UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission file number: 001-37851
AIRGAIN, INC.
(Exact name of registrant as specified in its charter)
|
Delaware |
|
95-4523882 |
|
(State or Other Jurisdiction of Incorporation or Organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
|
|
3611 Valley Centre Drive, Suite 150 San Diego, CA |
|
92130 |
|
(Address of Principal Executive Offices) |
|
(Zip Code) |
(760) 579-0200
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|
Common stock, par value $0.0001 per share |
AIRG |
Nasdaq Capital Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
☐ |
|
Accelerated filer |
☐ |
|
Non-accelerated filer |
☒ |
|
Smaller reporting company |
☒ |
|
Emerging growth company |
☒ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
|
|
As of August 6, 2021, the registrant had 10,077,914 shares of common stock (par value $0.0001) outstanding.
AIRGAIN, INC.
Form 10-Q
For the Quarter Ended June 30, 2021
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Page |
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PART I. FINANCIAL INFORMATION |
|
|
Item 1. Condensed Consolidated Financial Statements (Unaudited) |
|
|
3 |
|
|
4 |
|
|
5 |
|
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6 |
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7 |
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|
8 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk |
29 |
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30 |
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PART II. OTHER INFORMATION |
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|
30 |
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30 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
32 |
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32 |
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32 |
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32 |
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32 |
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33 |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Airgain, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par value)
(Unaudited)
|
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
2021 |
|
|
2020 |
|
||
|
Assets |
|
|
|
|
|
|
||
|
Current assets: |
|
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
20,240 |
|
|
$ |
38,173 |
|
|
Trade accounts receivable |
|
|
11,644 |
|
|
|
4,782 |
|
|
Inventory |
|
|
4,549 |
|
|
|
1,016 |
|
|
Prepaid expenses and other current assets |
|
|
1,767 |
|
|
|
1,462 |
|
|
Total current assets |
|
|
38,200 |
|
|
|
45,433 |
|
|
Property and equipment, net |
|
|
2,771 |
|
|
|
2,377 |
|
|
Leased right-of-use assets |
|
|
3,081 |
|
|
|
— |
|
|
Goodwill |
|
|
10,845 |
|
|
|
3,700 |
|
|
Intangible assets, net |
|
|
15,750 |
|
|
|
3,168 |
|
|
Other assets |
|
|
496 |
|
|
|
249 |
|
|
Total assets |
|
$ |
71,143 |
|
|
$ |
54,927 |
|
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
||
|
Current liabilities: |
|
|
|
|
|
|
||
|
Accounts payable |
|
$ |
6,105 |
|
|
$ |
2,975 |
|
|
Accrued compensation |
|
|
1,923 |
|
|
|
2,655 |
|
|
Accrued liabilities and other |
|
|
1,836 |
|
|
|
1,187 |
|
|
Short-term lease liabilities |
|
|
883 |
|
|
|
— |
|
|
Deferred purchase price liabilities |
|
|
8,243 |
|
|
|
— |
|
|
Current portion of deferred rent obligation under operating lease |
|
|
— |
|
|
|
39 |
|
|
Total current liabilities |
|
|
18,990 |
|
|
|
6,856 |
|
|
Deferred tax liability |
|
|
97 |
|
|
|
58 |
|
|
Long-term lease liabilities |
|
|
2,470 |
|
|
|
— |
|
|
Deferred rent obligation under operating lease |
|
|
— |
|
|
|
271 |
|
|
Total liabilities |
|
|
21,557 |
|
|
|
7,185 |
|
|
Commitments and contingencies (Note 15) |
|
|
|
|
|
|
||
|
Stockholders’ equity: |
|
|
|
|
|
|
||
|
Common stock and additional paid-in capital, par value $0.0001, 200,000 shares authorized; 10,612 shares issued and 10,077 shares outstanding at June 30, 2021; and 10,318 shares issued and 9,784 shares outstanding at December 31, 2020 |
|
|
104,572 |
|
|
|
100,356 |
|
|
Treasury stock, at cost: 534 shares at June 30, 2021 and December 31, 2020. |
|
|
(5,267 |
) |
|
|
(5,267 |
) |
|
Accumulated deficit |
|
|
(49,719 |
) |
|
|
(47,347 |
) |
|
Total stockholders’ equity |
|
|
49,586 |
|
|
|
47,742 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
71,143 |
|
|
$ |
54,927 |
|
See accompanying notes.
3
Airgain, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Sales |
|
$ |
17,297 |
|
|
$ |
11,446 |
|
|
$ |
34,674 |
|
|
$ |
22,662 |
|
|
Cost of goods sold |
|
|
9,998 |
|
|
|
6,052 |
|
|
|
20,478 |
|
|
|
11,943 |
|
|
Gross profit |
|
|
7,299 |
|
|
|
5,394 |
|
|
|
14,196 |
|
|
|
10,719 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Research and development |
|
|
2,726 |
|
|
|
2,224 |
|
|
|
5,432 |
|
|
|
4,642 |
|
|
Sales and marketing |
|
|
2,489 |
|
|
|
1,379 |
|
|
|
4,928 |
|
|
|
2,918 |
|
|
General and administrative |
|
|
3,261 |
|
|
|
2,389 |
|
|
|
6,894 |
|
|
|
5,067 |
|
|
Change in fair value of contingent consideration |
|
|
1,557 |
|
|
|
— |
|
|
|
1,557 |
|
|
|
— |
|
|
Total operating expenses |
|
|
10,033 |
|
|
|
5,992 |
|
|
|
18,811 |
|
|
|
12,627 |
|
|
Loss from operations |
|
|
(2,734 |
) |
|
|
(598 |
) |
|
|
(4,615 |
) |
|
|
(1,908 |
) |
|
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Interest income, net |
|
|
(7 |
) |
|
|
(47 |
) |
|
|
(15 |
) |
|
|
(171 |
) |
|
Other expense |
|
|
9 |
|
|
|
11 |
|
|
|
16 |
|
|
|
11 |
|
|
Total other expense (income) |
|
|
2 |
|
|
|
(36 |
) |
|
|
1 |
|
|
|
(160 |
) |
|
Loss before income taxes |
|
|
(2,736 |
) |
|
|
(562 |
) |
|
|
(4,616 |
) |
|
|
(1,748 |
) |
|
Provision (benefit) for income taxes |
|
|
(127 |
) |
|
|
174 |
|
|
|
(2,244 |
) |
|
|
190 |
|
|
Net loss |
|
$ |
(2,609 |
) |
|
$ |
(736 |
) |
|
$ |
(2,372 |
) |
|
$ |
(1,938 |
) |
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
$ |
(0.26 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.24 |
) |
|
$ |
(0.20 |
) |
|
Diluted |
|
$ |
(0.26 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.24 |
) |
|
$ |
(0.20 |
) |
|
Weighted average shares used in calculating loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
|
10,026 |
|
|
|
9,683 |
|
|
|
9,948 |
|
|
|
9,686 |
|
|
Diluted |
|
|
10,026 |
|
|
|
9,683 |
|
|
|
9,948 |
|
|
|
9,686 |
|
See accompanying notes.
4
Airgain, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Net loss |
|
$ |
(2,609 |
) |
|
$ |
(736 |
) |
|
$ |
(2,372 |
) |
|
$ |
(1,938 |
) |
|
Unrealized gain on available-for-sale securities, net of deferred taxes |
|
|
— |
|
|
|
23 |
|
|
|
— |
|
|
|
8 |
|
|
Comprehensive loss |
|
$ |
(2,609 |
) |
|
$ |
(713 |
) |
|
$ |
(2,372 |
) |
|
$ |
(1,930 |
) |
See accompanying notes.
5
Airgain, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Total stockholders' equity, beginning balance |
|
$ |
50,398 |
|
|
$ |
47,235 |
|
|
$ |
47,742 |
|
|
$ |
47,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Common stock and additional paid-in capital: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance at beginning of period |
|
|
102,775 |
|
|
|
97,361 |
|
|
|
100,356 |
|
|
|
96,623 |
|
|
Stock-based compensation |
|
|
1,008 |
|
|
|
654 |
|
|
|
1,936 |
|
|
|
1,322 |
|
|
Replacement awards issued in relation to acquisition |
|
|
— |
|
|
|
— |
|
|
|
40 |
|
|
|
— |
|
|
Issuance of shares for stock purchase plan |
|
|
789 |
|
|
|
21 |
|
|
|
2,240 |
|
|
|
91 |
|
|
Balance at end of period |
|
|
104,572 |
|
|
|
98,036 |
|
|
|
104,572 |
|
|
|
98,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Treasury stock: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance at beginning of period |
|
|
(5,267 |
) |
|
|
(4,849 |
) |
|
|
(5,267 |
) |
|
|
(4,659 |
) |
|
Repurchases of common stock |
|
|
— |
|
|
|
(418 |
) |
|
|
— |
|
|
|
(608 |
) |
|
Balance at end of period |
|
|
(5,267 |
) |
|
|
(5,267 |
) |
|
|
(5,267 |
) |
|
|
(5,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance at beginning of period |
|
|
— |
|
|
|
(7 |
) |
|
|
— |
|
|
|
8 |
|
|
Unrealized gain on available-for-sale securities, net of deferred taxes |
|
|
— |
|
|
|
23 |
|
|
|
— |
|
|
|
8 |
|
|
Balance at end of period |
|
|
— |
|
|
|
16 |
|
|
|
— |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Accumulated deficit: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Balance at beginning of period |
|
|
(47,110 |
) |
|
|
(45,270 |
) |
|
|
(47,347 |
) |
|
|
(44,068 |
) |
|
Net loss |
|
|
(2,609 |
) |
|
|
(736 |
) |
|
|
(2,372 |
) |
|
|
(1,938 |
) |
|
Balance at end of period |
|
|
(49,719 |
) |
|
|
(46,006 |
) |
|
|
(49,719 |
) |
|
|
(46,006 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total stockholders' equity, ending balance |
|
$ |
49,586 |
|
|
$ |
46,779 |
|
|
$ |
49,586 |
|
|
$ |
46,779 |
|
See accompanying notes.
6
Airgain, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
Six months ended June 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
||
|
Net loss |
|
$ |
(2,372 |
) |
|
$ |
(1,938 |
) |
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
||
|
Depreciation |
|
|
258 |
|
|
|
242 |
|
|
Loss on disposal of property and equipment |
|
|
— |
|
|
|
11 |
|
|
Amortization of intangible assets |
|
|
1,483 |
|
|
|
322 |
|
|
Amortization of premium on investments, net |
|
|
— |
|
|
|
27 |
|
|
Stock-based compensation |
|
|
1,936 |
|
|
|
1,322 |
|
|
Change in fair value of contingent consideration |
|
|
1,557 |
|
|
|
— |
|
|
Deferred tax liability |
|
|
(2,291 |
) |
|
|
(22 |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
|
Trade accounts receivable |
|
|
(5,735 |
) |
|
|
3,069 |
|
|
Inventory |
|
|
(1,861 |
) |
|
|
322 |
|
|
Prepaid expenses and other assets |
|
|
(265 |
) |
|
|
188 |
|
|
Other assets |
|
|
48 |
|
|
|
— |
|
|
Accounts payable |
|
|
2,356 |
|
|
|
(1,576 |
) |
|
Accrued compensation |
|
|
(871 |
) |
|
|
(845 |
) |
|
Accrued liabilities and other |
|
|
217 |
|
|
|
168 |
|
|
Lease liabilities |
|
|
(39 |
) |
|
|
— |
|
|
Net cash provided by (used in) operating activities |
|
|
(5,579 |
) |
|
|
1,290 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
||
|
Cash paid for acquisition, net of cash acquired |
|
|
(14,185 |
) |
|
|
— |
|
|
Purchases of available-for-sale securities |
|
|
— |
|
|
|
(752 |
) |
|
Maturities of available-for-sale securities |
|
|
— |
|
|
|
15,899 |
|
|
Purchases of property and equipment |
|
|
(409 |
) |
|
|
(349 |
) |
|
Net cash provided by (used in) investing activities |
|
|
(14,594 |
) |
|
|
14,798 |
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
||
|
Repurchases of common stock |
|
|
— |
|
|
|
(608 |
) |
|
Proceeds from issuance of common stock, net |
|
|
2,240 |
|
|
|
91 |
|
|
Net cash provided by (used in) financing activities |
|
|
2,240 |
|
|
|
(517 |
) |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
(17,933 |
) |
|
|
15,571 |
|
|
Cash, cash equivalents, and restricted cash; beginning of period |
|
|
38,348 |
|
|
|
13,197 |
|
|
Cash, cash equivalents, and restricted cash; end of period |
|
$ |
20,415 |
|
|
$ |
28,768 |
|
|
|
|
|
|
|
|
|
||
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
||
|
Taxes paid |
|
$ |
58 |
|
|
$ |
59 |
|
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
||
|
Right-of-use assets recorded upon adoption of ASC 842 |
|
$ |
3,199 |
|
|
$ |
— |
|
|
Leased liabilities recorded upon adoption of ASC 842 |
|
$ |
3,519 |
|
|
$ |
— |
|
|
Accrual of property and equipment |
|
$ |
94 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
20,240 |
|
|
$ |
28,593 |
|
|
Restricted cash included in other assets |
|
|
175 |
|
|
|
175 |
|
|
Total cash, cash equivalents, and restricted cash |
|
$ |
20,415 |
|
|
$ |
28,768 |
|
See accompanying notes.
7
Airgain, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Description of Business and Basis of Presentation
Description of Business
Airgain, Inc. (the Company) was incorporated in the State of California on March 20, 1995; and reincorporated in the State of Delaware on August 15, 2016. The Company is a leading provider of advanced wireless connectivity solutions and technologies used to enable high performance wireless networking across a broad range of markets, including consumer, enterprise and automotive. The Company's technologies are deployed in carrier, fleet, enterprise, residential, private, government, and public safety wireless networks and systems, including set-top boxes, access points, routers, modems, gateways, media adapters, portables, digital televisions, sensors, fleet, and asset tracking devices. The Company provides its solutions to the residential wireless local area networking, also known as WLAN, market, supplying to leading carriers, original equipment manufacturers (OEMs), original design manufacturers (ODMs) and chipset manufacturers. The Company’s headquarters is in San Diego, California with office space and research, design and test facilities in the United States, United Kingdom, China, and Taiwan.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Interim financial results are not necessarily indicative of results anticipated for the full year. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, from which the balance sheet information herein was derived. The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiary. All intercompany transactions and investments have been eliminated in consolidation.
On January 7, 2021, the Company acquired all of the outstanding stock of NimbeLink Corp., a Delaware corporation (NimbeLink),
for an upfront cash purchase price of approximately $15.0 million, subject to working capital and other customary adjustments of approximately $1.0 million as well as $0.7 million in deferred cash payments due to the seller fifteen months after the close of the transaction. In addition, NimbeLink’s former security holders may receive up to $8.0 million in additional consideration, subject to the acquired business's achievement of certain revenue targets in 2021. The transaction was recorded using the purchase method of accounting; accordingly, the results of NimbeLink are included in the Company’s condensed consolidated statements of operations and cash flows for the period subsequent to its acquisition.
The unaudited condensed balance sheet as of December 31, 2020, included herein was derived from the audited financial statements as of that date but does not include all disclosures including notes required by GAAP.
The unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2021 and 2020, and the consolidated balance sheet data as of June 30, 2021, have been prepared on the same basis as the audited financial statements.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation of results of the Company’s operations and financial position for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the fiscal year ending December 31, 2021, or for any future period.
Segment Information
The Company’s operations are located primarily in the United States and most of its assets are located in San Diego, California, Plymouth, Minnesota and Scottsdale, Arizona. The Company operates in one segment related to the sale of wireless connectivity solutions and technologies. The Company’s chief operating decision-maker is its chief executive officer, who reviews operating results on an aggregate basis and manages the Company’s operations as a single operating segment.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
8
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the prior year financial statements have been reclassified to conform to the presentation of the current year financial statements including (i) the reclassification of accrued vacation, accrued payroll and other payroll accrual balances from accrued liabilities and other to accrued compensation resulting in changes to the comparative condensed consolidated statement of cash flows and (ii) the reclassification of disaggregated revenue disclosures by sales channel resulting in changes to the comparative results disclosed in Note 17.
Note 2. Summary of Significant Accounting Policies
During the three and six months ended June 30, 2021, there have been no material changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, with the exception of the Company's adoption of ASC 842, Leases as discussed below.
Restricted Cash
As of June 30, 2021, the Company had $0.2 million in cash on deposit to secure certain lease commitments. Restricted cash is recorded in other assets in the Company’s balance sheet.
Trade Accounts Receivable
Trade accounts receivable is adjusted for all known uncollectible accounts. The policy for determining when receivables are past due or delinquent is based on the contractual terms agreed upon. Accounts are written off once all collection efforts have been exhausted. An allowance for doubtful accounts is established when, in the opinion of management, collection of the account is doubtful. No allowance for doubtful accounts was recorded as of June 30, 2021 and December 31, 2020.
Inventory
The majority of the Company’s products are manufactured by third parties that retain ownership of the inventory until title is transferred to the customer at the shipping point. In some situations, the Company retains ownership of inventory which is held in third party contact manufacturing facilities. In certain instances, shipping terms are delivery-at-place and the Company is responsible for arranging transportation and delivery of goods ready for unloading at the named place. In those instances, the Company bears all risk involved in bringing the goods to the named place and records the related inventory in transit to the customer as inventory on the accompanying balance sheet. The Company also manufactures certain of its products at its facility located in Scottsdale, Arizona.
Inventory is stated at the lower of cost or net realizable value. For items manufactured by the Company, cost is determined using the weighted average cost method. For items manufactured by third parties, cost is determined using the first-in, first-out (FIFO) method. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period. As of June 30, 2021, the Company’s inventories consisted of raw materials of $3.6 million, of which $1.5 million was held at contract manufacturing facilities, and finished goods of $1.0 million. As of December 31, 2020, inventories consisted of raw materials of $0.8 million and finished goods of $0.2 million. Provisions for excess and obsolete inventories are estimated based on product life cycles, quality issues, and historical experience and were $21,000 and $10,000 as of June 30, 2021 and December 31, 2020, respectively.
Fair Value Measurements
The carrying values of the Company’s financial instruments, including cash, trade accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to the short maturity of these instruments. Fair value measurements are market-based measurements, not entity-specific measurements. Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. The Company follows a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below:
9
Business Combinations
The Company applies the provisions of Accounting Standards Codification (ASC) 805, Business Combinations, in accounting for its acquisitions. It requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed, at the acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the acquisition date fair values of the net assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, as well as the contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
In addition, uncertain tax positions and tax-related valuation allowances assumed, if any, in connection with a business combination are initially estimated as of the acquisition date. The Company re-evaluates these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments to the preliminary estimates being recorded to goodwill if identified within the measurement period. Subsequent to the end of the measurement period or final determination of the estimated value of the tax allowance or contingency, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect the income tax provision (benefit) in the consolidated statements of operations and could have a material impact on the results of operations and financial position.
Revenue Recognition
Effective January 1, 2019, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, and the related amendments, which are codified into ASC 606, Revenue from Contracts with Customers, using the modified retrospective method. The Company generates revenue mainly from the sale of wireless connectivity solutions and technologies. A portion of revenue is generated from service agreements and data subscription plans with certain customers. The revenue generated from service contracts and data subscription plans is insignificant. The Company recognizes revenue to depict the transfer of control of the promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. Control passes to the customers either when the products are shipped to or received by the customer, based on the terms of the specific agreement with the customer. Revenue from Nimbelink's data subscription plans is recognized over the period of the subscription.
The Company records revenue based on a five-step model in accordance with ASC 606 whereby the company (i) identifies the contract(s) with the customer, (ii) identifies the performance obligations in the contract, (iii) determines the transaction price, (iv) allocates the transaction price to the performance obligation(s) in the contract and (v) recognizes the revenue when (as) the entity satisfies performance obligations. The Company only applies the five-step model when it is probable that the entity will collect substantially all of the consideration it is entitled to in exchange for the goods or services it transfers to the customer.
For product sales, each purchase order, along with existing customer agreements, when applicable, represents a contract from a customer and each product sold represents a distinct performance obligation. The contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company’s revenue is recognized on a “point-in-time” basis when control passes to the customer. The revenue from service contracts and data subscription plans is recognized “over time”. A portion of the Company’s sales is made through distributors under agreements which allow for pricing credits and/or rights of return under certain circumstances. A reserve for potential rights of return from distributors of $30,000 was recorded as of June 30, 2021.
The Company’s contracts with customers do not typically include extended payment terms. Payment terms vary by contract and type of customer and generally range from 30 to 120 days from delivery. The Company provides assurance-type warranties on all product sales ranging from one to two years. The Company accrues for the estimated warranty costs at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure. Warranty costs including replacement costs for product failures in the field under warranty have been insignificant; accordingly, our warranty reserve is insignificant.
Although customers may place orders for products that are delivered on multiple dates in different quarterly reporting periods; all of the orders are normally scheduled within one year from the order date. The Company has opted to not disclose the portion of revenues allocated to partially unsatisfied performance obligations, which represent products to be shipped within 12 months under open customer purchase orders, at the end of the current reporting period as allowed under ASC 606. The Company has also elected to
10
record sales commissions when incurred, pursuant to the practical expedient under ASC 340, as the period over which the sales commission asset that would have been recognized is less than one year. Shipping and handling costs are immaterial and reported in in operating expenses in the condensed consolidated statement of operations.
There were no contract assets as of June 30, 2021 and December 31, 2020. As of June 30, 2021 and December 31, 2020, the Company recorded $313,000 and $19,000 of contract liabilities, respectively.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on their balance sheets as lease liabilities, representing a liability to make lease payments, and corresponding right-of-use assets representing its right to use the underlying asset. The Company adopted the new accounting standard using the modified retrospective transition option as of the effective date on January 1, 2021. The adoption of this standard had a material impact on the Company's condensed consolidated balance sheets. The adoption did not have an impact on the Company's consolidated statements of operations. See Note 10 for disclosures related to the adoption of this standard.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU include removing exceptions to incremental intraperiod tax allocation of losses and gains from different financial statement components, exceptions to the method of recognizing income taxes on interim period losses, and exceptions to deferred tax liability recognition related to foreign subsidiary investments. In addition, the ASU requires that entities recognize franchise tax based on an incremental method and requires an entity to evaluate the accounting for step-ups in the tax basis of goodwill as inside or outside of a business combination. Based on the Company’s emerging growth company status the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The Company has adopted this standard as of January 1, 2021. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. In December 2019, the FASB issued ASU 2019-10, Effective Dates which updated the effective dates of adoption of ASU 2016-13. ASU 2016-13 is effective, for Smaller Reporting Companies, for annual and interim periods in fiscal years beginning after December 15, 2022. Companies are required to adopt the standard using a modified retrospective adoption method. The Company continues to evaluate the impact of the standard on its consolidated financial statements.
In May 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses (Topic 326), Targeted Transition Relief, which provides entities that have certain instruments within the scope of ASC 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost, with an option to irrevocably elect the fair value option for eligible instruments. The effective date and transition methodology for this standard are the same as in ASU 2016-13. The Company continues to evaluate the impact of the standard on its consolidated financial statements.
In April 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification. The ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2021-04 on its consolidated financial statements.
Note 3. Net Loss Per Share
Basic net loss per share is calculated by dividing net loss by the weighted average shares of common stock outstanding for the period. Diluted net loss per share is calculated by dividing net loss by the weighted average shares of common stock outstanding for the period plus amounts representing the dilutive effect of securities that are convertible into common stock. The Company calculates diluted loss per common share using the treasury stock method.
11
The following table presents the computation of net loss per share (in thousands except per share data):
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net loss |
|
$ |
(2,609 |
) |
|
$ |
(736 |
) |
|
$ |
(2,372 |
) |
|
$ |
(1,938 |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Basic weighted average common shares outstanding |
|
|
10,026 |
|
|
|
9,683 |
|
|
|
9,948 |
|
|
|
9,686 |
|
|
Plus dilutive effect of potential common shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Diluted weighted average common shares outstanding |
|
|
10,026 |
|
|
|
9,683 |
|
|
|
9,948 |
|
|
|
9,686 |
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
$ |
(0.26 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.24 |
) |
|
$ |
(0.20 |
) |
|
Diluted |
|
$ |
(0.26 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.24 |
) |
|
$ |
(0.20 |
) |
Potentially dilutive securities (in common stock equivalent shares) not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in thousands):
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Stock options and restricted stock |
|
|
1,307 |
|
|
|
1,847 |
|
|
|
1,318 |
|
|
|
1,762 |
|
|
Warrants outstanding |
|
|
4 |
|
|
|
51 |
|
|
|
25 |
|
|
|
51 |
|
|
Employee Stock Purchase Plan shares |
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
Total common stock equivalent shares |
|
|
1,311 |
|
|
|
1,898 |
|
|
|
1,345 |
|
|
|
1,813 |
|
Note 4. Business Combinations
On January 7, 2021, the Company entered into a Stock Purchase Agreement, by and among the Company, NimbeLink, the sellers set forth therein (the Sellers) and Scott Schwalbe in his capacity as seller representative (the Purchase Agreement). NimbeLink is an industrial Internet of Things (IoT) company focused on the design, development and delivery of edge-based cellular connectivity solutions for enterprise customers. The acquisition of NimbeLink supports the Company's transition toward becoming a more system-level company and will play an important role in the Company's overall growth strategy to broaden market diversification, especially within the industrial IoT space.
Pursuant to the Purchase Agreement, at the closing on January 7, 2021, the Company acquired all of the outstanding stock of NimbeLink for an upfront cash purchase price of approximately $15.0 million, subject to working capital and other customary adjustments of $1.0 million and $0.7 million in deferred cash payments due to the Sellers fifteen months after the close of the transaction. In addition, NimbeLink’s former security holders may receive up to $8.0 million in contingent consideration, subject to the acquired business's achievement of certain revenue targets in 2021. The Company assumed unvested common stock options of continuing employees and service providers.
Acquisition Consideration
The following table summarizes the fair value of purchase consideration to acquire NimbeLink (in thousands):
|
Cash |
|
$ |
15,991 |
|
|
Deferred payments(1) |
|
|
728 |
|
|
Contingent consideration(2) |
|
|
5,986 |
|
|
Replacement options(3) |
|
|
40 |
|
|
Total purchase consideration |
|
$ |
22,745 |
|
(1) The fair value of the holdback payment was determined by discounting to present value, payments totaling $0.7 million expected to be made to NimbeLink fifteen months after the close of the transaction.
(2) The fair value of contingent consideration is based on applying the Monte Carlo simulation method to forecast achievement under various contingent consideration events which may result in up to $8 million in payments subject to the acquired business’s satisfying certain revenue targets in 2021. Key inputs in the valuation include forecasted revenue, revenue volatility and discount rate. Underlying forecast mathematics were based on Geometric Brownian Motion in a risk-neutral framework and discounted back to the applicable period in which the accumulative thresholds were achieved at discount rates commensurate with the risk and expected payout term of the contingent consideration.
(3) Represents the pre-combination stock compensation expense for replacement options issued to NimbeLink employees.
12
Preliminary Purchase Price Allocation
The following is an allocation of purchase price as of the closing date based upon a preliminary estimate of the fair value of the assets acquired and liabilities assumed by the Company in the acquisition (in thousands):
|
Cash |
|
$ |
1,806 |
|
|
Accounts receivable |
|
|
1,127 |
|
|
Inventory |
|
|
1,671 |
|
|
Prepaids and other current assets |
|
|
141 |
|
|
Property and equipment |
|
|
151 |
|
|
Right of use assets |
|
|
402 |
|
|
Other assets |
|
|
194 |
|
|
Identified intangible assets |
|
|
14,065 |
|
|
Accounts payable |
|
|
(654 |
) |
|
Accrued compensation |
|
|
(139 |
) |
|
Accrued expenses and other current liabilities |
|
|
(432 |
) |
|
Short-term lease liabilities |
|
|
(78 |
) |
|
Long-term lease liabilities |
|
|
(324 |
) |
|
Deferred tax liabilities |
|
|
(2,330 |
) |
|
Identifiable net assets acquired |
|
|
15,600 |
|
|
Goodwill |
|
|
7,145 |
|
|
Total purchase price |
|
$ |
22,745 |
|
The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands):
|
Category |
|
Estimated
|
|
Fair value |
|
|
|
Finite-lived intangible assets |
|
|
|
|
|
|
|
Market-related intangibles |
|
5 |
|
$ |
1,700 |
|
|
Customer relationships |
|
5 |
|
|
8,950 |
|
|
Developed technology |
|
12 |
|
|
2,600 |
|
|
Covenants to non-compete |
|
2 |
|
|
115 |
|
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
In-process research and development |
|
N/A |
|
|
700 |
|
|
Total identifiable intangible assets acquired |
|
|
|
$ |
14,065 |
|
Assumptions in the Allocations of Purchase Price
Management prepared the purchase price allocations and in doing so considered or relied in part upon reports of a third party valuation expert to calculate the fair value of certain acquired assets, which primarily included identifiable intangible assets and inventory, and the portions of the purchase consideration expected to be paid to NimbeLink securityholders in the future, as described above. Certain NimbeLink securityholders that are employees are not required to remain employed in order to receive the deferred payments and contingent consideration; accordingly, the fair value of the deferred payments and contingent consideration have been accounted for as a portion of the purchase consideration.
Estimates of fair value require management to make significant estimates and assumptions which are preliminary and subject to change upon finalization of the valuation analysis. The amount of the contingent consideration increased $1.6 million to $8.2 million during the three months ended June 30, 2021 based on the forecasted revenue targets as of June 30, 2021. The contingent consideration balance was recorded as a separate caption titled deferred purchase price liabilities in other current liabilities of the condensed consolidated balance sheet. The change in the fair value of contingent consideration was recorded as a component of operating expenses in the condensed consolidated statement of operations for the three and six months ended June 30, 2021.
The goodwill recognized is attributable primarily to the acquired workforce, expected synergies, and other benefits that the Company believes will result from integrating the operations of the NimbeLink business with the operations of the Company. Certain liabilities included in the purchase price allocations are based on management’s best estimates of the amounts to be paid or settled and based on information available at the time the purchase price allocations were prepared. Updates to and/or completion of the valuations of certain assets acquired and liabilities assumed and our evaluation of certain income tax positions may result in changes to the recorded amounts of assets and liabilities, with corresponding adjustments to goodwill amounts in subsequent periods. We expect to complete the purchase price allocations within 12 months of the respective acquisition dates.
13
The fair value of the customer relationships was determined using the multi-period excess earnings method (MPEEM). MPEEM estimates the value of an intangible asset by quantifying the amount of residual (or excess) cash flows generated by the asset, and discounting those cash flows to the present. Future cash flows for contractual and non-contractual customers were estimated based on forecasted revenue and costs, taking into account the growth rates and contributory charges. The fair value of market-related intangible assets, developed technology, and in-process research and development (IPR&D) was determined using the Relief-from-Royalty method. The Relief-from-Royalty method is a specific application of the discounted-cash-flow method, which is a form of the income approach. It is based on the principle that ownership of the intangible asset relieves the owner of the need to pay a royalty to another party in exchange for rights to use the asset. Key assumptions to estimate the hypothetical royalty rate include observable royalty rates, which are royalty rates in negotiated licenses and market-based royalty rates which are royalty rates found in available market data for licenses involving similar assets. Developed technology will begin amortization immediately and IPR&D will begin amortization upon the completion of each project. During the three months ended June 30, 2021, all IPR&D projects were completed and transferred to developed technology, with a twelve-year estimated life. The fair value of non-compete intangible assets was estimated using the with-or-without method. The with-and-without method estimates the value of an intangible asset by quantifying the loss of economic profits under a hypothetical condition where only the subject intangible does not exist and needs to be re-created. Projected revenues, operating expenses and cash flows are calculated in each "with" and "without" scenario and the difference in the cash flow is discounted to present value. Inventory was valued at net realizable value. Raw materials were valued at book value and finished goods were valued assuming hypothetical revenues from finished goods adjusted for disposal costs, profit attributable to the seller and holding costs. An inventory step-up of $0.4 million is included in the purchase price allocation above.
The Company assumed liabilities in the acquisition which primarily consist of accrued employee compensation and certain operating liabilities. The liabilities assumed in these acquisitions are included in the respective purchase price allocations above.
Goodwill recorded in connection with the NimbeLink acquisition was $7.1 million. The Company does not expect to deduct any of the acquired goodwill for tax purposes.
Supplemental proforma financial information
The following unaudited pro forma financial information presents the combined results of operations for each of the periods presented as if the NimbeLink acquisition had occurred at the beginning of 2020 (in thousands):
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Net revenue - pro forma combined |
|
$ |
17,297 |
|
|
$ |
13,975 |
|
|
$ |
34,706 |
|
|
$ |
29,921 |
|
|
Net loss - pro forma combined |
|
|
(2,609 |
) |
|
|
(1,524 |
) |
|
|
(2,373 |
) |
|
|
(2,848 |
) |
The following adjustments were included in the unaudited pro forma combined net revenues (in thousands):
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Net revenue |
|
$ |
17,297 |
|
|
$ |
11,446 |
|
|
$ |
34,674 |
|
|
$ |
22,662 |
|
|
Add: Net revenue - acquired businesses |
|
|
— |
|
|
|
2,529 |
|
|
|
32 |
|
|
|
7,259 |
|
|
Net revenues - pro-forma combined |
|
$ |
17,297 |
|
|
$ |
13,975 |
|
|
$ |
34,706 |
|
|
$ |
29,921 |
|
14
The following adjustments were included in the unaudited pro forma combined net income (loss) (in thousands):
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Net income (loss) |
|
$ |
(2,609 |
) |
|
$ |
(736 |
) |
|
$ |
(2,372 |
) |
|
$ |
(1,938 |
) |
|
Add: Results of operations of acquired business |
|
|
— |
|
|
|
(205 |
) |
|
|
(310 |
) |
|
|
566 |
|
|
Less: pro forma adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Amortization of historical intangibles |
|
|
— |
|
|
|
23 |
|
|
|
— |
|
|
|
47 |
|
|
Amortization of acquired intangibles |
|
|
— |
|
|
|
(630 |
) |
|
|
(38 |
) |
|
|
(1,217 |
) |
|
Inventory fair value adjustments |
|
|
— |
|
|
|
— |
|
|
|
353 |
|
|
|
(353 |
) |
|
Interest income |
|
|
— |
|
|
|
— |
|
|
|
(6 |
) |
|
|
— |
|
|
Interest expense |
|
|
— |
|
|
|
24 |
|
|
|
— |
|
|
|
47 |
|
|
Net loss - pro forma combined |
|
$ |
(2,609 |
) |
|
$ |
(1,524 |
) |
|
$ |
(2,373 |
) |
|
$ |
(2,848 |
) |
The unaudited pro forma financial information has been adjusted to reflect the amortization expense for acquired intangibles, removal of historical intangible asset amortization and recognition of expense associated with the step-up of inventory.
The pro forma data is presented for illustrative purposes only, and the historical results of NimbeLink are based on its books and records prior to the acquisition, and is not necessarily indicative of the consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2020. In addition, future results may vary significantly from the pro forma results reflected herein and should not be relied upon as an indication of the results of future operations of the combined business. The unaudited pro forma financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the acquired entity. For the three months ended June 30, 2021, $4.8 million of revenue and $0.1 million of net income and for the six months ended June 30, 2021, $8.0 million of revenue and $0.1 million of net loss, was included in the Company's condensed consolidated statements of operations related to NimbeLink. The Company does not consider the revenue and net loss related to the acquired entity to be indicative of results of the acquisition due to integration activities since the acquisition date.
Also see Note 7, Goodwill and Intangible Assets for further information on goodwill and intangible assets related to the NimbeLink acquisition.
Note 5. Cash and Cash Equivalents
The following tables show the Company’s cash and cash equivalents by significant investment category as of June 30, 2021 and December 31, 2020 (in thousands):
|
|
|
June 30, 2021 |
|
|||||||||
|
|
|
Amortized
|
|
|
Estimated fair value |
|
|
Cash and cash
|
|
|||
|
Cash |
|
$ |
3,570 |
|
|
$ |
3,570 |
|
|
$ |
3,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Level 1: |
|
|
|
|
|
|
|
|
|
|||
|
Money market funds |
|
|
16,670 |
|
|
|
16,670 |
|
|
|
16,670 |
|
|
Total |
|
$ |
20,240 |
|
|
$ |
20,240 |
|
|
$ |
20,240 |
|
|
|
|
December 31, 2020 |
|
|||||||||
|
|
|
Amortized
|
|
|
Estimated fair value |
|
|
Cash and cash
|
|
|||
|
Cash |
|
$ |
2,779 |
|
|
$ |
2,779 |
|
|
$ |
2,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Level 1: |
|
|
|
|
|
|
|
|
|
|||
|
Money market funds |
|
|
35,394 |
|
|
|
35,394 |
|
|
|
35,394 |
|
|
Total |
|
$ |
38,173 |
|
|
$ |
38,173 |
|
|
$ |
38,173 |
|
15
Note 6. Property and Equipment
Depreciation and amortization of property and equipment is calculated on the straight-line method based on the shorter of the estimated useful life or the term of the lease for tenant improvements and three to fifteen years for all other property and equipment. Property and equipment consist of the following (in thousands):
|
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
2021 |
|
|
2020 |
|
||
|
Computers and software |
|
$ |
607 |
|
|
$ |
596 |
|
|
Furniture, fixtures, and equipment |
|
|
400 |
|
|
|
400 |
|
|
Manufacturing and testing equipment |
|
|
4,613 |
|
|
|
3,874 |
|
|
Construction in process |
|
|
22 |
|
|
|
120 |
|
|
Leasehold improvements |
|
|
932 |
|
|
|
932 |
|
|
Property and equipment, gross |
|
|
6,574 |
|
|
|
5,922 |
|
|
Less accumulated depreciation |
|
|
(3,803 |
) |
|
|
(3,545 |
) |
|
Property and equipment, net |
|
$ |
2,771 |
|
|
$ |
2,377 |
|
Depreciation expense was $0.1 million for both the three months ended June 30, 2021 and 2020, and $0.3 million and $0.2 million for the six months ended June 30, 2021 and 2020, respectively.
Note 7. Goodwill and Intangible Assets
The change in the carrying amount of goodwill was as follows (in thousands):
|
Goodwill as of December 31, 2020 |
|
$ |
3,700 |
|
|
Goodwill from NimbeLink acquisition |
|
|
7,145 |
|
|
Goodwill as of June 30, 2021 |
|
$ |
10,845 |
|
The following is a summary of the Company’s acquired intangible assets (dollars in thousands):
|
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||||||||||||||||||||
|
|
|
Weighted
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
||||||
|
Market related intangibles |
|
5 |
|
$ |
1,820 |
|
|
$ |
285 |
|
|
$ |
1,535 |
|
|
$ |
120 |
|
|
$ |
120 |
|
|
$ |
— |
|
|
Customer relationships |
|
7 |
|
|
13,780 |
|
|
|
3,310 |
|
|
|
10,470 |
|
|
|
4,830 |
|
|
|
2,203 |
|
|
|
2,627 |
|
|
Developed technologies |
|
11 |
|
|
4,380 |
|
|
|
722 |
|
|
|
3,658 |
|
|
|
1,080 |
|
|
|
539 |
|
|
|
541 |
|
|
Covenants to non-compete |
|
2 |
|
|
115 |
|
|
|
28 |
|
|
|
87 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total intangible assets, net |
|
|
|
$ |
20,095 |
|
|
$ |
4,345 |
|
|
$ |
15,750 |
|
|
$ |
6,030 |
|
|
$ |
2,862 |
|
|
$ |
3,168 |
|
The estimated annual amortization of intangible assets for the next five years and thereafter is shown in the following table (in thousands):
|
|
|
Estimated future amortization |
|
|
|
2021 (remaining six months) |
|
$ |
1,522 |
|
|
2022 |
|
|
3,026 |
|
|
2023 |
|
|
2,968 |
|
|
2024 |
|
|
2,968 |
|
|
2025 |
|
|
2,958 |
|
|
Thereafter |
|
|
2,308 |
|
|
Total |
|
$ |
15,750 |
|
Actual amortization expense to be reported in future periods could differ from these estimates as a result of acquisitions, divestitures, and asset impairments, among other factors. Amortization expense was $0.8 million and $0.2 million for the three months ended June 30, 2021 and 2020, respectively and $1.5 million and $0.3 million for the six months ended June 30, 2021 and 2020, respectively.
16
Note 8. Accrued Liabilities and Other
Accrued liabilities and other is comprised of the following (in thousands):
|
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
2021 |
|
|
2020 |
|
||
|
Accrued expenses |
|
$ |
479 |
|
|
$ |
519 |
|
|
VAT payable |
|
|
339 |
|
|
|
327 |
|
|
Accrued income taxes |
|
|
186 |
|
|
|
182 |
|
|
Contract liabilities |
|
|
313 |
|
|
|
19 |
|
|
Other current liabilities |
|
|
519 |
|
|
|
140 |
|
|
Accrued liabilities and other |
|
$ |
1,836 |
|
|
$ |
1,187 |
|
Note 9. Notes Payable and Line of Credit
On January 7, 2021, as a result of the Nimbelink acquisition, the Company assumed a revolving line of credit (Line of Credit) with Choice Financial Group (Choice) whereby Choice had made available to the Company a secured credit facility of up to the lesser of (1) $1.5 million or (2) the sum of (a) 80% of the aggregate amount of third party accounts receivable balances, excluding progress billings, foreign receivables, accounts subject to dispute or setoff and doubtful accounts (Eligible Accounts) aged less than 90 days, net of 10% allowance, and (b) 25% of raw materials and finished goods, except those held at named contract manufacturer, after a 10% reserve for excess and obsolete inventory. Amounts borrowed under the Line of Credit bore interest at the prime rate plus 1%, payable monthly. The facility was secured by a commercial guarantee and a lien over the property of NimbeLink including inventory, equipment, accounts receivable, investments, deposit accounts, other rights to payment and performance and general intangibles. In April 2021, the Company closed the Line of Credit with Choice.
Note 10. Leases
Operating leases
The Company adopted ASC 842 on January 1, 2021, using the effective date transition method, which requires a cumulative-effect adjustment to the opening balance of retained earnings on the effective date. As a result of the adoption of ASC 842, the Company recognized right-of-use assets and lease liabilities of $3.2 million and $3.5 million, respectively, as of the January 1, 2021 effective date. There was no impact to opening retained earnings or to the condensed consolidated statement of operations from the adoption of ASC 842.
The Company has made certain assumptions and judgements when applying ASC 842 including the adoption of the package of practical expedients available for transition. The practical expedients allowed the Company to not reassess (i) whether expired or existing contracts contained leases, (ii) lease classification for expired or existing leases and (iii) previously capitalized initial direct costs. The Company also elected not to recognize right-of-use assets and lease liabilities for short-term leases (leases with a term of twelve months or less).
Operating lease arrangements primarily consist of office, warehouse and test house leases expiring at various years through 2025. The facility leases have original lease terms of two to seven years and contain options to extend the lease up to 5 years or terminate the lease. Options to extend are included in leased right-of-use assets and lease liabilities in the consolidated balance sheet when the Company is reasonably certain it will renew the underlying leases. Since the implicit rate of such leases is unknown and the Company is not reasonably certain to renew its leases, the Company has elected to apply a collateralized incremental borrowing rate to facility leases on the original lease term in calculating the present value of future lease payments. As of June 30, 2021, the weighted average discount rate for operating leases was 3.5% and the weighted average remaining lease term for operating leases was 4.1 years, respectively.
The Company has entered into various short-term operating leases primarily for test houses and office equipment, with an initial term of twelve months or less. These short-term leases are not recorded on the Company's consolidated balance sheet and the related lease expense for these short-term leases was $0.1 million for the six months ended June 30, 2021. Total operating lease cost was $0.3 million for both the three months ended June 30, 2021 and 2020, and $0.7 million and $0.5 million for the six months ended June 30, 2021 and 2020, respectively.
Through the acquisition of NimbeLink, the Company assumed a lease, which was recorded as a right-of-use asset and lease liability of $0.4 million as of acquisition date. No other right-of-use assets were obtained in exchange for lease liabilities during the six months ended June 30, 2021.
17
The table below presents aggregate future minimum payments due under leases, reconciled to lease liabilities included in the consolidated balance sheet as of June 30, 2021 (in thousands):
|
2021 (remaining six months) |
|
$ |
531 |
|
|
2022 |
|
|
868 |
|
|
2023 |
|
|
777 |
|
|
2024 |
|
|
773 |
|
|
2025 |
|
|
673 |
|
|
Total minimum payments |
|
|
3,622 |
|
|
Less imputed interest |
|
|
(260 |
) |
|
Less unrealized translation gain |
|
|
(9 |
) |
|
Total lease liabilities |
|
|
3,353 |
|
|
Less short-term lease liabilities |
|
|
(883 |
) |
|
Long-term lease liability |
|
$ |
2,470 |
|
Note 11. Treasury Stock
In September 2019, the Company’s Board of Directors (the Board) approved a share repurchase program (the 2019 Program) pursuant to which the Company could purchase up to $7.0 million of shares of its common stock over the twelve month period following the establishment of the program. The repurchases under the 2019 Program were made from time to time in the open market or in privately negotiated transactions and were funded from the Company’s working capital. Repurchases are made in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, subject to market conditions, available liquidity, cash flow, applicable legal requirements and other factors. In September 2020, the Board approved an extension to the 2019 Program for an additional twelve-month period ending September 9, 2021.
During the six months ended June 30, 2021, the Company did not repurchase any shares of its common stock. Since inception of the 2019 Program through June 30, 2021, the Company repurchased a total of approximately 162,000 shares of the common stock for a total cost of $1.6 million through June 30, 2021.
Note 12. Income Taxes
The Company’s effective income tax rate was 48.6% and (10.9)% for the six months ended June 30, 2021 and 2020, respectively. The variance from the U.S. federal statutory rate of 21% for the six months ended June 30, 2021, was primarily related to the release of the valuation allowance attributable to the acquisition of NimbeLink.
Management assesses its deferred tax assets quarterly to determine whether all or any portion of the asset is more likely than not unrealizable under ASC Topic 740 Income Taxes. The Company is required to establish a valuation allowance for any portion of the asset that management concludes is more likely than not to be unrealizable. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company’s assessment considers all evidence, both positive and negative, including the nature, frequency and severity of any current and cumulative losses, taxable income in carryback years, the scheduled reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income in making this assessment. As of December 31, 2020, the Company had a valuation allowance against net deferred tax assets of $8.5 million, however, the exclusion of a deferred tax liability generated by goodwill (an indefinite lived intangible) may not be considered a future source of taxable income in evaluating the need for a valuation allowance.
In connection with the acquisition of NimbeLink, the Company recorded deferred tax liabilities associated with acquired intangible assets. As a result, for the six months ended June 30, 2021, the Company determined that it is appropriate to release a portion of the Company's valuation allowance.
18
Note 13. Stockholders’ Equity
In August 2016, the Company's Board adopted the 2016 Equity Inventive Plan (the 2016 Plan) for employees, directors and consultants. In February 2021, the Board adopted the 2021 Employment Inducement Incentive Award Plan (Inducement Plan), which provides for grants of equity-based awards, of which 300,000 shares were initially reserved under the Inducement Plan. In connection with the NimbeLink acquisition, the Company assumed the NimbeLink Corp 2016 Stock Incentive Plan and stock options to purchase 22,871 shares of common stock issuable thereunder.
The following table presents common stock reserved for future issuance(1) (in thousands):
|
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
2021 |
|
|
2020 |
|
||
|
Warrants issued and outstanding |
|
|
10 |
|
|
|
51 |
|
|
Stock option awards issued and outstanding |
|
|
1,919 |
|
|
|
1,760 |
|
|
Authorized for grants under the 2016 Equity Incentive Plan(2) |
|
|
424 |
|
|
|
357 |
|
|
Authorized for grants under the Inducement Plan(3) |
|
|
155 |
|
|
|
— |
|
|
Authorized for grants under the 2016 Employee Stock Purchase Plan(4) |
|
|
343 |
|
|
|
256 |
|
|
|
|
|
2,851 |
|
|
|
2,424 |
|
(1) Treasury stock in the amount of 534,000 as of June 30, 2021 and December 31, 2020 are excluded from the table above.
(2) On January 1, 2021, the number of authorized shares in the 2016 Plan increased by 391,356 shares pursuant to the evergreen provisions of the 2016 Plan.
(3) On January 7, 2021, 300,000 shares were authorized pursuant to the terms of the Inducement Plan; 147,500 shares were issued under the Inducement Plan during the six months ended June 30, 2021
(4) On January 1, 2021, the number of authorized shares in the 2016 Employee Stock Purchase Plan increased by 98,000 shares pursuant to the evergreen provisions of the 2016 Employee Stock Purchase Plan.
Note 14. Stock Based Compensation
Stock-based compensation expense
Stock-based compensation is recorded in the consolidated statements of operations as follows (in thousands):
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Cost of goods sold |
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
2 |
|
|
$ |
— |
|
|
Research and development |
|
|
176 |
|
|
|
149 |
|
|
|
380 |
|
|
|
301 |
|
|
Sales and marketing |
|
|
213 |
|
|
|
100 |
|
|
|
428 |
|
|
|
190 |
|
|
General and administrative |
|
|
618 |
|
|
|
405 |
|
|
|
1,126 |
|
|
|
831 |
|
|
Total stock-based compensation expense |
|
$ |
1,008 |
|
|
$ |
654 |
|
|
$ |
1,936 |
|
|
$ |
1,322 |
|
Stock Options
The following table summarizes the outstanding stock option activity during the period indicated (shares in thousands):
|
|
|
|
|
|
Weighted average |
|
||||||
|
|
|
Number of
|
|
|
Exercise
|
|
|
Remaining
|
|
|||
|
Balance at December 31, 2020 |
|
|
1,760 |
|
|
$ |
10.07 |
|
|
|
7.6 |
|
|
Granted |
|
|
456 |
|
|
|
23.20 |
|
|
|
|
|
|
Exercised |
|
|
(218 |
) |
|
|
11.14 |
|
|
|
|
|
|
Expired/Forfeited |
|
|
(79 |
) |
|
|
13.83 |
|
|
|
|
|
|
Balance at June 30, 2021 |
|
|
1,919 |
|
|
|
12.91 |
|
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Vested and exercisable at June 30, 2021 |
|
|
1,022 |
|
|
|
9.37 |
|
|
|
6.7 |
|
|
Vested and expected to vest at June 30, 2021 |
|
|
1,919 |
|
|
|
12.91 |
|
|
|
7.7 |
|
The weighted average grant date fair value of options granted during the six months ended June 30, 2021 and for the year ended December 31, 2020, was $10.97 and $4.30, respectively. For fully vested stock options, the aggregate intrinsic value as of June 30, 2021 and December 31, 2020 was $11.5 million and $8.2 million, respectively. For stock options expected to vest, the aggregate intrinsic value as of June 30, 2021, and December 31, 2020, was $4.6 million and $5.3 million, respectively.
19
At June 30, 2021, there was $6.2 million of unrecognized compensation cost related to unvested stock options granted under the Company’s equity plans that is expected to be recognized over the next 2.7 years.
Restricted Stock
The following table summarizes the Company's restricted stock unit activity during the period indicated (shares in thousands):
|
|
|
Restricted
|
|
|
Weighted
|
|
||
|
Balance at December 31, 2020 |
|
|
202 |
|
|
$ |
10.51 |
|
|
Grants |
|
|
170 |
|
|
|
23.97 |
|
|
Vested and released |
|
|
(61 |
) |
|
|
10.43 |
|
|
Forfeited |
|
|
(54 |
) |
|
|
13.51 |
|
|
Balance at June 30, 2021 |
|
|
257 |
|
|
|
18.81 |
|
As of June 30, 2021, there was $4.2 million of total unrecognized compensation cost related to unvested restricted stock units having a weighted average remaining contractual term of 3.1 years.
Employee Stock Purchase Plan (ESPP)
The Company maintains the 2016 Employee Stock Purchase Plan (ESPP) that provides employees an opportunity to purchase common stock through payroll deductions. The ESPP is implemented through consecutive 6-month offering periods commencing on March 1 and September 1 of each year. The first offering period under the ESPP commenced on March 1, 2019. The purchase price is set at 85% of the fair market value of the Company's common stock on either the first or last trading day of the offering period, whichever is lower. Annual contributions are limited to the lower of 20% of an employee's eligible compensation or such other limits as apply under Section 423 of the Internal Revenue Code. The ESPP is intended to qualify as an employee stock purchase plan for purposes of Section 423 of the Internal Revenue Code.
Based on the 15% discount and the fair value of the option feature of the ESPP, it is considered compensatory. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model. The Company currently uses authorized and unissued shares to satisfy share award exercises.
Under the ESPP the Company received proceeds of $0.1 million from the issuances of approximately 10,000 shares in February 2021.
Note 15. Commitments and Contingencies
(a) Indemnification
In some agreements to which the Company is a party, the Company has agreed to indemnify the other party for certain matters, including, but not limited to, product liability and intellectual property. To date, there have been no known events or circumstances that have resulted in any material costs related to these indemnification provisions and no liabilities have been recorded in the accompanying consolidated financial statements.
(b) Supply Agreement
In September 2020, the Company entered into a supply agreement with a vendor to purchase up to $2.0 million of inventory during the initial term of the agreement through December 31, 2022. As of June 30, 2021, the purchase commitment had been met and $1.5 million had been paid under this supply agreement.
20
Note 16. Concentration of Credit Risk
(a) Concentration of Sales and Accounts Receivable
The following represents customers that accounted for 10% or more of total revenue during the three and six months ended June 30, 2021 and 2020.
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
2020 |
||
|
Customer A |
|
|
24 |
% |
|
|
31 |
% |
|
25% |
|
33% |
|
Customer B |
|
|
21 |
% |
|
|
7 |
% |
|
18% |
|
7% |
|
Customer C |
|
|
11 |
% |
|
|
7 |
% |
|
13% |
|
7% |
|
Customer D |
|
|
0 |
% |
|
|
14 |
% |
|
1% |
|
12% |
The following represents customers that accounted for 10% or more of total trade accounts receivable at June 30, 2021 and December 31, 2020.
|
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
2021 |
|
|
2020 |
|
||
|
Customer A |
|
|
26 |
% |
|
|
13 |
% |
|
Customer B |
|
|
20 |
% |
|
|
23 |
% |
|
Customer C |
|
|
14 |
% |
|
|
0 |
% |
|
Customer D |
|
|
11 |
% |
|
|
17 |
% |
(b) Concentration of Purchases
During the three and six months ended June 30, 2021, the Company’s products were primarily manufactured by three contract manufacturers in China, one in Myanmar, one in Minnesota and by the Company’s Arizona facility.
(c) Concentration of Property and Equipment
Note 17. Disaggregated Revenue
Disaggregated revenue are as follows (in thousands):
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
By Sales Channel: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Distributors and resellers |
|
$ |
11,050 |
|
|
$ |
6,910 |
|
|
$ |
23,024 |
|
|
$ |
14,430 |
|
|
OEM/ODM/Contract manufacturer |
|
|
2,204 |
|
|
|
4,287 |
|
|
|
5,127 |
|
|
|
7,767 |
|
|
Other |
|
|
4,043 |
|
|
|
249 |
|
|
|
6,523 |
|
|
|
465 |
|
|
Total sales |
|
$ |
17,297 |
|
|
$ |
11,446 |
|
|
$ |
34,674 |
|
|
$ |
22,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
By Market Group: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consumer |
|
$ |
8,905 |
|
|
$ |
8,645 |
|
|
$ |
19,201 |
|
|
$ |
17,108 |
|
|
Enterprise |
|
|
6,152 |
|
|
|
979 |
|
|
|
10,534 |
|
|
|
1,781 |
|
|
Automotive |
|
|
2,240 |
|
|
|
1,822 |
|
|
|
4,939 |
|
|
|
3,773 |
|
|
Total sales |
|
$ |
17,297 |
|
|
$ |
11,446 |
|
|
$ |
34,674 |
|
|
$ |
22,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
By Geography: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
China |
|
$ |
6,364 |
|
|
$ |
3,879 |
|
|
$ |
14,320 |
|
|
$ |
6,938 |
|
|
Taiwan |
|
|
2,736 |
|
|
|
4,699 |
|
|
|
4,689 |
|
|
|
9,987 |
|
|
North America |
|
|
7,576 |
|
|
|
2,443 |
|
|
|
14,233 |
|
|
|
4,899 |
|
|
Rest of the world |
|
|
621 |
|
|
|
425 |
|
|
|
1,432 |
|
|
|
838 |
|
|
Total sales |
|
$ |
17,297 |
|
|
$ |
11,446 |
|
|
$ |
34,674 |
|
|
$ |
22,662 |
|
21
Revenue generated from the United States was $7.4 million and $2.3 million for the three months ended June 30, 2021 and 2020, respectively, and $13.8 million and $4.5 million for the six months ended June 30, 2021 and 2020, respectively.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis and the interim unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2020 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2020.
Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact contained in this quarterly report, including statements regarding our future operating results, financial position and cash flows, the impact of COVID-19, our business strategy and plans, and our objectives for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “would,” “could,” “should,” “expect,” “plan,” “anticipate,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this quarterly report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, “Risk Factors.” The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Overview
We are a leading provider of advanced wireless connectivity solutions and technologies used to enable high performance wireless networking across a broad and increasing range of devices and markets, including consumer, enterprise and automotive. Our mission is to connect the world through advanced antenna systems and integrated wireless solutions. Our innovative antenna systems are designed to address key challenges with wireless system performance faced by our customers. We provide solutions to complex Radio Frequency, or RF, engineering challenges to help improve wireless services that require higher throughput, broad coverage footprint, and carrier grade quality.
We are transitioning from a passive antenna and related services provider to a wireless system solutions provider, targeting higher levels of integration and complexity, and therefore, higher selling prices and in 2020 we announced our new patented AirgainConnect® platform. The first product from this platform is the FirstNet Ready™ AirgainConnect AC-HPUE antenna-modem, targeting vehicles used by first responders. The AC-HPUE antenna-modem includes an integrated high-power LTE modem supporting the 3GPP Band 14 HPUE (or high-power user equipment) output power functionality and is certified to run on the AT&T FirstNet network.
On January 7, 2021 we purchased 100% of the outstanding shares of Minnesota-based NimbeLink Corp. NimbeLink is an industrial Internet of Things, or IoT, company focused on the design, development, and delivery of cellular solutions for enterprise customers. NimbeLink provides carrier-certified embedded modems and asset tracking solutions that minimize or often eliminate RF design and certification time from project schedules, significantly reducing costs and time to market. The acquisition of NimbeLink supports our transition toward becoming a more system-level company and will play an important role in our overall growth strategy to broaden market diversification, especially within the industrial IoT space. NimbeLink’s industrial IoT expertise puts them squarely in one of our targeted enterprise submarkets and extends the breadth and opportunity for our AirgainConnect platform. Our worldwide salesforce represents a present opportunity to expand NimbeLink’s reach and NimbeLink will now gain access to design opportunities they were not previously able to win. The result is an increase in the opportunities for Airgain in the enterprise market and a more diverse offering of products and expertise for our customers.
22
The consumer market encompasses a large and growing market of consumers using wireless-enabled devices and our antennas are deployed in consumer access points, wireless gateways, Wi-Fi Mesh systems and extenders, smart TVs, smart home devices, and set-top boxes. In the consumer market our antennas support an array of technologies including wireless local area networking, or WLAN, Wi-Fi, LTE, 5G and low power wide area networking, or LPWAN.
The enterprise market is characterized by devices that provide reliable wireless access for high-density environments such as buildings, campuses, transportation terminals and stadiums. Within this market our antennas are deployed across a wide range of systems, devices, and applications that include access points and gateways, fixed wireless access infrastructure, small cells, and remote radio heads. Within this market we support an array of technologies, including Wi-Fi, LTE, 5G and LPWAN.
In the automotive market, our antennas are deployed in a wide range of vehicles to support a variety of wireless connectivity solutions in the fleet and aftermarket segment and support a variety of technologies that include Wi-Fi, 3G, LTE, Satellite and LPWAN. The fleet and aftermarket segment consists of applications whereby rugged vehicular wireless routers are paired with external antenna systems via long coax cables to provide connectivity to fixed and mobile assets. Within the fleet and aftermarket market segment, there has been a rise in the number of antennas per vehicle. This is largely driven by the increasing needs of connectivity across different access technologies that include Wi-Fi, 3G, LTE, 5G and satellite. In January 2021, AT&T launched its MegaRange™ high power feature on the FirstNet network and Airgain announced the nationwide availability of its AirgainConnect AC-HPUE product.
Our engineering design teams work with customers from the early stages of product prototyping to the final stages of device over the air throughput testing to optimize performance and to facilitate quick time to market. Our capabilities include product design, engineering support for customer projects, and wireless performance testing using both advanced RF tools as well as live over the air testing methods. These capabilities allowed our company to develop a strong reputation amongst OEMs, ODMs, as well as tier 1 chipset manufacturers. Our competencies and strengths have helped us secure design wins that come as a direct result of our antenna systems being used in reference designs built by Tier 1 chipset vendors. We view our relationships with OEMs, ODMs, chipset manufacturers, and service providers as an important attribute in this ecosystem and a strong contributor to our long-term strategy for growth and success.
We believe demand is growing rapidly for our advanced wireless connectivity solutions and there is a significant market opportunity. As the ability to provide mobile internet access grows, our solutions and expertise become more important to prospects and customers. As a passive component, embedded antennas can be viewed as a commodity. However, our design, engineering, and research show that antenna selection, placement, and testing can have significant improvements in device performance. We believe that we are chosen when performance is a more significant factor than price, and our distinctive focus on superior designs that provide increased range and throughput has allowed us to build a leadership position in the in-home WLAN device market.
COVID-19 Pandemic
The United States and other countries around the world continue to experience a major health pandemic related to COVID-19, which has created considerable instability and disruption in the U.S. and world economies. Governmental authorities in impacted regions where the disease is still widespread or has reemerged have taken, and continue to take, actions in an effort to slow COVID-19’s spread, resulting in limitations on business operations and consumer and employee travel. In accordance with local regulations, operations in all of our offices and our remote facilities, have resumed with protocols in place to prevent and limit the spread of the virus. In each work location, protocols have been established and remain in place, in accordance with local regulations and guidance, in order to minimize the risk to our employees. Our salespeople continue to engage with customers in order to secure sales of, and opportunities for, our products and services primarily remotely rather than in-person.
The continued spread of COVID-19 and its related effects on our business have had a material and adverse effect on our business operations. Through the date of this filing, these disruptions or restrictions include restrictions on our ability to travel, temporary closures of our office buildings or the facilities of our customers or suppliers.
The impact of the COVID-19 pandemic on the U.S. and world economies generally, and our future results in particular, could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted. This includes new information that may emerge concerning COVID-19, the success of vaccinations and other actions taken to contain or treat COVID-19, the roll-out and distribution of vaccinations by various domestic and international government agencies and additional reactions by consumers, companies, governmental entities and capital markets.
Factors Affecting Our Operating Results
We believe that our performance and future success depend upon several factors including the growth in sales of AirgainConnect AC-HPUE product and success in integrating NimbeLink and increasing its sales, the impact of the global chip shortage, supply
23
constraints relating to other materials, and potential increasing shipping costs on our business and that of our end customers, as well as historical factors such as manufacturing costs, investments in our growth, our ability to expand into growing addressable markets, including consumer, enterprise, and automotive, the average sales price of our products per device, the number of antennas per device, and our ability to diversify the number of devices that incorporate our antenna products. Our customers are price-conscious and our operating results are affected by pricing pressure which may force us to lower prices below our established list prices. In addition, a few end-customer devices which incorporate our antenna products comprise a significant amount of our sales and the discontinuation or modification of such devices may materially and adversely affect our sales and results of operations. Our ability to maintain or increase our sales depends on among other things, new and existing end-customers selecting our antenna solutions for their wireless devices and networks, the impact of the COVID-19 pandemic, as discussed above, the deployment level of AirgainConnect AC-HPUE, the proliferation of Wi-Fi connected home devices and data intensive applications, trends related to in-house design in our traditional set top market, investments in our growth to address customer needs, the impact of the global chip shortage on our business and that of our end customers, our ability to target new end markets, development of our product offerings and technology solutions and international expansion, as well as our ability to successfully integrate past and any future acquisitions. While each of these areas presents significant opportunities for us, they also pose significant risks and challenges we must successfully address. We discuss many of these risks, uncertainties and other factors in greater detail in the section entitled “Risk Factors” included in this quarterly report on Form 10-Q and in Item 1A of our Annual Report on Form 10-K.
Seasonality
Our operating results historically have not been subject to significant seasonal variations. However, our operating results are affected by how customers make purchasing decisions around local holidays in China. For example, a national holiday the first week of October in China may cause customers to purchase product in the third quarter ahead of their holiday season to account for higher volume requirements in the fourth quarter. In addition, although it is difficult to make broad generalizations, our sales tend to be lower in the first quarter of each year compared to other quarters due to the Chinese New Year. Results for any quarter may not be indicative of the results that may be achieved for the full fiscal year and these patterns may change as a result of general customer demand or product cycles.
Key Components of Our Results of Operations and Financial Condition
Sales
We primarily generate revenue from the sales of our products. We recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. We generally recognize sales at the time of shipment to our customers, provided that all other revenue recognition criteria have been met. Although currently insignificant, we also generate service and subscription revenue derived from agreements to provide design, engineering, and testing services.
Cost of Goods Sold
The cost of goods sold reflects the cost of producing antenna products that are shipped for our customers’ devices. This primarily includes manufacturing costs of our products payable to our third-party contract manufacturers, as well as manufacturing costs incurred at our facility in Arizona. The cost of goods sold that we generate from services provided to customers primarily includes personnel costs.
Operating Expenses
Our operating expenses are classified into four categories: research and development, sales and marketing, general and administrative and the change in fair value of contingent consideration. For the first three categories, the largest component is personnel costs, which includes salaries, employee benefit costs, bonuses, and stock-based compensation. Operating expenses also include allocated overhead costs for depreciation of equipment, facilities, and information technology. Allocated costs for facilities consist of leasehold improvements and rent. Operating expenses are generally recognized as incurred.
Research and development. Research and development expenses primarily consist of personnel and facility-related costs attributable to our engineering research and development personnel. These expenses include work related to the design, engineering and testing of antenna designs and antenna integration, validation and testing of customer devices. These expenses include salaries, including stock-based compensation, benefits, bonuses, travel, communications, and similar costs, and depreciation and allocated operating expenses such as office supplies, premises expenses, and insurance. We may also incur expenses from outside consultants and for prototyping new antenna solutions. We expect research and development expenses to increase in absolute dollars in future periods as we continue to invest in the development of new solutions and markets and as we invest in improving efficiencies within our supply chain, although our research and development expense may fluctuate as a percentage of total sales.
24
Sales and marketing. Sales and marketing expenses primarily consist of personnel and facility-related costs for our sales, marketing, and business development personnel, stock-based compensation and bonuses earned by our sales personnel, and commissions earned by our third-party sales representative firms. Sales and marketing expenses also include the costs of trade shows, marketing programs, promotional materials, demonstration equipment, travel, recruiting, and allocated costs for certain facilities. Over the next several quarters we expect sales and marketing expenses to fluctuate as a percentage of sales.
General and administrative. General and administrative expenses primarily consist of personnel and facility-related costs for our executive, finance, and administrative personnel, including stock-based compensation, as well as legal, accounting, and other professional services fees, depreciation, and other corporate expenses. We expect general and administrative expenses to fluctuate over the next several quarters as we grow our operations.
Change in fair value of contingent consideration. The fair value of contingent consideration associated with the NimbeLink acquisition is remeasured at each reporting period based on the forecasted revenue targets. The change in the fair value of contingent consideration is recorded to operating expenses. See Note 4 of the Notes to Condensed Consolidated Financial Statements contained within this quarterly report for further information.
Other Expense (Income)
Interest Income, net. Interest income consists of interest from our cash and cash equivalents.
Other Expense. Other expense consists of other income and realized foreign exchange gains or losses.
Provision for Income Taxes
Provision for income taxes consists of federal, state, and foreign income taxes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. It is difficult for us to project future taxable income as the timing and size of sales of our products are variable and difficult to predict. We concluded that it is not more likely than not that we will utilize our deferred tax assets other than those that are offset by reversing temporary differences.
Results of Operations
The following tables set forth our operating results for the periods presented as a percentage of our total sales for those periods. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost of goods sold |
|
|
57.8 |
|
|
|
52.9 |
|
|
|
59.1 |
|
|
|
52.7 |
|
|
Gross profit |
|
|
42.2 |
|
|
|
47.1 |
|
|
|
40.9 |
|
|
|
47.3 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Research and development |
|
|
15.7 |
|
|
|
19.4 |
|
|
|
15.6 |
|
|
|
20.5 |
|
|
Sales and marketing |
|
|
14.4 |
|
|
|
12.0 |
|
|
|
14.2 |
|
|
|
12.9 |
|
|
General and administrative |
|
|
18.9 |
|
|
|
20.9 |
|
|
|
19.9 |
|
|
|
22.4 |
|
|
Change in fair value of contingent consideration |
|
|
9.0 |
|
|
|
— |
|
|
|
4.5 |
|
|
|
— |
|
|
Total operating expenses |
|
|
58.0 |
|
|
|
52.3 |
|
|
|
54.2 |
|
|
|
55.8 |
|
|
Income (loss) from operations |
|
|
(15.8 |
) |
|
|
(5.2 |
) |
|
|
(13.3 |
) |
|
|
(8.5 |
) |
|
Other income |
|
|
0.0 |
|
|
|
(0.3 |
) |
|
|
0.0 |
|
|
|
(0.7 |
) |
|
Income (loss) before income taxes |
|
|
(15.8 |
) |
|
|
(4.9 |
) |
|
|
(13.3 |
) |
|
|
(7.8 |
) |
|
Provision for income taxes |
|
|
(0.7 |
) |
|
|
1.5 |
|
|
|
(6.5 |
) |
|
|
0.8 |
|
|
Net income (loss) |
|
|
(15.1 |
)% |
|
|
(6.4 |
)% |
|
|
(6.8 |
)% |
|
|
(8.6 |
)% |
25
Comparison of the Three and Six Months Ended June 30, 2021 and 2020 (dollars in thousands)
Sales
|
|
|
Three months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Sales |
|
$ |
17,297 |
|
|
$ |
11,446 |
|
|
$ |
5,851 |
|
|
|
51.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Sales |
|
$ |
34,674 |
|
|
$ |
22,662 |
|
|
$ |
12,012 |
|
|
|
53.0 |
% |
Sales increased $5.9 million, or 51.1% for the three months ended June 30, 2021, compared to the three months ended June 30, 2020. Revenue from our consumer market increased $0.3 million, to $8.9 million for the three months ended June 30, 2021 from $8.6 million for the three months ended June 30, 2020 primarily due to a gateway design win for a large North American service provider end customer. Revenue from our enterprise market increased $5.2 million, to $6.2 million for the three months ended June 30, 2021 from $1.0 million for the three months ended June 30, 2020 primarily due to $4.8 million of revenue generated from NimbeLink products and services. Revenue for our automotive market increased $0.4 million, to $2.2 million for the three months ended June 30, 2021 from $1.8 million for the three months ended June 30, 2020, primarily due to the incremental revenue generated from AirgainConnect product sales launched in the fourth quarter of 2020.
Sales increased $12.0 million, or 53.0% for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. Revenue from our consumer market increased $2.1 million, to $19.2 million for the six months ended June 30, 2021 from $17.1 million for the six months ended June 30, 2020 primarily due to a gateway design win for a large North American service provider end customer. Revenue from our enterprise market increased $8.8 million, to $10.5 million for the six months ended June 30, 2021 from $1.8 million for the six months ended June 30, 2020 primarily due to $8.0 million of revenue generated from NimbeLink products and services. Revenue for our automotive market increased $1.2 million, to $4.9 million for the six months ended June 30, 2021 from $3.8 million for the six months ended June 30, 2020, primarily due to the incremental revenue generated from AirgainConnect product sales launched in the fourth quarter of 2020.
Cost of Goods Sold
|
|
|
Three months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Cost of goods sold |
|
$ |
9,998 |
|
|
$ |
6,052 |
|
|
$ |
3,946 |
|
|
|
65.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Cost of goods sold |
|
$ |
20,478 |
|
|
$ |
11,943 |
|
|
$ |
8,535 |
|
|
|
71.5 |
% |
Cost of goods sold increased $3.9 million or 65.2%, for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, and was primarily due to the higher revenue as well as the incremental product costs from shipments of AirgainConnect and NimbeLink devices and amortization of intangible assets related to the NimbeLink acquisition.
Cost of goods sold increased $8.5 million or 71.5%, for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, and was primarily due to the higher revenue as well as the incremental product costs from shipments of AirgainConnect and NimbeLink devices, amortization of the inventory step-up adjustment and amortization of intangible assets related to the NimbeLink acquisition as well as general increases in production overhead and procurement costs on higher production volumes.
Gross Profit
|
|
|
Three months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Gross profit |
|
$ |
7,299 |
|
|
$ |
5,394 |
|
|
$ |
1,905 |
|
|
|
35.3 |
% |
|
Gross profit (percentage of sales) |
|
|
42.2 |
% |
|
|
47.1 |
% |
|
|
|
|
|
(4.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Gross profit |
|
$ |
14,196 |
|
|
$ |
10,719 |
|
|
$ |
3,477 |
|
|
|
32.4 |
% |
|
Gross profit (percentage of sales) |
|
|
40.9 |
% |
|
|
47.3 |
% |
|
|
|
|
|
(6.4 |
)% |
|
Gross profit as a percentage of sales decreased by 4.9% for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, primarily due to changes in the product mix including the sales of AirgainConnect and NimbeLink devices with lower product gross margins and higher amortization costs associated with the NimbeLink acquisition.
26
Gross profit as a percentage of sales decreased by 6.4% for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, primarily due to changes in the product mix including the sales of AirgainConnect and NimbeLink devices with lower product gross margins, as well as an inventory step-up adjustment and higher amortization costs associated with the NimbeLink acquisition.
Operating Expenses
|
|
|
Three months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Research and development |
|
$ |
2,726 |
|
|
$ |
2,224 |
|
|
$ |
502 |
|
|
|
22.6 |
% |
|
Sales and marketing |
|
|
2,489 |
|
|
|
1,379 |
|
|
|
1,110 |
|
|
|
80.5 |
|
|
General and administrative |
|
|
3,261 |
|
|
|
2,389 |
|
|
|
872 |
|
|
|
36.5 |
|
|
Change in fair value of contingent consideration |
|
|
1,557 |
|
|
|
— |
|
|
|
1,557 |
|
|
|
100.0 |
|
|
Total operating expenses |
|
$ |
10,033 |
|
|
$ |
5,992 |
|
|
$ |
4,041 |
|
|
|
67.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Research and development |
|
$ |
5,432 |
|
|
$ |
4,642 |
|
|
$ |
790 |
|
|
|
17.0 |
% |
|
Sales and marketing |
|
|
4,928 |
|
|
|
2,918 |
|
|
|
2,010 |
|
|
|
68.9 |
|
|
General and administrative |
|
|
6,894 |
|
|
|
5,067 |
|
|
|
1,827 |
|
|
|
36.1 |
|
|
Change in fair value of contingent consideration |
|
|
1,557 |
|
|
|
— |
|
|
|
1,557 |
|
|
|
100.0 |
|
|
Total operating expenses |
|
$ |
18,811 |
|
|
$ |
12,627 |
|
|
$ |
6,184 |
|
|
|
49.0 |
% |
Research and Development
Research and development expense increased $0.5 million or 22.6% for the three months ended June 30, 2021, compared to the three months ended June 30, 2020. The increase was primarily due to the incremental expenses associated with NimbeLink as well as higher personnel-related expenses.
Research and development expense increased $0.8 million or 17.0% for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. The increase was primarily due to the incremental expenses associated with NimbeLink as well as higher personnel-related expenses.
Sales and Marketing
Sales and marketing expense increased $1.1 million or 80.5%, for the three months ended June 30, 2021, compared to the three months ended June 30, 2020. The increase was primarily due to the incremental expenses associated with NimbeLink as well as higher personnel-related expenses.
Sales and marketing expense increased $2.0 million or 68.9%, for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. The increase was primarily due to the incremental expenses from NimbeLink as well as higher personnel-related expenses, partially offset by reductions in travel costs.
General and Administrative
General and administrative expense increased by $0.9 million, or 36.5%, for the three months ended June 30, 2021, compared to the three months ended June 30, 2020. The increase was primarily due to the incremental expenses including amortization of purchased intangible assets associated with NimbeLink as well as higher personnel-related expenses.
General and administrative expense increased by $1.8 million, or 36.1%, for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. The increase was primarily due to the incremental expenses including amortization of purchased intangible assets associated with NimbeLink as well as higher personnel-related expenses.
Change in Fair Value of Contingent Consideration
During the three and six months ended June 30, 2021, we recorded a change in fair value of contingent consideration related to the NimbeLink acquisition of $1.6 million based on the forecasted revenue targets as of June 30, 2021.
27
Other Expense (Income)
|
|
|
Three months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Interest income, net |
|
$ |
(7 |
) |
|
$ |
(47 |
) |
|
$ |
40 |
|
|
|
(85.1 |
)% |
|
Other expense |
|
|
9 |
|
|
|
11 |
|
|
|
(2 |
) |
|
|
(18.2 |
) |
|
Total other expense (income) |
|
$ |
2 |
|
|
$ |
(36 |
) |
|
$ |
38 |
|
|
|
(105.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
Six months ended June 30, |
|
|
|
|
|
|
|
|||||||
|
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Interest income, net |
|
$ |
(15 |
) |
|
$ |
(171 |
) |
|
$ |
156 |
|
|
|
(91.2 |
)% |
|
Other expense |
|
|
16 |
|
|
|
11 |
|
|
|
5 |
|
|
|
45.5 |
|
|
Total other expense (income) |
|
$ |
1 |
|
|
$ |
(160 |
) |
|
$ |
161 |
|
|
|
(100.6 |
)% |
For both the three and six months ended June 30, 2021, total other expense increased slightly primarily due to lower interest income resulting from the decrease in short-term investment balances.
Liquidity and Capital Resources
We had cash and cash equivalents and restricted cash of $20.4 million at June 30, 2021.
Before 2013 we had incurred net losses in each year since our inception. As a result, we had an accumulated deficit of $49.7 million at June 30, 2021.
Since inception, we have primarily financed our operations and capital expenditures through private sales of preferred stock, public offerings of our common stock and cash flows from our operations. We have raised an aggregate of $29.5 million in net proceeds from the issuance of our preferred stock and convertible promissory notes and $37.0 million from the sale of common stock in our public offerings.
On January 31, 2018, we entered into a second amended and restated loan and security agreement with Silicon Valley Bank, or the SVB Loan Agreement. Under this agreement, the aggregate principal amount available under the revolving line of credit was $10.0 million and required us to maintain a ratio of cash and cash equivalents plus accounts receivable to outstanding debt under the Loan Agreement minus deferred revenue of 1.25 to 1.00. The SVB Loan Agreement also set a borrowing base limit of 80% of the aggregate face amount of all eligible receivables. The revolving line of credit matured on January 31, 2020 and was not renewed.
On January 7, 2021, as a result of the Nimbelink acquisition, we assumed a revolving line of credit, or the Line of Credit, with Choice Financial Group, or Choice, whereby Choice had made available to Airgain a secured credit facility of up to the lesser of (1) $1.5 million or (2) the sum of (a) 80% of the aggregate amount of third party accounts receivable balances, excluding progress billings, foreign receivables, accounts subject to dispute or setoff and doubtful accounts (Eligible Accounts) aged less than 90 days, net of 10% allowance, and (b) 25% of raw materials and finished goods, except those held at named contract manufacturer, after a 10% reserve for excess and obsolete inventory. Amounts borrowed under the Line of Credit bore interest at the prime rate plus 1%, payable monthly. The facility was secured by a commercial guarantee and a lien over the property of NimbeLink including inventory, equipment, accounts receivable, investments, deposit accounts, other rights to payment and performance and general intangibles. In April 2021, we closed the Line of Credit with Choice.
In September 2019, our Board of Directors, or the Board, approved a share repurchase program, or the 2019 Program, pursuant to which we could purchase up to $7.0 million of shares of its common stock over the twelve month period following the establishment of the program. The repurchases under the 2019 Program were made from time to time in the open market or in privately negotiated transactions and were funded from our working capital. Repurchases are made in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, subject to market conditions, available liquidity, cash flow, applicable legal requirements and other factors. In September 2020, the Board approved an extension to the 2019 Program for an additional twelve-month period ending September 9, 2021.
During the six months ended June 30, 2021, we did not repurchase shares of common stock under the 2019 Program. Since inception of the 2019 Program through June 30, 2021, we have purchased a total of approximately 162,000 shares of common stock for a total cost of $1.6 million.
We plan to continue to invest for long-term growth, including expanding our sales force and engineering organizations and making additional capital expenditures to further penetrate markets both in the United States and internationally, as well as expanding our research and development for new product offerings and technology solutions. We anticipate that these investments will continue to increase in absolute dollars. We believe that our existing cash and cash equivalents balance together with cash proceeds from operations will be sufficient to meet our working capital requirements for at least the next twelve months.
28
The following table presents a summary of our cash flow activity for the periods set forth below (in thousands):
|
|
|
Six months ended June 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Net cash provided by (used in) operating activities |
|
$ |
(5,579 |
) |
|
$ |
1,290 |
|
|
Net cash provided by (used in) investing activities |
|
|
(14,594 |
) |
|
|
14,798 |
|
|
Net cash provided by (used in) financing activities |
|
|
2,240 |
|
|
|
(517 |
) |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
$ |
(17,933 |
) |
|
$ |
15,571 |
|
Net cash provided by (used in) operating activities. Net cash used in operating activities was $5.6 million for the six months ended June 30, 2021. This was driven by a net loss of $2.4 million and $6.1 million net changes in operating assets and liabilities, partially offset by $2.9 million in non-cash expenses.
Net cash provided by (used in) investing activities. Net cash used in investing activities was $14.6 million for the six months ended June 30, 2021. This was primarily driven by $14.2 million in cash paid for the NimbeLink acquisition, net of acquired cash of $1.8 million and $0.4 million in purchases of property and equipment.
Net cash provided by (used in) financing activities. Net cash provided by financing activities was $2.2 million for the six months ended June 30, 2021. This was primarily driven by net proceeds from common stock issuances from equity compensation plans.
Contractual Obligations and Commitments
Other than disclosed below, there were no material changes outside the ordinary course of our business during the six months ended June 30, 2021 to the information regarding our contractual obligations that was disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2020.
In September 2020, we entered into a supply agreement with a vendor to purchase up to $2.0 million of inventory during the initial term of the agreement through December 31, 2022. As of June 30, 2021, the purchase commitment had been met and $1.5 million had been paid under this supply agreement.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements (as defined by applicable regulations of the Securities and Exchange Commission) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of financial condition and operating results is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported sales and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, other than as set forth in Note 2 to the unaudited condensed consolidated financial statements included in this quarterly report.
Recent Accounting Pronouncements
See Note 2, “Summary of Significant Accounting Policies” within the unaudited condensed consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
All of our sales are denominated in U.S. dollars, and therefore, our sales are not currently subject to significant foreign currency risk. To date, foreign currency transaction gains and losses have not been material to our consolidated financial statements, and we have not engaged in any foreign currency hedging transactions.
29
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this quarterly report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
Except as described below, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
On January 7, 2021, we acquired NimbeLink. We are in the process of integrating the internal controls of the acquired business into our overall system of internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently party to any material legal proceedings.
ITEM 1A. RISK FACTORS
A description of the risk factors associated with our business is included in the Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to such risk factors, other than as previously reported in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and as set forth below. In evaluating our business, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K. The occurrence of any of the risks discussed in such filings, or other events that we do not currently anticipate or that we currently deem immaterial, could harm our business, prospects, financial condition and results of operations. In that case the trading price of our common stock could decline, and you may lose all or part of your investment.
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance.
Our quarterly and annual operating results have fluctuated in the past and may fluctuate significantly in the future, which makes it difficult for us to predict our future operating results. The timing and size of sales of our products are variable and difficult to predict and can result in fluctuations in our net sales from period to period. In addition, our budgeted expense levels depend in part on our expectations of future sales. Because any substantial adjustment to expenses to account for lower levels of sales is difficult and takes time, we may not be able to reduce our costs sufficiently to compensate for an unexpected shortfall in net sales, and even a small shortfall in net sales could disproportionately and adversely affect our operating margin and operating results for a given quarter.
Our operating results may also fluctuate due to a variety of other factors, many of which are outside of our control, including the changing and volatile U.S., European, Asian and global economic environments, and any of which may cause our stock price to fluctuate. Besides the other risks in this “Risk Factors” section and discussed in our Annual Report on Form 10-K, factors that may affect our operating results include:
30
· fluctuations in demand for our products and services;
· the inherent complexity, length and associated unpredictability of product development windows and product lifecycles;
· the timing and extent of investment in our targeted growth markets and the timing and amount of sales in such markets;
· changes in customers’ budgets for technology purchases and delays in their purchasing cycles;
· supply constraints, including delays in production, supply shortages and related limitations on our and our customer's ability to obtain necessary components in our respective supply chains;
· seasonal fluctuations around local holidays in China affecting how customers make purchasing decisions;
· delays or difficulties in the integration of the NimbeLink acquisition;
· changing market conditions;
· any significant changes in the competitive dynamics of our markets, including new entrants, or further consolidation; the timing of product releases or upgrades by us or by our competitors;
· our ability to develop, introduce and ship in a timely manner new products and product enhancements and anticipate future market demands that meet our customers’ requirements;
· public health crises such as the COVID-19 pandemic; and
· increasing uncertainty of international relations and tariffs.
The cumulative effects of the factors above could result in large fluctuations and unpredictability in our quarterly and annual operating results. For example, the ongoing tension on global trade and macroenvironment are impacting the whole supply chain to varying degrees, which, in addition to the slowdown in customer specific product rollouts, has negatively affected our business and may continue to do so. In the first quarter of 2021 and continuing into the third quarter of 2021, a global chip shortage and supply constraints relating to other materials has caused a delay in customer specific rollouts as well as a delay in our ability to source required components for certain of our products, as well as the ability of our customers to source required components for end products that incorporate our products. These supply chain interruptions have caused and may continue to result in a delay in our sales, as well as fluctuations in timing of our supply chain purchases as we look to secure components in advance to account for longer lead times, and have resulted and may continue to result in higher prices from our suppliers that have and could continue to negatively affect gross margins. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of future performance.
We may experience delays in obtaining product from manufacturers and may not be a high priority for our manufacturers.
The ability and willingness of our contract manufacturers to perform is largely outside of our control. We believe that our orders may not represent a material portion of our contract manufacturers’ total orders and, as a result, fulfilling our orders may not be a priority if our contract manufacturers are constrained in their abilities or resources to fulfill all of their customer obligations in a timely manner. If any of our contract manufacturers suffers an interruption in its business, experiences delays, disruptions, or quality control problems in its manufacturing operations or we have to change or add additional contract manufacturers, our ability to ship products to our customers would be delayed and our sales could become volatile and our cost of sales may increase. For example, in the fourth quarter of 2020, we experienced a disruption in our supply chain for certain components located in Asia and continuing through the second quarter of 2021 we experienced varying increases in lead times required to secure certain necessary components in our supply chain due to the global chip shortage and supply constraints relating to other materials, which we expect to continue in future periods. In addition, NimbeLink has recently completed a supplier transition for certain products from existing manufacturers in the United States and China to Vietnam. While the facility in Vietnam is an affiliate of the existing manufacturer in China and meets the required qualifications, we may experience delays or quality issues as we begin to ramp up the new facility. Additionally, any or all of the following could either limit supply or increase costs, directly or indirectly, to us or our contract manufacturers:
· labor strikes or shortages;
· financial problems of either contract manufacturers or component suppliers;
· reservation of manufacturing capacity at our contract manufactures by other companies, inside or outside of our industry;
· changes or uncertainty in tariffs, economic sanctions, and other trade barriers or political unrest in regions where manufacturers are located, such as recent developments in Myanmar; and
· industry consolidation occurring within one or more component supplier markets, such as the semiconductor market.
If supply chain interruptions continue to occur as a result of COVID-19, macroeconomic trends or otherwise, it could have a material impact on our sales and business and those of our customers.
31
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities during the period covered by this report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
Effective as of August 9, 2021, our board of directors adopted an amendment and restatement of our bylaws, pursuant to which a new Article XI was added, which provides that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended.
ITEM 6. EXHIBITS
|
Exhibit Number |
|
Description |
|
|
|
|
|
3.1(1) |
|
|
|
|
|
|
|
3.2 |
|
|
|
|
|
|
|
4.1(2) |
|
Specimen stock certificate evidencing the shares of common stock |
|
|
|
|
|
4.2(2) |
|
|
|
|
|
|
|
4.3(3) |
|
|
|
|
|
|
|
10.1# |
|
Airgain, Inc. 2021 Employment Inducement Incentive Award Plan |
|
|
|
|
|
31.1* |
|
|
|
|
|
|
|
31.2* |
|
|
|
|
|
|
|
32.1* |
|
|
|
|
|
|
|
32.2* |
|
|
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document |
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
|
104 |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
32
* These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
# Indicates management contract or compensatory plan.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
AIRGAIN, INC. |
|
|
|
|
|
Date: August 10, 2021 |
|
/s/ Jacob Suen |
|
|
|
Jacob Suen President and Chief Executive Officer (principal executive officer) |
|
|
|
|
|
Date: August 10, 2021 |
|
/s/ David B. Lyle |
|
|
|
David B. Lyle Chief Financial Officer and Secretary (principal financial and accounting officer) |
33
AMENDED AND RESTATED
BYLAWS
OF
AIRGAIN, INC.
(a Delaware corporation)
As Amended and Restated August 9, 2021
TABLE OF CONTENTS
Page
|
ARTICLE I - CORPORATE OFFICES |
4 |
|
|
1.1 |
REGISTERED OFFICE |
4 |
|
1.2 |
OTHER OFFICES |
4 |
|
ARTICLE II - MEETINGS OF STOCKHOLDERS |
4 |
|
|
2.1 |
PLACE OF MEETINGS |
4 |
|
2.2 |
ANNUAL MEETING |
4 |
|
2.3 |
SPECIAL MEETING |
4 |
|
2.4 |
ADVANCE NOTICE PROCEDURES FOR BUSINESS BROUGHT BEFORE A MEETING |
5 |
|
2.5 |
ADVANCE NOTICE PROCEDURES FOR NOMINATIONS OF DIRECTORS |
9 |
|
2.6 |
NOTICE OF STOCKHOLDERS’ MEETINGS |
12 |
|
2.7 |
MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE |
13 |
|
2.8 |
QUORUM |
13 |
|
2.9 |
ADJOURNED MEETING; NOTICE |
13 |
|
2.10 |
CONDUCT OF BUSINESS |
13 |
|
2.11 |
VOTING |
14 |
|
2.12 |
STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING |
14 |
|
2.13 |
RECORD DATE FOR STOCKHOLDER NOTICE; VOTING |
14 |
|
2.14 |
PROXIES |
15 |
|
2.15 |
LIST OF STOCKHOLDERS ENTITLED TO VOTE |
15 |
|
2.16 |
POSTPONEMENT AND CANCELLATION OF MEETING. |
16 |
|
2.17 |
INSPECTORS OF ELECTION |
16 |
|
ARTICLE III - DIRECTORS |
16 |
|
|
3.1 |
POWERS |
16 |
|
3.2 |
NUMBER OF DIRECTORS |
16 |
|
3.3 |
ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS |
16 |
|
3.4 |
RESIGNATION AND VACANCIES |
17 |
|
3.5 |
PLACE OF MEETINGS; MEETINGS BY TELEPHONE |
17 |
|
3.6 |
REGULAR MEETINGS |
17 |
|
3.7 |
SPECIAL MEETINGS; NOTICE |
17 |
|
3.8 |
QUORUM |
18 |
|
3.9 |
BOARD ACTION BY CONSENT WITHOUT A MEETING |
18 |
|
3.10 |
FEES AND COMPENSATION OF DIRECTORS |
18 |
|
3.11 |
REMOVAL OF DIRECTORS |
18 |
|
ARTICLE IV - COMMITTEES |
18 |
|
|
4.1 |
COMMITTEES OF DIRECTORS |
18 |
|
4.2 |
COMMITTEE MINUTES |
19 |
|
4.3 |
MEETINGS AND ACTION OF COMMITTEES |
19 |
|
ARTICLE V - OFFICERS |
19 |
|
|
5.1 |
OFFICERS |
19 |
|
5.2 |
APPOINTMENT OF OFFICERS |
20 |
|
5.3 |
SUBORDINATE OFFICERS |
20 |
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AMENDED AND RESTATED BYLAWS
OF
AIRGAIN, INC.
ARTICLE I - CORPORATE OFFICES
1.1 REGISTERED OFFICE.
The registered office of Airgain, Inc. (the “Corporation”) shall be fixed in the Corporation’s certificate of incorporation, as the same may be amended from time to time (the “certificate of incorporation”).
1.2 OTHER OFFICES.
The Corporation’s board of directors (the “Board”) may at any time establish other offices at any place or places where the Corporation is qualified to do business.
ARTICLE II - MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS.
Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board. The Board may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the General Corporation Law of the State of Delaware (the “DGCL”). In the absence of any such designation or determination, stockholders’ meetings shall be held at the Corporation’s principal executive office.
2.2 ANNUAL MEETING.
The Board shall designate the date and time of the annual meeting. At the annual meeting, directors shall be elected and other proper business properly brought before the meeting in accordance with Section 2.4 of these bylaws may be transacted.
2.3 SPECIAL MEETING.
A special meeting of the stockholders may be called at any time by the Board, chairperson of the Board, chief executive officer or president (in the absence of a chief executive officer), but such special meetings may not be called by any other person or persons.
No business may be transacted at such special meeting other than the business specified in such notice to stockholders. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board may be held.
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2.4 ADVANCE NOTICE PROCEDURES FOR BUSINESS BROUGHT BEFORE A MEETING.
(a) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) brought before the meeting by the Corporation and specified in the notice of meeting given by or at the direction of the Board, (ii) brought before the meeting by or at the direction of the Board (or a committee thereof) or (iii) otherwise properly brought before the meeting by a stockholder who (A) was a stockholder of record of the Corporation (and, with respect to any beneficial owner, if different, on whose behalf such business is proposed, only if such beneficial owner was the beneficial owner of shares of the Corporation) both at the time of giving the notice provided for in this Section 2.4 and at the time of the meeting, (B) is entitled to vote at the meeting and (C) has complied with this Section 2.4 as to such business. Except for proposals properly made in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (as so amended and inclusive of such rules and regulations, the “Exchange Act”), and included in the notice of meeting given by or at the direction of the Board, the foregoing clause (iii) shall be the exclusive means for a stockholder to propose business to be brought before an annual meeting of the stockholders. Stockholders shall not be permitted to propose business to be brought before a special meeting of the stockholders, and the only matters that may be brought before a special meeting are the matters specified in the notice of meeting given by or at the direction of the person calling the meeting pursuant to Section 2.3 of these bylaws. Stockholders seeking to nominate persons for election to the Board must comply with Section 2.5 of these bylaws, and this Section 2.4 shall not be applicable to nominations except as expressly provided in Section 2.5 of these bylaws.
(b) Without qualification, for business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of the second sentence of Section 2.4(a) of these bylaws, the stockholder must (i) provide Timely Notice (as defined below) thereof in writing and in proper form to the secretary of the Corporation and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.4. To be timely, a stockholder’s notice must be delivered to, or mailed and received by the Secretary at, the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that (x) if the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date or (y) with respect to the first annual meeting held after the Company’s initial public offering of its shares pursuant to a registration statement on Form S-1, notice by the stockholder to be timely must be so delivered, or mailed and received, not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the later of the close of business on the ninetieth (90th) day prior to such annual meeting and the close of business on the tenth (10th) day following the day on which public disclosure of the date of such annual meeting was first made (such notice within such time periods, “Timely Notice”). In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period (or extend any time period) for the giving of Timely Notice as described above.
(c) To be in proper form for purposes of this Section 2.4, a stockholder’s notice to the secretary of the Corporation shall set forth:
(i) As to each Proposing Person (as defined below), (A) the name and address of such Proposing Person (including, without limitation, if applicable, the name and address that appear on the Corporation’s books and records) and (B) the class or series and number of shares of the Corporation that are, directly or indirectly, owned of record or beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by such Proposing Person, except that such Proposing Person shall in all events be deemed to
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beneficially own any shares of any class or series of the Corporation as to which such Proposing Person has a right to acquire beneficial ownership at any time in the future (the disclosures to be made pursuant to the foregoing clauses (A) and (B) are referred to as “Stockholder Information”);
(ii) As to each Proposing Person, (A) any derivative, swap or other transaction or series of transactions engaged in, directly or indirectly, by such Proposing Person, the purpose or effect of which is to give such Proposing Person economic risk similar to ownership of shares of any class or series of the Corporation, including, without limitation, due to the fact that the value of such derivative, swap or other transactions are determined by reference to the price, value or volatility of any shares of any class or series of the Corporation, or which derivative, swap or other transactions provide, directly or indirectly, the opportunity to profit from any increase in the price or value of shares of any class or series of the Corporation (“Synthetic Equity Interests”), which Synthetic Equity Interests shall be disclosed without regard to whether (x) the derivative, swap or other transactions convey any voting rights in such shares to such Proposing Person, (y) the derivative, swap or other transactions are required to be, or are capable of being, settled through delivery of such shares or (z) such Proposing Person may have entered into other transactions that hedge or mitigate the economic effect of such derivative, swap or other transactions, (B) any proxy (other than a revocable proxy or consent given in response to a solicitation made pursuant to, and in accordance with, Section 14(a) of the Exchange Act by way of a solicitation statement filed on Schedule 14A), agreement, arrangement, understanding or relationship pursuant to which such Proposing Person has or shares a right to vote any shares of any class or series of the Corporation, (C) any agreement, arrangement, understanding or relationship, including, without limitation, any repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by such Proposing Person, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of shares of any class or series of the Corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such Proposing Person with respect to the shares of any class or series of the Corporation, or which provides, directly or indirectly, the opportunity to profit from any decrease in the price or value of the shares of any class or series of the Corporation (“Short Interests”), (D) any rights to dividends on the shares of any class or series of the Corporation owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation, (E) any performance related fees (other than an asset based fee) that such Proposing Person is entitled to based on any increase or decrease in the price or value of shares of any class or series of the Corporation, or any Synthetic Equity Interests or Short Interests, if any, (F)(x) if such Proposing Person is not a natural person, the identity of the natural person or persons associated with such Proposing Person responsible for the formulation of and decision to propose the business to be brought before the meeting (such person or persons, the “Responsible Person”), the manner in which such Responsible Person was selected, any fiduciary duties owed by such Responsible Person to the equity holders or other beneficiaries of such Proposing Person, the qualifications and background of such Responsible Person and any material interests or relationships of such Responsible Person that are not shared generally by any other record or beneficial holder of the shares of any class or series of the Corporation and that reasonably could have influenced the decision of such Proposing Person to propose such business to be brought before the meeting, and (y) if such Proposing Person is a natural person, the qualifications and background of such natural person and any material interests or relationships of such natural person that are not shared generally by any other record or beneficial holder of the shares of any class or series of the Corporation and that reasonably
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could have influenced the decision of such Proposing Person to propose such business to be brought before the meeting, (G) any significant equity interests or any Synthetic Equity Interests or Short Interests in any principal competitor of the Corporation held by such Proposing Persons, (H) any direct or indirect interest of such Proposing Person in any contract with the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation (including, without limitation, in any such case, any employment agreement, collective bargaining agreement or consulting agreement), (I) any pending or threatened litigation in which such Proposing Person is a party or material participant involving the Corporation or any of its officers or directors, or any affiliate of the Corporation, (J) any material transaction occurring during the prior twelve months between such Proposing Person, on the one hand, and the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation, on the other hand, (K) a summary of any material discussions regarding the business proposed to be brought before the meeting (x) between or among any of the Proposing Persons or (y) between or among any Proposing Person and any other record or beneficial holder of the shares of any class or series of the Corporation (including, without limitation, their names) and (L) any other information relating to such Proposing Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such Proposing Person in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act (the disclosures to be made pursuant to the foregoing clauses (A) through (L) are referred to as “Disclosable Interests”); provided, however, that Disclosable Interests shall not include any such disclosures with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by these bylaws on behalf of a beneficial owner; and
(iii) As to each item of business that the stockholder proposes to bring before the annual meeting, (A) a reasonably brief description of the business desired to be brought before the annual meeting, the reasons for conducting such business at the annual meeting and any material interest in such business of each Proposing Person, (B) the text of the proposal or business (including, without limitation, the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the bylaws of the Corporation, the language of the proposed amendment), (C) a reasonably detailed description of all agreements, arrangements and understandings between or among any of the Proposing Persons or between or among any Proposing Person and any other person or entity (including, without limitation, their names) in connection with the proposal of such business by such stockholder, (D) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business, (E) a representation whether the Proposing Person intends or is part of a group which intends (1) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal and/or (2) otherwise to solicit proxies or votes from stockholders in support of such proposal and (F) any other information relating to such item of business that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act; provided, however, that the disclosures required by this paragraph (c)(iii) shall not include any disclosures with respect to any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a
-7-
result of being the stockholder directed to prepare and submit the notice required by these bylaws on behalf of a beneficial owner.
(d) For purposes of this Section 2.4, the term “Proposing Person” shall mean (i) the stockholder providing the notice of business proposed to be brought before an annual meeting, (ii) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the business proposed to be brought before the annual meeting is made, (iii) any affiliate or associate (each within the meaning of Rule 12b-2 under the Exchange Act for the purposes of these bylaws) of such stockholder or beneficial owner and (iv) any other person with whom such stockholder or beneficial owner (or any of their respective affiliates or associates) is Acting in Concert (as defined below).
(e) A person shall be deemed to be “Acting in Concert” with another person for purposes of these bylaws if such person knowingly acts (whether or not pursuant to an express agreement, arrangement or understanding) in concert with, or towards a common goal relating to the management, governance or control of the Corporation in parallel with, such other person where (i) each person is conscious of the other person’s conduct or intent and this awareness is an element in their decision-making processes and (ii) at least one additional factor suggests that such persons intend to act in concert or in parallel, which such additional factors may include, without limitation, exchanging information (whether publicly or privately), attending meetings, conducting discussions, or making or soliciting invitations to act in concert or in parallel; provided, that a person shall not be deemed to be Acting in Concert with any other person solely as a result of the solicitation or receipt of revocable proxies or consents from such other person in response to a solicitation made pursuant to, and in accordance with, the Section 14(a) of the Exchange Act by way of a proxy or consent solicitation statement filed on Schedule 14A. A person Acting in Concert with another person shall be deemed to be Acting in Concert with any third party who is also Acting in Concert with such other person.
(f) A stockholder providing notice of business proposed to be brought before an annual meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.4 shall be true and correct as of the record date for determining stockholders entitled to notice of the annual meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the secretary of the Corporation at the principal executive offices of the Corporation not later than five (5) business days after the record date for determining stockholders entitled to notice of the annual meeting (in the case of the update and supplement required to be made as of the record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof).
(g) Notwithstanding anything in these bylaws to the contrary and except as otherwise expressly provided in any applicable rule or regulation promulgated under the Exchange Act, no business shall be conducted at an annual meeting except in accordance with this Section 2.4. The presiding officer of an annual meeting of stockholders shall have the power and duty (a) to determine that any business was not properly brought before the meeting in accordance with this Section 2.4 (including whether the stockholder or beneficial owner, if any, on whose behalf the business proposed to be brought before the annual meeting is made, solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies or votes in support of such stockholder’s business in compliance with such stockholder’s representation as required by clause (c)(iii)(E) of this Section 2.4); and (b) if any proposed business was not proposed in compliance with this Section 2.4 to declare to the meeting that any such business not properly brought before the meeting shall not be transacted.
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(h) The foregoing notice requirements of this Section 2.4 shall be deemed satisfied by a stockholder with respect to business other than a nomination if the stockholder has notified the Corporation of his, her or its intention to present a proposal at an annual meeting in compliance with applicable rules and regulations promulgated under the Exchange Act and such stockholder’s proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting. Nothing in this Section 2.4 shall be deemed to affect the rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(i) For purposes of these bylaws, “public disclosure” shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
(j) Notwithstanding the foregoing provisions of this Section 2.4, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual meeting to present proposed business, such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 2.4, except as provided under Rule 14a-8 under the Exchange Act, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the annual meeting and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the annual meeting.
(k) Notwithstanding the foregoing provisions of this Section 2.4, a stockholder shall also comply with all applicable requirements of the Exchange Act with respect to the matters set forth in this Section 2.4; provided however, that any references in these bylaws to the Exchange Act are not intended to and shall not limit any requirements applicable to proposals as to any business to be considered pursuant to this Section 2.4 (including paragraph (a)(iii) hereof), and compliance with paragraph (a)(iii) of this Section 2.4 shall be the exclusive means for a stockholder to submit business (other than, as provided in the first sentence of paragraph (h) of this Section 2.4, business brought properly under and in compliance with Rule 14a-8 of the Exchange Act, as may be amended from time to time).
2.5 ADVANCE NOTICE PROCEDURES FOR NOMINATIONS OF DIRECTORS.
(a) Nominations of any person for election to the Board at an annual meeting or at a special meeting (but, in the case of a special meeting, only if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling such special meeting) may be made at such meeting only (i) by or at the direction of the Board or any committee thereof, or (ii) by a stockholder who (A) was a stockholder of record of the Corporation (and, with respect to any beneficial owner, if different, on whose behalf such nomination is proposed to be made, only if such beneficial owner was the beneficial owner of shares of the Corporation) both at the time of giving the notice provided for in this Section 2.5 and at the time of the meeting, (B) is entitled to vote at the meeting and (C) has complied with this Section 2.5 as to such nomination. The foregoing clause (ii) shall be the exclusive means for a stockholder to make any nomination of a person or persons for election to the Board to be considered by the stockholders at an annual meeting or special meeting.
(b) Without qualification, for a stockholder to make any nomination of a person or persons for election to the Board at an annual meeting, the stockholder must (i) provide Timely Notice (as defined in Section 2.4(b) of these bylaws) thereof in writing and in proper form to the secretary of the Corporation and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.5. Notwithstanding anything in this paragraph to the contrary, in the event that the number
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of directors to be elected to the Board at an annual meeting is increased effective after the time period for which nominations would otherwise by due under this paragraph (b) and there is no public announcement by the Corporation naming the nominees for the additional directorships at least one hundred (100) days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by paragraph (b) of this Section 2.5 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation. Without qualification, if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling such special meeting, then for a stockholder to make any nomination of a person or persons for election to such position(s) as specified in the notice of the special meeting, the stockholder must (i) provide timely notice thereof in writing and in proper form to the secretary of the Corporation at the principal executive offices of the Corporation and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.5. To be timely, a stockholder’s notice for nominations to be made at a special meeting must be delivered to, or mailed and received at, the principal executive offices of the Corporation not earlier than the close of business on the one hundred twentieth (120th) day prior to such special meeting and not later than the later of the close of business on the ninetieth (90th) day prior to such special meeting and the close of business on the tenth (10th) day following the day on which public disclosure (as defined in Section 2.4(i) of these bylaws) of the date of such special meeting was first made. In no event shall any adjournment or postponement of an annual meeting or special meeting or the announcement thereof commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
(c) To be in proper form for purposes of this Section 2.5, a stockholder’s notice to the secretary of the Corporation shall set forth:
(i) As to each Nominating Person (as defined below), the Stockholder Information (as defined in Section 2.4(c)(i) of these bylaws) except that for purposes of this Section 2.5, the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(c)(i);
(ii) As to each Nominating Person, any Disclosable Interests (as defined in Section 2.4(c)(ii), except that for purposes of this Section 2.5 the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(c)(ii) and the disclosure in clause (L) of Section 2.4(c)(ii) shall be made with respect to the election of directors at the meeting), provided, however, that Disclosable Interests shall not include any such disclosures with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company or other nominee who is a Nominating Person solely as a result of being the stockholder directed to prepare and submit the notice required by these bylaws on behalf of a beneficial owner; and;
(iii) As to each person whom a Nominating Person proposes to nominate for election as a director, (A) all information with respect to such proposed nominee that would be required to be set forth in a stockholder’s notice pursuant to this Section 2.5 if such proposed nominee were a Nominating Person, (B) all information relating to such proposed nominee that is required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14(a) under the Exchange Act (including, without limitation, such proposed nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected), (C) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings
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during the past three (3) years, and any other material relationships, between or among any Nominating Person, on the one hand, and each proposed nominee, his or her respective affiliates and associates and any other persons with whom such proposed nominee (or any of his or her respective affiliates and associates) is Acting in Concert (as defined in Section 2.4(e) of these bylaws), on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 under Regulation S-K if such Nominating Person were the “registrant” for purposes of such rule and the proposed nominee were a director or executive officer of such registrant (the disclosures to be made pursuant to the foregoing clauses (A) through (C) are referred to as “Nominee Information”), (D) a representation that the Nominating Person is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such nomination, (E) a representation whether the Nominating Person intends or is part of a group which intends (1) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to elect the nominee and/or (2) otherwise to solicit proxies or votes from stockholders in support of such nomination and (F) a completed and signed questionnaire, representation and agreement as provided in Section 2.5(g); and
(iv) The Corporation may require any proposed nominee to furnish such other information (A) as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation in accordance with the Corporation’s Corporate Governance Guidelines or (B) that could be material to a reasonable stockholder’s understanding of the independence or lack of independence of such proposed nominee.
(d) For purposes of this Section 2.5, the term “Nominating Person” shall mean (i) the stockholder providing the notice of the nomination proposed to be made at the meeting, (ii) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the nomination proposed to be made at the meeting is made, (iii) any affiliate or associate of such stockholder or beneficial owner and (iv) any other person with whom such stockholder or such beneficial owner (or any of their respective affiliates or associates) is Acting in Concert.
(e) A stockholder providing notice of any nomination proposed to be made at a meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.5 shall be true and correct as of the record date for determining stockholders entitled to notice of the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the secretary of the Corporation at the principal executive offices of the Corporation not later than five (5) business days after the record date for determining stockholders entitled to notice of the meeting (in the case of the update and supplement required to be made as of the record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof).
(f) Notwithstanding anything in these bylaws to the contrary, no person shall be eligible for election as a director of the Corporation unless nominated in accordance with this Section 2.5, except as otherwise expressly provided in any applicable rule or regulation promulgated under the Exchange Act. The presiding officer at any meeting of stockholders shall have the power and duty to (a) determine that a nomination was not properly made in accordance with this Section 2.5 (including whether the stockholder
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or beneficial owner, if any, on whose behalf the nomination was made, solicited or is part of a group which solicited) or did not so solicit, as the case may be, proxies or votes in support of such stockholder’s nomination in compliance with such stockholder’s representation as required by clause (c)(iii)(E) of this Section 2.5); and (b) if any proposed nomination was not made in compliance with this Section 2.5 to declare such determination to the meeting that the defective nomination shall be disregarded.
(g) To be eligible to be a nominee for election as a director of the Corporation, the proposed nominee must deliver (in accordance with the time periods prescribed for delivery of notice under this Section 2.5) to the secretary of the Corporation at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such proposed nominee (which questionnaire shall be provided by the secretary upon written request) and a written representation and agreement (in form provided by the secretary upon written request) that such proposed nominee (i) is not and will not become a party to (A) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such proposed nominee, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation or (B) any Voting Commitment that could limit or interfere with such proposed nominee’s ability to comply, if elected as a director of the Corporation, with such proposed nominee’s fiduciary duties under applicable law, (ii) is not, and will not become a party to, any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed to the Corporation and (iii) in such proposed nominee’s individual capacity and on behalf of the stockholder (or the beneficial owner, if different) on whose behalf the nomination is made, would be in compliance, if elected as a director of the Corporation, and will comply with applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation.
(h) In addition to the requirements of this Section 2.5 with respect to any nomination proposed to be made at a meeting, each Nominating Person shall comply with all applicable requirements of the Exchange Act with respect to any such nominations.
(i) Notwithstanding the foregoing provisions of this Section 2.5, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the meeting to present the proposed nomination, such proposed nomination shall not be considered, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 2.5, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting.
2.6 NOTICE OF STOCKHOLDERS’ MEETINGS.
Unless otherwise provided by law, the certificate of incorporation or these bylaws, the notice of any meeting of stockholders shall be sent or otherwise given in accordance with either Section 2.7 or Section 8.1 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting. The notice shall specify the place, if any, date and hour of the meeting, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting), the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person
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and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.
2.7 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Notice of any meeting of stockholders shall be deemed given:
(a) if mailed, when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the Corporation’s records; or
(b) if electronically transmitted as provided in Section 8.1 of these bylaws.
An affidavit of the secretary or an assistant secretary of the Corporation or of the transfer agent or any other agent of the Corporation that the notice has been given by mail or by a form of electronic transmission, as applicable, shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
2.8 QUORUM.
Unless otherwise provided by law, the certificate of incorporation or these bylaws, the holders of a majority in voting power of the capital stock issued and outstanding and entitled to vote, present in person, or by remote communication, if applicable, or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. A quorum, once established at a meeting, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, a quorum is not present or represented at any meeting of the stockholders, then either (a) the chairperson of the meeting or (b) a majority in voting power of the stockholders entitled to vote thereon, present in person, or by remote communication, if applicable, or represented by proxy, shall have power to adjourn the meeting from time to time in the manner provided in Section 2.9 of these bylaws until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.
2.9 ADJOURNED MEETING; NOTICE.
When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date for determining the stockholders entitled to vote is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting as of the record date for determining the stockholders entitled to notice of the adjourned meeting.
2.10 CONDUCT OF BUSINESS.
The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the person presiding over any meeting of stockholders shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures (which need not be in writing) and to do all such acts as, in the judgment of
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such presiding person, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the presiding person of the meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting; (b) rules and procedures for maintaining order at the meeting and the safety of those present (including, without limitation, rules and procedures for removal of disruptive persons from the meeting); (c) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such other persons as the presiding person of the meeting shall determine; (d) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (e) limitations on the time allotted to questions or comments by participants. The presiding person at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting (including, without limitation, determinations with respect to the administration and/or interpretation of any of the rules, regulations or procedures of the meeting, whether adopted by the Board or prescribed by the person presiding over the meeting), shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such presiding person should so determine, such presiding person shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board or the person presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
2.11 VOTING.
The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.13 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 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 to one (1) vote for each share of capital stock held by such stockholder.
At all duly called or convened meetings of stockholders, at which a quorum is present, for the election of directors, a plurality of the votes cast shall be sufficient to elect a director. Except as otherwise provided by the certificate of incorporation, these bylaws, the rules or regulations of any stock exchange applicable to the Corporation, or applicable law or pursuant to any regulation applicable to the Corporation or its securities, all other elections and questions presented to the stockholders at a duly called or convened meeting, at which a quorum is present, shall be decided by the affirmative vote of the holders of a majority in voting power of the votes cast affirmatively or negatively (excluding abstentions) at the meeting by the holders entitled to vote thereon.
2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.
2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.
In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If the Board so fixes a date, such date shall also be the record date for determining
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the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date 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, the record date for determining stockholders entitled to notice of or to vote at 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 is waived, 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 any adjournment of the meeting; provided, however, that the Board may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned meeting.
In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix a record date, which shall not be more than sixty (60) days prior to such other action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.
2.14 PROXIES.
Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL. A proxy may be in the form of a telegram, cablegram or other means of electronic transmission which sets forth or is submitted with information from which it can be determined that the telegram, cablegram or other means of electronic transmission was authorized by the stockholder.
2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE.
The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting (provided, however, if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the date of the meeting), arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The Corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least ten (10) days prior to the meeting: (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the Corporation’s principal executive office. In the event that the Corporation determines to make the list available on an electronic network, 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 whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to the identity of the stockholders
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entitled to vote in person or by proxy and the number of shares held by each of them, and as to the stockholders entitled to examine the list of stockholders.
2.16 POSTPONEMENT AND CANCELLATION OF MEETING.
Any previously scheduled annual or special meeting of the stockholders may be postponed, and any previously scheduled annual or special meeting of the stockholders may be canceled, by resolution of the Board upon public notice given prior to the time previously scheduled for such meeting.
2.17 INSPECTORS OF ELECTION.
Before any meeting of stockholders, the Board shall appoint an inspector or inspectors of election to act at the meeting or its adjournment or postponement and make a written report thereof. The number of inspectors shall be either one (1) or three (3). If any person appointed as inspector fails to appear or fails or refuses to act, then the chairperson of the meeting may, and upon the request of any stockholder or a stockholder’s proxy shall, appoint a person to fill that vacancy. Unless otherwise required by law, inspectors may be officers, employees or agents of the Corporation. Such inspectors shall have the duties prescribed by law and shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by law. The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.
ARTICLE III - DIRECTORS
3.1 POWERS.
Subject to the provisions of the DGCL and any limitations in the certificate of incorporation relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board.
3.2 NUMBER OF DIRECTORS.
The authorized number of directors shall be determined from time to time by resolution of the Board, provided the Board shall consist of at least one (1) member. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.
Except as provided in Section 3.4 of these bylaws, each director, including, without limitation, a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. 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 three (3) classes.
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3.4 RESIGNATION AND VACANCIES.
Any director may resign at any time upon notice given in writing or by electronic transmission to the Corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these bylaws, vacancies and newly created directorships resulting from any increase in the authorized number of directors shall, unless the Board determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified. A vacancy in the Board shall be deemed to exist under these bylaws in the case of the death, removal or resignation of any director.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
The Board 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, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting pursuant to this bylaw shall constitute presence in person at the meeting.
3.6 REGULAR MEETINGS.
Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board.
3.7 SPECIAL MEETINGS; NOTICE.
Special meetings of the Board for any purpose or purposes may be called at any time by the chairperson of the Board, the chief executive officer, the president, the secretary or a majority of the authorized number of directors.
Notice of the time and place of special meetings shall be:
(a) delivered personally by hand, by courier or by telephone;
(b) sent by United States first-class mail, postage prepaid;
(c) sent by facsimile; or
(d) sent by electronic mail, electronic transmission or other similar means,
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directed to each director at that director’s address, telephone number, facsimile number or electronic mail or other electronic address, as the case may be, as shown on the Corporation’s records.
If the notice is (a) delivered personally by hand, by courier or by telephone, (b) sent by facsimile or (c) sent by electronic mail or electronic transmission, it shall be delivered or sent at least twenty-four (24) hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the Corporation’s principal executive office) nor the purpose of the meeting.
3.8 QUORUM.
The greater of (a) a majority of the directors at any time in office and (b) one-third of the number of directors established by the Board pursuant to Section 3.2 of these bylaws shall constitute a quorum of the Board for the transaction of business. 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, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws. If a quorum is not present at any meeting of the Board, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
3.9 BOARD ACTION BY CONSENT WITHOUT A MEETING.
Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
3.10 FEES AND COMPENSATION OF DIRECTORS.
Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board shall have the authority to fix the compensation of directors.
3.11 REMOVAL OF DIRECTORS.
Subject to the rights of the holders of the shares of any series of Preferred Stock, the Board or any individual director may be removed from office only for cause and only by the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock of the Corporation entitled to vote thereon.
ARTICLE IV - COMMITTEES
4.1 COMMITTEES OF DIRECTORS.
The Board may designate one (1) or more committees, each committee to consist of one (1) or more of the directors of the Corporation. The Board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum,
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may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board or in these bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (a) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (b) adopt, amend or repeal any bylaw of the Corporation.
4.2 COMMITTEE MINUTES.
Each committee shall keep regular minutes of its meetings and report the same to the Board when required.
4.3 MEETINGS AND ACTION OF COMMITTEES.
Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:
(a) Section 3.5 of these bylaws (place of meetings and meetings by telephone);
(b) Section 3.6 of these bylaws (regular meetings);
(c) Section 3.7 of these bylaws (special meetings and notice);
(d) Section 3.8 of these bylaws (quorum);
(e) Section 7.12 of these bylaws (waiver of notice); and
(f) Section 3.9 of these bylaws (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 and its members. However:
(i) the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;
(ii) special meetings of committees may also be called by resolution of the Board; and
(iii) notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.
ARTICLE V - OFFICERS
5.1 OFFICERS.
The officers of the Corporation shall be a president and a secretary. The Corporation may also have, at the discretion of the Board, a chairperson of the Board, a vice chairperson of the Board, a chief
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executive officer, a chief financial officer or treasurer, one (1) or more vice presidents, one (1) or more assistant vice presidents, one (1) or more assistant treasurers, one (1) or more assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS.
The Board shall appoint the officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws, subject to the rights, if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS.
The Board may appoint, or empower the chief executive officer or, in the absence of a chief executive officer, the president, to appoint, such other officers and agents as the business of the Corporation may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board at any regular or special meeting of the Board or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party.
5.5 VACANCIES IN OFFICES.
Any vacancy occurring in any office of the Corporation shall be filled by the Board or as provided in Section 5.2 of these bylaws.
5.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
The chairperson of the Board, the president, any vice president, the treasurer, the secretary or assistant secretary of this Corporation, or any other person authorized by the Board 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 securities of any other entity or entities standing in the name of this Corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.
5.7 AUTHORITY AND DUTIES OF OFFICERS.
All officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the Board and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board.
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ARTICLE VI - RECORDS AND REPORTS
6.1 MAINTENANCE OF RECORDS.
The Corporation shall, either at its principal executive office or at such place or places as designated by the Board, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books and other records.
ARTICLE VII - GENERAL MATTERS
7.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.
The Board, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
7.2 STOCK CERTIFICATES; PARTLY PAID SHARES.
The shares of the Corporation shall be represented by certificates or shall be uncertificated. Certificates for the shares of stock, if any, shall be in such form as is consistent with the certificate of incorporation and applicable law. Every holder of stock represented by a certificate shall be entitled to have a certificate signed by, or in the name of the Corporation by the chairperson or vice chairperson of the Board, or the president or vice president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
7.3 SPECIAL DESIGNATION ON CERTIFICATES.
If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series
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of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
7.4 LOST CERTIFICATES.
Except as provided in this Section 7.4, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and cancelled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
7.5 CONSTRUCTION; DEFINITIONS.
Unless the context requires otherwise, the general provisions, rules of construction and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.
7.6 DIVIDENDS.
The Board, subject to any restrictions contained in either (a) the DGCL or (b) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property or in shares of the Corporation’s capital stock.
The Board may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies.
7.7 FISCAL YEAR.
The fiscal year of the Corporation shall be fixed by resolution of the Board and may be changed by the Board.
7.8 SEAL.
The Corporation may adopt a corporate seal, which shall be adopted and which may be altered by the Board. The Corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
7.9 TRANSFER OF STOCK.
Shares of the Corporation shall be transferable in the manner prescribed by law and in these bylaws. Shares of stock of the Corporation shall be transferred on the books of the Corporation only by the holder of record thereof or by such holder’s attorney duly authorized in writing, upon surrender to the Corporation of the certificate or certificates representing such shares endorsed by the appropriate person or persons (or
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by delivery of duly executed instructions with respect to uncertificated shares), with such evidence of the authenticity of such endorsement or execution, transfer, authorization and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer stamps. To the fullest extent permitted by law, no transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing the names of the persons from and to whom it was transferred.
7.10 STOCK TRANSFER AGREEMENTS.
The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
7.11 REGISTERED STOCKHOLDERS.
The Corporation, to the fullest extent permitted by law:
(a) shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner;
(b) shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares; and
(c) shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
7.12 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.
ARTICLE VIII - NOTICE BY ELECTRONIC TRANSMISSION
8.1 NOTICE BY ELECTRONIC TRANSMISSION.
Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the certificate of incorporation or these bylaws, any notice to stockholders given by the Corporation under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice
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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:
(a) the Corporation is unable to deliver by electronic transmission two (2) consecutive notices given by the Corporation in accordance with such consent; and
(b) such inability becomes known to the secretary or an assistant secretary of the Corporation or to the transfer agent, 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:
An affidavit of the secretary or an assistant secretary of the Corporation or of the transfer agent or other agent of the Corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
8.2 DEFINITION OF ELECTRONIC TRANSMISSION.
For the purposes of these bylaws, 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 paper form by such a recipient through an automated process.
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ARTICLE IX - INDEMNIFICATION AND ADVANCEMENT
9.1 ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify each person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was, or has agreed to become, a director or officer of the Corporation, or, while a director or officer of the Corporation, is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) (all such persons being referred to hereafter as an “Indemnitee”), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including, without limitation, attorneys’ fees), liabilities, losses, judgments, fines (including, without limitation, excise taxes and penalties arising under the Employee Retirement Income Security Act of 1974, as amended), and amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with such action, suit or proceeding and any appeal therefrom, if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.
9.2 ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify any Indemnitee who was or is a party to or threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that Indemnitee is or was, or has agreed to become, a director or officer of the Corporation, or, while a director or officer of the Corporation, is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including, without limitation, attorneys’ fees) actually and reasonably incurred by or on behalf of Indemnitee in connection with such action, suit or proceeding and any appeal therefrom, if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made under this Section 9.2 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Corporation, unless, and only to the extent, that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses (including, without limitation, attorneys’ fees) which the Court of Chancery of Delaware or such other court shall deem proper.
9.3 INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding any other provisions of this Article IX, to the extent that an Indemnitee has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections 9.1 and 9.2 of these bylaws, or in defense of any claim, issue or matter therein, or on appeal from any such
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action, suit or proceeding, Indemnitee shall be indemnified to the fullest extent permitted by law against all expenses (including, without limitation, attorneys’ fees) actually and reasonably incurred by or on behalf of Indemnitee in connection therewith. Without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits or otherwise (including, without limitation, a disposition without prejudice), without (a) the disposition being adverse to Indemnitee, (b) an adjudication that Indemnitee was liable to the Corporation, (c) a plea of guilty or nolo contendere by Indemnitee, (d) an adjudication that Indemnitee did not act in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and (e) with respect to any criminal proceeding, an adjudication that Indemnitee had reasonable cause to believe his or her conduct was unlawful, Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto.
9.4 NOTIFICATION AND DEFENSE OF CLAIM.
As a condition precedent to an Indemnitee’s right to be indemnified, such Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving such Indemnitee for which indemnity will or could be sought. With respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to Indemnitee. After notice from the Corporation to Indemnitee of its election so to assume such defense, the Corporation shall not be liable to Indemnitee for any legal or other expenses subsequently incurred by Indemnitee in connection with such action, suit, proceeding or investigation, other than as provided below in this Section 9.4. Indemnitee shall have the right to employ his or her own counsel in connection with such action, suit, proceeding or investigation, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless (a) the employment of counsel by Indemnitee has been authorized by the Corporation, (b) counsel to Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and Indemnitee in the conduct of the defense of such action, suit, proceeding or investigation or (c) the Corporation shall not in fact have employed counsel to assume the defense of such action, suit, proceeding or investigation, in each of which cases the fees and expenses of counsel for Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article IX. The Corporation shall not be entitled, without the consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for Indemnitee shall have reasonably made the conclusion provided for in clause (b) above. The Corporation shall not be required to indemnify Indemnitee under this Article IX for any amounts paid in settlement of any action, suit, proceeding or investigation effected without its written consent. The Corporation shall not settle any action, suit, proceeding or investigation in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee’s written consent. Neither the Corporation nor Indemnitee will unreasonably withhold or delay its consent to any proposed settlement.
9.5 ADVANCE OF EXPENSES.
Subject to the provisions of Sections 9.4 and 9.6 of these bylaws, in the event of any threatened or pending action, suit, proceeding or investigation of which the Corporation receives notice under this Article IX, any expenses (including, without limitation, attorneys’ fees) incurred by or on behalf of Indemnitee in defending an action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter to the fullest extent permitted by law; provided, however, that, to the extent required by law, the payment of such expenses incurred by or on behalf of Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined by final judicial decision from which there is no further right to appeal that Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article IX or otherwise;
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and provided further that no such advancement of expenses shall be made under this Article IX if it is determined (in the manner described in Section 9.6 of these bylaws) that (a) Indemnitee did not act in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation, or (b) with respect to any criminal action or proceeding, Indemnitee had reasonable cause to believe his or her conduct was unlawful. Such undertaking shall be accepted without reference to the financial ability of Indemnitee to make such repayment.
9.6 PROCEDURE FOR INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
In order to obtain indemnification or advancement of expenses pursuant to Section 9.1, 9.2, 9.3 or 9.5 of these bylaws, an Indemnitee shall submit to the Corporation a written request. Any such advancement of expenses shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of Indemnitee, unless (a) the Corporation has assumed the defense pursuant to Section 9.4 of these bylaws (and none of the circumstances described in Section 9.4 of these bylaws that would nonetheless entitle the Indemnitee to indemnification for the fees and expenses of separate counsel have occurred) or (b) the Corporation determines within such 60-day period that Indemnitee did not meet the applicable standard of conduct set forth in Section 9.1, 9.2 or 9.5 of these bylaws, as the case may be. Any such indemnification, unless ordered by a court, shall be made with respect to requests under Section 9.1 or 9.2 of these bylaws only as authorized in the specific case upon a determination by the Corporation that the indemnification of Indemnitee is proper because Indemnitee has met the applicable standard of conduct set forth in Section 9.1 or 9.2 of these bylaws, as the case may be. Such determination shall be made in each instance (a) by a majority vote of the directors of the Corporation consisting of persons who are not at that time parties to the action, suit or proceeding in question (“disinterested directors”), whether or not a quorum, (b) by a committee of disinterested directors designated by majority vote of disinterested directors, whether or not a quorum, (c) if there are no disinterested directors, or if the disinterested directors so direct, by independent legal counsel (who may, to the extent permitted by law, be regular legal counsel to the Corporation) in a written opinion or (d) by the stockholders of the Corporation.
9.7 REMEDIES.
To the fullest extent permitted by law, the right to indemnification or advancement of expenses as granted by this Article IX shall be enforceable by Indemnitee in any court of competent jurisdiction. Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 9.6 of these bylaws that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. In any suit brought by Indemnitee to enforce a right to indemnification or advancement, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall have the burden of proving that Indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article IX. Indemnitee’s expenses (including, without limitation, attorneys’ fees) reasonably incurred in connection with successfully establishing Indemnitee’s right to indemnification or advancement, in whole or in part, in any such proceeding shall also be indemnified by the Corporation to the fullest extent permitted by law. Notwithstanding the foregoing, in any suit brought by Indemnitee to enforce a right to indemnification hereunder it shall be a defense that the Indemnitee has not met any applicable standard for indemnification set forth in the DGCL.
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9.8 LIMITATIONS.
Notwithstanding anything to the contrary in this Article IX, except as set forth in Section 9.7 of these bylaws, the Corporation shall not indemnify an Indemnitee pursuant to this Article IX in connection with a proceeding (or part thereof) initiated by such Indemnitee unless the initiation thereof was approved by the Board. Notwithstanding anything to the contrary in this Article IX, the Corporation shall not indemnify (or advance expenses to) an Indemnitee to the extent such Indemnitee is reimbursed (or advanced expenses) from the proceeds of insurance, and in the event the Corporation makes any indemnification (or advancement) payments to an Indemnitee and such Indemnitee is subsequently reimbursed from the proceeds of insurance, such Indemnitee shall promptly refund indemnification (or advancement) payments to the Corporation to the extent of such insurance reimbursement.
9.9 SUBSEQUENT AMENDMENT.
No amendment, termination or repeal of this Article IX or of the relevant provisions of the DGCL or any other applicable laws shall adversely affect or diminish in any way the rights of any Indemnitee to indemnification or advancement of expenses under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal.
9.10 OTHER RIGHTS.
The indemnification and advancement of expenses provided by this Article IX shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action in Indemnitee’s official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of Indemnitee. Nothing contained in this Article IX shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification and advancement rights and procedures different from those set forth in this Article IX. In addition, the Corporation may, to the extent authorized from time to time by the Board, grant indemnification and advancement rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article IX.
9.11 PARTIAL INDEMNIFICATION.
If an Indemnitee is entitled under any provision of this Article IX to indemnification by the Corporation for some or a portion of the expenses (including, without limitation, attorneys’ fees), liabilities, losses, judgments, fines (including, without limitation, excise taxes and penalties arising under the Employee Retirement Income Security Act of 1974, as amended) or amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with any action, suit, proceeding or investigation and any appeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify Indemnitee for the portion of such expenses (including, without limitation, attorneys’ fees), liabilities, losses, judgments, fines (including, without limitation, excise taxes and penalties arising under the Employee Retirement Income Security Act of 1974, as amended) or amounts paid in settlement to which Indemnitee is entitled.
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9.12 INSURANCE.
The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) against any expense, liability or loss incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.
9.13 SAVINGS CLAUSE.
If this Article IX or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including, without limitation, attorneys’ fees), liabilities, losses, judgments, fines (including, without limitation, excise taxes and penalties arising under the Employee Retirement Income Security Act of 1974, as amended) and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including, without limitation, an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article IX that shall not have been invalidated and to the fullest extent permitted by applicable law.
9.14 DEFINITIONS.
Terms used in this Article IX and defined in Section 145(h) and Section 145(i) of the DGCL shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i).
ARTICLE X - AMENDMENTS
Subject to the limitations set forth in Section 9.9 of these bylaws or the provisions of the certificate of incorporation, the Board is expressly empowered to adopt, amend or repeal the bylaws of the Corporation. The stockholders also shall have power to adopt, amend or repeal the bylaws of the Corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by the certificate of incorporation, such action by stockholders shall require the affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of capital stock of the Corporation entitled to vote thereon.
ARTICLE XI - EXCLUSIVE FORUM
Unless the Corporation consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. Any person or entity purchasing or otherwise acquiring any interest in any security of the Corporation shall be deemed to have notice of and consented to this Article XI.
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AIRGAIN, INC.
2021 EMPLOYMENT INDUCEMENT INCENTIVE AWARD PLAN
ARTICLE I.
Purpose
The Plan’s purpose is to enhance the Company’s ability to attract, retain and motivate Eligible Persons who are expected to make important contributions to the Company by providing these individuals with equity ownership opportunities. Capitalized terms used in the Plan are defined in Article XI.
ARTICLE II.
Eligibility
Eligible Persons are eligible to be granted Awards under the Plan, subject to the limitations described herein.
ARTICLE III.
Administration and Delegation
3.1 Administration. The Plan is administered by the Committee. The Administrator shall have the sole and exclusive authority to administer the Plan. The Administrator has authority to determine which Eligible Persons receive Awards, grant Awards and set Award terms and conditions, subject to the conditions and limitations in the Plan. The Administrator also has the authority to take all actions and make all determinations under the Plan, to interpret the Plan and Award Agreements and to adopt, amend and repeal Plan administrative rules, guidelines and practices as it deems advisable. The Administrator may correct defects and ambiguities, supply omissions and reconcile inconsistencies in the Plan or any Award as it deems necessary or appropriate to administer the Plan and any Awards. The Administrator’s determinations under the Plan are in its sole discretion and will be final and binding on all persons having or claiming any interest in the Plan or any Award. The Board may abolish the Committee or re-vest in itself any previously delegated authority at any time; provided, however, that any action taken by the Board in connection with the administration of the Plan shall not be deemed approved by the Board unless such actions are approved by a majority of the Independent Directors. Awards under the Plan will be approved by (a) the Company’s Compensation Committee comprised entirely of Independent Directors or (b) a majority of the Company’s Independent Directors.
3.2 Actions Required Upon Grant of Award. Following the issuance of any Award under the Plan, the Company shall, in accordance with the listing requirements of the applicable securities exchange, (a) promptly issue a press release disclosing the material terms of the grant, including the recipient(s) of the grant and the number of shares involved (and if the disclosure relates to an award to only one person, or to executive officers, or the award was individually negotiated, then the disclosure must include the identity of the recipient), and (b) notify the applicable securities exchange of such grant no later than the earlier to occur of (i) five calendar days after entering into the agreement to issue the Award or (ii) the date of the public announcement of the Award.
ARTICLE IV.
SHARES Available for Awards
4.1 Number of Shares. Subject to adjustment under Article VIII and the terms of this Article IV, Awards may be made under the Plan covering up to the Overall Share Limit. Shares issued
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under the Plan may consist of authorized but unissued Shares, Shares purchased on the open market or treasury Shares.
4.2 Share Recycling. If all or any part of an Award expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, in any case, in a manner that results in the Company acquiring Shares covered by the Award at a price not greater than the price (as adjusted to reflect any Equity Restructuring) paid by the Participant for such Shares or not issuing any Shares covered by the Award, the unused Shares covered by the Award will, as applicable, become or again be available for Award grants under the Plan. Further, Shares delivered (either by actual delivery or attestation) to the Company by a Participant to satisfy the applicable exercise or purchase price of an Award and/or to satisfy any applicable tax withholding obligation (including Shares retained by the Company from the Award being exercised or purchased and/or creating the tax obligation) will, as applicable, become or again be available for Award grants under the Plan. The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not count against the Overall Share Limit.
ARTICLE V.
Stock Options and Stock Appreciation Rights
5.1 General. The Administrator may grant Options or Stock Appreciation Rights to Eligible Persons subject to the limitations in the Plan. The Administrator will determine the number of Shares covered by each Option and Stock Appreciation Right, the exercise price of each Option and Stock Appreciation Right and the conditions and limitations applicable to the exercise of each Option and Stock Appreciation Right. A Stock Appreciation Right will entitle the Participant (or other person entitled to exercise the Stock Appreciation Right) to receive from the Company upon exercise of the exercisable portion of the Stock Appreciation Right an amount determined by multiplying the excess, if any, of the Fair Market Value of one Share on the date of exercise over the exercise price per Share of the Stock Appreciation Right by the number of Shares with respect to which the Stock Appreciation Right is exercised, subject to any limitations of the Plan or that the Administrator may impose and payable in cash, Shares valued at Fair Market Value or a combination of the two as the Administrator may determine or provide in the Award Agreement. All Options granted under the Plan shall be Non-Qualified Stock Options.
5.2 Exercise Price. The Administrator will establish each Option’s and Stock Appreciation Right’s exercise price and specify the exercise price in the Award Agreement. The exercise price will not be less than 100% of the Fair Market Value on the grant date of the Option or Stock Appreciation Right.
5.3 Duration of Options and Stock Appreciation Rights. Each Option or Stock Appreciation Right will be exercisable at such times and as specified in the Award Agreement, provided that the term of an Option or Stock Appreciation Right will not exceed ten years. Notwithstanding the foregoing and unless determined otherwise by the Company, in the event that on the last business day of the term of an Option or Stock Appreciation Right (i) the exercise of the Option or Stock Appreciation Right is prohibited by Applicable Law, as determined by the Company, or (ii) Shares may not be purchased or sold by the applicable Participant due to any Company insider trading policy (including blackout periods) or a “lock-up” agreement undertaken in connection with an issuance of securities by the Company, the term of the Option or Stock Appreciation Right shall be extended until the date that is thirty (30) days after the end of the legal prohibition, black-out period or lock-up agreement, as determined by the Company; provided, however, in no event shall the extension last beyond the ten year term of the applicable Option or Stock Appreciation Right. Notwithstanding the foregoing, if the Participant, prior to the end of the term of an Option or Stock Appreciation Right, violates the non-competition, non-solicitation, confidentiality or other
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similar restrictive covenant provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company or any of its Subsidiaries, the right of the Participant and the Participant’s transferees to exercise any Option or Stock Appreciation Right issued to the Participant shall terminate immediately upon such violation, unless the Company otherwise determines. In addition, if, prior to the end of the term of an Option or Stock Appreciation Right, the Participant is given notice by the Company or any of its Subsidiaries of the Participant’s Termination of Service by the Company or any of its Subsidiaries for Cause, and the effective date of such Termination of Service is subsequent to the date of the delivery of such notice, the right of the Participant and the Participant’s transferees to exercise any Option or Stock Appreciation Right issued to the Participant shall be suspended from the time of the delivery of such notice until the earlier of (i) such time as it is determined or otherwise agreed that the Participant’s service as a Service Provider will not be terminated for Cause as provided in such notice or (ii) the effective date of the Participant’s Termination of Service by the Company or any of its Subsidiaries for Cause (in which case the right of the Participant and the Participant’s transferees to exercise any Option or Stock Appreciation Right issued to the Participant will terminate immediately upon the effective date of such Termination of Service).
5.4 Exercise. Options and Stock Appreciation Rights may be exercised by delivering to the Company a written notice of exercise, in a form the Administrator approves (which may be electronic), signed by the person authorized to exercise the Option or Stock Appreciation Right, together with, as applicable, payment in full (i) as specified in Section 5.5 for the number of Shares for which the Award is exercised and (ii) as specified in Section 9.5 for any applicable taxes. Unless the Administrator otherwise determines, an Option or Stock Appreciation Right may not be exercised for a fraction of a Share.
5.5 Payment Upon Exercise. Subject to Section 10.9, any Company insider trading policy (including blackout periods) and Applicable Laws, the exercise price of an Option must be paid by:
(a) cash, wire transfer of immediately available funds or by check payable to the order of the Company; provided, that, the Company may limit the use of one of the foregoing payment forms if one or more of the payment forms below is permitted;
(b) if there is a public market for Shares at the time of exercise, unless the Company otherwise determines, (A) delivery (including electronically or telephonically to the extent permitted by the Company) of an irrevocable and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to pay the exercise price, or (B) the Participant’s delivery to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company cash or a check sufficient to pay the exercise price; provided that such amount is paid to the Company at such time as may be required by the Administrator;
(c) to the extent permitted by the Administrator, delivery (either by actual delivery or attestation) of Shares owned by the Participant valued at their Fair Market Value;
(d) to the extent permitted by the Administrator, surrendering Shares then issuable upon the Option’s exercise valued at their Fair Market Value on the exercise date;
(e) to the extent permitted by the Administrator, delivery of a promissory note or any other property that the Administrator determines is good and valuable consideration; or
(f) to the extent permitted by the Company, any combination of the above payment forms approved by the Administrator.
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ARTICLE VI.
Restricted Stock; Restricted Stock Units
6.1 General. The Administrator may grant Restricted Stock, or the right to purchase Restricted Stock, to any Eligible Person, subject to the Company’s right to repurchase all or part of such Shares at their issue price or other stated or formula price from the Participant (or to require forfeiture of such Shares) if conditions the Administrator specifies in the Award Agreement are not satisfied before the end of the applicable restriction period or periods that the Administrator establishes for such Award. In addition, the Administrator may grant to Eligible Persons Restricted Stock Units, which may be subject to vesting and forfeiture conditions during the applicable restriction period or periods, as set forth in an Award Agreement. The Administrator will determine and set forth in the Award Agreement the terms and conditions for each Restricted Stock and Restricted Stock Unit Award, subject to the conditions and limitations contained in the Plan.
6.2 Restricted Stock.
(a) Dividends. Participants holding Shares of Restricted Stock will be entitled to all ordinary cash dividends paid with respect to such Shares, unless the Administrator provides otherwise in the Award Agreement. In addition, unless the Administrator provides otherwise, if any dividends or distributions are paid in Shares, or consist of a dividend or distribution to holders of Common Stock of property other than an ordinary cash dividend, the Shares or other property will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.
(b) Stock Certificates. The Company may require that the Participant deposit in escrow with the Company (or its designee) any stock certificates issued in respect of Shares of Restricted Stock, together with a stock power endorsed in blank.
6.3 Restricted Stock Units.
(a) Settlement. The Administrator may provide that settlement of Restricted Stock Units will occur upon or as soon as reasonably practicable after the Restricted Stock Units vest or will instead be deferred, on a mandatory basis or at the Participant’s election, in a manner intended to comply with Section 409A.
(b) Stockholder Rights. A Participant will have no rights of a stockholder with respect to Shares subject to any Restricted Stock Unit unless and until the Shares are delivered in settlement of the Restricted Stock Unit.
(c) Dividend Equivalents. If the Administrator provides, a grant of Restricted Stock Units may provide a Participant with the right to receive Dividend Equivalents. Dividend Equivalents may be paid currently or credited to an account for the Participant, settled in cash or Shares and subject to the same restrictions on transferability and forfeitability as the Restricted Stock Units with respect to which the Dividend Equivalents are granted and subject to other terms and conditions as set forth in the Award Agreement.
ARTICLE VII.
Other Stock or Cash Based Awards
Other Stock or Cash Based Awards may be granted to Participants, including Awards entitling Participants to receive Shares to be delivered in the future and including annual or other periodic or
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long-term cash bonus awards, in each case subject to any conditions and limitations in the Plan. Such Other Stock or Cash Based Awards will also be available as a payment form in the settlement of other Awards, as standalone payments and as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock or Cash Based Awards may be paid in Shares, cash or other property, as the Administrator determines. Subject to the provisions of the Plan, the Administrator will determine the terms and conditions of each Other Stock or Cash Based Award, including any purchase price, performance goal, transfer restrictions, and vesting conditions, which will be set forth in the applicable Award Agreement.
ARTICLE VIII.
Adjustments for Changes in Common Stock
and Certain Other Events
8.1 Equity Restructuring(a) . In connection with any Equity Restructuring, notwithstanding anything to the contrary in this Article VIII, the Administrator will equitably adjust each outstanding Award as it deems appropriate to reflect the Equity Restructuring, which may include adjusting the number and type of securities subject to each outstanding Award and/or the Award’s exercise price or grant price (if applicable), granting new Awards to Participants, and making a cash payment to Participants. The adjustments provided under this Section 8.1 will be nondiscretionary and final and binding on the affected Participant and the Company; provided that the Administrator will determine whether an adjustment is equitable.
8.2 Corporate Transactions. In the event of any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), reorganization, merger, consolidation, combination, amalgamation, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock or other securities of the Company, Change in Control, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, other similar corporate transaction or event, other unusual or nonrecurring transaction or event affecting the Company or its financial statements or any change in any Applicable Laws or accounting principles, the Administrator, on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event (except that action to give effect to a change in Applicable Law or accounting principles may be made within a reasonable period of time after such change) and either automatically or upon the Participant’s request, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to (x) prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any Award granted or issued under the Plan, (y) to facilitate such transaction or event or (z) give effect to such changes in Applicable Laws or accounting principles:
(a) To provide for the cancellation of any such Award in exchange for either an amount of cash or other property with a value equal to the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participant’s rights under the vested portion of such Award, as applicable; provided that, if the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participant’s rights, in any case, is equal to or less than zero, then the Award may be terminated without payment;
(b) To provide that such Award shall vest and, to the extent applicable, be exercisable as to all Shares covered thereby, notwithstanding anything to the contrary in the Plan or the provisions of such Award;
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(c) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of Shares and/or applicable exercise or purchase price, in all cases, as determined by the Administrator;
(d) To make adjustments in the number and type of Shares (or other securities or property) subject to outstanding Awards and/or with respect to which Awards may be granted under the Plan (including, but not limited to, adjustments of the limitations in Article IV hereof on the maximum number and kind of Shares which may be issued) and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Awards;
(e) To replace such Award with other rights or property selected by the Administrator; and/or
(f) To provide that the Award will terminate and cannot vest, be exercised or become payable after the applicable event.
8.3 Effect of Non-Assumption in a Change in Control. Notwithstanding the provisions of Section 8.2 above, if a Change in Control occurs and a Participant’s Awards are not continued, converted, assumed, or replaced with a substantially similar award by (a) the Company, or (b) a successor entity or its parent or subsidiary (an “Assumption”), and provided that the Participant has not had a Termination of Service, then the Administrator shall provide that, immediately prior to the Change in Control, such Awards shall become fully vested, exercisable and/or payable, as applicable, and all forfeiture, repurchase and other restrictions on such Awards shall lapse, in which case, such Awards shall be canceled upon the consummation of the Change in Control in exchange for the right to receive the Change in Control consideration payable to other holders of Common Stock (i) which may be on such terms and conditions as apply generally to holders of Common Stock under the Change in Control documents (including, without limitation, any escrow, earn-out or other deferred consideration provisions) or such other terms and conditions as the Administrator may provide, and (ii) determined by reference to the number of Shares subject to such Awards and net of any applicable exercise price; provided that to the extent that any Awards constitute “nonqualified deferred compensation” that may not be paid upon the Change in Control under Section 409A without the imposition of taxes thereon under Section 409A, the timing of such payments shall be governed by the applicable Award Agreement (subject to any deferred consideration provisions applicable under the Change in Control documents); and provided, further, that if the amount to which a Participant would be entitled upon the settlement or exercise of such Award at the time of the Change in Control is equal to or less than zero, then such Award may be terminated without payment. The Administrator shall determine whether an Assumption of an Award has occurred in connection with a Change in Control.
8.4 Administrative Stand Still. In the event of any pending stock dividend, stock split, combination or exchange of Shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other extraordinary transaction or change affecting the Shares or the share price of Common Stock, including any Equity Restructuring or any securities offering or other similar transaction, for administrative convenience, the Administrator may refuse to permit the exercise of any Award for up to sixty days before or after such transaction.
8.5 General. Except as expressly provided in the Plan or the Administrator’s action under the Plan, no Participant will have any rights due to any subdivision or consolidation of Shares of any class, dividend payment, increase or decrease in the number of Shares of any class or dissolution, liquidation, merger, or consolidation of the Company or other corporation. Except as expressly provided with respect
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to an Equity Restructuring under Section 8.1 above or the Administrator’s action under the Plan, no issuance by the Company of Shares of any class, or securities convertible into Shares of any class, will affect, and no adjustment will be made regarding, the number of Shares subject to an Award or the Award’s grant or exercise price. The existence of the Plan, any Award Agreements and the Awards granted hereunder will not affect or restrict in any way the Company’s right or power to make or authorize (i) any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, (ii) any merger, consolidation dissolution or liquidation of the Company or sale of Company assets or (iii) any sale or issuance of securities, including securities with rights superior to those of the Shares or securities convertible into or exchangeable for Shares. The Administrator may treat Participants and Awards (or portions thereof) differently under this Article VIII.
ARTICLE IX.
General Provisions Applicable to Awards
9.1 Transferability. Except as the Administrator may determine or provide in an Award Agreement or otherwise, Awards may not be sold, assigned, transferred, pledged or otherwise encumbered, either voluntarily or by operation of law, except by will or the laws of descent and distribution, or, subject to the Administrator’s consent, pursuant to a domestic relations order, and, during the life of the Participant, will be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, will include references to a Participant’s authorized transferee that the Administrator specifically approves.
9.2 Documentation. Each Award will be evidenced in an Award Agreement, which may be written or electronic, as the Administrator determines. Each Award may contain terms and conditions in addition to those set forth in the Plan.
9.3 Discretion. Except as the Plan otherwise provides, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award to a Participant need not be identical, and the Administrator need not treat Participants or Awards (or portions thereof) uniformly.
9.4 Termination of Status. The Administrator will determine how the disability, death, retirement, authorized leave of absence or any other change or purported change in a Participant’s Service Provider status affects an Award and the extent to which, and the period during which, the Participant, the Participant’s legal representative, conservator, guardian or Designated Beneficiary may exercise rights under the Award, if applicable.
9.5 Withholding. Each Participant must pay the Company, or make provision satisfactory to the Administrator for payment of, any taxes required by law to be withheld in connection with such Participant’s Awards by the date of the event creating the tax liability. The Company may deduct an amount sufficient to satisfy such tax obligations based on the minimum statutory withholding rates (or such other rate as may be determined by the Company after considering any accounting consequences or costs) from any payment of any kind otherwise due to a Participant. Subject to Section 10.9 and any Company insider trading policy (including blackout periods), Participants may satisfy such tax obligations (i) in cash, by wire transfer of immediately available funds, by check made payable to the order of the Company; provided, that, the Company may limit the use of the foregoing payment forms if one or more of the payment forms below is permitted, (ii) to the extent permitted by the Administrator, in whole or in part by delivery of Shares, including Shares retained from the Award creating the tax obligation, valued at their Fair Market Value, (iii) if there is a public market for Shares at the time the tax obligations are satisfied, unless the Company otherwise determines, (A) delivery (including telephonically to the extent permitted by the Company) of an irrevocable and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to satisfy the tax obligations, or (B) delivery by the
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Participant to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company cash or a check sufficient to satisfy the tax withholding; provided that such amount is paid to the Company at such time as may be required by the Administrator, or (iv) to the extent permitted by the Company, any combination of the foregoing payment forms approved by the Administrator. If any tax withholding obligation will be satisfied under clause (ii) of the immediately preceding sentence by the Company’s retention of Shares from the Award creating the tax obligation and there is a public market for Shares at the time the tax obligation is satisfied, the Company may elect to instruct any brokerage firm determined acceptable to the Company for such purpose to sell on the applicable Participant’s behalf some or all of the Shares retained and to remit the proceeds of the sale to the Company or its designee, and each Participant’s acceptance of an Award under the Plan will constitute the Participant’s authorization to the Company and instruction and authorization to such brokerage firm to complete the transactions described in this sentence.
9.6 Amendment of Award; Repricing. The Administrator may amend, modify or terminate any outstanding Award, including by substituting another Award of the same or a different type, and changing the exercise or settlement date. The Participant’s consent to such action will be required unless (i) the action, taking into account any related action, does not materially and adversely affect the Participant’s rights under the Award, or (ii) the change is permitted under Article VIII or pursuant to Section 10.5. Notwithstanding the foregoing or anything in the Plan to the contrary, the Administrator may, without the approval of the stockholders of the Company, reduce the exercise price per share of outstanding Options or Stock Appreciation Rights or cancel outstanding Options or Stock Appreciation Rights in exchange for cash, other Awards or Options or Stock Appreciation Rights with an exercise price per share that is less than the exercise price per share of the original Options or Stock Appreciation Rights.
9.7 Conditions on Delivery of Shares. The Company will not be obligated to deliver any Shares under the Plan or remove restrictions from Shares previously delivered under the Plan until (i) all Award conditions have been met or removed to the Company’s satisfaction, (ii) as determined by the Company, all other legal matters regarding the issuance and delivery of such Shares have been satisfied, including any applicable securities laws and stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Administrator deems necessary or appropriate to satisfy any Applicable Laws. The Company’s inability to obtain authority from any regulatory body having jurisdiction, which the Administrator determines is necessary to the lawful issuance and sale of any securities, will relieve the Company of any liability for failing to issue or sell such Shares as to which such requisite authority has not been obtained.
9.8 Acceleration. The Administrator may at any time provide that any Award will become immediately vested and fully or partially exercisable, free of some or all restrictions or conditions, or otherwise fully or partially realizable.
ARTICLE X.
Miscellaneous
10.1 No Right to Employment or Other Status. No person will have any claim or right to be granted an Award, and the grant of an Award will not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan or any Award, except as expressly provided in an Award Agreement.
10.2 No Rights as Stockholder; Certificates. Subject to the Award Agreement, no Participant or Designated Beneficiary will have any rights as a stockholder with respect to any Shares to be distributed
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under an Award until becoming the record holder of such Shares. Notwithstanding any other provision of the Plan, unless the Administrator otherwise determines or Applicable Laws require, the Company will not be required to deliver to any Participant certificates evidencing Shares issued in connection with any Award and instead such Shares may be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator). The Company may place legends on stock certificates issued under the Plan that the Administrator deems necessary or appropriate to comply with Applicable Laws.
10.3 Effective Date and Term of Plan. The Plan shall be effective on the date approved by the Board. The Plan shall remain in effect until terminated by the Administrator, but Awards previously granted may extend beyond that date in accordance with the Plan.
10.4 Stockholder Approval. It is expressly intended that approval of the Company’s stockholders not be required as a condition of the effectiveness of the Plan, and the Plan’s provisions shall be interpreted in a manner consistent with such intent for all purposes. Specifically, Nasdaq Stock Market Rule 5635(c) generally requires stockholder approval for stock option plans or other equity compensation arrangements adopted by companies whose securities are listed on the Nasdaq Stock Market pursuant to which stock awards or stock may be acquired by officers, directors, employees or consultants of such companies. Nasdaq Stock Market Rule 5635(c)(4) provides an exemption in certain circumstances for “employment inducement” awards (within the meaning of Nasdaq Stock Market Rule 5635(c)(4)). Notwithstanding anything to the contrary herein, if the Company’s securities are traded on the Nasdaq Stock Market, then Awards under the Plan may only be made to Employees who have not previously been an Employee or director of the Company or any Subsidiary, or following a bona fide period of non-employment by the Company or any Subsidiary, in each case as an inducement material to the Employee’s entering into employment with the Company or any Subsidiary. Awards under the Plan will be approved by (a) the Company’s Compensation Committee comprised entirely of Independent Directors or (b) a majority of the Company’s Independent Directors. Accordingly, pursuant to Nasdaq Stock Market Rule 5635(c)(4), the issuance of Awards and the shares issuable upon exercise or vesting of such Awards pursuant to the Plan are not subject to the approval of the Company’s stockholders.
10.5 Amendment of Plan. The Administrator may amend, suspend or terminate the Plan at any time; provided that no amendment, other than an increase to the Overall Share Limit, may materially and adversely affect any Award outstanding at the time of such amendment without the affected Participant’s consent. No Awards may be granted under the Plan during any suspension period or after the Plan’s termination. Awards outstanding at the time of any Plan suspension or termination will continue to be governed by the Plan and the Award Agreement, as in effect before such suspension or termination. The Board will obtain stockholder approval of any Plan amendment to the extent necessary to comply with Applicable Laws.
10.6 Provisions for Foreign Participants. The Administrator may modify Awards granted to Participants who are foreign nationals or employed outside the United States or establish subplans or procedures under the Plan to address differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.
10.7 Section 409A.
(a) General. The Company intends that all Awards be structured to comply with, or be exempt from, Section 409A, such that no adverse tax consequences, interest, or penalties under Section 409A apply. Notwithstanding anything in the Plan or any Award Agreement to the contrary, the Administrator may, without a Participant’s consent, amend this Plan or Awards, adopt policies and procedures, or take any other actions (including amendments, policies, procedures and retroactive actions)
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as are necessary or appropriate to preserve the intended tax treatment of Awards, including any such actions intended to (A) exempt this Plan or any Award from Section 409A, or (B) comply with Section 409A, including regulations, guidance, compliance programs and other interpretative authority that may be issued after an Award’s grant date. The Company makes no representations or warranties as to an Award’s tax treatment under Section 409A or otherwise. The Company will have no obligation under this Section 10.7 or otherwise to avoid the taxes, penalties or interest under Section 409A with respect to any Award and will have no liability to any Participant or any other person if any Award, compensation or other benefits under the Plan are determined to constitute noncompliant “nonqualified deferred compensation” subject to taxes, penalties or interest under Section 409A.
(b) Separation from Service. If an Award constitutes “nonqualified deferred compensation” under Section 409A, any payment or settlement of such Award upon a termination of a Participant’s Service Provider relationship will, to the extent necessary to avoid taxes under Section 409A, be made only upon the Participant’s “separation from service” (within the meaning of Section 409A), whether such “separation from service” occurs upon or after the termination of the Participant’s Service Provider relationship. For purposes of this Plan or any Award Agreement relating to any such payments or benefits, references to a “termination,” “termination of employment” or like terms means a “separation from service.”
(c) Payments to Specified Employees. Notwithstanding any contrary provision in the Plan or any Award Agreement, any payment(s) of “nonqualified deferred compensation” required to be made under an Award to a “specified employee” (as defined under Section 409A and as the Administrator determines) due to his or her “separation from service” will, to the extent necessary to avoid taxes under Section 409A(a)(2)(B)(i) of the Code, be delayed for the six-month period immediately following such “separation from service” (or, if earlier, until the specified employee’s death) and will instead be paid (as set forth in the Award Agreement) on the day immediately following such six-month period or as soon as administratively practicable thereafter (without interest). Any payments of “nonqualified deferred compensation” under such Award payable more than six months following the Participant’s “separation from service” will be paid at the time or times the payments are otherwise scheduled to be made.
10.8 Limitations on Liability. Notwithstanding any other provisions of the Plan, no individual acting as a director, officer, other employee or agent of the Company or any Subsidiary will be liable to any Participant, former Participant, spouse, beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection with the Plan or any Award, and such individual will not be personally liable with respect to the Plan because of any contract or other instrument executed in his or her capacity as an Administrator, director, officer, other employee or agent of the Company or any Subsidiary. The Company will indemnify and hold harmless each director, officer, other employee and agent of the Company or any Subsidiary that has been or will be granted or delegated any duty or power relating to the Plan’s administration or interpretation, against any cost or expense (including attorneys’ fees) or liability (including any sum paid in settlement of a claim with the Administrator’s approval) arising from any act or omission concerning this Plan unless arising from such person’s own fraud or bad faith.
10.9 Lock-Up Period. The Company may, at the request of any underwriter representative or otherwise, in connection with registering the offering of any Company securities under the Securities Act, prohibit Participants from, directly or indirectly, selling or otherwise transferring any Shares or other Company securities during a period of up to one hundred eighty days following the effective date of a Company registration statement filed under the Securities Act, or such longer period as determined by the underwriter.
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10.10 Data Privacy. As a condition for receiving any Award, each Participant explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of personal data as described in this section by and among the Company and its Subsidiaries and affiliates exclusively for implementing, administering and managing the Participant’s participation in the Plan. The Company and its Subsidiaries and affiliates may hold certain personal information about a Participant, including the Participant’s name, address and telephone number; birthdate; social security, insurance number or other identification number; salary; nationality; job title(s); any Shares held in the Company or its Subsidiaries and affiliates; and Award details, to implement, manage and administer the Plan and Awards (the “Data”). The Company and its Subsidiaries and affiliates may transfer the Data amongst themselves as necessary to implement, administer and manage a Participant’s participation in the Plan, and the Company and its Subsidiaries and affiliates may transfer the Data to third parties assisting the Company with Plan implementation, administration and management. These recipients may be located in the Participant’s country, or elsewhere, and the Participant’s country may have different data privacy laws and protections than the recipients’ country. By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, to implement, administer and manage the Participant’s participation in the Plan, including any required Data transfer to a broker or other third party with whom the Company or the Participant may elect to deposit any Shares. The Data related to a Participant will be held only as long as necessary to implement, administer, and manage the Participant’s participation in the Plan. A Participant may, at any time, view the Data that the Company holds regarding such Participant, request additional information about the storage and processing of the Data regarding such Participant, recommend any necessary corrections to the Data regarding the Participant or refuse or withdraw the consents in this Section 10.10 in writing, without cost, by contacting the local human resources representative. The Company may cancel Participant’s ability to participate in the Plan and, in the Administrator’s discretion, the Participant may forfeit any outstanding Awards if the Participant refuses or withdraws the consents in this Section 10.10. For more information on the consequences of refusing or withdrawing consent, Participants may contact their local human resources representative.
10.11 Severability. If any portion of the Plan or any action taken under it is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provisions had been excluded, and the illegal or invalid action will be null and void.
10.12 Governing Documents. If any contradiction occurs between the Plan and any Award Agreement or other written agreement between a Participant and the Company (or any Subsidiary) that the Administrator has approved, the Plan will govern, unless it is expressly specified in such Award Agreement or other written document that a specific provision of the Plan will not apply.
10.13 Governing Law. The Plan and all Awards will be governed by and interpreted in accordance with the laws of the State of Delaware, disregarding any state’s choice-of-law principles requiring the application of a jurisdiction’s laws other than the State of Delaware.
10.14 Claw-back Provisions. All Awards (including, without limitation, any proceeds, gains or other economic benefit actually or constructively received by Participant upon any receipt or exercise of any Award or upon the receipt or resale of any Shares of Common Stock underlying the Award) shall be subject to the provisions of any claw-back policy implemented by the Company, including, without limitation, any claw-back policy adopted to comply with Applicable Laws (including the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder) as and to the extent set forth in such claw-back policy or the Award Agreement.
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10.15 Titles and Headings. The titles and headings in the Plan are for convenience of reference only and, if any conflict, the Plan’s text, rather than such titles or headings, will control.
10.16 Conformity to Securities Laws. Participant acknowledges that the Plan is intended to conform to the extent necessary with Applicable Laws. Notwithstanding anything herein to the contrary, the Plan and all Awards will be administered only in conformance with Applicable Laws. To the extent Applicable Laws permit, the Plan and all Award Agreements will be deemed amended as necessary to conform to Applicable Laws.
10.17 Relationship to Other Benefits. No payment under the Plan will be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except as expressly provided in writing in such other plan or an agreement thereunder.
10.18 Broker-Assisted Sales. In the event of a broker-assisted sale of Shares in connection with the payment of amounts owed by a Participant under or with respect to the Plan or Awards, including amounts to be paid under the final sentence of Section 9.5: (a) any Shares to be sold through the broker-assisted sale will be sold on the day the payment first becomes due, or as soon thereafter as practicable; (b) such Shares may be sold as part of a block trade with other Participants in the Plan in which all participants receive an average price; (c) the applicable Participant will be responsible for all broker’s fees and other costs of sale, and by accepting an Award, each Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale; (d) to the extent the Company or its designee receives proceeds of such sale that exceed the amount owed, the Company will pay such excess in cash to the applicable Participant as soon as reasonably practicable; (e) the Company and its designees are under no obligation to arrange for such sale at any particular price; and (f) in the event the proceeds of such sale are insufficient to satisfy the Participant’s applicable obligation, the Participant may be required to pay immediately upon demand to the Company or its designee an amount in cash sufficient to satisfy any remaining portion of the Participant’s obligation.
ARTICLE XI.
Definitions
As used in the Plan, the following words and phrases will have the following meanings:
11.1 “Administrator” means the Committee.
11.2 “Applicable Laws” means the requirements relating to the administration of equity incentive plans under U.S. federal and state securities, tax and other applicable laws, rules and regulations, the applicable rules of any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws and rules of any foreign country or other jurisdiction where Awards are granted.
11.3 “Award” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units or Other Stock or Cash Based Awards.
11.4 “Award Agreement” means a written agreement evidencing an Award, which may be electronic, that contains such terms and conditions as the Administrator determines, consistent with and subject to the terms and conditions of the Plan.
11.5 “Board” means the Board of Directors of the Company.
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11.6 “Cause” shall mean (a) the Administrator’s determination that the Participant failed to substantially perform the Participant’s duties (other than any such failure resulting from the Participant’s Disability); (b) the Administrator’s determination that the Participant failed to carry out, or comply with any lawful and reasonable directive of the Board or the Participant’s immediate supervisor; (c) the Participant’s conviction, plea of no contest, plea of nolo contendere, or imposition of unadjudicated probation for any felony, indictable offense or crime involving moral turpitude; (d) the Participant’s unlawful use (including being under the influence) or possession of illegal drugs on the premises of the Company or any of its Subsidiaries or while performing the Participant’s duties and responsibilities; or (e) the Participant’s commission of an act of fraud, embezzlement, misappropriation, misconduct, or breach of fiduciary duty against the Company of any of its Subsidiaries. Notwithstanding the foregoing, if the Participant is a party to a written employment or consulting agreement with the Company (or its Subsidiary) in which the term “cause” is defined, then “Cause” shall be as such term is defined in the applicable written employment or consulting agreement.
11.7 “Change in Control” means and includes each of the following:
(a) A transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its Subsidiaries, an employee benefit plan maintained by the Company or any of its Subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or
(b) During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new Director(s) (other than a Director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or (c)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(c) The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(i) which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and
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(ii) after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.
Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or portion of any Award) that provides for the deferral of compensation that is subject to Section 409A, to the extent required to avoid the imposition of additional taxes under Section 409A, the transaction or event described in subsection (a), (b) or (c) with respect to such Award (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).
The Administrator shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.
11.8 “Code” means the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.
11.9 “Committee” means the Compensation Committee of the Board comprised of two or more Directors, each of whom is intended to qualify as a Non-Employee Director and an Independent Director.
11.10 “Common Stock” means the common stock of the Company.
11.11 “Company” means Airgain, Inc., a Delaware corporation, or any successor.
11.12 “Consultant” means any person, including any adviser, engaged by the Company or its parent or Subsidiary to render services to such entity if the consultant or adviser: (a) renders bona fide services to the Company; (b) renders services not in connection with the offer or sale of securities in a capital-raising transaction and does not directly or indirectly promote or maintain a market for the Company’s securities; and (c) is a natural person.
11.13 “Designated Beneficiary” means the beneficiary or beneficiaries the Participant designates, in a manner the Administrator determines, to receive amounts due or exercise the Participant’s rights if the Participant dies or becomes incapacitated. Without a Participant’s effective designation, “Designated Beneficiary” will mean the Participant’s estate.
11.14 “Director” means a Board member.
11.15 “Disability” means a permanent and total disability under Section 22(e)(3) of the Code, as amended.
11.16 “Dividend Equivalents” means a right granted to a Participant under the Plan to receive the equivalent value (in cash or Shares) of dividends paid on Shares.
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11.17 “Eligible Person” means any prospective Employee who has not previously been an Employee or Director of the Company or any Subsidiary, or who is commencing employment with the Company or any Subsidiary following a bona fide period of non-employment by the Company or any Subsidiary, if he or she is granted an Award in connection with his or her commencement of employment with the Company or any Subsidiary and such grant is an inducement material to his or her entering into employment with the Company or any Subsidiary (within the meaning of Nasdaq Stock Market Rule IM-5636-1 or any successor rule, if the Company’s securities are traded on the Nasdaq Stock Market, and/or the applicable requirements of any other established stock exchange on which the Company’s securities are traded, as applicable, as such rules and requirements may be amended from time to time). The Administrator may in its discretion adopt procedures from time to time to ensure that a prospective Employee is eligible to participate in the Plan prior to the granting of any Awards to such individual under the Plan (including without limitation a requirement that each such prospective Employee certify to the Company prior to the receipt of an Award under the Plan that he or she has not been previously employed by the Company or any Subsidiary, or if previously employed, has had a bona fide period of non-employment, and that the grant of Awards under the Plan is an inducement material to his or her agreement to enter into employment with the Company or any Subsidiary).
11.18 “Employee” means any employee of the Company or its Subsidiaries.
11.19 “Equity Restructuring” means a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of Shares (or other Company securities) or the share price of Common Stock (or other Company securities) and causes a change in the per share value of the Common Stock underlying outstanding Awards.
11.20 “Exchange Act” means the Securities Exchange Act of 1934, as amended.
11.21 “Fair Market Value” means, as of any date, the value of a Share of Common Stock determined as follows: (a) if the Common Stock is listed on any established stock exchange, its Fair Market Value will be the closing sales price for such Common Stock as quoted on such exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; (b) if the Common Stock is not traded on a stock exchange but is quoted on a national market or other quotation system, the closing sales price on such date, or if no sales occurred on such date, then on the last date preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; or (c) without an established market for the Common Stock, the Administrator will determine the Fair Market Value in its discretion.
11.22 “Good Reason” shall mean (a) a change in the Participant’s position with the Company (or its Subsidiary employing the Participant) that materially reduces the Participant’s authority, duties or responsibilities or the level of management to which he or she reports, (b) a material diminution in the Participant’s level of compensation (including base salary, fringe benefits and target bonuses under any corporate performance-based incentive programs), or (c) a relocation of the Participant’s place of employment by more than 50 miles, provided that such change, reduction or relocation is effected by the Company (or its Subsidiary employing the Participant) without the Participant’s consent. Notwithstanding the foregoing, if the Participant is a party to a written employment or consulting agreement with the Company (or its Subsidiary) in which the term “good reason” is defined, then “Good Reason” shall be as such term is defined in the applicable written employment or consulting agreement
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11.23 “Independent Director” means a Director of the Company who is not an Employee of the Company or any Subsidiary and who qualifies as “independent” within the meaning of Nasdaq Stock Market Rule 5605(a)(2), or any successor rule, if the Company’s securities are traded on the Nasdaq Stock Market, and/or the applicable requirements of any other established stock exchange on which the Company’s securities are traded, as applicable, as such rules and requirements may be amended from time to time.
11.24 “Non-Employee Director” means a “non-employee director” within the meaning of Rule 16b-3.
11.25 “Non-Qualified Stock Option” means an Option not intended or not qualifying as an “incentive stock option” as defined in Section 422 of the Code.
11.26 “Option” means an option to purchase Shares.
11.27 “Other Stock or Cash Based Awards” means cash awards, awards of Shares, and other awards valued wholly or partially by referring to, or are otherwise based on, Shares or other property.
11.28 “Overall Share Limit” means 300,000 Shares.
11.29 “Participant” means an Eligible Person who has been granted an Award.
11.30 “Plan” means this Airgain, Inc. 2021 Employment Inducement Incentive Award Plan.
11.31 “Restricted Stock” means Shares awarded to a Participant under Article VI subject to certain vesting conditions and other restrictions.
11.32 “Restricted Stock Unit” means an unfunded, unsecured right to receive, on the applicable settlement date, one Share or an amount in cash or other consideration determined by the Administrator to be of equal value as of such settlement date, subject to certain vesting conditions and other restrictions.
11.33 “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act.
11.34 “Section 409A” means Section 409A of the Code and all regulations, guidance, compliance programs and other interpretative authority thereunder.
11.35 “Securities Act” means the Securities Act of 1933, as amended.
11.36 “Service Provider” means an Employee, Consultant or Director.
11.37 “Shares” means shares of Common Stock.
11.38 “Stock Appreciation Right” means a stock appreciation right granted under Article V.
11.39 “Subsidiary” means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.
11.40 “Termination of Service” means the date the Participant ceases to be a Service Provider.
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Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jacob Suen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Airgain, 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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: August 10, 2021 |
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/s/ Jacob Suen |
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Jacob Suen |
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President and Chief Executive Officer |
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(principal executive officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David B. Lyle, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Airgain, 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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: August 10, 2021 |
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/s/ David B. Lyle |
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David B. Lyle |
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Chief Financial Officer and Secretary |
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(principal financial and accounting officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Airgain, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jacob Suen, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: August 10, 2021 |
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/s/ Jacob Suen |
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Jacob Suen |
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President and Chief Executive Officer |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Airgain, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David B. Lyle, Chief Financial Officer and Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: August 10, 2021 |
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/s/ David B. Lyle |
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David B. Lyle |
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Chief Financial Officer and Secretary |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.