with theconsummation of one or more permitted acquisitions upon the satisfaction of the terms and conditions set forth in the Credit Agreement so long as theaggregate principal amount for all such subordinated, unsecured indebtedness does not exceed $10.0 million at any one time outstanding.Terms of RevolverLoans under the Revolver are available up to the lesser of (i) $10.0 million (the “Maximum Revolver Amount”) or (ii) the result of (a) 0.80 multiplied by(subject to step-downs beginning June 30, 2016) of certain subsidiaries' recurring revenues on a trailing twelve month basis, minus (b) the outstandingbalance of the Term Loans and any swing line loans made under the Credit Agreement (such amount, the “Credit Amount”). The Revolver provides asubfacility whereby Borrowers may request letters of credit (the “Letters of Credit”) in an aggregate amount not to exceed, at any one time outstanding, $0.5million and $0.25 million, from the U.S & Canadian facilities, respectively. The aggregate amount of outstanding Letters of Credit are reserved against thecredit availability under the Maximum Revolver Amount and the Credit Amount.Loans under the Revolver may be borrowed, repaid and reborrowed until May 14, 2020 (the “Maturity Date”), at which time all amounts borrowed under theCredit Agreement must be repaid.Terms of Term LoansThe Term Loans are repayable, on a quarterly basis beginning September 30, 2015, by an amount equal to 5.0% per annum of the original principal amountof such loan. Any amount remaining unpaid is due and payable in full on the Maturity Date.Terms of Delay Draw Term LoanPursuant to the terms of the Credit Agreement, the DDTL is to be used to finance acquisitions. The DDTL can be drawn upon until May 14, 2017. The DDTLis repayable, on a quarterly basis, by an amount equal to 5.0% per annum of the original funded amount of the DDTL. Any amount remaining unpaid wouldbe due and payable in full on the Maturity Date.Other Terms of Loan FacilityAt the option of the Company, U.S. loans accrue interest at a per annum rate based on (i) the U.S. base rate plus a margin ranging from 3.0% to 4.0%depending on the leverage ratio or (ii) the LIBOR rate determined in accordance with the Credit Agreement (based on 1, 2, 3 or 6-month interest periods) plusa margin ranging from 4.0% to 5.0% depending on the leverage ratio. The U.S. base rate is a rate equal to the highest of the federal funds rate plus a marginequal to 0.5%, the LIBOR rate for a 1-month interest period plus 1.0% and Wells Fargo Capital Finance’s prime rate.At the option of the Company, the Canadian loans accrue interest at a per annum rate based on (i) the Canadian prime rate or the U.S. base rate plus a marginranging from 3.0% to 4.0% depending on the leverage ratio or (ii) the LIBOR rate determined in accordance with the Credit Agreement (based on 1, 2, 3 or 6-month interest periods) (or the Canadian BA rate determined in accordance with the Credit Agreement for obligations in Canadian dollars) plus a marginranging from 4.0% to 5.0% depending on the leverage ratio.Accrued interest on the loans will be paid monthly, or, with respect to loans that are accruing interest based on the LIBOR rate or Canadian BA rate, at theend of the applicable LIBOR or Canadian BA interest rate period.Lenders are entitled to a premium (the “Prepayment Premium”) in the event of certain prepayments of the loans in an amount equal to (i) from May 14, 2015to May 14, 2016, 2.0% times the sum of (a) the Maximum Revolver Amount plus (b) the outstanding principal amount of the Term Loan and DDTL on thedate immediately prior to the date of the prepayment (such sum, the “Prepayment Amount”) (ii) from May 14, 2016 to May 14, 2017, 1.0% times thePrepayment Amount and (iii) during the period from and after May 14, 2017 to the Maturity Date, 0.0% times the Prepayment Amount. The Company mayalso be subject to prepayment fees in the case of commitment99Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.reductions of the Revolver and also may be obligated to prepay loans upon the occurrence of certain events.The Company is also obligated to pay other customary servicing fees, letter of credit fees and unused credit facility fees.The Loan Facility contains customary affirmative and negative covenants. The negative covenants limit the ability of the Company and its subsidiaries to,among other things (in each case subject to customary exceptions for a credit facility of this size and type):•Incur additional indebtedness or guarantee indebtedness of others;•Create liens on their assets;•Make investments, including certain acquisitions;•Enter into mergers or consolidations;•Dispose of assets;•Pay dividends and make other distributions on the Company’s capital stock, and redeem and repurchase the Company’s capital stock;•Enter into transactions with affiliates; and•Prepay indebtedness or make changes to certain agreements.The Loan Facility also contains financial covenants that require certain subsidiaries to maintain (i) a minimum liquidity of $10.0 million (which shall be $8.0million once the Company achieves trailing four quarters adjusted EBITDA of at least $8.0 million) at all times. This covenant is subsequently replaced bycertain other financial covenants that are required to be met based on various levels of operating results of the U.S. and Canadian subsidiaries. These financialcovenants become more restrictive starting September 30, 2017. If an event of default occurs, at the election of the Lenders, a default interest rate shall applyon all obligations during an event of default, at a rate per annum equal to 2.00% above the applicable interest rate.The Loan Facility limits the Company's ability to buyback its capital stock, subject to restrictions including a minimum liquidity requirement of $20.0million before and after any such buyback.Termination of Prior Credit AgreementsOn May 14, 2015, the Company terminated the U.S. Comerica Agreement and the Canadian Comerica Agreement. In conjunction with the terminations, theCompany expensed unamortized deferred financing costs of $0.2 million.Interest Rate and Financing CostsCash interest costs averaged 5.2% under the new Credit Agreement for the year ended December 31, 2015. In addition, the Company incurred $1.2 million offinancing costs associated with the Credit Agreement in the year ended December 31, 2015. These financing costs will be amortized to non-cash interestexpense over the term of the Credit Agreement.Seller NotesIn May 2013, the Company issued seller notes payable in connection with the acquisition of FileBound. The notes have an aggregate principal amount of$3.5 million with 5% stated interest. $3.0 million of the notes were paid in May 2015 and $500,000 of the notes are due in May 2016.100Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Debt MaturitiesFuture debt maturities of long-term debt excluding debt discounts at December 31, 2015 are as follows, (in thousands):Year ending December 31: 2016$1,75020171,25020181,25020191,250202019,374Thereafter— $24,874Convertible Promissory NotesIn October 2013, the Company issued $4.9 million of promissory notes to investors bearing interest at 5% per annum with a maturity date of October 2014.Such promissory notes are automatically converted into shares of preferred stock upon the occurrence of a qualified financing. The conversion price for theshares of preferred stock is 80% of the price paid by other investors in the qualified financing. Such conversion price represents a beneficial conversionfeature in the amount of $1.2 million which was recorded as interest expense. In December 2013, all of the promissory notes were converted into shares ofSeries C preferred stock. Immediately prior to the closing of the Company's initial public offering on November 12, 2014, all outstanding shares of preferredstock were converted to shares of the Company's common stock.8. Net Loss Per ShareThe following table sets for the computations of loss per share (in thousands, except share and per share amounts): December 31, 2015 2014 2013Numerators: Loss from continuing operations attributable to commonstockholders$(13,664) $(20,117) $(8,555)Income (loss) from discontinued operations attributable tocommon stockholders— — (642)Preferred stock dividends and accretion— (1,524) (98)Net loss attributable to common stockholders$(13,664) $(21,641) $(9,295)Denominator: Weighted–average common shares outstanding, basic anddiluted14,939,601 4,889,901 1,196,668Loss from continuing operations per share, basic and diluted$(0.91) $(4.43) $(7.23)Loss from discontinued operations per share, basic and diluted— — (0.54)Net loss per common share, basic and diluted$(0.91) $(4.43) $(7.77)Due to the net losses for the years ended December 31, 2015, 2014, and 2013, basic and diluted loss per share were the same, as the effect of all potentiallydilutive securities would have been anti-dilutive. The following table sets forth the anti-dilutive common share equivalents:101Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. December 31, 2015 2014 2013Redeemable convertible preferred stock: Series A preferred stock— — 2,821,181Series B preferred stock— — 1,701,909Series B–1 preferred stock— — 237,740Series B–2 preferred stock— — 155,598Series C preferred stock— — 1,918,048Stock options778,385 665,216 357,991Restricted stock513,943 438,939 240,280Total anti–dilutive common share equivalents1,292,328 1,104,155 7,432,7479. Commitments and ContingenciesOperating LeasesThe Company leases office space under operating leases that expire between 2016 and 2020.Future minimum lease payments under operating and capital lease obligations are as follows (in thousands): CapitalLeases OperatingLeases PurchaseCommitments2016$1,845 $1,874 $2,30820171,378 1,439 —20181,069 972 —2019477 733 —202013 211 —Thereafter— — —Total minimum lease payments4,782 $5,229 $2,308Less amount representing interest(549) Present value of capital lease obligations4,233 Less current portion of capital lease obligations(1,654) Long-term capital lease obligations$2,579 The Company has an outstanding purchase commitment in 2016 for software development services pursuant to a technology services agreement in theamount of $2.3 million. The agreement has an initial term that expires on December 31, 2017, with an option for either party to renew annually for up to fiveyears. For years after 2016, the purchase commitment amount for software development services will be equal to the prior year purchase commitmentincreased (decreased) by the percentage change in total revenue for the prior year as compared to the preceding year. For example, if 2016 total revenuesincrease by 10% as compared to 2015 total revenues, then the 2017 purchase commitment will increase by approximately $230,000 from the 2016 purchasecommitment amount to approximately $2.5 million.Total rent expense for the years ended December 31, 2015, 2014, and 2013 were approximately $2.1 million, $1.9 million, and $0.8 million, respectively.The current and long-term portion of capital lease obligations are recorded102Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.in other current liabilities and other long-term liabilities line items on the balance sheet, respectively. Capital lease agreements are generally for four yearsand contain a bargain purchase option at the end of the lease term.LitigationIn the normal course of business, the Company may become involved in various lawsuits and legal proceedings. While the ultimate results of these matterscannot be predicted with certainty, management does not expect them to have a material adverse effect on the consolidated financial position or results ofoperations of the Company.10. Property and Equipment, NetProperty and equipment consisted of the following (in thousands) at: December 31, 2015 December 31, 2014Equipment (including equipment under capital lease of $6,199 and $3,028, respectively)$11,599 $7,712Furniture and fixtures (including furniture under capital lease of $143 and $0 at December 31, 2015 and2014, respectively)484 502Leasehold improvements819 574Accumulated depreciation (including for equipment and furniture under capital lease of $2,218 and $1,194at December 31, 2015 and 2014, respectively)(6,901) (4,858)Property and equipment, net$6,001 $3,930Amortization of assets recorded under capital leases is included with depreciation expense. Depreciation and amortization expense on property andequipment was $2.3 million, $2.3 million and $791,000 for the years ended December 31, 2015, 2014, and 2013, respectively. The Company recorded noimpairment of property and equipment and recorded no gains or losses on the disposal of property and equipment during the years ended December 31, 2015,2014, and 2013.11. Stockholders' EquityCommon StockAll share and per share information for all periods presented has been adjusted to reflect the effect of a 6.099-for-one reverse stock split in November 2014.Our certificate of incorporation authorizes shares of stock as follows: 50,000,000 shares of common stock and 5,000,000 shares of preferred stock. Thecommon and preferred stock have a par value of $0.0001 per share.Each share of common stock is entitled to one vote at all meetings of stockholders. The number of authorized shares of common stock may be increased ordecreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of shares of capital stock of the Companyrepresenting a majority of the votes represented by all outstanding shares of capital stock of the Company entitled to vote. The holders of common stock arealso entitled to receive dividends, when, if and as declared by our board of directors, whenever funds are legally available therefore, subject to the priorityrights of any outstanding preferred stock.•In July and October 2010, the Company issued 1,582,635 shares of restricted stock to three stockholders of the Company at $0.0001 per share foraggregate proceeds of $965. In October 2012, the Company issued 113,085 shares of restricted stock to an employee of the Company at $1.22 pershare for aggregate proceeds of $138,000. These shares are subject to a repurchase option. If the holder’s status as an employee or service provider tothe Company terminates, then the Company shall have the option to repurchase any shares that have not yet been released from the repurchaseoption at a price per share equal to the original purchase price.103Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.•In November 2013, the Company issued 155,599 shares of common stock valued at $275,000 in connection with the acquisition of ComSci.•In January 2014, the Company issued 1,803,574 shares of common stock to this company in connection with the amendment of such technologyservices agreement and took a noncash charge of $11.2 million recorded in research and development expenses.•In September 2014, the Company granted 294,010 shares of restricted stock with a grant-date fair value of $8.73. The restricted stock has restrictionswhich vest over three years from date of grant for 40,990 shares and over four years from the date of grant for 253,020 shares. The grant-date fairvalue of the shares is recognized over the requisite vesting period. If vesting periods are not achieved, the shares will be forfeited by the employee.•In November 2014, the Company granted 41,664 shares of restricted stock with a grant-date fair value of $12.00 to members of the Board ofDirectors. The restricted stock has restrictions which vest fully after twelve months from date of grant. The grant-date fair value of the shares isrecognized over the requisite vesting period. If vesting periods are not achieved, the shares will be forfeited by the respective Director.•In November, 2014, the Company issued 3,846,154 shares of common stock, at a price of $12.00 per share, before underwriting discounts andcommissions. The IPO generated net proceeds of approximately $42.9 million, after deducting underwriting discounts and commissions. Expensesincurred by us for the IPO were approximately $4.1 million and will be recorded against the proceeds received from the IPO.•In November 2014, the Company issued 6,834,476 share of common stock for conversion of all outstanding shares of preferred stock on a one-to-one basis in connection with the Company's IPO.•In November 2014, the Company issued 150,977 shares of common stock valued at $1.6 million in connection with the acquisition of Solution Q. Inaddition, the company issued 65,570 shares of common stock to two employees valued at $0.7 million. The restricted stock has restrictions whichvest fully two years from date of grant. The grant-date fair value of the shares is recognized over the requisite vesting period. If vesting periods arenot achieved, the shares will be forfeited by the respective employee.•In December 2014, the Company agreed to issue 386,253 shares of common stock valued at $4.5 million in connection with the acquisition ofMobile Commons. As of December 31, 2014, 316,747 shares of common stock were issued to certain former shareholders of Mobile Commons,44,192 shares were being held in escrow for eighteen (18) months and subject to indemnification claims by the Company and an additional 25,314shares were reserved for issuance upon the completion of certain documentation by certain former shareholders of Mobile Commons.•In November 2015, the Company agreed to issue 179,298 shares of common stock valued at approximately $1,388,000 in connection with theacquisition of Ultriva. In addition, the company issued 45,767 shares of common stock to an employee valued at approximately $0.4 million. Therestricted stock has restrictions which vest at three different events during the year following the acquisition. The grant-date fair value of the sharesis recognized over the requisite vesting period. If vesting periods are not achieved, the shares will be forfeited by the respective employee.Stock Compensation PlansThe Company maintains two stock-based compensation plans, the 2010 Stock Option Plan (the “2010 Plan”) and the 2014 Stock Option Plan (the “2014Plan”), which are described below.2010 PlanAt December 31, 2015, there were 383,073 options outstanding under the 2010 Plan. Following the effectiveness of the Company’s 2014 Plan (the "2014Plan") in November 2014, no further awards have been made under the 2010 Plan, although each option previously granted under the 2010 Plan will remainoutstanding subject to its terms. Any such shares of common stock that are subject to awards under the 2010 Plan which are forfeited or lapse unexercised andwould otherwise have been returned to the share reserve under the 2010 Plan instead will be available for issuance under the 2014 Plan.104Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.2014 PlanIn November 2014, the Company adopted the 2014 Plan, providing for the granting of incentive stock options, as defined by the Internal Revenue Code, toemployees and for the grant of non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units andperformance shares to employees, directors and consultants. The 2014 Plan also provides for the automatic grant of option awards to our non-employeedirectors. As of December 31, 2015, there were 395,312 options outstanding under the 2014 Plan and shares of common stock reserved for issuance under the2014 Plan consist of 184,513 shares of common stock. In addition, the number of shares available for issuance under the 2014 Plan will be increased annuallyin an amount equal to the least of (i) 4% of the outstanding Shares on the last day of the immediately preceding Fiscal Year or (ii) such number of Sharesdetermined by the Board. At December 31, 2015, there were 195,834 restricted stock units outstanding under the 2014 Plan.Shares issued upon any stock option exercise under the 2010 Plan or 2014 Plan will be issued from the Company's authorized but unissued shares. Stock Option ActivityA summary of the Company’s stock option activity under all Plans is as follows: Number ofOptionsOutstanding Weighted–AverageExercisePrice Weighted–AverageRemainingContractual Life(In Years) Weighted-Average FairValueper ShareOutstanding at December 31, 2012 187,622 $1.04 9.65 $0.67Options granted 191,045 1.77 0.91Options forfeited (20,676) 1.28 0.79Outstanding at December 31, 2013 357,991 $1.40 9.16 $0.79Options granted 386,797 7.03 3.76Options exercised (435) 1.77 0.93Options forfeited (79,143) 3.87 2.09Outstanding at December 31, 2014 665,210 $4.39 8.78 $2.37Options granted 420,616 6.93 6.93Options exercised (106,338) 2.17 2.24Options forfeited (201,100) 5.62 4.99Outstanding at December 31, 2015 778,388 $5.75 8.39 $5.75Options vested and expected to vest at December 31, 2013 59,106 $0.79 8.04 Options vested and exercisable at December 31, 2013 56,675 $0.79 8.04 Options vested and expected to vest at December 31, 2014 149,907 $1.58 7.81 Options vested and exercisable at December 31, 2014 149,907 $1.58 7.81 Options vested and expected to vest at December 31, 2015 769,142 $5.72 8.37 Options vested and exercisable at December 31, 2015 244,631 $3.78 6.91 The aggregate intrinsic value of options vested during the years ended December 31, 2015 and 2014, was approximately $0.6 million and $1.2million, respectively. The aggregate intrinsic value of options outstanding at December 31, 2015 and 2014, was approximately $1.3 million and $3.4million, respectively. The aggregate intrinsic value of options exercised at December 31, 2015 and 2014, was approximately $0.6 million and $6 thousand,respectively. The aggregate intrinsic value of options exercisable, vested and expected to vest at December 31, 2015 and 2014 was approximately $1.3million and $1.2 million. The total fair value of employee options vested during the years ended December 31, 2015 and 2014 was approximately $804,000and $106,000, respectively. Unvested shares as of December 31, 2015 and 2014 have a weighted-average grant date fair value of $3.53 and $2.79 per share,respectively. 105Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Total stock-based compensation was approximately $2.7 million, $1.1 million and $0.5 million for the years ended December 31, 2015, 2014 and2013, respectively. As of December 31, 2015, $1.3 million of unrecognized compensation cost related to stock options is expected to be recognized over aweighted-average period of 2.13 years.The Company received approximately $106,000 in cash from option exercises under the respective Plans in 2015. The Company issued shares fromamounts reserved under the respective Plans upon the exercise of these stock options. The Company does not currently expect to repurchase shares from anysource to satisfy such obligation under any of the Company’s stock option Plans. The exercise of stock options during the year ended December 31, 2015resulted in an excess tax deduction of approximately $45,000. The expected tax benefits of approximately $16,000 associated with thisexcess tax deduction will be recorded in additional paid-in capital on the Company’s consolidated balance sheet upon utilization of thenet operating losses in which these deductions are included.Restricted Stock AwardsA summary of the Company’s restricted stock activity under the 2010 and 2014 Plan is as follows: Number ofRestricted SharesOutstandingUnvested balances at December 31, 2012739,544Awards granted—Awards vested(499,265)Unvested balances at December 31, 2013240,279Awards granted401,244Awards vested(202,584)Unvested balances at December 31, 2014438,939Awards granted242,500Awards vested(144,268)Awards forfeited(23,228)Unvested balances at December 31, 2015513,943During 2015 and 2014, restricted stock awards had a weighted average grant date fair of $7.53 and $1.22 per share, respectively.Share-based CompensationThe Company recognized share-based compensation expense from all awards in the following expense categories (in thousands):106Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Year Ended December 31, 2015 2014 2013Cost of subscription and support revenue$47 $30 $9Cost of professional services revenue(5) 19 8Sales and marketing65 39 15Research and development203 61 12General and administrative2,431 929 454Total$2,741 $1,078 $49812. Redeemable Convertible Preferred Stock▪In 2011, the Company issued 2,652,110 shares of Series A redeemable convertible preferred stock for aggregate proceeds of $16.0 million, net ofissuance costs of $199,000.▪In January 2012, the Company issued 169,054 shares of Series A redeemable convertible preferred stock for aggregate proceeds of $1.0 million, net ofissuance costs of $24,000.▪In January 2012, the Company issued 1,701,909 shares of Series B redeemable convertible preferred stock for aggregate proceeds of $10.4 million,net of issuance costs of $22,000.▪In November 2012, the Company issued 131,168 shares of Series B-1 redeemable convertible preferred stock valued at $800,000 in connection withthe acquisition of EPM Live. Such shares are subject to forfeiture obligations based upon continued employment over a 24-month period. TheCompany is accounting for such shares as compensation as the shares vest. At December 31, 2014, all shares are now fully amortized.▪In May 2013, the Company issued 106,572 shares of B-1 redeemable convertible preferred stock valued at $624,000 in connection with theacquisition of FileBound.▪In November 2013, the Company issued 155,598 shares of Series B-2 redeemable convertible preferred stock valued at $949,000 in connection withthe acquisition of ComSci.▪In December 2013, the Company issued 1,918,048 shares of Series C redeemable convertible preferred stock for aggregate proceeds of $19.7 million,net of issuance costs of $82,000. The proceeds from the issuance of Series C preferred stock included the conversion of $4.9 million of convertiblepromissory bridge notes and accrued interest payable.▪In November 2014, all of the shares of preferred stock were converted into 6,834,476 shares of common stock on a one-to-one basis in connectionwith the Company's IPO.DividendsDividends on shares of Series C redeemable convertible preferred stock shall begin to accrue on a daily basis at a rate of 8% per annum, shall be cumulative,and shall compound on an annual basis. Series C redeemable convertible preferred stock dividends shall be due and payable upon the earliest of (i) anyliquidation, dissolution, or winding up of the Company; (ii) the redemption of the Series C redeemable convertible preferred stock; or (iii) the payment of anydividends with respect to common stock or Series A, B, B–1 redeemable convertible Preferred Stock. Cumulative dividends on shares of Series C redeemableconvertible preferred stock shall cease to accrue and all accrued and unpaid cumulative dividends shall be canceled and any rights to such dividends shallterminate at the time such share of Series C redeemable convertible preferred stock is converted to common stock.107Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The holders of outstanding shares of Series A, B, B–1, and B–2 redeemable convertible preferred stock shall be entitled to receive dividends, when, as, and ifdeclared by the Board of Directors, out of any assets legally available at the annual rate of $0.49 per share payable in preference and priority to anydeclaration or payment of any distribution on common stock. No dividends shall be made with respect to the common stock unless dividends on the PreferredStock have been declared and paid or set aside for payment to the preferred stockholders. The right to receive dividends on shares of Series A, B, B–1 and B–2 redeemable convertible preferred stock shall not be cumulative, and no right to dividends shall accrue to holders of Series A, B, B–1 and B–2 redeemableconvertible preferred stock by reason of the fact that dividends on said shares are not declared or paid. Payment of any dividends to the holders of Series A, B,B–1, and B–2 redeemable convertible preferred stock shall be on a pro rata basis.13. Preferred Stock WarrantsThe Company had 19,675 Series A preferred stock warrants and 56,839 Series B redeemable convertible preferred stock warrants outstanding as ofDecember 31, 2013 with an exercise price of $6.10 per share. All of these warrants were issued in connection with the Comerica loan agreements described inNote 7. The warrants were converted to warrants to purchase common stock in November 2014. See Note 4.The fair value of warrants to purchase convertible preferred stock was determined using the Black-Scholes option pricing model.14. Employee Benefit PlansThe Company has established two voluntary defined contribution retirement plans qualifying under Section 401(k) of the Internal Revenue Code. TheCompany made no contributions to the 401(k) plans for the years ended December 31, 2015, 2014, and 2013.15. Discontinued OperationsOn November 6, 2013, the Company distributed all of the shares of its Visionael subsidiary to the Company’s stockholders in a spin-off. Since all shares ofthe subsidiary were distributed in 2013, the Company’s consolidated statements of operations have been presented to show the discontinued operations ofthe subsidiary separately from continuing operations for all periods presented. Since the transaction was between entities under common control, thedistribution of the shares of the subsidiary did not result in a gain or loss on distribution as it was recorded at historical carrying values.16. Domestic and Foreign OperationsRevenue by geography is based on the ship-to address of the customer, which is intended to approximate where the customers' users are located. The ship-tocountry is generally the same as the billing country. The Company has operations in the U.S., Canada and Europe. Information about these operations ispresented below (in thousands): December 31, 2015 2014 2013Revenues: U.S.$56,778 $50,661 $31,166Canada4,280 3,713 3,509Other International8,853 10,200 6,518Total Revenues$69,911 $64,574 $41,193108Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. December 31, 2015 2014 2013Identifiable long-lived assets: U.S.$5,501 $3,330 $3,310Canada469 600 632Other International31 — —Total identifiable long-lived assets$6,001 $3,930 $3,94217. Related Party TransactionsIn 2013, the Company borrowed and repaid monies from and to an investor in the Company pursuant to promissory notes (see Note 7). During the fiscal yearsended December 31, 2015, 2014, and 2013, the Company purchased software development services pursuant to a technology services agreement with acompany controlled by a non-management investor in the Company in the amount of $2.1 million, $2.1 million, and $2.1 million, respectively. In January2014, the Company issued 1,803,574 shares of common stock to this company in connection with the amendment of such technology services agreement andtook a noncash charge of $11.2 million recorded in research and development expenses. The Company has an outstanding purchase commitment for softwaredevelopment services pursuant to a technology services agreement in 2016 in the amount of $2.3 million. For years after 2016, the purchase commitmentamount for software development services will be equal to the prior year purchase commitment increased (decreased) by the percentage change in totalrevenue for the prior year as compared to the preceding year. For example, if 2016 total revenues increase by 10% as compared to 2015 total revenues, thenthe 2017 purchase commitment will increase by approximately $230,000 from the 2016 purchase commitment amount to approximately $2.5 million. AtDecember 31, 2015 and 2014, amounts included in accounts payable owed to this company totaled $0.7 million and $0.4 million, respectively.When the Company receives requested services as detailed by statements of work pursuant to the software development agreement, it determines whethersuch software development costs should be capitalized as either internally-used software or software to be sold or otherwise marketed. If such costs are notcapitalizable, the Company expenses such costs as the services are received. If the Company anticipates that it will not utilize the full amount of the annualminimum fee, the estimated unused portion of the annual minimum fee is expensed at that time.The Company also purchased approximately $6,000 in services from a company controlled by a non-management investor in the Company. There are nopurchase commitments with this company, and the Company continues to use their services in 2016.The Company has an arrangement with a former subsidiary to provide management, human resource/payroll and administrative services, the fees for whichduring 2015 totaled $360,000 and are expected to be similar in 2016.109Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.18. Subsequent EventsThe Company has evaluated subsequent events through the date the consolidated financial statements were available for issuance.On January 7, 2016, Upland completed its purchase of substantially all of the assets of a California-basedwebsite analytics provider. The purchase price consideration paid was approximately $8.2 million in cashpayable at closing (net of $0.2 million of cash acquired) and a $1.2 million cash holdback payable in 12 months(subject to indemnification claims). The foregoing excludes additional potential earnout payments tied toperformance-based conditions.In addition to the cash consideration described above, the Asset Purchase Agreement included acontingent share consideration component pursuant to which Upland expects to issue an aggregate ofapproximately $2.4 million in common stock (to be determined on trigger date) of its common stock to the seller after July 7, 2016 based on certain minimalpost-closing performance-based conditions.On March 14, 2016, Upland completed its purchase of substantially all of the assets of Hipcricket, Inc., acloud-based mobile messaging software provider. The consideration paid to the seller consisted of our issuance ofone million shares of our common stock and the transfer of our EPM Live product business. The value of theshares on the closing date of the transaction was approximately $6.2 million and the residual value of our EPM Live product business was approximately$6.0 million. The Company is currently evaluating whether a gain or loss will be recognized in conjunction with the EPM Live net asset value. Prior to thetransaction, Hipcricket was owned by an affiliate of ESW Capital, LLC, which is a shareholder of Upland. Raymond James & Co. provided a fairness opinionto Upland in connection with the transaction.The Company recorded the purchase of the acquisitions described above using the acquisition method of accounting and, accordingly, recognized the assetsacquired and liabilities assumed at their fair values as of the date of the acquisition. The purchase price allocations for the 2016 acquisitions are preliminaryas the Company has not obtained and evaluated all of the detailed information necessary to finalize the opening balance sheet amounts in all respects.Management has recorded the purchase price allocations based upon acquired company information that is currently available. Management expects tofinalize its purchase price allocations in mid-2016.110Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.19. Quarterly Results (Unaudited)The following table sets forth our unaudited quarterly condensed consolidated statements of operations data for each of the last eight quarters throughDecember 31, 2015. The data has been prepared on the same basis as the audited consolidated financial statements and related notes included elsewhere inthis Annual Report and you should read the following tables together with such financial statements. The quarterly results of operations include all normalrecurring adjustments necessary for a fair presentation of this data. Results of interim periods are not necessarily indicative of results for the entire year andare not necessarily indicative of future results. 3/31/14 6/30/14 9/30/14 12/31/14 3/31/15 6/30/15 9/30/15 12/31/15Consolidated Statements of Operations Data: Revenue: Subscription and support$11,737 $11,805 $12,368 $12,715 $14,322 $14,023 $14,129 $14,719Perpetual license440 657 850 840 811 846 540 608Total product revenue12,177 12,462 13,218 13,555 15,133 14,869 14,669 15,327Professional services3,436 3,749 3,057 2,920 2,395 2,809 2,436 2,273Total revenue15,613 16,211 16,275 16,475 17,528 17,678 17,105 17,600Cost of revenue: Subscription and support(1)(2)3,258 3,346 3,488 3,950 4,732 4,841 4,771 5,242Professional services(1)2,397 2,340 2,305 2,037 1,908 1,732 1,677 1,768Total cost of revenue5,655 5,686 5,793 5,987 6,640 6,573 6,448 7,010Gross profit9,958 10,525 10,482 10,488 10,888 11,105 10,657 10,590Operating expenses: Sales and marketing(1)3,136 4,015 3,767 3,752 3,532 3,446 2,929 3,058Research and development(1)14,899 3,494 3,793 3,979 3,926 4,152 3,852 3,848Refundable Canadian tax credits(136) (138) (138) (682) (121) (122) (115) (112)General and administrative(1)2,623 3,053 3,555 4,330 5,119 4,714 4,494 3,874Depreciation and amortization1,055 1,066 1,067 1,122 1,014 1,063 1,130 1,327Acquisition-related expenses290 231 108 1,557 545 360 176 1,374Total operating expenses21,867 11,721 12,152 14,058 14,015 13,613 12,466 13,369Income (loss) from operations(11,909) (1,196) (1,670) (3,570) (3,127) (2,508) (1,809) (2,779)Other expense: Interest expense, net(415) (419) (397) (720) (347) (576) (462) (473)Other expense, net114 (482) 60 409 (512) (12) 137 (157)Total other expense(301) (901) (337) (311) (859) (588) (325) (630)Loss before provision for income taxes(12,210) (2,097) (2,007) (3,881) (3,986) (3,096) (2,134) (3,409)Provision for income taxes(410) (280) (438) 1,206 243 (238) (190) (854)Loss from continuing operations(12,620) (2,377) (2,445) (2,675) (3,743) (3,334) (2,324) (4,263)Income (loss) from discontinued operations— — — — — — — —Net income (loss)(12,620) (2,377) (2,445) (2,675) (3,743) (3,334) (2,324) (4,263)Preferred stock dividends and accretion(435) (440) (445) (204) — — — —Net loss attributable to common shareholders$(13,055) $(2,817) $(2,890) $(2,879) $(3,743) $(3,334) $(2,324) $(4,263)Net loss per common share: Loss from continuing operations per common share, basic and diluted$(4.48) $(0.80) $(0.80) $(0.30) $(0.25) $(0.22) $(0.16) $(0.28)(1) includes stock-based compensation (2) Includes depreciation and amortization 111Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART IIIItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresUnder the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer (ourprincipal executive officer and principal financial officer, respectively), we have evaluated our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as of December 31, 2015. Based upon that evaluation, the Chief Executive Officer and theChief Financial Officer have concluded that, as of December 31, 2015, the Company's disclosure controls and procedures were effective in ensuringinformation required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed,summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to the Company'smanagement, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.Management’s Annual Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inExchange Act Rules 13a-15(f) and 15d-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with policies or procedures may deteriorate. Our management, with the participation of our ChiefExecutive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. In makingthis assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in InternalControl - Integrated Framework (2013).Based on our evaluation using those criteria, our management has concluded that, as of December 31, 2015, our internal control over financialreporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm on our internal control overfinancial reporting due to an exemption established by the JOBS Act for "emerging growth companies."Changes in Internal Control over Financial ReportingThere have been no changes in our internal control over financial reporting during the fourth quarter of fiscal 2015 that have materially affected, orare reasonably likely to materially affect, our internal control over financial reporting.Item 9B.Other InformationNone.Item 10.Directors, Officers and Corporate GovernanceWe have adopted a code of ethics that applies to the Company’s directors, officers and employees, including the Chief Executive Officer and theChief Financial Officer and any other persons performing similar functions. The text of our code of ethics, “Code of Business Conduct and Ethics,” has beenposted on our website at112Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.http://investor.uplandsoftware.com/code-of-conduct. We will provide a copy of the code of ethics without charge upon request to Corporate Secretary,Upland Software, Inc., 401 Congress Ave., Suite 1850, Austin, Texas 78701.Additional information required by this item is incorporated by reference from our definitive proxy statement for the 2016 Annual Meeting ofStockholders under the headings “Proposal One: Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Directors andCorporate Governance” and “Executive Officers.”Item 11.Executive CompensationThe information required by this item is incorporated by reference from our definitive proxy statement for the 2016 Annual Meeting ofStockholders, under the headings “Executive Compensation” and “Directors and Corporate Governance-Compensation Committee Interlocks and InsiderParticipation.”Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item is incorporated by reference from our definitive proxy statement for the 2016 Annual Meeting of Stockholdersunder the headings “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management.”Item 13.Certain Relationships, and Related Transactions, and Director IndependenceThe information required by this item is incorporated by reference from our definitive proxy statement for the 2016 Annual Meeting of Stockholdersunder the headings “Certain Relationships and Related Party Transactions” and “Directors and Corporate Governance-Director Independence.”Item 14.Principal Accounting Fees and ServicesThe information required by this item is incorporated by reference from our definitive proxy statement for the 2016 Annual Meeting of Stockholdersunder the heading “Proposal Two: Ratification of Selection of Independent Registered Public Accounting Firm.”PART IVItem 15. Exhibits and Financial Statement Schedules(a) Financial StatementsThe financial statements filed as part of this Annual Report on Form 10-K are listed on the "Index to Consolidated Financial Statements"included in Item 8 herein.(b) ExhibitsSee Exhibit Index at the end of this Annual Report on Form 10-K, which is incorporated by reference.(c) Financial Statement SchedulesThe following schedule is filed as part of this Annual Report on Form 10-K:Schedule II-Valuation and Qualifying AccountsThis schedule has been omitted as the required information has been included in the notes to the consolidated financial statements.113Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.SIGNATURESPursuant to the requirement of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.Date: March 30, 2016 Upland Software, Inc. By:/s/ John T. McDonald John T. McDonald Chief Executive Officer and ChairmanPOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints John T. McDonaldand Michael D. Hill and each of them, as his true and lawful attorney-in-fact and agent with full power of substitution, for him in any and all capacities, tosign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connectiontherewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent the full power and authority to do and perform eachand every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person,hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue thereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated: Signature Title Date /s/ John T. McDonald Chief Executive Officer and Chairman March 30, 2016John T. McDonald (Principal Executive Officer) /s/ Michael D. Hill Chief Financial Officer, Secretary and Treasurer March 30, 2016Michael D. Hill (Principal Financial Officer and Principal AccountingOfficer) /s/ John D. Thornton Director March 30, 2016John D. Thornton /s/ Steven Sarracino Director March 30, 2016Steven Sarracino /s/ Stephen E. Courter Director March 30, 2016Stephen E. Courter /s/ Rodney C. Favaron Director March 30, 2016Rodney C. Favaron 114Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT INDEXNote regarding removal of exhibits: Regulation S-K allows you to remove Item 10 exhibits entered into more than 2 years agofor which performance has been completed (and which are not material for some other reason). Additionally, if an executive has beengone for the last fiscal year, there is no need to his his/her contract in the exhibits. Please consider whether any of your materialcontracts (Item 10 contracts) should be removed. Please note this rule does NOT apply to other items like Item 2 or Item 4. There is noclear guidance for Items 2 and 4, but the general thinking is that if those agreements have terminated and there are no outstandingobligations under them, and they are not referenced in the 10-K, they can be removed. Incorporated by ReferenceExhibit No.Description of ExhibitFormFile No.ExhibitFiling Date2.1Agreement and Plan of Merger by and among the Registrant, Steering WheelAcquisition Corp., PowerSteering Software, Inc. and Michael Pehl, asStockholder representative, dated February 3, 2012S-1333-1985742.1September 4, 20142.2Stock Purchase Agreement by and among the Registrant, Tenrox Inc., thestockholders named therein and Novacap II, L.P. and Aramazd Israilian, asrepresentatives, dated February 10, 2012S-1333-1985742.2September 4, 20142.3Membership Interest Purchase Agreement by and among the Registrant, LMRSolutions, LLC, Joseph Larscheid and Cheryl Larscheid, dated November 13,2012S-1333-1985742.3September 4, 20142.4Stock Purchase Agreement by and among the Registrant, Marex Group Inc.,FileBound Solutions, Inc., the Selling Stockholders (as defined therein) and RexLamb, as representative of the Selling Stockholders, dated May 16, 2013S-1333-1985742.4September 4, 20142.5Membership Interest Purchase Agreement by and among the Registrant, UplandSoftware, Inc., ComSci, LLC and Robert Svec, dated November 7, 2013S-1333-1985742.5September 4, 20142.6Stock Purchase Agreement by and among the Registrant, Clickability, Inc. andLimelight Networks, Inc. dated December 23, 2013S-1333-1985742.6September 4, 20143.1*Amended and Restated Certificate of Incorporation, as currently in effect 3.2*Amended and Restated Bylaws, as currently in effect 4.1Amended and Restated Investors’ Rights Agreement among the Registrant andcertain stockholders, dated December 20, 2013S-1333-1985744.1September 4, 20144.2Restricted Stock Agreement between the Registrant, Joseph Larscheid andCheryl Larscheid, dated November 14, 2012S-1333-1985744.4September 4, 20144.3Market Standoff Agreement between the Registrant and Robert Svec, datedNovember 6, 2013S-1333-1985744.5September 4, 20144.4Warrant to Purchase Series A Preferred Stock issued to Comerica Bank datedFebruary 10, 2012S-1333-1985744.8September 4, 20144.5Warrant to Purchase Series B Preferred Stock issued to Comerica Bank datedMarch 5, 2012S-1333-1985744.9September 4, 20144.6Warrant to Purchase Series B Preferred Stock issued to Comerica Bank datedApril 11, 2013S-1333-1985744.10September 4, 20144.7Warrant to Purchase Common Stock issued to Entrepreneurs Foundation ofCentral Texas dated November 6, 2013S-1333-1985744.11September 4, 20141Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Incorporated by Reference4.8Restricted Stock Agreement between the Registrant, Craig MacInnis, KarenSmiley-MacInnis, and John David MacInnis, dated November 20, 201410-K001-367204.8March 31, 20154.9Restricted Stock Agreement between the Registrant, Bradley Robbins, CarlaRobbins, and Debbie-Anne Michelle Dias, dated November 20, 201410-K001-367204.9March 31, 20154.10Specimen Common Stock Certificate10-Q001-367204.1May 15, 201510.1+Form of Indemnification Agreement for directors and officersS-1333-19857410.2October 27, 201410.2+Amended and Restated 2010 Stock Plan, as amended September 2, 2014S-1333-19857410.3.1September 4, 201410.3+Form of Stock Option Agreement under Amended and Restated 2010 StockPlan (Standard)S-1333-19857410.4September 4, 201410.3.1+Form of Stock Option Agreement under Amended and Restated 2010 StockPlan (Former ComSci, LLC Employees)S-1333-19857410.4.1September 4, 201410.3.2+Form of Stock Option Agreement under Amended and Restated 2010 StockPlan (Executive)S-1333-19857410.4.2September 4, 201410.3.3+Form of Amendment to Stock Option Agreement under Amended and Restated2010 Stock Plan with Certain ExecutivesS-1333-19857410.4.3September 4, 201410.4+Form of Restricted Stock Purchase Agreement under Amended and Restated2010 Stock PlanS-1333-19857410.5September 4, 201410.4.1+Form of Amendment to Restricted Stock Purchase Agreement under Amendedand Restated 2010 Stock PlanS-1333-19857410.5.1September 4, 201410.5+2014 Equity Incentive PlanS-1333-19857410.6October 27, 201410.6+Form of Stock Option Award Agreement under 2014 Equity Incentive PlanS-1333-19857410.7October 27, 201410.6.1+Form of Stock Option Award Agreement under 2014 Equity Incentive Plan(Executive)S-1333-19857410.7.1October 27, 201410.7+Form of Restricted Stock Purchase Agreement under 2014 Equity IncentivePlanS-1333-19857410.8October 27, 201410.7.1+Form of Restricted Stock Purchase Agreement under 2014 Equity IncentivePlan (Executive)S-1333-19857410.8.1October 27, 201410.8+Form of Restricted Stock Unit Award Agreement under 2014 Equity IncentivePlanS-1333-19857410.9October 27, 201410.8.1+Form of Restricted Stock Unit Award Agreement under 2014 Equity IncentivePlan (Executive)S-1333-19857410.9.1October 27, 201410.9+Offer of Employment between the Registrant and John T. McDonald, dated July23, 2010S-1333-19857410.10September 4, 201410.10+Employment Agreement between the Registrant and John T. McDonald, datedMay 9, 2014S-1333-19857410.12September 4, 201410.11+Offer of Employment between the Registrant and R. Brian Henley, datedJanuary 10, 2013S-1333-19857410.11September 4, 201410.12+Employment Agreement between the Registrant and R. Brian Henley, dated July25, 2014S-1333-19857410.11.1September 4, 201410.13+Offer of Employment between the Registrant and Timothy Mattox, dated July 7,201410-K001-3672010.13March 31, 201510.14+Restricted Stock Purchase Agreement between the Registrant and John T.McDonald, dated July 23, 2010S-1333-19857410.14September 4, 201410.15+Restricted Stock Purchase Agreement between the Registrant and John T.McDonald, dated October 18, 2010S-1333-19857410.15September 4, 20142Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Incorporated by Reference10.16+Restricted Stock Purchase Agreement between the Registrant and John T.McDonald, dated September 2, 2014S-1333-19857410.16September 4, 201410.17+Restricted Stock Purchase Agreement between the Registrant and R. BrianHenley, dated September 2, 2014S-1333-19857410.16.1September 4, 201410.18+Restricted Stock Purchase Agreement between the Registrant and TimothyMattox, dated September 2, 201410-K001-3672010.18March 31, 201510.19Office Lease between the Registrant and TPG-401 Congress LLC, datedFebruary 27, 2014S-1333-19857410.17September 4, 201410.20First Amendment to Office Lease between Registrant and TPG-401 CongressLLCS-1333-19857410.17.1September 4, 201410.21Lease Agreement between Tenrox Inc. and A.R.E. Quebec, dated November 5,2012, as amendedS-1333-19857410.18September 4, 201410.22Sublease Agreement between Marex Properties, LLC and Marex Group Inc.,dated May 10, 2013S-1333-19857410.19September 4, 201410.23Loan and Security Agreement and Joinder between the Registrant, VisionaelCorporation, PowerSteering Software, Inc., LMR Solutions LLC, MarexGroup, Inc., FileBound Solutions, Inc., ComSci, LLC, ComSci, Inc. andComerica Bank, dated March 5, 2012, as amended through December 6, 2013S-1333-19857410.20September 4, 201410.23.1Ninth Amendment to Loan and Security Agreement, Joinder and Consentbetween Registrant, Upland Software I, Inc., Upland Software III, Inc., UplandSoftware IV, Inc., Upland Software V, Inc., Upland Software VI, LLC, UplandSoftware VII, Inc., Upland IX, LLC and Comerica Bank, dated March 23, 201510-K001-3672010.23.1March 31, 201510.24Security Agreement between Tenrox Inc. and Comerica Bank, dated March 5,2012, as amendedS-1333-19857410.21September 4, 201410.25Unconditional Guaranty by Tenrox Inc., dated March 5, 2012S-1333-19857410.22September 4, 201410.26Affirmation of Guaranty Documents by Tenrox Inc. for the benefit of ComericaBank, dated December 3, 2012, as amended through May 16, 2013S-1333-19857410.23September 4, 201410.26.1Amendment to and Affirmation of Guaranty Documents between UplandSoftware II, Inc. and Comerica Bank, dated March 23, 201510-K001-3672010.26.1March 31, 201510.27Loan and Security Agreement between Tenrox, Inc., successor to SilverbackTwo Canada Merger Corporation, and Comerica Bank, dated February 10,2012, as amended through December 6, 2013S-1333-19857410.24September 4, 201410.27.1Eighth Amendment to Loan and Security Agreement, Joinder and Consentbetween Upland Software Inc., Solution Q Inc. and Comerica Bank, datedMarch 23, 201510-K001-3672010.27.1March 31, 201510.28Pledge and Security Agreement between the Registrant and Comerica Bank,dated February 10, 2012, as amended through May 16, 2013S-1333-19857410.25September 4, 201410.28.1Amendment No. 6 to Pledge and Security Agreement between Registrant andComerica Bank, dated March 23, 201510-K001-3672010.28.1March 31, 201510.29Security Agreement between Marex Group, Inc. and Comerica Bank, datedMay 16, 2013, as amended through December 6, 2013S-1333-19857410.26September 4, 201410.29.1Amendment No. 3 to Security Agreement between Upland Software IV, Inc.and Comerica Bank, dated March 23, 201510-K001-3672010.29.1March 31, 20153Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Incorporated by Reference10.30Security Agreement between LMR Solutions LLC and Comerica Bank, datedDecember 3, 2012, as amended through December 6, 2013S-1333-19857410.27September 4, 201410.30.1Amendment No. 5 to Security Agreement between Upland Software III, LLCand Comerica Bank, dated March 23, 201510-K001-3672010.30.1March 31, 201510.31Security Agreement between PowerSteering Software Inc. and Comerica Bank,dated February 10, 2012, as amended through March 19, 2014S-1333-19857410.28October 27, 201410.31.1Amendment No. 6 to Security Agreement between Upland Software I, Inc. andComerica Bank, dated March 23, 201510-K001-3672010.31.1March 31, 201510.32Security Agreement between Tenrox Inc. and Comerica Bank, dated February10, 2012, as amended through December 6, 2013S-1333-19857410.29October 27, 201410.32.1Amendment No. 6 to Security Agreement between Upland Software II, Inc. andComerica Bank, dated March 23, 201510-K001-3672010.32.1March 31, 201510.33Unconditional Guaranty by Marex Group, Inc., dated May 16, 2013S-1333-19857410.30September 4, 201410.34Unconditional Guaranty by LMR Solutions LLC, dated December 3, 2012S-1333-19857410.31September 4, 201410.35Unconditional Guaranty by PowerSteering Software Inc., dated February 10,2012S-1333-19857410.32September 4, 201410.36Unconditional Guaranty by Tenrox Inc., dated February 10, 2012S-1333-19857410.33September 4, 201410.37Unconditional Guaranty by the Registrant, dated February 10, 2012S-1333-19857410.34September 4, 201410.38Amendment to and Affirmation of Guaranty Documents and Waiver by TenroxInc. for the benefit of Comerica Bank, dated April 11, 2013S-1333-19857410.35September 4, 201410.39Note Purchase Agreement between the Registrant and the Investors listed onSchedule I thereto, dated October 9, 2013, as amendedS-1333-19857410.40September 4, 201410.40Series C Preferred Stock Purchase Agreement among the Registrant and theInvestors listed on the Schedule of Investors thereto, dated December 20, 2013S-1333-19857410.36September 4, 201410.41Amended and Restated Technology Services Agreement between the Registrantand DevFactory FZ-LLC, dated January 1, 2014S-1333-19857410.37October 27, 201410.42Letter Agreement between the Registrant and DevFactory FZ-LLC, datedJanuary 1, 2014S-1333-19857410.38September 4, 201410.43Stock Purchase Agreement between the Registrant and DevFactory FZ-LLC,dated January 27, 2014S-1333-19857410.39September 4, 201410.44Unconditional Guaranty by Upland IX, LLC, dated March 23, 201510-K001-3672010.44March 31, 201510.45Security Agreement between Upland IX, LLC and Comerica Bank, dated March23, 201510-K001-3672010.45March 31, 201510.46Lease by and between Lincoln One, LLC and the Registrant dated June 19,20158-K001-3672010.1June 22, 201510.47Credit Agreement by and between the Registrant and Wells Fargo Finance,dated May 14, 201510-Q001-3672010.1August 14, 201510.48Guaranty and Security Agreement by and between the Registrant and WellsFargo Capital Finance, dated May 14, 201510-Q001-3672010.2August 14, 20154Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Incorporated by Reference10.49Canadian Guarantee and Security Agreement by and between the Registrant andWells Fargo Capital Finance, dated May 14, 201510-Q001-3672010.3August 14, 201521.1List of subsidiaries of Upland Software, Inc.10-K001-3672021.1August 14, 201523.1*Consent of Ernst & Young LLP, Independent Registered Public AccountingFirm 24.1*Power of Attorney (included on signature pages hereto) 31.1*Certification of the Principal Executive Officer Required Under Rules 13a-14(a)and 15d-14(a) of the Securities Act of 1934, as amended, as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 31.2*Certification of the Principal Financial Officer Required Under Rules 13a-14(a)and 15d-14(a) of the Securities Act of 1934, as amended, as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 32.1*(1)Certification of Principal Executive Officer Required Under Rules 13a-14(a)and 15d-14(a) of the Securities Exchange Act of 1934, as amended, and 18U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 32.2*(1)Certification of Principal Financial Officer Required Under Rules 13a-14(a) and15d-14(a) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C.Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002 101.INSXBRL Instance Document 101.SCHXBRL Taxonomy Extension Schema 101.CALXBRL Taxonomy Extension Calculation Linkbase 101.LABXBRL Taxonomy Extension Label Linkbase 101.PREXBRL Taxonomy Extension Presentation Linkbase 101.DEFXBRL Taxonomy Extension Definition Linkbase + Indicates management contract, compensatory plan or arrangement.* Filed herewith.(1) The material contained in Exhibit 32.1 and Exhibit 32.2 is not deemed “filed” with the SEC and is not to be incorporated by reference into anyfiling of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespectiveof any general incorporation language contained in such filing, except to the extent that the Company specifically incorporates it by reference.5Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 3.1UPLAND SOFTWARE, INC.AMENDED AND RESTATED CERTIFICATE OF INCORPORATIONUpland Software, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies asfollows:A. The corporation was originally incorporated under the name of Silverback Acquisition Corporation, and the originalCertificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on July 7, 2010.B. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with Sections 242 and 245 of theGeneral Corporation Law of the State of Delaware (the “DGCL”), and has been duly approved by the written consent of thestockholders of the corporation in accordance with Section 228 of the DGCL.C. The Certificate of Incorporation of the corporation is hereby amended and restated in its entirety to read as follows:Article IThe name of the corporation is Upland Software, Inc.Article IIThe address of the corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, City ofWilmington, County of New Castle, State of Delaware 19808. The name of its registered agent at such address is The CorporationService Company.Article IIIThe purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under theDGCL.Article IVThe total number of shares of stock that the corporation shall have authority to issue is 55,000,000, consisting of the following:50,000,000 shares of Common Stock, par value $0.0001 per share. Each share of Common Stock shall entitle the holderthereof to one (1) vote on each matter submitted to a vote at a meeting of stockholders. There shall be no cumulative voting of theCommon Stock of the corporation.5,000,000 shares of Preferred Stock, par value $0.0001 per share, which may be issued from time to time in one or more seriespursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being herebyexpressly vested in the Board of Directors). The Board of Directors is further authorized, subject to limitations prescribed by law, to fixby resolution or resolutions the designations, powers, preferences and rights, and the qualifications, limitations orSource: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.restrictions thereof, of any wholly unissued series of Preferred Stock, including without limitation authority to fix by resolution orresolutions the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fundprovisions), redemption price or prices, and liquidation preferences of any such series, and the number of shares constituting any suchseries and the designation thereof, or any of the foregoing.The Board of Directors is further authorized to increase (but not above the total number of authorized shares of the class) ordecrease (but not below the number of shares of any such series then outstanding) the number of shares of any series, the number ofwhich was fixed by it, subsequent to the issuance of shares of such series then outstanding, subject to the powers, preferences andrights, and the qualifications, limitations and restrictions thereof stated in the Certificate of Incorporation or the resolution of the Boardof Directors originally fixing the number of shares of such series. If the number of shares of any series is so decreased, then the sharesconstituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number ofshares of such series.Article VThe number of directors that constitutes the entire Board of Directors of the corporation shall be fixed by, or in the mannerprovided in, the Bylaws of the corporation. At each annual meeting of stockholders, directors of the corporation shall be elected to holdoffice until the expiration of the term for which they are elected and until their successors have been duly elected and qualified or untiltheir earlier resignation or removal; except that if any such election shall not be so held, such election shall take place at a stockholders’meeting called and held in accordance with the DGCL.Effective upon the effective date of the corporation’s initial public offering (the “Effective Date”), the directors of thecorporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III.The Board of Directors may assign members of the Board of Directors already in office to such classes at the time such classificationbecomes effective. The term of office of the initial Class I directors shall expire at the first regularly-scheduled annual meeting of thestockholders following the Effective Date, the term of office of the initial Class II directors shall expire at the second annual meeting ofthe stockholders following the Effective Date and the term of office of the initial Class III directors shall expire at the third annualmeeting of the stockholders following the Effective Date. At each annual meeting of stockholders, commencing with the first regularly-scheduled annual meeting of stockholders following the Effective Date, each of the successors elected to replace the directors of aClass whose term shall have expired at such annual meeting shall be elected to hold office until the third annual meeting nextsucceeding his or her election and until his or her respective successor shall have been duly elected and qualified.Notwithstanding the foregoing provisions of this Article, each director shall serve until his or her successor is duly elected andqualified or until his or her death, resignation, or removal. If the number of directors is hereafter changed, any newly createddirectorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number asis practicable, provided that no decrease in the number of directors constituting the Board of Directors shall shorten the term of anyincumbent director.Any director may be removed from office by the stockholders of the corporation only for cause. Vacancies occurring on theBoard of Directors for any reason and newly created directorships resulting from an increase in the authorized number of directors maybe filled only by vote of a majority of the remaining members of the Board of Directors, although less than a quorum, or by a soleremainingSource: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.director, at any meeting of the Board of Directors. A person so elected by the Board of Directors to fill a vacancy or newly createddirectorship shall hold office until the next election of the class for which such director shall have been chosen and until his or hersuccessor shall be duly elected and qualified.Article VIIn furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the corporation is expresslyauthorized to adopt, amend or repeal the Bylaws of the corporation.Article VIIElections of directors need not be by written ballot unless the Bylaws of the corporation shall so provide.Article VIIINo action shall be taken by the stockholders of the corporation except at an annual or special meeting of the stockholders calledin accordance with the Bylaws, and no action shall be taken by the stockholders by written consent.Article IXTo the fullest extent permitted by the DGCL, as it presently exists or may hereafter be amended from time to time, a director ofthe corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty asa director. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, thenthe liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.Neither any amendment nor repeal of this Article, nor the adoption of any provision of this corporation’s Certificate ofIncorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or anycause of action, suit or proceeding accruing or arising or that, but for this Article, would accrue or arise, prior to such amendment,repeal or adoption of an inconsistent provision.Article XSubject to any provisions in the Bylaws of the corporation related to indemnification of directors or officers of the corporation,the corporation may indemnify, to the fullest extent permitted by applicable law, any director or officer of the corporation who was oris a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal,administrative or investigative (a “Proceeding”) by reason of the fact that he or she is or was a director, officer, employee or agent ofthe corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation,partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses(including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person inconnection with any such Proceeding. The corporation may be required to indemnify a person in connection with a Proceedinginitiated by such person only if the Proceeding was authorized by the Board.The corporation shall have the power to indemnify, to the extent permitted by the DGCL, as it presently exists or may hereafterbe amended from time to time, any employee or agent of the corporationSource: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.who was or is a party or is threatened to be made a party to any Proceeding by reason of the fact that he or she is or was a director,officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee oragent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefitplans, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurredby such person in connection with any such Proceeding.A right to indemnification or to advancement of expenses arising under a provision of this Certificate of Incorporation or abylaw of the corporation shall not be eliminated or impaired by an amendment to this Certificate of Incorporation or the Bylaws of thecorporation after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suitor proceeding for which indemnification or advancement of expenses is sought, unless the provision in effect at the time of such act oromission explicitly authorizes such elimination or impairment after such action or omission has occurred.Article XIExcept as provided in Article IX and Article X above, the corporation reserves the right to amend, alter, change or repeal anyprovision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferredupon stockholders herein are granted subject to this reservation. Notwithstanding any other provision of this Certificate ofIncorporation, and in addition to any other vote that may be required by law or the terms of any series of Preferred Stock, theaffirmative vote of the holders of at least two-thirds of the voting power of all then outstanding shares of capital stock of thecorporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend, alter orrepeal, or adopt any provision as part of this Certificate of Incorporation inconsistent with the purpose and intent of, Article IV, ArticleV, Article VI, Article VII, Article IX, Article X or this Article XI (including, without limitation, any such Article as renumbered as aresult of any amendment, alteration, change, repeal or adoption of any other Article).IN WITNESS WHEREOF, Upland Software, Inc. has caused this Amended and Restated Certificate of Incorporation to besigned by the Chief Executive Officer of the corporation on this 12th day of November 2014.By: /s/ John T. McDonald John T. McDonald, Chief Executive OfficerSource: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 3.2AMENDED AND RESTATED BYLAWS OFUPLAND SOFTWARE, INC.(as amended and restated on October 9, 2014 and effective as of November 12, 2014)Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TABLE OF CONTENTSPageARTICLE I - CORPORATE OFFICES11.1REGISTERED OFFICE11.2OTHER OFFICES1ARTICLE II - MEETINGS OF STOCKHOLDERS12.1PLACE OF MEETING12.2ANNUAL MEETING12.3SPECIAL MEETING12.4ADVANCE NOTICE PROCEDURES12.5NOTICE OF STOCKHOLDERS' MEETINGS12.6QUORUM12.7ADJOURNED MEETING; NOTICE12.8CONDUCT OF BUSINESS12.9VOTING12.10STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING12.11RECORD DATES12.12PROXIES12.13LIST OF STOCKHOLDERS ENTITLED TO VOTE12.14INSPECTORS OF ELECTION1ARTICLE III - DIRECTORS93.1POWERS93.2NUMBER OF DIRECTORS93.3ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS93.4RESIGNATION AND VACANCIES93.5PLACE OF MEETINGS; MEETINGS BY TELEPHONE93.6REGULAR MEETINGS93.7SPECIAL MEETINGS; NOTICE93.8QUORUM; VOTING93.9BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING93.10FEES AND COMPENSATION OF DIRECTORS93.11REMOVAL OF DIRECTORS9iSource: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TABLE OF CONTENTS(continued)ARTICLE IV - COMMITTEES124.1COMMITTEES OF DIRECTORS124.2COMMITEE MINUTES124.3MEETINGS AND ACTION OF COMMITTEES124.4SUBCOMMITTEES12ARTICLE V - OFFICERS135.1OFFICERS135.2APPOINTMENT OF OFFICERS135.3SUBORDINATE OFFICERS135.4REMOVAL AND RESIGNATION OF OFFICERS135.5VACANCIES IN OFFICES135.6REPRESENTATION OF SHARES OF OTHER CORPORATIONS135.7AUTHORITY AND DUTIES OF OFFICERS13ARTICLE VI - STOCK156.1STOCK CERTIFICATES; PARTLY PAID SHARES156.2SPECIAL DESIGNATION ON CERTIFICATES156.3LOST CERTIFICATES156.4DIVIDENDS156.5TRANSFER OF STOCK156.6STOCK TRANSFER AGREEMENTS156.7REGISTERED STOCKHOLDERS15ARTICLE VII - MANNER OF GIVING NOTICE AND WAIVER177.1NOTICE OF STOCKHOLDERS' MEETINGS177.2NOTICE BY ELECTRONIC TRANSMISSION177.3NOTICE TO STOCKHOLDERS SHARING AN ADDRESS177.4NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL177.5WAIVER OF NOTICE17ARTICLE VIII - INDEMNIFICIATION188.1INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGS188.2INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTION BY OR IN THE RIGHT OF THECORPORATION188.3SUCCESSFUL DEFENSE18iiSource: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TABLE OF CONTENTS(continued)8.4INDEMNIFICATION OF OTHERS188.5ADVANCED PAYMENT OF EXPENSES188.6LIMITATION ON INDEMNIFICATION188.7DETERMINATION; CLAIM188.8NON-EXCLUSIVITY OF RIGHTS188.9INSURANCE188.10SURVIVAL188.11EFFECT OF REPEAL OR MODIFICATION188.12CERTAIN DEFINITIONS18ARTICLE IX - GENERAL MATTERS229.1EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS229.2FISCAL YEAR229.3SEAL229.4CONSTRUCTION; DEFINITIONS22ARTICLE X - AMENDMENTS23iiiSource: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.BYLAWS OF UPLAND SOFTWARE, INC.ARTICLE I - CORPORATE OFFICES1.1REGISTERED OFFICEThe registered office of Upland Software, Inc. shall be fixed in the corporation’s certificate of incorporation, as the same maybe amended from time to time, including the terms of any certificate of designations of any series of Preferred Stock.1.2OTHER OFFICESThe corporation’s board of directors may at any time establish other offices at any place or places where the corporation isqualified to do business.ARTICLE II - MEETINGS OF STOCKHOLDERS2.1PLACE OF MEETINGSMeetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board ofdirectors. The board of directors may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, butmay instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware GeneralCorporation Law (the “DGCL”). In the absence of any such designation or determination, stockholders’ meetings shall be held at thecorporation’s principal executive office.2.2ANNUAL MEETINGThe annual meeting of stockholders shall be held each year. The board of directors shall designate the date and time of theannual meeting. At the annual meeting, directors shall be elected and any other proper business may be transacted.2.3SPECIAL MEETING(i)A special meeting of the stockholders, other than those required by statute, may be called at any time by theboard of directors, chairperson of the board of directors, chief executive officer or president (in the absence of a chief executiveofficer), but a special meeting may not be called by any other person or persons. The board of directors may cancel, postpone orreschedule any previously scheduled special meeting at any time, before or after the notice for such meeting has been sent to thestockholders.(ii)The notice of a special meeting shall include the purpose for which the meeting is called. Only such businessshall be conducted at a special meeting of stockholders as shall have been brought before the meeting by or at the direction of the boardof directors, chairperson of the board of directors, chief executive officer or president (in the absence of a chief executive officer).Nothing contained in this Section 2.3(ii) shall be construed as limiting, fixing or affecting the time when a meeting of stockholderscalled by action of the board of directors may be held.1Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.2.4ADVANCE NOTICE PROCEDURES(i)Advance Notice of Stockholder Business. At an annual meeting of the stockholders, only such business shallbe conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business mustbe brought: (A) pursuant to the corporation’s proxy materials with respect to such meeting, (B) by or at the direction of the board ofdirectors, or (C) by a stockholder of the corporation who (1) is a stockholder of record at the time of the giving of the notice requiredby this Section 2.4(i), on the record date for the determination of stockholders entitled to notice of the annual meeting and on the recorddate for the determination of stockholders entitled to vote at the annual meeting and (2) has timely complied in proper written form withthe notice procedures set forth in this Section 2.4(i). In addition, for business to be properly brought before an annual meeting by astockholder, such business must be a proper matter for stockholder action pursuant to these bylaws and applicable law. For theavoidance of doubt, clause (C) above shall be the exclusive means for a stockholder to bring business before an annual meeting ofstockholders.(a)To comply with clause (C) of Section 2.4(i) above, a stockholder’s notice must set forth allinformation required under this Section 2.4(i) and must be timely received by the secretary of the corporation. To be timely, astockholder’s notice must be received by the secretary at the principal executive offices of the corporation not later than the 45th daynor earlier than the 75th day before the one-year anniversary of the date on which the corporation first mailed its proxy materials or anotice of availability of proxy materials (whichever is earlier) for the preceding year’s annual meeting; provided, however, that in theevent that no annual meeting was held in the previous year or if the date of the annual meeting is advanced by more than 30 days priorto or delayed by more than 60 days after the one-year anniversary of the date of the previous year’s annual meeting, then, for notice bythe stockholder to be timely, it must be so received by the secretary not earlier than the close of business on the 120th day prior to suchannual meeting and not later than the close of business on the later of (i) the 90th day prior to such annual meeting, or (ii) the tenth dayfollowing the day on which Public Announcement (as defined below) of the date of such annual meeting is first made. In no eventshall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the givingof a stockholder’s notice as described in this Section 2.4(i)(a). “Public Announcement” shall mean disclosure in a press releasereported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed bythe corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of1934, as amended, or any successor thereto (the “1934 Act”).(b)To be in proper written form, a stockholder’s notice to the secretary must set forth as to each matter ofbusiness the stockholder intends to bring before the annual meeting: (1) a brief description of the business intended to be broughtbefore the annual meeting and the reasons for conducting such business at the annual meeting, (2) the name and address, as theyappear on the corporation’s books, of the stockholder proposing such business and any Stockholder Associated Person (as definedbelow), (3) the class and number of shares of the corporation that are held of record or are beneficially owned by the stockholder orany Stockholder Associated Person and any derivative positions held or beneficially held by the stockholder or any StockholderAssociated Person, (4) whether and the extent to which any hedging or other transaction or series of transactions has been entered intoby or on behalf of such stockholder or any Stockholder Associated Person with respect to any securities of the corporation, and adescription of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares),the effect or intent of which is to mitigate loss to, or to manage the risk or benefit from share price changes for, or to increase ordecrease the voting power of, such stockholder or any Stockholder Associated Person with respect to any securities of the corporation,(5) any material interest of the stockholder or a Stockholder Associated Person in such business, and (6) a statement whether eithersuch stockholder or any Stockholder Associated Person will deliver a proxy2Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.statement and form of proxy to holders of at least the percentage of the corporation’s voting shares required under applicable law tocarry the proposal (such information provided and statements made as required by clauses (1) through (6), a “Business SolicitationStatement”). In addition, to be in proper written form, a stockholder’s notice to the secretary must be supplemented not later than tendays following the record date for the determination of stockholders entitled to notice of the meeting, to disclose the informationcontained in clauses (3) and (4) above as of the applicable record date. For purposes of this Section 2.4, a “Stockholder AssociatedPerson” of any stockholder shall mean (i) any person controlling, directly or indirectly, or acting in concert with, such stockholder, (ii)any beneficial owner of shares of stock of the corporation owned of record or beneficially by such stockholder and on whose behalfthe proposal or nomination, as the case may be, is being made, or (iii) any person controlling, controlled by or under common controlwith such person referred to in the preceding clauses (i) and (ii).(c)Without exception, no business shall be conducted at any annual meeting except in accordance withthe provisions set forth in this Section 2.4(i) and, if applicable, Section 2.4(ii). In addition, business proposed to be brought by astockholder may not be brought before the annual meeting if such stockholder or a Stockholder Associated Person, as applicable, takesaction contrary to the representations made in the Business Solicitation Statement applicable to such business or if the BusinessSolicitation Statement applicable to such business contains an untrue statement of a material fact or omits to state a material factnecessary to make the statements therein not misleading. The chairperson of the annual meeting shall, if the facts warrant, determineand declare at the annual meeting that business was not properly brought before the annual meeting and in accordance with theprovisions of this Section 2.4(i), and, if the chairperson should so determine, he or she shall so declare at the annual meeting that anysuch business not properly brought before the annual meeting shall not be conducted.(ii)Advance Notice of Director Nominations at Annual Meetings. Notwithstanding anything in these bylaws tothe contrary, only persons who are nominated in accordance with the procedures set forth in this Section 2.4(ii) shall be eligible forelection or re-election as directors at an annual meeting of stockholders. Nominations of persons for election or re-election to the boardof directors of the corporation shall be made at an annual meeting of stockholders only (A) by or at the direction of the board ofdirectors or (B) by a stockholder of the corporation who (1) was a stockholder of record at the time of the giving of the notice requiredby this Section 2.4(ii), on the record date for the determination of stockholders entitled to notice of the annual meeting and on therecord date for the determination of stockholders entitled to vote at the annual meeting and (2) has complied with the notice proceduresset forth in this Section 2.4(ii). In addition to any other applicable requirements, for a nomination to be made by a stockholder, thestockholder must have given timely notice thereof in proper written form to the secretary of the corporation.(a)To comply with clause (B) of Section 2.4(ii) above, a nomination to be made by a stockholder mustset forth all information required under this Section 2.4(ii) and must be received by the secretary of the corporation at the principalexecutive offices of the corporation at the time set forth in, and in accordance with, the final three sentences of Section 2.4(i)(a) above.(b)To be in proper written form, such stockholder’s notice to the secretary must set forth:(1)as to each person (a “nominee”) whom the stockholder proposes to nominate for election orre-election as a director: (A) the name, age, business address and residence address of the nominee, (B) the principal occupation oremployment of the nominee, (C) the class and number of shares of the corporation that are held of record or are beneficially owned bythe nominee and3Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.any derivative positions held or beneficially held by the nominee, (D) whether and the extent to which any hedging or other transactionor series of transactions has been entered into by or on behalf of the nominee with respect to any securities of the corporation, and adescription of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares),the effect or intent of which is to mitigate loss to, or to manage the risk or benefit of share price changes for, or to increase or decreasethe voting power of the nominee, (E) a description of all arrangements or understandings between the stockholder and each nomineeand any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by thestockholder, (F) a written statement executed by the nominee acknowledging that as a director of the corporation, the nominee willowe a fiduciary duty under Delaware law with respect to the corporation and its stockholders, and (G) any other information relating tothe nominee that would be required to be disclosed about such nominee if proxies were being solicited for the election or re-election ofthe nominee as a director, or that is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including withoutlimitation the nominee’s written consent to being named in the proxy statement, if any, as a nominee and to serving as a director ifelected or re-elected, as the case may be); and(2)as to such stockholder giving notice, (A) the information required to be provided pursuant toclauses (2) through (5) of Section 2.4(i)(b) above, and the supplement referenced in the second sentence of Section 2.4(i)(b) above(except that the references to “business” in such clauses shall instead refer to nominations of directors for purposes of this paragraph),and (B) a statement whether either such stockholder or Stockholder Associated Person will deliver a proxy statement and form ofproxy to holders of a number of the corporation’s voting shares reasonably believed by such stockholder or Stockholder AssociatedPerson to be necessary to elect or re-elect such nominee(s) (such information provided and statements made as required by clauses (A)and (B) above, a “Nominee Solicitation Statement”).(c)At the request of the board of directors, any person nominated by a stockholder for election or re-election as a director must furnish to the secretary of the corporation (1) that information required to be set forth in the stockholder’snotice of nomination of such person as a director as of a date subsequent to the date on which the notice of such person’s nominationwas given and (2) such other information as may reasonably be required by the corporation to determine the eligibility of suchproposed nominee to serve as an independent director or audit committee financial expert of the corporation or that could be material toa reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee; in the absence of the furnishing ofsuch information if requested, such stockholder’s nomination shall not be considered in proper form pursuant to this Section 2.4(ii).(d)Without exception, no person shall be eligible for election or re-election as a director of thecorporation at an annual meeting of stockholders unless nominated in accordance with the provisions set forth in this Section 2.4(ii). Inaddition, a nominee shall not be eligible for election or re-election if a stockholder or Stockholder Associated Person, as applicable,takes action contrary to the representations made in the Nominee Solicitation Statement applicable to such nominee or if the NomineeSolicitation Statement applicable to such nominee contains an untrue statement of a material fact or omits to state a material factnecessary to make the statements therein not misleading. The chairperson of the annual meeting shall, if the facts warrant, determineand declare at the annual meeting that a nomination was not made in accordance with the provisions prescribed by these bylaws, and ifthe chairperson should so determine, he or she shall so declare at the annual meeting, and the defective nomination shall bedisregarded.(iii)Advance Notice of Director Nominations for Special Meetings.4Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (a)For a special meeting of stockholders at which directors are to be elected or re-elected pursuant toSection 2.3, nominations of persons for election or re-election to the board of directors shall be made only (1) by or at the direction ofthe board of directors or (2) by any stockholder of the corporation who (A) is a stockholder of record at the time of the giving of thenotice required by this Section 2.4(iii), on the record date for the determination of stockholders entitled to notice of the special meetingand on the record date for the determination of stockholders entitled to vote at the special meeting and (B) delivers a timely writtennotice of the nomination to the secretary of the corporation that includes the information set forth in Sections 2.4(ii)(b) and (ii)(c)above. To be timely, such notice must be received by the secretary at the principal executive offices of the corporation not later than theclose of business on the later of the 90th day prior to such special meeting or the tenth day following the day on which PublicAnnouncement is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected orre-elected at such meeting. A person shall not be eligible for election or re-election as a director at a special meeting unless the person isnominated (i) by or at the direction of the board of directors or (ii) by a stockholder in accordance with the notice procedures set forthin this Section 2.4(iii). In addition, a nominee shall not be eligible for election or re-election if a stockholder or Stockholder AssociatedPerson, as applicable, takes action contrary to the representations made in the Nominee Solicitation Statement applicable to suchnominee or if the Nominee Solicitation Statement applicable to such nominee contains an untrue statement of a material fact or omits tostate a material fact necessary to make the statements therein not misleading.(b)The chairperson of the special meeting shall, if the facts warrant, determine and declare at the meetingthat a nomination or business was not made in accordance with the procedures prescribed by these bylaws, and if the chairpersonshould so determine, he or she shall so declare at the meeting, and the defective nomination or business shall be disregarded.(iv)Other Requirements and Rights. In addition to the foregoing provisions of this Section 2.4, a stockholdermust also comply with all applicable requirements of state law and of the 1934 Act and the rules and regulations thereunder withrespect to the matters set forth in this Section 2.4, including, with respect to business such stockholder intends to bring before theannual meeting that involves a proposal that such stockholder requests to be included in the corporation’s proxy statement, therequirements of Rule 14a-8 (or any successor provision) under the 1934 Act. Nothing in this Section 2.4 shall be deemed to affect anyright of the corporation to omit a proposal from the corporation’s proxy statement pursuant to Rule 14a-8 (or any successor provision)under the 1934 Act.2.5NOTICE OF STOCKHOLDERS’ MEETINGSWhenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be givenwhich shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholdersand proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholdersentitled to vote at the meeting, if such date is different from the record date for determining stockholders entitled to notice of themeeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Except as otherwise provided inthe DGCL, the certificate of incorporation or these bylaws, the written notice of any meeting of stockholders shall be given not lessthan 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting as of the record datefor determining the stockholders entitled to notice of the meeting.5Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.2.6QUORUMThe holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented by proxy,shall constitute a quorum for the transaction of business at all meetings of the stockholders. Where a separate vote by a class or series orclasses or series is required, a majority of the outstanding shares of such class or series or classes or series, present in person orrepresented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter, except as otherwiseprovided by law, the certificate of incorporation or these bylaws.If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairperson of themeeting, or (ii) the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have power to adjournthe meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. Atsuch adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted atthe meeting as originally noticed.2.7ADJOURNED MEETING; NOTICE When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of theadjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders andproxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which theadjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at theoriginal meeting. If the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder ofrecord entitled to vote at the meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for theadjourned meeting, the board of directors shall fix a new record date for notice of such adjourned meeting in accordance with Section213(a) of the DGCL and Section 2.11 of these bylaws, and shall give notice of the adjourned meeting to each stockholder of recordentitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting.2.8CONDUCT OF BUSINESSThe chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting,including such regulation of the manner of voting and the conduct of business.2.9VOTINGThe stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions ofSection 2.11 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) andSection 218 (relating to voting trusts and other voting agreements) of the DGCL.Except as may be otherwise provided in the certificate of incorporation or these bylaws, each stockholder shall be entitled toone vote for each share of capital stock held by such stockholder. There shall be no cumulative voting of the shares of capital stock ofthe corporation.Except as otherwise required by law, the certificate of incorporation or these bylaws, in all matters other than the election ofdirectors, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meetingand entitled to vote on the subject matter shall be6Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.the act of the stockholders. Except as otherwise required by law, the certificate of incorporation or these bylaws, directors shall beelected by a plurality of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote onthe election of directors. Where a separate vote by a class or series or classes or series is required, in all matters other than the electionof directors, the affirmative vote of the majority of shares of such class or series or classes or series present in person or represented byproxy at the meeting shall be the act of such class or series or classes or series, except as otherwise provided by law, the certificate ofincorporation or these bylaws.2.10STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETINGSubject to the rights of the holders of the shares of any series of Preferred Stock or any other class of stock or series thereof thathave been expressly granted the right to take action by written consent, any action required or permitted to be taken by the stockholdersof the corporation must be effected at a duly called annual or special meeting of stockholders of the corporation and may not beeffected by any consent in writing by such stockholders.2.11RECORD DATESIn order that the corporation may determine the stockholders entitled to notice of any meeting of stockholders or anyadjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which theresolution fixing the record date is adopted by the board of directors and which record date shall not be more than 60 nor less than 10days before the date of such meeting. If the board of directors so fixes a date, such date shall also be the record date for determining thestockholders entitled to vote at such meeting unless the board of directors determines, at the time it fixes such record date, that a laterdate on or before the date of the meeting shall be the date for making such determination.If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of and to voteat a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice iswaived, at the close of business on the day next preceding the day on which the meeting is held.A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to anyadjournment of the meeting; provided, however, that the board of directors may fix a new record date for determination of stockholdersentitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of suchadjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with theprovisions of Section 213 of the DGCL and this Section 2.11 at the adjourned meeting.In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution orallotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, orfor the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the dateupon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action.If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the dayon which the board of directors adopts the resolution relating thereto.7Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.2.12PROXIESEach stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for suchstockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with theprocedure established for the meeting, but no such proxy shall be voted or acted upon after three years from its date, unless the proxyprovides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisionsof Section 212 of the DGCL.2.13LIST OF STOCKHOLDERS ENTITLED TO VOTEThe officer who has charge of the stock ledger of the corporation shall prepare and make, at least 10 days before every meetingof stockholders, a complete list of the stockholders entitled to vote at the meeting; provided, however, if the record date for determiningthe stockholders entitled to vote is less than 10 days before the meeting date, the list shall reflect the stockholders entitled to vote as ofthe tenth day before the meeting date, arranged in alphabetical order, and showing the address of each stockholder and the number ofshares registered in the name of each stockholder. The corporation shall not be required to include electronic mail addresses or otherelectronic contact information on such list. Such list shall be open to the examination of any stockholder for any purpose germane tothe meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that theinformation required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at thecorporation’s principal place of business. In the event that the corporation determines to make the list available on an electronicnetwork, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation.If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the wholetime thereof, and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remotecommunication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on areasonably accessible electronic network, and the information required to access such list shall be provided with the notice of themeeting. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number ofshares held by each of them.2.14INSPECTORS OF ELECTIONA written proxy may be in the form of a telegram, cablegram, or other means of electronic transmission which sets forth or issubmitted with information from which it can be determined that the telegram, cablegram, or other means of electronic transmissionwas authorized by the person.Before any meeting of stockholders, the board of directors shall appoint an inspector or inspectors of election to act at themeeting or its adjournment. The number of inspectors shall be either one (1) or three (3). If any person appointed as inspector fails toappear or fails or refuses to act, then the chairperson of the meeting may, and upon the request of any stockholder or a stockholder’sproxy shall, appoint a person to fill that vacancy.Such inspectors shall:(i)determine the number of shares outstanding and the voting power of each, the number of shares represented atthe meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies;8Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(ii)receive votes, ballots or consents;(iii)hear and determine all challenges and questions in any way arising in connection with the right to vote;(iv)count and tabulate all votes or consents;(v)determine when the polls shall close;(vi)determine the result; and(vii)do any other acts that may be proper to conduct the election or vote with fairness to all stockholders.The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously asis practical. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as thedecision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts statedtherein.ARTICLE III - DIRECTORS3.1POWERSThe business and affairs of the corporation shall be managed by or under the direction of the board of directors, except as maybe otherwise provided in the DGCL or the certificate of incorporation.3.2NUMBER OF DIRECTORSThe board of directors shall consist of one or more members, each of whom shall be a natural person. Unless the certificate ofincorporation fixes the number of directors, the number of directors shall be determined from time to time by resolution of the board ofdirectors. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s termof office expires.3.3ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORSExcept as provided in Section 3.4 of these bylaws, each director, including a director elected to fill a vacancy, shall hold officeuntil the expiration of the term for which elected and until such director’s successor is elected and qualified or until such director’searlier death, resignation or removal. Directors need not be stockholders unless so required by the certificate of incorporation or thesebylaws. The certificate of incorporation or these bylaws may prescribe other qualifications for directors.If so provided in the certificate of incorporation, the directors of the corporation shall be divided into classes.3.4RESIGNATION AND VACANCIESAny director may resign at any time upon notice given in writing or by electronic transmission to the corporation; provided,however, that if such notice is given by electronic transmission, such electronic transmission must either set forth or be submitted withinformation from which it can be determined that9Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.the electronic transmission was authorized by the director. A resignation is effective when the resignation is delivered unless theresignation specifies a later effective date or an effective date determined upon the happening of an event or events. Acceptance ofsuch resignation shall not be necessary to make it effective. A resignation which is conditioned upon the director failing to receive aspecified vote for reelection as a director may provide that it is irrevocable. Unless otherwise provided in the certificate of incorporationor these bylaws, when one or more directors resign from the board of directors, effective at a future date, a majority of the directorsthen in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effectwhen such resignation or resignations shall become effective.Unless otherwise provided in the certificate of incorporation or these bylaws, vacancies and newly created directorshipsresulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a singleclass may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If thedirectors are divided into classes, a person so elected by the directors then in office to fill a vacancy or newly created directorship shallhold office until the next election of the class for which such director shall have been chosen and until his or her successor shall havebeen duly elected and qualified.If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then anyofficer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with likeresponsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions ofthe certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election asprovided in Section 211 of the DGCL.If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majorityof the whole board of directors (as constituted immediately prior to any such increase), the Court of Chancery may, upon application ofany stockholder or stockholders holding at least 10% of the voting stock at the time outstanding having the right to vote for suchdirectors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directorschosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL asfar as applicable.3.5PLACE OF MEETINGS; MEETINGS BY TELEPHONEThe board of directors may hold meetings, both regular and special, either within or outside the State of Delaware.Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or anycommittee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means ofconference telephone or other communications equipment by means of which all persons participating in the meeting can hear eachother, and such participation in a meeting shall constitute presence in person at the meeting.3.6REGULAR MEETINGSRegular meetings of the board of directors may be held without notice at such time and at such place as shall from time to timebe determined by the board of directors.10Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.3.7SPECIAL MEETINGS; NOTICESpecial meetings of the board of directors for any purpose or purposes may be called at any time by the chairperson of theboard of directors, the chief executive officer, the president, the secretary or a majority of the authorized number of directors, at suchtimes and places as he or she or they shall designate.Notice of the time and place of special meetings shall be:(i)delivered personally by hand, by courier or by telephone;(ii)sent by United States first-class mail, postage prepaid;(iii)sent by facsimile; or(iv)sent by electronic mail,directed to each director at that director’s address, telephone number, facsimile number or electronic mail address, as the case may be,as shown on the corporation’s records.If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile or (iii) sent by electronic mail,it shall be delivered or sent at least 24 hours before the time of the holding of the meeting. If the notice is sent by United States mail, itshall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may becommunicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the corporation’sprincipal executive office) nor the purpose of the meeting.3.8QUORUM; VOTINGAt all meetings of the board of directors, a majority of the total authorized number of directors shall constitute a quorum for thetransaction of business. If a quorum is not present at any meeting of the board of directors, then the directors present thereat mayadjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting atwhich a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken isapproved by at least a majority of the required quorum for that meeting.The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board ofdirectors, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws.If the certificate of incorporation provides that one or more directors shall have more or less than one vote per director on anymatter, every reference in these bylaws to a majority or other proportion of the directors shall refer to a majority or other proportion ofthe votes of the directors.3.9BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETINGUnless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken atany meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board ofdirectors or committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings orelectronic transmission or11Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.transmissions are filed with the minutes of proceedings of the board of directors or committee. Such filing shall be in paper form if theminutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. Any person(whether or not then a director) may provide, whether through instruction to an agent or otherwise, that a consent to action will beeffective at a future time (including a time determined upon the happening of an event), no later than 60 days after such instruction isgiven or such provision is made and such consent shall be deemed to have been given for purposes of this Section 3.9 at such effectivetime so long as such person is then a director and did not revoke the consent prior to such time. Any such consent shall be revocableprior to its becoming effective.3.10FEES AND COMPENSATION OF DIRECTORSUnless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority tofix the compensation of directors.3.11REMOVAL OF DIRECTORSAny director may be removed from office by the stockholders of the corporation only for cause.No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of suchdirector’s term of office.ARTICLE IV - COMMITTEES4.1COMMITTEES OF DIRECTORSThe board of directors may, by resolution passed by a majority of the authorized number of directors, designate one or morecommittees, each committee to consist of one or more of the directors of the corporation. The board of directors may designate one ormore directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of thecommittee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting andnot disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another memberof the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extentprovided in the resolution of the board of directors or in these bylaws, shall have and may exercise all the powers and authority of theboard of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to beaffixed to all papers that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommendto the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to besubmitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the corporation.4.2COMMITTEE MINUTESEach committee shall keep regular minutes of its meetings and report the same to the board of directors when required.4.3MEETINGS AND ACTION OF COMMITTEESMeetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:12Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(i)Section 3.5 (place of meetings and meetings by telephone);(ii)Section 3.6 (regular meetings);(iii)Section 3.7 (special meetings and notice);(iv)Section 3.8 (quorum; voting);(v)Section 7.5 (waiver of notice); and(vi)Section 3.9 (action without a meeting)with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directorsand its members. However:(i)the time of regular meetings of committees may be determined either by resolution of the board of directors orby resolution of the committee;(ii)special meetings of committees may also be called by resolution of the board of directors; and(iii)notice of special meetings of committees shall also be given to all alternate members, who shall have theright to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee notinconsistent with the provisions of these bylaws.Any provision in the certificate of incorporation providing that one or more directors shall have more or less than one vote perdirector on any matter shall apply to voting in any committee or subcommittee, unless otherwise provided in the certificate ofincorporation or these bylaws.4.4SUBCOMMITTEESUnless otherwise provided in the certificate of incorporation, these bylaws or the resolutions of the board of directorsdesignating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more membersof the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.ARTICLE V - OFFICERS5.1OFFICERSThe officers of the corporation shall be a president and a secretary. The corporation may also have, at the discretion of theboard of directors, a chairperson of the board of directors, a vice chairperson of the board of directors, a chief executive officer, a chieffinancial officer or treasurer, one or more vice presidents, one or more assistant vice presidents, one or more assistant treasurers, one ormore assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Anynumber of offices may be held by the same person.13Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.5.2APPOINTMENT OF OFFICERSThe board of directors shall appoint the officers of the corporation, except such officers as may be appointed in accordancewith the provisions of Sections 5.3 of these bylaws, subject to the rights, if any, of an officer under any contract of employment.5.3SUBORDINATE OFFICERSThe board of directors may appoint, or empower the chief executive officer or, in the absence of a chief executive officer, thepresident, to appoint, such other officers and agents as the business of the corporation may require. Each of such officers and agentsshall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board ofdirectors may from time to time determine.5.4REMOVAL AND RESIGNATION OF OFFICERSSubject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with orwithout cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board of directorsor, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may beconferred by the board of directors.Any officer may resign at any time by giving written or electronic notice to the corporation; provided, however, that if suchnotice is given by electronic transmission, such electronic transmission must either set forth or be submitted with information fromwhich it can be determined that the electronic transmission was authorized by the officer. Any resignation shall take effect at the date ofthe receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, theacceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of thecorporation under any contract to which the officer is a party.5.5VACANCIES IN OFFICESAny vacancy occurring in any office of the corporation shall be filled by the board of directors or as provided in Section 5.3.5.6REPRESENTATION OF SHARES OF OTHER CORPORATIONSThe chairperson of the board of directors, the president, any vice president, the treasurer, the secretary or assistant secretary ofthis corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote,represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporationsstanding in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any otherperson authorized to do so by proxy or power of attorney duly executed by such person having the authority.5.7AUTHORITY AND DUTIES OF OFFICERSAll officers of the corporation shall respectively have such authority and perform such duties in the management of the businessof the corporation as may be designated from time to time by the board of14Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.directors or the stockholders and, to the extent not so provided, as generally pertain to their respective offices, subject to the control ofthe board of directors.ARTICLE VI - STOCK6.1STOCK CERTIFICATES; PARTLY PAID SHARESThe shares of the corporation shall be represented by certificates, provided that the board of directors may provide by resolutionor resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall notapply to shares represented by a certificate until such certificate is surrendered to the corporation. Every holder of stock represented bycertificates shall be entitled to have a certificate signed by, or in the name of the corporation by the chairperson of the board of directorsor vice-chairperson of the board of directors, or the president or a vice-president, and by the treasurer or an assistant treasurer, or thesecretary or an assistant secretary of the corporation representing the number of shares registered in certificate form. Any or all of thesignatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimilesignature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, itmay be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.The corporation shall not have power to issue a certificate in bearer form.The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of theconsideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly-paid shares, orupon the books and records of the corporation in the case of uncertificated partly-paid shares, the total amount of the consideration tobe paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully-paid shares, the corporationshall declare a dividend upon partly-paid shares of the same class, but only upon the basis of the percentage of the considerationactually paid thereon.6.2SPECIAL DESIGNATION ON CERTIFICATESIf the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, thedesignations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof andthe qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or backof the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwiseprovided in Section 202 of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificatethat the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge toeach stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights ofeach class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within areasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a writtennotice containing the information required to be set forth or stated on certificates pursuant to this section 6.2 or Sections 156, 202(a) or218(a) of the DGCL or with respect to this section 6.2 a statement that the corporation will furnish without charge to each stockholderwho so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stockor series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expresslyprovided by law, the rights and obligations of the holders of uncertificated stock and the rights and obligations of the holders ofcertificates representing stock of the same class and series shall be identical.15Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.6.3LOST CERTIFICATESExcept as provided in this Section 6.3, no new certificates for shares shall be issued to replace a previously issued certificateunless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stockor uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and thecorporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give thecorporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft ordestruction of any such certificate or the issuance of such new certificate or uncertificated shares.6.4DIVIDENDSThe board of directors, subject to any restrictions contained in the certificate of incorporation or applicable law, may declareand pay dividends upon the shares of the corporation’s capital stock. Dividends may be paid in cash, in property, or in shares of thecorporation’s capital stock, subject to the provisions of the certificate of incorporation.The board of directors may set apart out of any of the funds of the corporation available for dividends a reserve or reserves forany proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairingor maintaining any property of the corporation, and meeting contingencies.6.5TRANSFER OF STOCK Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person orby an attorney duly authorized, and, if such stock is certificated, upon the surrender of a certificate or certificates for a like number ofshares, properly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer; provided, however,that such succession, assignment or authority to transfer is not prohibited by the certificate of incorporation, these bylaws, applicablelaw or contract.6.6STOCK TRANSFER AGREEMENTSThe corporation shall have power to enter into and perform any agreement with any number of stockholders of any one ormore classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes ownedby such stockholders in any manner not prohibited by the DGCL.6.7REGISTERED STOCKHOLDERSThe corporation:(i)shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares toreceive dividends and to vote as such owner;(ii)shall be entitled to hold liable for calls and assessments the person registered on its books as the owner ofshares; and16Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(iii)shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the partof another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.ARTICLE VII - MANNER OF GIVING NOTICE AND WAIVER7.1NOTICE OF STOCKHOLDERS’ MEETINGSNotice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed tothe stockholder at such stockholder’s address as it appears on the corporation’s records. An affidavit of the secretary or an assistantsecretary of the corporation or of the transfer agent or other agent of the corporation that the notice has been given shall, in the absenceof fraud, be prima facie evidence of the facts stated therein.7.2NOTICE BY ELECTRONIC TRANSMISSIONWithout limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, thecertificate of incorporation or these bylaws, any notice to stockholders given by the corporation under any provision of the DGCL, thecertificate of incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by thestockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation.Any such consent shall be deemed revoked if:(i)the corporation is unable to deliver by electronic transmission two consecutive notices given by thecorporation in accordance with such consent; and(ii)such inability becomes known to the secretary or an assistant secretary of the corporation or to the transferagent, or other person responsible for the giving of notice.However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.Any notice given pursuant to the preceding paragraph shall be deemed given:(iii)if by facsimile telecommunication, when directed to a number at which the stockholder has consented toreceive notice;(iv)if by electronic mail, when directed to an electronic mail address at which the stockholder has consented toreceive notice;(v)if by a posting on an electronic network together with separate notice to the stockholder of such specificposting, upon the later of (A) such posting and (B) the giving of such separate notice; and(vi)if by any other form of electronic transmission, when directed to the stockholder.An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice hasbeen given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.17Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.An “electronic transmission” means any form of communication, not directly involving the physical transmission of paper,that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paperform by such a recipient through an automated process.7.3NOTICE TO STOCKHOLDERS SHARING AN ADDRESSExcept as otherwise prohibited under the DGCL, without limiting the manner by which notice otherwise may be giveneffectively to stockholders, any notice to stockholders given by the corporation under the provisions of the DGCL, the certificate ofincorporation or these bylaws shall be effective if given by a single written notice to stockholders who share an address if consented toby the stockholders at that address to whom such notice is given. Any such consent shall be revocable by the stockholder by writtennotice to the corporation. Any stockholder who fails to object in writing to the corporation, within 60 days of having been givenwritten notice by the corporation of its intention to send the single notice, shall be deemed to have consented to receiving such singlewritten notice.7.4NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFULWhenever notice is required to be given, under the DGCL, the certificate of incorporation or these bylaws, to any person withwhom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply toany governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall betaken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if suchnotice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under theDGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receivenotice except such persons with whom communication is unlawful.7.5WAIVER OF NOTICEWhenever notice is required to be given to stockholders, directors or other persons under any provision of the DGCL, thecertificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronictransmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall bedeemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when theperson attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any businessbecause the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular orspecial meeting of the stockholders or board of directors, as the case may be, need be specified in any written waiver of notice or anywaiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.ARTICLE VIII - INDEMNIFICATION 8.1INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGSSubject to the other provisions of this Article VIII, the corporation shall indemnify, to the fullest extent permitted by the DGCL,as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending orcompleted action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) (other than an action byor in the right of18Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.the corporation) by reason of the fact that such person is or was a director or officer of the corporation, or is or was a director or officerof the corporation serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership,joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlementactually and reasonably incurred by such person in connection with such Proceeding if such person acted in good faith and in a mannersuch person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal actionor proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any Proceeding byjudgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumptionthat the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the bestinterests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’sconduct was unlawful.8.2INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE RIGHT OF THECORPORATIONSubject to the other provisions of this Article VIII, the corporation shall indemnify, to the fullest extent permitted by the DGCL,as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending orcompleted action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person isor was a director or officer of the corporation, or is or was a director or officer of the corporation serving at the request of thecorporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise againstexpenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement ofsuch action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to thebest interests of the corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which suchperson shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court inwhich such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all thecircumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery orsuch other court shall deem proper.8.3SUCCESSFUL DEFENSETo the extent that a present or former director or officer of the corporation has been successful on the merits or otherwise indefense of any action, suit or proceeding described in Section 8.1 or Section 8.2, or in defense of any claim, issue or matter therein,such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person inconnection therewith.8.4INDEMNIFICATION OF OTHERSSubject to the other provisions of this Article VIII, the corporation shall have power to indemnify its employees and agents tothe extent not prohibited by the DGCL or other applicable law. The board of directors shall have the power to delegate to such personor persons the determination of whether employees or agents shall be indemnified.19Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.8.5ADVANCED PAYMENT OF EXPENSESExpenses (including attorneys’ fees) incurred by an officer or director of the corporation in defending any Proceeding shall bepaid by the corporation in advance of the final disposition of such Proceeding upon receipt of a written request therefor (together withdocumentation reasonably evidencing such expenses) and an undertaking by or on behalf of the person to repay such amounts if itshall ultimately be determined that the person is not entitled to be indemnified under this Article VIII or the DGCL. Such expenses(including attorneys’ fees) incurred by former directors and officers or other employees and agents of the corporation or by personsserving at the request of the corporation as directors, officers, employees or agents of another corporation, partnership, joint venture,trust or other enterprise may be so paid upon such terms and conditions, if any, as the corporation deems appropriate and shall besubject to the corporation’s expense guidelines. The right to advancement of expenses shall not apply to any claim for which indemnityis excluded pursuant to these bylaws, but shall apply to any Proceeding referenced in Section 8.6(ii) or 8.6(iii) prior to a determinationthat the person is not entitled to be indemnified by the corporation.Notwithstanding the foregoing, unless otherwise determined pursuant to Section 8.8, no advance shall be made by thecorporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation, inwhich event this paragraph shall not apply) in any Proceeding if a determination is reasonably and promptly made (i) by a majorityvote of the directors who are not parties to such Proceeding, even though less than a quorum, or (ii) by a committee of such directorsdesignated by majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directorsso direct, by independent legal counsel in a written opinion, that facts known to the decision-making party at the time suchdetermination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did notbelieve to be in or not opposed to the best interests of the corporation.8.6LIMITATION ON INDEMNIFICATIONSubject to the requirements in Section 8.3 and the DGCL, the corporation shall not be obligated to indemnify any personpursuant to this Article VIII in connection with any Proceeding (or any part of any Proceeding):(i)for which payment has actually been made to or on behalf of such person under any statute, insurance policy,indemnity provision, vote or otherwise, except with respect to any excess beyond the amount paid;(ii)for an accounting or disgorgement of profits pursuant to Section 16(b) of the 1934 Act, or similar provisionsof federal, state or local statutory law or common law, if such person is held liable therefor (including pursuant to any settlementarrangements);(iii)for any reimbursement of the corporation by such person of any bonus or other incentive-based or equity-based compensation or of any profits realized by such person from the sale of securities of the corporation, as required in each caseunder the 1934 Act (including any such reimbursements that arise from an accounting restatement of the corporation pursuant toSection 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the corporation of profits arising fromthe purchase and sale by such person of securities in violation of Section 306 of the Sarbanes-Oxley Act), if such person is held liabletherefor (including pursuant to any settlement arrangements);20Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(iv)initiated by such person, including any Proceeding (or any part of any Proceeding) initiated by such personagainst the corporation or its directors, officers, employees, agents or other indemnitees, unless (a) the board of directors authorized theProceeding (or the relevant part of the Proceeding) prior to its initiation, (b) the corporation provides the indemnification, in its solediscretion, pursuant to the powers vested in the corporation under applicable law, (c) otherwise required to be made under Section 8.7or (d) otherwise required by applicable law; or(v)if prohibited by applicable law.8.7DETERMINATION; CLAIMIf a claim for indemnification or advancement of expenses under this Article VIII is not paid in full within 90 days after receiptby the corporation of the written request therefor, the claimant shall be entitled to an adjudication by a court of competent jurisdictionof his or her entitlement to such indemnification or advancement of expenses. The corporation shall indemnify such person against anyand all expenses that are incurred by such person in connection with any action for indemnification or advancement of expenses fromthe corporation under this Article VIII, to the extent such person is successful in such action, and to the extent not prohibited by law. Inany such suit, the corporation shall, to the fullest extent not prohibited by law, have the burden of proving that the claimant is notentitled to the requested indemnification or advancement of expenses.8.8NON-EXCLUSIVITY OF RIGHTSThe indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall not be deemedexclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the certificateof incorporation or any statute, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in suchperson’s official capacity and as to action in another capacity while holding such office. The corporation is specifically authorized toenter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advancementof expenses, to the fullest extent not prohibited by the DGCL or other applicable law.8.9INSURANCEThe corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee oragent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of anothercorporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by suchperson in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power toindemnify such person against such liability under the provisions of the DGCL.8.10SURVIVALThe rights to indemnification and advancement of expenses conferred by this Article VIII shall continue as to a person who hasceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such aperson.21Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.8.11EFFECT OF REPEAL OR MODIFICATIONA right to indemnification or to advancement of expenses arising under a provision of the certificate of incorporation or a bylawshall not be eliminated or impaired by an amendment to the certificate of incorporation or these bylaws after the occurrence of the actor omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnificationor advancement of expenses is sought, unless the provision in effect at the time of such act or omission explicitly authorizes suchelimination or impairment after such action or omission has occurred.8.12CERTAIN DEFINITIONSFor purposes of this Article VIII, references to the “corporation” shall include, in addition to the resulting corporation, anyconstituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separateexistence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that anyperson who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of suchconstituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or otherenterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporationas such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of thisArticle VIII, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excisetaxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the corporation”shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by,such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person whoacted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of anemployee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referredto in this Article VIII.ARTICLE IX - GENERAL MATTERS9.1EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTSExcept as otherwise provided by law, the certificate of incorporation or these bylaws, the board of directors may authorize anyofficer or officers, or agent or agents, to enter into any contract or execute any document or instrument in the name of and on behalf ofthe corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board ofdirectors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind thecorporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.9.2FISCAL YEARThe fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board ofdirectors.22Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.9.3SEAL The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the board of directors. Thecorporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other mannerreproduced.9.4CONSTRUCTION; DEFINITIONSUnless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall governthe construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the pluralnumber includes the singular, and the term “person” includes both an entity and a natural person.ARTICLE X - AMENDMENTSThese bylaws may be adopted, amended or repealed by the stockholders entitled to vote. However, the corporation may, in itscertificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has beenso conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws.A bylaw amendment adopted by stockholders which specifies the votes that shall be necessary for the election of directors shallnot be further amended or repealed by the board of directors.UPLAND SOFTWARE, INC.CERTIFICATE OF AMENDMENT OF BYLAWSThe undersigned hereby certifies that he or she is the duly elected, qualified, and acting Secretary or Assistant Secretary ofUpland Software, Inc., a Delaware corporation and that the foregoing bylaws, comprising 23 pages (excluding the table of contents),were amended and restated on October 9, 2014 by the corporation’s board of directors.IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this 15th day of October, 2014. /s/ Robert V. Housley Robert V. Housley, Secretary23Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 21.1List of Subsidiaries of Upland Software, Inc. as of December 31, 2015Upland Software I, Inc. (f/k/a PowerSteering Software, Inc.)Upland Software II, Inc. (f/k/a Tenrox Inc. (U.S.))Upland Software III, LLC (f/k/a LMR Solutions LLC)Upland Software IV, Inc. (f/k/a Filebound Solutions, Inc.)Upland Software V, Inc. (f/k/a ComSci, Inc.)Upland Software VI, LLC (f/k/a ComSci, LLC)Upland Software VII, Inc. (f/k/a Clickability Inc.)Upland IX, LLC (f/k/a Mobile Commons, Inc.)Solution Q Inc.Upland Software Inc. (f/k/a Tenrox Inc. (Canada))PowerSteering Software Limited (UK)Ultriva, Inc.Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the Registration Statement on Forms S-8 (No. 333-203574 and 333-199961) pertaining to the 2014 EquityIncentive Plan and the Amended and Restated 2010 Stock Plan of Upland Software, Inc. of our report dated March 30, 2016, with respect to the consolidatedfinancial statements of Upland Software, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2015./s/ Ernst & Young LLPAustin, TexasMarch 30, 2016Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 31.1CERTIFICATION PURSUANT TO RULES 13A-14(A) AND 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANTTO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, John T. McDonald, certify that:1.I have reviewed this Annual Report on Form 10-K of Upland Software, Inc.;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 thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange 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 havea.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 withinthose 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal 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 theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe 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 arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date:March 30, 2016 /s/ John T. McDonald John T. McDonald Chief Executive Officer (Principal Executive Officer)Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 31.2CERTIFICATION PURSUANT TO RULES 13A-14(A) AND 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANTTO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Michael D. Hill, certify that:1.I have reviewed this Annual Report on Form 10-K of Upland Software, Inc.;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 thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange 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 withinthose 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal 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 theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe 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 arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date: March 30, 2016 /s/ Michael D. Hill Michael D. Hill Chief Financial Officer (Principal Financial Officer)Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Upland Software, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2015 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, John T. McDonald, Chief Executive Officer of the Company, certify, pursuantto 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 30, 2016 /s/ John T. McDonaldJohn T. McDonaldChief Executive Officer(Principal Executive Officer)Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Exhibit 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Upland Software, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2015 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, Michael D. Hill, Chief Financial Officer of the Company, certify, pursuant to 18U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 30, 2016 /s/ Michael D. HillMichael D. HillChief Financial Officer(Principal Financial Officer)Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: Upland Software, Inc., 10-K, March 30, 2016Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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