Mattersight Corp (Form: 8-K, Received: 05/31/2011 17:15:51)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): May 28, 2011

Mattersight Corporation

(Exact Name of Registrant as Specified in its Charter)

Delaware

(State or Other Jurisdiction of Incorporation)


0-27975		36-4304577
(Commission File Number)		(I.R.S. Employer Identification No.)

150 Field Drive, Suite 250, Lake Forest, Illinois		60045
(Address of Principal Executive Offices)		(Zip Code)

(847) 582-7000

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.01

Completion of Acquisition or Disposition of Assets.

On May 28, 2011, Mattersight Corporation (formerly known as eLoyalty Corporation) (the “Company”) completed the sale of the Company’s Integrated Contact Solutions Business Unit (the “ICS Business”) to Magellan Acquisition Sub, LLC, a Colorado limited liability company and wholly-owned subsidiary of TeleTech Holdings, Inc., a Delaware corporation (collectively, “TeleTech”), pursuant to an Acquisition Agreement (the “Acquisition Agreement”) dated as of March 17, 2011. Pursuant to the terms of the Acquisition Agreement, TeleTech acquired substantially all of the assets, and assumed certain of the liabilities, related to the ICS Business and the “eLoyalty” registered trademark / trade name (collectively, the “Transaction”).

The proceeds from the sale of the ICS Business to the Company at the closing of the Transaction (the “Closing”), net of adjustments and prior to transaction costs, were approximately $35.6 million. This amount includes $1.5 million that was funded into an escrow account to satisfy the Company’s obligations under any indemnification claims that may be made by TeleTech. The purchase price also remains subject to post-closing true-up adjustments as provided in the Acquisition Agreement. At the time of the Closing, there were no material relationships among the Company and TeleTech or any of their respective affiliates, other than with respect to the Acquisition Agreement and the related ancillary agreements.

The foregoing description does not purport to be a complete statement of the terms of the Transaction and is qualified in its entirety by reference to the full text of the Acquisition Agreement, a copy of which was filed as Exhibit 10.1 to the Company’s Form 10-Q filed with the Securities and Exchange Commission (the “Commission”) on May 12, 2011 and is incorporated by reference herein.

The Company has included in Exhibit 99.2 certain pro forma financial statements giving effect to the Transaction.

Item 5.02

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On May 28, 2011, as contemplated by the terms of the Transaction, Steven C. Pollema’s employment with the Company and his rights under the Amended and Restated Executive Employment Agreement dated May 15, 2008 (including his right thereunder to any benefits payable or accelerated upon termination of his employment) were terminated. Pursuant to the terms of the previously disclosed Termination Agreement with Mr. Pollema, the Company paid to Mr. Pollema his accrued but unpaid base salary and vested benefits to which he was entitled in accordance with and under the terms of the Company’s employee benefit plans.

Item 5.03

Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

On May 31, 2011, in connection with the Transaction, the Company filed a Certificate of Amendment to its Certificate of Incorporation (the “Name Change Charter Amendment”) with the Secretary of State of the State of Delaware in order to effect a change in its name from eLoyalty Corporation to Mattersight Corporation. A copy of the Name Change Charter Amendment is attached hereto as Exhibit 3.1.

Item 7.01

Regulation FD Disclosure.

On May 31, 2011, the Company issued a press release announcing the Closing. A copy of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1. The information contained in this Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” with the Commission nor incorporated by reference in any registration statement filed by the Company under the Securities Act of 1933, as amended.

Safe Harbor for Forward-Looking Statements

Statements in this Current Report on Form 8-K that are not historical facts are “forward-looking statements” that are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements in this Current Report on Form 8-K include, without limitation, certain assumptions described in the pro forma financial statements. These forward-looking statements, which may be identified by use of words such as “plan,” “may,” “might,” “believe,” “expect,” “intend,” “could,” “would,” “should,” and other words and terms of similar meaning, involve risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. In addition to other factors and matters contained or incorporated in this document, important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements include, among other things, the risks detailed from time to time in the Company’s SEC filings, including those described in the “Risk Factors” section in the Company’s most recent Annual Report on Form 10-K filed on March 17, 2011 and those described in the Company’s definitive proxy statement on Schedule 14A filed on April 26, 2011. You can locate these filings on the Investor Relations page of the Company’s website, www.mattersight.com. Statements included or incorporated by reference into this Current Report on Form 8-K are based upon information known to the Company as of the date of this Current Report on Form 8-K, and the Company assumes no obligation to publicly revise or update any forward-looking statement for any reason.

Item 9.01

Financial Statements and Exhibits.

(b)	Pro Forma Financial Information.

The ICS Business has been reflected as a discontinued operation in the Company’s consolidated statements of operations and reflected as assets and liabilities held for sale in the Company’s consolidated balance sheet in its Form 10-Q for the quarter ended April 2, 2011 filed with the Commission on May 12, 2011. Because the financial statements included in the Company’s Form 10-Q for the quarter ended April 2, 2011 show the historical effect of the sale of the ICS Business as of and for the quarter ended April 2, 2011, the Company believes those statements represent the pro forma consolidated statement of operations for the quarter ended April 2, 2011 and the pro forma consolidated balance sheet as of April 2, 2011 and will not file separate pro forma financial statements for these periods. The unaudited pro forma consolidated financial information as of and for the year ended January 1, 2011 giving effect to the Transaction is included as Exhibit 99.2.

(d)

Exhibits.


3.1		Certificate of Amendment to the Company’s Certificate of Incorporation

99.1		Press Release

99.2		Pro Forma Financial Statements

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 hereunto duly authorized.


	MATTERSIGHT CORPORATION

Date: May 31, 2011	By:	/s/ W ILLIAM B. N OON
	Name:	William B. Noon
	Title:	Vice President and Chief Financial Officer

EXHIBIT INDEX


Exhibit No.		Description

3.1		Certificate of Amendment to the Company’s Certificate of Incorporation

99.1		Press Release

99.2		Pro Forma Financial Statements

Exhibit 3.1

CERTIFICATE OF AMENDMENT

TO THE

CERTIFICATE OF INCORPORATION

ELOYALTY CORPORATION

eLoyalty Corporation, a corporation duly organized and existing under the General Corporation Law of the State of Delaware (the “ Corporation ”), does hereby certify that:

1. The Certificate of Incorporation of the Corporation is hereby amended by deleting Article I in its entirety and replacing it with the following:

“ARTICLE I

The name of the corporation (which is hereinafter referred to as the “Corporation”) is:

Mattersight Corporation.”

2. The foregoing amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be executed by its duly authorized officer on this 31st day of May, 2011.


ELOYALTY CORPORATION

By:		/s/ William B. Noon
Name:		William B. Noon
Title:		Vice President and Chief Financial Officer

Exhibit 99.1

LOGO

eLoyalty Announces Completion of ICS Divestiture, Launches Mattersight Corporation

CHICAGO, IL, May 31, 2011 – eLoyalty Corporation ( Nasdaq: ELOY, MATR ) today announced that it completed the divestiture of its Integrated Contact Solutions business unit to a subsidiary of TeleTech Holdings, Inc. The proceeds from the sale of the business unit, net of adjustments and prior to transaction costs, were approximately $35.6 million (subject to post-closing adjustments).

Effective today, the company will operate as Mattersight Corporation. The company’s shares will begin trading on the Nasdaq Global Market under the ticker symbol “MATR” at the open of markets on Wednesday, June 1, 2011.

Mattersight™ is a leader in enterprise analytics as a service; the company’s Behavioral Analytics service captures, analyzes, and creates insight from unstructured conversations, emails, and employee desktop activity. We believe that Mattersight has the foundational building blocks to become a highly successful independent company, including:

•

Large and Untapped Market: We estimate the market potential for our analytics in the United States at $5+ billion per year. The market is very new and we believe it is less than 5% penetrated.

•

Enterprise Analytics Footprint: The company applies millions of proprietary algorithms to previously unstructured and unanalyzed customer and employee interactions. The company’s analytics are used in service, sales, and collections calls centers. The company has also deployed analytics applications for Fraud, Customer Retention, and the Back Office.

•

Analytics as a Service in the Cloud: Mattersight’s analytics are delivered in the cloud and virtually all of the company’s revenues are recurring.

•

Significant Returns for Our Customers: The company’s unique analytics and delivery model generates 2x to 10x returns for the company’s customers.

•

Impressive Customer List: The company has built an impressive customer list including, 3 of the top 5 HMOs; 3 of the top 4 Property & Casualty companies; one of the three largest retail banks; and 1 of the 2 largest Prescription Benefit Management companies.

•

Large and Sticky Customer Relationships: The company’s average revenue per customer is in excess of $1 million per year. The company’s typical contract is between $3 million and $20 million and runs for an initial duration of 3 to 5 years, with a number of the company’s earliest customers having signed extensions of an additional 3 to 5 years.

•

Significant Revenue Visibility: The company has a large Contract Backlog and its revenue retention rate is 95%.

LOGO

About Mattersight

Mattersight is a leader in enterprise analytics. Mattersight’s Behavioral Analytics service captures, analyzes, and creates insight from unstructured conversations, emails, employee desktop activity, and customer data. Mattersight’s impressive list of customers use these analytics to improve call center performance, increase customer satisfaction and customer retention, reduce fraud, and streamline back office operations. For additional information on how Mattersight enables its customers to See What Matters™, visit www.Mattersight.com .

Safe Harbor for Forward-Looking Statements

Statements in this press release that are not historical facts are “forward-looking statements” that are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements, which may be identified by use of words such as “plan,” “may,” “might,” “believe,” “expect,” “intend,” “could,” “would,” “should,” and other words and terms of similar meaning, involve risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. In addition to other factors and matters contained or incorporated in this document, important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements include, among other things, the risks detailed from time to time in Mattersight’s SEC filings. You can locate these filings on the Investor Relations page of Mattersight’s website, www.mattersight.com. Statements included or incorporated by reference into this press release are based upon information known to Mattersight as of the date of this press release, and the company assumes no obligation to publicly revise or update any forward-looking statement for any reason.

Contact

Bill Noon

Vice President, Chief Financial Officer

847.582.7019

ir@mattersight.com

LOGO

Exhibit 99.2

eLOYALTY CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

JANUARY 1, 2011

(In thousands, except share and per share data)


	Historical eLoyalty		Pro Forma Adjustment			Pro Forma eLoyalty
ASSETS:

Current Assets:
Cash and cash equivalents	$	20,872	$	29,694	a	$	50,566
Restricted cash		2,460		—			2,460
Receivables, net		8,613		(6,572	)b		2,041
Prepaid expenses		13,746		(9,443	)b		4,303
Other current assets		892		(596	)b		296

Total current assets		46,583		13,083			59,666
Equipment and leasehold improvements, net		5,867		(1,470	)b		4,397
Goodwill		2,643		(1,671	)b		972
Intangibles, net		428		(76	)b		352
Other long-term assets		10,671		(7,090	)b		3,581

Total assets	$	66,192	$	2,776		$	68,968


LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY:

Current Liabilities:
Accounts payable	$	2,498	$	(2,134	)b	$	364
Accrued compensation and related costs		3,033		(986	)b		2,047
Unearned revenue		24,212		(16,327	)b		7,885
Other current liabilities		4,983		(721	)b		4,262


Total current liabilities		34,726			(20,168	)		14,558
Long-term unearned revenue		15,928			(11,243	)b		4,685
Other long-term liabilities		1,592			(30	)b		1,562

Total liabilities		52,246			(31,441	)		20,805

Series B Stock, $0.01 par value; 5,000,000 shares authorized and designated; 3,549,078 shares issued and outstanding at January 1, 2011, with a liquidation preference of $19,367 at January 1, 2011		18,100			—			18,100
Stockholders’ (Deficit) Equity:
Preferred stock, $0.01 par value; 35,000,000 shares authorized; none issued and outstanding		—			—			—
Common stock, $0.01 par value; 50,000,000 shares authorized; 15,642,822 shares issued at January 1, 2011; and 14,786,005 outstanding at January 1, 2011		156			—			156
Additional paid-in capital		207,985			—			207,985
Accumulated deficit		(204,139	)		34,217	c		(169,922	)
Treasury stock, at cost, 856,817 shares at January 1, 2011		(4,468	)		—			(4,468	)
Accumulated other comprehensive loss		(3,688	)		—			(3,688	)

Total stockholders’ (deficit) equity		(4,154	)		34,217			30,063

Total liabilities and stockholders’ (deficit) equity	$	66,192		$	2,776		$	68,968

See accompanying notes to unaudited pro forma consolidated financial statements.

eLOYALTY CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE FISCAL YEAR ENDED JANUARY 1, 2011

(In thousands, except per share data)


	Historical eLoyalty			Pro Forma Adjustment ^(d)			Pro Forma eLoyalty
Revenue:
Services	$	71,808		$	(41,548	)	$	30,260	e
Product		12,581			(12,581	)		—

Revenue before reimbursed expenses (net revenue)		84,389			(54,129	)		30,260
Reimbursed expenses		3,715			(3,090	)		625

Total revenue		88,104			(57,219	)		30,885
Operating expenses:
Cost of services		43,326			(27,936	)		15,390
Cost of product		10,360			(10,360	)		—

Cost of revenue before reimbursed expenses		53,686			(38,296	)		15,390
Reimbursed expenses		3,715			(3,090	)		625

Total cost of revenue, exclusive of depreciation and amortization shown below:		57,401			(41,386	)		16,015
Selling, general and administrative		38,273			(9,366	)		28,907
Severance and related costs		1,180			(686	)		494
Depreciation		4,074			(784	)		3,290
Amortization of intangibles		144			(4	)		140

Total operating expenses		101,072			(52,226	)		48,846

Operating loss		(12,968	)		(4,993	)		(17,961	)
Interest and other (expense), net		(121	)		—			(121	)


Loss from continuing operations before income taxes		(13,089	)		(4,993	)		(18,082	)
Income tax provision		(93	)		—			(93	)

Loss from continuing operations		(13,182	)		(4,993	)		(18,175	)
Loss on discontinued operations		(136	)		—			(136	)

Net loss		(13,318	)		(4,993	)		(18,311	)
Dividends related to Series B Stock		(1,273	)		—			(1,273	)

Net loss available to common stockholders	$	(14,591	)	$	(4,993	)	$	(19,584	)

Per common share:
Basic loss from continuing operations	$	(0.96	)	$	—		$	(1.33	)

Basic loss from discontinued operations	$	(0.01	)	$	—		$	(0.01	)

Basic net loss available to common stockholders	$	(1.06	)	$	—		$	(1.43	)

Diluted loss from continuing operations	$	(0.96	)	$	—		$	(1.33	)

Diluted loss from discontinued operations	$	(0.01	)	$	—		$	(0.01	)

Diluted net loss available to common stockholders	$	(1.06	)	$	—		$	(1.43	)

Shares used to calculate basic net loss per share		13.70			—			13.70

Shares used to calculate diluted net loss per share		13.70			—			13.70

Stock-based compensation, primarily restricted stock, is included in individual line items above:
Cost of services	$	99		$	(31	)	$	68
Selling, general and administrative		5,102			(786	)		4,316
Severance and related costs		76			(57	)		19

See accompanying notes to unaudited pro forma consolidated financial statements.

eLOYALTY CORPORATION

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation

The unaudited pro forma consolidated financial information gives effect to the sale of all of the assets and the assumption of certain liabilities of the Company’s ICS Business by TeleTech as set forth in the Acquisition Agreement. The Company will account for the disposition as a discontinued operation in its consolidated financial statements in accordance with the Accounting Standards Codification (“ASC”) 205-20, Accounting for the Impairment or Disposal of Long Lived Assets.

During the period presented, the ICS Business operated as an operating segment within the Company. As such, the Company did not maintain separate, stand-alone financial statements for the ICS Business. Accordingly, the financial information of the ICS Business has been prepared from the Company’s historical accounting records and does not purport to reflect a balance sheet and statement of operations that would have resulted if the ICS Business had been a separate, stand-alone company.

The unaudited pro forma consolidated statement of operations for the year ended January 1, 2011 has been derived from the Company’s historical consolidated financial information and gives effect to the sale as if it had occurred on December 27, 2009. In addition, the unaudited pro forma consolidated balance sheet as of January 1, 2011 has been derived from the Company’s historical consolidated financial information and gives effect to the sale of the ICS Business as if it had occurred on January 1, 2011.

The unaudited pro forma consolidated statement of operations is based on the assumptions and adjustments described in the accompanying notes and do not reflect any adjustments for non-recurring items or changes in operating strategies arising as a result of the Transaction. The unaudited pro forma consolidated financial statements include no assumptions regarding the use of proceeds (other than to pay transaction related expenses), which are presented as additional cash on the unaudited pro forma consolidated balance sheet. Accordingly, the actual effect of the transaction, due to this and other factors, could differ from the pro forma adjustments presented herein. However, management believes that the assumptions used and the adjustments made are reasonable under the circumstances and given the information available.

The unaudited pro forma consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or the financial position that would have been achieved had the transaction been consummated as of the date indicated or of the results that may be obtained in the future. The unaudited pro forma consolidated financial information and the accompanying notes should be read together with the Company’s Annual Report on Form 10-K for the year ended January 1, 2011 filed with the Securities and Exchange Commission on March 17, 2011.

eLOYALTY CORPORATION

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Pro Forma Adjustments

Pro forma adjustments reflect those adjustments which are directly attributable to the Transaction and include the following (amounts in thousands):

Represents the purchase price of $40,850 less estimated direct transaction costs of $2,300. Also reflects the adjustment to proceeds for Managed Services and Working Capital Adjustments defined in the Acquisition Agreement. The Managed Services adjustment reflects the net difference between total unearned revenue and associated prepaid/deferred costs. The Managed Services adjustment of ($11,728) was included in Cash and Cash equivalents in fiscal year 2010. The Managed Services adjustment is based upon the net difference between total unearned revenue and associated prepaid/deferred costs as of the balance sheet date. The actual Managed Services adjustment will be determined on a post-closing basis and, therefore, may differ materially from the amount presented. The Working Capital adjustment reflects the adjustment made to the proceeds based on the difference between (i) the ratio between current assets, excluding current prepaid/deferred costs, and current liabilities, excluding current unearned revenue, as of the closing date and (ii) 1.21. A Working Capital adjustment of $2,872 was included in Cash and Cash equivalents in fiscal year 2010.

Eliminates the assets acquired and liabilities assumed by TeleTech in connection with the disposition of the ICS Business.

Represents the estimated gain on sale of net assets before federal, state, and foreign taxes.

Eliminates the financial results of operations of the ICS Business, as adjusted for removal of revenue and direct costs of traditional CRM Consulting Services, includes facility costs associated with the office in Austin, Texas, which is primarily used by the ICS Business, and includes corporate and administrative costs that have been attributed to the ICS Business.

Pro Forma Services Revenue

Pro Forma services revenue, after the sale of the ICS Business, includes subscription services, amortized deployment fee revenue and consulting services from our Behavioral Analytics Service, as well as legacy revenue. Legacy revenue consists of (i) traditional CRM consulting services, which historically have been included in our ICS business segment, and (ii) marketing managed services, which historically have been included in our Behavioral Analytics Service business segment. Pro Forma services revenues are broken down as follows:


	2010
Subscription revenue	$	19,495
Amortized Deployment Fees and Consulting revenue		5,235
Total Behavioral Analytics revenue		24,730
Other Legacy revenue		5,530

Total Services revenue	$	30,260