As Filed with the Securities and Exchange Commission on March 11, 2013
Registration No. 333-186229
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NV5 Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 8711 | 45-3458017 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
200 South Park Road, Suite 350
Hollywood, Florida 33021
(954) 495-2112
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrants Principal Executive Offices)
Richard Tong
Executive Vice President and General Counsel
NV5 Holdings, Inc.
200 South Park Road, Suite 350
Hollywood, Florida 33021
(954) 495-2112
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)
Copies to:
Steven D. Pidgeon, Esq. David P. Lewis, Esq. DLA Piper LLP (US) 2525 East Camelback Road, Suite 1000 Phoenix, Arizona 85016 (480) 606-5100 |
Mitchell Nussbaum, Esq. Norwood Beveridge, Esq. Loeb & Loeb LLP 345 Park Avenue New York, New York 10154 (212) 407-4000 |
Approximate date of commencement of proposed sale to the public : As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box x
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), shall determine.
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities To be Registered |
Amount to be Registered |
Proposed
|
Proposed
Maximum Aggregate Offering Price (1) |
Amount of Registration Fee |
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Units, each consisting of one share of common stock, par value $0.01 per share and one warrant to purchase one share of common stock, par value $0.01 per share (2) |
1,150,000 | $7.00 | $8,050,000 | $1,098.02 | ||||
Common Stock, par value $0.01 per share, included in the units (2) |
1,150,000 | | | (3) | ||||
Warrants included in the units (2) |
1,150,000 | | | (3) | ||||
Common Stock, par value $0.01 per share, underlying the warrants included in the units (4)(2) |
1,150,000 | $9.10 | $10,465,000 | $1,427.43 | ||||
Unit Warrants to be issued to the Underwriters (5) |
100,000 | $8.40 | $840,000 | $114.58 | ||||
Units underlying the Unit Warrants to be issued to the Underwriters (4) |
100,000 | | | (3) | ||||
Common Stock, par value $0.01 per share, included in the units underlying the Unit Warrants to be issued to the Underwriters (4) |
100,000 | | | (3) | ||||
Warrants included in the units underlying the Unit Warrants to be issued to the Underwriters (4) |
100,000 | | | (3) | ||||
Common Stock, par value $0.01 per share, underlying the warrants included in the units underlying the Unit Warrants to be issued to the Underwriters (4) |
100,000 | $9.10 | $910,000 | $124.12 | ||||
$20,265,000 | $2,764.15(6) | |||||||
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(1) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act. |
(2) | Includes 150,000 units that the underwriters have the option to purchase to cover over-allotments, if any. |
(3) | No fee required pursuant to Rule 457(g). |
(4) | Pursuant to Rule 416 under the Securities Act, there are also being registered such additional securities as may be issued to prevent dilution resulting from share splits, share dividends or similar transactions. |
(5) | We have agreed to issue warrants exercisable within three years after the effective date of this registration statement representing 10% of the securities issued in the offering (the Underwriter Warrants) to Roth Capital Partners, LLC for nominal consideration. Resales of the Underwriter Warrants on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, are registered hereby. Resales of units, shares and warrants issuable upon exercise of the Underwriter Warrants or the component securities thereof are also being similarly registered on a delayed or continuous basis hereby. See Underwriting. |
(6) | $941.16 was previously paid on January 28, 2013. |
SUBJECT TO COMPLETION, DATED MARCH 11, 2013
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
1,000,000 Units
This is the initial public offering of securities of NV5 Holdings, Inc. We are offering to sell 1,000,000 units in this offering (the Units), each unit consisting of one share of our common stock (each, a Share) and a warrant to purchase our common stock (each, a Warrant). Each Warrant entitles the holder to purchase one Share at an initial exercise price of $ . The Warrants may only be exercised for cash. The Warrants will expire on March , 2018 at 5:00 p.m., New York City time.
Prior to this offering, there has been no public market for our securities. The initial public offering price is expected to be between $5.00 and $7.00 per Unit. We have applied to list the Units, Shares and Warrants on the Nasdaq Capital Market under the symbol NVEE, NVEE.U and NVEE.W, respectively. The Warrants will trade together with the Shares only as Units until September , 2013, and thereafter each of the Shares and Warrants will trade separately.
We are an emerging growth company and a smaller reporting company under the federal securities laws and will be subject to reduced public company reporting requirements. See Risk Factors beginning on page 11 for a discussion of the factors you should consider before you make your decision to invest in our securities.
Per Unit | Total | |||||||
Public offering price |
$ | $ | ||||||
Underwriting discounts and commissions (1) |
$ | $ | ||||||
Proceeds, before expenses, to us |
$ | $ |
(1) | See Underwriting beginning on page 87 for disclosure regarding compensation payable to the underwriters by us. |
We have granted the underwriters a 45-day option to purchase up to a maximum of 150,000 additional Units from us at the public offering price, less the underwriting discounts and commissions, to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Delivery of the Units will be made on or about , 2013.
Sole Book-Running Manager
Roth Capital Partners
The date of this prospectus is , 2013
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9 | ||||
11 | ||||
31 | ||||
33 | ||||
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
37 | |||
53 | ||||
64 | ||||
70 | ||||
76 | ||||
78 | ||||
80 | ||||
85 | ||||
87 | ||||
92 | ||||
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92 | ||||
F-1 |
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, our securities only in jurisdictions where offers and sales are permitted. You should assume that the information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our securities. Our business, financial condition, results of operations, and prospects may have changed since that date.
Through and including , 2013 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealers obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
For Investors Outside the U.S.: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the U.S. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.
Our name, our logo, and other trademarks or service marks of ours appearing in this prospectus are the property of NV5 Holdings, Inc. Trade names, trademarks, and service marks of other companies appearing in this prospectus are the property of their respective holders.
INDUSTRY DATA
We use industry and market data throughout this prospectus, which we have obtained from market research, independent industry publications, or other publicly available information. Although we believe that each such source is reliable as of its respective date, the information contained in such sources has not been independently verified. While we are not aware of any misstatements regarding any industry and market data presented herein, such data is subject to change based on various factors, including those discussed under the heading Risk Factors in this prospectus. We have not commissioned, nor are we affiliated with, any of the independent industry sources we cite.
This summary highlights information contained elsewhere in this prospectus. This summary sets forth the material terms of the offering, but does not contain all of the information that you should consider before investing in our securities. You should read the entire prospectus carefully before making an investment decision, especially the risks of investing in our securities described under Risk Factors. Unless otherwise indicated or the context otherwise requires, all references in this prospectus to (i) NV5 Holdings, we, us, and our refer to NV5 Holdings, Inc., a Delaware corporation, its consolidated subsidiaries, and the business of Nolte as our historical accounting predecessor, (ii) NV5 refers to NV5, Inc., a Delaware corporation and a wholly owned subsidiary of ours, and (iii) Nolte refers to Nolte Associates, Inc., a California corporation and a wholly owned subsidiary of ours.
Overview
We are an independently-owned provider of professional and technical engineering and consulting solutions to public and private sector clients. We focus on the infrastructure, construction, real estate, and environmental markets. The scope of our projects includes planning, design, consulting, permitting, inspection and field supervision, and management oversight. We also provide forensic engineering, litigation support, condition assessment, and compliance certification.
As the needs of our clients have evolved, we have grouped our capabilities into five core vertical service offerings:
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infrastructure, engineering, and support services; |
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construction quality assurance; |
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public and private consulting and outsourcing; |
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asset management consulting; and |
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occupational, health, safety, and environmental consulting. |
Historically, substantially all of our services were concentrated on the first two service sectors. We believe, however, that our three newer service offerings will become increasingly important to our business as we continue to grow through both organic expansion and strategic acquisitions.
We operate our business through a network of over 20 locations in California, Colorado, Utah, Florida, and New Jersey. All of our offices utilize our shared services platform, which consists of human resources, marketing, finance, information technology, legal, and other resources at our corporate headquarters. Our shared services platform is intended to optimize the performance of our business as we increase our scale and scope. By maintaining a centralized, shared services platform, we believe we can better manage our business, apply universal financial and operational controls and procedures, increase efficiencies, and drive lower-cost solutions.
We currently maintain a staff of approximately 439 employees, which includes approximately 168 licensed engineers and other professionals who provide a wide range of professional and technical solutions to our customers. Combined with our support technology and software, our professionals are equipped to quickly and effectively respond to the needs of our clients.
Our primary clients include U.S. federal, state, municipal, and local governments; military and defense clients; and public agencies. We also serve quasi-public and private sector clients from the education, healthcare,
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energy, and utilities fields, including schools, universities, hospitals, health care providers, insurance providers, large utility service providers, and large and small energy producers.
During our 60 years in the engineering and consulting business, we have worked with such clients and on such well-known projects as (in alphabetical order):
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California Department of Transportation, or Caltrans, CA; |
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Equatorial Guinea LNG (Liquefied Natural Gas) Facility, Africa; |
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Fort Lauderdale Hollywood International Airport, FL; |
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Miami International Airport, FL; and |
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South Florida Water Management District, FL. |
Our current representative clients and project portfolio include (in alphabetical order):
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City of Colorado Springs, CO; |
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Florida Power and Light, FL; |
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Princeton University, NJ; |
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San Diego Gas & Electric, CA; and |
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University of Miami, FL. |
Industry
We provide services in the areas of engineering and consulting. Engineering and consulting applies scientific knowledge to design structures, products, and industrial processes for both the constructed and natural environment. Engineering and consulting also provides clients with technical studies, planning, engineering, design, and construction management services. Clients vary in size and scope from local public agencies and private companies to national governments and large multinational corporations.
According to IBISWorld, the industry is extremely fragmented and made up of approximately 141,000 firms in the U.S. in 2012. A large number of these firms are small-scale establishments which typically provide services to regional markets or specialized niches. The firms range from large, global, multidisciplinary suppliers of a comprehensive range of planning, design, and project delivery services to small- to medium-sized companies that tend to specialize in selected areas of the project delivery process. Clients come from all sectors and levels of society and include U.S. federal, state, municipal, and local governmental property owners, quasi-public and private clients from the education, healthcare, energy, and utilities fields, and national governments and large multinational corporations.
Competitive Strengths
We believe we have the following competitive strengths:
Organizational structure that enhances client service. We operate our business using a vertical structure grouped by service offerings rather than the geography-based structure utilized by many of our competitors. This structure ensures that clients engaging our services in any given sector, regardless of the location of the project, have access to the services of our most highly qualified professionals. Our most skilled engineers and professionals in each service sector work directly with the clients engaging those services, which facilitates
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relationship-based interactions between our key employees and clients and assists in developing long-term client relationships. In addition, this structure encourages an entrepreneurial spirit among our professionals.
Expertise in local markets. To complement our vertical service model, we maintain a network of over 20 locations on both the west and east coasts of the U.S. Each of our offices is staffed with quality professionals who understand the local and regional markets in which they serve. Our local professionals are allowed to concentrate entirely on their local market client engagements while being supported by our shared services platform, under which we perform various back office functions on a centralized basis.
Strong, long-term client relationships. Our combination of local market experience and professionals with expertise in multiple vertical service sectors has enabled us to develop strong relationships with our core clients. Some of our professionals have worked with our key clients for decades. For example, we have worked with San Diego Gas & Electric for over 30 years and are recognized as a preferred source of expertise by Princeton University and Caltrans. By serving as a long-term partner with our clients, we are able to gain a deep understanding of their overall business needs as well as the unique technical requirements of their projects. This increased understanding gives us the opportunity to provide superior value to our clients by allowing us to more fully assess and better manage the risks inherent in their projects.
Experienced, talented, and motivated employees. We employ seasoned professionals with a broad array of specialties and a strong customer service orientation. Our executive officers have an average of more than 20 years of operating and management experience in or supporting the engineering and consulting industry and in analyzing potential acquisition transactions. Our corporate culture places a high priority on investing in our people, and our compensation system emphasizes the use of performance-based incentives, including opportunities for stock ownership, which we believe helps to attract, motivate, and retain top professionals.
Industry-recognized quality of service. We believe that we have developed a strong reputation for quality service based upon our industry-recognized depth of experience, ability to attract and retain quality professionals, and expertise across multiple service sectors. During the past several years, we received many industry certificates, awards, and national rankings, including:
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2011 Engineering News-Record Top 500 Design Firms (ranked by design-specific revenue); |
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2011 Engineering News-Record Top 100 Construction Management-for-Fee Firms (ranked by construction-specific revenue); |
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2011 Sacramento Regional Transit District: Transit Oriented Design of the Year; |
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2010 Engineering News-Record: Best of the Best Government Building Award; |
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2009 Caltrans: Excellence in Transportation Design Award; and |
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2009 Construction Management Association of America, Northern California: Infrastructure Project of the Year. |
Growth Strategies
We intend to pursue the following growth strategies as we seek to expand our market share and position ourselves as a preferred, single-source provider of professional and technical consulting and certification services to our clients:
Seek strategic acquisitions to enhance or expand our services offerings . We seek acquisitions that allow us to expand or enhance our capabilities in our existing service offerings. In analyzing new acquisitions, we pursue opportunities that provide either the critical mass to function as a profitable, stand-alone operation or are
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geographically situated to be complementary to our existing operations. We believe that expanding our business through strategic acquisitions will enable us to exploit economies of scale in the areas of finance, human resources, marketing, administration, information technology, and legal, while also providing cross-selling opportunities among our vertical service offerings.
Continue to focus on public sector clients while building private sector client capabilities. We have historically derived the majority of our revenue from public and quasi-public sector clients. For the nine months ended September 30, 2012 and the years ended December 31, 2011 and 2010, approximately 62%, 65% and 58%, respectively, of our revenues were attributable to public and quasi-public sector clients. Even during unsteady economic periods, we have capitalized on public sector business opportunities resulting from outsourcing initiatives, continued efforts to address the challenges presented by the nations aging infrastructure system, and the need to provide solutions for transportation, energy, water, and waste water requirements. However, we also seek to obtain additional clients in the private sector, which typically sees greater growth during times of economic expansion, by networking, participating in certain organizations, and monitoring private project databases. We will continue to pursue private sector clients when such opportunities present themselves. We believe our ability to service the needs of both public and private sector clients gives us the flexibility to seek and obtain engagements regardless of the current economic conditions.
Strengthen and support our human capital . Our experienced employees and management team are our most valuable resources. Attracting, training, and retaining key personnel has been and will remain critical to our success. To achieve our human capital goals, we intend to remain focused on providing our personnel with entrepreneurial opportunities to increase client contact within their areas of expertise and to expand our business within our service offerings. We will also continue to provide our personnel with training, personal and professional growth opportunities, performance-based incentives, including opportunities for stock ownership, and other competitive benefits.
Risk Factors
An investment in our securities involves risks. Please see the section of this prospectus entitled Risk Factors for a discussion of the factors you should consider before deciding to invest in our securities. These risks include, among other things:
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our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals; |
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changes in demand from the local and state government and private clients that we serve; |
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general economic conditions, nationally and globally, and their effect on the market for our services; |
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the governments funding and budgetary approval process; |
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our dependence on a limited number of clients; |
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our ability to successfully execute our mergers and acquisitions strategy, including the integration of new companies into our business; |
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competitive pressures and trends in our industry and our ability to successfully compete with our competitors; |
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the enactment of legislation that could limit the ability of local, state and federal agencies to contract for our privatized services; and |
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other factors identified throughout this prospectus, including those discussed under the headings Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, and Business. |
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Our History
We conduct our operations through two primary operating subsidiaries: (i) Nolte, which began operations in 1949 and was incorporated as a California corporation in 1957, and (ii) NV5, which was incorporated as a Delaware corporation in 2009. In March 2010, NV5 acquired the construction quality assurance operations of Bureau Veritas North America, Inc. In August 2010, NV5 acquired a majority of the outstanding shares of Nolte and succeeded to substantially all of Noltes business. Because NV5s business prior to the Nolte acquisition was insignificant, Nolte is considered to be our historical accounting predecessor for financial statement reporting purposes. In October 2011, NV5 and Nolte completed a reorganization transaction in which NV5 Holdings was incorporated as a Delaware corporation, acquired all of the outstanding shares of NV5 and Nolte, and, as a result, became the holding company under which NV5 and Nolte conduct operations.
On July 27, 2012, we acquired certain assets and assumed certain liabilities of Kaderabek Company (Kaco), a 30-person engineering firm headquartered in Miami, Florida. Kaco commenced operations in 1984 and its development and engineering teams have worked on projects in South Florida, the Caribbean, and Central America during the last twenty five years. The purchase price was of $3.5 million, consisting of $1.0 million in cash, a note in principal amount of $2.0 million payable over three years, and 69,330 shares of common stock with an agreed value of $7.21 per share.
Recent Developments
Set forth below are certain preliminary estimates of our results of operations that we expect to report for our fiscal year ended December 31, 2012.
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Our total contract revenue is expected to be approximately $60.6 million, or $2.8 million less than $63.4 million in 2011; |
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Our gross profit is expected to be approximately $31.7 million, or $0.7 million less than $32.4 million in 2011; and |
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Our net income is expected to be approximately $1.3 million, or $0.1 million less than $1.4 million in 2011. |
We have provided estimates for our preliminary results described above because our financial closing procedures for our fiscal quarter and our fiscal year ended December 31, 2012 are not yet complete. We currently expect that our final results will be approximately as described above. However, the estimates described above are preliminary and represent the most current information available to management. Therefore, it is possible that our actual results may differ materially from these estimates due to the completion of our financial closing procedure, final adjustments and other developments that may arise between now and the time our financial results for our fiscal year 2012 are finalized. Accordingly, you should not place undue reliance on these estimates. The preliminary financial data for our fiscal year 2012 included in this prospectus has been prepared by, and is the responsibility of, our management and has not been reviewed or audited or subject to any other procedures by our independent registered public accounting firm. Accordingly, our independent registered public accounting firm does not express an opinion or any other form of assurance with respect to this preliminary financial data.
Corporate Information
Our principal executive offices are located at 200 South Park Road, Suite 350, Hollywood, Florida 33021 and our telephone number is (954) 495-2112. Our website address is www.nv5.com. The information on, or accessible through, our website does not constitute a part of, and is not incorporated into, this prospectus.
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As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
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exemption from the auditor attestation requirement on the effectiveness of our internal controls over financial reporting; |
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reduced disclosure about our executive compensation arrangements; and |
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no non-binding advisory votes on executive compensation or golden parachute arrangements. |
We may take advantage of these provisions for up to five years or until such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of our capital stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced reporting burdens. We have taken advantage of these reduced reporting burdens in this prospectus and, accordingly, the information that we provide stockholders may be different than you may receive from other public companies in which you hold equity interests. Under Section 107(b) of the JOBS Act, emerging growth companies can take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to opt out of this provision and, as a result, we will comply with new or revised accounting standards as required when they are required to be adopted by an issuer. This decision to opt out of the extended transition period under the JOBS Act is irrevocable. In addition, as a smaller reporting company, we have taken advantage of certain reduced reporting obligations available to smaller reporting companies.
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Securities offered by us | 1,000,000 Units (or 1,150,000 Units if the underwriters exercise their over-allotment option in full). | |
Over-allotment option | We have granted the underwriters a 45-day option to purchase up to a maximum of 150,000 additional Units from us at the public offering price, less the underwriting discounts and commissions, to cover over-allotments, if any. | |
Common stock outstanding after this offering | 3,600,000 shares, including 1,000,000 Shares included as part of the Units offered hereby (or 3,750,000 and 1,150,000 shares, respectively, if the underwriters exercise their over-allotment option in full). | |
Warrants to be outstanding after this offering | 1,000,000 Warrants included as part of the Units offered hereby. See Description of Capital Stock on page 80 for more information. | |
Terms of Warrants issued as a part of a Unit offered in the offering | Exercise price $ , which is equal to 130% of the offering price of a Unit in this offering. The Warrants do not have any price protection features or cashless exercise provisions. | |
Exercisability each Warrant is exercisable for one Share, subject to adjustment as described herein. | ||
Exercise period each Warrant will be immediately exercisable beginning on September , 2013 (the Separation Date) and will expire on March , 2018 or earlier upon redemption. | ||
Redemption of Warrants issued as a part of a Unit in the offering |
We may call the Warrants for redemption as follows: (i) at a price of $0.01 for each Warrant at any time while the Warrants are exercisable, so long as a registration statement relating to the common stock issuable upon exercise of the Warrants is effective and current: (ii) upon not less than 30 days prior written notice of redemption to each Warrant holder; and (iii) if, and only if, the reported last sale price of the common stock equals or exceeds $ per share (200% of the offering price of a Unit in this offering) for the 20-trading-day period ending on the third business day prior to the notice of redemption to Warrant holders.
If the foregoing conditions are satisfied and we call the Warrants for redemption, each Warrant holder will then be entitled to exercise his or her Warrant prior to the date scheduled for redemption. However, there can be no assurance that the price of the common stock will exceed the call price or the Warrant exercise price after the redemption call is made. |
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Separation Date | The Warrants will trade together with the Shares only as Units until the Separation Date. Upon their separation from the Shares, the Shares and the Warrants will each be eligible for trading on the Nasdaq Capital Market. | |
Use of proceeds | We estimate that the net proceeds to us from this offering will be approximately $4.6 million, or approximately $5.4 million if the underwriters exercise their over-allotment option in full, based on the midpoint of the price range set forth on the cover page of this prospectus. We intend to use the net proceeds to pay the expenses of this offering and for working capital and general corporate purposes, including funding future acquisitions. | |
Dividend policy |
We do not anticipate declaring or paying any cash dividends on our common stock following our initial public offering. | |
Risk factors | You should carefully read and consider the information set forth under the heading Risk Factors and all other information set forth in this prospectus before deciding to invest in the Units. | |
Proposed Nasdaq Capital Market symbol |
NVEE.U (Units) NVEE (Shares) NVEE.W (Warrants) |
The number of shares of common stock to be outstanding following this offering is based on 2,600,000 shares outstanding as of February 28, 2013, and excludes 554,658 shares reserved for future issuance under our equity incentive plan.
Unless otherwise indicated, this prospectus reflects and assumes the following:
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the rounding of all fractional share amounts to the nearest whole number; |
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the effectiveness of a 1.3866-for-1 forward split of our stock to be effected immediately prior to the consummation of this offering; |
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no exercise by the underwriters of their over-allotment option to purchase up to 150,000 additional Units from us; |
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no exercise by purchasers of Units in this offering of the Warrants included therein; |
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no exercise by Roth of the Underwriter Warrants or any Warrants included therein; and |
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no conversion of the Nolte Note (as described herein). |
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SUMMARY FINANCIAL AND OTHER DATA
The following table sets forth the summary financial and operating data as of the dates and for the periods indicated. The consolidated statements of operations data for the years ended December 31, 2011 and 2010, and the consolidated balance sheet data as of December 31, 2011 and 2010, have been derived from the audited financial statements of NV5 Holdings, which are included elsewhere in this prospectus. The unaudited pro forma statement of operations data for the year ended December 31, 2010 combines the historical NV5 consolidated statement of operations data for such period with the historical Nolte statement of operations data for such period, which are included elsewhere in this prospectus, giving effect to the 2010 acquisition of control of Nolte as if it had occurred on January 1, 2010. The unaudited consolidated statements of operations data for the nine-month periods ended September 30, 2012 and 2011, and the unaudited consolidated balance sheet data as of September 30, 2012, are derived from our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited financial information on a basis consistent with our audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that may be expected in any future period, and our interim results are not necessarily indicative of the results to be expected for the full fiscal year. The consolidated statements of operations data for the nine months ended September 30, 2012 and 2011, and the consolidated balance sheet data as of September 30, 2012 have been derived from our unaudited consolidated financial statements, included elsewhere in this prospectus.
You should read the following financial and other data in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere in this prospectus.
Consolidated Statements of Operations Data (dollars in thousands, except per Share data) ( 1 ) :
Period
October 2, 2009 to August 3, 2010 |
Year
Ended
December 31, |
Nine-Months
Ended
September 30, |
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2010
(Pro Forma) (2) |
2011 | 2011 | 2012 | |||||||||||||||||
Gross contract revenues |
$ | 43,450 | $ | 64,660 | $ | 63,366 | $ | 48,516 | $ | 45,486 | ||||||||||
Gross profit |
$ | 22,796 | $ | 32,673 | $ | 32,418 | $ | 25,217 | $ | 23,814 | ||||||||||
Income (loss) from continuing operations |
$ | 201 | $ | 134 | $ | 1,916 | $ | 1,754 | $ | 781 | ||||||||||
Discontinued operations, net |
$ | (162 | ) | $ | (264 | ) | $ | 33 | $ | 33 | $ | | ||||||||
Non-controlling interest |
$ | | $ | (80 | ) | $ | (530 | ) | $ | (530 | ) | $ | | |||||||
Net income (loss) |
$ | 39 | $ | (210 | ) | $ | 1,419 | $ | 1,257 | $ | 781 | |||||||||
Earnings (loss) per Share: |
||||||||||||||||||||
Basic |
$ | 0.12 | $ | (0.11 | ) | $ | 0.73 | $ | 0.68 | $ | 0.34 | |||||||||
Diluted |
$ | 0.12 | $ | (0.11 | ) | $ | 0.66 | $ | 0.62 | $ | 0.31 | |||||||||
Unaudited pro forma earnings per Share (3) : |
||||||||||||||||||||
Basic |
$ | | $ | | $ | 0.84 | $ | 0.77 | $ | | ||||||||||
Diluted |
$ | | $ | | $ | 0.77 | $ | 0.71 | $ | |
(1) |
Nolte is considered to be our historical accounting predecessor for financial statement reporting purposes, as NV5s business prior to the Nolte acquisition was insignificant and NV5 succeeded to substantially all of the business of Nolte as part of the Nolte acquisition. Nolte previously reported its financial results for the 52/53 week period ending on the Thursday closest to September 30. References to the period from October 2, 2009 to August 3, 2010 refer to the results of operations and cash flows of Nolte for the period |
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that began on October 2, 2009, the first day of Noltes fiscal year, and ended August 3, 2010, the date of acquisition. The successor consolidated financial statements for the year ended December 31, 2010 include the results of Nolte for the period from the acquisition date to December 31, 2010. |
(2) |
Represents pro forma results of operations assuming that the Nolte acquisition occurred on January 1, 2010. |
(3) |
Represents pro forma data assuming NV5 acquired the remaining 37% of Nolte as of January 1, 2011 and the elimination of $0.5 million of earnings allocated to the non-controlling interest. |
Balance Sheet Data (dollars in thousands):
As of
December 31, |
As of
September 30, 2012 |
|||||||||||
2011 | Actual | As Adjusted ( 1 ) | ||||||||||
Cash and cash equivalents |
$ | 2,762 | $ | 1,568 | $ | 6,168 | ||||||
Accounts receivable |
$ | 15,457 | $ | 17,756 | $ | 17,756 | ||||||
Total assets |
$ | 28,000 | $ | 32,104 | $ | 36,704 | ||||||
Long-term debt and obligations |
$ | 5,344 | $ | 7,879 | $ | 7,789 | ||||||
Total liabilities |
$ | 17,478 | $ | 21,763 | $ | 21,763 | ||||||
Total stockholders equity |
$ | 10,522 | $ | 10,341 | $ | 14,941 |
(1) |
As adjusted figures reflect our sale of Units in this offering at an assumed price equal to the midpoint of the price range set forth on the cover page of this prospectus and the application of the net proceeds as described under Use of Proceeds. |
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Investing in our securities involves a high degree of risk. Before making an investment in our securities, you should carefully consider the following risks and the other information contained in this prospectus, including our consolidated financial statements and related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations. The risks described below are those that we believe are the material risks we face. Any of the risks described below, and others that we did not anticipate, could significantly and adversely affect our business, prospects, financial condition, results of operations, and liquidity. As a result, the trading price of our securities could decline and you may lose all or part of your investment.
Risks Related to Our Business and Industry
The loss of key personnel or our inability to attract and retain qualified personnel could significantly disrupt our business.
As a professional and technical engineering and consulting solutions provider, our business is labor intensive and, therefore, our ability to attract, retain, and expand our senior management, sales personnel, and professional and technical staff is an important factor in determining our future success. The market for qualified scientists, engineers, and sales personnel is competitive and we may not be able to attract and retain such professionals. It may also be difficult to attract and retain qualified individuals in the timeframe demanded by our clients. Furthermore, some of our government contracts may require us to employ only individuals who have particular government security clearance levels. Our failure to attract and retain key individuals could impair our ability to provide services to our clients and conduct our business effectively. In addition, with the exception of certain of our executive officers, we do not have employment agreements with any of our employees. The loss of the services of any key personnel could adversely affect our business. We do not maintain key-man life insurance policies on any of our executive officers.
We depend on the continued services of Mr. Dickerson Wright, our Chairman, Chief Executive Officer, and President. We cannot assure you that we will be able to retain the services Mr. Wright.
We are dependent upon the efforts and services of Mr. Dickerson Wright, our Chairman, Chief Executive Officer, and President, because of his knowledge, experience, skills, and relationships with major clients and other members of our management team. The loss of the services of Mr. Wright for any reason could have an adverse effect on our operations.
Demand from our state and local government and private clients is cyclical and vulnerable to economic downturns. If the economy remains weak or client spending declines further, then our revenue, profits, and financial condition may deteriorate.
Demand for services from our state and local government and private clients is cyclical and vulnerable to economic downturns, which may result in clients delaying, curtailing, or canceling proposed and existing projects. Our business traditionally lags the overall recovery in the economy. Therefore, our business may not recover immediately when the economy improves. If the economy remains weak or client spending declines further, then our revenue, profits, and overall financial condition may deteriorate. Our state and local government clients may face budget deficits that prohibit them from funding new or existing projects. In addition, our existing and potential clients may either postpone entering into new contracts or request price concessions. Difficult financing and economic conditions may cause some of our clients to demand better pricing terms or delay payments for services we perform, thereby increasing the average number of days our receivables are outstanding and the potential of increased credit losses on uncollectible invoices. Further, these conditions may result in the inability of some of our clients to pay us for services that we have already performed. If we are not able to reduce our costs quickly enough to respond to the revenue decline from these clients, our operating results
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may be adversely affected. Accordingly, these factors affect our ability to forecast our future revenue and earnings from business areas that may be adversely impacted by market conditions.
Our operating results may be adversely impacted by worldwide economic uncertainties and specific conditions in the markets we address.
Over the past several years, the general worldwide economy has experienced a downturn due, at various times, to the lack of available credit, slower economic activity, concerns about inflation and deflation, increased energy costs, decreased consumer confidence, reduced corporate profits and capital spending, and adverse business conditions. These conditions make it extremely difficult for our clients and vendors to accurately forecast future business activities, which could cause businesses to slow spending on services. Such conditions have also made it very difficult for us to predict the short-term and long-term impacts on our business. We cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery worldwide or in our industry, and any such economic slowdown could have any adverse effect on our results of operations.
Our revenue, expenses, and operating results may fluctuate significantly.
Our revenue, expenses, and operating results may fluctuate significantly because of numerous factors, some of which may contribute to more pronounced fluctuations in an uncertain global economic environment. In addition to the other risks described in this Risk Factors section, the following factors could cause our operating results to fluctuate:
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delays, increased costs, or other unanticipated changes in contract performance that may affect profitability, particularly with contracts that are fixed-price or have funding limits; |
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seasonality of the spending cycle of our public sector clients, notably the U.S. federal government, the spending patterns of our private sector clients, and weather conditions; |
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budget constraints experienced by our federal, state, and local government clients; |
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our ability to integrate any companies that we acquire; |
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the number and significance of client contracts commenced and completed during a quarter; |
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the continuing creditworthiness and solvency of clients; |
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reductions in the prices of services offered by our competitors; and |
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legislative and regulatory enforcement policy changes that may affect demand for our services. |
As a consequence, operating results for a particular future period are difficult to predict and, therefore, prior results are not necessarily indicative of results to be expected in future periods. Any of the foregoing factors, or any other factors discussed elsewhere herein, could have a material adverse effect on our business, results of operations and financial condition that could adversely affect our stock price.
We derive a majority of our revenue from government agencies, and any disruption in government funding or in our relationship with those agencies could adversely affect our business.
For the nine months ended September 30, 2012 and for the year ended December 31, 2011, approximately 62% and 65%, respectively, of our revenues were attributable to public and quasi-public sector clients, of which 83% and 84% for the nine months ended September 30, 2012 and for the year ended December 31, 2011, respectively, were attributable to public and quasi-public sector clients in California. A significant amount of our revenues are derived under multi-year contracts, many of which are appropriated on an annual basis. As a result, at the beginning of a project, the related contract may be only partially funded, and additional funding is normally committed only as appropriations are made in each subsequent year. These appropriations, and the
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timing of payment of appropriated amounts, may be influenced by numerous factors as noted below. Our backlog includes only the projects that have had funding appropriated.
The demand for our government-related services is generally driven by the level of government program funding. Accordingly, the success and further development of our business depends, in large part, upon the continued funding of these government programs, and upon our ability to obtain contracts and perform well under these programs. There are several factors that could materially affect our government contracting business, including the following:
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uncertainty surrounding how any remaining funds are being distributed under the American Recovery and Reinvestment Act of 2009 (ARRA) and into what governmental areas such funds are being used, and how much funding may remain available; |
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changes in and delays or cancellations of government programs, requirements, or appropriations; |
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budget constraints or policy changes resulting in delay or curtailment of expenditures related to the services we provide; |
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re-competes of government contracts; |
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the timing and amount of tax revenue received by federal, state, and local governments, and the overall level of government expenditures; |
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curtailment in the use of government contracting firms; |
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delays associated with insufficient numbers of government staff to oversee contracts; |
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the increasing preference by government agencies for contracting with small and disadvantaged businesses, including the imposition of set percentages of prime and subcontracts to be awarded to such businesses for which we would not qualify; |
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competing political priorities and changes in the political climate with regard to the funding or operation of the services we provide; |
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the adoption of new laws or regulations affecting our contracting relationships with the federal, state, or local governments; |
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a dispute with, or improper activity by, any of our subcontractors; and |
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general economic or political conditions. |
These and other factors could cause government agencies to delay or cancel programs, to reduce their orders under existing contracts, to exercise their rights to terminate contracts, or not to exercise contract options for renewals or extensions. Any of these actions could have a material adverse effect on our revenue or timing of contract payments from these agencies.
Each year, client funding for some of our government contracts may rely on government appropriations or public-supported financing. If adequate public funding is delayed or is not available, then our profits and revenue could decline.
Each year, client funding for some of our government contracts may directly or indirectly rely on government appropriations or public-supported financing such as the ARRA. It is possible that such appropriated funding will never be allocated to projects that represent opportunities for us to the extent that we anticipate, if at all. Legislatures may appropriate funds for a given project on a year-by-year basis, even though the project may take more than one year to perform. In addition, public-supported financing such as state and local municipal bonds may be only partially raised to support existing projects. Public funds and the timing of payment of these funds may be influenced by, among other things, the state of the economy, competing political priorities, curtailments in the use of government contracting firms, increases in raw material costs, delays associated with
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insufficient numbers of government staff to oversee contracts, budget constraints, the timing and amount of tax receipts, and the overall level of government expenditures. If adequate public funding is not available or is delayed, then our profits and revenue could decline.
A delay in the completion of the budget process of the U.S. government could delay procurement of our services and have an adverse effect on our future revenue.
When the U.S. government does not complete its budget process before its fiscal year-end on September 30 in any year, government operations are typically funded by means of a continuing resolution. Under a continuing resolution, the government essentially authorizes agencies of the U.S. government to continue to operate and fund programs at the prior year end but does not authorize new spending initiatives. When the U.S. government operates under a continuing resolution, government agencies may delay the procurement of services, which could reduce our future revenue.
California state budgetary constraints may have a material adverse impact on us.
The state of California has experienced, and is continuing to experience, a significant budget shortfall and other related budgetary issues and constraints. The state of California has historically been and is considered to be a key geographic region for our business, as approximately 75% and 70% of our revenue in for the nine months ended September 30, 2012 and for fiscal year 2011, respectively, came from California-based projects. Ongoing uncertainty as to the timing and accessibility of budgetary funding, changes in state funding allocations to local agencies and municipalities, or other delays in purchasing for, or commencement of, projects have had and may continue to have a negative impact on our net sales and contract revenues and our income.
Governmental agencies may modify, curtail, or terminate our contracts at any time prior to their completion and, if we do not replace them, we may suffer a decline in revenue.
Most government contracts may be modified, curtailed, or terminated by the government either at its discretion or upon the default of the contractor. If the government terminates a contract at its discretion, then we typically are able to recover only costs incurred or committed, settlement expenses, and profit on work completed prior to termination, which could prevent us from recognizing all of our potential revenue and profits from that contract. In addition, the U.S. government has announced its intention to scale back outsourcing of services in favor of insourcing jobs to its employees, which could reduce the number of contracts awarded to us. The adoption of similar practices by other government entities could also adversely affect our revenues. If a government terminates a contract due to our default, we could be liable for excess costs incurred by the government in obtaining services from another source.
Our failure to win new contracts and renew existing contracts with private and public sector clients could adversely affect our profitability.
Our business depends on our ability to win new contracts and renew existing contracts with private and public sector clients. Contract proposals and negotiations are complex and frequently involve a lengthy bidding and selection process, which is affected by a number of factors. These factors include market conditions, financing arrangements, and required governmental approvals. For example, a client may require us to provide a bond or letter of credit to protect the client should we fail to perform under the terms of the contract. If negative market conditions arise, or if we fail to secure adequate financial arrangements or the required government approval, we may not be able to pursue particular projects, which could adversely affect our profitability.
Our inability to win or renew government contracts during regulated procurement processes or preferences granted to certain bidders for which we would not qualify could harm our operations and significantly reduce or eliminate our profits.
Government contracts are awarded through a regulated procurement process. The U.S. federal government has increasingly relied upon multi-year contracts with pre-established terms and conditions, such as indefinite
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delivery/indefinite quantity (IDIQ) contracts, which generally require those contractors who have previously been awarded the IDIQ to engage in an additional competitive bidding process before a task order is issued. The increased competition, in turn, may require us to make sustained efforts to reduce costs in order to realize revenue and profits under government contracts. If we are not successful in reducing the amount of costs we incur, our profitability on government contracts will be negatively impacted. The U.S. federal government has also increased its use of IDIQs in which the client qualifies multiple contractors for a specific program and then awards specific task orders or projects among the qualified contractors. As a result, new work awards tend to be smaller and of shorter duration, since the orders represent individual tasks rather than large, programmatic assignments. In addition, the U.S. government has announced its intention to scale back outsourcing of services in favor of insourcing jobs to its employees, which could reduce our revenue. Moreover, even if we are qualified to work on a government contract, we may not be awarded the contract because of existing government policies designed to protect small businesses and underrepresented minority contractors, which would not apply to us. The federal government has announced specific statutory goals regarding awarding prime and subcontracts to small businesses, women-owned small businesses, and small disadvantaged businesses, with the result that we may be obligated to involve such businesses as subcontractors with respect to these contracts at lower margins than when we use our own professionals. While we are unaware of any reason why our status as a public company would negatively impact our ability to compete for and be awarded government contracts, our inability to win or renew government contracts during regulated procurement processes or as a result of the policies pursuant to which these processes are implemented could harm our operations and significantly reduce or eliminate our profits.
If we fail to complete a project in a timely manner, miss a required performance standard, or otherwise fail to adequately perform on a project, then we may incur a loss on that project, which may reduce or eliminate our overall profitability.
Our engagements often involve large-scale, complex projects. The quality of our performance on such projects depends in large part upon our ability to manage the relationship with our clients and our ability to effectively manage the project and deploy appropriate resources, including third-party contractors and our own personnel, in a timely manner. We may commit to a client that we will complete a project by a scheduled date. We may also commit that a project, when completed, will achieve specified performance standards. If the project is not completed by the scheduled date or fails to meet required performance standards, we may either incur significant additional costs or be held responsible for the costs incurred by the client to rectify damages due to late completion or failure to achieve the required performance standards. The uncertainty of the timing of a project can present difficulties in planning the amount of personnel needed for the project. If the project is delayed or canceled, we may bear the cost of an underutilized workforce that was dedicated to fulfilling the project. In addition, performance of projects can be affected by a number of factors beyond our control, including unavoidable delays from government inaction, public opposition, inability to obtain financing, weather conditions, unavailability of vendor materials, changes in the project scope of services requested by our clients, industrial accidents, environmental hazards, labor disruptions, and other factors. To the extent these events occur, the total costs of the project could exceed our estimates and we could experience reduced profits or, in some cases, incur a loss on a project, which may reduce or eliminate our overall profitability. Further, any defects or errors, or failures to meet our clients expectations, could result in claims for damages against us. Our contracts generally limit our liability for damages that arise from negligent acts, errors, mistakes, or omissions in rendering services to our clients. However, we cannot be sure that these contractual provisions will protect us from liability for damages in the event we are sued.
We depend on a limited number of clients for a significant portion of our business.
Our ten largest clients accounted for approximately 50% and 43% of our consolidated contract revenue in for the nine months ended September 30, 2012 and fiscal year 2011, respectively, with our largest client, San Diego Gas & Electric, accounting for approximately 20% and 14% of our contract revenue for the nine months
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ended September 30, 2012 and in fiscal year 2011, respectively. The loss of, or reduction in orders from, these clients could have a material adverse effect on our business, financial condition, and results of operations.
We have made and expect to continue to make acquisitions that could disrupt our operations and adversely impact our business and operating results. Our ability to successfully integrate acquisitions could impede us from realizing all of the benefits of the acquisitions, which could weaken our results of operations.
A key part of our growth strategy is to acquire other companies that complement our service offerings or broaden our technical capabilities and geographic presence. Acquisitions involve certain known and unknown risks that could cause our actual growth or operating results to differ from our expectations or the expectations of securities analysts. For example:
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we may not be able to identify suitable acquisition candidates or acquire additional companies on acceptable terms; |
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we may pursue international acquisitions, which inherently pose more risk than domestic acquisitions; |
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we compete with others to acquire companies, which may result in decreased availability of, or increased price for, suitable acquisition candidates; |
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we may not be able to obtain the necessary financing on favorable terms, or at all, to finance any of our potential acquisitions; |
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we may ultimately fail to consummate an acquisition even if we announce that we plan to acquire a company; and |
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acquired companies may not perform as we expect, and we may fail to realize anticipated revenue and profits. |
In addition, our acquisition strategy may divert managements attention away from our existing businesses, resulting in the loss of key clients or key employees, and expose us to unanticipated problems or legal liabilities, including responsibility as a successor-in-interest for undisclosed or contingent liabilities of acquired businesses or assets.
If we are not able to integrate acquired businesses successfully, our business could be harmed.
Our inability to successfully integrate future acquisitions could impede us from realizing all of the benefits of those acquisitions and could severely weaken our business operations. The integration process may disrupt our business and, if implemented ineffectively, may preclude realization of the full benefits expected by us and could harm our results of operations. In addition, the overall integration of the combining companies may result in unanticipated problems, expenses, liabilities, and competitive responses, and may cause our stock price to decline.
The difficulties of integrating an acquisition include, among others:
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unanticipated issues in integration of information, communications, and other systems; |
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unanticipated incompatibility of logistics, marketing, and administration methods; |
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maintaining employee morale and retaining key employees; |
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integrating the business cultures of both companies; |
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preserving important strategic client relationships; |
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consolidating corporate and administrative infrastructures and eliminating duplicative operations; and |
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coordinating geographically separate organizations. |
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In addition, even if the operations of an acquisition are integrated successfully, we may not realize the full benefits of the acquisition, including the synergies, cost savings, or growth opportunities that we expect. These benefits may not be achieved within the anticipated time frame, or at all.
Further, acquisitions may also cause us to:
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issue securities that would dilute our current stockholders ownership percentage; |
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use a substantial portion of our cash resources; |
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increase our interest expense, leverage, and debt service requirements if we incur additional debt to pay for an acquisition; |
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assume liabilities, including environmental liabilities, for which we do not have indemnification from the former owners, as was the case in our acquisition of Nolte, or have indemnification that may be subject to dispute or concerns regarding the creditworthiness of the former owners; |
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record goodwill and non-amortizable intangible assets that are subject to impairment testing on a regular basis and potential impairment charges; |
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experience volatility in earnings due to changes in contingent consideration related to acquisition liability estimates; |
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incur amortization expenses related to certain intangible assets; |
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lose existing or potential contracts as a result of conflict of interest issues; |
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incur large and immediate write-offs; or |
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become subject to litigation. |
Finally, acquired companies that derive a significant portion of their revenue from the U.S. federal government and that do not follow the same cost accounting policies and billing practices that we follow may be subject to larger cost disallowances for greater periods than we typically encounter. If we fail to determine the existence of unallowable costs and do not establish appropriate reserves in advance of an acquisition, we may be exposed to material unanticipated liabilities, which could have a material adverse effect on our business.
If we are not able to successfully manage our growth strategy, our business and results of operations may be adversely affected.
Our expected future growth presents numerous managerial, administrative, operational, and other challenges. Our ability to manage the growth of our operations will require us to continue to improve our management information systems and our other internal systems and controls. In addition, our growth will increase our need to attract, develop, motivate, and retain both our management and professional employees. The inability of our management to effectively manage our growth or the inability of our employees to achieve anticipated performance could have a material adverse effect on our business.
Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from achieving our growth objectives.
We may in the future be required to raise capital through public or private financing or other arrangements. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business. Additional equity financing may dilute the interests of our stockholders, and debt financing, if available, may involve restrictive covenants and could reduce our profitability. If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures.
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Our industry is highly competitive, and we may not be able to compete effectively with competitors.
Our industry is highly fragmented and intensely competitive. Our competitors are numerous, ranging from small private firms to multi-billion dollar public companies. Contract awards are based primarily on quality of service, relevant experience, staffing capabilities, reputation, geographic presence, stability, and price. In addition, the technical and professional aspects of our services generally do not require large upfront capital expenditures and provide limited barriers against new competitors. Many of our competitors have achieved greater market penetration in some of the markets in which we compete and have more personnel, technical, marketing, and financial resources or financial flexibility than we do. As a result of the number of competitors in the industry, our clients may select one of our competitors on a project due to competitive pricing or a specific skill set. These competitive forces could force us to make price concessions or otherwise reduce prices for our services. If we are unable to maintain our competitiveness, our market share, revenue, and profits could decline.
Our business and operating results could be adversely affected by losses under fixed-price contracts.
Fixed-price contracts require us to either perform all work under the contract for a specified lump sum or to perform an estimated number of units of work at an agreed price per unit, with the total payment determined by the actual number of units performed. For the nine months ended September 30, 2012 and for the year ended December 31, 2011, approximately 7% and 11%, respectively, of our revenue was recognized under fixed-price contracts. Fixed-price contracts expose us to a number of risks not inherent in cost-plus and time and material contracts, including underestimation of costs, ambiguities in specifications, unforeseen costs or difficulties, problems with new technologies, delays beyond our control, failures of subcontractors to perform, and economic or other changes that may occur during the contract period. Losses under fixed-price contracts could be substantial and adversely impact our results of operations.
If our clients delay in paying or fail to pay amounts owed to us, it could have a material adverse effect on our liquidity, results of operations, and financial condition.
Accounts receivable represent the largest asset on our balance sheet. While we take steps to evaluate and manage the credit risks relating to our clients, economic downturns or other events can adversely affect the markets we serve and our clients ability to pay, which could reduce our ability to collect all amounts due from clients. If our clients delay in paying or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity, results of operations, and financial condition.
If we extend a significant portion of our credit to clients in a specific geographic area or industry, we may experience disproportionately high levels of collection risk and nonpayment if those clients are adversely affected by factors particular to their geographic area or industry.
Our clients include public and private entities that have been, and may continue to be, negatively impacted by the changing landscape in the global economy. We face collection risk as a normal part of our business where we perform services and subsequently bill our clients for such services. For the nine months ended September 30, 2012 and the year ended December 31, 2011, our largest client, San Diego Gas & Electric, accounted for approximately 20% and 14%, respectively, of our revenues. In the event that we have concentrated credit risk from clients in a specific geographic area or industry, continuing negative trends or a worsening in the financial condition of that specific geographic area or industry could make us susceptible to disproportionately high levels of default by those clients. Such defaults could materially adversely impact our ability to collect our receivables and, ultimately, our revenues and results of operations.
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As a government contractor, we must comply with various procurement laws and regulations and are subject to regular government audits. A violation of any of these laws and regulations or the failure to pass a government audit could result in sanctions, contract termination, forfeiture of profit, harm to our reputation, or loss of our status as an eligible government contractor and could reduce our profits and revenue.
We must comply with and are affected by U.S. federal, state, local, and foreign laws and regulations relating to the formation, administration, and performance of government contracts. For example, we must comply with defective-pricing clauses found within the Federal Acquisition Regulation (FAR), the Truth in Negotiations Act, Cost Accounting Standards (CAS), the ARRA, the Services Contract Act, and the U.S. Department of Defense security regulations, as well as many other rules and regulations. In addition, we must also comply with other government regulations related to employment practices, environmental protection, health and safety, tax, accounting, and anti-fraud measures, as well as many others regulations in order to maintain our government contractor status. These laws and regulations affect how we do business with our clients and, in some instances, impose additional costs on our business operations. Although we take precautions to prevent and deter fraud, misconduct, and non-compliance, we face the risk that our employees or outside partners may engage in misconduct, fraud, or other improper activities. Government agencies routinely audit and investigate government contractors. These government agencies review and audit a government contractors performance under its contracts and cost structure and evaluate compliance with applicable laws, regulations, and standards. In addition, during the course of its audits, such agencies may question our incurred project costs. If such agencies believe we have accounted for such costs in a manner inconsistent with the requirements for FAR or CAS, the agency auditor may recommend to our U.S. government corporate administrative contracting officer that it disallow such costs. Historically, we have not experienced significant disallowed costs as a result of government audits. However, we can provide no assurance that such government audits will not result in a material disallowance for incurred costs in the future. In addition, government contracts are subject to a variety of other requirements relating to the formation, administration, performance and accounting for these contracts. We may also be subject to qui tam litigation brought by private individuals on behalf of the government under the Federal Civil False Claims Act, which could include claims for treble damages. Government contract violations could result in the imposition of civil and criminal penalties or sanctions, contract termination, forfeiture of profit, or suspension of payment, any of which could make us lose our status as an eligible government contractor. We could also suffer serious harm to our reputation. Any interruption or termination of our government contractor status could reduce our profits and revenue significantly.
State and other public employee unions may bring litigation that seeks to limit the ability of public agencies to contract with private firms to perform government employee functions in the area of public improvements. Judicial determinations in favor of these unions could affect our ability to compete for contracts and may have an adverse effect on our revenue and profitability.
Over at least the last 20 years, state and other public employee unions have challenged the validity of propositions, legislation, charters, and other government regulations that allow public agencies to contract with private firms to provide services in the fields of engineering, design, and construction of public improvements that might otherwise be provided by public employees. These challenges could have the affect of eliminating or severely restricting the ability of municipalities to hire private firms for the purpose of designing and constructing public improvements, and otherwise require them to use union employees to perform the services. If a state or other public employee union is successful in its challenge and as a result the ability of state agencies to hire private firms is severely limited, such a decision would likely lead to additional litigation challenging the ability of the state, counties, municipalities, and other public agencies to hire private engineering, architectural, and other firms, the outcome of which could affect our ability to compete for contracts and may have an adverse effect on our revenue and profitability.
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Our use of the percentage-of-completion method of revenue recognition could result in a reduction or reversal of previously recorded revenue and profits.
We account for some of our contracts on the percentage-of-completion method of revenue recognition. These contracts accounted for approximately 7% and 11% of our revenue for the nine months ended September 30, 2012 and for the year ended December 31, 2011, respectively. Generally, our use of this method results in recognition of revenue and profit ratably over the life of the contract based on the proportion of costs incurred to date to total costs expected to be incurred for the entire project. The effects of revisions to revenue and estimated costs, including the achievement of award fees as well as the impact of change orders and claims, are recorded when the amounts are known and can be reasonably estimated. Such revisions could occur in any period and their effects could be material. Although we have historically made reasonably reliable estimates of the progress towards completion of long-term contracts, the uncertainties inherent in the estimating process make it possible for actual costs to vary materially from estimates, including reductions or reversals of previously recorded revenue and profit.
Our actual business and financial results could differ from the estimates and assumptions that we use to prepare our financial statements, which may significantly reduce or eliminate our profits.
To prepare financial statements in conformity with generally accepted accounting principles in the U.S. (U.S. GAAP), management is required to make estimates and assumptions as of the date of the financial statements. These estimates and assumptions could affect the reported values of assets, liabilities, revenue, and expenses as well as disclosures of contingent assets and liabilities. For example, we recognize revenue over the life of a contract based on the proportion of costs incurred to date compared to the total costs estimated to be incurred for the entire project. Areas requiring significant estimates by our management include:
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the application of the percentage-of-completion method of accounting and revenue recognition on contracts, change orders, and contract claims; |
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provisions for uncollectible receivables and client claims and recoveries of costs from subcontractors, vendors, and others; |
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provisions for income taxes, research, and experimentation credits and related valuation allowances; |
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value of goodwill and recoverability of other intangible assets; |
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valuations of assets acquired and liabilities assumed in connection with business combinations; |
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valuation of stock-based compensation expense; and |
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accruals for estimated liabilities, including litigation and insurance reserves. |
Our actual business and financial results could differ from those estimates, which may significantly reduce or eliminate our profits.
We had a material weakness in our internal control over financial reporting. If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our securities.
During the audit of our fiscal year 2011 financial statements, our independent registered public accounting firm identified a material weakness in our internal control over financial reporting, as defined under the standards of the Public Company Accounting Oversight Board. The weakness was noted in our process surrounding the reconciliation and review of certain general ledger account balances related to our recent acquisition of Nolte, which resulted in material adjustments to the fiscal year 2011 financial statements that were detected by their
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audit procedures. The nature of the material adjustments was to record additional depreciation expense relating to tenant improvements for several offices leases and record additional incurred but not reported legal reserve.
We believe the material weakness noted was specific in nature. During the latter part of fiscal 2011 and into fiscal 2012, we implemented several significant changes and improvements in our internal control over financial reporting to address and remediate the control deficiencies that led to the material weaknesses in internal controls. Specifically, these changes included:
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hiring a new Chief Financial Officer with experience managing and working in the corporate accounting department of a publicly traded company; |
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hiring additional accounting personnel; |
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formalizing the monthly closing process at Nolte, including the implementation of a formal closing schedule, standard month-end closing entries, and reviews; and |
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formalizing the monthly account reconciliation process and training for balance sheet accounts. |
Management continues to review and assess our internal controls to ensure we have adequate internal financial and accounting controls. We believe the measures we have taken to date have remediated these material weaknesses or potential future material weaknesses. However, any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, and cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations (and, once we no longer qualify as an emerging growth company under the JOBS Act or a smaller reporting company as defined under related Securities and Exchange Commission rules, annual audit attestation reports) regarding the effectiveness of our internal control over financial reporting that will be required under Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) with respect to annual reports that we will file as a public company. The existence of a material weakness could result in errors in our financial statements that could cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.
For so long as we qualify as an emerging growth company under the JOBS Act, which may be up to five years following this offering, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting firm on the effectiveness of our internal controls over financial reporting.
See Managements Discussion and Analysis of Financial Condition and Results of Operations Internal Control Over Financial Reporting.
Our profitability could suffer if we are not able to maintain adequate utilization of our workforce.
The cost of providing our services, including the extent to which we utilize our workforce, affects our profitability. The rate at which we utilize our workforce is affected by a number of factors, including:
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our ability to transition employees from completed projects to new assignments and to hire and assimilate new employees; |
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our ability to forecast demand for our services and thereby maintain an appropriate headcount in each of our geographies and workforces; |
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our ability to manage attrition; |
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our need to devote time and resources to training, business development, professional development, and other non-chargeable activities; and |
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our ability to match the skill sets of our employees to the needs of the marketplace. |
If we over utilize our workforce, our employees may become disengaged, which will impact employee attrition. If we under-utilize our workforce, our profit margin and profitability could suffer.
Our backlog is subject to cancellation and unexpected adjustments, and is an uncertain indicator of future operating results.
As of December 31, 2012, we had approximately $45.0 million of gross revenue backlog expected to be recognized over the next 12 months. We include in backlog only those contracts for which funding has been provided and work authorizations have been received. We cannot guarantee that the revenue projected in our backlog will be realized or, if realized, will result in profits. In addition, project cancellations or scope adjustments may occur, from time to time, with respect to contracts reflected in our backlog. For example, certain of our contracts with the U.S. federal government and other clients are terminable at the discretion of the client, with or without cause. These types of backlog reductions could adversely affect our revenue and margins. Accordingly, our backlog as of any particular date is an uncertain indicator of our future earnings.
Employee, agent or partner misconduct or our overall failure to comply with laws or regulations could harm our reputation, reduce our revenue and profits, and subject us to criminal and civil enforcement actions.
Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one of our employees, agents, or partners could have a significant negative impact on our business and reputation. Such misconduct could include the failure to comply with government procurement regulations, regulations regarding the protection of classified information, regulations prohibiting bribery and other foreign corrupt practices, regulations regarding the pricing of labor and other costs in government contracts, regulations on lobbying or similar activities, regulations pertaining to the internal controls over financial reporting, environmental laws, and any other applicable laws or regulations. For example, the Foreign Corrupt Practices Act (the FCPA), and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these regulations and laws, and we take precautions to prevent and detect misconduct. However, since our internal controls are subject to inherent limitations, including human error, it is possible that these controls could be intentionally circumvented or become inadequate because of changed conditions. As a result, we cannot assure that our controls will protect us from reckless or criminal acts committed by our employees and agents. Our failure to comply with applicable laws or regulations or acts of misconduct could subject us to fines and penalties, loss of security clearances, and suspension or debarment from contracting, any or all of which could harm our reputation, reduce our revenue and profits, and subject us to criminal and civil enforcement actions. Historically, we have not had any material cases involving misconduct or fraud.
If our contractors and subcontractors fail to satisfy their obligations to us or other parties, or if we are unable to maintain these relationships, our revenue, profitability, and growth prospects could be adversely affected.
We depend on contractors and subcontractors in conducting our business. There is a risk that we may have disputes with our subcontractors arising from, among other things, the quality and timeliness of work performed by the subcontractor, client concerns about the subcontractor, or our failure to extend existing task orders or issue new task orders under a subcontract. In addition, if any of our subcontractors fail to deliver on a timely basis the agreed-upon supplies, fail to perform the agreed-upon services, go out of business, or fail to perform on a project, then our ability to fulfill our obligations as a prime contractor may be jeopardized and we may be contractually responsible for the work performed by those contractors or subcontractors. The absence of qualified
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subcontractors with which we have a satisfactory relationship could adversely affect the quality of our service and our ability to perform under some of our contracts. Historically, our relationship with our contractors and subcontractors have been good, and we have not experienced any material failure of performance by our contractors and subcontractors. During the nine months ended September 30, 2012 and fiscal year 2011, the utilization of contractors or subcontractors generated approximately 17% and 19%, respectively, of our gross contract revenues.
We also rely on relationships with other contractors when we act as their subcontractor or joint venture partner. Our future revenue and growth prospects could be adversely affected if other contractors eliminate or reduce their subcontracts or teaming arrangement relationships with us or if a government agency terminates or reduces these other contractors programs, does not award them new contracts, or refuses to pay under a contract.
Changes in resource management or infrastructure industry laws, regulations, and programs could directly or indirectly reduce the demand for our services which could in turn negatively impact our revenue.
Some of our services are directly or indirectly impacted by changes in U.S. federal, state, local, or foreign laws and regulations pertaining to resource management, infrastructure, and the environment. Accordingly, a relaxation or repeal of these laws and regulations, or changes in governmental policies regarding the funding, implementation, or enforcement of these programs, could result in a decline in demand for our services, which could in turn negatively impact our revenue.
Legal proceedings, investigations, and disputes, including those assumed in acquisitions of other businesses for which we may not be indemnified, could result in substantial monetary penalties and damages, especially if such penalties and damages exceed or are excluded from existing insurance coverage.
We engage in professional and technical consulting and certification services that can result in substantial injury or damages that may expose us to legal proceedings, investigations, and disputes. For example, in the ordinary course of our business, we may be involved in legal disputes regarding personal injury claims, employee or labor disputes, professional liability claims, and general commercial disputes involving project cost overruns and liquidated damages as well as other claims. In addition, in the ordinary course of our business, we frequently make professional judgments and recommendations about environmental and engineering conditions of project sites for our clients. We may be deemed to be responsible for these judgments and recommendations if they are later determined to be inaccurate. Any unfavorable legal ruling against us could result in substantial monetary damages or even criminal violations.
In this regard, the agreement pursuant to which we acquired Nolte did not include representations and warranties regarding the business being acquired or any indemnification provisions or other assurances from the seller regarding Nolte. In the event any unforeseen matters arise, whether regarding the permits and authorizations required to run the Nolte business, filing of tax returns and payment of associated taxes, or the existence or extent of any contingent liabilities of the Nolte business (including third-party claims to which Nolte may be subject in the future including regarding professional liability for work performed prior to our acquisition of Nolte), we would be materially adversely affected if we were required to pay damages or incur defense costs in connection with a claim for which no such indemnity has been provided. In this regard, in 2011, the California Franchise Tax Board initiated an examination of Noltes state tax filings and raised various questions about approximately $0.7 million of research and development tax credits generated and included on Noltes tax returns for the years 2005-2010. We responded to these inquiries, but in the fourth quarter of 2012, the California Franchise Tax Board denied these credits in full. We are vigorously defending Noltes position and believe it has appropriate documentation to support the credits in full. Accordingly, we have not recorded a liability for uncertain tax benefits related to these state or federal research and development credits. Nolte has appealed the ruling and engaged a specialist firm to assist with the appeal.
We maintain insurance coverage as part of our overall legal and risk management strategy to minimize our potential liabilities; however, insurance coverage contains exclusions and other limitations that may not cover
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our potential liabilities. Generally, our insurance program covers workers compensation and employers liability, general liability, automobile liability, professional errors and omissions liability, property, and contractors pollution liability (in addition to other policies for specific projects). Our insurance program includes deductibles or self-insured retentions for each covered claim. In addition, our insurance policies contain exclusions that insurance providers may use to deny or restrict coverage. Specialty liability and professional liability insurance policies provide for coverages on a claims-made basis, covering only claims actually made and reported during the policy period currently in effect. Our insurance programs provide coverage for acts or omissions associated with the Nolte business prior to our acquisition. If we sustain liabilities that exceed or that are excluded from our insurance coverage or for which we are not insured, it could have a material adverse impact on our results of operations and financial condition, including our profits and revenue.
Unavailability or cancellation of third-party insurance coverage would increase our overall risk exposure as well as disrupt the management of our business operations.
We maintain insurance coverage from third-party insurers as part of our overall risk management strategy and some of our contracts require us to maintain specific insurance coverage limits. If any of our third-party insurers fail, suddenly cancel our coverage, or otherwise are unable to provide us with adequate insurance coverage, then our overall risk exposure and our operational expenses would increase and the management of our business operations would be disrupted. In addition, there can be no assurance that any of our existing insurance coverage will be renewable upon the expiration of the coverage period or that future coverage will be affordable at the required limits.
Our failure to implement and comply with our safety program could adversely affect our operating results or financial condition.
Our safety program is a fundamental element of our overall approach to risk management, and the implementation of the safety program is a significant issue in our dealings with our clients. We maintain an enterprise-wide group of health and safety professionals to help ensure that the services we provide are delivered safely and in accordance with standard work processes. Unsafe job sites and office environments have the potential to increase employee turnover, increase the cost of a project to our clients, expose us to types and levels of risk that are fundamentally unacceptable, and raise our operating costs. The implementation of our safety processes and procedures are monitored by various agencies and rating bureaus, and may be evaluated by certain clients in cases in which safety requirements have been established in our contracts. If we fail to meet these requirements or do not properly implement and comply with our safety program, there could be a material adverse effect on our business, operating results, or financial condition.
We may be subject to liabilities under environmental laws and regulations, including liabilities assumed in acquisitions for which we may not be indemnified.
We must comply with a number of laws that strictly regulate the handling, removal, treatment, transportation and disposal of toxic and hazardous substances. Under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (CERCLA), and comparable state laws, we may be required to investigate and remediate regulated hazardous materials. CERCLA and comparable state laws typically impose strict joint and several liabilities without regard to whether a company knew of or caused the release of hazardous substances. The liability for the entire cost of clean-up could be imposed upon any responsible party. Other principal federal environmental, health, and safety laws affecting us include, among others, the Resource Conversation and Recovery Act, the National Environmental Policy Act, the Clean Air Act, the Occupational Safety and Health Act, the Toxic Substances Control Act, and the Superfund Amendments and Reauthorization Act. Our business operations may also be subject to similar state and international laws relating to environmental protection. Liabilities related to environmental contamination or human exposure to hazardous substances, or a failure to comply with applicable regulations, could result in substantial costs to us, including clean-up costs, fines and civil or criminal sanctions, third-party claims for property damage or personal injury, or
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cessation of remediation activities. Our continuing work in the areas governed by these laws and regulations exposes us to the risk of substantial liability.
Weather conditions and seasonal revenue fluctuations could have an adverse impact on our results of operations.
Due primarily to inclement weather conditions, which lead to project delays and slower completion of contracts, and a higher number of holidays, our operating results during December, January, and February are generally lower in comparison to other months. As a result, our revenue and net income for the first and fourth quarters of a fiscal year may be lower than our results for the second and third quarters of a fiscal year. If we were to experience lower-than-expected revenue during any such periods, our expenses may not be offset, which could have an adverse impact on our results of operations.
Catastrophic events may disrupt our business.
Force majeure or extraordinary events beyond the control of the contracting parties, such as natural and man-made disasters as well as terrorist actions, could negatively impact the economies in which we operate by causing the closure of offices, interrupting projects, and forcing the relocation of employees. We typically remain obligated to perform our services after a terrorist action or natural disaster unless the contract contains a force majeure clause that relieves us of our contractual obligations in such an extraordinary event. If we are not able to react quickly to force majeure, our operations may be affected significantly, which would have a negative impact on our financial condition, results of operations, or cash flows.
Further, we rely on our network and third-party infrastructure and enterprise applications, internal technology systems, and our website for our development, marketing, operational, support, hosted services, and sales activities. Despite our implementation of network security measures, we are vulnerable to disruption, infiltration, or failure of these systems or third-party hosted services in the event of a major earthquake, fire, power loss, telecommunications failure, cyber-attack, war, terrorist attack, or other catastrophic event could cause system interruptions, reputational harm, loss of intellectual property, lengthy interruptions in our services, breaches of data security, and loss of critical data and could harm our future operating results.
We have only a limited ability to protect our intellectual property rights, and our failure to protect our intellectual property rights could adversely affect our competitive position.
Our success depends, in part, upon our ability to protect our proprietary information and other intellectual property. We rely principally on trade secrets to protect much of our intellectual property where we do not believe that patent or copyright protection is appropriate or obtainable. However, trade secrets are difficult to protect. Although our employees are subject to confidentiality obligations, this protection may be inadequate to deter or prevent misappropriation of our confidential information. In addition, we may be unable to detect unauthorized use of our intellectual property or otherwise take appropriate steps to enforce our rights. Failure to obtain or maintain trade secret protection would adversely affect our competitive business position. In addition, if we are unable to prevent third parties from infringing or misappropriating our trademarks or other proprietary information, our competitive position could be adversely affected.
We rely on third-party internal and outsourced software to run our critical accounting, project management, and financial information systems. As a result, any sudden loss, disruption, or unexpected costs to maintain these systems could significantly increase our operational expense and disrupt the management of our business operations.
We rely on third-party software to run our critical accounting, project management, and financial information systems. We also depend on our software vendors to provide long-term software maintenance support for our information systems. Software vendors may decide to discontinue further development,
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integration, or long-term software maintenance support for our information systems, in which case we may need to abandon one or more of our current information systems and migrate some or all of our accounting, project management, and financial information to other systems, thus increasing our operational expense as well as disrupting the management of our business operations.
Risks Related to this Offering
Our Chairman, Chief Executive Officer, and President will continue to own a large percentage of our voting stock after this offering, which may allow him to have a significant influence on all matters requiring stockholder approval.
Mr. Dickerson Wright, our Chairman, Chief Executive Officer, and President, will beneficially own approximately 1,821,610 shares, or 50.6% of our common stock on a fully diluted basis (or 48.6% if the underwriters exercise their over-allotment in full), upon completion of this offering. Accordingly, Mr. Wright has the power to influence or control the outcome of important corporate decisions or matters submitted to a vote of our stockholders, including decisions regarding mergers, going private transactions, and other extraordinary transactions, and to influence or control the terms of any of these transactions. Although Mr. Wright owes us and our stockholders certain fiduciary duties as a director and an executive officer, Mr. Wright could take actions to address his own interests, which may be different from those of our other stockholders, including investors in this offering.
There is no existing market for our securities, and we do not know if one will develop to provide you with adequate liquidity.
Immediately prior to this offering, there has been no public market for our securities. An active and liquid public market for our securities may not develop or be sustained after this offering. The price of our securities in any such market may be higher or lower than the price you pay. If you purchase Units in this offering, you will pay a price that was not established in a competitive market. Rather, you will pay the price that we negotiated with the representatives of the underwriters and such price may not be indicative of prices that will prevail in the open market following this offering.
The price of our securities may fluctuate significantly, and you could lose all or part of your investment.
Volatility in the market price of our securities may prevent you from being able to sell your Units, Shares or Warrants at or above the price you paid. The market price of our securities could fluctuate significantly for various reasons, which include, among other things:
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our quarterly or annual earnings or earnings of other companies in our industry; |
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our operating performance and the results of our collection efforts and portfolio performance; |
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the publics reaction to our press releases, our other public announcements and our filings with the Securities and Exchange Commission; |
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changes in earnings estimates or recommendations by research analysts who track our securities or the stocks of other companies in our industry; |
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new laws or regulations or new interpretations of laws or regulations applicable to our business; |
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changes in accounting standards, policies, guidance, interpretations, or principles; |
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changes in general conditions in the U.S. and global economies or financial markets, including those resulting from war, incidents of terrorism, or responses to such events; |
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litigation involving our company or investigations or audits by regulators into the operations of our company or our competitors; and |
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sales of common stock by our directors, executive officers, and significant stockholders. |
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In addition, the stock market can at times, and for extended periods of time, experience extreme price and volume fluctuations. This volatility has a significant impact on the market price of securities issued by many companies, including companies in our industry. The changes frequently appear to occur without regard to the operating performance of these companies. The price of our securities could fluctuate based upon factors that have little or nothing to do with our company, and these fluctuations could materially reduce our stock price.
As an emerging growth company within the meaning of the Securities Act of 1933, as amended (the Securities Act), we will utilize certain modified disclosure requirements, and we cannot be certain whether these reduced requirements will make our securities less attractive to investors .
We are an emerging growth company within the meaning of the rules under the Securities Act. We have in this prospectus utilized, and we plan in future filings with the SEC to continue to utilize, the modified disclosure requirements available to emerging growth companies, including reduced disclosure about our executive compensation and omission of compensation discussion and analysis, and an exemption from the requirement of holding a nonbinding advisory vote on executive compensation. In addition, we will not be subject to certain requirements of Section 404 of the Sarbanes-Oxley Act, including the additional testing of our internal control over financial reporting as may occur when outside auditors attest as to our internal control over financial reporting. As a result, our stockholders may not have access to certain information they may deem important.
We could remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenue exceed $1 billion, (ii) the date that we become a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the Exchange Act), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
Your percentage ownership in us may be diluted by future issuances of capital stock, which could reduce your influence over matters on which stockholders vote.
Following the completion of this offering, our board of directors will have the authority, without action or vote of our stockholders, to issue all or any part of our authorized but unissued Shares, including Shares issuable upon the exercise of options, Shares that may be issued to satisfy our payment obligations under our incentive plans, or Shares of our authorized but unissued preferred stock. Issuances of common stock or voting preferred stock would reduce your influence over matters on which our stockholders vote, and, in the case of issuances of preferred stock, likely would result in your interest in us being subject to the prior rights of holders of that preferred stock.
Conversion of the Nolte Note into common stock could result in additional dilution to our stockholders.
Upon satisfaction of certain conversion conditions and proper conversion of the convertible note held by the seller of the Nolte business (the Nolte Note), we may be required to deliver shares of common stock to the converting holder. The Nolte Note is convertible at any time during the period between the effective date of the registration statement of which this prospectus is a part and the 90th day following such effective date into a number of shares of common stock equal to the principal amount converted divided by the closing price per share of our common stock on the day which is two business days prior to the conversion date. Unless we specifically agree otherwise, the maximum principal amount that may be converted is 25% of the original principal amount of the note, or approximately $834,000. Assuming an initial public offering price of $6.00 per Unit, which is the midpoint of the range set forth on the cover page of this prospectus, we would be required to issue 139,000 shares of common stock upon conversion of the Nolte Note. We have been informed that the converting holder does not intend to convert any portion of the Nolte Note. If the converting holder does choose to convert, we do not intend to permit the holder to convert more than 25% of the original principal amount. If Shares are issued due to conversion of the Nolte Note, the ownership interests of existing stockholders would be diluted.
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The sale of a substantial number of Shares after this offering may cause the market price of our Shares to decline.
Sales of a substantial number of shares of common stock in the public market following this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. The shares of common stock outstanding prior to this offering will be eligible for sale in the public market at various times in the future. All of our directors and executive officers have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, subject to extension in some circumstances, except with the prior written consent of the representatives of the underwriters. Upon expiration of this lock-up period, up to approximately 2,600,000 shares of common stock held by affiliates and others may become eligible for sale, subject to the restrictions under Rule 144 of the Securities Act.
You will incur immediate and substantial dilution in the net tangible book value of your Shares.
If you purchase Units in this offering, the value of your Shares based on our actual book value will immediately be less than the price you paid. This reduction in the value of your equity is known as dilution. This dilution occurs in large part because our existing stockholders paid substantially less than the initial public offering price when they acquired their shares of common stock. Based upon the issuance and sale of 1,000,000 Units by us in this offering at an assumed initial public offering price of $6.00 per Unit, the midpoint of the price range set forth on the cover page of this prospectus, and assuming no value is attributed to the Warrants included in the Units we are offering by this prospectus, you will incur immediate dilution of $4.29 in the net tangible book value per Share. A $1.00 increase or decrease in the assumed initial public offering price of $6.00 per Unit would increase or decrease, as applicable, our as adjusted net tangible book value per Share by $0.26, and increase or decrease, as applicable, the dilution per Share to new investors by $0.74, assuming the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option, or if outstanding options to purchase our common stock are exercised, investors will experience additional dilution. For more information, see Dilution.
We may choose to redeem our outstanding Warrants at a time that is disadvantageous to our Warrant holders.
Subject to there being a current prospectus under the Securities Act with respect to the common stock issuable upon exercise of the Warrants, we may redeem the Warrants issued as a part of the units at any time after the Warrants become exercisable in whole and not in part, at a price of $0.01 per Warrant, upon a minimum of 30 days prior written notice of redemption, if and only if the last sales price of our common stock equals or exceeds $ per Share (which is equal to % of the midpoint of the offering price set forth on the cover page of this prospectus) for any 20-trading-day period ending three business days before we send the notice of redemption. In addition, we may not redeem the Warrants unless the Warrants issued as part of the units sold in this offering and the Shares underlying those Warrants are covered by an effective registration statement from the beginning of the measurement period through the date fixed for the redemption. Redemption of the Warrants could force the Warrant holders to (i) exercise the Warrants and pay the exercise price at a time when it may be disadvantageous for the holders to do so, (ii) sell the Warrants at the then current market price when they might otherwise wish to hold the Warrants, or (iii) accept the nominal redemption price which, at the time the Warrants are called for redemption, is likely to be substantially less than the market value of the Warrants.
Certain Warrant holders are unlikely to receive direct notice of redemption of our Warrants.
We expect most purchasers of our Warrants will hold their securities through one or more intermediaries and consequently those holders are unlikely to receive notice directly from us that the Warrants are being redeemed. If you fail to receive notice of redemption from a third party and your Warrants are redeemed for nominal value, you will not have recourse against us.
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An effective registration statement may not be in place when an investor desires to exercise Warrants, thus precluding such investor from being able to exercise his, her, or its Warrants and causing such Warrants to be practically worthless.
No Warrant held by public stockholders will be exercisable and we will not be obligated to issue shares of common stock unless at the time such holder seeks to exercise such Warrant, a registration statement relating to the common stock issuable upon exercise of the Warrant is effective and current. Under the terms of the Warrant agreement, we have agreed to use our reasonable best efforts to meet these conditions and to maintain a current prospectus relating to the common stock issuable upon exercise of the Warrants until the expiration of the Warrants. However, we cannot assure you that we will be able to do so, and if we do not maintain a current prospectus related to the common stock issuable upon exercise of the Warrants, holders will be unable to exercise their Warrants and we will not be required to settle any such Warrant exercise. If the prospectus relating to the common stock issuable upon the exercise of the Warrants is not current, the Warrants held by public stockholders may have no value, the market for such Warrants may be limited, and such Warrants may expire worthless. Such expiration would result in each holder paying the full unit purchase price solely for the Share underlying the unit. Notwithstanding the foregoing, the Underwriter Warrants may be exercisable for unregistered Shares even if no registration statement relating to the common stock issuable upon exercise of the insider Warrants is effective and current.
An investor will only be able to exercise a Warrant if the issuance of common stock upon such exercise has been registered or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the Warrants.
No Warrants will be exercisable and we will not be obligated to issue shares of common stock unless the common stock issuable upon such exercise has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the Warrants. At the time that the Warrants become exercisable (following the Separation Date), we expect to continue to be listed on a national securities exchange, which would provide an exemption from registration in every state. Accordingly, we believe holders in every state will be able to exercise their Warrants as long as our prospectus relating to the common stock issuable upon exercise of the Warrants is current. However, we cannot assure you of this fact. As a result, the Warrants may be deprived of any value, the market for the Warrants may be limited, and the holders of Warrants may not be able to exercise their Warrants if the common stock issuable upon such exercise is not qualified or exempt from qualification in the jurisdictions in which the holders of the Warrants reside.
We will incur increased costs as a result of being a public company, and the requirements of being a public company may divert management attention from our business.
As a public company, we will be subject to a number of additional requirements, including the reporting and corporate requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act of 2010, the JOBS Act, and the listing standards of the exchange on which our securities are listed. These requirements will cause us to incur increased costs and might place a strain on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and financial condition. In addition, in connection with Section 404(a) of the Sarbanes-Oxley Act, we will need to deliver a report that assesses the effectiveness of our internal control over financial reporting beginning with our Annual Report on Form 10-K for the year ending December 31, 2013, and, in connection with Section 404(b) of the Sarbanes-Oxley Act, our auditors will be required to attest to our internal controls over financial reporting once we no longer qualify as an emerging growth company under the JOBS Act or as a smaller reporting company, as defined in Exchange Act Rule 12b-2. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight will be required. As a result, our managements attention might be diverted from other business concerns, which could have a material adverse effect on our business, prospects, financial condition, and results of operations. Furthermore, we might not be able to retain our independent directors or attract new independent directors for our committees.
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Provisions in our charter documents and the Delaware General Corporation Law could make it more difficult for a third party to acquire us and could discourage a takeover and adversely affect existing stockholders.
Anti-takeover provisions in our certificate of incorporation and bylaws, and in the Delaware General Corporation Law, could diminish the opportunity for stockholders to participate in acquisition proposals at a price above the then-current market price of our common stock. For example, while we have no present plans to issue any preferred stock, our board of directors, without further stockholder approval, will be able to issue Shares of undesignated preferred stock and fix the designation, powers, preferences, and rights and any qualifications, limitations, and restrictions of such class or series, which could adversely affect the voting power of your Shares. In addition, our bylaws will provide for an advance notice procedure for nomination of candidates to our board of directors that could have the effect of delaying, deterring, or preventing a change in control. Further, as a Delaware corporation, we are subject to provisions of the Delaware General Corporation Law regarding business combinations, which can deter attempted takeovers in certain situations. We may, in the future, consider adopting additional anti-takeover measures. The authority of our board of directors to issue undesignated preferred or other capital stock and the anti-takeover provisions of the Delaware General Corporation Law, as well as other current and any future anti-takeover measures adopted by us, may, in certain circumstances, delay, deter, or prevent takeover attempts and other changes in control of our company not approved by our board of directors. See Description of Capital Stock for further information.
We currently do not intend to pay dividends on our shares of Common Stock and, consequently, your only opportunity to achieve a return on your investment is if the price of our shares appreciates.
We do not expect to pay dividends on our shares of common stock in the foreseeable future and intend to use cash to grow our business. The payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as the extent to which our financing arrangements permit the payment of dividends, earnings levels, capital requirements, our overall financial condition, and any other factors deemed relevant by our board of directors. Consequently, your only opportunity to achieve a return on your investment in us will be if the market price of our common stock appreciates.
We will have broad discretion in applying the net proceeds of this offering and may not use those proceeds in ways that will enhance the market value of our common stock.
We have significant flexibility in applying the net proceeds we will receive in this offering. We intend to use the proceeds that we receive from the sale of stock in this offering to pay the expenses of this offering and for general corporate purposes, including the funding of future acquisitions. As part of your investment decision, you will not be able to assess or direct how we apply these net proceeds. If we do not apply these funds effectively, we may lose significant business opportunities. Furthermore, our stock price could decline if the market does not view our use of the net proceeds from this offering favorably.
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This prospectus contains forward-looking statements, which include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation, statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operating results, and future economic performance; and statements of managements goals and objectives and other similar expressions concerning matters that are not historical facts. Words such as may, should, could, would, predicts, potential, continue, expects, anticipates, future, intends, plans, believes, estimates and similar expressions, as well as statements in future tense, identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or managements good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
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our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals; |
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changes in demand from the local and state government and private clients that we serve; |
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general economic conditions, nationally and globally, and their effect on the market for our services; |
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fluctuations in our results of operations; |
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the governments funding and budgetary approval process; |
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the possibility that our contracts may be terminated by our clients; |
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our ability to win new contracts and renew existing contracts; |
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our dependence on a limited number of clients; |
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our ability to successfully execute our mergers and acquisitions strategy, including the integration of new companies into our business; |
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our ability to successfully manage our growth strategy; |
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competitive pressures and trends in our industry and our ability to successfully compete with our competitors; |
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the credit and collection risks associated with our clients; |
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changes in laws, regulations, or policies; |
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the enactment of legislation that could limit the ability of local, state and federal agencies to contract for our privatized services; |
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our ability to complete our backlog of uncompleted projects as currently projected; |
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the risk of employee misconduct or our failure to comply with laws and regulations; |
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our ability to control, and operational issues pertaining to, business activities that we conduct with business partners and other third parties; |
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control by our principal stockholder and the existence of certain anti-takeover measures in our governing documents; and |
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other factors identified throughout this prospectus, including those discussed under the headings Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, and Business. |
Forward-looking statements speak only as of the date the statements are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
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The net proceeds from the sale of the 1,000,000 Units offered by us in this offering will be approximately $4.6 million (or approximately $5.4 million if the underwriters exercise their over-allotment option in full), assuming an initial public offering price of $6.00 per Unit, which is the midpoint of the range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
Each $1.00 increase or decrease in the assumed public offering price of $6.00 per Unit would increase or decrease, as applicable, the aggregate amount of the net proceeds to us by approximately $0.9 million, assuming the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same and, with respect to the net proceeds to us, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, any increase or decrease in the number of Units that we sell in the offering will increase or decrease our net proceeds in proportion to such increase or decrease, as applicable, multiplied by the offering price per Unit, less underwriting discounts and commissions.
We will have broad discretion over the use of the net proceeds in this offering. As of the date of this prospectus, we cannot specify all of the particular uses for the net proceeds from this offering. We currently intend to use the net proceeds to us from this offering primarily for general corporate purposes, including working capital, sales and marketing activities, general and administrative matters and capital expenditures. We may also use a portion of the net proceeds to expand our current business through acquisitions or investments in other complementary strategic businesses. We have no commitments with respect to any acquisitions at this time. To the extent any net proceeds are used to repay any debt obligations, the aggregate outstanding balance of our notes payable as of September 30, 2012 was approximately $8.2 million with interest rates ranging from 3.0% to 5.0%.
We intend to invest the net proceeds in short- and intermediate-term interest-bearing obligations, investment-grade instruments, certificates of deposit or guaranteed obligations of the U.S. government, pending their use as described above.
Some of the other principal purposes of this offering are to create a public market for our securities and increase our visibility in the marketplace. A public market for our securities will facilitate future access to public equity markets and enhance our ability to use our securities as a means of attracting and retaining key employees and as consideration for acquisitions.
We do not anticipate declaring or paying any cash dividends on our common stock following our initial public offering. The payment of any dividends in the future will be at the discretion of our board of directors and will depend upon our financial condition, results of operations, earnings, capital requirements, contractual restrictions, outstanding indebtedness, and other factors deemed relevant by our board of directors. As a result, you will probably need to sell your Units, Shares or Warrants to realize a return on your investment, and you may not be able to sell such securities at or above the price you paid for them.
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The following table sets forth our cash and cash equivalents, total debt, and capitalization as of September 30, 2012:
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on an actual basis; and |
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on an as adjusted basis to reflect our receipt of the net proceeds from our sale of 1,000,000 Units in this offering at an assumed initial public offering price of $6.00 per Unit, the midpoint of the price range set forth on the front cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses. |
You should read this table together with Use of Proceeds, Managements Discussion and Analysis of Financial Condition and Results of Operations, Description of Capital Stock, and our consolidated financial statements and related notes included elsewhere in this prospectus.
As of September 30, 2012 | ||||||||
Actual |
As
Adjusted |
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(In thousands, except share and per share amounts) |
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Cash and cash equivalents |
$ | 1,568 | $ | 6,168 | ||||
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Total debt |
$ | 10,715 | $ | 10,715 | ||||
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Stockholders equity: |
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Undesignated preferred stock: $0.01 par value; 5,000,000 shares authorized, no shares issued and outstanding, actual and as adjusted |
$ | | $ | | ||||
Common stock: $0.01 par value; 45,000,000 shares authorized, 2,549,421 shares issued and outstanding, actual; 45,000,000 Shares authorized, 3,549,421 shares issued and outstanding, as adjusted |
25 | 35 | ||||||
Additional paid-in capital |
8,550 | 13,140 | ||||||
Retained earnings |
1,766 | 1,766 | ||||||
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Total stockholders equity |
10,341 | 14,941 | ||||||
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Total capitalization |
$ | 21,056 | $ | 25,656 | ||||
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A $1.00 increase or decrease in the assumed initial public offering price per Unit would increase or decrease our cash and cash equivalents by approximately $0.9 million, would increase or decrease additional paid-in capital by approximately $0.9 million, and would increase or decrease total stockholders equity and total capitalization by approximately $0.9 million, after deducting estimated underwriting discounts and commissions and the estimated offering expenses payable by us. Similarly, any increase or decrease in the number of Units that we sell in the offering will increase or decrease our net proceeds by such increase or decrease, as applicable, multiplied by the offering price per Unit, less underwriting discounts and commissions.
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The difference between the public offering price per Share, assuming no value is attributed to the Warrants included in the Units we are offering by this prospectus, and the pro forma net tangible book value per Share after this offering constitutes the dilution to investors in this offering. Such calculation does not reflect any dilution associated with the sale and exercise of Warrants. Net tangible book value per Share is determined by dividing our net tangible book value, which is our total tangible assets less total liabilities (including the value of common stock that may be converted into cash), by the number of outstanding shares of common stock.
As of September 30, 2012, our net tangible book value was $1.47 million, or $0.58 per share. Net tangible book value per Share represents the amount of our total tangible assets reduced by our total liabilities, divided by the number of shares of common stock outstanding as of September 30, 2012.
After giving effect to the sale of 1,000,000 Units in the offering at an initial public offering price of $6.00 per Unit, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses, our adjusted net tangible book value as of September 30, 2012 would have been $6.1 million, or $1.71 per Share. This represents an immediate increase in net tangible book value of $1.13 per share to existing stockholders and an immediate dilution of $4.29 per Share to new investors purchasing Units in the offering.
The following table illustrates this per share dilution:
Assumed initial public offering price per Unit |
$ | 6.00 | ||||||
Net tangible book value per Share as of September 30, 2012 |
$ | 0.58 | ||||||
Increase per Share attributable to new investors |
1.13 | |||||||
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As adjusted net tangible book value per Share after this offering |
1.71 | |||||||
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Dilution per Share to new investors |
$ | 4.29 | ||||||
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Our as adjusted net tangible book value will be $6.9 million, or $1.87 per Share, and the dilution per Share to new investors will be $4.13, if the underwriters over-allotment option is exercised in full.
A $1.00 increase or decrease in the assumed initial public offering price of $6.00 per Unit, which is the midpoint of the price range set forth on the cover page of the prospectus, would increase or decrease, as applicable, our as adjusted net tangible book value per Share by $0.26, and increase or decrease, as applicable, the dilution per Share to new investors by $0.74, assuming the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, any increase or decrease in the number of Units that we sell in the offering will increase or decrease our net proceeds in proportion to such increase or decrease, as applicable, multiplied by the offering price per Unit, less underwriting discounts and commissions and offering expenses.
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The following table sets forth, as of September 30, 2012, on the as adjusted basis described above, the differences between our existing stockholders and new investors with respect to the total number of Units purchased from us, the total consideration paid, and the average price per Unit paid before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, at an assumed initial public offering price of $6.00 per Unit, which is the midpoint of the range set forth on the cover page of this prospectus:
Shares Purchased | Total Consideration |
Average Price
Per Share |
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Number | Percent | Amount | Percent | |||||||||||||||||
Existing stockholders |
2,549,421 | 72 | % | $ | 4,316,816 | 42 | % | $ | 1.69 | |||||||||||
New investors |
1,000,000 | 28 | 6,000,000 | 58 | 6.00 | |||||||||||||||
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Total |
3,549,421 | 100 | % | $ | 10,316,816 | 100 | % | $ | 2.91 | |||||||||||
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A $1.00 increase or decrease in the assumed initial public offering price of $6.00 per Unit would increase or decrease, as applicable, total consideration paid by new investors, total consideration paid by all stockholders, and average price per share paid by all stockholders by $1.0 million, $1.0 million, and $0.28, respectively, assuming the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same. Similarly, any increase or decrease in the number of Units that we sell in the offering will increase or decrease our net proceeds in proportion to such increase or decrease, as applicable, multiplied by the offering price per Unit, less underwriting discounts and commissions.
If the underwriters over-allotment option is exercised in full, the number of shares of common stock held by our existing stockholders after this offering would be 2,549,421, or 69%, and the number of Shares held by new investors would increase to 1,150,000, or 31%, of the total number of shares of common stock outstanding after this offering.
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MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this prospectus. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in Risk Factors and Forward-Looking Statements.
Overview
We are an independently-owned provider of professional and technical engineering and consulting solutions to public and private sector clients. We focus on the infrastructure, construction, real estate, and environmental markets. The scope of our projects includes planning, design, consulting, permitting, inspection and field supervision, and management oversight. We also provide forensic engineering, litigation support, condition assessment, and compliance certification. Our primary clients include U.S. federal, state, municipal, and local governments; military and defense clients; and public agencies. We also serve quasi-public and private sector clients from the education, healthcare, energy, and utilities fields, including schools, universities, hospitals, health care providers, insurance providers, large utility service providers, and large and small energy producers.
We conduct our operations through two primary operating subsidiaries: (i) Nolte, which began operations in 1949 and was incorporated as a California corporation in 1957, and (ii) NV5, which was incorporated as a Delaware corporation in 2009. In March 2010, NV5 acquired the construction quality assurance operations of Bureau Veritas North America, Inc. In August 2010, NV5 acquired a majority of the outstanding shares of Nolte and succeeded to substantially all of Noltes business. Because NV5s business prior to the Nolte acquisition was insignificant, Nolte is considered to be our historical accounting predecessor for financial statement reporting purposes. In October 2011, NV5 and Nolte completed a reorganization transaction in which NV5 Holdings was incorporated as a Delaware corporation, acquired all of the outstanding shares of NV5 and Nolte, and, as a result, became the holding company under which NV5 and Nolte conduct operations.
On July 27, 2012, we acquired certain assets and assumed certain liabilities of Kaco, a 30-person engineering firm headquartered in Miami, Florida. Kaco commenced operations in 1984 and its development and engineering teams have worked on projects in South Florida, the Caribbean, and Central America during the last twenty five years. The purchase price was of $3.5 million, consisting of $1.0 million in cash, a note in the aggregate principal amount of $2.0 million payable over three years, and 69,330 shares of common stock with an agreed value of $7.21 per share.
Key Trends, Developments and Challenges
Shift in service mix . We group our capabilities into five core vertical service offerings. Historically, we have concentrated on the verticals of infrastructure, engineering, and support services and construction and quality assurance. We believe, however, that further development of three service offerings - public and private consulting and outsourcing, asset management consulting, and occupational, health, safety, and environmental consulting - will become increasingly important to our business as we continue to grow through both organic expansion and strategic acquisitions. Revenues derived from these three types of services offerings are mostly generated under cost-reimbursable contacts. The methods of billing for these three services are expected to include both time and materials or cost-plus basis.
Tax credit dispute . In 2011, the California Franchise Tax Board initiated an examination of Noltes state tax filings and raised various questions about approximately $0.7 million of research and development tax credits
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generated and included on Noltes tax returns for the years 2005-2010. We responded to these inquiries, but in the fourth quarter of 2012, the California Franchise Tax Board denied these credits in full.
We are vigorously defending Noltes position and believe it has appropriate documentation to support the credits in full. Accordingly, we have not recorded a liability for uncertain tax benefits related to these state or federal research and development credits. Nolte has appealed the ruling and engaged a specialist firm to assist with the appeal.
Components of Income and Expense
Contract Revenues
We enter into contracts with our clients that contain two principal types of pricing provisions: cost-reimbursable and fixed-price. The majority of our contracts are cost-reimbursable contracts that fall under the relatively low-risk subcategory of time and materials contracts.
Cost-reimbursable contracts . Cost-reimbursable contracts consist of two similar contract types: time and materials contracts and cost-plus contracts.
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Time and materials contracts are common for smaller scale professional and technical consulting and certification services projects. Under these types of contracts, there is no predetermined fee. Instead, we negotiate hourly billing rates and charge our clients based upon actual hours expended on a project. In addition, any direct project expenditures are passed through to the client and are typically reimbursed. These contracts may have a fixed-price element in the form of an initial not-to-exceed or guaranteed maximum price provision. |
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Cost-plus contracts are the predominant contracting method used by U.S. federal, state, and local governments. These contracts provide for reimbursement of the actual costs and overhead (predetermined rates) we incur, plus a predetermined fee. Under some cost-plus contracts, our fee may be based on quality, schedule, and other performance factors. |
For the nine months ended September 30, 2012 and fiscal year 2011, cost-reimbursable contracts represented approximately 93% and 89%, respectively, of our total revenue.
Fixed-price contracts . Fixed-price contracts also consist of two contract types: lump-sum contracts and fixed-unit price contracts.
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Lump-sum contracts typically require the performance of all of the work under the contract for a specified lump-sum fee, subject to price adjustments if the scope of the project changes or unforeseen conditions arise. Many of our lump-sum contracts are negotiated and arise in the design of projects with a specified scope and project deliverables. |
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Fixed-unit price contracts typically require the performance of an estimated number of units of work at an agreed price per unit, with the total payment under the contract determined by the actual number of units performed. |
For the nine months ended September 30, 2012 and fiscal year 2011, fixed-price contracts represented approximately 7% and 11%, respectively, of our total revenue.
Revenues from engineering services are recognized when services are performed and the revenues are earned in accordance with the accrual basis of accounting. Revenues from long-term contracts are recognized on the percentage-of-completion method, generally measured by the direct costs incurred to date as compared to the estimated total direct costs for each contract. See Critical Accounting Policies and Estimates Revenue Recognition.
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Direct Costs of Contract Revenue
Direct costs of contract revenue consist primarily of that portion of technical and nontechnical salaries and wages incurred in connection with fee generating projects. Direct costs of contract revenue also include production expenses, subconsultant services, and other expenses that are incurred in connection with our fee generating projects. Direct costs of contract revenue exclude that portion of technical and nontechnical salaries and wages related to marketing efforts, vacations, holidays, and other time not spent directly generating fees under existing contracts. Such costs are included in operating expenses. Additionally, payroll taxes, bonuses, and employee benefit costs for all of our personnel, facilities costs, and depreciation and amortization are included in operating expenses since no allocation of these costs is made to direct costs of contract revenue. We expense direct costs of contract revenue when incurred.
Operating Expenses
Operating expenses include the costs of the marketing and support staffs, other marketing expenses, management and administrative personnel costs, payroll taxes, bonuses and employee benefits for all of our employees and the portion of salaries and wages not allocated to direct costs of contract revenues for those employees who provide our services. Operating expenses also include facility costs, depreciation and amortization, professional services, legal and accounting fees and administrative operating costs. We expense operating costs when incurred.
Factors Affecting Comparability
We have set forth below selected factors that we believe have had, or can be expected to have, a significant effect on the comparability of recent or future results of operations:
Nolte Acquisition and NV5 Holdings Reorganization
In August 2010, NV5 entered into a stock purchase agreement with Nolte, pursuant to which NV5 purchased a majority of the outstanding shares of Nolte common stock and Nolte became a majority-owned subsidiary of NV5. In October 2011, NV5 and Nolte completed a reorganization transaction in which NV5 Holdings was incorporated as a Delaware corporation, acquired all of the outstanding shares of NV5 and Nolte and, as a result, became the holding company under which NV5 and Nolte conduct operations.
Nolte is considered to be our historical accounting predecessor for financial statement reporting purposes, as NV5s business prior to the Nolte acquisition was insignificant and NV5 succeeded to substantially all of the business of Nolte as part of the Nolte acquisition. Nolte previously reported its financial results for the 52/53 week period ending on the Thursday closest to September 30. References to the period from October 2, 2009 to August 3, 2010 refer to the results of operations and cash flows of Nolte for the period that began on October 2, 2009, the first day of Noltes fiscal year, and ended August 3, 2010, the date of acquisition. The successor consolidated financial statements for the year ended December 31, 2010 include the results of Nolte for the period from the acquisition date to December 31, 2010.
Kaco Acquisition
On July 27, 2012, we acquired certain assets and assumed certain liabilities of Kaco, a 30-person engineering firm headquartered in Miami, Florida. Kaco commenced operations in 1984 and its development and engineering teams have worked on projects in South Florida, the Caribbean, and Central America during the last twenty five years. The purchase price was of $3.5 million, consisting of $1.0 million in cash, a note in principal amount of $2.0 million payable over three years, and 69,330 shares of common stock with an agreed value of $7.21 per share.
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Public Company Expenses
Upon consummation of our initial public offering, we will become a public company. We also intend to apply to list our securities on the Nasdaq Capital Market. As a result, we will need to comply with laws, regulations, and requirements that we did not need to comply with as a private company, including certain provisions of the Sarbanes-Oxley Act and related Securities and Exchange Commission regulations, and will need to comply with the requirements of Nasdaq if our securities approved for listing. Compliance with the requirements of being a public company will require us to increase our operating expenses in order to pay our employees, legal counsel, and accountants to assist us in, among other things, external reporting, instituting, and monitoring a more comprehensive compliance and board governance function, establishing and maintaining internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, and preparing and distributing periodic public reports in compliance with our obligations under the federal securities laws. In addition, being a public company will make it more expensive for us to obtain director and officer liability insurance. We estimate that incremental annual public company costs will be between $0.5 million and $1.0 million.
Stock-Based Compensation
In 2010, prior to the inception of our 2011 Equity Incentive Plan (as amended, the 2011 Equity Plan), we issued 377,104 restricted shares of common stock to management and employees with an aggregate deferred compensation amount of approximately $765,000. Each award is service based, and vests after five years or upon certain other events, subject to each award agreement. The fair value of these Shares was calculated based on the estimated fair value of our equity as of the grant date, which was approximately $2.03 per Share. Total stock-based compensation cost recognized for the years ended December 31, 2011 and 2010 was $153,000 and $64,000, respectively.
The 2011 Equity Incentive plan was initially approved in October 2011 and subsequently amended and restated in March 2013. A total of 554,658 shares of common stock is authorized and reserved for issuance under the 2011 Equity Plan. This reserve automatically increases on each January 1 from 2014 through 2023, by an amount equal to the smaller of (i) 3.5% of the number of shares issued and outstanding on the immediately preceding December 31, or (ii) an amount determined by our board of directors. The 2011 Equity Plan is intended to make available incentives that will assist us to attract, retain, and motivate employees, officers, consultants, and directors by allowing them to acquire an ownership interest in our business, and, as a result, encouraging them to contribute to our success. We may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units, and other cash-based or stock-based awards. As a result, we expect to incur material non-cash, stock-based compensation expenses in future periods. During 2011, no equity awards were granted under the 2011 Equity Plan.
During April 2012, we granted from the 2011 Equity Plan 38,270 restricted shares of common stock to management and employees of which 347 shares were forfeited during this period with an aggregate deferred compensation amount of approximately $273,500. The fair value of these shares is based on the estimated fair value of our equity as of the grant date, which was estimated at $7.21 per share. These awards provide for service based vesting after three years.
Share-based compensation expense relating to restricted stock awards during the nine months ended September 30, 2012 and 2011 was approximately $152,000 and $115,000, respectively. As of September 30, 2012, no Shares have vested since the Plan inception, and approximately $669,000 of deferred compensation is unrecognized at September 30, 2012 which expected to be recognized over the next 3.75 years.
Except as described above, prior to this offering, we have not granted or issued any stock-based compensation.
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Operating Expenses
In August 2011, we hired a new Chief Financial Officer and expect to hire additional financial and accounting personnel in connection with our change in status to a publicly traded company. Accordingly, we expect compensation expenses, as reflected in operating expenses, will be higher in future periods.
Internal Control Over Financial Reporting
During the audit of our fiscal year 2011 financial statements, our independent registered public accounting firm identified a material weakness in our internal control over financial reporting, as defined under the standards of the Public Company Accounting Oversight Board. The weakness was noted in our process surrounding the reconciliation and review of certain general ledger account balances related to our recent acquisition of Nolte, which resulted in material adjustments to the fiscal year 2011 financial statements that were detected by their audit procedures. The nature of the material adjustments was to record additional depreciation expense relating to tenant improvements for several offices leases and record additional incurred but not reported legal reserve.
We believe the material weakness noted was specific in nature. During the latter part of fiscal 2011 and into fiscal 2012, we implemented several significant changes and improvements in our internal control over financial reporting to address and remediate the control deficiencies that led to the material weaknesses in internal controls. Specifically, these changes included:
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hiring a new Chief Financial Officer with experience managing and working in the corporate accounting department of a publicly traded company; |
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hiring additional accounting personnel; |
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formalizing the monthly closing process at Nolte, including the implementation of a formal closing schedule, standard month-end closing entries, and reviews; and |
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formalizing the monthly account reconciliation process and training for balance sheet accounts. |
Management continues to review and assess our internal controls to ensure we have adequate internal financial and accounting controls. We believe the measures we have taken to date have remediated these material weaknesses or potential future material weaknesses. However, any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, and cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations (and, once we no longer qualify as an emerging growth company under the JOBS Act or a smaller reporting company as defined under related Securities and Exchange Commission rules, annual audit attestation reports) regarding the effectiveness of our internal control over financial reporting that will be required under the Sarbanes-Oxley Act with respect to annual reports that we will file as a public company. The existence of a material weakness could result in errors in our financial statements that could cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.
Jumpstart Our Business Startups Act of 2012
We are an emerging growth company within the meaning of the rules under the Securities Act, and we will utilize certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies. For example, we will not have to provide an auditors attestation report on our internal controls in future annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act. The JOBS Act also permits us, as an emerging growth company, to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to opt out of this provision and, as a result, we will comply with new or revised accounting standards
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when they are required to be adopted by issuers. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
Critical Accounting Policies and Estimates
The discussion of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with U.S. GAAP. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions, including those discussed below. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our financial statements. Our estimates and assumptions are evaluated periodically and adjusted when necessary. The more significant estimates affecting amounts reported in our consolidated financial statements relate to the revenue recognition on the percentage-of-completion method, reserves for professional liability claims, allowances for doubtful accounts, and valuation of our intangible assets.
We believe that the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our financial statements. For further information on all of our significant policies, see Note 2 to our consolidated financial statements included elsewhere in this prospectus.
Revenue Recognition
Revenue from engineering services is recognized when services are performed and the revenue is earned in accordance with the accrual basis of accounting. Revenues from long-term contracts are recognized on the percentage-of-completion method, generally measured by the direct costs incurred to date as compared to the estimated total direct costs for each contract. We include other direct costs (for example, third-party field labor, subcontractors, or the procurement of materials or equipment) in contract revenues and cost of revenue when the costs of these items are incurred and we are responsible for the ultimate acceptability of such costs. Recognition of revenue under this method is dependent upon the accuracy of a variety of estimates, including engineering progress, materials quantities, achievement of milestones, labor productivity, and cost estimates. Due to uncertainties inherent in the estimation process, it is possible that actual completion costs may vary from estimates.
If estimated total costs on contracts indicate a loss or reduction to percentage of revenue recognized to date, these losses or reductions are recognized in the period in which the revisions are determined. The cumulative effect of revisions to revenues, estimated costs to complete contracts, including penalties, incentive awards, change orders, claims, anticipated losses and others are recorded in the period in which the revisions are identified and the loss can be reasonably estimated. Such revisions could occur in any reporting period and the effects on the results of operation for that reporting period may be material depending on the size of the project or the adjustment.
Change orders and claims typically result from changes in scope, specifications or design, performance, materials, sites, or period of completion. Costs related to change orders and claims are recognized when incurred. Change orders are included in total estimated contract revenue when it is probable that the change order will result in an addition to the contract value and can be reliably estimated.
Federal Acquisition Regulations (FAR), which are applicable to our federal government contracts and may be incorporated in local and state agency contracts, limit the recovery of certain specified indirect costs on contracts. Cost-plus contracts covered by FAR or with certain state and local agencies also may require an audit
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of actual costs and provide for upward or downward adjustments if actual recoverable costs differ from billed recoverable costs.
Unbilled work results when the appropriate contract revenue amount has been recognized in accordance with the percentage-of-completion accounting method, but a portion of the revenue recorded cannot be billed currently due to the billing terms defined in the contract. The liability Billings in excess of costs and estimated earnings on uncompleted contracts represents billings in excess of contract revenues recognized on these contracts.
Professional Liability Expense
We maintain insurance for business risks, including professional liability. For professional liability risks, our retention amount under our claims-made insurance policies includes an accrual for claims incurred but not reported for any potential liability, including any legal expenses, to be incurred for such claims if they occur. Our accruals are based upon historical expense and managements judgment. We maintain insurance coverage for various aspects of our business and operations; however, we have elected to retain a portion of losses that may occur through the use of deductibles, limits and retentions under our insurance programs. Our insurance coverage may subject us to some future liability for which we are only partially insured or are completely uninsured. Management believes its estimated accrual for errors, omissions, and professional liability claims is sufficient and any additional liability over amounts accrued is not expected to have a material adverse effect on our results of operations or financial position.
Allowance for Doubtful Accounts
We record receivables net of an allowance for doubtful accounts. The allowance is estimated based on managements evaluation of the contracts involved and the financial condition of clients. Factors considered include, among other things, client type (federal government or private client), historical performance, historical collection trends, and general economic conditions. The allowance is increased by our provision for doubtful accounts, which is charged against income. All recoveries on receivables previously charged off are credited to the accounts receivable recovery account included in income, while direct charge-offs of receivables are deducted from the allowance.
Goodwill and Related Intangible Assets
Goodwill is the excess cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. To determine the amount of goodwill resulting from a business combination, the Company performs an assessment to determine the fair value of the acquired companys tangible and identifiable assets and liabilities. Our goodwill is allocated to the appropriate reporting unit, which is one level below our operating segments.
Goodwill is required to be evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the asset may be impaired. An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. These qualitative factors include: macroeconomic and industry conditions, cost factors, overall financial performance and other relevant entity-specific events. If the entity determines that this threshold is not met, then performing the two-step quantitative impairment test is unnecessary. The two-step impairment test requires a comparison of the carrying value of the assets and liabilities associated with a reporting unit, including goodwill, with the fair value of the reporting unit. The Company determines fair value through multiple valuation techniques. We are required to make certain subjective and complex judgments in assessing whether an event of impairment of goodwill has occurred, including assumptions and estimates used to determine the fair value of our reporting units. If the carrying value of the assets and liabilities exceeds the fair value of the reporting unit, the Company would calculate the implied
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fair value of its reporting unit goodwill as compared to the carrying value of its reporting unit goodwill to determine the appropriate impairment charge, if any. We have elected to perform our annual goodwill impairment review on August 1 of each year. On August 1, 2012, we conducted our annual impairment test on the goodwill associated with the acquisition of Nolte using the quantitative method of evaluating goodwill. Based on this quantitative analysis we determined the fair value of this reporting unit exceeded the carrying value of this reporting unit therefore the goodwill was not impaired and the Company has not recognized an impairment charge relating to goodwill during the nine months ended September 30, 2012. In the third quarter of 2011, we conducted the annual impairment test using the qualitative method by assessing various factors and determined that there was no existence of events or circumstances that indicate it is more likely than not that the fair value of the reporting unit was less than its carrying value. Therefore, performing the two-step quantitative impairment test was not necessary for the nine months ended September 30, 2011 and fiscal year 2011 thus the Company did not recognize an impairment charge relating to goodwill during the nine months ended September 30, 2011 and fiscal year 2011.
Identifiable intangible assets may include backlog, customer relationships, patents, trademarks, tradenames, and other finite-lived assets. Backlog includes: with respect to government contracts, only those amounts that have been funded and authorized and does not reflect the full amounts we may receive over the term of such contracts; with respect to non-government contracts, future revenue at contract rates, excluding contract renewals or extensions that are at the discretion of the client; and, with respect to contracts with a not-to-exceed maximum amount, revenue from such contracts to the extent of the remaining estimated amount. Amortizable intangible assets are amortized over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the assets may be impaired. If an indicator of impairment exists, we compare the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment is measured as the difference between fair value and carrying value, with fair value typically based on a discounted cash flow model. We did not recognize an impairment charge relating to amortizable intangible assets during the nine months ended September 30, 2012 and fiscal year 2011.
Income Taxes
We account for income taxes in accordance with ASC Topic No. 740 Income Taxes (Topic No. 740). Deferred income taxes for September 30, 2012, December 31, 2011 and 2010 reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. A valuation allowance against our deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining the need for a valuation allowance, management is required to make assumptions and to apply judgment, including forecasting future earnings, taxable income, and the mix of earnings in the jurisdictions in which we operate. Management periodically assesses the need for a valuation allowance based on our current and anticipated results of operations. The need for and the amount of a valuation allowance can change in the near term if operating results and projections change significantly.
As required by the uncertain tax position guidance, we recognize the consolidated financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. We applied the uncertain tax position guidance to all tax positions for which the statute of limitations remained open. As of September 30, 2012 and December 31, 2011, we did not have any material uncertain tax positions.
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Results of Operations
The following table represents our income from operations for the periods indicated (in thousands):
Pro Forma Year
Ended
December 31, |
Year Ended December 31, |
Nine-Months
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2010 (2) | 2010 (1) | 2011 | 2011 | 2012 | ||||||||||||||||||||||||||||||||||||
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Gross contract revenues |
$ | 64,660 | 100.0 | % | $ | 32,098 | 100.0 | % | $ | 63,366 | 100.0 | % | $ | 48,516 | 100.0 | % | $ | 45,486 | 100.0 | % | ||||||||||||||||||||
Direct costs |
31,987 | 49.5 | % | 15,866 | 49.4 | % | 30,948 | 48.8 | % | 23,299 | 48.0 | % | 21,672 | 47.7 | % | |||||||||||||||||||||||||
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Gross profit |
32,673 | 50.5 | % | 16,232 | 50.6 | % | 32,418 | 51.2 | % | 25,217 | 52.0 | % | 23,814 | 52.3 | % | |||||||||||||||||||||||||
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Operating expenses |
32,166 | 9.7 | % | 15,947 | 49.7 | % | 29,690 | 46.9 | % | 22,752 | 46.9 | % | 22,345 | 49.1 | % | |||||||||||||||||||||||||
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Income (loss) from continuing operations |
507 | 0.8 | % | 285 | 0.9 | % | 2,728 | 4.3 | % | 2,465 | 5.1 | % | 1,469 | 3.2 | % | |||||||||||||||||||||||||
Other expense |
(389 | ) | (0.6 | %) | (259 | ) | (0.8 | %) | (376 | ) | (0.6 | %) | (308 | ) | (0.6 | %) | (275 | ) | (0.6 | %) | ||||||||||||||||||||
Income tax (expense) benefit |
16 | 0.0 | % | (132 | ) | (0.4 | %) | (436 | ) | (0.7 | %) | (403 | ) | (0.8 | %) | (413 | ) | (0.9 | %) | |||||||||||||||||||||
Discontinued operations, net |
(264 | ) | (0.4 | %) | 35 | 0.1 | % | 33 | 0.0 | % | 33 | | % | | 0.0 | % | ||||||||||||||||||||||||
Non-controlling interest |
(80 | ) | (0.1 | %) | (104 | ) | (0.3 | %) | (530 | ) | (0.8 | %) | (530 | ) | (1.1 | %) | | 0.0 | % | |||||||||||||||||||||
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Net income (loss) |
$ | (210 | ) | (0.3 | %) | $ | (175 | ) | (0.5 | %) | $ | 1,419 | 2.2 | % | $ | 1,257 | 2.6 | % | $ | 781 | 1.7 | % | ||||||||||||||||||
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(1) | Reflects our actual results of operations, including the results of operations of Bureau Veritas North America, Inc. and Nolte from the dates of acquisition in March and August 2010, respectively. |
(2) | Represents pro forma results of operations assuming the Nolte acquisition occurred on January 1, 2010. |
Nine-months ended September 30, 2012 compared to nine months ended September 30, 2011
Gross contract revenues . Our contract revenues decreased approximately $3.0 million for the nine months ended September 30, 2012 compared to the same period in 2011. The decrease in revenues is primarily due to the completion of certain large projects during 2011 and delays in new projects in our infrastructure, engineering, and support services, partially offset by revenues generated from July 28, 2012 through September 30, 2012 of approximately $0.8 million due to acquisition of Kaco. Although we are currently unaware of continuing delays in current projects and therefore are not anticipating such to influence future revenues, such revenues could be affected by changes in economic conditions and the impact thereof on our public and quasi-public sector funded projects.
Direct costs . Our direct costs decreased approximately $1.6 million for the nine months ended September 30, 2012 compared to the same period in 2011. The decrease in direct costs is a result of lower direct labor and subcontractor costs due to the completion of certain projects during the nine months ended September 30, 2011 that were not replaced during the nine months ended September 30, 2012. Direct costs of contracts include all costs incurred in connection with and directly for the benefit of client contracts. The level of direct costs of contracts may fluctuate between reporting periods due to a variety of factors including the amount of sub-consultant costs we incur during a period. On those projects where we are responsible for subcontract labor or third-party materials and equipment, we reflect the amounts of such items in both revenues and costs. To the extent that we incur a significant amount of pass-through costs in a period, our direct cost of contracts are likely to increase as well.
As a percentage of revenues, direct costs of contracts were 47.7% for the nine months ended September 30, 2012 compared to 48.0% for the nine months ended September 30, 2011. The relationship between direct costs of contracts and revenues will fluctuate between reporting periods depending on a variety of factors including the mix of business during the reporting periods being compared as well as the level of margins earned from the various types of services provided. Revenues from sub-consultant costs typically have lower margin rates associated with them, it is not unusual for us to experience an increase or decrease in such revenues without experiencing a corresponding increase or decrease in our gross margins and operating profit.
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Operating expenses . Our operating expenses decreased approximately $0.4 million for the nine months ended September 30, 2012 compared to the same period in 2011. The decrease in operating expenses was due primarily to lower professional and legal expenditures during the nine months ended September 30, 2012 compared to the same period in 2011. Operating expenses include the costs of the marketing and support staffs, other marketing expenses, management and administrative personnel costs, payroll taxes, bonuses and employee benefits for all of our employees and the portion of salaries and wages not allocated to direct costs of contract revenues for those employees who provide our services. Operating expenses also include facility costs, depreciation and amortization, professional services, legal and accounting fees, and administrative operating costs. We expense operating costs when incurred. Operating expenses typically fluctuate as a result of changes in headcount (both corporate and field locations) and the amount of spending required to support our professional services activities, which normally require additional overhead costs. Therefore, when our professional services revenues increase or decrease, it is not unusual to see a corresponding change in operating expenses.
Income taxes. Our consolidated effective income tax rate was 34.6% for the nine months ended September 30, 2012. The reduction in the effective tax rate compared to the combined statutory federal and state tax rate of 39.0% is due to the domestic production activities deduction. In January 2013, the federal government extended research and development tax credits for years 2012 and 2013. Accordingly, we will recognize the benefits for 2012 research and development credits in 2013. Our consolidated effective income tax rate was 18.7% for the nine months ended September 30, 2011. The reduction in the effective tax rate compared to the combined statutory federal and state tax rate of 39.0% is due to the domestic production activities deduction and other tax credits that were available during 2011.
Year ended December 31, 2011 compared to year ended December 31, 2010
Gross contract revenues . Our contract revenues increased approximately $31.3 million for the year ended December 31, 2011 compared to the year ended December 31, 2010. The increase in revenues is primarily due to the acquisition of Nolte in August 2010. Although we are currently unaware of continuing delays in current projects and therefore are not anticipating such to influence future revenues, such revenues could be affected by changes in economic conditions and the impact thereof on our public and quasi-public sector funded projects.
Direct costs . Our direct costs increased approximately $15.1 million for the year ended December 31, 2011 compared to the year ended December 31, 2010. The increase in direct costs is primarily due to the acquisition of Nolte in August 2010. As a percentage of revenues, direct costs of contracts were 48.8% for the year ended December 31, 2011 compared to 49.4% for the year ended December 31, 2010.
Operating expenses . Our operating expenses increased approximately $13.7 million for the year ended December 31, 2011 compared to the year ended December 31, 2010. The increase in operating expenses was primarily due to the acquisition of Nolte in August 2010.
Other expenses . Our other expenses increased approximately $0.1 million for the year ended December 31, 2011 compared to the year ended December 31, 2010. This increase was primarily attributable to increased interest expense as a result of the acquisition of Nolte in August 2010.
Income taxes. Our consolidated effective income tax rate was 18.5% for the year ended December 31, 2011. The reduction in the effective tax rate compared to the combined statutory federal and state tax rate of 39.0% is due to the domestic production activities deduction and other tax credits. For the year ended December 31, 2010, we had a net tax benefit due the domestic production activities deduction and other tax credits.
Year ended December 31, 2011 compared to the pro forma year ended December 31, 2010
The following discussion contained herein is based on results from our fiscal year ended December 31, 2011 results compared to results from our unaudited pro forma year ended December 31, 2010 (which assumes the Nolte acquisition occurred on January 1, 2010). The unaudited pro forma condensed consolidated statement of
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operations is presented for illustration purposes only and does not necessarily indicate the operating results that would have been achieved if the Nolte acquisition had occurred at the beginning of the period presented, nor is it indicative of future operating results. The unaudited pro forma condensed consolidated statement of operations should be read in conjunction with our historical consolidated financial statements and accompanying notes included in this prospectus.
Gross contract revenues . Our contract revenues decreased approximately $1.3 million for the year ended December 31, 2011 compared to the pro forma year ended December 31, 2010. The decrease in revenues is primarily due to the completion of certain large projects and delays in new projects in our infrastructure, engineering, and support services.
Direct costs . Our direct costs decreased approximately $1.0 million for the year ended December 31, 2011 compared to the pro forma year ended December 31, 2010. The decrease in direct costs is due primarily to a reduction in staff during fiscal year 2011 as a result of the completion of certain projects.
As a percentage of revenues, direct costs of contracts were 48.8% for the year ended December 31, 2011 compared to 49.5% for the pro forma year ended December 31, 2010. The decrease in direct costs is primarily due to the reduction in the use of sub-consultants to perform services for our clients.
Operating expenses . Our operating expenses decreased approximately $2.5 million for the year ended December 31, 2011 compared to the pro forma year ended December 31, 2010. The decrease in operating expenses was due primarily to reductions in workforce as a result of the completion of certain projects and reductions from facilities closures and/or modifications.
Income taxes. Our consolidated effective income tax rate was 18.5% for the year ended December 31, 2011. The reduction in the effective tax rate compared to the combined statutory federal and state tax rate of 39.0% is due to the domestic production activities deduction and other tax credits. For the pro forma year ended December 31, 2010, we had a net tax benefit due the domestic production activities deduction and other tax credits.
Period October 2, 2009 to August 3, 2010 (Predecessor Nolte)
Gross contract revenues . Nolte for the period October 2, 2009 to August 3, 2010 generated approximately $43.5 million in gross contract revenues from infrastructure, engineering, and support services.
Direct costs . Noltes direct costs of approximately $20.7 million for the period October 2, 2009 to August 3, 2010 include all costs incurred in connection with and directly for the benefit of client contracts.
As a percentage of revenues, direct costs of contracts were 47.5% for the period October 2, 2009 to August 3, 2010.
Operating expenses . Operating expenses for the period October 2, 2009 to August 3, 2010 was approximately $22.8 million.
Income taxes. For the period October 2, 2009 to August 3, 2010, Nolte had a net tax benefit due the domestic production activities deduction and other tax credits.
Liquidity and Capital Resources
Our principal sources of liquidity are our cash and cash equivalents balances, cash flow from operations, and access to financial markets. Our principal uses of cash are operating expenses, working capital requirements, capital expenditures, repayment of debt, and acquisition and restructuring expenditures. We believe our sources
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of liquidity, including cash flow from operations, existing cash, and cash equivalents, and borrowing capacity under our credit facilities will be sufficient to meet our projected cash requirements, including with respect to both the increased operating expenses we expect to incur in connection with being a public company and in connection with the additional financial and accounting personnel we have hired or will hire in connection with our change in status to a publicly traded company and our planned strategic acquisition activity, for at least the next 12 months and will monitor our capital requirements thereafter to ensure our needs are in line with available capital resources.
We believe our experienced employees and management team are our most valuable resources. Attracting, training, and retaining key personnel have been and will remain critical to our success. To achieve our human capital goals, we intend to remain focused on providing our personnel with entrepreneurial opportunities to increase client contact within their areas of expertise and to expand our business within our service offerings.
We will have broad discretion over the use of the net proceeds in this offering. As of the date of this prospectus, we cannot specify all of the particular uses for the net proceeds from this offering. We currently intend to use the net proceeds to us from this offering primarily for general corporate purposes, including working capital, sales and marketing activities, general and administrative matters and capital expenditures. We may also use a portion of the net proceeds to expand our current business through acquisitions or investments in other complementary strategic businesses. We have no commitments with respect to any acquisitions at this time. To the extent any net proceeds are used to repay any debt obligations, the aggregate outstanding balance of our notes payable as of September 30, 2012 was approximately $8.2 million with interest rates ranging from 3.0% to 5%.
Cash Flows
As of September 30, 2012, our cash and cash equivalents totaled $1.6 million and accounts receivable, net of allowance for doubtful accounts, totaled $17.8 million, compared to $2.8 million and $15.5 million, respectively, as of December 31, 2011. As of September 30, 2012, our accounts payable and accrued liabilities were $4.9 million and $4.3 million, respectively, compared to $3.6 million and $3.6 million, respectively, as of December 31, 2011. Also as of September 30, 2012, we had notes payable and stock repurchase obligations of $8.2 million and $2.6 million, respectively, compared to $4.9 million and $2.1 million, respectively, as of December 31, 2011.
As of December 31, 2010, our cash and cash equivalents totaled $3.4 million and accounts receivable, net of allowance for doubtful accounts, totaled $16.7 million. As of December 31, 2010, our accounts payable and accrued liabilities were $3.9 million and $4.6 million, respectively. Also as of December 31, 2010, we had notes payable and stock repurchase obligations of $6.4 million and $2.8 million, respectively.
Operating activities.
For the nine months ended September 30, 2012, net cash used in operating activities amounted to $0.3 million primarily attributable to net income of $0.8 million which included non-cash charges of $1.1 million from depreciation and amortization and increase of $1.3 million in accounts payable partially offset by an increase of $1.8 million in accounts receivable and decreases in deferred and income taxes payable of $1.6 million.
For the year ended December 31, 2011, net cash provided by operating activities amounted to $2.4 million primarily attributable to net income of $1.9 million which included non-cash charges of $1.9 million from depreciation and amortization partially offset by a decrease of $1.3 million in accounts payable and accrued liabilities.
For the year ended December 31, 2010, net cash provided by operating activities amounted to $2.6 million primarily from a decrease in accounts receivable of $2.0 million partially offset by a decrease in accounts payable and accrued liabilities of $0.8 million. Net cash provided by operating activities included non-cash charges from depreciation and amortization of $1.1 million.
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For the period October 2, 2009 to August 3, 2010, net cash provided by operating activities amounted to $7.0 million primarily from a decrease in accounts receivable of $7.1 million partially offset by a decrease in accounts payable and accrued liabilities of $1.2 million. Net cash provided by operating activities included non-cash charges from depreciation and amortization of $1.3 million. The primary cause for the decrease in accounts receivable was due to reduction in gross contract revenues.
Investing activities.
For the nine months ended September 30, 2012, net cash used in investing activities amounted to $1.4 million primarily resulting from cash used for the acquisition of Kaco of $1.0 million and for the purchase of property and equipment of $0.4 million.
For the year ended December 31, 2011, net cash used in investing activities amounted to $0.3 million primarily resulting from cash used for the purchase of property and equipment of $0.4 million partially offset by proceeds of $0.1 million received from insurance claims and from the sale of property and equipment.
For the year ended December 31, 2010, net cash used in investing activities amounted to $2.7 million as a result of $2.5 million in cash used for acquisitions and $0.2 million in cash used for the purchase of property and equipment.
For the period October 2, 2009 to August 3, 2010, net cash used in investing activities amounted to $0.2 million as a result of $0.2 million in cash used for the purchase of property and equipment.
Financing activities.
For the nine months ended September 30, 2012, net cash provided by financing activities amounted to $0.5 million primarily attributable proceeds from borrowings of $2.2 million from the Line Facilities partially offset by payment of $1.0 million in long-term debt and $0.6 million in stock repurchase obligations. In addition, we made payments of $0.1 million for the repurchase of our common stock.
For the year ended December 31, 2011, net cash used in financing activities amounted to $2.8 million primarily attributable to payments of $1.5 million in long-term debt and $0.7 million in stock repurchase obligations. In addition, we made payments of $0.5 million for non-controlling interest Shares.
For the year ended December 31, 2010, net cash provided by financing activities amounted to $3.6 million primarily attributable to proceeds of $2.8 million from borrowings of long-term debt and $5.5 million from the issuance of common stock, partially offset by payments of $4.1 million in long-term debt and $0.6 million in stock repurchase obligations.
For the period October 2, 2009 to August 3, 2010, net cash used in financing activities amounted to $4.8 million primarily attributable to payments of $3.2 million in long-term debt, $0.6 million in stock repurchase obligations and $0.5 million in mandatorily redeemable common stock.
Financing
We have two credit facilities totaling $4.0 million (the Line Facilities) with maturity dates of October 30, 2013. The interest rate is prime rate plus 1% with a minimum of 4.50%. Mr. Dickerson Wright and the Wright Family Trust, of which Mr. Wright is the trustee, have provided guarantees to our lender in connection with our Line Facilities and Term Loan (as defined below). Mr. Wrights guarantee remains in effect for the term of the Line Facilities and Term Loan, regardless of his continuing employment. The Line Facilities contain cross default provisions with each other as well as cross default provisions with the note payable described below. In addition, the Line Facilities contain an annual maximum debt to tangible net worth covenant ratio of 2.3:1 and
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financial reporting covenant provisions. As of September 30, 2012, December 31, 2011 and 2010, we were in compliance with the covenants of the Line Facilities. As of September 30, 2012, December 31, 2011 and 2010, the outstanding balance on the Line Facilities was $2.0 million, $0 and $0, respectively.
We have a note payable to a bank (the Term Loan). On March 14, 2012, we amended the note payable to extend the maturity date from August 7, 2012 to February 1, 2015. The interest rate continues at prime rate with a minimum of 5.0%. The amended note continues to be payable in monthly principal installments of $46,000 with a lump sum of the remaining principal balance outstanding due at maturity. The amended note is collateralized by substantially all of our assets and is guaranteed by certain of our stockholders, NV5 Holdings, and Nolte, which guarantee in the case of Mr. Wright remains in effect for the term of the Term Loan regardless of his continuing employment. As of September 30, 2012, December 31, 2011 and 2010, we had outstanding balances of $1.8 million, $2.2 million and $2.8 million, respectively, in connection with the Term Loan.
The Nolte Note is currently outstanding with a maturity date of July 29, 2017. The Nolte Note bears interest rate at the prime rate plus 1%, subject to a maximum rate of 7.0%. Under the terms of the Nolte Note, we pay quarterly principal installments of approximately $0.1 million plus interest. The Nolte Note is unsecured and is subordinated to our bank note, although we are permitted to make our periodic principal and interest payments. The Nolte Note is convertible at any time during the period between the effective date of the registration statement of which this prospectus is a part and the 90th day following such effective date into a number of shares of common stock equal to the principal amount converted divided by the closing price per Share on the day which is two business days prior to the conversion date. Unless we specifically agree otherwise, the maximum principal amount that may be converted is 25% of the original principal amount of the note, or approximately $834,000. We have been informed that the converting holder does not intend to convert any portion of the Nolte Note. If the converting holder does choose to convert, we do not intend to permit the holder of the Nolte Note to convert more than 25% of the original principal amount. The outstanding balance of the Nolte Note was $2.3 million, $2.7 million and $3.1 million as of September 30, 2012, December 31, 2011 and 2010, respectively.
On July 27, 2012, we acquired certain assets and assumed certain liabilities of Kaco, a 30-person engineering firm headquartered in Miami, Florida. Kaco commenced operations in 1984 and its development and engineering teams have worked on projects in South Florida, the Caribbean, and Central America during the last twenty five years. The purchase price was $3.5 million in cash, notes and stock. The purchase price consisted of $1.0 million in cash; a note in the principal amount of $2.0 million (the Kaco Note) (bearing interest at 3.0% for the first year and 200 basis points over the one-year LIBOR for the years thereafter) which is payable as follows: $500,000 due by December 28, 2012 and three equal payments of $500,000 each due on the first, second and third anniversaries of the effective date of July 27, 2012; and 69,330 shares of common stock with an agreed value of $7.21 per share. The outstanding balance of the Kaco Note was $2.0 million as of September 30, 2012. On December 28, 2012, we paid $525,000 (principal and accrued interest) and issued the 69,330 shares of common stock.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2012 and December 31, 2011.
Effects of Inflation
Based on our analysis of the periods presented, we believe that inflation has not had a material effect on our operating results. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.
Recent Accounting Pronouncements
In May 2011, the FASB issued amendments to authoritative guidance to establish common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards (IFRSs).
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These amendments change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between GAAP and IFRSs as well as expand the disclosures for Level 3 measurements. These amendments are to be applied prospectively, and are effective for annual and interim periods beginning after December 15, 2011. The adoption of this amended guidance did not materially expand our disclosures in its consolidated financial statements.
In June 2011, the FASB issued an amendment to authoritative guidance which allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This amendment eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders equity, but does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The provisions of this amendment require retrospective application, and are effective for annual and interim periods beginning after December 15, 2011. The adoption of this guidance did not have a material effect on our consolidated financial statements.
In September 2011, the FASB issued amended guidance on testing goodwill for impairment. Under the new guidance, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If the entity determines that this threshold is not met, then performing the two-step impairment test is unnecessary. The provisions of the new guidance are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entitys financial statements for the most recent annual or interim period have not been issued or, for nonpublic entities, have not yet been made available for issuance. We early adopted this new qualitative approach effective with our unaudited consolidated financial statements for the year end December 31, 2011.
In September 2011, the FASB amended its standards requiring additional disclosures about an employers participation in a multiemployer plan. This new guidance is required to be applied retrospectively for all prior periods presented and is effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. We do not expect adoption of this standard to have a material impact on our disclosure.
In December 2011, the FASB issued amended guidance requiring companies to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This guidance is required to be applied retrospectively for all prior periods presented and is effective for annual periods for fiscal years beginning in or after January 1, 2013, and interim periods within those annual fiscal years. We do not expect adoption of this standard to have a material impact on our consolidated results of operations and financial condition.
In December 2011, the FASB issued amended guidance to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. This guidance allows companies to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect prior to the new guidance issued in June 2011, which is described above. This new guidance is required to be applied retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The adoption of this standard did not have a material impact on our consolidated results of operations and financial condition.
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In July 2012, the FASB issued ASU 2012-02, Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entitys financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
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Overview
We are an independently-owned provider of professional and technical engineering and consulting solutions to public and private sector clients. We focus on the infrastructure, construction, real estate, and environmental markets. The scope of our projects includes planning, design, consulting, permitting, inspection and field supervision, and management oversight. We also provide forensic engineering, litigation support, condition assessment, and compliance certification.
As the needs of our clients have evolved, we have grouped our capabilities into five core vertical service offerings:
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infrastructure, engineering, and support services; |
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construction quality assurance; |
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public and private consulting and outsourcing; |
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asset management consulting; and |
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occupational, health, safety, and environmental consulting. |
Historically, substantially all of our services were concentrated on the first two service sectors. We believe, however, that our three newer service offerings will become increasingly important to our business as we continue to grow through both organic expansion and strategic acquisitions.
We operate our business through a network of over 20 locations in California, Colorado, Utah, Florida, and New Jersey. All of our offices utilize our shared services platform, which consists of human resources, marketing, finance, information technology, legal, and other resources at our corporate headquarters. Our shared services platform is intended to optimize the performance of our business as we increase our scale and scope. By maintaining a centralized, shared services platform, we believe we can better manage our business, apply universal financial and operational controls and procedures, increase efficiencies, and drive lower-cost solutions.
We currently maintain a staff of approximately 439 employees, which includes approximately 168 licensed engineers and other professionals who provide a wide range of professional and technical solutions to our customers. Combined with our support technology and software, our professionals are equipped to quickly and effectively respond to the needs of our clients.
Our primary clients include U.S. federal, state, municipal, and local governments; military and defense clients; and public agencies. We also serve quasi-public and private sector clients from the education, healthcare, energy, and utilities fields, including schools, universities, hospitals, health care providers, insurance providers, large utility service providers, and large and small energy producers.
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During our 60 years in the engineering and consulting business, we have worked with such clients and on such well-known projects as (in alphabetical order):
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Atlantic City Tunnel Connection, NJ; |
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Balboa Naval Hospital, CA |
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Borgata Hotel and Casino, NJ; |
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California Public Employees Retirement System, CA; |
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Colorado Department of Transportation, CO; |
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Colorado Rockies, Coors Field Baseball Stadium, CO; |
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Caldecott Tunnel, CA; |
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Equatorial Guinea LNG (Liquefied Natural Gas) Facility, Africa; |
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Fort Irwin Military Housing, CA; |
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Fort Lauderdale Hollywood International Airport, FL; |
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Los Angeles Community College, CA; |
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Miami International Airport, FL; |
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Miramar Marine Corps Air Station, CA; |
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Mojave Water Agency, CA; |
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Peterson Air Force Base, CO; |
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Port of Miami, Tunnel and Capital Improvement to Pier Wharfs, FL; |
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San Diego Chargers Qualcomm Football Stadium, CA; |
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San Diego Zoo and Wild Animal Park, CA; |
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SeaWorld, San Diego, CA; |
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South Florida Water Management District, FL; and |
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Stanford University, CA. |
Our current representative clients and project portfolio include (in alphabetical order):
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California Department of Transportation, or Caltrans, CA; |
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City of Colorado Springs, CO; |
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City of Sacramento, CA; |
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Contra Costa County, CA; |
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Florida Power and Light, FL; |
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Broward County, FL; |
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Metropolitan Water District of Southern California, CA; |
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Miami-Dade County, FL; |
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Princeton University, NJ; |
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Rose Bowl Stadium, CA; |
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Rutgers University, NJ; |
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San Diego Gas & Electric, CA; |
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San Diego International Airport, CA; |
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Santa Clara County Government, CA; |
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University of California San Diego, CA; |
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University of Miami, FL; |
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University of Utah, UT; and |
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Utah Department of Transportation, UT. |
Our History
We conduct our operations through two primary operating subsidiaries: (i) Nolte, which began operations in 1949 and was incorporated as a California corporation in 1957, and (ii) NV5, which was incorporated as a Delaware corporation in 2009. In March 2010, NV5 acquired the construction quality assurance operations of Bureau Veritas North America. In August 2010, NV5 acquired a majority of the outstanding shares of Nolte and succeeded to substantially all of Noltes business. Because NV5s business prior to the Nolte acquisition was insignificant, Nolte is considered to be our historical accounting predecessor for financial statement reporting purposes. In October 2011, NV5 and Nolte completed a reorganization transaction in which NV5 Holdings was incorporated as a Delaware corporation, acquired all of the outstanding shares of NV5 and Nolte, and, as a result, became the holding company under which NV5 and Nolte conduct operations. On July 27, 2012, we acquired certain assets and assumed certain liabilities of Kaco, a 30-person engineering firm headquartered in Miami, Florida. Kaco commenced operations in 1984 and its development and engineering teams have worked on projects in South Florida, the Caribbean, and Central America during the last twenty five years.
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Industry
We provide services in the areas of engineering and consulting. Engineering and consulting applies scientific knowledge to design structures, products, and industrial processes for both the constructed and natural environment. Engineering and consulting also provides clients with technical studies, planning, engineering, design, and construction management services. Clients vary in size and scope from local public agencies and private companies to national governments and large multinational corporations.
According to IBISWorld, the industry is fragmented and made up of approximately 141,000 firms in the U.S. A large number of these firms are small-scale establishments which typically provide services to regional markets or specialized niches. The firms range from large, global, multidisciplinary suppliers of a comprehensive range of planning, design, and project delivery services to small- to medium-sized companies that tend to specialize in selected areas of the project delivery process. Clients come from all sectors and levels of society and include U.S. federal, state, municipal, and local governmental property owners, quasi-public and private clients from the education, healthcare, energy, and utilities fields, as well as national governments and large multinational corporations.
Throughout the first half of the 2000 decade, the engineering and consulting industry grew at a solid pace. Its growth corresponded with strong cyclical growth in downstream construction markets, record levels of investment into industrial capacity and energy infrastructure, and increased spending on public infrastructure, according to IBISWorld. However, the recessions effect on construction resulted in an overall decline in revenue at an annualized rate of about 1.0% to $183.1 billion during the five years to 2012, as many companies delayed projects which led to a decline in engineering firms backlog. According to IBISWorld, the industry is expect to experience growth of 1.7% in 2012 as engineering firms look to increase the number of projects in their backlog. Nevertheless, demand for engineering and consulting services is expected to exhibit improvement in the coming years, supported by years of improvement in private, fixed-capital investment, increased industrial production and improving business sentiment. In the five years to 2017, the industry is anticipated to continue to grow as the economy recovers, the value of construction rises and demand from key downstream markets revives. Revenue is forecast to increase at an average rate of 2.9% per year to $211.2 billion in 2017. Profitability is also forecast to improve, particularly among the firms that provide high-margin services such as construction management.
The technical complexity of most projects carried out by this industry effectively restricts the entry of new competitors to those with demonstrated capacities across a range of projects, creating barriers to entry in the industry. Qualifications, sophisticated technical skills and expertise are prerequisites for entry, according to IBISWorld. Scale can also pose a barrier to entry for companies that do not have the resources or capacity necessary to complete complex projects, such as nuclear power plants, bridges, tunnels, water treatment facilities, airports, seaports, and large scale institutional projects.
Competitive Strengths
We believe we have the following competitive strengths:
Organizational structure that enhances client service. We operate our business using a vertical structure grouped by service offerings rather than the geography-based structure utilized by many of our competitors. This structure ensures that clients engaging our services in any given sector, regardless of the location of the project, have access to the services of our most highly qualified professionals. Our most skilled engineers and professionals in each service sector work directly with the clients engaging those services, which facilitates relationship-based interactions between our key employees and clients and assists in developing long-term client relationships. In addition, this structure encourages an entrepreneurial spirit among our professionals.
Expertise in local markets. To complement our vertical service model, we maintain a network of over 20 locations on both the west and east coasts of the U.S. Each of our offices is staffed with quality professionals
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who understand the local and regional markets in which they serve. Our local professionals are allowed to concentrate entirely on their local market client engagements while being supported by our shared services platform, under which we perform various back office functions on a centralized basis.
Strong, long-term client relationships. Our combination of local market experience and professionals with expertise in multiple vertical service sectors has enabled us to develop strong relationships with our core clients. Some of our professionals have worked with our key clients for decades. For example, we have worked with San Diego Gas & Electric for over 30 years and are recognized as a preferred source of expertise by Princeton University and Caltrans. By serving as a long-term partner with our clients, we are able to gain a deep understanding of their overall business needs as well as the unique technical requirements of their projects. This increased understanding gives us the opportunity to provide superior value to our clients by allowing us to more fully assess and better manage the risks inherent in their projects.
Experienced, talented, and motivated employees. We employ seasoned professionals with a broad array of specialties and a strong customer service orientation. Our executive officers have an average of more than 20 years of operating and management experience in or supporting the engineering and consulting industry and in analyzing potential acquisition transactions. We place a high priority on attracting, motivating and retaining top professionals to serve our clients, and our compensation system emphasizes the use of performance-based incentives, including opportunities for stock ownership, to achieve this objective.
Industry-recognized quality of service. We believe that we have developed a strong reputation for quality service based upon our industry-recognized depth of experience, ability to attract and retain quality professionals, and expertise across multiple service sectors. During the past several years, we received many industry certificates, awards, and national rankings, including:
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2011 Engineering News-Record Top 500 Design Firms (ranked by design-specific revenue); |
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2011 Engineering News-Record Top 100 Construction Management-for-Fee Firms (ranked by construction-specific revenue); |
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2011 Sacramento Regional Transit District: Transit Oriented Design of the Year; |
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2010 Engineering News-Record: Best of the Best Government Building Award; |
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2009 Caltrans: Excellence in Transportation Design Award; and |
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2009 Construction Management Association of America, Northern California: Infrastructure Project of the Year. |
Growth Strategies
We intend to pursue the following growth strategies as we seek to expand our market share and position ourselves as a preferred, single-source provider of professional and technical consulting and certification services to our clients:
Seek strategic acquisitions to enhance or expand our services offerings . We seek acquisitions that allow us to expand or enhance our capabilities in our existing service offerings. In analyzing new acquisitions, we pursue opportunities that provide either the critical mass to function as a profitable, stand-alone operation or are geographically situated to be complementary to our existing operations. We believe that expanding our business through strategic acquisitions will enable us to exploit economies of scale in the areas of finance, human resources, marketing, administration, information technology, and legal, while also providing cross-selling opportunities among our vertical service offerings.
Continue to focus on public sector clients while building private sector client capabilities. We have historically derived the majority of our revenue from public and quasi-public sector clients. For the nine months ended September 30, 2012, and for the years ended December 31, 2011 and 2010, approximately 62%, 65% and 58%, respectively, of our revenues were attributable to public and quasi-public sector clients. Even during
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unsteady economic periods, we have capitalized on public sector business opportunities resulting from outsourcing initiatives, continued efforts to address the challenges presented by the nations aging infrastructure system, and the need to provide solutions for transportation, energy, water, and waste water requirements. However, we also seek to obtain additional clients in the private sector, which typically sees greater growth during times of economic expansion, by networking, participating in certain organizations, and monitoring private project databases. We will continue to pursue private sector clients when such opportunities present themselves. We believe our ability to service the needs of both public and private sector clients gives us the flexibility to seek and obtain engagements regardless of the current economic conditions.
Strengthen and support our human capital . Our experienced employees and management team are our most valuable resources. Attracting, training, and retaining key personnel has been and will remain critical to our success. To achieve our human capital goals, we intend to remain focused on providing our personnel with entrepreneurial opportunities to increase client contact within their areas of expertise and to expand our business within our service offerings. We will also continue to provide our personnel with training, personal and professional growth opportunities, performance-based incentives, including opportunities for stock ownership, and other competitive benefits.
Description of Services
Infrastructure, Engineering, and Support Services
We provide our clients with a broad array of services in the area of infrastructure, engineering, and support services. We possess the professional and technical expertise necessary to design and manage clients infrastructure projects from start to finish. This integrated approach provides our clients with consistency and accountability across the life of their projects and allows us to create value by maximizing efficiencies of scale.
The specific infrastructure, engineering, and support services we offer fall into three phases of project development:
Site selection . The site selection phase includes access assessment, parcel identification, easement descriptions, land use permitting, pipeline routing analysis, site constraints analysis, surveying and mapping, and regulatory compliance.
Design . The design phase includes road design, grading design, alignment design, laydown design, station pad design, storm drain design, storm water management, water supply engineering, site planning and profile drawings, and construction cost estimating.
Construction and program management . The construction and program management phase includes plan review, bid and award assessment, monitoring services for active construction sites, scheduling assistance, drawing review, permit, approval and review processing, contractor, designer and agency coordination, cost control management, progress payment management, change order administration, compliance inspections, and evaluation of cost reduction methods.
Our specialty areas within our infrastructure, engineering, and support service offering include:
Energy . We assist major utilities and energy providers in assessing potential sites for a wide variety of new energy infrastructure projects. We provide services to energy generation and transmission clients for various types of energy source providers (i.e., wind, solar, natural gas, oil, and coal energy).
Water resources . We assist clients with a variety of projects related to water supply and distribution (such as designing water treatment plans and pilot testing), water treatment (including designing and implementing water reclamation, recycling, and reuse projects), and wastewater engineering (including wastewater facility master
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planning and treatment, designing and implementing collection, treatment and disposal systems, and water quality investigations).
Transportation . We provide our clients with services related to street and roadway construction (including alignment studies, roadway inspections, and traffic control planning), the construction of highways, bridges and tunnels, and the development of rail and light rail systems.
Structural engineering . From elaborate office and industrial facilities to major highway and railroad crossings to complex rail and light rail structures to a variety of water related facilities, our structural team provides design, inspection, rehabilitation, and seismic upgrade services that include structural analysis and design, plans, specifications and estimates, structural construction management, conceptual design studies, cost studies, seismic analysis, design and retrofit, structural evaluations, earthquake damage assessments, structural repair design, and regulatory agency permitting services.
Land development . We assist our clients with many of the front-end challenges associated with private and public land development, including planning, public outreach, sustainability, flood control, drainage, and landscaping.
Surveying . We are equipped to provide our clients with a full suite of traditional surveying techniques as well as cutting edge technology services, including high-definition surveying services using three-dimensional LIDAR point clouds. Our services can be used to determine current site condition, provide real-time infrastructure measuring and mapping, preserve historic sites, aide in forensic and accident investigations, determine volume calculations, and conduct surveys for project progress.
Other services . Through our Geographic Information System services, we can provide clients with other ancillary services that include infrastructure management, property management, asset inventory, landscape maintenance, web-based mapping services, land use analysis, terrain analysis and visualization, suitability and constraints analysis, hydrology analysis, biological, agricultural and cultural inventories, population and demographic analysis, shortest path analysis, street grid density, transportation accessibility analysis, watershed analysis, floodplain mapping, groundwater availability modeling, flood insurance study preparation, risk and HAZUS mitigation assessment and analysis, mapping, data tracking, and data hosting.
Construction Quality Assurance
We provide construction quality assurance services with respect to such diverse projects as professional sports stadiums, military facilities, cultural and performing arts centers, airports, hotels, hospitals and health care facilities, fire stations, major public and private universities, and K-12 school districts. We offer these services on an a la carte or integrated start-to-finish basis that is intended to guide a client through each phase of a construction project. Our construction quality assurance services generally include site inspections, audits, and evaluations of materials and workmanship necessary to determine and document the quality of the constructed facility. Before a project commences, we offer our clients a variety of assessment services, including environmental, geotechnical, and structural suitability. We perform these pre-construction evaluations in order to help detect any potential problems with the proposed site that could prevent or complicate the successful completion of the project. In addition, we evaluate the onsite building conditions and recommend the best methods and materials for site preparation, excavation, and building foundations.
During development, we assist clients in designing a comprehensive construction plan, including a summary of planned construction activities, sequence, critical path elements, interrelationships, durations, and terminations. Construction planning services may also include developing procedures for project management, the change order process, and technical records handling methodology to be employed. We offer inspection services for each phase of a project, including excavation, foundations, structural framing, mechanical heating and air conditioning systems, electrical systems, underground utilities, and building water proofing systems.
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Where applicable, we employ additional methods to test materials and building quality. We maintain contact with our clients managers and, as issues are detected or anticipated, assist them in determining appropriate, cost-effective solutions. We periodically provide construction progress inspections and assessment reports. When a project is complete, we prepare an evaluation report of the project and certify the inspections for the client. After construction, we offer periodic building inspection services to ensure that the building is maintained in accordance with applicable building codes and other local ordinances to maximize the life of the project. We also offer indoor environmental quality testing during this period.
Our specialty areas within our construction quality assurance service offering include:
Construction materials testing and engineering services . We provide materials testing services related to concrete, steel, and other structural materials used in construction. We are equipped to provide these services in fabrication plants, in our laboratories, and at the project or construction site itself. Our field personnel work directly under the supervision of licensed engineers and maintain individual licenses and certifications in their respective areas of expertise. All of our in-house laboratories are inspected routinely by the Cement and Concrete Reference Laboratory (CCRL) of the National Institute of Standards and Measures. In addition, our laboratories participate in proficiency programs conducted by the CCRL and the American Association of State Highway & Transportation Officials.
Geotechnical engineering and consulting services . We provide a wide variety of geotechnical engineering and consulting services. These services assist our clients to determine whether sites are suitable for proposed projects and to design foundation plans that are compatible with project site and use conditions. We have experienced geotechnical engineers, geologists, and earth scientists focused on providing services primarily in the southeast, northeast, and western regions of the U.S.
Forensic consulting . In the event of damage to a structure by natural or man-made causes, our professional staff is qualified to provide forensic consulting and analysis as well as expert witness services. We provide a wide variety of forensic consulting services, including studies related water intrusion, building code compliance, and claims involving insurance.
Public and Private Consulting and Outsourcing
We provide public and private consulting and outsourcing services, which primarily consist of providing a wide variety of governmental outsourcing services and consulting services that assist organizations in complying with technical government regulations and industry standards. We offer a broad array of technical outsourcing services, including traffic studies, building code plan review, code enforcement, permitting and inspections, human resources, and the administration of public works, building, and safety departments.
The trend towards increased privatization of U.S. federal, state, and local governmental services presents an opportunity for us in this service offering. Faced with increased budgetary constraints and economic challenges, many governmental agencies are now seeking to outsource various services, including the running of their building departments. For building departments specifically, we typically provide a turnkey solution in exchange for a percentage of the building permit fees collected or a minimum monthly retainer. The governmental agency retains any overage without any overhead costs associated with the fee charged. Public and private consulting and outsourcing provides a positive source of revenue for us, while simultaneously increasing the efficiency and quality of service to the public. The governmental agency also gains flexibility to control service levels without the challenges of government bureaucracy. Although we plan to grow our private and public consulting and outsourcing services organically through the numerous contacts and client relationships we have with U.S. federal, state and local governments, tribal nations, and educational institutions, we are also actively pursuing acquisition opportunities that provide services in this sector.
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Asset Management Consulting
Our asset management consulting service revolves around the management of existing infrastructure assets rather than new capital expenditure projects. Within our asset management consulting service, we provide facility management services, system component inspections (i.e., mechanical and electrical), energy audits and consulting, fire and safety consulting, supply chain management, consumer product certification and testing, and social accountability audits.
Occupational, Health, Safety and Environmental Consulting
Our occupational health, safety and environmental consulting service includes investigating and analyzing environmental conditions both outside and inside a building, recommending corrective measures and procedures needed to reduce liability exposure, increasing our clients awareness of occupational health and safety issues, and helping clients comply with regulatory requirements and industrial standards through air and water quality testing, health and wellness screening, workplace safety, ergonomics, and emergency preparedness.
Strategic Acquisitions
We maintain a full-time merger and acquisitions (M&A) initiative with executive personnel specifically dedicated to identifying acquisition targets, exploring acquisition opportunities, negotiating terms, and overseeing the acquisition and post-acquisition integration. From 1994 to the present, across various prior-company employment, our M&A team has completed approximately 40 transactions in the engineering and consulting industry. Over the course of these transactions, our M&A team has established extensive relationships throughout the industry and continues to maintain an established pipeline of potential acquisition opportunities.
We seek acquisitions that allow us to expand or enhance our capabilities in our existing service offerings. In analyzing new acquisitions, we pursue opportunities that provide either the critical mass to function as a profitable, stand-alone operation or are geographically situated to be complementary to our existing operations. Acquisition targets must include an experienced management team that is compatible with our culture and thoroughly committed to our strategic direction. We believe we add value to the operations of our acquisitions by providing superior corporate marketing and sales support, cash management, financial controls, information technology, risk management and human resources support through a performance optimization process. Our performance optimization process, which was developed by our executives through their extensive experience in acquiring and integrating these types of companies, entails a review of both back office and operational functions to, among other things, identify how to improve (i) inefficiencies related to the delivery of our services to customers, (ii) the performance of a new acquisition through the integration of personnel into our organization, (iii) the risk management of a new acquisition, (iv) the integration of technology and shared services platforms, and (v) cross-selling opportunities to create synergies with our service offerings.
Key Clients and Projects
We currently serve over 800 different clients. While our ten largest clients accounted for approximately 50%, 43% and 46% of our consolidated contract revenue during the nine months ended September 30, 2012 and years ended December 31, 2011 and 2010, respectively, no single client accounted for more than 10% of our revenue during those periods, with the exception of San Diego Gas & Electric, which accounted for approximately 20% and 14% of our revenues for the nine months ended September 30, 2012 and the year ended December 31 2011, respectively. Although we serve a highly diverse client base, for the nine months ended September 30, 2012 and for the years ended December 31, 2011 and 2010 approximately 62%, 65% and 58%, respectively, of our revenues were attributable to public and quasi-public sector clients. In this regard, public sector clients include U.S. federal, state, and local government departments, agencies, systems, and authorities, including the U.S. Department of Defense, transportation agencies, educational systems, and public housing authorities, while quasi-public sector clients include utility service providers, energy producers, and healthcare
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providers. Of our private sector clients, our largest clients are contractors, construction engineering firms, and institutional property owners.
Although we anticipate public and quasi-public sector clients to represent the majority of our revenues for the foreseeable future, we intend to continue expanding our service offerings to private sector clients. Historically, public and quasi-public sector clients have demonstrated greater resilience during periods of economic downturns, while private sector clients have offered higher gross profit margin opportunities during periods of economic expansion.
Marketing and Sales
We strive to position ourselves as a preferred, single-source provider of professional and technical consulting and certification services to our clients. We obtain client engagements primarily through business development efforts, cross-selling of our services to existing clients, and maintaining client relationships, as well as referrals from existing and former clients.
Our business development efforts emphasize lead generation, industry group networking, and corporate visibility. Most of our business development efforts are led by members of our engineering and other professional teams, who are also responsible for managing projects. Our business development efforts are further supported by our shared services marketing group, which consists of a seasoned marketing manager and marking support personnel located at our corporate headquarters as well as several of our operating units.
As our service offerings become more expansive, we anticipate increasing our cross-selling opportunities. Currently, we are often able to offer our construction quality assurance services in conjunction with our infrastructure, engineering, and support services to the same clients.
In our experience, there has been a recent trend in the engineering and consulting industry in which client relationships have shifted away from project-specific engagements and toward long-term, multi-project relationships. This shift requires that service providers commit considerable resources toward maintaining client relationships, including dedicating both technical and marketing resources tailored to the specific needs clients. We are committed to maintaining our client relationships by, among other things, remaining responsive to our clients needs and continuing to offer a broad range of quality service offerings and value added solutions.
Employees
As of January 15, 2013, we had approximately 439 employees, including approximately 349 full-time employees, which includes approximately 168 licensed engineers and other professionals. Our employee attrition rate for 2011 among all staff, part-time and full-time, was approximately 25%. To date, however, we have been able to locate and engage highly qualified employees as needed and do not expect our growth efforts to be constrained by a lack of qualified personnel. We consider our employee relations to be good.
Backlog
As of December 31, 2012, we had approximately $45.0 million of gross revenue backlog expected to be recognized over the next 12 months. Most of our government contracts are multi-year contracts for which funding is appropriated on an annual basis. With respect to such government contracts, our backlog includes only those amounts that have been funded and authorized and does not reflect the full amounts we may receive over the term of such contracts. In the case of non-government contracts, our backlog includes future revenue at contract rates, excluding contract renewals or extensions that are at the discretion of the client. For contracts with a not-to-exceed maximum amount, we include revenue from such contracts in backlog to the extent of the remaining estimated amount. We calculate backlog without regard to possible project reductions or expansions or potential cancellations until such changes or cancellations occur.
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Backlog is expressed in terms of gross revenue and, therefore, may include significant estimated amounts of third-party or pass-through costs to subcontractors and other parties. Moreover, our backlog for the period beyond 12 months may be subject to variations from year-to-year as existing contracts are completed, delayed, or renewed or new contracts are awarded, delayed, or cancelled. As a result, we believe that year-to-year comparisons of the portion of backlog expected to be performed more than one year in the future are difficult to assess and not necessarily indicative of future revenues or profitability. Because backlog is not a defined accounting term, our computation of backlog may not necessarily be comparable to that of our industry peers.
Competition
We believe that the engineering and consulting industry is highly fragmented, characterized by many small-scale companies that focus their operations on regional markets or specialized niche activities. As a result, we compete with a large number of regional, national, and global companies. Certain of these competitors have broader service offerings and greater financial and other resources than we do. Others are smaller, more specialized, and concentrate their resources in particular areas of expertise. The extent of our competition varies according to the particular markets and geographic area. The degree and type of competition we face is also influenced by the type and scope of a particular project.
We believe the providers of engineering and consulting services primarily compete on the quality of service, relevant experience, staffing capabilities, reputation, geographic presence, stability, and price. Price differentiation remains an important element in competitive tendering and is the most significant factor in bidding for public sector consultancy contracts. The importance of the foregoing factors varies widely based upon the nature, location, and size of the project. We believe that certain economies of scale can be realized by service providers that establish a national reputation for providing engineering and consulting services in all five of the service sectors in which we do business. Since the demand for engineering and consulting services within each service offering is viewed as only moderately correlated with the demand for services within the other service offerings, we are of the view that engineering and consulting firms can benefit considerably from diversified service offerings.
The number of competitors for any procurement can vary widely, depending upon technical qualifications, the relative value of the project, geographic location, the financial terms, the risks associated with the work, and any restrictions placed upon competition by the client. Our ability to compete successfully will depend upon the effectiveness of our marketing efforts, the strength of our client relationships, our ability to accurately estimate costs, the quality of the work we perform, our ability to hire and train qualified personnel, and our ability to obtain insurance.
We believe our principal competitors include the following firms (in alphabetical order): AECOM Technology Corporation (NYSE: ACM), AMEC plc (LSE: AMEC), Bureau Veritas (PAR: BVI), Cardno Limited (ASX: CDD), Intertek Group plc (LSE:ITRK), Jacobs Engineering Group Inc. (NYSE: JEC), Kleinfelder & Associates, Professional Service Industries, Inc., Terracon Consultants, Inc., Tetra Tech, Inc. (NASDAQ: TTEK), TRC Companies, Inc. (NYSE: TRR), URS Corporation (NYSE: URS), Willdan Group (NASDAQ: WLDN), and WS Atkins plc (LSE:ATK).
Seasonality
Due primarily to inclement weather conditions, which lead to project delays and slower completion of contracts, and a higher number of holidays, our operating results during the months of December, January, and February are generally lower than our operating results during other months. As a result, our revenue and net income for the first and fourth quarters of a fiscal year may be lower than our results for the second and third quarters of a fiscal year.
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Insurance and Risk Management
We maintain insurance covering professional liability and claims involving bodily injury and property damage. We consider our present limits of coverage, deductibles, and reserves to be adequate. Wherever possible, we endeavor to eliminate or reduce the risk of loss on a project through the use of quality assurance and control, risk management, workplace safety, and similar methods.
Risk management is an integral part of our project management approach for fixed-price contracts and our project execution process. We have a risk management group that reviews and oversees the risk profile of our operations. This group also participates in evaluating risk through internal risk analyses in which our corporate management reviews higher-risk projects, contracts, or other business decisions that require corporate approval.
Regulation
We are regulated in a number of fields in which we operate. We contract with various U.S. governmental agencies and entities. When working with U.S. governmental agencies and entities, we must comply with laws and regulations relating to the formation, administration, and performance of contracts. These laws and regulations contain terms that, among other things:
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require certification and disclosure of all costs or pricing data in connection with various contract negotiations; |
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impose procurement regulations that define allowable and unallowable costs and otherwise govern our right to reimbursement under various cost-based U.S. government contracts; and |
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restrict the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data. |
Internationally, we are subject to various government laws and regulations (including the FCPA and similar non-U.S. laws and regulations), local government regulations, procurement policies and practices, and varying currency, political, and economic risks.
To help ensure compliance with these laws and regulations, our employees are sometimes required to complete tailored ethics and other compliance training relevant to their position and our operations.
Properties
Our principal executive offices are located at 200 South Park Road, Suite 350, Hollywood, Florida. We do not own any real property. We currently operate out of more than 20 leased locations. Our lease terms vary from month-to-month to multi-year commitments. Our annual base rents also vary, ranging from $11,400 plus operating expenses to over $354,000 plus operating expenses. We do not consider any of these leased properties to be materially important to us. While we believe it is necessary to maintain offices through which our services are coordinated, we feel there are an ample number of available office rental properties that could adequately serve our needs should we need to relocate or expand our operations.
Legal Proceedings
From time to time, we are subject to various legal proceedings that arise in the normal course of our business activities. As of the date of this prospectus, we are not a party to any litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our results of operations or financial position.
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Executive Officers, Directors, and Director-Nominees
The following table sets forth information regarding our executive officers, directors, and director-nominees.
Name |
Age |
Position |
||||
Dickerson Wright |
66 | Chairman of the Board of Directors, Chief Executive Officer and President | ||||
Richard Tong |
44 | Executive Vice President and General Counsel | ||||
Alexander A. Hockman |
55 | Executive Vice President | ||||
Donald C. Alford |
69 | Executive Vice President of NV5 and Director-Nominee | ||||
Michael P. Rama |
46 | Vice President and Chief Financial Officer | ||||
Mary Jo OBrien |
50 | Executive Vice President, Chief Administrative Officer and Secretary | ||||
Gerald J. Salontai |
58 | Director-Nominee | ||||
Jeffrey A. Liss |
65 | Director-Nominee | ||||
William D. Pruitt |
72 | Director-Nominee |
Dickerson Wright . Mr. Wright has served as our Chairman of the Board, Chief Executive Officer, and President since our inception in December 2009 and has over 35 years of uninterrupted experience in managing and developing engineering companies. From February 2008 through November 2009, Mr. Wright served as the Chief Executive Officer of Nova Group Services, Inc., a private equity sponsored engineering and consulting services company. From September 2002 until January 2008, Mr. Wright served as the Chief Executive Officer of Bureau Veritas, U.S., an international engineering and consulting company, where he was responsible for developing the companys U.S. operations through strategic acquisitions and follow-on growth. Before Mr. Wright joined Bureau Veritas, the company had minimal presence in the U.S. By the time Mr. Wright left in January 2008, Bureau Veritas U.S. operations employed 2,700 people in 67 offices and generated $280.0 million a year in revenue. Mr. Wright founded U.S. Laboratories, an engineering and consulting firm, in October 1993 and served as its Chief Executive Officer through its initial public offering in 1999 and ultimate sale to Bureau Veritas in 2002. Prior to founding U.S. Laboratories, Mr. Wright held several senior management positions at national firms, including Professional Services Industries, American Engineering Laboratories, and U.S. Testing and was the founder of Western States Testing. Mr. Wright earned a Bachelor of Science degree in Engineering from Pacific Western University and is a board certified engineer in California and Wisconsin. Our board of directors believes that Mr. Wrights experience founding, managing, and building engineering and consulting firms into national engineering platforms, including a publicly traded engineering and consulting firm, provides us with highly valuable industry specific business, leadership, and management experience.
Richard Tong . Mr. Tong has served as our Executive Vice President and General Counsel since September 2011 and as the Executive Vice President and General Counsel of NV5 since April 2010. Mr. Tong has more than 15 years of experience working in the testing and inspection industry. In his capacity as Executive Vice President and General Counsel, Mr. Tong devotes a considerable amount of time to acquisitions, strategic planning, corporate compliance, and legal matters. From November 2008 through November 2009, Mr. Tong served as the Executive Vice President and General Counsel of Nova Group Services, Inc., an engineering and consulting services company. Mr. Tong also served as the Executive Vice President and General Counsel for Bureau Veritas from January 2003 until November 2008 and headed Bureau Veritas Legal, Ethics, Compliance, and Risk Management programs in North America. Mr. Tong earned a Bachelor of Science degree in both Biology and Chemistry and a Juris Doctorate degree from the University of Miami and is a licensed attorney in Florida.
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Alexander A. Hockman . Mr. Hockman has served as our Executive Vice President since September 2011 and as the President of NV5 Southeast since February 2010 and has more than 27 years of diverse experience in the fields of construction inspections, materials testing, geotechnical, environmental, waterfront, construction, and building envelope consulting. From March 2003 until March 2010, Mr. Hockman served as the Chief Operating Officer for the Construction Materials Testing Division of Bureau Veritas. From 1985 until its acquisition by Bureau Veritas in 2003, Mr. Hockman served as the President of Intercounty Laboratories. Mr. Hockman earned a Bachelor of Science degree in Civil Engineering from Florida International University and is a licensed engineer in Florida.
Donald C. Alford . Mr. Alford will become a member of our board of directors effective upon the consummation of this offering. Mr. Alford has served as the Executive Vice President of Strategic Growth of NV5 since February 2010 and is responsible for M&A and other growth initiatives. From February 2007 until February 2010, Mr. Alford held a similar position with Nova Group Services, Inc. From November 2002 to November 2006, Mr. Alford acted as the exclusive M&A agent in the U.S. for Bureau Veritas, and, from 1998 to 2002, Mr. Alford served as the Executive Vice President and Secretary and was in charge of strategic growth for U.S. Laboratories. Mr. Alford earned a Bachelor of Arts degree in History from Princeton University and a Master of Business Administration degree from the University of Virginia. Mr. Alford also served as an officer in the U.S. Marine Corps from 1965 until 1968. Our board of directors believes that Mr. Alford has invaluable knowledge and experience in leading engineering and consulting companies through early stage development, commercialization, private funding, initial public offering, and sustained profitability and growth, as well as extensive industry M&A experience, which will aid us in the successful implementation and maintenance of our strategic growth plan.
Michael P. Rama . Mr. Rama has served as our Vice President and Chief Financial Officer since September 2011 and as the Vice President and Chief Financial Officer of NV5 since August 2011. Mr. Rama has more than 18 years of experience in construction, development, and real estate management. Mr. Rama is responsible for all accounting, finance, and treasury functions and our Securities and Exchange Commission reporting. From October 1997 until August 2011, Mr. Rama held various accounting and finance roles with Avatar Holdings Inc. (NASDAQ: AVTR), including Principal Financial Officer, Chief Accounting Officer, and Controller. Mr. Ramas experience includes Securities and Exchange Commission reporting, establishment and maintenance of effective internal controls, capital market transactions, and acquisitions. Mr. Rama earned a Bachelor of Science degree in accounting from the University of Florida and is a Certified Public Accountant.
Mary Jo OBrien . Ms. OBrien has served as our Executive Vice President, Chief Administrative Officer and Secretary since September 2011 and as the Executive Vice President of Human Resources and Administration of NV5 since January 2010. Ms. OBrien has more than 24 years of experience in human resources, administration and the engineering and consulting engineering industry. From March 2008 through November 2009, Ms. OBrien served as the Director of Human Resources for Nova Group Services, Inc. Prior to March 2008, Ms. OBrien held various management positions with Bureau Veritas NA from September 2002 to January 2008. From November 1987 to August 2002, Ms. OBrien served in similar human resources and administrative capacities for Testing Engineers - San Diego and U.S. Laboratories. Ms. OBrien earned a Bachelors degree in Communications and Business Economics from the University of California at San Diego.
Gerald J. Salontai . Mr. Salontai will become a member of our board of directors effective upon the consummation of this offering. Mr. Salontai has over 35 years of progressive technical, management, and leadership experience in the engineering and construction industry. Mr. Salontai is currently the Chief Executive Officer of Salontai Consulting Group, a management advisory company focused on assisting companies achieve success in the areas of strategy, business management, and leadership. From January 1998 until March 2009, Mr. Salontai served as Chairman of the Board and Chief Executive Officer of The Kleinfelder Group, Inc., a management, planning, engineering, science, and construction services consulting company headquartered in San Diego, California. Prior to his time at Kleinfelder, Mr. Salontai held a number of management positions in several firms, including serving as the President and Chief Operating Officer, and his responsibilities included
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strategy implementation, sales execution, delivery of services, quality, customer satisfaction, and overall profit and loss. Mr. Salontai earned both a Bachelor of Science and Masters degree in Civil Engineering from Long Beach State University and graduated from the Executive Management Program at the University of California, Berkeley. Our board of directors believes that Mr. Salontais past experience, including his substantial experience in governance and risk management across a wide range of industries, provides our board of directors with a keen understanding and a valuable perspective regarding how to achieve lasting success in the areas of engineering and construction related services.
Jeffrey A. Liss . Mr. Liss will become a member of our board of directors effective upon the consummation of this offering. Mr. Liss has over 25 years of progressive experience providing technical, trade, and consulting services to multi-national inspection and testing companies and the government and has a successful record of generating growth and increasing profitability in highly volatile business environments. Since 2001, Mr. Liss has served as a consultant providing investment and business consulting services relating to strategic planning, business valuation, and turnaround environments. From 1988 to 2000, he served as President and Chief Executive Officer of Intertek Testing Services International, an international company that maintained 36 offices throughout the world. During his tenure, Mr. Liss was based both in the U.S. and overseas, and served as a member of the executive board of the parent company. Prior to joining Intertek Testing Services, Mr. Liss served as the Vice President of SGS Government Programs, responsible for administrative centers in the U.S. serving government principals in Latin America and the Caribbean. Mr. Liss also spent six years serving on the board of directors of Brookwood Florida-East, a charitable organization providing residential services to troubled adolescents. Mr. Liss earned a Bachelor of Science degree in Mechanical Engineering and a Master of Science degree in Management from Rensselaer Polytechnic Institute. Our board of directors believes that Mr. Liss has significant relevant industry experience working with inspection and testing companies in both the public and private sectors which, combined with his international management experience, brings an exceptional global perspective that will aid our board of directors in making sound decisions regarding our expansion into international markets.
William D. Pruitt . Mr. Pruitt will become a member of our board of directors effective upon the consummation of this offering. Mr. Pruitt has served as General Manager of Pruitt Enterprises and President of Pruitt Ventures, Inc. since 2000. Mr. Pruitt has served as an independent board member and a member of the audit committee of MAKO Surgical Corp., a developer of robots for knee and hip surgery, since 2008. Mr. Pruitt has also served as an independent board member and chairman of the audit committee of Swisher Hygiene, Inc., a hygiene services company, since 2011. Mr. Pruitt served as an independent board member of The PBSJ Corporation, an international professional services firm, from 2005 to 2010. Mr. Pruitt served as chairman of the audit committee of KOS Pharmaceuticals, Inc., a fully integrated specialty pharmaceuticals company, from 2004 until its sale in 2006. He was also chairman of the audit committee for Adjoined Consulting, Inc., a full-service management consulting firm, from 2000 until it was merged into Kanbay International, a global consulting firm, in 2006. From 1980 to 1999, Mr. Pruitt served as the managing partner for the Florida, Caribbean, and Venezuela operations of the independent auditing firm of Arthur Andersen LLP. Mr. Pruitt earned a Bachelor of Business Administration degree from the University of Miami and is a Certified Public Accountant (inactive). Our board of directors believes that Mr. Pruitts extensive experience with public and financial accounting matters for corporate organizations, as well as experience as a consultant to and director of other public companies, provides significant insight and expertise to our board of directors.
There are no family relationships among any of our officers, directors, or director-nominees.
Board of Directors and Committees
Board Composition
Our board of directors currently consists of one person, Mr. Wright. Effective upon the consummation of this offering, our board of directors will consist of five directors, comprised of Mr. Wright and our four director-
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nominees, Messrs. Alford, Salontai, Liss, and Pruitt. Our board of directors has affirmatively determined that each of Messrs. Salontai, Liss, and Pruitt is independent, as defined by the Marketplace Rules of the Nasdaq Stock Market. Under the Marketplace Rules, a director can be independent only if the director does not trigger a categorical bar to independence and our board of directors affirmatively determines that the director does not have a relationship which, in the opinion of our board of directors, would interfere with the exercise of independent judgment by the director in carrying out the responsibilities of a director.
Currently, our directors are elected annually to serve until the next annual meeting of stockholders, until their successors are duly elected and qualified, or until their earlier death, resignation, disqualification, or removal. Directors may be removed at any time with or without cause by the affirmative vote of the holders of a majority of the voting power then entitled to vote.
Board Committees
Our board of directors directs the management of our business and affairs, as provided by the Delaware General Corporation Law, and conducts its business through meetings of the board of directors. Effective upon the closing of this offering, our board of directors will establish three standing committees: an audit committee; a compensation committee; and a nominating and governance committee. In addition, from time to time, special committees may be established under the direction of the board of directors when necessary to address specific issues. The composition of the board committees will comply, when required, with the applicable rules of the exchange on which our common stock is listed and applicable law. Our board of directors will adopt a written charter for each of the standing committees. These charters will be available on our website following the completion of the offering.
Audit committee . Our audit committee will be comprised solely of independent directors, as defined under and required by Rule 10A-3 of the Exchange Act and the rules of Nasdaq. Our audit committee will be directly responsible for, among other things, the appointment, compensation, retention, and oversight of our independent registered public accounting firm. The oversight includes reviewing the plans and results of the audit engagement with the firm, approving any additional professional services provided by the firm and reviewing the independence of the firm. Commencing with our first report on internal controls over financial reporting, the committee will be responsible for discussing the effectiveness of the internal controls over financial reporting with our independent registered public accounting firm and relevant financial management. The members of this committee will be Messrs. Salontai, Liss, and Pruitt, with Mr. Pruitt initially serving as chairman. Our board of directors has determined that Mr. Pruitt qualifies as an audit committee financial expert, as defined by the rules under the Exchange Act.
Compensation committee . Our compensation committee will consist solely of directors who are independent, as defined under and required by the rules of Nasdaq, non-employee directors under Section 16 of the Exchange Act, and outside directors for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code). The compensation committee will be responsible for, among other things, supervising and reviewing our affairs as they relate to the compensation and benefits of our executive officers and non-employee directors. In carrying out these responsibilities, the compensation committee will review all components of executive compensation for consistency with our compensation philosophy and with the interests of our stockholders. The members of this committee will be Messrs. Salontai, Liss and Pruitt, with Mr. Salontai initially serving as chairman.
Nominating and governance committee . Our nominating and governance committee will consist solely of independent directors, as defined under and required by the rules of Nasdaq. The nominating and governance committee will be responsible for, among other things, identifying individuals qualified to become board members; selecting, or recommending to the board of directors, director-nominees for each election of directors; developing and recommending to the board of directors criteria for selecting qualified director candidates; considering committee member qualifications, appointments, and removals; recommending corporate
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governance principles, codes of conduct, and compliance mechanisms; providing oversight in the evaluation of the board of directors and each committee; and developing an appropriate succession plan for our chief executive officer. The members of this committee will be Messrs. Salontai, Liss, and Pruitt, with Mr. Liss initially serving as chairman.
Board Leadership Structure
We do not currently separate the roles of Chief Executive Officer and Chairman of the Board. Our board of directors has determined, in connection with our adoption of certain corporate governance principles in connection with this offering, that one of our independent directors should serve as a lead director at any time when the title of Chairman is held by an employee director or there is no current Chairman. The lead directors responsibilities will include, among other things, presiding over periodic meetings of our independent directors and overseeing the function of our board of directors and committees. Our board of directors intends to appoint Mr. Liss as our lead independent director effective upon the closing of this offering.
Board of Directors Role in Risk Oversight
One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors will not have a standing risk management committee, but rather intends to administer this oversight function directly through our board of directors as a whole, as well as through various board of directors standing committees that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure, and our audit committee will have the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures. The audit committee also will have the responsibility to issue guidelines and policies to govern the process by which risk assessment and management is undertaken, monitor compliance with legal and regulatory requirements, and oversee the performance of our internal audit function. Our nominating and corporate governance committee will monitor the effectiveness of our corporate governance guidelines, including whether they are successful in preventing illegal or improper liability-creating conduct. Our compensation committee will assess and monitor whether any of our compensation policies and programs have the potential to encourage excessive risk-taking.
Limitation of Liability and Indemnification
For information concerning limitation of liability and indemnification applicable to our directors, executive officers, and, in certain cases, employees, please see Description of Capital Stock located elsewhere in this prospectus.
Code of Business Conduct and Ethics
In connection with this offering, our board of directors will adopt a code of business conduct and ethics that will apply to all of our employees, officers, and directors. Upon completion of this offering, the full text of our code of business conduct and ethics will be available on our website at www.nv5.com. Information on, or accessible through, our website is not part of this prospectus. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website.
Director Compensation
Beginning upon the consummation of this offering, we intend to pay our non-employee directors an annual cash retainer of $30,000 for their board service, payable in quarterly cash installments, and a per meeting fee of $1,000 for each in-person meeting of the board of directors attended and $500 for each video or telephonic meeting attended. Each non-employee director may elect once a year to receive stock in lieu of the cash retainer. In addition, each non-employee director will receive, upon his or her initial appointment to our board of directors
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and each subsequent election to serve an additional one-year term, an equity award under our 2011 Equity Plan, as discussed below, valued at $20,000 on the date of grant. Such equity awards are expected to be subject to a one-year vesting requirement and are expected to be made by our board of directors within one week of each such appointment or election. We will reimburse all of our directors for reasonable expenses incurred to attend our board and board committee meetings.
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Compensation of Named Executive Officers
The following table sets forth the total compensation earned for services rendered during fiscal year 2012 by our named executive officers who consist of our principal executive officer, our principal financial officer, and our three other most highly compensated executive officers. Our named executive officers for 2012 are set forth in the table below.
2012 SUMMARY COMPENSATION TABLE
Name and Principal Position |
Year |
Salary
($) |
Bonus
($) |
Stock
Awards ($) (2) |
Option
Awards ($) |
Non-Equity
Incentive Plan Compensation ($) |
All Other
Compensation ($) (3) |
Total
($) |
||||||||||||||||||||||||
Dickerson Wright |
2012 | $ | 400,000 | $ | | $ | 49,987 | $ | | $ | | $ | | $ | 449,987 | |||||||||||||||||
Chairman, Chief Executive Officer and President |
||||||||||||||||||||||||||||||||
Richard Tong |
2012 | $ | 230,000 | $ | 20,000 | $ | 19,993 | $ | | $ | | $ | 9,600 | $ | 279,593 | |||||||||||||||||
Executive Vice President and Secretary |
||||||||||||||||||||||||||||||||
Alexander A. Hockman |
2012 | $ | 290,385 | (1) | $ | 100,000 | $ | 19,993 | $ | | $ | | $ | | $ | 410,378 | ||||||||||||||||
Executive Vice President |
||||||||||||||||||||||||||||||||
Donald C. Alford |
2012 | $ | 240,000 | $ | | $ | | $ | | $ | | $ | 7,200 | $ | 247,200 | |||||||||||||||||
Executive Vice President |
||||||||||||||||||||||||||||||||
Michael P. Rama |
2012 | $ | 178,077 | $ | | $ | 2,502 | $ | | $ | | $ | | $ | 180,579 | |||||||||||||||||
Vice President and Chief Financial Officer |
(1) | Mr. Hockmans annual salary was increased to $300,000 effective March 4, 2012. |
(2) | Represents restricted shares granted in April 2012 pursuant to our 2011 Equity Plan. The restricted shares fair value was estimated to be $7.21 per share, the estimated fair value of the Companys equity on the grant date. These restricted share awards provide for service based vesting after three years. |
(3) | Such named executive officer participated in our 401(k) plan and received a 2012 employer match that may be subject to forfeiture. |
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Outstanding Equity Awards
The following table sets forth information with respect to outstanding equity awards at the end of fiscal year 2012 for our named executive officers.
Name and
|
Number of
Securities Underlying Unexercised Options (#) |
Number of
Securities Underlying Unexercised Options Exercisable (#) |
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option
Exercise Price ($) |
Option
Expiration Date ($) |
Number
of Shares or Units of Stock that Have Not Vested (#) |
Market
Value of Shares or Units of Stock that Have Not Vested ($) (1) |
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#) |
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested ($) |
|||||||||||||||||||||||||||
Dickerson Wright |
| | | | | 6,933 | $ | 49,987 | (1) | | | |||||||||||||||||||||||||
Richard Tong |
| | | | | 65,624 | $ | 473,149 | (1) | | | |||||||||||||||||||||||||
Alexander A. Hockman |
| | | | | 128,474 | $ | 926,298 | (1) | | | |||||||||||||||||||||||||
Donald C. Alford |
| | | | | 62,851 | $ | 453,156 | (1) | | | |||||||||||||||||||||||||
Michael P. Rama |
| | | | | 347 | $ | 2,502 | (1) | | |
(1) | Calculated by multiplying the number of restricted shares of common stock held by $7.21, which is an internal estimated price per share as December 31, 2012 since there is no trading market for our shares. |
Employment Agreements
We have written employment agreements with certain of our named executive officers that provide for, among other things, the payment of base salary, reimbursement of certain costs and expenses, and for each named executive officers participation in our bonus plan and employee benefit plans.
We entered into employment agreements with Donald Alford effective August 1, 2010, Richard Tong and Alexander A. Hockman effective October 1, 2010, Dickerson Wright effective April 11, 2011, and Michael Rama effective January 25, 2012 that govern the terms of their respective service with us. With the exception of Mr. Wrights employment agreement, each agreement provides for a term of employment commencing on the date of the agreement and continuing until we or the executive provide 30-days written notice of termination to the other party, upon termination by us for cause, or upon the executives death or disability. Except with respect to certain items of compensation, as described below, the terms of each agreement are similar in all material respects.
The agreements provide for an annual base salary of $240,000 for Mr. Alford, $200,000 for each of Messrs. Tong and Hockman, and $180,000 for Mr. Rama, subject to annual review by our board of directors. Mr. Tongs annual base salary was increased by our board of directors to $230,000 effective October 3, 2011, and Mr. Hockmans annual base salary was increased by our board of directors to $250,000 effective February 1, 2011. Messrs. Tongs, Hockmans, and Ramas agreements entitle such executive to receive up to a 50% performance bonus based on criteria established upon employment and to receive reimbursement of expenses incurred in connection with the business in an amount not to exceed on an annual basis 10% of such executives annual base salary. Mr. Alfords agreement entitles him to receive up to a 75% performance bonus based on criteria established upon employment and to receive reimbursement of all reasonable and necessary expenses incurred in connection with the business. Mr. Alfolds agreement also entitles him to a $600 per month auto allowance.
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The agreement with Mr. Wright provides for an annual base salary of $400,000, subject to annual review by our board of directors and subject to an annual increase equal to the greater of a CPI adjustment or 5%. The agreement with Mr. Wright entitles him to receive up to a 75% performance bonus based on criteria established by our board of directors and to receive reimbursement of all reasonable expenses incurred in connection with the business.
On March 18, 2011, we entered into an amendment to each of Messrs. Tongs and Hockmans agreements providing that in the event of a Change in Control, as defined below, during the term of executives employment we are obligated to pay such executive a single lump sum payment, within 30 days of the termination of such executives employment, equal to such executives annual base salary for two years, plus any unused vacation pay and the value of the annual fringe benefits for the year immediately preceding the year in which such executives employment terminates, plus the value of the portion of such executives benefits under any savings, pension or profit sharing plans that are forfeited under those plans by reason of the termination of such executives employment. Further, if a Change in Control occurs during such executives employment, then such executives equity awards, if any, shall immediately vest, notwithstanding any other provision in such respective agreement to the contrary. A Change in Control means approval by our stockholders of (i)(a) a reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were our stockholders immediately prior to such transaction do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated companys then outstanding voting securities, in substantially the same proportions as their ownership immediately prior to such transaction, (b) our liquidation or dissolution, or (c) the sale of all or substantially all of our assets (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned); or (ii) the acquisition in a transaction or series or transactions by any person, entity or group, within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, of more than 50% of either the then outstanding shares of common stock or the combined voting power of our then outstanding voting securities entitled to vote generally in the election of directors (a Controlling Interest), excluding any acquisitions by (a) us or our subsidiaries, (b) any person, entity or group that as of the date of the amendments to the employment agreements owns beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act of a Controlling Interest, or (c) any employee benefit plan of ours or our subsidiaries.
Each agreement entitles the executive to receive customary and usual fringe benefits generally available to our executive officers, and to be reimbursed for reasonable out-of-pocket business expenses. Pursuant to Mr. Wrights employment agreement, we have also agreed to pay monthly management fees of $5,500 to a non-related third party, Chatham Enterprises, LLC, relating to an aircraft in which Mr. Wright has an ownership interest.
Except as described below with respect to Mr. Wrights employment agreement, the agreements prohibit the executives from engaging in any work that creates an actual conflict of interest with us, and include customary confidentiality, non-competition and non-solicitation covenants that prohibit such executives, during their employment with us and for 12 months thereafter, from (i) using or disclosing any confidential proprietary information of our company, (ii) engaging in any manner, or sharing in the earnings of or investing in, any person or entity engaged in any business that is in the same line of business as us, (iii) soliciting our current customers with whom such executive has contact on our behalf during the two years immediately preceding such executives termination, (iv) inducing or attempting to induce any of our employees to leave our employ, and (v) interfering with the business of our company by way of disrupting our relationships with customers, agents, representatives or vendors. Mr. Wrights agreement provides that (i) the foregoing non-competition covenant does not apply following the termination of employment if his employment is terminated without cause or for good reason (as defined below), (ii) the foregoing non-solicitation of employees covenant applies with respect to any current employee or any former employee who was employed by us within the prior six months, and (iii) the foregoing non-solicitation of customers covenant applies to all actual or targeted prospective clients of ours to the extent solicited on behalf of any person or entity in connection with any business competitive with our business.
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As consideration and compensation to such executives for, and subject to such executives adherence to the above covenants and limitations, we have agreed that during the one-year non-competition period following each such executives termination to continue to pay each such executives base salary in the same manner as if such executive continued to be employed by us.
Unless otherwise noted above, upon termination of employment under the agreements, we are only required to pay the executives such portions of their respective annual base salary that have accrued and remain unpaid through the effective date of such executives termination, and we have no further obligation whatsoever to such executive other than reimbursement of previously incurred expenses which are appropriately reimbursable under our expense reimbursement policy; provided, however, that in the event of termination of employment due to the death of an executive, we will continue to pay to such executives estate such executives annual base salary for the period through the end of the calendar month in which such death occurs.
In the event of a merger or consolidation of our company with another corporation or entity, or if substantially all of our assets are sold or otherwise transferred to another corporation or entity, the provisions of the agreements will be binding upon and inure to the benefit of the continuing or surviving corporation.
Change in Control Provisions, Severance Benefits and Employment Agreements
We have not adopted a companywide severance policy. With the exception of Mr. Wrights employment agreement, which provides for an initial term of five years, all of our employees are considered at-will and their employment can be terminated by either us or the employee upon 30 days written notice. While certain named executive officers employment agreements contain provisions related to payments due to the executive upon a Change in Control of our company, with the exception of Mr. Wrights employment agreement and the payments to each of the other named executive officers during the one-year non-competition period, none of our employment agreements provide for post-termination benefits unrelated to a Change in Control.
The following table sets forth information with respect to the value of payments or vesting acceleration, as applicable, such named executive officer would be entitled to receive assuming a qualifying termination or Change in Control, as applicable, as of December 31, 2012.
Name and Principal Position |
Severance
Amount ($) |
Early Vesting
of Stock Options ($) |
Early
Vesting of Restricted Stock ($) (1) |
Continuation
of Benefits ($) |
Unused
Vacation ($) |
Total
($) |
||||||||||||||||||
Dickerson Wright |
$ | 1,316,667 | (6) | | $ | 49,987 | $ | 21,916 | $ | 52,320 | $ | 1,440,890 | ||||||||||||
Richard Tong |
$ | 460,000 | | $ | 473,142 | (2) | $ | 20,215 | $ | 13,319 | $ | 966,676 | ||||||||||||
Alexander A. Hockman |
$ | 600,000 | | $ | 926,298 | (3) | $ | 21,886 | $ | 18,401 | $ | 1,566,585 | ||||||||||||
Donald C. Alford |
$ | 480,000 | | $ | 453,156 | (4) | $ | 634 | $ | 9,080 | $ | 942,870 | ||||||||||||
Michael P. Rama |
$ | | | $ | | $ | | $ | 6,218 | $ | 6,218 | |||||||||||||
MaryJo OBrien |
$ | 350,000 | $ | 473,149 | (5) | $ | 13,281 | $ | 15,524 | $ | 851,954 |
(1) | Calculated by multiplying early vesting of restricted shares by $7.21 which is based on an internal estimate price per share as of December 31, 2012. |
(2) | Reflects vesting of 65,623 restricted shares. |
(3) | Reflects vesting of 128,474 restricted shares. |
(4) | Reflects vesting of 62,851 restricted shares. |
(5) | Reflects vesting of 65,624 restricted shares. |
(6) | In accordance with Mr. Wrights Agreement severance upon termination without cause, resignation for good reason, death or disability will be paid for the longer of (i) the remain of his employment term or (ii) twelve months. |
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Payments Made Under Mr. Wrights Employment Agreement
The following discussion applies exclusively to Mr. Wright, our Chairman, Chief Executive Officer, and President.
Upon termination for cause or resignation without good reason. In the event Mr. Wright is terminated for cause or resigns his employment without good reason, we are required pursuant to Mr. Wrights employment agreement to:
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pay Mr. Wright any unpaid base salary earned through the date of termination or resignation; and |
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reimburse Mr. Wright for reasonable business expenses incurred prior to the date of termination or resignation. |
Under Mr. Wrights employment agreement cause is defined to include (i) an action or omission of the executive which constitutes a willful and material breach of, or failure or refusal (other than by reason of disability) to perform his duties under Mr. Wrights employment agreement, which is not cured within 15 days after notice thereof, (ii) fraud, embezzlement, misappropriation of funds or breach of trust in connection with his services under Mr. Wrights employment agreement or (iii) conviction of a felony.
Under Mr. Wrights employment agreement, good reason is defined to include (i) the assignment to the executive of any duties or responsibilities inconsistent in any respect with the executives position or a similar position in our company or one of our subsidiaries, or any other action by us, which results in a material diminution in such position, authority, duties or responsibilities; (ii) any failure by us to comply with certain provisions of Mr. Wrights employment agreement; (iii) a material breach by us of our obligations to Mr. Wright under his employment agreement (which have not been cured within thirty (30) days after notice of such breach from the executive); and (iv) our requiring Mr. Wright to be based at any office or location outside of the area for which he was originally hired to work, except where such change in work location does not represent a material change in the geographic location at which Mr. Wright is required to provide services.
Upon termination without cause, resignation for good reason, death or disability. In the event Mr. Wright is terminated without cause, resigns his employment for good reason, dies or becomes disabled, we are required pursuant to Mr. Wrights employment agreement to:
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continue to pay Mr. Wrights base salary for the longer of (i) the remainder of his employment term or (ii) twelve months; |
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continue to allow Mr. Wright to participate in all benefit plans offered by us to our executives for a period of twelve months from the date of termination or resignation or, if participation in any such plan is not possible, pay the Mr. Wright (or his estate, as applicable) cash equal to the value of the benefit that otherwise would have accrued for the executives benefit under such plan for the period during which such benefits could not be provided under the plan; |
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reimburse Mr. Wright for reasonable business expenses incurred prior to the date of termination or resignation; and |
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pay Mr. Wright (or his estate, as applicable) for any unused vacation days within 30 days of the date of termination or resignation. |
Upon Mr. Wrights termination without cause, Mr. Wrights stock options shall immediately vest, notwithstanding any provisions of such stock option agreements to the contrary.
Payments made upon termination following a change in control. In the event that following a Change in Control, as defined below, Mr. Wright is terminated without cause or resigns for good reason within one year of the event causing the Change in Control, we are required pursuant to Mr. Wrights employment agreement to:
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pay Mr. Wright any unpaid base salary earned through the date of termination or resignation, |
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pay Mr. Wright a single lump sum payment of: the value of his base salary for the longer of (i) the remainder of his employment term or (ii) twelve months, the value of annual fringe benefits paid to him in the year preceding the year of termination, the value of any unused vacation days and the value of the portion of his benefits under any deferred compensation plan which are forfeited for reason of the termination, and |
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reimburse the executive for reasonable business expenses incurred prior to the date of termination or resignation. |
A Change in Control will be deemed to occur pursuant to Mr. Wrights employment agreement in the event the stockholders of our company approve (x) the sale of substantially all of our assets, (y) our liquidation or dissolution or (z) a merger or other similar transaction which would result in our stockholders prior to the transaction owning 50% or less of the combined voting power of the merged entity immediately following the transaction. In addition, with certain exceptions, a Change in Control will be deemed to occur upon any person or groups acquisition of more than 50% of our outstanding shares of common stock or voting power.
Under the provisions of Mr. Wrights employment agreement, if a Change in Control occurs during his term of employment, any stock options held by Mr. Wright shall immediately vest, notwithstanding any provisions of such stock option agreements to the contrary.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the compensation arrangements with directors and executive officers described above in Management, the following is a description of each transaction since January 1, 2010 and each currently proposed transaction in which (i) we have been or are to be a participant, (ii) the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year end, and (iii) any of our directors, executive officers, holders of more than 5% of our capital stock, or any member of their immediate families or person sharing their household had or will have a direct or indirect material interest.
Sales of Unregistered Securities
In August 2010, we granted an aggregate of 207,991 shares of restricted common stock of NV5 to certain of our executive officers and directors, which are scheduled to vest and become fully transferable on the earlier of August 1, 2015 or one day prior to a Change of Control, as such term is defined in and pursuant to the terms of the respective Restricted Stock Award Agreements dated August 1, 2010 under which such shares were granted. Such shares are included in the beneficial ownership table included in this prospectus.
In October 2010, we sold an aggregate of 77,323 shares of common stock of NV5 to certain of our executive officers and directors for an aggregate purchase price of approximately $1.1 million. Such shares are included in the beneficial ownership table included in this prospectus.
In October 2011, NV5 and Nolte completed a reorganization transaction in which NV5 Holdings was incorporated as a Delaware corporation, acquired all of the outstanding shares of NV5 and Nolte, and, as a result, became the holding company under which NV5 and Nolte conduct operations. By virtue of the reorganization transaction, each share of common stock of NV5 then held by certain of our executive officers and directors was converted into the right to receive approximately 1.5 shares.
Guarantees
Mr. Dickerson Wright and the Wright Family Trust, of which Mr. Wright is the trustee, have provided guarantees to our lender in connection with our Line Facilities and Term Loan. Mr. Wrights guarantee remains in effect for the term of the Line Facilities and Term Loan, regardless of his continuing employment. As of September 30, 2012, December 31, 2011 and 2010, the outstanding balance on the Line Facilities was $2.0 million, $0 and $0, respectively. As of September 30, 2012, December 31, 2011 and 2010, we had outstanding balances of $1.8 million, $2.2 million and $2.8 million, respectively, in connection with the Term Loan.
Repurchase of Common Stock
In August 2012, we repurchased 168,654 shares of common stock from Mr. Kenneth A. Rudolph, former President of Nolte, for a negotiated aggregate purchase price of $1,062,000. We issued a note payable for the repurchase which is payable in eight installments of approximately $133,000 each. The first payment was made on August 17, 2012 and subsequent payments of approximately $133,000 plus interest are payable on each of the next seven anniversary dates. The interest rate on this obligation is 3.25%. The outstanding balance on this obligation is approximately $929,000 as of September 30, 2012.
Indemnification Agreements
In connection with this offering, we intend to enter into indemnification agreements with each of our directors and our executive officers. These agreements will provide that we will indemnify each of our directors and such officers to the fullest extent permitted by law and by our charter and bylaws.
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Purchase of Units
Messrs. Wright, Tong, Hockman, Alford and Rama and our other interested directors, officers, employees and other individuals associated with us and members of their families have given indications of interest to purchase up to an aggregate of $2 million of Units in this offering. Because indications of interest are not binding agreements or commitments to purchase, such officers and director-nominees may elect not to purchase any Units in this offering. The purchasers will use their own funds personally or through wholly owned entities to make such purchases.
Policies and Procedures for Related Party Transactions
In connection with this offering, we intend to adopt a policy and procedures with respect to transactions involving related persons, effective as of the date of and applicable to transactions on or after the offering, pursuant to which our executive officers, directors and principal stockholders, including their immediate family members and affiliates, will not be permitted to enter into a related person transaction described below with us without the prior consent of our audit committee in the event it is inappropriate for our audit committee to review such transaction due to a conflict of interest. Any request for us to enter into a transaction with an executive officer, director, principal stockholder or any of such persons immediate family members or affiliates, in which the amount involved exceeds $120,000, will first be presented to our audit committee for review, consideration and approval. All of our directors and executive officers will be required to report to our General Counsel or Chair of the audit committee any such related person transaction. In approving or rejecting the proposed agreement, our audit committee shall consider the facts and circumstances available and deemed relevant to the audit committee, including, but not limited to, costs and benefits to us, the terms of the transaction, the availability of other sources for comparable services or products, and, if applicable, the impact on a directors independence. Our audit committee shall approve only those agreements that, in light of known circumstances, are in, or are not inconsistent with, our best interests and the best interests of our stockholders, as our audit committee determines in the good faith exercise of its discretion. Under the policy, if we should discover related person transactions that have not been approved, the audit committee will be notified and will determine the appropriate action, including ratification, rescission or amendment of the transaction.
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BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial ownership of our common stock as of February 28, 2013, and as adjusted to reflect the sale of our Shares included in the Units offered by this prospectus (assuming none of the individuals listed purchase Units in this offering, although certain such individuals have provided indications of interest in this regard to the underwriters), by:
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each person, or group of affiliated persons, known to us to own beneficially more than 5% of our common stock; |
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each of our current directors; |
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each of our named executive officers; and |
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all of our current directors and executive officers as a group. |
The information in the following table has been presented in accordance with the rules of the Securities and Exchange Commission. Under such rules, beneficial ownership of a class of capital stock includes any Shares of such class as to which a person, directly or indirectly, has or shares voting power or investment power and also any shares as to which a person has the right to acquire such voting or investment power within 60 days through the exercise of any stock option, warrant, or other right. If two or more persons share voting power or investment power with respect to specific securities, each such person is deemed to be the beneficial owner of such securities. Except as we otherwise indicate below and under applicable community property laws, we believe that the beneficial owners of the common stock listed below, based on information they have furnished to us, have sole voting and investment power with respect to the shares shown. Except as otherwise indicated, each stockholder named in the table is assumed to have sole voting and investment power with respect to the number of shares listed opposite the stockholders name. Except as otherwise indicated, the address of each of the individuals and entities named below is 200 South Park Road, Suite 350, Hollywood, Florida 33021.
The calculations of beneficial ownership in this table are based on 2,600,000 shares of common stock outstanding at February 28, 2013, and assume that we will issue 1,000,000 Shares as part of the Units in this offering.
Beneficially Owned Prior to
the Offering (1) |
Beneficially Owned
After Offering |
Beneficially Owned
After Over-Allotment (2) |
||||||||||||||||||||||
Shares | Percent | Shares | Percent | Shares | Percent | |||||||||||||||||||
5% Stockholders: |
||||||||||||||||||||||||
N/A |
| | % | | | % | | | % | |||||||||||||||
Directors and Executive Officers: |
||||||||||||||||||||||||
Dickerson Wright (3)(8) |
1,821,610 | 70.1 | % | 1,821,610 | 50.6 | % | 1,821,610 | 48.6 | % | |||||||||||||||
Richard Tong (4)(8) |
69,164 | 2.7 | % | 49,880 | 1.4 | % | 49,880 | 1.3 | % | |||||||||||||||
Alexander A. Hockman (5)(8) |
137,130 | 5.3 | % | 98,896 | 2.7 | % | 98,896 | 2.6 | % | |||||||||||||||
Donald C. Alford (6)(8) |
67,177 | 2.6 | % | 48,447 | 1.3 | % | 48,447 | 1.3 | % | |||||||||||||||
Michael P. Rama (7)(8) |
347 | * | 347 | * | 347 | * | ||||||||||||||||||
All directors and executive officers as a group (6 persons) |
2,164,592 | 83.3 | % | 2,164,592 | 60.1 | % | 2,164,592 | 57.7 | % |
* | Less than 1%. |
(1) | The percentage of beneficial ownership as to any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days after such date, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days after such date. Consequently, the denominator for calculating beneficial ownership percentages may be different for each beneficial owner. |
(2) | Amounts presented assume that the over-allotment option is exercised in full. |
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(3) | These shares are collectively held by the Wright Family Trust dated December 12, 1990, the Katherine Wright 2010 GRAT dated June 28, 2010, the Dickerson Wright 2010 GRAT dated June 28, 2010, the Katherine Wright 2012 GRAT dated November 9, 2012, and the Dickerson Wright 2012 GRAT dated November 9, 2012, of which Dickerson Wright is a trustee, of which 6,933 shares are subject to certain restrictions on transfer and assignment, and are scheduled for service based vesting after three years, as set forth in that certain Restricted Stock Award Agreement dated April 18, 2012. |
(4) | Includes 62,851 shares subject to certain restrictions on transfer and assignment, which are scheduled to vest and become fully transferable on the earlier of August 1, 2015 or one day prior to a Change of Control, as such term is defined in that certain Restricted Stock Award Agreement dated August 1, 2010, and includes 2,773 shares subject to certain restrictions on transfer and assignment and are scheduled for service based vesting after three years, as set forth in that certain Restricted Stock Award Agreement dated April 18, 2012. |
(5) | Includes 125,701 shares subject to certain restrictions on transfer and assignment, which are scheduled to vest and become fully transferable on the earlier of August 1, 2015 or one day prior to a Change of Control, as such term is defined in that certain Restricted Stock Award Agreement dated August 1, 2010, and includes 2,773 shares subject to certain restrictions on transfer and assignment and are scheduled for service based vesting after three years, as set forth in that certain Restricted Stock Award Agreement dated April 18, 2012. |
(6) | Includes 62,851 shares subject to certain restrictions on transfer and assignment, which are scheduled to vest and become fully transferable on the earlier of August 1, 2015 or one day prior to a Change of Control, as such term is defined in that certain Restricted Stock Award Agreement dated August 1, 2010. |
(7) | These shares are subject to certain restrictions on transfer and assignment and are scheduled for service based vesting after three years, as set forth in that certain Restricted Stock Award Agreement dated April 18, 2012. |
(8) | Messrs. Wright, Tong, Hockman, Alford and Rama, along with our other interested directors, officers, employees and other individuals associated with us and members of their families, have given indications of interest to purchase up to an aggregate of $2 million of Units in this offering. Because indications of interest are not binding agreements or commitments to purchase, such officers and director-nominees may elect not to purchase any Units in this offering. |
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General
The following description of our capital stock summarizes provisions of our certificate of incorporation and bylaws. Our authorized capital stock consists of 45,000,000 shares of common stock, $0.01 par value per Share, and 5,000,000 shares of undesignated preferred stock, $0.01 par value per share.
The following description of the material provisions of our capital stock and our charter and bylaws is only a summary, does not purport to be complete and is qualified by applicable law and the full provisions of our charter and bylaws. You should refer to our charter and bylaws as in effect upon the closing of this offering, which are included as exhibits to the registration statement of which this prospectus is a part.
Common Stock
As of February 28, 2013, there were 2,600,000 shares of common stock outstanding and held of record by 62 stockholders.
Voting rights . Holders of common stock are entitled to one vote per share on any matter to be voted upon by stockholders. All shares rank equally as to voting and all other matters. The shares of common stock have no preemptive or conversion rights, no redemption or sinking fund provisions, are not liable for further call or assessment and are not entitled to cumulative voting rights.
Dividend rights . For as long as such stock is outstanding, the holders of common stock are entitled to receive ratably any dividends when and as declared from time to time by our board of directors out of funds legally available for dividends. We currently intend to retain all future earnings for the operation and expansion of our business and do not anticipate paying cash dividends on the common stock in the foreseeable future.
Liquidation rights . Upon a liquidation or dissolution of our company, whether voluntary or involuntary, creditors will be paid before any distribution to holders of our common stock. After such distribution, holders of common stock are entitled to receive a pro rata distribution per Share of any excess amount.
Units
Each Unit consists of one Share and one Warrant. The Units will begin trading on , 2013. The Units will automatically separate and each of the Shares and Warrants will trade separately commencing on September , 2013.
Warrants to Be Issued as part of a Unit in this Offering
In connection with the purchase of each Unit, each investor will receive one Share and one Warrant. Each full Warrant entitles the registered holder to purchase one Share at an initial exercise price of $ (which is the midpoint of the price range set forth on the cover page of this prospectus). The Warrants may only be exercised for cash. The Warrants will expire on March , 2018 at 5:00 p.m., New York City time. We may call the Warrants for redemption as follows:
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at a price of $0.01 for each Warrant at any time while the Warrants are exercisable, so long as a registration statement relating to the common stock issuable upon exercise of the Warrants is effective and current; |
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upon not less than 30 days prior written notice of redemption to each Warrant holder; and |
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if, and only if, the reported last sale price of the common stock equals or exceeds $ per Share (200% of the offering price of a Unit in this offering) for the 20-trading-day period ending on the third business day prior to the notice of redemption to Warrant holders. |
If the foregoing conditions are satisfied and we call the Warrants for redemption, each Warrant holder will then be entitled to exercise his or her Warrant prior to the date scheduled for redemption. However, there can be
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no assurance that the price of the common stock will exceed the call price or the Warrant exercise price after the redemption call is made.
The Warrants will initially be represented by the certificate representing a Unit, and from and after the Separation Date, will be issued in registered form, in each case pursuant to a Warrant Agreement between Registrar and Transfer Company, as Warrant agent, and us. Until the Separation Date, the Warrants may not be transferred, split up or combined separately from the Shares with which they were sold as a Unit. You should review a copy of the Warrant agreement, which has been filed as an exhibit to the registration statement of which this prospectus is a part, for a complete description of the terms and conditions applicable to the Warrants.
The exercise price and number of Shares issuable on exercise of the Warrants may be adjusted in certain circumstances, including but not limited to in the event of a stock split, stock dividend, recapitalization, reorganization, merger or consolidation. However, the Warrants will not be adjusted for the issuances of common stock or securities convertible or exercisable into common stock at a price below the then current exercise price of the Warrants.
The Warrants may be exercised upon surrender of the Warrant certificate on or prior to the expiration date at the offices of the Warrant agent, with the exercise form on the reverse side of the Warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified check payable to us or by wire transfer of immediately available funds to an account designated by us, for the number of Warrants being exercised. The Warrant holders do not have the rights or privileges of holders of common stock and any voting rights until they exercise their Warrants and received Shares. After issuance of Shares upon exercise of the Warrants, each holder will be entitled to one vote for each Share held of record on all matters to be voted on by stockholders.
No Warrants will be exercisable unless at the time of exercise a prospectus relating to common stock issuable upon exercise of the Warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the Warrants. Under the terms of the Warrant agreement, we have agreed to meet these conditions and use our best efforts to maintain a current prospectus relating to common stock issuable upon exercise of the Warrants until the expiration of the Warrants. However, we cannot assure you that we will be able to do so, and if we do not maintain a current prospectus related to the common stock issuable upon exercise of the Warrants, holders will be unable to exercise their Warrants and we will not be required to settle any such Warrant exercise. If the prospectus relating to the common stock issuable upon the exercise of the Warrants is not current or if the common stock is not qualified or exempt from qualification in the jurisdictions in which the holders of the Warrants reside, we will not be required to net cash settle or cash settle the Warrant exercise, the Warrants may have no value, the market for the Warrants may be limited and the Warrants may expire worthless.
Undesignated Preferred Stock
Under our charter, our board of directors has authority to issue undesignated preferred stock without stockholder approval. Our board of directors may also determine or alter for each class of preferred stock the voting powers, designations, preferences, and special rights, qualifications, limitations, or restrictions as permitted by law. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. Issuing preferred stock provides flexibility in connection with possible acquisitions and other corporate purposes, but could also, among other things, have the effect of delaying, deferring or preventing a change in control of our company and may adversely affect the market price of our common stock and the voting and other rights of the holders of common stock.
Anti-Takeover Provisions in Our Charter and Bylaws
Our charter and bylaws include a number of provisions that may have the effect of encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of
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directors rather than pursue non-negotiated takeover attempts. These provisions include the items described below.
Removal of directors and filling board vacancies . Our bylaws provide that directors may be removed with or without cause by the affirmative vote of the holders of a majority of the voting power of all the outstanding Shares of capital stock entitled to vote generally in the election of directors voting together as a single class. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase in the size of our board, may only be filled by the affirmative vote of a majority of our directors then in office even if less than a quorum.
No written consent of stockholders . Our charter provides that, effective upon the completion of this offering, all stockholder actions are required to be taken by a vote of the stockholders at an annual or special meeting, and that stockholders may not take any action by written consent in lieu of a meeting.
Meetings of stockholders . Our bylaws provide that only a majority of the members of our board of directors then in office may call special meetings of stockholders and only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders. Our bylaws limit the business that may be conducted at an annual meeting of stockholders to those matters properly brought before the meeting.
Advance notice requirements . Our bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not earlier than the close of business on the 120th day, nor later than the close of business on the 90th day, prior to the first anniversary date of the annual meeting for the preceding year. The notice must contain certain information specified in the bylaws.
Amendment to bylaws and charter . As required by the Delaware General Corporation Law, any amendment of our charter must first be approved by a majority of our board of directors and, if required by law or our charter, thereafter be approved by a majority of the outstanding shares entitled to vote on the amendment, and a majority of the outstanding shares of each class entitled to vote thereon as a class, except that the amendment of the provisions relating to stockholder action, directors, limitation of liability and the amendment of our bylaws and certificate of incorporation must be approved by no less than 66 2/3 percent of the voting power of all of the shares of capital stock issued and outstanding and entitled to vote generally in any election of directors, voting together as a single class. Our bylaws may be amended by the affirmative vote of a majority vote of the directors then in office, subject to any limitations set forth in the bylaws; and may also be amended by the affirmative vote of at least 66 2/3 percent of the voting power of all of the shares of capital stock issued and outstanding and entitled to vote generally in any election of directors, voting together as a single class.
Blank check preferred stock . Our charter authorizes 5,000,000 shares of preferred stock. The existence of authorized but unissued shares of preferred stock may enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest, or otherwise. For example, if in the due exercise of its fiduciary obligations, our board of directors were to determine that a takeover proposal is not in the best interests of us or our stockholders, our board of directors could cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group. In this regard, our certificate of incorporation grants our board of directors broad power to establish the rights and preferences of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets available for distribution to holders of shares. The issuance may also adversely affect the rights and powers, including voting rights, of these holders and may have the effect of delaying, deterring, or preventing a change in control of us.
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Section 203 of the Delaware General Corporation Law
Upon completion of this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a three-year period following the time that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. A business combination includes, among other things, a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns, or did own within three years prior to the determination of interested stockholder status, 15% or more of the corporations voting stock. Under Section 203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:
|
before the stockholder became interested, the board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
|
upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances; or |
|
at or after the time the stockholder became interested, the business combination was approved by the board of directors of the corporation and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder. |
Limitations of Director Liability and Indemnification of Directors, Officers, and Employees
As permitted by the Delaware General Corporation Law, provisions in our charter and bylaws that will be in effect at the closing of this offering will limit or eliminate the personal liability of our directors. Consequently, directors will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as a director, except for liability for:
|
any breach of the directors duty of loyalty to us or our stockholders; |
|
any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
|
any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or |
|
any transaction from which the director derived an improper personal benefit. |
These limitations of liability do not alter director liability under the federal securities laws and do not affect the availability of equitable remedies, such as an injunction or rescission.
In addition, our bylaws provide that:
|
we will indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions, including an exception for indemnification in connection with a proceeding (or counterclaim) initiated by such persons; and |
|
we will advance expenses, including attorneys fees, to our directors and officers in connection with legal proceedings, subject to limited exceptions. |
Contemporaneous with the completion of this offering, we intend to enter into indemnification agreements with each of our executive officers and directors. These agreements provide that, subject to limited exceptions
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and among other things, we will indemnify each of our executive officers and directors to the fullest extent permitted by law and advance expenses to each indemnity in connection with any proceeding in which a right to indemnification is available.
We also intend to maintain general liability insurance that covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons who control our company, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholders investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. We believe that these provisions, the indemnification agreements and the insurance are necessary to attract and retain talented and experienced directors and officers.
At present, there is no pending litigation or proceeding involving any of our directors or officers where indemnification will be required or permitted. We are not aware of any threatened litigation or proceedings that might result in a claim for such indemnification.
Nasdaq
Before the date of this prospectus, there has been no public market for our Units, Shares, or Warrants. We have applied to have our Units approved for listing on the Nasdaq Capital Market, subject to notice of issuance, under the symbol NVEE.U. Once the securities comprising the Units begin separate trading, we anticipate that the Shares and Warrants will be listed on the Nasdaq Capital Market under the symbols NVEE and NVEE.W, respectively.
Transfer Agent and Registrar and Warrant Agent
The transfer agent and registrar for our securities and Warrant agent for our Warrants is Registrar and Transfer Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this offering, we will have outstanding an aggregate of approximately 3,600,000 shares of common stock, or 3,750,000 shares if the underwriters exercise their over-allotment option in full. Of these shares, 1,000,000 Shares to be sold in this offering, or 1,150,000 Shares if the underwriters exercise their over-allotment option in full, will be freely tradable without restriction or need for further registration under the Securities Act, unless the Shares are held by any of our affiliates, as that term is defined in Rule 144 of the Securities Act. All remaining Shares were issued and sold by us in private transactions and are eligible for public sale only if registered under the Securities Act or sold in accordance with Rule 144 which is discussed below.
The holders of all of our currently outstanding stock are subject to lock-up agreements under which they have agreed not to transfer or dispose of, directly or indirectly, any shares or any securities convertible into or exercisable or exchangeable for shares, for a period of 180 days after the date of this prospectus, which is subject to extension in some circumstances, as discussed below.
As a result of the lock-up agreements described below and the provisions of Rule 144 under the Securities Act, outstanding shares (excluding the Shares to be sold in this offering) will be available for sale in the public market as follows:
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no shares will be eligible for sale on the date of this prospectus; |
|
no shares will be eligible for sale under Rule 144 beginning 90 days after the date of this prospectus; and |
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2,600,000 shares will be eligible for sale upon the expiration of the lock-up agreements, as more particularly and except as described below, beginning after expiration of the lock-up period pursuant to Rule 144. |
Rule 144
In general, under Rule 144, beginning 90 days after the date of this prospectus, a person who is not our affiliate, has not been our affiliate for the previous three months, and who has beneficially owned Shares for at least six months may sell all such shares. An affiliate or a person who has been our affiliate within the previous 90 days, and who has beneficially owned shares for at least six months, may sell within any three-month period a number of shares that does not exceed the greater of:
|
one percent of the number of shares then outstanding, which will equal approximately shares immediately after this offering; and |
|
the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. |
All sales under Rule 144 are subject to the availability of current public information about us. Sales under Rule 144 by affiliates or persons who have been affiliates within the previous 90 days are also subject to manner of sale provisions and notice requirements. Upon expiration of the 180-day lock-up period, subject to any extension of the lock-up period under circumstances described below, approximately 2,600,000 shares of our outstanding restricted securities will be eligible for sale under Rule 144.
Registration Statement on Form S-8
We intend to file a registration statement on Form S-8 under the Securities Act covering up to 554,658 shares reserved for issuance under our 2011 Equity Plan. This registration statement is expected to be filed soon after the date of this prospectus and will automatically become effective upon filing. Accordingly, shares registered under such registration statement will be available for sale in the open market, unless such shares are subject to vesting restrictions with us or are otherwise subject to the lock-up agreements and manner of sale and notice requirements that apply to affiliates under Rule 144 described above.
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Lock-up Agreements
For a description of the lock-up agreements with the underwriters that restrict sales of shares by us, and our executive officers and directors, and certain holders of our securities, see the information under the heading Underwriting.
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We have entered into an underwriting agreement with Roth Capital Partners, LLC, acting as the representative of the underwriters named below, with respect to the securities subject to this offering. Subject to certain conditions, we have agreed to sell to the underwriters, and the underwriters have agreed to purchase, the number of Units provided below opposite their respective names.
Underwriter |
Number of
Units |
|||
Roth Capital Partners, LLC |
1,000,000 | |||
|
|
|||
Total |
1,000,000 | |||
|
|
The underwriters are offering the Units, subject to their acceptance of the securities from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the securities offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the securities if any such securities are taken. However, the underwriters are not required to take or pay for the securities covered by the underwriters over-allotment option described below.
At our request, the underwriters have reserved up to $2 million of Units, or % of the Units offered by this prospectus, for sale to Messrs. Wright, Tong, Hockman, Alford and Rama and our other interested directors, officers, employees and other individuals associated with us and members of their families. All of the persons purchasing such Units must commit to purchase no later than the close of business on the day following the date of this prospectus. The number of Units available for sale to the general public will be reduced to the extent these persons purchase the reserved Units. Units committed to be purchased by such persons that are not so purchased will be reallocated for sale to the general public in the offering. All such sales of reserved Units will be made at the initial public offering price set forth on the cover page of this prospectus.
Over-Allotment Option
We have granted the underwriters an option, exercisable for 45 days from the date of this prospectus, to purchase up to 150,000 additional Units to cover over-allotments, if any, at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the securities offered by this prospectus. If the underwriters exercise this option, each underwriter will be obligated, subject to certain conditions, to purchase a number of additional Units proportionate to that underwriters initial purchase commitment as indicated in the table above.
Commission and Expenses
The underwriters have advised us that they propose to offer the Units to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per Unit. The underwriters may allow, and certain dealers may re-allow, a discount from the concession not in excess of $ per Unit to certain brokers and dealers. After this offering, the initial public offering price, concession and reallowance to dealers may be reduced by the representatives. No such reduction shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus. The securities are offered by the underwriters as stated herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. The underwriters have informed us that they do not intend to confirm sales to any accounts over which they exercise discretionary authority.
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The following table shows the underwriting discounts and commissions payable to the underwriters by us in connection with this offering. Such amounts are shown assuming both no exercise and full exercise of the underwriters over-allotment option to purchase securities.
Fee Per Unit(1) |
Total Without Exercise of
Over-Allotment |
Total With Exercise of
Over-Allotment |
||||||||||
Public offering price |
$ | $ | $ | |||||||||
Discount |
$ | $ | $ |
(1) | The fees do not include the Underwriter Warrants or expense reimbursement provisions described below. |
We have also agreed to issue to Roth Capital Partners, LLC warrants to purchase Units equal to 10% of the Units issued in the offering. The Underwriter Warrants will have an exercise price equal to 120% of the offering price of the Units sold in this offering and may be exercised on a cashless basis. The Underwriter Warrants are exercisable commencing one year after the effective date of the registration statement related to this offering, and will be exercisable for two years thereafter. The Underwriter Warrants are not redeemable by us. The Underwriter Warrants also provides for one demand registration of the shares of common stock underlying the Warrants included therein at our expense, an additional demand at the warrant holders expense and unlimited piggyback registration rights at our expense with respect to the underlying shares of common stock during the three year period commencing six months after the closing date. The Underwriter Warrants and the Units (including the Shares and Warrants underlying the Units), have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. Roth Capital Partners, LLC (or permitted assignees under the Rule) may not sell, transfer, assign, pledge, or hypothecate the Underwriter Warrants or the securities underlying the Underwriter Warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the Underwriter Warrants or the underlying securities for a period of 180 days from the date of this prospectus. Additionally, the Underwriter Warrants may not be sold transferred, assigned, pledged or hypothecated for a 180 day period following the effective date of the registration statement except to any underwriter and selected dealer participating in the offering and their bona fide officers or partners. The Underwriter Warrants will provide for adjustment in the number and price of such Underwriter Warrants (and the Shares and Warrants underlying such Underwriter Warrants) in the event of recapitalization, merger or other structural transaction to prevent mechanical dilution.
We have also agreed to reimburse Roth Capital Partners, LLC for certain out-of-pocket expenses incurred by them, including fees and disbursements of their counsel up to an aggregate of $150,000, with respect to this offering.
We estimate that expenses payable by us in connection with the offering of our common stock, other than the underwriting discounts and commissions and the counsel fees and disbursement reimbursement provisions referred to above, will be approximately $0.8 million.
Indemnification
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the underwriting agreement, or to contribute to payments that the underwriters may be required to make in respect of those liabilities.
Lock-Up Agreements
Our executive officers, directors and certain of our stockholders, which represent in aggregate 100% of our currently outstanding shares of common stock, have agreed to a 180-day lock-up from the effective date of this prospectus of shares of common stock that they beneficially own, including the issuance of common stock upon
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the exercise of currently outstanding convertible securities and options and options which may be issued. This means that, for a period of 180 days following the effective date of this prospectus, such persons may not offer, sell, pledge or otherwise dispose of these securities without the prior written consent of the representative of the underwriters. The lock-up period described in the preceding paragraph will be extended if we cease to be an emerging growth company at any time prior to the expiration of the lock-up period and if (1) during the last 17 days of the lock-up period we issue an earnings release or material news or a material event relating to us occurs or (2) prior to the expiration of the lock-up period we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, in which case the lock-up period will be extended until the expiration of the 18-day period beginning on the date of issuance of the earnings release or the occurrence of the material news or material event.
The representative of the underwriters has no present intention to waive or shorten the lock-up period; however, the terms of the lock-up agreements may be waived at its discretion. In determining whether to waive the terms of the lockup agreements, the representative of the underwriters may base its decision on its assessment of the relative strengths of the securities markets and companies similar to ours in general, and the trading pattern of, and demand for, our securities in general.
In addition, the underwriting agreement provides that we will not, for a period of 180 days following the effective date of this prospectus, offer, sell or distribute any of our securities, without the prior written consent of the representative of the underwriters.
Listing
We have applied to have our Units approved for listing on the Nasdaq Capital Market, subject to notice of issuance, under the symbol NVEE.U. Once the securities comprising the Units begin separate trading, we anticipate that the Shares and Warrants will be listed on the Nasdaq Capital Market under the symbols NVEE and NVEE.W, respectively.
Electronic Distribution
A prospectus in electronic format may be made available on websites or through other online services maintained by one or more of the underwriters of this offering, or by their affiliates. Other than the prospectus in electronic format, the information on any underwriters website and any information contained in any other website maintained by an underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.
Price Stabilization, Short Positions and Penalty Bids
In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act:
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Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. |
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Over-allotment involves sales by the underwriters of Shares in excess of the number of Shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of Shares over-allotted by the underwriter is not greater than the number of Shares that it may purchase in the over-allotment option. In a naked short position, the number of Shares involved is greater than the number of Shares in the over-allotment option. The underwriter may |
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close out any covered short position by either exercising its over-allotment option and/or purchasing Shares in the open market. |
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Syndicate covering transactions involve purchases of Shares of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of Shares to close out the short position, the underwriters will consider, among other things, the price of Shares available for purchase in the open market as compared to the price at which it may purchase Shares through the over-allotment option. If the underwriters sell more Shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying Shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the Shares in the open market after pricing that could adversely affect investors who purchase in the offering. |
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Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our securities or preventing or retarding a decline in the market price of our securities. As a result, the price of our securities may be higher than the price that might otherwise exist in the open market. Neither we nor the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our securities. In addition, neither we nor the underwriters makes any representations that the underwriters will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.
No Public Market
Prior to this offering, there has not been a public market for our securities in the U.S. and the public offering price for our securities, including the exercise price of the Warrants, will be determined through negotiations between us and the underwriters. Among the factors to be considered in these negotiations will be prevailing market conditions, our financial information, market valuations of other companies that we and the underwriters believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant.
We offer no assurances that the initial public offering price will correspond to the price at which our common stock will trade in the public market subsequent to this offering or that an active trading market for our common stock will develop and continue after this offering.
Notice to Prospective Investors in the European Economic Area
In relation to each Member State of the European Economic Area (EEA) which has implemented the Prospectus Directive (each, a Relevant Member State) an offer to the public of any securities which are the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any securities may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
(a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts;
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(c) by the underwriters to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives for any such offer; or
(d) in any other circumstances falling within Article 3(2) of the Prospectus Directive;
provided that no such offer of securities shall result in a requirement for the publication by us or any representative of a prospectus pursuant to Article 3 of the Prospectus Directive.
Any person making or intending to make any offer of securities within the EEA should only do so in circumstances in which no obligation arises for us or any of the underwriters to produce a prospectus for such offer.
Neither we nor the underwriters have authorized, nor do they authorize, the making of any offer of securities through any financial intermediary, other than offers made by the underwriters which constitute the final offering of securities contemplated in this prospectus.
For the purposes of this provision, and your representation below, the expression an offer to the public in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any securities to be offered so as to enable an investor to decide to purchase any securities, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State. The expression 2010 PD Amending Directive means Directive 2010/73/EU.
Each person in a Relevant Member State who receives any communication in respect of, or who acquires any securities under, the offer of securities contemplated by this prospectus will be deemed to have represented, warranted and agreed to and with us and each underwriter that:
(A) it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive; and
(B) in the case of any securities acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (i) the securities acquired by it in the offering have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors, as defined in the Prospectus Directive, or in circumstances in which the prior consent of the representatives has been given to the offer or resale; or (ii) where securities have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of those securities to it is not treated under the Prospectus Directive as having been made to such persons.
In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are qualified investors, as defined in the Prospectus Directive, (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the Order) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the United Kingdom, any investment or investment activity to which this document relates is only available to, and will be engaged in with, relevant persons.
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Other Relationships
Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions.
The validity of the securities offered by this prospectus and other legal matters will be passed upon for us by DLA Piper LLP (US), Phoenix, Arizona. The underwriters have been represented by Loeb & Loeb LLP, New York, New York.
The financial statements included in this prospectus and elsewhere in the registration statement have so been included in reliance upon the report of Grant Thornton LLP, independent registered public accountants, upon the authority of said firm as experts in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act and the rules and regulations under the Securities Act for the registration of common stock being offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all the information that is in the registration statement and its exhibits and schedules. Certain portions of the registration statement have been omitted as allowed by the rules and regulations of the SEC. Statements in this prospectus that summarize documents are not necessarily complete, and in each case you should refer to the copy of the document filed as an exhibit to the registration statement. You may read and copy the registration statement, including exhibits and schedules filed with it, and reports or other information we may file with the Securities and Exchange Commission at the public reference facilities of the Securities and Exchange Commission at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms. In addition, the registration statement and other public filings can be obtained from the Securities and Exchange Commissions website at www.sec.gov.
Upon completion of this offering, we will become subject to information and periodic reporting requirements of the Exchange Act and we will file annual, quarterly and current reports, proxy statements, and other information with the Securities and Exchange Commission.
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NV5 HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
Unaudited Consolidated Financial Statements: |
||||
Consolidated Unaudited Balance Sheets as of September 30, 2012 (unaudited) and December 31, 2011 |
F-2 | |||
Consolidated Unaudited Statements of Income for the nine months ended September 30, 2012 and 2011 |
F-3 | |||
F-4 | ||||
F-5 | ||||
F-7 | ||||
Audited Consolidated Financial Statements: |
||||
F-25 | ||||
Consolidated Balance Sheets as of December 31, 2010 and 2011 |
F-26 | |||
Consolidated Statements of Operations for the years ended December 31, 2010 and 2011 |
F-27 | |||
F-28 | ||||
Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2011 |
F-29 | |||
F-31 | ||||
Pro Forma Condensed Consolidated Financial Statement (Unaudited): |
||||
Pro Forma Condensed Consolidated Statement of Operations (unaudited) |
F-54 | |||
Notes to Pro Forma Condensed Consolidated Statement of Operations (unaudited) |
F-56 |
F-1
NV5 Holdings, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, 2011 | September 30, 2012 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 2,762 | $ | 1,568 | ||||
Accounts receivable, net of allowance for doubtful accounts of $1,770 and $1,284 as of September 30, 2012 and December 31, 2011, respectively |
15,457 | 17,756 | ||||||
Prepaid expenses and other current assets |
393 | 559 | ||||||
Deferred income tax assets |
| 357 | ||||||
|
|
|
|
|||||
Total current assets |
18,612 | 20,240 | ||||||
Property and equipment, net |
1,256 | 1,291 | ||||||
Intangible assets, net |
2,386 | 3,011 | ||||||
Goodwill |
4,336 | 5,857 | ||||||
Cash surrender value of officers life insurance |
650 | 655 | ||||||
Other assets |
382 | 676 | ||||||
Deferred income tax asset |
378 | 374 | ||||||
|
|
|
|
|||||
Total Assets |
$ | 28,000 | $ | 32,104 | ||||
|
|
|
|
|||||
Liabilities and Stockholders Equity | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 3,564 | $ | 4,937 | ||||
Accrued liabilities |
3,632 | 4,328 | ||||||
Income taxes payable |
1,811 | 1,300 | ||||||
Billings in excess of costs and estimated earnings on uncompleted contracts |
528 | 418 | ||||||
Client deposits |
182 | 65 | ||||||
Current portion of stock repurchase obligation |
672 | 778 | ||||||
Current portion of notes payable |
1,055 | 2,058 | ||||||
Deferred income taxes |
690 | | ||||||
|
|
|
|
|||||
Total current liabilities |
12,134 | 13,884 | ||||||
Stock repurchase obligations, less current portion |
1,464 | 1,781 | ||||||
Notes payable, less current portion |
3,880 | 6,098 | ||||||
|
|
|
|
|||||
Total liabilities |
17,478 | 21,763 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Preferred stock: $0.01 par value; 5,000,000 shares authorized, no shares issued and outstanding |
| | ||||||
Common stock, $0.01 par value, 45,000,000 shares authorized, 2,549,421 and 2,698,195 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively |
27 | 25 | ||||||
Additional paid-in capital |
9,510 | 8,550 | ||||||
Retained earnings |
985 | 1,766 | ||||||
|
|
|
|
|||||
Total stockholders equity |
10,522 | 10,341 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 28,000 | $ | 32,104 | ||||
|
|
|
|
See accompanying notes to the unaudited consolidated financial statements.
F-2
NV5 Holdings, Inc. and Subsidiaries
CONSOLIDATED UNAUDITED STATEMENTS OF INCOME
(in thousands, except share data)
Nine Months Ended | ||||||||
September 30, 2011 | September 30, 2012 | |||||||
Gross contract revenues |
$ | 48,516 | $ | 45,486 | ||||
Direct costs (excluding depreciation and amortization): |
||||||||
Salaries and wages |
12,987 | 12,672 | ||||||
Sub-consultant services |
8,771 | 7,514 | ||||||
Other direct costs |
1,541 | 1,486 | ||||||
|
|
|
|
|||||
Total direct costs |
23,299 | 21,672 | ||||||
|
|
|
|
|||||
Gross Profit |
25,217 | 23,814 | ||||||
|
|
|
|
|||||
Operating Expenses: |
||||||||
Salaries and wages, payroll taxes and benefits |
13,592 | 14,123 | ||||||
General and administrative |
5,169 | 4,675 | ||||||
Facilities and facilities related |
2,531 | 2,458 | ||||||
Depreciation and amortization |
1,378 | 1,089 | ||||||
Acquisition and restructuring expense |
82 | | ||||||
|
|
|
|
|||||
Total operating expenses |
22,752 | 22,345 | ||||||
|
|
|
|
|||||
Income from continuing operations |
2,465 | 1,469 | ||||||
|
|
|
|
|||||
Other (expense) income: |
||||||||
Interest expense |
(308 | ) | (275 | ) | ||||
|
|
|
|
|||||
Total other (expense) |
(308 | ) | (275 | ) | ||||
|
|
|
|
|||||
Income from continuing operations before income tax expense |
2,157 | 1,194 | ||||||
Income tax (expense) |
(403 | ) | (413 | ) | ||||
|
|
|
|
|||||
Income from continuing operations |
1,754 | 781 | ||||||
Discontinued operations, net of tax |
33 | | ||||||
|
|
|
|
|||||
Net income |
1,787 | 781 | ||||||
Non-controlling interest in (income) of Nolte Associates, Inc., net of tax |
(530 | ) | | |||||
|
|
|
|
|||||
Net earnings attributable to NV5 Holdings, Inc. |
$ | 1,257 | $ | 781 | ||||
|
|
|
|
|||||
Basic Earnings per Share: |
||||||||
Continuing operations |
$ | 0.66 | $ | 0.34 | ||||
Discontinued operations |
0.02 | | ||||||
|
|
|
|
|||||
Total |
$ | 0.68 | $ | 0.34 | ||||
|
|
|
|
|||||
Diluted Earnings per Share: |
||||||||
Continuing operations |
$ | 0.61 | $ | 0.31 | ||||
Discontinued operations |
0.01 | | ||||||
|
|
|
|
|||||
Total |
$ | 0.62 | $ | 0.31 | ||||
|
|
|
|
See accompanying notes to the unaudited consolidated financial statements.
F-3
NV5 Holdings, Inc. and Subsidiaries
CONSOLIDATED UNAUDITED STATEMENTS of CHANGES IN STOCKHOLDERS EQUITY
(in thousands, except share data)
Common Stock |
Additional
Paid-In |
|||||||||||||||||||
Retained | ||||||||||||||||||||
Shares | Amount | Capital | Earnings | Total | ||||||||||||||||
Balance, January 1, 2012 |
2,698,195 | $ | 27 | $ | 9,510 | $ | 985 | $ | 10,522 | |||||||||||
Stock compensation |
| | 152 | | 152 | |||||||||||||||
Restricted stock issuance |
37,924 | | | | | |||||||||||||||
Repurchase of common stock |
(186,698 | ) | (2 | ) | (1,112 | ) | | (1,114 | ) | |||||||||||
Net income |
| | | 781 | 781 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, September 30, 2012 |
2,549,421 | $ | 25 | $ | 8,550 | $ | 1,766 | $ | 10,341 | |||||||||||
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited consolidated financial statements.
F-4
NV5 Holdings, Inc. and Subsidiaries
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended | ||||||||
September 30,
2011 |
September 30,
2012 |
|||||||
Cash Flows From Operating Activities: |
||||||||
Net income |
$ | 1,787 | $ | 781 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
||||||||
Depreciation and amortization |
1,378 | 1,089 | ||||||
Provision for doubtful accounts |
362 | 294 | ||||||
Stock compensation |
115 | 152 | ||||||
(Gain) on disposal of property and equipment |
(50 | ) | | |||||
Deferred income taxes (benefit) |
(595 | ) | (1,044 | ) | ||||
Changes in operating assets and liabilities, net of effects of acquisitions: |
||||||||
Accounts receivable |
(183 | ) | (1,824 | ) | ||||
Prepaid expenses and other current assets |
145 | (459 | ) | |||||
Net change in cash surrender value of officers life insurance |
(6 | ) | (4 | ) | ||||
Accounts payable |
(657 | ) | 1,293 | |||||
Accrued liabilities |
338 | 180 | ||||||
Income taxes payable |
(118 | ) | (510 | ) | ||||
Client deposits |
(24 | ) | (116 | ) | ||||
Billings in excess of costs and estimated earnings on uncompleted contracts |
(569 | ) | (111 | ) | ||||
|
|
|
|
|||||
Net cash (used in) provided by operating activities |
1,923 | (279 | ) | |||||
|
|
|
|
|||||
Cash Flows From Investing Activities: |
||||||||
Cash paid for acquisition of Kaco |
| (1,000 | ) | |||||
Proceeds from disposition or sale of property and equipment |
51 | | ||||||
Purchase of property and equipment |
(252 | ) | (445 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(201 | ) | (1,445 | ) | ||||
|
|
|
|
|||||
Cash Flows From Financing Activities: |
||||||||
Borrowings from line of credit |
| 2,250 | ||||||
Payments on long-term debt |
(1,282 | ) | (1,029 | ) | ||||
Payments on stock repurchase obligation |
(463 | ) | (637 | ) | ||||
Payments for non-controlling interest shares |
(351 | ) | | |||||
Payments made for repurchase of common stock |
| (54 | ) | |||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
(2,096 | ) | 530 | |||||
|
|
|
|
|||||
Net (Decrease) in Cash and Cash Equivalents |
(374 | ) | (1,194 | ) | ||||
Cash and cash equivalents beginning of period |
3,438 | 2,762 | ||||||
|
|
|
|
|||||
Cash and cash equivalents end of period |
$ | 3,064 | $ | 1,568 | ||||
|
|
|
|
See accompanying notes to the unaudited consolidated financial statements.
F-5
NV5 Holdings, Inc. and Subsidiaries
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended | ||||||||
September 30,
2011 |
September 30,
2012 |
|||||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid for interest |
$ | 292 | $ | 252 | ||||
Cash paid for income taxes |
$ | 1,194 | $ | 1,968 | ||||
Non-cash financing activities: |
||||||||
Note payable issued for stock repurchase |
$ | | $ | 1,062 | ||||
Non-Cash investing activities from acquisition of Kaco: |
||||||||
Note payable for acquisition |
$ | | $ | 2,000 | ||||
Stock Payable for acquisition |
$ | | 500 | |||||
Transactions as part of spin-off of Nolte de Mexico: |
||||||||
Assumption of note payable to bank |
$ | 40 | | |||||
Redemption of non-controlling interest |
$ | (406 | ) | | ||||
Transfer of property and equipment |
$ | (78 | ) | | ||||
Distribution of net assets |
$ | (259 | ) | |
See accompanying notes to the unaudited consolidated financial statements.
F-6
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
Note 1 - Organization and Nature of Business Operations
Business
NV5 Holdings, Inc. (Holdings) and its subsidiaries (collectively the Company, we or our) is a holding company providing professional and technical consulting and certification services to public and private sector clients. We focus on the infrastructure, construction, real estate and environmental markets. The scope of our projects includes planning, design, consulting, permitting, inspection and field supervision, and management oversight. We also provide forensic engineering, litigation support, condition assessment and compliance certification. We operate our business through a network of over 20 locations in California, Colorado, Utah, Florida, New Jersey, and in portions of Mexico (until June 2011). We conduct our operations through two primary operating subsidiaries: (i) Nolte Associates, Inc. (Nolte), which began operations in 1949, was incorporated as a California corporation in 1957 and in which we acquired a controlling interest in August 2010, and (ii) NV5, Inc. (NV5), which was incorporated as a Delaware corporation in 2009.
Holdings was incorporated as a Delaware corporation in September 2011 as part of a Plan of Reorganization (the Reorganization), and owns all of the outstanding shares of Nolte and NV5.
Significant Transactions
Pursuant to a series of Buy-Sell agreements with selling stockholders, NV5 (Successor) gained control of Nolte (Predecessor) through the acquisition of a 57% interest in the common stock of Nolte on August 3, 2010 and then acquired an additional 3% interest on December 31, 2010, and an additional 3% interest from August 2011 through September 2011 (the Nolte Transaction). On August 18, 2011, the Board of Directors of Nolte unanimously approved the terms of the Reorganization, whereby the holders of the remaining 37% non-controlling interest in Nolte tendered each of their owned shares of Nolte common stock for 2.5 shares of Holdings common stock, with Nolte becoming a wholly owned subsidiary of Holdings. On October 6, 2011, NV5 and Nolte completed the Reorganization and, thereafter, Holdings (i) issued shares of its common stock to the stockholders of NV5 in exchange for the contribution of their shares of NV5 common stock to Holdings, and (ii) Nolte became a wholly-owned subsidiary of Holdings. Prior to this reorganization, there were 1,464,708 shares of NV5 common stock outstanding. Upon the Reorganization 1,464,708 shares of NV5 common stock were exchanged for 2,213,021 shares of Holdings common stock with an additional 485,174 shares of Holdings common stock issued in conjunction with the Nolte shares tendered for exchange. As a result of the Reorganization transaction, Holdings issued an aggregate of 2,724,764 shares of its common stock and became the holding company under which we conduct our operations. All successor share information referenced herein, including related per share data, has been adjusted to give retroactive effect to the exchanged shares of Holdings for all periods presented. The Reorganization was accounted for as an equity transaction since the Company had a majority interest in Nolte.
Pursuant to an Asset Purchase Agreement, the Company acquired the North American operations for construction quality assurance, testing and geotechnical engineering services from Bureau Veritas North America in March 2010 (BV and the BV Transaction).
On July 27, 2012, the Company acquired certain assets and assumed certain liabilities of Kaderabek Company (Kaco), a 30-person engineering firm headquartered in Miami, Florida. Kaco commenced operations in 1984 and its development and engineering teams have worked on projects in South Florida, the Caribbean, and Central America. See further discussions under Note 4 Business Acquisitions.
The acquisition of Nolte, BV and Kaco were accounted for as business combinations under the acquisition method of accounting. Under this method the assets acquired, liabilities assumed and non-controlling interest
F-7
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
were recorded in the Companys consolidated financial statements at their respective fair values as of the acquisition dates, and the results of these acquisitions are included in the Companys consolidated results from the respective dates of acquisition.
Other Transactions
Effective June 30, 2011, the Company disposed of its interests in a wholly owned subsidiary of Nolte, Nolte de Mexico, Sociedad Anonima de Capital Variable (Nolte de Mexico), as part of an exchange agreement with two members of management of Nolte de Mexico. The Company received approximately $7 in cash and 17,023 shares of Nolte common stock from these two individuals upon the closing of this agreement. The exchange transaction was valued at fair value based on a $23.82 per share price associated with the Nolte shares as of the date of the transaction.
The Nolte de Mexico operations are presented as discontinued operations in the Companys consolidated financial statements in accordance with Accounting Standards Codification (ASC) Topic No. 205-20 Presentation of Financial Statements Discontinued Operations , and summarized financial information underlying this presentation is included in Note 17.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of the Company are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States (GAAP) and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting of interim financial information. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The consolidated financial statements include the accounts of the Company and all subsidiaries. All intercompany accounts and transactions have been eliminated, and a non-controlling interest has been established to reflect the less than majority ownership of Nolte in the periods prior to the effective date of the Reorganization.
In the opinion of management, the accompanying unaudited interim consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of the dates and for the periods presented. Accordingly, these statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2011. The results of operations for the nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for any future period or for the full 2012 fiscal year.
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 financial statements and the reported amount of revenues and expenses during the reporting period. These estimates and assumptions are based on managements most recent assessment of underlying facts and circumstances using the most recent information available. Actual results could differ significantly from these estimates and assumptions, and the differences could be material.
Estimates and assumptions are evaluated periodically and adjusted when necessary. The more significant estimates affecting amounts reported in the consolidated financial statements relate to the valuation of our
F-8
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
intangible assets, revenue recognition on the percentage-of-completion method, allowances for uncollectible accounts and reserves for professional liability claims.
Cash and Cash Equivalents
Cash and cash equivalents include cash on deposit with financial institutions and investments in high quality overnight money market funds, all of which have maturities of three months or less. The Company from time to time may be exposed to credit risk with its bank deposits in excess of the FDIC insurance limits and with uninsured money market investments. Management believes cash and cash equivalent balances are not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
Concentration of Credit Risk
Trade receivable balances carried by the Company are comprised of accounts from a diverse client base across a broad range of industries and are not collateralized. However, approximately 75% of our revenues for the nine months ended September 30, 2012 are from California-based projects and approximately 20% of revenues for the nine months ended September 30, 2012 are from one client. Furthermore, approximately 62% of our accounts receivable is from government and government-related contracts. As management continually evaluates the creditworthiness of these and future clients, the risk of credit default is considered limited.
Fair Value of Financial Instruments
A financial instruments categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of valuation hierarchy are defined as follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The Company considers cash, cash equivalents, accounts receivable, income tax receivable, accounts payable, accrued liabilities and debt obligations to meet the definition of financial instruments. The carrying amount of cash, cash equivalents, income tax receivable, accounts payable and accrued liabilities approximate their fair value due to the relatively short period of time between their origination and their expected realization or payment. The carrying amounts of debt obligations approximate their fair values as the terms are comparable to terms currently offered by local lending institutions for arrangements with similar terms to industry peers with comparable credit characteristics.
Property and Equipment
Property and equipment is stated at cost. Property and equipment acquired in a business combination is stated at fair value at the acquisition date. The Company capitalizes the cost of improvements to property and
F-9
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
equipment that increase the value or extend the useful lives of the assets. Normal repair and maintenance costs are expensed as incurred. Depreciation and amortization is computed on a straight-line basis over the following estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the lesser of their estimated useful lives or the remaining terms of the related lease agreement.
Asset |
Depreciation Period | |
Office furniture and equipment |
5 Years | |
Computer equipment |
3 Years | |
Survey and field equipment |
5 Years | |
Leasehold improvements |
Lesser of the estimated useful lives or
remaining term of the lease |
Property and equipment balances are periodically reviewed by management for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. If an indicator of impairment exists, the Company compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment is measured as the difference between fair value and carrying value, with fair value typically based on a discounted cash flow model. The Company has not recognized an impairment charge relating to property and equipment.
Goodwill and Intangible Assets
Goodwill is the excess cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. To determine the amount of goodwill resulting from a business combination, the Company performs an assessment to determine the fair value of the acquired companys tangible and identifiable assets and liabilities. Our goodwill is allocated to the appropriate reporting unit, which is one level below our operating segments.
Goodwill is required to be evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the asset may be impaired. An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. These qualitative factors include: macroeconomic and industry conditions, cost factors, overall financial performance and other relevant entity-specific events. If the entity determines that this threshold is not met, then performing the two-step quantitative impairment test is unnecessary. The two-step impairment test requires a comparison of the carrying value of the assets and liabilities associated with a reporting unit, including goodwill, with the fair value of the reporting unit. The Company determines fair value through multiple valuation techniques. We are required to make certain subjective and complex judgments in assessing whether an event of impairment of goodwill has occurred, including assumptions and estimates used to determine the fair value of our reporting units. If the carrying value of the assets and liabilities exceeds the fair value of the reporting unit, the Company would calculate the implied fair value of its reporting unit goodwill as compared to the carrying value of its reporting unit goodwill to determine the appropriate impairment charge, if any. We have elected to perform our annual goodwill impairment review on August 1 of each year. On August 1, 2012, we conducted our annual impairment test on the goodwill associated with the acquisition of Nolte using the quantitative method of evaluating goodwill. Based on this quantitative analysis we determined the fair value of this reporting unit exceeded the carrying value of this reporting unit therefore the goodwill was not impaired and the Company has not recognized an impairment charge relating to goodwill during the nine months ended September 30, 2012. In the third quarter of 2011, we conducted the annual impairment test using the qualitative method by assessing various factors and determined
F-10
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
that there was no existence of events or circumstances that indicate it is more likely than not that the fair value of the reporting unit was less than its carrying value. Therefore, performing the two-step quantitative impairment test was not necessary for the nine months ended September 30, 2011 thus the Company did not recognize an impairment charge relating to goodwill during the nine months ended September 30, 2011.
Identifiable intangible assets primarily include backlog, customer relationships, patents, trademarks, tradenames and other finite-lived assets. Amortizable intangible assets are amortized over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the assets may be impaired. If an indicator of impairment exists, the Company compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment is measured as the difference between fair value and carrying value, with fair value typically based on a discounted cash flow model. The Company has not recognized an impairment charge relating to amortizable intangible assets during the nine months ended September 30, 2012 or 2011.
See Note 7 for further information on goodwill and identified intangibles.
Earnings per Share
Basic earnings per share is calculated by dividing net income attributable to the Company available to common stockholders by the weighted average number of common shares outstanding for the nine months ended September 30, 2012 and 2011. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The weighted average number of shares outstanding in calculating basic earnings per share for the nine months ended September 30, 2012 and 2011 exclude 415,027 and 377,104 non-vested restricted shares, respectively, issued during 2012 and 2010, however includes 69,330 shares issuable on December 28, 2012 related to the Kaco acquisition on July 27, 2012 (see Note 4).
The following table represents a reconciliation of the net income and weighted average shares outstanding for the calculation of basic and diluted earnings per share for the nine months ended September 30, 2012 and 2011:
Nine Months Ended | ||||||||
September 30,
2011 |
September 30,
2012 |
|||||||
Numerator: |
||||||||
Net income before discontinued operations attributable to Holdings basic and diluted |
$ | 1,224 | $ | 781 | ||||
Net income from discontinued operations attributable to Holdings basic and diluted |
33 | | ||||||
|
|
|
|
|||||
Net income attributable to Holdings basic and diluted |
$ | 1,257 | $ | 781 | ||||
|
|
|
|
|||||
Denominator: |
||||||||
Basic weighted average shares outstanding |
1,835,917 | 2,282,082 | ||||||
Effect of dilutive restricted shares |
192,964 | 213,861 | ||||||
Effect of dilutive issuable shares related to Kaco acquisition |
| 16,580 | ||||||
|
|
|
|
|||||
Diluted weighted average shares outstanding |
2,028,881 | 2,512,523 | ||||||
|
|
|
|
F-11
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
In conjunction with the acquisition of Nolte, we have a note payable to a former stockholder of Nolte whereby up to 25% is convertible to common shares of the Company; at market value upon effective public registration (see Note 9). This convertible debt is excluded from the diluted weighted average shares outstanding since this contingency was not met as of September 30, 2012 and 2011. The pro forma effect on the financial statements for the nine months ended September 30, 2012 and 2011 would increase net income to $834 ($0.47 basic earnings per share and $0.43 diluted earnings per share) and $1,320 ($0.90 basic earnings per share and $0.82 diluted earnings per share), respectively, assuming the offering price per share of $6.00. The proforma effect on the financial statements for the years ended December 31, 2011 and 2010 would increase net income to $1,502 ($0.97 basic earnings per share and $0.89 diluted earnings per share) and decrease net loss to $137 ($0.09 basic and diluted per share), respectively, assuming the offering price per share of $ 6.00.
Revenue Recognition
We enter into contracts with our clients that contain two principal types of pricing provisions: cost-reimbursable and fixed-price. The majority of our contracts are cost-reimbursable contracts that fall under the subcategory of time and materials contracts.
Cost-reimbursable contracts . Cost-reimbursable contracts consist of two similar contract types: time and materials contracts and cost-plus contracts.
|
Time and materials contracts are common for smaller scale professional and technical consulting and certification services projects. Under these types of contracts, there is no predetermined fee. Instead, we negotiate hourly billing rates and charge our clients based upon actual hours expended on a project. In addition, any direct project expenditures are passed through to the client and are typically reimbursed. These contracts may have a fixed-price element in the form of an initial not-to-exceed or guaranteed maximum price provision. |
|
Cost-plus contracts are the predominant contracting method used by U.S. federal, state, and local governments. These contracts provide for reimbursement of the actual costs and overhead (at predetermine rates) we incur, plus a predetermined fee. Under some cost-plus contracts, our fee may be based on quality, schedule, and other performance factors. |
Fixed-price contracts. Fixed-price contracts also consist of two contract types: lump-sum contracts and fixed-unit price contracts.
|
Lump-sum contracts typically require the performance of all of the work under the contract for a specified lump-sum fee, subject to price adjustments if the scope of the project changes or unforeseen conditions arise. Many of our lump-sum contracts are negotiated and arise in the design of projects with a specified scope and project deliverables. |
|
Fixed-unit price contracts typically require the performance of an estimated number of units of work at an agreed price per unit, with the total payment under the contract determined by the actual number of units performed. |
Revenues from engineering services are recognized when services are performed and the revenues are earned in accordance with the accrual basis of accounting.
Revenues from long-term contracts are recognized on the percentage-of-completion method, generally measured by the direct costs incurred to date as compared to the estimated total direct costs for each contract. The Company includes other direct costs (for example, third party field labor, subcontractors, or the procurement
F-12
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
of materials or equipment) in contract revenues and cost of revenue when the costs of these items are incurred, and the Company is responsible for the ultimate acceptability of such costs. Recognition of revenue under this method is dependent upon the accuracy of a variety of estimates, including engineering progress, materials quantities, achievement of milestones, labor productivity and cost estimates. Due to uncertainties inherent in the estimation process, it is possible that actual completion costs may vary from estimates.
If estimated total costs on contracts indicate a loss or reduction to percentage of revenue recognized to date, these losses or reductions are recognized in the period in which the revisions are known. The cumulative effect of revisions to revenues, estimated costs to complete contracts, including penalties, incentive awards, change orders, claims, anticipated losses and others are recorded in the period in which the revisions are identified and the loss can be reasonably estimated. Such revisions could occur in any reporting period and the effects on the results of operations for that reporting period may be material depending on the size of the project or the adjustment.
Change orders and claims typically result from changes in scope, specifications or design, performance, materials, sites, or period of completion. Costs related to change orders and claims are recognized when incurred. Change orders are included in total estimated contract revenue when it is probable that the change order will result in an addition to the contract value and can be reliably estimated.
Federal Acquisition Regulations (FAR), which are applicable to the Companys federal government contracts and may be incorporated in local and state agency contracts, limit the recovery of certain specified indirect costs on contracts. Cost-plus contracts covered by FAR or with certain state and local agencies also may require an audit of actual costs and provide for upward or downward adjustments if actual recoverable costs differ from billed recoverable costs.
Unbilled work results when the appropriate contract revenue amount has been recognized in accordance with the percentage-of-completion accounting method, but a portion of the revenue recorded cannot be billed currently due to the billing terms defined in the contract. The liability Billings in excess of costs and estimated earnings on uncompleted contracts represents billings in excess of contract revenues recognized on these contracts.
Advertising
Advertising costs are charged to expense in the period incurred and amounted to $124 and $50, respectively, for the nine months ended September 30, 2012 and 2011.
Allowance for Doubtful Accounts
The Company reports its receivables net of an allowance for doubtful accounts. The allowance is estimated based on managements evaluation of the contracts involved and the financial condition of clients. Factors the Company considers include, but are not limited to: client type federal government or commercial client, historical performance, historical collection trends and general economic conditions. The allowance is increased by the Companys provision for doubtful accounts charged against income, which is charged against income. All recoveries on receivables previously charged off are credited to the accounts receivable recovery account which are included in income, while direct charge-offs of receivables are deducted from the allowance.
Professional Liability Expense
The Company maintains insurance for business risks including professional liability. For professional liability risks, the Companys retention amount under its claims-made insurance policies includes an accrual for
F-13
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
claims incurred but not reported for any potential liability, including any legal expenses, to be incurred for such claims if they occur. The Companys accruals are based upon historical expense and managements judgment. The Company maintains insurance coverage for various aspects of its business and operations; however the Company has elected to retain a portion of losses that may occur through the use of deductibles, limits and retentions under our insurance programs. Our insurance coverage may subject the Company to some future liability for which it is only partially insured or are completely uninsured. Management believes its estimated accrual for errors, omission and professional liability claims is sufficient and any additional liability over amounts accrued is not expected to have a material effect on the Companys consolidated results of operations or financial position.
Leases
The Companys office leases are classified as operating leases and rent expense is included in facilities and facilities related expense in the Companys consolidated statements of operations. Some lease terms include rent and other concessions and rent escalation clauses which are included in computing minimum lease payments. Minimum lease payments are recognized on a straight-line basis over the minimum lease term. The variance of rent expense recognized from the amounts contractually due pursuant to the underlying leases is reflected as a long or short-term liability or asset in the Companys consolidated balance sheets.
Segment Information
The Company reports segment information in accordance with ASC Topic No. 280 Segment Reporting (Topic No. 280). The Company has identified operating segments at the subsidiary entity level. However, each entitys operating performance has been aggregated into one reportable segment. Each entitys operations meet the aggregation criteria set forth in Topic No. 280. The Companys operating segments are aggregated for financial reporting purposes because they are similar in each of the following areas: economic characteristics, class of customer, nature of service and distribution methods. Revenues from customers are derived from services offered and the Company does not rely on any major customers as a source of revenue.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic No. 740 Income Taxes (Topic No. 740). Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. A valuation allowance against the Companys deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining the need for a valuation allowance, management is required to make assumptions and to apply judgment, including forecasting future earnings, taxable income, and the mix of earnings in the jurisdictions in which the Company operates. Management periodically assesses the need for a valuation allowance based on the Companys current and anticipated results of operations. The need for and the amount of a valuation allowance can change in the near term if operating results and projections change significantly.
The Company recognizes the consolidated financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applied the uncertain tax position guidance to all tax positions for which the statute of limitations remained open. Generally, the Company remains subject to income
F-14
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
tax examinations by its major taxing authorities from inception in 2009. Nolte generally is no longer subject to income tax examinations by its major taxing authorities for years ending before September 28, 2006. The Companys policy is to classify interest accrued as interest expense and penalties as operating expenses. As of September 30, 2012 and December 31, 2011, the Company does not have any material uncertain tax positions.
Note 3 Recent Accounting Pronouncements
In May 2011, the FASB issued amendments to authoritative guidance to establish common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards (IFRSs). These amendments change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between GAAP and IFRSs as well as expand the disclosures for Level 3 measurements. These amendments are to be applied prospectively, and are effective for annual and interim periods beginning after December 15, 2011. The adoption of this amended guidance did not materially expand our disclosures in its consolidated financial statements.
In June 2011, the FASB issued an amendment to authoritative guidance which allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This amendment eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders equity, but does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The provisions of this amendment require retrospective application, and are effective for annual and interim periods beginning after December 15, 2011. The adoption of this guidance did not have a material effect on the Companys consolidated financial statements.
In September 2011, the FASB issued amended guidance on testing goodwill for impairment. Under the new guidance, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If the entity determines that this threshold is not met, then performing the two-step impairment test is unnecessary. The provisions of the new guidance are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entitys financial statements for the most recent annual or interim period have not been issued or, for nonpublic entities, have not yet been made available for issuance. The Company early adopted this new qualitative approach effective with its unaudited consolidated financial statements for the nine months ended September 30, 2011.
In September 2011, the FASB amended its standards requiring additional disclosures about an employers participation in a multiemployer plan. This new guidance is required to be applied retrospectively for all prior periods presented and is effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. The Company does not expect adoption of this standard to have a material impact on our disclosure.
In December 2011, the FASB issued amended guidance requiring companies to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This guidance is required to be applied retrospectively for all prior periods
F-15
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
presented and is effective for annual periods for fiscal years beginning in or after January 1, 2013, and interim periods within those annual fiscal years. The Company does not expect adoption of this standard to have a material impact on its consolidated results of operations and financial condition.
In December 2011, the FASB issued amended guidance to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. This guidance allows companies to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect prior to the new guidance issued in June 2011, which is described above. This new guidance is required to be applied retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The adoption of this standard did not have a material impact on its consolidated results of operations and financial condition.
In July 2012, the FASB issued ASU 2012-02, Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entitys financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
Note 4 Business Acquisitions
The Kaco Transaction
On July 27, 2012, we acquired certain assets and assumed certain liabilities of Kaco, a 30-person firm headquartered in Miami, Florida. Kaco began operations in 1984 and over the years has become recognized for its technical expertise on development and engineering teams for some of the most challenging projects in South Florida, the Caribbean, and Central America. The purchase price was $3,500 in cash, notes and stock. The purchase price consisted of $1,000 in cash; $2,000 promissory note (bearing interest at 3.0% for the first year and 200 basis points over the one-year LIBOR for the years thereafter) which is payable as follows: $500 due by December 28, 2012 and three equal payments of $500 each due on the first, second and third anniversaries of the effective date of July 27, 2012; and $500 of common stock valued at not less than $10.00 per share issuable no later than December 28, 2012. On December 28, 2012, we paid $525 (principal and accrued interest) and issued 69,330 shares of the Companys common stock. The stock payable of $500 is included in Accrued Liabilities as of September 30, 2012 (see Note 8). Acquisition costs of $30 were expensed in the accompanying consolidated statement of income for the nine months ended September 30, 2012.
The Company recognized the assets acquired and the liabilities assumed at their fair values and has recorded an allocation of the purchase price to the Kaco tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of July 27, 2012. Goodwill has been recorded based on the amount by which the purchase price exceeded the fair value of the net assets acquired and is attributable to the
F-16
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
reputation of the businesses acquired, the workforce in place and the synergies to be achieved from this acquisition. The allocation of the purchase price to identifiable intangible assets (customer relationships, customer backlog, trade name and non-compete) is based on valuations performed to determine the fair value of such assets as of the acquisition date.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date:
Accounts receivable |
$ | 771 | ||
Property and equipment |
75 | |||
Intangible assets: |
||||
Customer relationships |
1,014 | |||
Trade name |
82 | |||
Customer backlog |
41 | |||
Non-compete |
92 | |||
|
|
|||
Total Assets |
2,075 | |||
Liabilities |
(96 | ) | ||
|
|
|||
Net assets acquired |
$ | 1,979 | ||
Consideration paid (Cash, Notes and stock) |
3,500 | |||
|
|
|||
Excess consideration paid over the amounts assigned to the net assets acquired (Goodwill) |
$ | 1,521 | ||
|
|
For tax purposes, goodwill from this acquisition is deductible over a fifteen-year period.
The consolidated financial statements of the Company include the results of operations from the business and assets acquired from Kaco from July 28, 2012 to September 30, 2012 and include gross revenues and net income of approximately $813 and $156, respectively.
Note 5 Accounts Receivable, net
Accounts receivable consisted of the following:
December 31,
2011 |
September 30,
2012 |
|||||||
Billed |
$ | 11,577 | $ | 13,773 | ||||
Unbilled |
4,973 | 5,276 | ||||||
Contract retentions |
191 | 477 | ||||||
|
|
|
|
|||||
16,741 | 19,526 | |||||||
Less: allowance for doubtful accounts |
(1,284 | ) | (1,770 | ) | ||||
|
|
|
|
|||||
Accounts receivable, net |
$ | 15,457 | $ | 17,756 | ||||
|
|
|
|
Billed accounts receivable represent amounts billed to clients that remain uncollected as of the balance sheet date. Unbilled accounts receivable represent recognized amounts pending billing pursuant to contract terms or accounts billed after period end, and are expected to be billed and collected within the next 12 months.
F-17
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
Note 6 Property and Equipment
Property and equipment consisted of the following:
December 31,
2011 |
September 30,
2012 |
|||||||
Office furniture and equipment |
$ | 340 | $ | 255 | ||||
Computer equipment |
689 | 897 | ||||||
Survey and field equipment |
605 | 845 | ||||||
Leasehold improvements |
960 | 965 | ||||||
|
|
|
|
|||||
2,594 | 2,962 | |||||||
Accumulated depreciation |
(1,338 | ) | (1,671 | ) | ||||
|
|
|
|
|||||
Property and equipment net |
$ | 1,256 | $ | 1,291 | ||||
|
|
|
|
Depreciation expense for the nine months ended September 30, 2012 and 2011 was $486 and $714, respectively.
Note 7 Intangible Assets
Intangible assets
Intangible assets at September 30, 2012 and December 31, 2011 consist primarily of a trade name, customer backlogs, customer relationships and non-compete as follows:
December 31, 2011 | September 30, 2012 | |||||||||||||||||||||||
Gross
Carrying Amount |
Accumulated
Amortization |
Net Amount |
Gross
Carrying Amount |
Accumulated
Amortization |
Net Amount | |||||||||||||||||||
Customer relationships |
$ | 2,537 | $ | (687 | ) | $ | 1,850 | $ | 3,551 | $ | (966 | ) | $ | 2,585 | ||||||||||
Trade name |
670 | (316 | ) | 354 | 752 | (500 | ) | 252 | ||||||||||||||||
Customer backlog |
575 | (393 | ) | 182 | 616 | (531 | ) | 85 | ||||||||||||||||
Non-compete |
| | | 92 | (3 | ) | 89 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 3,782 | $ | (1,396 | ) | $ | 2,386 | $ | 5,011 | $ | (2,000 | ) | $ | 3,011 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Trade name is amortized on a straight-line basis over its estimated life of three years. Customer backlog and customer relationships are amortized based on the future expected revenues, with weighted average amortization periods ranging from 3.5 to 8 years. Non-compete is amortized over its contractual life of 5 years.
Amortization expense for the nine months ended September 30, 2012 and 2011 was $603 and $665, respectively.
F-18
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
As of September 30, 2012, the future estimated aggregate amortization related to intangible assets is as follows:
Period ending September 30, |
||||
2013 |
$ | 838 | ||
2014 |
573 | |||
2015 |
479 | |||
2016 |
393 | |||
2017 |
299 | |||
Thereafter |
429 | |||
|
|
|||
Total |
$ | 3,011 | ||
|
|
Note 8 Accrued Liabilities
Accrued liabilities consist of the following:
December 31,
2011 |
September 30,
2012 |
|||||||
Acquisition and restructuring expense (see Note 11) |
$ | 15 | $ | | ||||
Deferred rent |
512 | 368 | ||||||
Payroll and related taxes |
535 | 1,310 | ||||||
Professional fees |
406 | 224 | ||||||
Benefits |
792 | 344 | ||||||
Compensated absences |
1,066 | 1,230 | ||||||
Stock payable Kaco acquisition (see Note 4) |
| 500 | ||||||
Other |
306 | 352 | ||||||
|
|
|
|
|||||
Total |
$ | 3,632 | $ | 4,328 | ||||
|
|
|
|
F-19
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
Note 9 Notes Payable
Notes payable consists of the following:
December 31,
2011 |
September 30,
2012 |
|||||||
Two lines of credit facilities totaling $4,000 (the Line Facilities), due October 30, 2013, interest payable monthly at prime rate plus 1% with a minimum of 4.50% until maturity, collateralized by substantially all Company assets, guaranteed by certain stockholders and a wholly owned subsidiary, and contain cross default provisions with each other and with the note payable described below (1) |
$ | | $ | 1,982 | ||||
Note payable to bank, interest at prime rate (minimum 5.0%), due February 1, 2015), payable in monthly installments of $46 and a lump sum of the remaining principal balance outstanding at maturity, collateralized by substantially all Company assets, guaranteed by certain stockholders |
2,248 | 1,834 | ||||||
Note payable to former stockholder of Nolte, interest at prime rate plus 1% (maximum 7.0%), due July 29, 2017, payable in quarterly principal installments of $119. Unsecured and subordinated to note payable to bank, other than monthly principal and interest payments, up to 25% of the then outstanding principal balance is convertible to common shares of the Company, at market value upon effective public registration |
2,661 | 2,303 | ||||||
$2,000 uncollateralized promissory note issued to the former owner of Kaco (bearing interest at 3.0% for the first year and 200 basis points over the one-year LIBOR for the years thereafter) which is payable as follows: $500 due by December 28, 2012 and three equal payments of $500 each due on the first, second and third anniversaries of the effective date of July 27, 2012 |
| 2,000 | ||||||
Loans payable to bank, bearing interest at 7.07% and 4.82%, due October 15, 2012 and December 20, 2013 |
26 | 37 | ||||||
|
|
|
|
|||||
Total debt |
4,935 | 8,156 | ||||||
Less: current maturities |
(1,055 | ) | (2,058 | ) | ||||
|
|
|
|
|||||
Long-term debt, net of current maturities |
$ | 3,880 | $ | 6,098 | ||||
|
|
|
|
(1) | On September 19, 2012, the existing Line Facilities were modified and extended with our current lender. The combined borrowing capacity of the Line Facilities was increased to $4,000 with a new maturity date of October 30, 2013. The interest rate on the Line is prime rate plus 1% with a minimum of 4.50% until maturity, collateralized by substantially all Company assets, guaranteed by certain stockholders and wholly-owned subsidiaries, and contain cross default provisions with the note payable to the same bank with a maturity date of February 1, 2015. |
F-20
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
Future maturities of long-term debt as of September 30, 2012 are as follows:
Period ending September 30, |
||||
2013 |
$ | 2,058 | ||
2014 |
3,517 | |||
2015 |
1,707 | |||
2016 |
477 | |||
2017 |
397 | |||
Thereafter |
| |||
|
|
|||
Total |
$ | 8,156 | ||
|
|
Note 10 Stock Repurchase Obligation
The Stock Repurchase Obligation at September 30, 2012 and December 31, 2011 represents notes payable for the repurchase of common stock of certain former stockholders of Nolte. These notes are unsecured and subordinated to bank debt and the maintenance of related debt covenants, and bear interest from 3.25% to 4.25%. The rates adjust annually based on the prime rate. The notes require quarterly interest and principal payments of approximately $180 through March 2016. The outstanding balance of the stock repurchase obligation was $2,559 and $2,136 as of September 30, 2012 and December 31, 2011, respectively.
During nine months ended September 30, 2012, the Company repurchased 186,698 common shares for an aggregate purchase price of $1,114. The Company issued a note payable for the repurchase of a transaction which is payable in eight installments of $133 each. The first payment was made on August 17, 2012 and subsequent payments of $133 plus interest are payable on each of the next seven anniversary dates. The interest rate on this obligation is 3.25%. The outstanding balance on this obligation is $929 as of September 30, 2012.
Future maturities of these notes as of September 30, 2012 are as follows:
Period ending September 30, |
||||
2013 |
$ | 778 | ||
2014 |
713 | |||
2015 |
474 | |||
2016 |
196 | |||
2017 |
398 | |||
|
|
|||
Total |
$ | 2,559 | ||
|
|
Note 11 Acquisition and Restructuring Expense
In connection with the BV and Nolte transactions, the Company initiated and executed a restructuring plan which included workforce reduction actions and facility closures, and also assumed a restructuring expense liability of $381 related to restructuring activities initiated by Nolte prior to the acquisition date. The Company recognized acquisition and restructuring charges of $0 and $82 for the nine months ended September 30, 2012 and 2011, respectively, which are reflected separately in the consolidated statements of income.
F-21
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
The following table presents a roll forward of the restructuring accrual balance:
September 30,
2012 |
||||
Beginning balance December 31, 2011 |
$ | 15 | ||
Paid during period |
(15 | ) | ||
|
|
|||
Ending balance |
$ | | ||
|
|
Note 12 Leases
The Company leases various office facilities from unrelated parties. These leases expire through 2017 and, in certain cases, provide for escalating rental payments and reimbursement for operating costs. The Company also leases office space from a stockholder on a month-to-month basis and the former owner of Kaco which became a stockholder on December 28, 2012 in conjunction with the Kaco acquisition. For the nine months ended September 30, 2012 and 2011, the Company recognized lease expense of $2,090 and $2,183, respectively, which is included the line item Facilities and facilities related in the consolidated statements of income. Included in these amounts are $77 and $43 for the nine months ended September 30, 2012 and 2011, respectively, for office leases with stockholders of the Company.
Note 13 Commitments and Contingencies
Litigation, Claims and Assessments
From time to time the Company may become subject to threatened and/or asserted claims arising in the ordinary course of business. Management is not aware of any matters, either individually or in the aggregate, that are reasonably possible to have a material adverse effect on the Companys consolidated financial condition, results of operations or liquidity.
Sustainable Nolte Program (SNP)
Nolte sponsored a stock purchase plan which provided an opportunity for certain qualifying employees to invest in Nolte through the purchase of shares of stock that vest over time. The gross values of the shares awarded were initially recorded as bonus payable.
Nolte offered the opportunity for the purchaser to obtain a bank loan guaranteed by Nolte. The bank loan and the bonus were both payable in equal amounts over five years. Shares purchased via the SNP were subject to various vesting percentages, generally on a proportional basis over five years, and Nolte held the shares until such time as they were fully vested. In connection with the acquisition of Nolte, the Company terminated the SNP and assumed the bank loan guarantee issued by Nolte. As of September 30, 2012 and December 31, 2011, this guarantee aggregated approximately $25 and $149, respectively, which is included in Accrued liabilities on the consolidated balance sheets.
Note 14 Officers Life Insurance
Investments in life insurance policies were made with the intention of utilizing them as a long-term funding source for post-retirement benefits. However, they do not represent a committed funding source for these obligations and are subject to claims from creditors. This plan was terminated in conjunction with the Nolte Transaction, and the Company has no further financial obligations under these policies as of September 30, 2012.
The net cash surrender value of these policies at September 30, 2012 and December 31, 2011 was $655 and $650, respectively.
F-22
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
Note 15 Stock-Based Compensation
During September and October 2011, we adopted, and our stockholders approved, respectively, our 2011 Equity Plan (the 2011 Equity Plan), which was subsequently amended and restated in March 2013, to provide our directors, executive officers, and other employees with additional incentives by allowing them to acquire an ownership interest in our business and, as a result, encouraging them to contribute to our success. The 2011 Equity Plan is intended to make available incentives that will assist us to attract, retain, and motivate employees, officers, consultants, and directors by allowing them to acquire an ownership interest in our business, and, as a result, encouraging them to contribute to our success. We may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units, and other cash-based or stock-based awards. A total of 554,658 shares of common stock is authorized and reserved for issuance under the 2011 Equity Plan. This reserve automatically increases on each January 1 from 2014 through 2023, will increase each subsequent anniversary through 2021, by an amount equal to the smaller of (a) 3.5% of the number of shares issued and outstanding on the immediately preceding December 31, or (b) an amount determined by our Board of Directors.
During April 2012, we granted from the 2011 Equity Plan 38,270 restricted shares to management and employees of which 347 shares forfeited during this period with an aggregate deferred compensation amount of approximately $274. The fair value of these shares is based on the estimated fair value of the Companys equity as of the grant date, which was estimated at $7.21 per share. These awards provide for service based vesting after three years.
In 2010, prior to the inception of the 2011 Equity Plan, the Company issued 377,104 restricted shares to management and employees of the Company with an aggregate deferred compensation amount of approximately $765. This grant was not part of the 2011 Equity Plan. Each award is service based, and vests after five years or upon certain other events, subject to each award agreement. The fair value of these shares was calculated based on the estimated fair value of the Companys equity as of the grant date, which was approximately $2.03 per share.
Share-based compensation expense relating to restricted stock awards during the nine months ended September 30, 2012 and 2011 was $152 and $115, respectively. As of September 30, 2012, no shares have vested since the Plan inception, and approximately $669 of deferred compensation is unrecognized at September 30, 2012 which expected to be recognized over the next 3.75 years.
Note 16 Income Taxes
As of September 30, 2012, the Company had current and non-current deferred income tax assets of $731. As of December 31, 2011, the Company had deferred income tax assets of $378 and deferred income tax liabilities of $690. Deferred income tax assets consist primarily of accounting reserves and certain research and development tax credits not currently utilized for tax purposes. Deferred tax liabilities primarily relate to intangible assets, depreciation and amortization expenses and accounting basis adjustments where the Company has a future obligation for tax purposes.
In accordance with ASC Topic No. 270, Interim Financial Reporting and ASC Topic No. 740, at the end of each interim period the Company is required to determine the best estimate of its annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis. Our consolidated effective income tax rate was 34.6% for the nine months ended September 30, 2012. The reduction in the effective tax rate compared to the combined statutory federal and state tax rate of 39.0% is due to the domestic production activities deduction. In January 2013, the federal government extended research and
F-23
NV5 Holdings, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share data)
development tax credits for years 2012 and 2013. Accordingly, we will recognize the benefits for 2012 research and development credits in 2013. Our consolidated effective income tax rate was 18.7% for the nine months ended September 30, 2011. The reduction in the effective tax rate compared to the combined statutory federal and state tax rate of 39.0% is due to the domestic production activities deduction and other tax credits that were available during 2011.
In 2011, the California Franchise Tax Board initiated an examination of Noltes state tax filings and raised various questions about approximately $700 of research and development tax credits generated and included on Noltes tax returns for the years 2005-2010. Nolte responded to these inquiries, but in the fourth quarter of 2012, the California Franchise Tax Board denied these credits in full.
Nolte is vigorously defending its position and believe it has appropriate documentation to support the credits in full. Accordingly, Nolte has not recorded a liability for uncertain tax benefits related to these state or federal research and development credits. Nolte has appealed the ruling and engaged a specialist firm to assist with the appeal.
Note 17 Discontinued Operations
Effective June 30, 2011, the Company disposed of its interests in Nolte de Mexico. As a result of this transaction, the Nolte de Mexico operations has been segregated from continuing operations and presented as discontinued operations in the consolidated statements of income and cash flows for the nine months ended September 30, 2011.
A summary of the results of operations of Nolte de Mexico is as follows:
September 30,
2011 |
||||
Gross contract revenues |
$ | 1,022 | ||
|
|
|||
Pre-tax income |
$ | 33 | ||
|
|
Note 18 Subsequent Event
For its financial statements as of September 30, 2012 and for the nine months then ended, the Company evaluated subsequent events through January 25, 2013, the date on which the financial statements were originally issued, and through March 8, 2013, the date on which the financial statements were available to be reissued. Other than the item mentioned below, there were no events requiring disclosure or adjustment to the consolidated financial statements.
On March 7, 2013, the Companys Board of Directors declared a 1.3866-for-1 forward stock split of its outstanding common stock, to be effected immediately prior to the consummation of this offering. The stock split will result in the issuance of approximately 724,916 additional shares of common stock. All information presented in the accompanying financial statements have been adjusted to reflect this stock split.
F-24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
NV5 Holdings, Inc.
We have audited the accompanying consolidated balance sheets of NV5 Holdings, Inc. (a Delaware Corporation) and subsidiaries (the Successor) as of December 31, 2010 and 2011, and the related consolidated statements of operations, changes in stockholders equity, and cash flows of Nolte Associates, Inc. and subsidiaries (the Predecessor) for the period from October 2, 2009 to August 3, 2010; and the consolidated statements of operations, changes in stockholders equity, and cash flows of NV5 Holdings, Inc. (Successor and collectively with the Predecessor, the Company) for each of the years ended December 31, 2010 and 2011. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NV5 Holdings, Inc. and subsidiaries as of December 31, 2010 and 2011, the results of operations and cash flows of Nolte Associates, Inc. and subsidiaries for the period from October 2, 2009 to August 3, 2010, and the results of operations and cash flows of NV5 Holdings, Inc. and subsidiaries for the years ended December 31, 2010 and 2011 in conformity with accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP
Miami, Florida
April 11, 2012
(except as to the
stock split discussed
in Note 20, which is
as of March 8, 2013)
F-25
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
NV5 Holdings,
Inc.
(Successor) December 31, 2010 |
NV5 Holdings,
Inc.
(Successor) December 31, 2011 |
|||||||
Assets | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 3,438 | $ | 2,762 | ||||
Accounts receivable, net of allowance for doubtful accounts of $1,284 and $238 as of December 31, 2011 and 2010, respectively |
16,687 | 15,457 | ||||||
Prepaid expenses and other current assets |
947 | 393 | ||||||
Assets of discontinued operations |
668 | | ||||||
|
|
|
|
|||||
Total current assets |
21,740 | 18,612 | ||||||
Property and equipment, net |
2,032 | 1,256 | ||||||
Intangible assets, net |
3,259 | 2,386 | ||||||
Goodwill |
4,496 | 4,336 | ||||||
Cash surrender value of officers life insurance |
642 | 650 | ||||||
Other assets |
167 | 382 | ||||||
Deferred tax asset |
| 378 | ||||||
|
|
|
|
|||||
Total Assets |
$ | 32,336 | $ | 28,000 | ||||
|
|
|
|
|||||
Liabilities and Stockholders Equity | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 3,857 | $ | 3,564 | ||||
Accrued liabilities |
4,578 | 3,632 | ||||||
Income taxes payable |
649 | 1,811 | ||||||
Billings in excess of costs and estimated earnings on uncompleted contracts |
1,504 | 528 | ||||||
Client deposits |
104 | 182 | ||||||
Current portion of stock repurchase obligation |
677 | 672 | ||||||
Current portion of notes payable |
1,500 | 1,055 | ||||||
Deferred income taxes |
2,306 | 690 | ||||||
Liabilities of discontinued operations |
410 | | ||||||
|
|
|
|
|||||
Total current liabilities |
15,585 | 12,134 | ||||||
Stock repurchase obligations, less current portion |
2,135 | 1,464 | ||||||
Notes payable, less current portion |
4,909 | 3,880 | ||||||
Deferred income taxes |
27 | | ||||||
|
|
|
|
|||||
Total liabilities |
22,656 | 17,478 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Preferred stock: $0.01 par value; 5,000,000 shares authorized, no shares issued and outstanding |
| | ||||||
Common stock, $0.01 par value, 45,000,000 shares authorized, 2,698,195 and 2,213,021 shares issued and outstanding as of December 31, 2011 and 2010, respectively |
22 | 27 | ||||||
Additional paid-in capital |
5,549 | 9,510 | ||||||
Retained earnings (accumulated deficit) |
(175 | ) | 985 | |||||
Accumulated other comprehensive loss |
(2 | ) | | |||||
|
|
|
|
|||||
Total NV5 Holdings, Inc. stockholders equity |
5,394 | 10,522 | ||||||
Non-controlling interest in Nolte Associates, Inc. |
4,286 | | ||||||
|
|
|
|
|||||
Total stockholders equity |
9,680 | 10,522 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 32,336 | $ | 28,000 | ||||
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-26
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(in thousands, except share data)
Nolte Associates,
Inc.
(Predecessor) |
NV5 Holdings,
Inc.
(Successor) |
|||||||||||
Period
October 2,
2009 to August 3, 2010 |
Year
Ended
December 31, 2010 |
Year
Ended
December 31, 2011 |
||||||||||
Gross contract revenues |
$ | 43,450 | $ | 32,098 | $ | 63,366 | ||||||
Direct costs (excluding depreciation and amortization): |
||||||||||||
Salaries and wages |
11,541 | 8,224 | 16,810 | |||||||||
Sub-consultant services |
7,716 | 6,470 | 11,992 | |||||||||
Other direct costs |
1,397 | 1,172 | 2,146 | |||||||||
|
|
|
|
|
|
|||||||
Total direct costs |
20,654 | 15,866 | 30,948 | |||||||||
|
|
|
|
|
|
|||||||
Gross Profit |
22,796 | 16,232 | 32,418 | |||||||||
|
|
|
|
|
|
|||||||
Operating Expenses: |
||||||||||||
Salaries and wages, payroll taxes and benefits |
13,774 | 8,695 | 17,561 | |||||||||
General and administrative |
4,516 | 4,047 | 6,677 | |||||||||
Facilities and facilities related |
2,725 | 1,569 | 3,408 | |||||||||
Depreciation and amortization |
1,291 | 1,137 | 1,949 | |||||||||
Acquisition and restructuring expense |
446 | 499 | 95 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
22,752 | 15,947 | 29,690 | |||||||||
|
|
|
|
|
|
|||||||
Income from continuing operations |
44 | 285 | 2,728 | |||||||||
|
|
|
|
|
|
|||||||
Other (expense) income: |
||||||||||||
Interest expense |
(115 | ) | (260 | ) | (376 | ) | ||||||
Other, net |
28 | 1 | | |||||||||
|
|
|
|
|
|
|||||||
Total other (expense) |
(87 | ) | (259 | ) | (376 | ) | ||||||
|
|
|
|
|
|
|||||||
Income (loss) from continuing operations before income tax expense |
(43 | ) | 26 | 2,352 | ||||||||
Income tax (expense) benefit |
244 | (132 | ) | (436 | ) | |||||||
|
|
|
|
|
|
|||||||
Income (loss) from continuing operations |
201 | (106 | ) | 1,916 | ||||||||
|
|
|
|
|
|
|||||||
Discontinued operations, net of tax |
(162 | ) | 35 | 33 | ||||||||
|
|
|
|
|
|
|||||||
Net income (loss) |
39 | (71 | ) | 1,949 | ||||||||
Non-controlling interest in (income) of Nolte Associates, Inc., net of tax |
| (104 | ) | (530 | ) | |||||||
|
|
|
|
|
|
|||||||
Net income (loss) attributable to NV5 Holdings, Inc. |
$ | 39 | $ | (175 | ) | $ | 1,419 | |||||
|
|
|
|
|
|
|||||||
Basic Earnings (loss) per Share: |
||||||||||||
Continuing operations |
$ | 0.43 | $ | (0.11 | ) | $ | 0.71 | |||||
Discontinued operations |
(0.31 | ) | 0.02 | 0.02 | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 0.12 | $ | (0.09 | ) | $ | 0.73 | |||||
|
|
|
|
|
|
|||||||
Diluted Earnings (loss) per Share: |
||||||||||||
Continuing operations |
$ | 0.43 | $ | (0.11 | ) | $ | 0.65 | |||||
Discontinued operations |
(0.31 | ) | 0.02 | 0.01 | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 0.12 | $ | (0.09 | ) | $ | 0.66 | |||||
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-27
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS of CHANGES IN STOCKHOLDERS EQUITY
(in thousands, except share data)
See accompanying notes to the consolidated financial statements.
F-28
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nolte
Associates, Inc. (Predecessor) |
NV5 Holdings, Inc.
(Successor) |
|||||||||||
Period from
October 2, 2009 to August 3, 2010 |
Year Ended
December 31, 2010 |
Year Ended
December 31, 2011 |
||||||||||
Cash Flows From Operating Activities: |
||||||||||||
Net income (loss) |
$ | 39 | $ | (71 | ) | $ | 1,949 | |||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||||||
Depreciation and amortization |
1,291 | 1,137 | 1,949 | |||||||||
Provision for doubtful accounts |
220 | 237 | 578 | |||||||||
Stock compensation |
| 64 | 153 | |||||||||
(Gain) loss on disposal of property and equipment |
88 | 3 | (50 | ) | ||||||||
Deferred income taxes (benefit) |
(1,931 | ) | (476 | ) | (2,021 | ) | ||||||
Changes in operating assets and liabilities, net of effects of acquisitions: |
||||||||||||
Accounts receivable |
7,149 | 1,991 | 643 | |||||||||
Prepaid expenses and other current assets |
280 | 314 | 187 | |||||||||
Net change in cash surrender value of officers life insurance |
(58 | ) | 418 | (8 | ) | |||||||
Accounts payable |
(334 | ) | (991 | ) | (481 | ) | ||||||
Accrued liabilities |
(843 | ) | 211 | (817 | ) | |||||||
Income taxes payable |
713 | (142 | ) | 1,240 | ||||||||
Client deposits |
(195 | ) | (3 | ) | 76 | |||||||
Billings in excess of costs and estimated earnings on uncompleted contracts |
584 | (117 | ) | (976 | ) | |||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
7,003 | 2,575 | 2,422 | |||||||||
|
|
|
|
|
|
|||||||
Cash Flows From Investing Activities: |
||||||||||||
Cash paid for acquisitions, net |
| (2,451 | ) | | ||||||||
Proceeds from disposition or sale of property and equipment |
| | 51 | |||||||||
Purchase of property and equipment |
(174 | ) | (218 | ) | (372 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(174 | ) | (2,669 | ) | (321 | ) | ||||||
|
|
|
|
|
|
|||||||
Cash Flows From Financing Activities: |
||||||||||||
Decrease in bank overdraft |
(592 | ) | | | ||||||||
Payments on line of credit |
(3,450 | ) | | |||||||||
Payments on capital lease obligations |
(220 | ) | | | ||||||||
Borrowings on long-term debt |
| 2,800 | | |||||||||
Payments on long-term debt |
(3,167 | ) | (644 | ) | (1,513 | ) | ||||||
Payments on stock repurchase obligation |
(571 | ) | (341 | ) | (677 | ) | ||||||
Payments for non-controlling interest shares |
(250 | ) | (454 | ) | ||||||||
Payments for direct costs of conversion of non-controlling interest shares |
| | (133 | ) | ||||||||
Issuance of mandatorily redeemable common stock |
242 | | | |||||||||
Redemptions of mandatorily redeemable common stock |
(502 | ) | | | ||||||||
Proceeds from issuance of common stock |
| 5,507 | | |||||||||
|
|
|
|
|
|
|||||||
Net cash (used in) provided by financing activities |
(4,810 | ) | 3,622 | (2,777 | ) | |||||||
|
|
|
|
|
|
|||||||
Change in exchange rate |
(10 | ) | (2 | ) | | |||||||
|
|
|
|
|
|
|||||||
Net (Decrease) Increase in Cash and Cash Equivalents |
2,009 | 3,526 | (676 | ) | ||||||||
Less cash from discontinued operations, end of period |
(42 | ) | (88 | ) | | |||||||
Cash and cash equivalents at beginning of period |
270 | | 3,438 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents end of period |
$ | 2,237 | $ | 3,438 | $ | 2,762 | ||||||
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-29
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nolte
Associates, Inc. (Predecessor) |
NV5 Holdings,
Inc.
(Successor) |
|||||||||||
Period from
October 2, 2009 to August 3, 2010 |
Year Ended
December 31, 2010 |
Year Ended
December 31, 2011 |
||||||||||
Supplemental disclosures of cash flow information: |
||||||||||||
Cash paid for interest |
$ | 170 | $ | 181 | $ | 374 | ||||||
Cash paid for income taxes |
552 | 647 | 1,394 | |||||||||
Supplemental disclosures of non-cash investing and financing activities: |
||||||||||||
Conversion of non-controlling interest into common stock |
$ | | $ | | $ | 3,956 | ||||||
Issuance on notes payable for stock redemption |
1,041 | | | |||||||||
Redemption of non-controlling interest stockholder for a note payable |
| 250 | | |||||||||
Reclassification of redeemable common stock from debt to equity |
(9,978 | ) | | | ||||||||
Transactions as part of spin-off of Nolte de Mexico: |
||||||||||||
Assumption of note payable to bank |
$ | | $ | | $ | 40 | ||||||
Redemption of non-controlling interest |
| | (406 | ) | ||||||||
Transfer of property and equipment |
| (78 | ) | |||||||||
Distribution of net assets |
| (259 | ) | |||||||||
Acquisition of Bureau Veritas North America, Inc. (BV): |
||||||||||||
Fair value of assets acquired |
$ | | $ | 5,220 | $ | | ||||||
Fair value of liabilities assumed and incurred |
| (968 | ) | $ | | |||||||
|
|
|
|
|
|
|||||||
Cash paid to acquire assets |
| 4,252 | $ | | ||||||||
|
|
|
|
|
|
|||||||
Acquisition of Nolte Associates, Inc. (Nolte): |
||||||||||||
Fair value of assets acquired |
$ | | $ | 28,204 | $ | | ||||||
Fair value of liabilities assumed and incurred |
| (25,323 | ) | | ||||||||
Fair value of non-controlling interest |
| (4,682 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Cash received upon acquisition of Nolte |
$ | | $ | (1,801 | ) | $ | | |||||
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-30
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Note 1 Organization and Nature of Business Operations
Business
NV5 Holdings, Inc. and its subsidiaries (collectively with Nolte Associates, Inc. and its subsidiaries, the Company, Holdings, we or our) is a holding company providing professional and technical consulting and certification services to public and private sector clients. We focus on the infrastructure, construction, real estate and environmental markets. The scope of our projects includes planning, design, consulting, permitting, inspection and field supervision, and management oversight. We also provide forensic engineering, litigation support, condition assessment and compliance certification. We operate our business through a network of over 20 locations in California, Colorado, Utah, Florida, New Jersey, and in portions of Mexico (until June 2011). We conduct our operations through two primary operating subsidiaries: (i) Nolte Associates, Inc. (Nolte), which began operations in 1949, was incorporated as a California corporation in 1957 and in which we acquired a controlling interest in August 2010, and (ii) NV5, Inc. (NV5), which was incorporated as a Delaware corporation in 2009.
Holdings was incorporated as a Delaware corporation in September 2011 as part of a Plan of Reorganization (the Reorganization), and owns all of the outstanding shares of Nolte and NV5.
Significant Transactions
Pursuant to a series of Buy-Sell agreements with selling stockholders, NV5 (Successor) gained control of Nolte (Predecessor) through the acquisition of a 57% interest in the common stock of Nolte on August 3, 2010 and then acquired an additional 3% interest on December 31, 2010, and an additional 3% interest from August 2011 through September 2011 (the Nolte Transaction). On August 18, 2011, the Board of Directors of Nolte unanimously approved the terms of the Reorganization, whereby the holders of the remaining 37% non-controlling interest in Nolte tendered each of their owned shares of Nolte common stock for 2.5 shares of Holdings common stock, with Nolte becoming a wholly owned subsidiary of Holdings. On October 6, 2011, NV5 and Nolte completed the Reorganization and, thereafter, Holdings (i) issued shares of its common stock to the stockholders of NV5 in exchange for the contribution of their shares of NV5 common stock to Holdings, and (ii) Nolte became a wholly-owned subsidiary of Holdings. Prior to this reorganization, there were 1,464,583 shares of NV5 common stock outstanding. Upon the Reorganization 1,464,583 shares of NV5 common stock were exchanged for 2,213,021 shares of Holdings common stock with an additional 485,174 shares of Holdings common stock issued in conjunction with the Nolte shares tendered for exchange. As a result of the Reorganization transaction, Holdings issued an aggregate of 2,724,764 shares of its common stock and became the holding company under which we conduct our operations. All successor share information referenced herein, including related per share data, has been adjusted to give retroactive effect to the exchanged shares of Holdings for all periods presented. The Reorganization was accounted for as an equity transaction since the Company had a majority interest in Nolte.
Pursuant to an Asset Purchase Agreement, the Company acquired the North American operations for construction quality assurance, testing and geotechnical engineering services from Bureau Veritas North America in March 2010 (BV and the BV Transaction).
These acquisitions were accounted for as business combinations under the acquisition method of accounting. Under this method the assets acquired, liabilities assumed and non-controlling interest were recorded in the Companys consolidated financial statements at their respective fair values as of the acquisition dates, and
F-31
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
the results of these acquisitions are included in the Companys consolidated results from the respective dates of acquisition.
Other Transactions
Effective June 30, 2011, the Company disposed of its interests in a wholly owned subsidiary of Nolte, Nolte de Mexico, Sociedad Anonima de Capital Variable (Nolte de Mexico), as part of an exchange agreement with two members of management of Nolte de Mexico. The Company received approximately $7 in cash and
17,023 shares of Nolte common stock from these two individuals upon the closing of this agreement. The exchange transaction was valued at fair value based on a $23.82 per share price associated with the Nolte shares as of the date of the transaction.
The Nolte de Mexico operations are presented as discontinued operations in the Companys consolidated financial statements in accordance with Accounting Standards Codification (ASC) Topic No. 205-20 Presentation of Financial Statements Discontinued Operations , and summarized financial information underlying this presentation is included in Note 18.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation and Principals of Consolidation
The consolidated financial statements of the Company are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States (GAAP). The consolidated financial statements include the accounts of the Company and all subsidiaries. All intercompany accounts and transactions have been eliminated, and a non-controlling interest has been established to reflect the less than majority ownership of Nolte in the periods prior to the effective date of the Reorganization.
Successor/Predecessor Presentation
Nolte is considered the Companys Predecessor for presentation in the consolidated financial statements as the Company succeeded to substantially all of the business of Nolte as part of the Nolte Transaction. Because NV5s business prior to the Nolte acquisition was insignificant, Nolte is considered to be our historical accounting predecessor for financial statement reporting purposes. Nolte previously reported its financial results for the 52/53 week period ending on the Thursday closest to September 30. References to the period from October 2, 2009 to August 3, 2010 refer to the results of operations and cash flows of Nolte for the period that began on October 2, 2009, the first day of Noltes fiscal year, to August 3, 2010. The Successor consolidated financial statements for the year ended December 31, 2010 include the results of Nolte for the period from the acquisition date to December 31, 2010.
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 financial statements and the reported amount of revenues and expenses during the reporting period. These estimates and assumptions are based on managements most recent assessment of
F-32
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
underlying facts and circumstances using the most recent information available. Actual results could differ significantly from these estimates and assumptions, and the differences could be material.
Estimates and assumptions are evaluated periodically and adjusted when necessary. The more significant estimates affecting amounts reported in the consolidated financial statements relate to the valuation of our intangible assets, revenue recognition on the percentage-of-completion method, allowances for uncollectible accounts and reserves for professional liability claims.
Reclassifications
Certain 2010 financial statement items have been reclassified to conform to the 2011 presentation.
Cash and Cash Equivalents
Cash and cash equivalents include cash on deposit with financial institutions and investments in high quality overnight money market funds, all of which have maturities of three months or less. The Company from time to time may be exposed to credit risk with its bank deposits in excess of the FDIC insurance limits and with uninsured money market investments. Management believes cash and cash equivalent balances are not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
Concentration of Credit Risk
Trade receivable balances carried by the Company are comprised of accounts from a diverse client base across a broad range of industries and are not collateralized. However, approximately 70% of our 2011 revenues are from California-based projects and approximately 14% of our 2011 revenues are from one client. Furthermore, approximately 60% of our accounts receivable is from government and government-related contracts. As management continually evaluates the creditworthiness of these and future clients, the risk of credit default is considered limited.
Fair Value of Financial Instruments
A financial instruments categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of valuation hierarchy are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The Company considers cash, cash equivalents, accounts receivable, income tax receivable, accounts payable, accrued liabilities and debt obligations to meet the definition of financial instruments. The carrying
F-33
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
amount of cash, cash equivalents, income tax receivable, accounts payable and accrued liabilities approximate their fair value due to the relatively short period of time between their origination and their expected realization or payment. The carrying amounts of debt obligations approximate their fair values as the terms are comparable to terms currently offered by local lending institutions for arrangements with similar terms to industry peers with comparable credit characteristics.
Property and Equipment
Property and equipment is stated at cost. Property and equipment acquired in a business combination is stated at fair value at the acquisition date. The Company capitalizes the cost of improvements to property and equipment that increase the value or extend the useful lives of the assets. Normal repair and maintenance costs are expensed as incurred. Depreciation and amortization is computed on a straight-line basis over the following estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the lesser of their estimated useful lives or the remaining terms of the related lease agreement.
Asset |
Depreciation Period | |
Office furniture and equipment | 5 Years | |
Computer equipment | 3 Years | |
Survey and field equipment | 5 Years | |
Leasehold improvements |
Lesser of the estimated useful lives or
remaining term of the lease |
Property and equipment balances are periodically reviewed by management for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. If an indicator of impairment exists, the Company compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment is measured as the difference between fair value and carrying value, with fair value typically based on a discounted cash flow model. The Company has not recognized an impairment charge relating to property and equipment.
Goodwill and Intangible Assets
Goodwill is the excess cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. To determine the amount of goodwill resulting from a business combination, the Company performs an assessment to determine the fair value of the acquired companys tangible and identifiable assets and liabilities. Our goodwill relates primarily to the Nolte reporting unit, which is one level below our operating segments. The goodwill resulted from the August 3, 2010 acquisition of Nolte, which accounts for approximately 98% of our goodwill.
Goodwill is required to be evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the asset may be impaired. Under the new guidance adopted during 2011, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. These qualitative factors include: macroeconomic and industry conditions, cost factors, overall financial performance and other relevant entity-specific events. If the entity determines that this threshold is not met, then performing the two-step quantitative impairment test is unnecessary. The two-step impairment test requires a
F-34
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
comparison of the carrying value of the assets and liabilities associated with a reporting unit, including goodwill, with the fair value of the reporting unit. The Company determines fair value through multiple valuation techniques. We are required to make certain subjective and complex judgments in assessing whether an event of impairment of goodwill has occurred, including assumptions and estimates used to determine the fair value of our reporting units. If the carrying value of the assets and liabilities exceeds the fair value of the reporting unit, the Company would calculate the implied fair value of its reporting unit goodwill as compared to the carrying value of its reporting unit goodwill to determine the appropriate impairment charge, if any. We have elected to perform our annual goodwill impairment review on August 1 of each year. In the third quarter of 2011, we qualitatively assessed various factors and determined that there was no existence of events or circumstances that indicate it is more likely than not that the fair value of the reporting unit is less than its carrying value. Therefore, performing the two-step quantitative impairment test was not necessary. The Company has not recognized an impairment charge relating to goodwill during 2011 or 2010.
Identifiable intangible assets primarily include backlog, customer relationships, patents, trademarks, trade names and other assets. Amortizable intangible assets are amortized over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the assets may be impaired. If an indicator of impairment exists, the Company compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment is measured as the difference between fair value and carrying value, with fair value typically based on a discounted cash flow model. The Company has not recognized an impairment charge relating to amortizable intangible assets during 2011 or 2010.
See Note 7 for further information on goodwill and identified intangibles.
Earnings per Share
Basic earnings (loss) per share is calculated by dividing net income (loss) attributable to the Company available to common stockholders by the weighted average number of common shares outstanding for the years ended December 31, 2011 and 2010 and for the period October 2, 2009 to August 3, 2010. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The weighted average number of shares outstanding in calculating basic earnings per share for the years ended December 31, 2011 and 2010 exclude 377,104 non-vested restricted shares issued during 2010. The computation of diluted earnings (loss) per share for the year ended December 31, 2010 did not assume the effect of restricted shares issued during 2010 because the effects were antidilutive. There were no restricted shares issued subject to vesting during the period October 2, 2009 to August 3, 2010.
F-35
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
The following table represents a reconciliation of the net income (loss) and weighted average shares outstanding for the calculation of basic and diluted earnings per share for the years ended December 31, 2011 and 2010 and for the period October 2, 2009 to August 3, 2010:
Nolte
Associates, Inc. (Predecessor) |
NV5 Holdings,
Inc.
(Successor) |
|||||||||||||||
Period
October 2, 2009 to August 3, 2010 (acquisition) |
Year ended
December 31, 2010 |
Year
ended
December 31, 2011 |
||||||||||||||
Numerator: |
||||||||||||||||
Net income (loss) before discontinued operations attributable to Holdings basic and diluted |
$ | 201 | $ | (210 | ) | $ | 1,386 | |||||||||
Net income (loss) from discontinued operations attributable to Holdings basic and diluted |
(162 | ) | 35 | 33 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Net income (loss) attributable to Holdings basic and diluted |
$ | 39 | $ | (175 | ) | $ | 1,419 | |||||||||
|
|
|
|
|
|
|||||||||||
Denominator: |
||||||||||||||||
Basic weighted average shares outstanding |
339,016 | 1,966,659 | 1,951,561 | |||||||||||||
Effect of dilutive restricted shares |
| | 195,615 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Diluted weighted average shares outstanding |
339,016 | 1,966,659 | 2,147,176 | |||||||||||||
|
|
|
|
|
|
In conjunction with the acquisition of Nolte, we have a note payable to a former stockholder of Nolte whereby up to 25% is convertible to common shares of the Company; at market value upon effective public registration (see Note 9). This convertible debt is excluded from the diluted weighted average shares outstanding since this contingency was not met as of December 31, 2011 and 2010.
Revenue Recognition
We enter into contracts with our clients that contain two principal types of pricing provisions: cost-reimbursable and fixed-price. The majority of our contracts are cost-reimbursable contracts that fall under the subcategory of time and materials contracts.
Cost-reimbursable contracts . Cost-reimbursable contracts consist of two similar contract types: time and materials contracts and cost-plus contracts.
|
Time and materials contracts are common for smaller scale professional and technical consulting and certification services projects. Under these types of contracts, there is no predetermined fee. Instead, we negotiate hourly billing rates and charge our clients based upon actual hours expended on a project. In addition, any direct project expenditures are passed through to the client and are typically reimbursed. These contracts may have a fixed-price element in the form of an initial not-to-exceed or guaranteed maximum price provision. |
|
Cost-plus contracts are the predominant contracting method used by U.S. federal, state, and local governments. These contracts provide for reimbursement of the actual costs and overhead (at |
F-36
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
predetermine rates) we incur, plus a predetermined fee. Under some cost-plus contracts, our fee may be based on quality, schedule, and other performance factors. |
Fixed-price contracts . Fixed-price contracts also consist of two contract types: lump-sum contracts and fixed-unit price contracts.
|
Lump-sum contracts typically require the performance of all of the work under the contract for a specified lump-sum fee, subject to price adjustments if the scope of the project changes or unforeseen conditions arise. Many of our lump-sum contracts are negotiated and arise in the design of projects with a specified scope and project deliverables. |
|
Fixed-unit price contracts typically require the performance of an estimated number of units of work at an agreed price per unit, with the total payment under the contract determined by the actual number of units performed. |
Revenues from engineering services are recognized when services are performed and the revenues are earned in accordance with the accrual basis of accounting.
Revenues from long-term contracts are recognized on the percentage-of-completion method, generally measured by the direct costs incurred to date as compared to the estimated total direct costs for each contract. The Company includes other direct costs (for example, third party field labor, subcontractors, or the procurement of materials or equipment) in contract revenues and cost of revenue when the costs of these items are incurred, and the Company is responsible for the ultimate acceptability of such costs. Recognition of revenue under this method is dependent upon the accuracy of a variety of estimates, including engineering progress, materials quantities, achievement of milestones, labor productivity and cost estimates. Due to uncertainties inherent in the estimation process, it is possible that actual completion costs may vary from estimates.
If estimated total costs on contracts indicate a loss or reduction to percentage of revenue recognized to date, these losses or reductions are recognized in the period in which the revisions are known. The cumulative effect of revisions to revenues, estimated costs to complete contracts, including penalties, incentive awards, change orders, claims, anticipated losses and others are recorded in the period in which the revisions are identified and the loss can be reasonably estimated. Such revisions could occur in any reporting period and the effects on the results of operations for that reporting period may be material depending on the size of the project or the adjustment.
Change orders and claims typically result from changes in scope, specifications or design, performance, materials, sites, or period of completion. Costs related to change orders and claims are recognized when incurred. Change orders are included in total estimated contract revenue when it is probable that the change order will result in an addition to the contract value and can be reliably estimated.
Federal Acquisition Regulations (FAR), which are applicable to the Companys federal government contracts and may be incorporated in local and state agency contracts, limit the recovery of certain specified indirect costs on contracts. Cost-plus contracts covered by FAR or with certain state and local agencies also may require an audit of actual costs and provide for upward or downward adjustments if actual recoverable costs differ from billed recoverable costs.
Unbilled work results when the appropriate contract revenue amount has been recognized in accordance with the percentage-of-completion accounting method, but a portion of the revenue recorded cannot be billed
F-37
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
currently due to the billing terms defined in the contract. The liability Billings in excess of costs and estimated earnings on uncompleted contracts represents billings in excess of contract revenues recognized on these contracts.
Advertising
Advertising costs are charged to expense in the period incurred and amounted to $60 and $62, respectively, for the years ended December 31, 2011 and 2010 and $52 for the period October 2, 2009 to August 3, 2010.
Allowance for Doubtful Accounts
The Company reports its receivables net of an allowance for doubtful accounts. The allowance is estimated based on managements evaluation of the contracts involved and the financial condition of clients. Factors the Company considers include, but are not limited to: client type federal government or commercial client, historical performance, historical collection trends and general economic conditions. The allowance is increased by the Companys provision for doubtful accounts charged against income, which is charged against income. All recoveries on receivables previously charged off are credited to the accounts receivable recovery account which are included in income, while direct charge-offs of receivables are deducted from the allowance.
Professional Liability Expense
The Company maintains insurance for business risks including professional liability. For professional liability risks, the Companys retention amount under its claims-made insurance policies includes an accrual for claims incurred but not reported for any potential liability, including any legal expenses, to be incurred for such claims if they occur. The Companys accruals are based upon historical expense and managements judgment. The Company maintains insurance coverage for various aspects of its business and operations; however the Company has elected to retain a portion of losses that may occur through the use of deductibles, limits and retentions under our insurance programs. Our insurance coverage may subject the Company to some future liability for which it is only partially insured or are completely uninsured. Management believes its estimated accrual for errors, omission and professional liability claims is sufficient and any additional liability over amounts accrued is not expected to have a material effect on the Companys consolidated results of operations or financial position.
Leases
The Companys office leases are classified as operating leases and rent expense is included in facilities and facilities related expense in the Companys consolidated statements of operations. Some lease terms include rent and other concessions and rent escalation clauses which are included in computing minimum lease payments. Minimum lease payments are recognized on a straight-line basis over the minimum lease term. The variance of rent expense recognized from the amounts contractually due pursuant to the underlying leases is reflected as a long or short-term liability or asset in the Companys consolidated balance sheets.
Segment Information
The Company reports segment information in accordance with ASC Topic No. 280 Segment Reporting (Topic No. 280). The Company has identified operating segments at the subsidiary entity level. However, each
F-38
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
entitys operating performance has been aggregated into one reportable segment. Each entitys operations meet the aggregation criteria set forth in Topic No. 280. The Companys operating segments are aggregated for financial reporting purposes because they are similar in each of the following areas: economic characteristics, class of customer, nature of service and distribution methods. Revenues from customers are derived from services offered and the Company does not rely on any major customers as a source of revenue.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic No. 740 Income Taxes (Topic No. 740). Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. A valuation allowance against the Companys deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining the need for a valuation allowance, management is required to make assumptions and to apply judgment, including forecasting future earnings, taxable income, and the mix of earnings in the jurisdictions in which the Company operates. Management periodically assesses the need for a valuation allowance based on the Companys current and anticipated results of operations. The need for and the amount of a valuation allowance can change in the near term if operating results and projections change significantly.
The Company recognizes the consolidated financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applied the uncertain tax position guidance to all tax positions for which the statute of limitations remained open. Generally, the Company remains subject to income tax examinations by its major taxing authorities from inception in 2009. Nolte generally is no longer subject to income tax examinations by its major taxing authorities for years ending before September 28, 2006. The Companys policy is to classify interest accrued as interest expense and penalties as operating expenses. The Company does not have any material uncertain tax positions.
Note 3 Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued new authoritative literature, which clarifies certain existing disclosure requirements and requires additional disclosures for recurring and nonrecurring fair value measurements. These additional disclosures include amounts and reasons for significant transfers between Level 1 and Level 2 of the fair value hierarchy; significant transfers in and out of Level 3 of the fair value hierarchy; and information about purchases, sales, issuances and settlements on a gross basis in the reconciliation of recurring Level 3 measurements. The requirements of this standard are effective for periods beginning after December 15, 2009, with the exception of the requirement of information about purchases, sales, issuances and settlements of Level 3 measurements, which becomes effective for periods beginning after December 15, 2010. The Company adopted the guidance related to Level 1 and Level 2 disclosures effective January 1, 2010 and adopted the guidance related to Level 3 disclosures effective January 1, 2011; the full adoption of this guidance did not have a material effect on the Companys consolidated financial statements.
In May 2011, the FASB issued amendments to authoritative guidance to establish common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards (IFRSs).
F-39
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
These amendments change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between GAAP and IFRSs as well as expand the disclosures for Level 3 measurements. These amendments are to be applied prospectively, and are effective for annual and interim periods beginning after December 15, 2011. The Company does not anticipate that the adoption of this amended guidance will materially expand disclosures in its consolidated financial statements.
In June 2011, the FASB issued an amendment to authoritative guidance which allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This amendment eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders equity, but does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The provisions of this amendment require retrospective application, and are effective for annual and interim periods beginning after December 15, 2011. The adoption of this guidance is not expected to have a material effect on the Companys consolidated financial statements but may require a change in the presentation of its consolidated financial statements.
In September 2011, the FASB issued amended guidance on testing goodwill for impairment. Under the new guidance, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If the entity determines that this threshold is not met, then performing the two-step impairment test is unnecessary. The provisions of the new guidance are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entitys financial statements for the most recent annual or interim period have not been issued or, for nonpublic entities, have not yet been made available for issuance. The Company has early adopted this new qualitative approach. Reference is made to Note 2.
In September 2011, the FASB amended its standards requiring additional disclosures about an employers participation in a multiemployer plan. This new guidance is required to be applied retrospectively for all prior periods presented and is effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. The Company will not early adopt this standard and does not expect adoption of this standard to have a material impact on our disclosure.
In December 2011, the FASB issued amended guidance requiring companies to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This guidance is required to be applied retrospectively for all prior periods presented and is effective for annual periods for fiscal years beginning in or after January 1, 2013, and interim periods within those annual fiscal years. The Company does not expect adoption of this standard to have a material impact on its consolidated results of operations and financial condition.
In December 2011, the FASB issued amended guidance to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other
F-40
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
comprehensive income on the components of net income and other comprehensive income for all periods presented. This guidance allows companies to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect prior to the new guidance issued in June 2011, which is described above. This new guidance is required to be applied retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company will not early adopt this standard and does not expect adoption of this standard to have a material impact on its consolidated results of operations and financial condition.
Note 4 Business Acquisitions
The BV Transaction
On March 5, 2010, we acquired certain assets of BV used in the construction quality assurance, testing and geotechnical engineering service operations for net cash consideration of $5,168. A portion of the purchase price was represented by two noninterest bearing notes (payable in two installments of $500 on September 1, 2010 and March 1, 2011, respectively). Interest of $84 was imputed on these notes and has been accounted for as a reduction in the purchase price. Acquisition costs of $152 were expensed in acquisition and restructuring expense in the accompanying consolidated statement of operations for the year ended December 31, 2010.
The Company recognized the assets acquired and the liabilities assumed at their fair values and has recorded an allocation of the purchase price to the BV tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of March 5, 2010. Goodwill has been recorded based on the amount by which the purchase price exceeded the fair value of the net assets acquired and is attributable to the reputation of the businesses acquired, the workforce in place and the synergies to be achieved from this and future acquisitions. The allocation of the purchase price to identifiable intangible assets (customer relationships and customer backlog) is based on valuations performed to determine the fair value of such assets as of the acquisition date.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date:
Accounts receivable |
$ | 3,348 | ||
Property and equipment |
379 | |||
Intangible assets: |
||||
Customer backlog |
298 | |||
Customer relationships |
1,131 | |||
|
|
|||
Total Assets |
5,156 | |||
Liabilities |
(52 | ) | ||
|
|
|||
Net assets acquired |
$ | 5,104 | ||
Consideration paid (Cash and Notes) |
5,168 | |||
|
|
|||
Excess consideration paid over the amounts assigned to the net assets acquired (Goodwill) |
$ | 64 | ||
|
|
For tax purposes, goodwill from this acquisition is deductible over a fifteen-year period.
The consolidated financial statements of the Company include the results of operations from the business and assets acquired from BV from March 6, 2010 to December 31, 2010 and include gross revenues and net income of approximately $12,345 and $833, respectively.
F-41
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
The Nolte Transaction
On August 3, 2010, we acquired a 57% interest in Nolte, a technical consulting and infrastructure engineering services firm. The total consideration aggregated to approximately $7,262 (cash of $3,927 and a note payable of $3,335). The transaction was accounted for using the acquisition method of accounting. Acquisition costs of $209 were expensed in acquisition and restructuring expense in the accompanying consolidated statements of operations for the year ended December 31, 2010.
The Company recognized the assets acquired and the liabilities assumed at their fair values and have recorded an allocation of the purchase price to the Nolte tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of August 3, 2010. Goodwill was recorded based on the amount by which the purchase price exceeded the fair value of the net assets acquired and is attributable to the reputation of the businesses acquired, the workforce in place and the synergies to be achieved from this and future acquisitions. The allocation of the purchase price to identifiable intangible assets (trade name, customer backlog and customer relationships) is based on valuations performed to determine the fair value of such assets as of the acquisition date.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date:
Cash |
$ | 2,279 | ||
Accounts receivable |
15,850 | |||
Other current assets |
1,367 | |||
Property and equipment |
2,151 | |||
Other noncurrent assets |
2,051 | |||
Intangible assets: |
||||
Trade name |
670 | |||
Customer backlog |
277 | |||
Customer relationships |
1,406 | |||
|
|
|||
Total assets |
26,051 | |||
|
|
|||
Accounts payable |
5,054 | |||
Other current liabilities |
10,070 | |||
Noncurrent liabilities |
3,415 | |||
|
|
|||
Total liabilities |
18,539 | |||
|
|
|||
Fair value of non-controlling interest |
4,682 | |||
|
|
|||
Net assets acquired |
$ | 2,830 | ||
Consideration paid (Cash and Notes) |
7,262 | |||
|
|
|||
Excess consideration paid over the amounts assigned to the net assets acquired (Goodwill) |
$ | 4,432 | ||
|
|
The fair value of the non-controlling interest in Nolte was estimated by applying the income approach. This fair value measurement was based on significant inputs that are not observable in the market. Key assumptions include future cash flows, discount rates, and adjustments reflective of the existing and any proposed ownership structure that market participants would consider when estimating the value of the non-controlling interest.
F-42
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
For tax purposes, goodwill resulting from this acquisition is not subject to amortization.
The consolidated financial statements of the Company include Noltes results of operations from August 4, 2010 to December 31, 2010, and include gross revenues and net income of approximately $19,753 and $208, respectively.
Pro Forma Results
The following unaudited pro forma financial information presents the combined results of operations of the Company had the BV and Nolte transactions occurred as of January 1, 2010. The pro forma information is not necessarily indicative of what the financial position or results of operations actually would have been had these transactions been completed as of January 1, 2010. In addition, the unaudited pro forma financial information is not indicative of, nor does it purport to project, the future financial position or operating results of the Company.
Unaudited Pro Forma Condensed Combined Statement of Operations Data
Year Ended
December 31, 2010 |
||||
Income Statement Data: |
||||
Gross contract revenues |
$ | 64,660 | ||
|
|
|||
Income from continuing operations |
$ | 134 | ||
|
|
|||
Loss from discontinued operations |
$ | (264 | ) | |
|
|
|||
Net loss |
$ | (210 | ) | |
|
|
|||
Net loss per share, basic and diluted |
$ | (0.11 | ) | |
|
|
Note 5 Accounts Receivable, net
Accounts receivable consisted of the following:
December 31,
2010 |
December 31,
2011 |
|||||||
Billed |
$ | 10,359 | $ | 11,577 | ||||
Unbilled |
6,008 | 4,973 | ||||||
Contract retentions |
558 | 191 | ||||||
|
|
|
|
|||||
16,925 | 16,741 | |||||||
Less: allowance for doubtful accounts |
(238 | ) | (1,284 | ) | ||||
|
|
|
|
|||||
Accounts receivable, net |
$ | 16,687 | $ | 15,457 | ||||
|
|
|
|
Billed accounts receivable represent amounts billed to clients that remain uncollected as of the balance sheet date. Unbilled accounts receivable represent recognized amounts pending billing pursuant to contract terms or accounts billed after period end, and are expected to be billed and collected within the next 12 months.
F-43
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Note 6 Property and Equipment
Property and equipment consisted of the following:
December 31,
2010 |
December 31,
2011 |
|||||||
Office furniture and equipment |
$ | 352 | $ | 340 | ||||
Computer equipment |
593 | 689 | ||||||
Survey and field equipment |
616 | 605 | ||||||
Leasehold improvements |
942 | 960 | ||||||
|
|
|
|
|||||
2,503 | 2,594 | |||||||
Accumulated depreciation |
(471 | ) | (1,338 | ) | ||||
|
|
|
|
|||||
Property and equipment net |
$ | 2,032 | $ | 1,256 | ||||
|
|
|
|
Depreciation expense for the years ended December 31, 2011 and 2010 totaled $1,076 and $614, respectively, and $1,291 for the period October 2, 2009 to August 3, 2010.
Note 7 Intangible Assets and Goodwill
Intangible assets
Intangible assets at December 31, 2011 and 2010 consist primarily of a trade name, customer backlogs and customer relationships as follows:
December 31, 2010 | December 31, 2011 | |||||||||||||||||||||||
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Amount |
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Amount |
|||||||||||||||||||
Customer relationships |
$ | 2,537 | $ | (316 | ) | $ | 2,221 | $ | 2,537 | $ | (687 | ) | $ | 1,850 | ||||||||||
Trade name |
670 | (93 | ) | 577 | 670 | (316 | ) | 354 | ||||||||||||||||
Customer backlogs |
575 | (114 | ) | 461 | 575 | (393 | ) | 182 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 3,782 | $ | (523 | ) | $ | 3,259 | $ | 3,782 | $ | (1,396 | ) | $ | 2,386 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Trade name is amortized on a straight basis over its estimated life of three years. Backlog and customer relationships are amortized based on the future expected revenues, with weighted average amortization periods of 3.5 and 7 years, respectively. The aggregate weighted average amortization period for all intangible assets is 6 years.
Amortization expense for the years ended December 31, 2011 and 2010 was $873 and $523, respectively.
F-44
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
As of December 31, 2011, the future estimated aggregate amortization related to intangible assets is as follows:
Years ending December 31, |
||||
2012 |
$ | 714 | ||
2013 |
554 | |||
2014 |
408 | |||
2015 |
313 | |||
2016 |
223 | |||
Thereafter |
174 | |||
|
|
|||
Total |
$ | 2,386 | ||
|
|
Goodwill
The table set forth below is a reconciliation of goodwill as reflected in the Companys consolidated balance sheets as of December 31, 2011 and 2010:
Goodwill as of January 1, 2010 |
$ | | ||
BV Transaction |
64 | |||
Nolte Transaction |
4,432 | |||
|
|
|||
Goodwill as of December 31, 2010 |
4,496 | |||
Reclassification for amounts assigned to property and equipment |
24 | |||
Disposition of Mexico Operations |
(184 | ) | ||
|
|
|||
Goodwill as of December 31, 2011 |
$ | 4,336 | ||
|
|
Note 8 Accrued Liabilities
Accrued liabilities consist of the following:
December 31,
2010 |
December 31,
2011 |
|||||||
Acquisition and restructuring expense (see Note 11) |
$ | 341 | $ | 15 | ||||
Deferred rent |
646 | 512 | ||||||
Payroll and related taxes |
607 | 535 | ||||||
Professional fees |
551 | 406 | ||||||
Benefits |
660 | 792 | ||||||
Compensated absences |
1,241 | 1,066 | ||||||
Other |
532 | 306 | ||||||
|
|
|
|
|||||
Total |
$ | 4,578 | $ | 3,632 | ||||
|
|
|
|
F-45
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Note 9 Notes Payable
Notes payable consists of the following:
December 31,
2010 |
December 31,
2011 |
|||||||
Two lines of credit facilities totaling $3,000 (the Line Facilities), due August 7, 2012, interest at prime with a minimum of 5.0% until maturity, collateralized by substantially all Company assets, guaranteed by certain stockholders and a wholly owned subsidiary, and contain cross default provisions with each other and with the note payable described below (No amounts borrowed in 2011 or 2010 - see Note 20 for additional discussion) |
$ | | $ | | ||||
Note payable to bank, interest at prime rate (minimum 5.0%), due August 7, 2012 (as amended which was further amended on March 14, 2012 with a new maturity date of February 1, 2015), payable in monthly installments of $46 and a lump sum of the remaining principal balance outstanding at maturity, collateralized by substantially all Company assets, guaranteed by certain stockholders (see Note 20 for additional discussion) |
2,800 | 2,248 | ||||||
Note payable to former stockholder of Nolte, interest at prime rate plus 1% (maximum 7.0%), due July 29, 2017, payable in quarterly principal installments of $119. Unsecured and subordinated to note payable to bank, other than monthly principal and interest payments, up to 25% of the then outstanding principal balance is convertible to common shares of the Company, at market value upon effective public registration |
3,138 | 2,661 | ||||||
Note payable for BV acquisition, repaid when due on March 1, 2011, interest imputed at 12.0%, unsecured |
471 | | ||||||
Loan payable to bank, bearing interest at 7.07%, due October 15, 2012, payable on demand, assumed as part of disposition of Nolte de Mexico |
| 26 | ||||||
|
|
|
|
|||||
Total debt |
6,409 | 4,935 | ||||||
Less: current maturities |
(1,500 | ) | (1,055 | ) | ||||
|
|
|
|
|||||
Long-term debt, net of current maturities |
$ | 4,909 | $ | 3,880 | ||||
|
|
|
|
Future maturities of long-term debt as of December 31, 2011 are as follows:
Year ending December 31, |
||||
2012 |
$ | 1,055 | ||
2013 |
1,029 | |||
2014 |
1,028 | |||
2015 |
1,069 | |||
2016 |
477 | |||
Thereafter |
277 | |||
|
|
|||
Total |
$ | 4,935 | ||
|
|
F-46
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(a) Covenants
(b) The Line Facilities described above contain a semi-annual maximum debt to tangible net worth covenant ratio, as defined, of 2:1 and financial reporting covenant provisions. As of December 31, 2011 and through the date of this report, the Company was in compliance with all covenant provisions.
Note 10 Stock Repurchase Obligation
The Stock Repurchase Obligation at December 31, 2011 and 2010 represents notes payable for the repurchase of common stock of certain former stockholders of Nolte. These notes are unsecured and subordinated to bank debt and the maintenance of related debt covenants, and bear interest from 3.25% to 4.25%. The rates adjust annually based on the prime rate. The notes require quarterly interest and principal payments of $192 through March 2016.
Future maturities of these notes as of December 31, 2011 are as follows:
Year ending December 31, |
||||
2012 |
$ | 672 | ||
2013 |
639 | |||
2014 |
554 | |||
2015 |
239 | |||
2016 |
32 | |||
|
|
|||
Total |
$ | 2,136 | ||
|
|
Note 11 Acquisition and Restructuring Expense
In connection with the BV and Nolte transactions, the Company initiated and executed a restructuring plan which included workforce reduction actions and facility closures, and also assumed a restructuring expense liability of $381 related to restructuring activities initiated by Nolte prior to the acquisition date. The Company recognized acquisition and restructuring charges of $95 and $499 for the years ended December 31, 2011 and 2010, respectively, and $446 for the period October 2, 2009 to August 3, 2010, which are reflected separately in the consolidated statements of operations.
The following table presents a roll forward of the restructuring accrual balance:
Period
October 2, 2009 to August 3, 2010 |
December 31,
2010 |
December 31,
2011 |
||||||||||
Beginning balance |
$ | | $ | | $ | 341 | ||||||
Assumed in the acquisition of Nolte |
| 381 | | |||||||||
Incurred during period |
446 | 499 | 95 | |||||||||
Paid during period |
(65 | ) | (539 | ) | (421 | ) | ||||||
|
|
|
|
|
|
|||||||
Ending balance |
$ | 381 | $ | 341 | $ | 15 | ||||||
|
|
|
|
|
|
F-47
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Note 12 Leases
The Company leases various office facilities from unrelated parties. These leases expire through 2017 and, in certain cases, provide for escalating rental payments and reimbursement for operating costs. The Company also leases office space from a stockholder on a month-to-month basis. For the years ended December 31, 2011 and 2010, the Company recognized lease expense of $2,923 and $1,552, respectively, and $2,428 for the period October 2, 2009 to August 3, 2010, which are included the line item Facilities and facilities related in the consolidated statements of operations. Included in these amounts are $58 and $48, respectively, of amounts paid on a month-to-month basis under an office lease with a stockholder of the Company.
Future minimum payments under the non-cancelable operating leases as of December 31, 2011 are as follows:
Period ending December 31, |
Amount | |||
2012 |
$ | 2,318 | ||
2013 |
2,224 | |||
2014 |
2,007 | |||
2015 |
1,526 | |||
2016 |
1,066 | |||
Thereafter |
617 | |||
|
|
|||
Total minimum lease payments |
$ | 9,758 | ||
|
|
Note 13 Commitments and Contingencies
Litigation, Claims and Assessments
From time to time the Company may become subject to threatened and/or asserted claims arising in the ordinary course of business. Management is not aware of any matters, either individually or in the aggregate, that are reasonably possible to have a material adverse effect on the Companys consolidated financial condition, results of operations or liquidity.
Sustainable Nolte Program (SNP)
Nolte sponsored a stock purchase plan which provided an opportunity for certain qualifying employees to invest in Nolte through the purchase of shares of stock that vest over time. The gross values of the shares awarded were initially recorded as bonus payable.
Nolte offered the opportunity for the purchaser to obtain a bank loan guaranteed by Nolte. The bank loan and the bonus were both payable in equal amounts over five years. Shares purchased via the SNP were subject to various vesting percentages, generally on a proportional basis over five years, and Nolte held the shares until such time as they were fully vested. In connection with the acquisition of Nolte, the Company terminated the SNP and assumed the bank loan guarantee issued by Nolte. As of December 31, 2011 and 2010, this guarantee aggregated approximately $149 and $345, respectively, which is included in Accrued liabilities on the consolidated balance sheets.
F-48
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Note 14 Officers Life Insurance
Investments in life insurance policies were made with the intention of utilizing them as a long-term funding source for post-retirement benefits. However, they do not represent a committed funding source for these obligations and are subject to claims from creditors. This plan was terminated in conjunction with the Nolte Transaction, and the Company has no further financial obligations under these policies as of December 31, 2011.
The net cash value of these policies at December 31, 2011 and 2010 was $650 and $642, respectively.
Note 15 Stock-Based Compensation
During September and October 2011, we adopted, and our stockholders approved, respectively, our 2011 Equity Plan (the 2011 Equity Plan) to provide our directors, executive officers, and other employees with additional incentives by allowing them to acquire an ownership interest in our business and, as a result, encouraging them to contribute to our success. The 2011 Equity Plan is intended to make available incentives that will assist us to attract, retain, and motivate employees, including officers, consultants, and directors. We may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units, and other cash-based or stock-based awards. A total of 400,000 shares was initially authorized and reserved for issuance under the 2011 Equity Plan. This reserve automatically increased on January 1, 2012 and will increase each subsequent anniversary through 2021, by an amount equal to the smaller of (a) 3.5% of the number of shares issued and outstanding on the immediately preceding December 31, or (b) an amount determined by our Board of Directors. During 2011, no equity awards were granted from the 2011 Equity Plan.
In 2010, prior to the inception of the 2011 Equity Plan, the Company issued 377,104 restricted shares to management and employees of the Company with an aggregate deferred compensation amount of approximately $765. This grant was not part of the 2011 Equity Plan. Each award is service based, and vests after five years or upon certain other events, subject to each award agreement. The fair value of these shares was calculated based on the estimated fair value of the Companys equity as of the grant date, which was approximately $2.03 per share. No shares have forfeited or vested since the Plan inception, and approximately $548 of deferred compensation is unrecognized at December 31, 2011, expected to be recognized over the next 3.6 years. Total stock-based compensation cost recognized for the years ended December 31, 2011 and 2010 was $153 and $64, respectively, and $0 for the period October 2, 2009 to August 3, 2010.
Note 16 Profit Sharing Plan and Pension Plans
The Company sponsors a 401(k) Profit Sharing and Savings Plan (the 401(k) Plan). Employees meeting certain age and length of service requirements may contribute up to the defined statutory limit into the 401(k) Plan. The 401(k) Plan allows for the Company to make matching contributions into the 401(k) Plan and profit sharing contributions in such amounts as may be determined by the Board of Directors. The Company assesses its matching contributions on a quarterly basis based primarily on Company performance in previous periods.
The Company contributed $16 and $117, respectively, to the 401(k) Plans for the years ended December 31, 2011 and 2010, respectively, and $0 for the period October 2, 2009 to August 3, 2010.
F-49
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Note 17 Income Taxes
Income tax expense (benefit) for the years ended December 31, 2011 and 2010 and the period October 2, 2009 to August 3, 2010 consisted of the following:
Period
October 2, 2009 to August 3, 2010 (acquisition) |
Year ended
December 31, 2010 |
Year ended
December 31, 2011 |
||||||||||
Current: |
||||||||||||
Federal |
$ | 1,387 | $ | 550 | $ | 2,207 | ||||||
State |
300 | 58 | 250 | |||||||||
|
|
|
|
|
|
|||||||
Total current income tax expense |
1,687 | 608 | 2,457 | |||||||||
|
|
|
|
|
|
|||||||
Deferred: |
||||||||||||
Federal |
(1,559 | ) | (416 | ) | (1,934 | ) | ||||||
State |
(372 | ) | (60 | ) | (87 | ) | ||||||
|
|
|
|
|
|
|||||||
Total deferred income tax (benefit) |
(1,931 | ) | (476 | ) | (2,021 | ) | ||||||
|
|
|
|
|
|
|||||||
Total income tax expense (benefit) |
$ | (244 | ) | $ | 132 | $ | 436 | |||||
|
|
|
|
|
|
In conjunction with NV5s 57% acquisition of Nolte on August 3, 2010, Nolte no longer qualified as a Qualified Personal Service Corporation where its income taxes were reported on the cash basis of accounting. Effective for Noltes year ended September 30, 2010, Nolte was required to change to the accrual basis of accounting for income taxes.
As a result of this change to the accrual basis for income taxes purposes, there was an unfavorable Internal Revenue Code Section 481(a) adjustment of approximately $16,400 which requires this additional taxable income to be recognized (for income tax purposes) ratably over four tax periods at approximately $6,300 of additional federal and state income taxes over this period. Approximately $4,100 of additional taxable income is required to be added to the federal and state returns for Noltes tax years ended or ending September 30, 2010, 2011, 2012 and 2013 which results in additional federal and state income taxes of approximately $1,600 per tax period. For financial statement reporting purposes this is reflected as a deferred tax liability.
On or about September 15, 2011, NV5 received the requisite written consent of the Nolte minority stockholders for the Reorganization. As a result, NV5 and Nolte are treated as joining NV5 Holdings, Inc.s (parent) US consolidated tax group on this date, with a consolidated accounting year end of December 31.
As a result of the Reorganization, which requires Nolte to consolidate its tax return under the consolidated tax group of NV5 Holdings, Inc., a short period (October 2011 through December 2011) has occurred requiring the Company to accelerate additional taxable income into fiscal 2011. The Reorganization changed the four tax periods in which this additional taxable income will be included in our federal and state income tax returns. The new tax periods are for the years ending September 30, 2010 and 2011, for the period October 1, 2011 through December 31, 2011 and for the year ending December 31, 2012. During 2011, Nolte and the Company are required to include approximately $8,200 (two tax periods) of taxable income in their federal and state income tax returns due to this change in cash to accrual. This acceleration of an additional $4,100 of taxable income is
F-50
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
the primary cause for the increase in income taxes payable on the consolidated balance sheet as of December 31, 2011 compared to December 31, 2010.
Temporary differences comprising the net deferred income tax asset (liability) shown in the Companys consolidated balance sheets were as follows:
December 31,
2010 |
December 31,
2011 |
|||||||
Deferred tax asset: |
||||||||
Net operating loss carryover |
$ | 10 | $ | 10 | ||||
R&D tax credit carryover |
422 | 154 | ||||||
Alternative minimum tax credit carryover |
65 | | ||||||
Foreign and other tax credits |
28 | 28 | ||||||
Allowance for doubtful accounts |
1,207 | 533 | ||||||
Accrued compensation |
| 396 | ||||||
Deferred rent |
178 | 212 | ||||||
Depreciation and amortization |
| 85 | ||||||
State income taxes |
| 73 | ||||||
Other |
187 | 240 | ||||||
|
|
|
|
|||||
Total deferred tax asset |
2,097 | 1,731 | ||||||
|
|
|
|
|||||
Deferred tax liability: |
||||||||
Acquired intangibles |
(592 | ) | (270 | ) | ||||
Depreciation and amortization |
(13 | ) | | |||||
Cash to accrual adjustment |
(3,799 | ) | (1,704 | ) | ||||
State income taxes |
(26 | ) | | |||||
Other |
| (69 | ) | |||||
|
|
|
|
|||||
Total deferred tax liability |
(4,430 | ) | (2,043 | ) | ||||
|
|
|
|
|||||
Net deferred tax liability |
$ | (2,333 | ) | $ | (312 | ) | ||
|
|
|
|
As of December 31, 2011 the Company had state research and development (R&D) credit carry-forwards for income tax purposes of approximately $154 and state net operating loss carry-forwards of approximately $138 which will begin to expire in 2022. The Company has no limitation of the utilization of these carry-forwards as a result of the acquisition of Nolte.
Non-controlling interest in income (loss) is recorded net of income taxes of $216 and $44 on the consolidated statement of operations for the years ended December 31, 2011 and 2010, respectively.
F-51
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Total income tax expense (benefit) was different than the amount computed by applying the Federal statutory rate as follows:
Period October 2,
2009 to August 3, 2010 (acquisition) |
Year
ended
December 31, 2010 |
Year
ended
December 31, 2011 |
||||||||||
Tax at federal statutory rate |
$ | (15 | ) | $ | 21 | $ | 800 | |||||
Tax credits |
(80 | ) | (37 | ) | (60 | ) | ||||||
State taxes, net of Federal benefit |
(47 | ) | 6 | 108 | ||||||||
Foreign tax credit |
| (28 | ) | | ||||||||
Domestic production activities deduction |
(154 | ) | (65 | ) | (226 | ) | ||||||
Nondeductible acquisition costs |
24 | 150 | | |||||||||
Other permanent differences, net |
28 | 85 | (186 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total income tax expense (benefit) |
$ | (244 | ) | $ | 132 | $ | 436 | |||||
|
|
|
|
|
|
Note 18 Discontinued Operations
Effective June 30, 2011, the Company disposed of its interests in Nolte de Mexico. As a result of this transaction, the Nolte de Mexico operations (including a gain of $2) has been segregated from continuing operations and presented as discontinued operations in the consolidated statements of operations and cash flows, and as assets and liabilities of discontinued operations in the Companys consolidated balance sheets. The assets and liabilities of Nolte de Mexico are classified as current assets and current liabilities from discontinued operations as of December 31, 2010.
A summary of the results of operations of Nolte de Mexico is as follows:
Period
October 2, 2009 to August 3, 2010 (acquisition) |
Year
ended
December 31, 2010 |
Year
ended
December 31, 2011 |
||||||||||
Gross contract revenues |
$ | 1,475 | $ | 656 | $ | 1,022 | ||||||
|
|
|
|
|
|
|||||||
Pre-tax income (loss) |
$ | (159 | ) | $ | 34 | $ | 33 | |||||
|
|
|
|
|
|
Note 19 Mandatorily Redeemable Common Stock - Predecessor
Through July 29, 2010, all of the shares of Nolte were subject to the Fourth Amended and Restated Buy-Sell Agreement (Fourth Buy-Sell). Effective July 29, 2010, Nolte and its stockholders entered into the Fifth Amended and Restated Buy-Sell Agreement (Fifth Buy-Sell).
The Fourth Buy-Sell provided for, among other things, Nolte to purchase the shares from a stockholder upon the occurrence of certain events (Buy-out Events) including, but not limited to, the death of the stockholder, the stockholder ceasing to be employed by Nolte, or the stockholder reaching sixty-one years of age. These Buy-out Events caused the common stock to be considered a mandatorily redeemable financial instrument
F-52
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
and accordingly, be classified as a long-term liability. The Fifth Buy-Sell effectively eliminated the mandatory redemption clauses and accordingly, on July 29, 2010, the liability was reclassified to equity.
The redemption price of a share of stock is determined in accordance with the Fourth Buy-Sell pursuant to a formula which considers book value, revenues and operating income. This price is considered fair market value as all purchases and sales of common stock were transacted pursuant to these calculated prices during the periods presented.
Noltes mandatorily redeemable common stock (originally classified as a liability) is summarized as follows:
# of Shares | Fair Value | |||||||
Balance as of October 1, 2009 |
394,259 | $ | 11,280 | |||||
Stock issuances |
8,470 | 242 | ||||||
Stock redemptions |
(63,713 | ) | (1,544 | ) | ||||
Reclassify to equity |
(339,016 | ) | (9,978 | ) | ||||
|
|
|
|
|||||
Balance as of August 3, 2010 |
| $ | | |||||
|
|
|
|
Note 20 Subsequent Events
For its consolidated financial statements as of December 31, 2011 and for the year then ended, the Company evaluated subsequent events through April 10, 2012, the date on which those financial statements were originally available to be issued and through March 8, 2013, the date on which those financial statements were available to be reissued. Other than the items mentioned below, there were no events requiring disclosure or adjustment to the consolidated financial statements.
During February 2012, the Company repurchased 4,793 shares from existing stockholders for an aggregate purchase price of approximately $33. These shares have been retired.
On March 14, 2012, the Company amended the note payable to bank which had a maturity date of August 7, 2012. The maturity date of this note payable was extended to February 1, 2015. The interest rate continues at prime rate plus 1.0% (minimum 5.0%). This note is payable in monthly principal installments of $46 and with a lump sum of the remaining principal balance outstanding at maturity, collateralized by substantially all Company assets, guaranteed by certain stockholders and guaranteed by NV5 Holdings, Inc. and Nolte Associates, Inc.
On March 14, 2012, the Company borrowed $1,750 from the Line Facilities, which we used on March 15, 2012 to pay income tax obligations accrued for at December 31, 2011.
On March 7, 2013, the Companys Board of Directors declared a 1.3866-for-1 forward stock split of its outstanding common stock, to be effected immediately prior to the consummation of this offering. The stock split will result in the issuance of approximately 724,916 additional shares of common stock. All information presented in the accompanying financial statements have been adjusted to reflect this stock split.
F-53
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NV5 Holdings, Inc. and its subsidiaries (collectively with Nolte Associates, Inc., the Company, Holdings, we or our) is a holding company providing professional and technical consulting and certification services to public and private sector clients. We focus on the infrastructure, construction, real estate and environmental markets. The scope of our projects includes planning, design, consulting, permitting, inspection and field supervision, and management oversight. We also provide forensic engineering, litigation support, condition assessment and compliance certification. We operate our business through a network of over 20 locations in California, Colorado, Utah, Florida, New Jersey, and in portions of Mexico (until June 2011). We conduct our operations through two primary operating subsidiaries: (i) Nolte Associates, Inc. (Nolte), which began operations in 1949, was incorporated as a California corporation in 1957 and in which we acquired a controlling interest in August 2010, and (ii) NV5, Inc. (NV5), which was incorporated as a Delaware corporation in 2009.
Holdings was incorporated as a Delaware corporation in September 2011 as part of a Plan of Reorganization (the Reorganization), and owns all of the outstanding shares of Nolte and NV5.
Pursuant to a series of Buy-Sell agreements with selling stockholders, NV5 (Successor) gained control of Nolte (Predecessor) through the acquisition of a 57% interest in the common stock of Nolte on August 3, 2010 and then acquired an additional 3% interest on December 31, 2010, and an additional 3% interest from August 2011 through September 2011 (the Nolte Transaction). On August 18, 2011, the Board of Directors of Nolte unanimously approved the terms of the Reorganization, whereby the holders of the remaining 37% non-controlling interests in Nolte tendered each of their owned shares of Nolte common stock for 2.5 shares of Holdings common stock, with Nolte becoming a wholly owned subsidiary of Holdings. On October 6, 2011, NV5 and Nolte completed the Reorganization and, thereafter, Holdings (i) issued shares of its common stock to the stockholders of NV5 in exchange for the contribution of their shares of NV5 common stock to Holdings, and (ii) Nolte became a wholly-owned subsidiary of Holdings, pursuant to a transaction in which NV5 Holdings issued shares of its common stock to the Nolte minority shareholders in exchange for the outstanding shares of Nolte common stock not already owned by NV5.
For purposes of the Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2010, the Company assumes that the Nolte acquisition occurred on January 1, 2010. As a result, the Unaudited Pro Forma Condensed Consolidated Statement of Operations was derived from:
|
The audited historical consolidated statement of operations of the Company for the year ended December 31, 2010; and |
|
Unaudited historical statement of operations of Nolte for the period January 1, 2010 to August 3, 2010. |
The Unaudited Pro Forma Condensed Consolidated Statement of Operations has been prepared pursuant to Securities and Exchange Commission rules and regulations under Article 11 of Regulation S-X, and is presented for illustration purposes and is not necessarily indicative of the operating results that would have been achieved if the Nolte acquisition had occurred at the beginning of the period presented, nor is it indicative of future operating results.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations should be read in conjunction with the Companys historical consolidated financial statements and accompanying notes included elsewhere in this prospectus.
F-54
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
The
Company 2010 Historical |
Nolte Period
from January 1, 2010 through August 3, 2010 |
Acquisition
Pro Forma Adjustments |
2010
Pro Forma |
|||||||||||||
Gross Contract Revenues |
$ | 32,098 | $ | 32,562 | $ | | $ | 64,660 | ||||||||
Direct costs: |
||||||||||||||||
Salaries and wages |
8,224 | 8,229 | | 16,453 | ||||||||||||
Sub-consultant services |
6,470 | 6,791 | | 13,261 | ||||||||||||
Other direct costs |
1,172 | 1,101 | | 2,273 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total direct costs |
15,866 | 16,121 | | 31,987 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross Profit |
16,232 | 16,441 | | 32,673 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating Expenses: |
||||||||||||||||
Salaries and wages, payroll taxes and benefits |
8,695 | 9,648 | | 18,343 | ||||||||||||
General and administrative |
4,047 | 3,473 | | 7,520 | ||||||||||||
Facilities and facilities related |
1,569 | 1,846 | | 3,415 | ||||||||||||
Depreciation and amortization |
1,137 | 948 | 254 | (a) | 2,339 | |||||||||||
Acquisition and restructuring expense |
499 | 446 | (396 | ) (b) | 549 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
15,947 | 16,361 | (142 | ) | 32,166 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income from operations |
285 | 80 | 142 | 507 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other (expense) income: |
||||||||||||||||
Interest expense |
(260 | ) | (47 | ) | (76 | ) (c) | (383 | ) | ||||||||
Other, net |
1 | (7 | ) | | (6 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other (expense) income |
(259 | ) | (54 | ) | (76 | ) | (389 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before income tax expense |
26 | 26 | 66 | 118 | ||||||||||||
Income tax expense (benefit) |
132 | (171 | ) | 23 | (d) | (16 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) (including net income from non-controlling interests) |
(106 | ) | 197 | 43 | 134 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from discontinued operations, net of tax |
35 | (299 | ) | | (264 | ) | ||||||||||
Less: Net income attributable to non-controlling interest in Nolte Associates, Inc., net of tax |
(104 | ) | 41 | (17 | ) (e) | (80 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | (175 | ) | $ | (61 | ) | $ | 26 | $ | (210 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Earnings (loss) per Share: |
||||||||||||||||
Basic and diluted |
$ | (0.09 | ) | $ | (0.18 | ) | $ | (0.11 | ) | |||||||
Weighted-average Shares outstanding: |
||||||||||||||||
Basic and diluted |
1,966,686 | 339,016 | 1,966,686 |
F-55
NV5 Holdings, Inc. and Subsidiaries
and
Nolte Associates, Inc. and Subsidiaries
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share data)
(a) | Amortization |
The pro forma adjustment reflects the additional amortization that would have been recognized on the intangible assets had the acquisitions occurred on January 1, 2010 (dollars in thousands).
Period |
January 1
2010
to August 3, 2010 |
|||||
Customer relationships |
3.5 years | $ | 51 | |||
Trade name |
3 years | 130 | ||||
Customer backlog |
7 years | 73 | ||||
|
|
|||||
$ | 254 | |||||
|
|
(b) | Acquisition Expense |
The pro forma adjustment reflects the removal of acquisition costs incurred in connection with the 2010 acquisition.
(c) | Interest Expense |
The pro forma adjustment reflects the additional interest expense that would have been recognized on the note payable to a former shareholder of Nolte in conjunction of the acquisition of Nolte had this note been issued on January 1, 2010. Interest is computed at prime plus 1.0% (maximum 7%).
(d) | Income Tax Expense |
The pro forma adjustment reflects the income tax effect based on an income tax rate of 35%.
(e) | Non-controlling Interest |
The pro forma adjustment reflects the adjustment to income from non-controlling interest (60%) of Nolte pro forma adjustment (a) (d).
F-56
1,000,000 Units
PROSPECTUS
Sole Book-Running Manager
Roth Capital Partners
, 2013
Until , 2013 (25 days after the date of this prospectus), all dealers, whether or not participating in this offering, that effect transactions in these securities may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as an underwriter in this offering and when selling previously unsold allotments or subscriptions.
Part II
Information Not Required in Prospectus
Item 13. | Other expenses of issuance and distribution. |
The following are the estimated expenses to be incurred in connection with the issuance and distribution of the securities registered under this registration statement, other than underwriting discounts and commissions. All amounts shown are estimates except the Securities and Exchange Commission registration fee and the Financial Industry Regulatory Authority, Inc. filing fee. The following expenses will be borne solely by the registrant.
Securities and Exchange Commission registration fee |
$ | 2,764.15 | ||
FINRA filing fee |
3,549.75 | |||
Exchange listing fee |
50,000.00 | |||
Legal fees and expenses |
570,000.00 | |||
Accounting fees and expenses |
180,000.00 | |||
Printing expenses |
125,000.00 | |||
Transfer agent fees and expenses |
2,000.00 | |||
Miscellaneous expenses |
50,000.00 | |||
|
|
|||
Total |
$ | 983,313.90 | ||
|
|
Item 14. | Indemnification of directors and officers. |
Section 145(a) of the Delaware General Corporation Law provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the corporation), because he or she is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit, or proceeding, if he or she acted 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, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Section 145(b) of the Delaware General Corporation Law provides, in general, that a corporation may indemnify any person who was or is a party or is 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 because the person is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if he or she acted 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, except that no indemnification shall be made with respect to any claim, issue, or matter as to which he or she shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, he or she is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or other adjudicating court shall deem proper.
Section 145(g) of the Delaware General Corporation Law provides, in general, that a corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of
II-1
the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person 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 the person against such liability under Section 145 of the Delaware General Corporation Law.
Our bylaws provide that we will indemnify, to the fullest extent permitted by the Delaware General Corporation Law, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he, or a person for whom he is the legal representative, is or was one of our directors or officers or, while serving as one of our directors or officers, is or was serving at our request as a director, officer, employee, or agent of another corporation or of another entity, against all liability and loss suffered and expenses (including attorneys fees) reasonably incurred by such person, subject to limited exceptions relating to indemnity in connection with a proceeding (or part thereof) initiated by such person. Our bylaws that will be in effect upon completion of this offering will further provide for the advancement of expenses to each of our officers and directors.
Our certificate of incorporation provides that, to the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may be amended from time to time, our directors shall not be personally liable to us or our shareholders for monetary damages for breach of fiduciary duty as a director. Under Section 102(b)(7) of the Delaware General Corporation Law, the personal liability of a director to the corporation or its shareholders for monetary damages for breach of fiduciary duty can be limited or eliminated except (i) for any breach of the directors duty of loyalty to the corporation or its shareholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the Delaware General Corporation Law (relating to unlawful payment of dividend or unlawful stock purchase or redemption); or (iv) for any transaction from which the director derived an improper personal benefit.
We also intend to maintain a general liability insurance policy which covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers, whether or not we would have the power to indemnify such person against such liability under the Delaware General Corporation Law or the provisions of charter or bylaws.
In connection with the sale of common stock being registered hereby, we intend to enter into indemnification agreements with each of our directors and our executive officers. These agreements will provide that we will indemnify each of our directors and such officers to the fullest extent permitted by law and by our charter and bylaws.
In any underwriting agreement we enter into in connection with the sale of common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us, within the meaning of the Securities Act, against certain liabilities.
Item 15. | Recent sales of unregistered securities. |
In the three years preceding the filing of this registration statement, we have issued the following securities that were not registered under the Securities Act:
In connection with the formation of NV5, we issued 1,137,016 shares of NV5 to the Wright Family Trust, of which our founder, Mr. Dickerson Wright, is the trustee. We issued these shares in reliance upon Section 4(2) of the Securities Act as a transaction by an issuer not involving a public offering.
In August 2010, we granted an aggregate of 249,589 shares of restricted common stock of NV5 to six of our employees for their past services. No additional consideration was paid for such shares. We issued these shares in reliance upon Section 4(2) of the Securities Act as a transaction by an issuer not involving a public offering.
II-2
In October 2010, we sold an aggregate of 78,103 shares of NV5 to five of our employees and our founder for an aggregate purchase price of $1,126,542.47. We issued these shares in reliance upon Section 4(2) of the Securities Act as a transaction by an issuer not involving a public offering.
In October 2011, in connection with the consummation of the reorganization transaction among us, NV5 and Nolte, we issued an aggregate of 2,724,764 shares to (i) all of the stockholders of NV5 in exchange for the contribution of their shares of NV5 common stock to us, and (ii) to the minority shareholders of Nolte in exchange for their shares of Nolte common stock. We issued these shares in reliance upon Rule 506 of Regulation D promulgated under the Securities Act.
In December 2012, we issued 69,330 shares as partial consideration for our July 2012 acquisition of certain assets of Kaderabek Company. We issued these shares in reliance upon Section 4(2) of the Securities Act as a transaction by an issuer not involving a public offering.
We did not, nor do we plan to, pay or give, directly or indirectly, any commission or other remuneration, including underwriting discounts or commissions, in connection with any of the issuances of securities listed above. In addition, each of the certificates issued or to be issued representing the securities in the transactions listed above bears or will bear a restrictive legend permitting the transfer thereof only in compliance with applicable securities laws. The recipients of securities in each of the transactions listed above represented to us or will be required to represent to us their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof. All recipients had or have adequate access, through their employment or other relationship with our company or through other access to information provided by our company, to information about our company.
Item 16. | Exhibits. |
(a) Exhibits.
Number |
Description |
|
1.1* | Form of Underwriting Agreement | |
3.1# | Amended and Restated Certificate of Incorporation | |
3.2# | Bylaws | |
4.1* | Specimen Unit Certificate | |
4.2* | Specimen Stock Certificate | |
4.3* | Specimen Warrant Certificate (included in Exhibit 4.5) | |
4.4* | Form of Underwriters Warrant (included in Exhibit 1.1) | |
4.5* | Form of Warrant Agreement between Registrar and Transfer Company and the Registrant | |
5.1* | Opinion of DLA Piper LLP (US) | |
10.1* | 2011 Equity Incentive Plan, as amended through March 8, 2013 | |
10.2* | Form of Restricted Stock Agreement | |
10.3* | Form of Restricted Stock Unit Agreement | |
10.4# | Form of Indemnity Agreement | |
10.5# | Employment Agreement, dated as of August 1, 2010, between NV5, Inc. and Donald Alford, as amended by that certain First Amendment to Employment Agreement, dated as of March 18, 2011, between NV5, Inc. and Donald Alford |
II-3
Number |
Description |
|
10.6# | Employment Agreement, dated April 11, 2011, between NV5, Inc. and Dickerson Wright | |
10.7# | Employment Agreement, dated October 1, 2010, between NV5, Inc. (formerly Vertical V, Inc.) and Richard Tong, as amended by that certain First Amendment to Employment Agreement, dated as of March 18, 2011, between NV5, Inc. and Richard Tong | |
10.8# | Employment Agreement, dated October 1, 2010, between NV5, Inc. (formerly Vertical V, Inc.) and Alexander Hockman, as amended by that certain First Amendment to Employment Agreement, dated as of March 18, 2011, between NV5, Inc. and Alexander Hockman | |
10.9# | Employment Agreement, dated January 25, 2012, between NV5, Inc. and Michael Rama | |
10.10# | Employment Agreement, dated October 1, 2010, between NV5, Inc. (formerly Vertical V, Inc.) and Mary Jo OBrien, as amended by that certain First Amendment to Employment Agreement, dated as of March 18, 2011, between NV5, Inc. and Mary Jo OBrien | |
10.11# | Business Loan Agreement, dated March 16, 2012, between NV5, Inc., as borrower, and Torrey Pines Bank, as lender, regarding Loan Number 0901122297 | |
10.12# | Business Loan Agreement, dated September 19, 2012, between NV5, Inc., as borrower, and Torrey Pines Bank, as lender, regarding Loan Number 0909121377 | |
10.13# | Business Loan Agreement, dated September 19, 2012, between Nolte Associates, Inc., as borrower, and Torrey Pines Bank, as lender, regarding Loan Number 0909122289 | |
10.14# | Stock Purchase Agreement, dated as of August 3, 2010, between George S. Nolte Jr., George S. Nolte Jr. and Jacqueline A. Nolte, as trustee of the Nolte Family Trust u/t/a/ dated March 28, 1989, as amended and restated August 20, 2011, and NV5, Inc. (formerly Vertical V, Inc.) | |
21.1# | Subsidiaries of the Registrant | |
23.1* | Consent of DLA Piper LLP (US) (included in Exhibit 5.1) | |
23.2* | Consent of Grant Thornton LLP | |
24.1# | Power of Attorney | |
99.1# | Registration Statement on Form S-1 submitted confidentially to the SEC on April 12, 2012 | |
99.2# | Consent of Director Nominee Donald C. Alford | |
99.3# | Consent of Director Nominee Gerald J. Salontai | |
99.4# | Consent of Director Nominee Jeffrey A. Liss | |
99.5# | Consent of Director Nominee William D. Pruitt |
# | Previously filed. |
* | Filed herewith. |
| Indicates a management contract or compensatory plan, contract or arrangement. |
Item 17. | Undertakings. |
(a) | The undersigned registrant hereby undertakes: |
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
II-4
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement.
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(5) (ii) That, for the purpose of determining liability under the Securities Act to any purchaser, if the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(6) For the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(f) The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
II-5
(h) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 12933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-6
Signatures
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 1 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hollywood, State of Florida on March 11, 2013.
NV5 HOLDINGS, INC. | ||
By: |
/s/ Dickerson Wright |
|
Dickerson Wright Chairman, Chief Executive Officer and President |
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
/s/ Dickerson Wright Dickerson Wright |
Chairman, Chief Executive Officer, and President (Principal Executive Officer) | March 11, 2013 | ||
/s/ Michael P. Rama Michael P. Rama |
Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | March 11, 2013 | ||
EXHIBIT INDEX
Number |
Description |
|
1.1* | Form of Underwriting Agreement | |
3.1# | Amended and Restated Certificate of Incorporation | |
3.2# | Bylaws | |
4.1* | Specimen Unit Certificate | |
4.2* | Specimen Stock Certificate | |
4.3* | Specimen Warrant Certificate (included in Exhibit 4.5) | |
4.4* | Form of Underwriters Warrant (included in Exhibit 1.1) | |
4.5* | Form of Warrant Agreement between Registrar and Transfer Company and the Registrant | |
5.1* | Opinion of DLA Piper LLP (US) | |
10.1* | 2011 Equity Incentive Plan, as amended through March 8, 2013 | |
10.2* | Form of Restricted Stock Agreement | |
10.3* | Form of Restricted Stock Unit Agreement | |
10.4# | Form of Indemnity Agreement | |
10.5# | Employment Agreement, dated as of August 1, 2010, between NV5, Inc. and Donald Alford, as amended by that certain First Amendment to Employment Agreement, dated as of March 18, 2011, between NV5, Inc. and Donald Alford | |
10.6# | Employment Agreement, dated April 11, 2011, between NV5, Inc. and Dickerson Wright | |
10.7# | Employment Agreement, dated October 1, 2010, between NV5, Inc. (formerly Vertical V, Inc.) and Richard Tong, as amended by that certain First Amendment to Employment Agreement, dated as of March 18, 2011, between NV5, Inc. and Richard Tong | |
10.8# | Employment Agreement, dated October 1, 2010, between NV5, Inc. (formerly Vertical V, Inc.) and Alexander Hockman, as amended by that certain First Amendment to Employment Agreement, dated as of March 18, 2011, between NV5, Inc. and Alexander Hockman | |
10.9# | Employment Agreement, dated January 25, 2012, between NV5, Inc. and Michael Rama | |
10.10# | Employment Agreement, dated October 1, 2010, between NV5, Inc. (formerly Vertical V, Inc.) and Mary Jo OBrien, as amended by that certain First Amendment to Employment Agreement, dated as of March 18, 2011, between NV5, Inc. and Mary Jo OBrien | |
10.11# | Business Loan Agreement, dated March 16, 2012, between NV5, Inc., as borrower, and Torrey Pines Bank, as lender, regarding Loan Number 0901122297 | |
10.12# | Business Loan Agreement, dated September 19, 2012, between NV5, Inc., as borrower, and Torrey Pines Bank, as lender, regarding Loan Number 0909121377 | |
10.13# | Business Loan Agreement, dated September 19, 2012, between Nolte Associates, Inc., as borrower, and Torrey Pines Bank, as lender, regarding Loan Number 0909122289 | |
10.14# | Stock Purchase Agreement, dated as of August 3, 2010, between George S. Nolte Jr., George S. Nolte Jr. and Jacqueline A. Nolte, as trustee of the Nolte Family Trust u/t/a/ dated March 28, 1989, as amended and restated August 20, 2011, and NV5, Inc. (formerly Vertical V, Inc.) |
Number |
Description |
|
21.1# | Subsidiaries of the Registrant | |
23.1* | Consent of DLA Piper LLP (US) (included in Exhibit 5.1) | |
23.2* | Consent of Grant Thornton LLP | |
24.1# | Power of Attorney | |
99.1# | Registration Statement on Form S-1 submitted confidentially to the SEC on April 12, 2012 | |
99.2# | Consent of Director Nominee Donald C. Alford | |
99.3# | Consent of Director Nominee Gerald J. Salontai | |
99.4# | Consent of Director Nominee Jeffrey A. Liss | |
99.5# | Consent of Director Nominee William D. Pruitt |
# | Previously filed. |
* | Filed herewith. |
| Indicates a management contract or compensatory plan, contract or arrangement. |
Exhibit 1.1
1,000,000 Units
NV5 HOLDINGS, INC.
UNDERWRITING AGREEMENT
March , 2013
Roth Capital Partners, LLC
888 San Clemente Drive
Newport Beach, CA 92660
Ladies and Gentlemen:
NV5 Holdings, Inc. , a Delaware corporation (the Company ), proposes, subject to the terms and conditions stated herein, to issue and sell to Roth Capital Partners, LLC (the Underwriter ) an aggregate of 1,000,000 units (the Firm Units ), each unit consisting of one share of the Companys common stock, par value $0.01 per share (the Common Stock ), and one warrant to purchase one share of Common Stock, on the terms as described in the Prospectus, as defined below (each, a Warrant and collectively, the Warrants ). The Company has granted the Underwriter the option to purchase an aggregate of up to 150,000 additional units (the Option Units ) of the Companys securities as may be necessary to cover over-allotments made in connection with the offering (the Firm Units and the Option Units are herein collectively called the Underwritten Units ). The units (each, a Unit and collectively, the Units ), the shares of Common Stock underlying the Units (the Shares ), the Warrants and the shares of Common Stock issuable upon exercise of the Warrants (the Warrant Shares) are hereinafter referred to collectively as the Securities .
The Underwriter has agreed to reserve up to $2.0 million of the Firm Units to be purchased by it under this Agreement, for sale to the Companys directors, officers, and certain employees and other parties related to the Company (collectively, Participants ), as set forth in the Prospectus (as hereinafter defined) under the heading Underwriting (the Directed Unit Program ). The Firm Units to be sold by the Underwriter pursuant to Directed Unit Program are referred to hereinafter Reserved Units . Any Reserved Units not orally confirmed for purchase by any Participant by [a/p].m. Pacific time on the business day following the business day on which this Agreement is executed will be offered to the public by the Underwriter as set forth in the Prospectus.
The Company and the Underwriter hereby confirm their agreement as follows:
1. Registration Statement and Prospectus . The Company has prepared and filed with the Securities and Exchange Commission (the Commission ) a registration statement on Form S-1 (File No. 333-186229) under the Securities Act of 1933, as amended (the Securities Act ) and the rules and regulations (the Rules and Regulations ) of the Commission thereunder relating to the Securities. Such registration statement, as amended at the time it became effective, including the information, if any, deemed pursuant to Rule 430A, 430B or 430C under the Securities Act to be part of the registration statement at the time of its effectiveness ( Rule 430
1
Information ), is referred to herein as the Registration Statement ; and as used herein, the term Preliminary Prospectus means each prospectus included in Part I of such registration statement (and any amendments thereto) immediately before effectiveness, any prospectus filed with the Commission pursuant to Rule 424(a) under the Securities Act and the prospectus included in Part I of the Registration Statement at the time of its effectiveness that omits Rule 430 Information, and the term Prospectus means the prospectus in the form first used (or made available upon request of purchasers pursuant to Rule 173 under the Securities Act) in connection with confirmation of sales of the Underwritten Units. If the Company has filed or files an abbreviated registration statement pursuant to Rule 462(b) under the Securities Act (the Rule 462 Registration Statement ), then any reference herein to the term Registration Statement shall include such Rule 462 Registration Statement. Any issuer free writing prospectus as defined in Rule 433 promulgated under the Securities Act relating to the Securities is hereinafter called an Issuer Free Writing Prospectus, Section 5(d) Communication means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act and Section 5(d) Writing means any Section 5(d) Communication that is a written communication within the meaning of Rule 405 promulgated under the Securities Act.
At or prior to the Applicable Time (as defined below), the Company had prepared the following information (collectively, the Pricing Disclosure Package ): a Preliminary Prospectus dated [ ], 2013 and each free-writing prospectus (as defined pursuant to Rule 405 under the Securities Act) listed on Schedule I(a) hereto.
Applicable Time means [ ] [A/P].M., Pacific time, on [ ], 2013.
A registration statement on Form 8-A (File No. 000- ) in respect of the registration of the Shares, the Warrant Shares, the Warrants and the Units under the Securities Exchange Act of 1934, as amended (the Exchange Act ) was filed with the Commission on March , 2013, and such registration statement, in the form thereof delivered to the Underwriter, was declared effective by the Commission (the Form 8-A Registration Statement ). No other document with respect to such Form 8A Registration Statement has theretofore been filed with the Commission.
For purposes of this Agreement, all references to the Registration Statement, the Rule 462 Registration Statement, the Prospectus, the Form 8-A Registration Statement or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system or any successor system (EDGAR).
2. Representations and Warranties of the Company Regarding the Offering .
(a) The Company represents and warrants to, and agrees with, the Underwriter, as of the date hereof and as of the Closing Date (as defined in Section 4(c) below), except as otherwise indicated, as follows:
(i) No order preventing or suspending the use of any Preliminary Prospectus or Issuer Free Writing Prospectus has been issued by the Commission, and the Preliminary Prospectus included in the Pricing Disclosure Package, at the time of filing
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thereof, complied in all material respects with the Securities Act, and the Preliminary Prospectus, at the time of filing thereof, did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation and warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to (i) any Underwriter furnished to the Company in writing by such Underwriter expressly for use in the Preliminary Prospectus, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(f) hereof.
(ii) The Pricing Disclosure Package as of the Applicable Time did not, and as of the Closing Date and as of the Option Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation and warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter expressly for use in such Pricing Disclosure Package, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(f) hereof.
(iii) Each Issuer Free Writing Prospectus and each Section 5(d) Writing listed on Schedule I(b) hereto does not conflict with the information contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus and each such Issuer Free Writing Prospectus and Section 5(d) Writing, as supplemented by and taken together with the Pricing Disclosure Package, as of the Applicable Time, did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation and warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter expressly for use in such Issuer Free Writing Prospectus or Section 5(d) Writing listed on Schedule I(b), it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(f) hereof.
(iv) The Company has not (A) engaged in or authorized any other person to engage in any Section 5(d) Communications, other than Section 5(d) Communications with the prior consent of the Underwriter with entities that are qualified institutional buyers as defined in Rule 144A promulgated under the Securities Act or institutions that are accredited investors as defined in Rule 501(a) promulgated under the Securities Act; and (B) distributed, or authorized any other person to distribute, any Section 5(d) Writings, other than those distributed with the prior consent of the Underwriter that are listed on Schedule I(b) hereto and the Company reconfirms that the Underwriter has been authorized to act on its behalf in engaging in Section 5(d) Communications in connection with the offering.
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(v) From the time of initial confidential submission of any draft registration statement with the Commission (each, a Draft Registration Statement) (or, if earlier, the first date on which the Company engaged in any Section 5(d) Communication) through the date hereof, and of the initial filing of the Registration Statement by means of EDGAR, the Company has been and is presently, an Emerging Growth Company as defined in Section 2(a)(19) of the Securities Act. A copy of each Draft Registration Statement was filed as an exhibit to the initial public filing of the Registration Statement at least 21 days before the Company conducted any road show, as defined in Rule 433(h)(4) promulgated under the Securities Act. The Registration Statement (other than any Rule 462 Registration Statement) has been declared effective by the Commission. No order suspending the effectiveness of the Registration Statement has been issued by the Commission, and no proceeding for that purpose or pursuant to Section 8A of the Securities Act against the Company or related to the offering of the Securities has been initiated or, to the Companys knowledge, threatened by the Commission; as of the applicable effective date of the Registration Statement and any post-effective amendment thereto, the Registration Statement and any such post-effective amendment complied and will comply in all material respects with the Securities Act, and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; and as of the date of the Prospectus and any amendment or supplement thereto and as of the Closing Date and as of the Option Closing Date, as the case may be, the Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation and warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter expressly for use in the Registration Statement and the Prospectus and any amendment or supplement thereto, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 7(f) hereof.
(vi) The financial statements of the Company, together with the related notes, included in the Registration Statement, the Pricing Disclosure Package and the Prospectus comply in all material respects with the applicable requirements of the Securities Act and the Exchange Act and fairly present the consolidated financial condition of the Company as of the dates indicated and the consolidated results of operations and changes in cash flows for the periods therein specified in conformity with generally accepted accounting principles consistently applied throughout the periods involved; and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. The pro forma financial statements and the related notes thereto included in the Registration Statement, the Pricing Disclosure Package and the Prospectus present fairly in all material respects the information shown therein, have been prepared in accordance with the Commissions rules and guidelines with respect to pro forma financial statements and have been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. No other financial
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statements, pro forma financial information or schedules are required under the Securities Act to be included in the Registration Statement, the Pricing Disclosure Package or the Prospectus. To the Companys knowledge, Grant Thornton LLP, which has expressed its opinion with respect to certain of the financial statements and schedules filed as a part of the Registration Statement and included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, is an independent public accounting firm with respect to the Company within the meaning of the Securities Act and the Rules and Regulations. All disclosures contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus regarding non-GAAP financial measures (as such term is defined by the rules and regulations of the Commission) comply with Regulation G of the Exchange Act, and Item 10 of Regulation S-K of the 1933 Act, to the extent applicable.
(vii) The Company had a reasonable basis for, and made in good faith, each forward-looking statement (within the meaning of Section 27A of the Act or Section 21E of the Exchange Act) contained in the Registration Statement, the Pricing Disclosure Package, or the Prospectus.
(viii) All statistical or market-related data included in the Registration Statement, the Pricing Disclosure Package or the Prospectus, are based on or derived from sources that the Company reasonably believes to be reliable and accurate, and the Company has obtained the written consent to the use of such data from such sources, to the extent required.
(ix) Each of the Common Stock, Warrants and Units is registered pursuant to Section 12(b) of the Exchange Act pursuant to the Form 8-A Registration Statement and is approved for listing on the Nasdaq Capital Market.
(x) The Company has not taken, directly or indirectly, any action that is designed to or that has constituted or that would reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.
(xi) The Company is not and, after giving effect to the offering and sale of the Securities and the application of the net proceeds thereof, will not be an investment company, as such term is defined in the Investment Company Act of 1940, as amended
(xii) The Company has the corporate power and authority to issue the Underwriters Warrants (as defined in Section 5(a)(xiii) below) and to perform its obligations thereunder. The Underwriters Warrants have been duly authorized and constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms except (A) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws of general applicability affecting the rights of creditors generally, and (B) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws in the United States. The Units to be issued upon exercise of the
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Underwriters Warrants (the Warrant Units ) have been duly authorized and reserved for issuance, and when issued to the holder(s) of the Underwriters Warrants in accordance with the terms of the Underwriters Warrants against payment therefor, will be validly issued, fully paid and nonassessable. The Warrants underlying the Warrant Units (the Embedded Underwriters Warrants ) have been duly authorized and, when issued upon exercise of the Underwriters Warrants, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms except (A) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws of general applicability affecting the rights of creditors generally, and (B) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws in the United States. The shares of Common Stock underlying the Warrant Units and the Embedded Underwriters Warrants have been duly authorized and reserved for issuance and, upon issuance following exercise of the Underwriters Warrants or Embedded Underwriters Warrants, as the case may be, will be validly issued, fully paid and non-assessable, and the issuance of such Common Stock is free of statutory and contractual preemptive rights, resale rights, rights of first refusal and restrictions upon voting and transfer (except for applicable transfer restrictions under the Securities Act and any applicable state securities laws). The offering and issuance of the Underwriters Warrants, Warrant Units, Embedded Underwriters Warrants and the shares of Common Stock that may be issuable upon exercise of any of the foregoing are pursuant to an exemption from or have been duly registered in accordance with the registration requirements of the Securities Act.
(b) Any certificate signed by any officer of the Company and delivered to the Underwriter or to the Underwriters counsel shall be deemed a representation and warranty by the Company to the Underwriter as to the matters covered thereby.
3. Representations and Warranties Regarding the Company .
(a) The Company represents and warrants to and agrees with the Underwriter, except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, as follows:
(i) Each of the Company and its subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. Each of the Company and its subsidiaries has the corporate power and authority to own its properties and conduct its business as currently being carried on and as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, and is duly qualified to do business as a foreign corporation in good standing in each jurisdiction in which it owns or leases real property or in which the conduct of its business makes such qualification necessary and in which the failure to so qualify would have or is reasonably likely to result in a material adverse effect upon the business, prospects, properties, operations, condition (financial or otherwise) or results of operations of the Company and its subsidiaries, taken as a whole, or in its ability to perform its obligations under this Agreement ( Material Adverse Effect ).
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(ii) The Company has the power and authority to enter into this Agreement and to authorize, issue and sell the Securities as contemplated by this Agreement. This Agreement has been duly authorized, executed and delivered by the Company, and constitutes a valid, legal and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as rights to indemnity hereunder may be limited by federal or state securities laws and except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity.
(iii) The execution, delivery and performance of this Agreement and the consummation of the transactions herein contemplated will not (A) result in a breach or violation of any of the terms and provisions of, or constitute a default under, any law, rule or regulation to which the Company or any subsidiary is subject, or by which any property or asset of the Company or any subsidiary is bound or affected, (B) conflict with, result in any violation or breach of, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, lease, credit facility, debt, note, bond, mortgage, indenture or other instrument (the Contracts ) or obligation or other understanding to which the Company or any subsidiary is a party of by which any property or asset of the Company or any subsidiary is bound or affected, except to the extent that such conflict, default, termination, amendment, acceleration or cancellation right is not reasonably likely to result in a Material Adverse Effect, or (C) result in a breach or violation of any of the terms and provisions of, or constitute a default under, the Companys charter or by-laws.
(iv) Neither the Company nor any of its subsidiaries is in violation, breach or default under its certificate of incorporation or by-laws, except, in the case of any subsidiary of the Company, where the violation, breach or default is not reasonably likely to result in a Material Adverse Effect.
(v) All consents, approvals, orders, authorizations and filings required on the part of the Company and its subsidiaries in connection with the execution, delivery or performance of this Agreement have been obtained or made, other than such consents, approvals, orders and authorizations the failure of which to make or obtain is not reasonably likely to result in a Material Adverse Effect.
(vi) All of the issued and outstanding shares of capital stock of the Company are duly authorized and validly issued, fully paid and nonassessable, and have been issued in compliance with all applicable securities laws, and conform to the description thereof in the Registration Statement, the Pricing Disclosure Package and the Prospectus. Except for the issuances of options or restricted stock in the ordinary course of business and the Underwriters Warrants, and other than in respect of the Securities, since the respective dates as of which information is provided in the Registration Statement, the Pricing Disclosure Package or the Prospectus, the Company has not entered into or granted any convertible or exchangeable securities, options, warrants, agreements, contracts or other rights in existence to purchase or acquire from the
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Company any shares of the capital stock of the Company. The Underwritten Units have been duly authorized and reserved for issuance, and when issued and delivered against payment therefore as provided in this Agreement, will be validly issued and the issuance of the Units is not subject to any preemptive rights, rights of first refusal or other similar rights. The Warrants underlying the Underwritten Units (the Embedded Warrants) have been duly authorized and, when issued upon separation of the Units, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms except (A) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws of general applicability affecting the rights of creditors generally, and (B) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws in the United States. The shares of Common Stock underlying the Underwritten Units and the Embedded Warrants have been duly authorized and reserved for issuance and, upon issuance following exercise of the Warrants or Embedded Warrants, as the case may be, will be validly issued, fully paid and non-assessable and the issuance of such shares of Common Stock will be free of statutory and contractual preemptive rights, resale rights, rights of first refusal and restrictions upon voting and transfer (except for applicable transfer restrictions under the Securities Act and any applicable state securities laws). No holder of any Unit, Warrant or any shares of Common Stock is or will be subject to personal liability by reason of being such a holder. The Units, Warrants and shares of Common Stock conform to the description of the capital stock contained in the Pricing Disclosure Package and the Prospectus.
(vii) Each of the Company and its subsidiaries has filed all returns (as hereinafter defined) required to be filed with taxing authorities prior to the date hereof or has duly obtained extensions of time for the filing thereof. Each of the Company and its subsidiaries has paid all taxes (as hereinafter defined) shown as due on such returns that were filed and has paid all taxes imposed on or assessed against the Company or such respective subsidiary other than as described or reflected in the Registration Statement. The provisions for taxes payable, if any, shown on the financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements. Except as disclosed in writing to the Underwriter, (A) no issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns or taxes asserted as due from the Company or its subsidiaries, and (B) no waivers of statutes of limitation with respect to the returns or collection of taxes have been given by or requested from the Company or its subsidiaries. The term taxes means all federal, state, local, foreign, and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments, or charges of any kind whatever, together with any interest and any penalties, additions to tax, or additional amounts with respect thereto. The term returns means all returns, declarations, reports, statements, and other documents required to be filed in respect to taxes.
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(viii) Since the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package or the Prospectus, (A) neither the Company nor any of its subsidiaries has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business, (B) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its capital stock; (C) there has not been any change in the capital stock of the Company or any of its subsidiaries (other than a change in the number of outstanding shares of Common Stock due to any stock split described in the Registration Statement or due to the issuance of shares upon the exercise of outstanding options or warrants or the issuance of restricted stock awards or restricted stock units under the Companys existing stock awards plan, or any new grants thereof in the ordinary course of business), (D) there has not been any material change in the Companys long-term or short-term debt, and (E) there has not been the occurrence of any Material Adverse Effect.
(ix) There is not pending or, to the knowledge of the Company, threatened, any action, suit or proceeding to which the Company or any of its subsidiaries is a party or of which any property or assets of the Company or its subsidiaries is the subject before or by any court or governmental agency, authority or body, or any arbitrator or mediator, which, if resolved adversely to the Company is reasonably likely to result in a Material Adverse Effect.
(x) The Company and each of its subsidiaries holds, and is in compliance with, all franchises, grants, authorizations, licenses, permits, easements, consents, certificates and orders ( Permits ) of any governmental or self-regulatory agency, authority or body required for the conduct of its business, and all such Permits are in full force and effect, in each case except where the failure to hold, or comply with, any of them is not reasonably likely to result in a Material Adverse Effect.
(xi) The Company and its subsidiaries have good and marketable title to all property (whether real or personal) described in the Registration Statement, the Pricing Disclosure Package and the Prospectus as being owned by them that are material to the business of the Company, in each case free and clear of all liens, claims, security interests, other encumbrances or defects, except those that are not reasonably likely to result in a Material Adverse Effect. The property held under lease by the Company and its subsidiaries is held by them under valid, subsisting and enforceable leases with only such exceptions with respect to any particular lease as do not interfere in any material respect with the conduct of the business of the Company and its subsidiaries.
(xii) The Company and each of its subsidiaries owns or possesses or has valid right to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets and similar rights ( Intellectual Property ) necessary for the conduct of the business of the Company and its subsidiaries as currently carried on and as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus. To the knowledge of the Company, no action or use by the Company or any of its subsidiaries will involve or give rise to any infringement of, or license or similar fees for, any
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Intellectual Property of others, except where such action, use, license or fee is not reasonably likely to result in a Material Adverse Effect. Neither the Company nor any of its subsidiaries has received any written notice alleging any such infringement or fee.
(xiii) The Company and each of its subsidiaries has complied with, is not in violation of, and has not received any notice of violation relating to any law, rule or regulation relating to the conduct of its business, or the ownership or operation of its property and assets, including, without limitation, (A) the Currency and Foreign Transactions Reporting Act of 1970, as amended, or any money laundering laws, rules or regulations, (B) any laws, rules or regulations related to health, safety or the environment, including those relating to the regulation of hazardous substances, (C) the Sarbanes-Oxley Act and the rules and regulations of the Commission thereunder, (D) the Foreign Corrupt Practices Act of 1977 and the rules and regulations thereunder, and (E) the Employment Retirement Income Security Act of 1974 and the rules and regulations thereunder, in each case except where the failure to be in compliance is not reasonably likely to result in a Material Adverse Effect.
(xiv) Neither the Company nor any of its subsidiaries nor, to the knowledge of the Company, any director, officer, employee, representative, agent or affiliate of the Company or any of its subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department ( OFAC ); and the Company will not directly or indirectly use the proceeds of the offering of the Securities contemplated hereby, or lend, contribute or otherwise make available such proceeds to any person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
(xv) The Company and each of its subsidiaries carries, or is covered by, insurance in such amounts and covering such risks as is adequate for the conduct of its business and the value of its properties and as is customary for companies engaged in similar businesses in similar industries.
(xvi) No labor dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is imminent that is reasonably likely to result in a Material Adverse Effect.
(xvii) Neither the Company, its subsidiaries nor, to its knowledge, any other party is in violation, breach or default of any Contract that is reasonably likely to result in a Material Adverse Effect.
(xviii) No supplier, customer, distributor or sales agent of the Company has notified the Company that it intends to discontinue or decrease the rate of business done with the Company, except where such decrease is not reasonably likely to result in a Material Adverse Effect.
(xix) To the Companys knowledge, there are no claims, payments, issuances, arrangements or understandings for services in the nature of a finders, consulting or origination fee with respect to the introduction of the Company to the
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Underwriter or the sale of the Securities hereunder or any other arrangements, agreements, understandings, payments or issuances with respect to the Company that may affect the Underwriters compensation, as determined by FINRA.
(xx) Except as disclosed to the Underwriter in writing, the Company has not made any direct or indirect payments (in cash, securities or otherwise) to (A) any person, as a finders fee, investing fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who provided capital to the Company, (B) any FINRA member, or (C) any person or entity that has any direct or indirect affiliation or association with any FINRA member within the 12-month period prior to the date on which the Registration Statement was filed with the Commission (Filing Date) or thereafter.
(xxi) None of the net proceeds of the offering will be paid by the Company to any participating FINRA member or any affiliate or associate of any participating FINRA member, except as specifically authorized herein.
(xxii) To the Companys knowledge, no (A) officer or director of the Company or its subsidiaries, (B) owner of 5% or more of the Companys unregistered securities or that of its subsidiaries or (C) owner of any amount of the Companys unregistered securities acquired within the 180-day period prior to the Filing Date, has any direct or indirect affiliation or association with any FINRA member. The Company will advise the Underwriter and its counsel if it becomes aware that any officer, director or stockholder of the Company or its subsidiaries is or becomes an affiliate or associated person of a FINRA member participating in the offering.
(xxiii) Other than the Underwriter, no person has the right to act as an underwriter or as a financial advisor to the Company in connection with the transactions contemplated hereby.
(xxiv) At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or any offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the Securities Act) of the Securities and at the date hereof, the Company was not and is not an ineligible issuer, as defined in Rule 405 under the Securities Act or an excluded issuer as defined in Rule 164 under the Securities Act. The Company has paid the registration fee for this offering pursuant to Rule 456(b)(1) under the Securities Act or will pay such fee within the time period required by such rule (without giving effect to the proviso therein) and in any event prior to the Closing Date.
(xxv) The Company has not sold, issued or distributed any shares of Common Stock during the six-month period preceding the date hereof, including any sales pursuant to Rule 144A under, or Regulation D or Regulation S of, the Securities Act, other than shares of Common Stock issued pursuant to employee benefit plans, qualified stock option plans or other employee compensation plans or pursuant to outstanding convertible securities, options, rights or warrants.
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4. Purchase, Sale and Delivery of Underwritten Units.
(a) On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell the Firm Units to the Underwriter, and the Underwriter agrees to purchase the Firm Units. The purchase price for each Firm Unit shall be $6.00 per Unit (the Per Unit Price ).
(b) The Company hereby grants to the Underwriter the option to purchase some or all of the Option Units and, upon the basis of the warranties and representations and subject to the terms and conditions herein set forth, the Underwriter shall have the right to purchase all or any portion of the Option Units at the Per Unit Price as may be necessary to cover over-allotments made in connection with the transactions contemplated hereby. This option may be exercised by the Underwriter at any time (but not more than once) on or before the forty-fifth day following the date hereof, by written notice to the Company (the Option Notice ). The Option Notice shall set forth the aggregate number of Option Units as to which the option is being exercised, and the date and time when the Option Units are to be delivered (such date and time being herein referred to as the Option Closing Date ); provided , however , that the Option Closing Date shall not be earlier than the Closing Date (as defined below) nor earlier than the first business day after the date on which the option shall have been exercised nor later than the fifth business day after the date on which the option shall have been exercised unless the Company and the Underwriter otherwise agree.
Payment of the purchase price for and delivery of the Option Units shall be made at the Option Closing Date in the same manner and at the same office as the payment for the Firm Units as set forth in subparagraph (c) below, including with regard to the conditions set forth in Section 6 below. For the purpose of expediting the checking of the certificate for the Option Units by the Underwriter, the Company agrees to make a form of such certificate available to the Underwriter for such purpose at least one full business day preceding the Option Closing Date.
(c) The Firm Units will be delivered by the Company to the Underwriter against payment of the purchase price therefor by wire transfer of same day funds payable to the order of the Company at the offices of Roth Capital Partners, LLC, 888 San Clemente Drive, Newport Beach, CA 92660, or such other location as may be mutually acceptable, at 6:00 a.m. PST, on the third (or if the Firm Units are priced, as contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30 p.m. Eastern time, the fourth) full business day following the date hereof, or at such other time and date as the Underwriter and the Company determine pursuant to Rule 15c6-1(a) under the Exchange Act, or, in the case of the Option Units, at such date and time set forth in the Option Notice. The time and date of delivery of the Firm Units or the Option Units, as applicable, is referred to herein as the Closing Date . If the Underwriter so elects, delivery of the Firm Units and Option Units may be made by credit through full fast transfer to the account at The Depository Trust Company designated by the Underwriter. Certificates representing the Units, in definitive form and in such denominations and registered in such names as the Underwriter may request upon at least two business days prior notice to the Company, will be made available for checking and packaging not later than 10:30 a.m. PDT on the business day next preceding the Closing Date at the above addresses, or such other location as may be mutually acceptable.
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5. Covenants.
(a) The Company covenants and agrees with the Underwriter as follows:
(i) During the period beginning on the date hereof and ending on the later of the Closing Date or such date as, in the opinion of counsel for the Underwriter, the Prospectus is no longer required by law to be delivered in connection with sales by an underwriter or dealer (the Prospectus Delivery Period ), prior to amending or supplementing the Registration Statement, including any Rule 462 Registration Statement, the Pricing Disclosure Package or the Prospectus, the Company shall furnish to the Underwriter for review and comment a copy of each such proposed amendment or supplement, and the Company shall not file any such proposed amendment or supplement to which the Underwriter reasonably objects.
(ii) From the date of this Agreement until the end of the Prospectus Delivery Period, the Company shall promptly advise the Underwriter in writing (A) of the receipt of any comments of, or requests for additional or supplemental information from, the Commission, (B) of the time and date of any filing of any post-effective amendment to the Registration Statement or any amendment or supplement to the Pricing Disclosure Package or the Prospectus or any Issuer Free Writing Prospectus, (C) of the time and date that any post-effective amendment to the Registration Statement becomes effective and (D) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending its use or the use of the Pricing Disclosure Package or any Issuer Free Writing Prospectus, or of any proceedings to remove, suspend or terminate from listing or quotation the Common Stock from any securities exchange upon which it is listed for trading or included or designated for quotation, or of the threatening or initiation of any proceedings for any of such purposes. If the Commission shall enter any such stop order at any time during the Prospectus Delivery Period, the Company will use its reasonable efforts to obtain the lifting of such order at the earliest possible moment. Additionally, the Company agrees that it shall comply with the provisions of Rules 424(b), 430A and 430B, as applicable, under the Securities Act and will use its reasonable efforts to confirm that any filings made by the Company under Rule 424(b) or Rule 433 were received in a timely manner by the Commission (without reliance on Rule 424(b)(8) or 164(b) of the Securities Act).
(iii) During the Prospectus Delivery Period, the Company will comply with all requirements imposed upon it by the Securities Act, as now and hereafter amended, and by the Rules and Regulations, as from time to time in force, and by the Exchange Act, as now and hereafter amended, so far as necessary to permit the continuance of sales of or dealings in the Securities as contemplated by the provisions hereof, the Pricing Disclosure Package, the Registration Statement and the Prospectus. If during such period any event occurs as a result of which the Prospectus (or if the Prospectus is not yet available to prospective purchasers, the Pricing Disclosure Package) would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances then existing, not misleading, or if during such period it is necessary or appropriate in the opinion of the
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Company or its counsel or the Underwriter or its counsel to amend the Registration Statement or supplement the Prospectus (or if the Prospectus is not yet available to prospective purchasers, the Pricing Disclosure Package ) to comply with the Securities Act, the Company will promptly notify the Underwriter, allow the Underwriter the opportunity to provide reasonable comments on such amendment, Prospectus supplement or document, and will amend the Registration Statement or supplement the Prospectus (or if the Prospectus is not yet available to prospective purchasers, the Pricing Disclosure Package) so as to correct such statement or omission or effect such compliance.
(iv) If at any time following the issuance of an Issuer Free Writing Prospectus or Section 5(d) Writing there occurs an event or development as a result of which such Issuer Free Writing Prospectus or Section 5(d) Writing would conflict with the information contained in the Registration Statement or any Prospectus or would include an untrue statement of a material fact or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances prevailing at that subsequent time, not misleading, the Company promptly will notify the Underwriter and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus or Section 5(d) Writing to eliminate or correct such conflict, untrue statement or omission.
(v) The Company shall take or cause to be taken all necessary action to qualify the Securities for sale under the securities laws of such jurisdictions as the Underwriter reasonably designates and to continue such qualifications in effect so long as required for the distribution of the Securities, except that the Company shall not be required in connection therewith to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified, to execute a general consent to service of process in any state or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise subject.
(vi) The Company will furnish to the Underwriter and counsel for the Underwriter copies of the Registration Statement, each Prospectus, any Issuer Free Writing Prospectus or Draft Registration Statement, and all amendments and supplements to such documents, in each case as soon as available and in such quantities as the Underwriter may from time to time reasonably request.
(vii) The Company will make generally available to its security holders as soon as practicable, but in any event not later than 15 months after the end of the Companys current fiscal quarter, an earnings statement (which need not be audited) covering a 12-month period that shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of the Rules and Regulations.
(viii) The Company, whether or not the transactions contemplated hereunder are consummated or this Agreement is terminated, will pay or cause to be paid (A) all expenses (including transfer taxes allocated to the respective transferees) incurred in connection with the delivery to the Underwriter of the Units, (B) all expenses and fees (including, without limitation, fees and expenses of the Companys counsel) in connection with the preparation, printing, filing, delivery, and shipping of the
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Registration Statement (including the financial statements therein and all amendments, schedules, and exhibits thereto), the Units, the Pricing Disclosure Package, the Prospectus, any Issuer Free Writing Prospectus and any amendment thereof or supplement thereto, (C) all reasonable filing fees and reasonable fees and disbursements of the Underwriters counsel incurred in connection with the qualification of the Securities for offering and sale by the Underwriter or by dealers under the securities or blue sky laws of the states and other jurisdictions that the Underwriter shall designate or in connection with the Reserved Units, (D) the fees and expenses of any transfer agent or registrar, (E) the reasonable filing fees and reasonable fees and disbursements of Underwriters counsel incident to any required review and approval by FINRA of the terms of the sale of the Securities, (F) listing fees, if any, and (G) all other costs and expenses incident to the performance of its obligations hereunder that are not otherwise specifically provided for herein. In addition to the foregoing, the Company will reimburse the Underwriter for its reasonable, documented out-of-pocket expenses incurred in connection with the purchase and sale of the Units contemplated hereby (the Underwriters Expenses ). If this Agreement is terminated by the Underwriter in accordance with the provisions of Section 6 or Section 9, the Company will reimburse the Underwriter for all out-of-pocket disbursements (including, but not limited to, reasonable fees and disbursements of counsel, travel expenses, postage, facsimile and telephone charges) incurred by the Underwriter in connection with its investigation, preparing to market and marketing of the Units or in contemplation of performing its obligations hereunder. Notwithstanding the foregoing, the maximum amount payable by the Company for fees and disbursements of the Underwriter and the Underwriters counsel pursuant to this Section 5(a)(viii) exclusive of the Underwriters Expenses shall be (A) $10,000 with respect to filings made by the Underwriter with FINRA, (B) $25,000 with respect to the registration or qualification of the Securities for the offer and sale of the Securities under the blue sky laws of any jurisdiction (assuming that the Securities have been approved for listing on the Nasdaq Capital Market) and the Reserved Units, and (C) $115,000 with respect to any other fees or disbursements of the Underwriters counsel, exclusive of any indemnity obligations that the Company may have.
(ix) The Company intends to apply the net proceeds from the sale of the Units to be sold by it hereunder for the purposes set forth in the Pricing Disclosure Package and in the Prospectus.
(x) The Company has not taken and will not take, directly or indirectly, during the Prospectus Delivery Period, any action designed to or which might reasonably be expected to cause or result in, or that has constituted, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Units.
(xi) The Company represents and agrees that, unless it obtains the prior written consent of the Underwriter, and the Underwriter represents and agrees that, unless it obtains the prior written consent of the Company, it has not made and will not make any offer relating to the Securities that would constitute an Issuer Free Writing Prospectus; provided that the prior written consent of the parties hereto shall be deemed to have been given in respect of the free writing prospectuses included in Schedule I(a).
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The Company has complied and will comply with the requirements of Rule 433 under the Securities Act applicable to any Issuer Free Writing Prospectus, including timely filing with the Commission or retention where required and legending; and the Company represents that it has satisfied and agrees that it will satisfy the conditions under Rule 433 under the Act to avoid a requirement to file with the Commission any electronic road show.
(xii) The Company hereby agrees that, without the prior written consent of the Underwriter, it will not, during the period ending 180 days after the date hereof ( Lock-Up Period ), (A) offer, pledge, issue, sell, contract to sell, purchase, contract to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock; (B) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise; or (C) file any registration statement with the Commission relating to the offering of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock. The restrictions contained in the preceding sentence shall not apply to (1) the Securities to be sold hereunder, (2) the issuance of Common Stock upon the exercise of options or warrants disclosed as outstanding in the Registration Statement (excluding exhibits thereto) or the Prospectus, or (3) the issuance of employee stock options not exercisable during the Lock-Up Period and the grant of restricted stock awards or restricted stock units pursuant to equity incentive plans described in the Registration Statement (excluding exhibits thereto) and the Prospectus. Notwithstanding the foregoing, if the Company ceases to be an Emerging Growth Company at any time prior to the expiration of the Lock-Up Period and if (x) the Company issues an earnings release or material news, or a material event relating to the Company occurs, during the last 17 days of the Lock-Up Period, or (y) prior to the expiration of the Lock-Up Period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the Lock-Up Period, the restrictions imposed by this clause shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, unless the Underwriter waives such extension in writing.
(xiii) On the Closing Date of the purchase of the Firm Units, the Company shall execute and deliver to the Underwriter a warrant in the form attached hereto as Exhibit A (the Underwriters Warrants ), evidencing the right to purchase Units equal to 10% of the Firm Units issued in the offering. The Underwriters Warrants will have an exercise price equal to 120% of the offering price of the Firm Units sold in the offering and may be exercised on a cashless basis. The Underwriters Warrants will be exercisable commencing one year after the effective date of the Registration Statement, and will be exercisable for two years thereafter.
(xiv) The Company agrees to promptly notify the Underwriter if the Company ceases to be an Emerging Growth Company at any time prior to the later of (A) the completion of the 180-day restricted period referred to in Section 5(a)(xii) hereof
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and (B) the completion of the distribution of the Underwritten Units within the meaning of the Securities Act; provided, however, that the Company shall be under no obligation to provide such notification after the completion of the 180-day restricted period unless the Underwriter has previously notified the Company that it is still undertaking such distribution as of the completion of this restricted period.
(xv) The Company will comply with all applicable securities and other laws, rules and regulations in each jurisdiction in which the Reserved Units are offered in connection with the offer and sale thereof.
6. Conditions of the Underwriters Obligations. The obligations of the Underwriter hereunder to purchase the Underwritten Units are subject to the accuracy, as of the date hereof and at the Closing Date (as if made at the Closing Date), of and compliance with all representations, warranties and agreements of the Company contained herein, the performance by the Company of its obligations hereunder and the following additional conditions:
(a) If the filing of the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, is required under the Securities Act or the Rules and Regulations, the Company shall have filed the Prospectus (or such amendment or supplement) or such Issuer Free Writing Prospectus with the Commission in the manner and within the time period so required (without reliance on Rule 424(b)(8) or 164(b) promulgated under the Securities Act); the Registration Statement shall remain effective; no stop order suspending the effectiveness of the Registration Statement or any part thereof, any Rule 462 Registration Statement, or any amendment thereof, nor suspending or preventing the use of the Pricing Disclosure Package or the Prospectus or any Issuer Free Writing Prospectus shall have been issued; no proceedings for the issuance of such an order shall have been initiated or threatened; and any request of the Commission or the Underwriter for additional information (to be included in the Registration Statement, the Pricing Disclosure Package, the Prospectus, any Issuer Free Writing Prospectus or otherwise) shall have been complied with to the Underwriters satisfaction.
(b) The Common Stock, Warrants and Units shall be qualified for listing on the NASDAQ Capital Market.
(c) FINRA shall have raised no objection to the fairness and reasonableness of the underwriting terms and arrangements.
(d) The Underwriter shall not have reasonably determined, and advised the Company, that the Registration Statement, the Pricing Disclosure Package or the Prospectus, or any amendment thereof or supplement thereto, or any Issuer Free Writing Prospectus or Section 5(d) Writing, contains an untrue statement of fact which, in the Underwriters reasonable opinion, is material, or omits to state a fact which, in the Underwriters reasonable opinion, is material and is required to be stated therein or necessary to make the statements therein not misleading and the Company shall not have promptly taken such action as is necessary to cure such untrue statement of material fact or material omission of fact.
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(e) On or after the date hereof (i) no downgrading shall have occurred in the rating accorded any of the Companys securities by any nationally recognized statistical organization, as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Securities Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Companys securities.
(f) On the Closing Date, there shall have been furnished to the Underwriter the opinion letter of DLA Piper LLP (US), dated the Closing Date and addressed to the Underwriter, in form and substance as set forth in Schedule II hereto.
(g) The Underwriter shall have received on and as of the Closing Date an opinion of Loeb & Loeb LLP, counsel for the Underwriter, with respect to such matters as the Underwriter may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.
(h) The Underwriter shall have received a letter of Grant Thornton LLP, on the date hereof and on the Closing Date addressed to the Underwriter, in a form acceptable to the Underwriter, confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualifications of accountants under Rule 2-01 of Regulation S-X of the Commission, and confirming, as of the date of each such letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Pricing Disclosure Package, as of a date not prior to the date hereof or more than five days prior to the date of such letter), the conclusions and findings of said firm with respect to the financial information and other matters required by the Underwriter.
(i) On the Closing Date, there shall have been furnished to the Underwriter a certificate, dated the Closing Date and addressed to the Underwriter, signed by the chief executive officer and the chief financial officer of the Company, in their capacity as officers of the Company, to the effect that:
(i) The representations and warranties of the Company in this Agreement that are qualified by materiality or by reference to any Material Adverse Effect are true and correct in all respects, and all other representations and warranties of the Company in this Agreement are true and correct, in all material respects, as if made at and as of the Closing Date, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date;
(ii) No stop order or other order (A) suspending the effectiveness of the Registration Statement or any part thereof or any amendment thereof, (B) suspending the qualification of the Securities for offering or sale, or (C) suspending or preventing the use of the Pricing Disclosure Package, the Prospectus or any Issuer Free Writing Prospectus, has been issued, and no proceeding for that purpose has been instituted or, to their knowledge, is contemplated by the Commission or any state or regulatory body; and
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(iii) There has been no occurrence of any event resulting or reasonably likely to result in a Material Adverse Effect during the period from and after the date of this Agreement and prior to the Closing Date.
(j) On or before the date hereof, the Underwriter shall have received duly executed lock-up agreements, in a form attached hereto as Exhibit B, between the Underwriter and each party named on Schedule III.
(k) The Company shall have furnished to the Underwriter and its counsel such additional documents, certificates and evidence as the Underwriter or its counsel may have reasonably requested.
(l) On the Closing Date of the sale of the Firm Units, there shall have been issued to the Underwriter the Underwriters Warrants.
If any condition specified in this Section 6 shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Underwriter by notice to the Company at any time at or prior to the Closing Date and such termination shall be without liability of any party to any other party, except that Section 5(a)(viii), Section 7 and Section 8 shall survive any such termination and remain in full force and effect.
7. Indemnification and Contribution.
(a) The Company agrees to indemnify, defend and hold harmless the Underwriter, its affiliates, directors and officers and employees, and each person, if any, who controls the Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any losses, claims, damages or liabilities to which the Underwriter or such person may become subject, under the Securities Act or otherwise (including in settlement of any litigation if such settlement is effected with the written consent of the Company), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including the information deemed to be a part of the Registration Statement at the time of effectiveness and at any subsequent time pursuant to Rules 430A and 430B of the Rules and Regulations, or arise out of or are based upon the omission from the Registration Statement, or alleged omission to state therein, a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) an untrue statement or alleged untrue statement of a material fact contained in the Pricing Disclosure Package, the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus or any issuer information filed or required to be filed pursuant to Rule 433(d) under the Act, or any Section 5(d) Writing, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or the Pricing Disclosure Package, or any such amendment or supplement thereto, any Issuer Free Writing Prospectus or any issuer information filed or required to be filed pursuant to Rule 433(d) under the Act, or any Section 5(d) Writing, or arise out of or are based upon the omission or alleged omission to
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state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, (iii) in whole or in part, any inaccuracy in the representations and warranties of the Company contained herein, or (iv) in whole or in part, any failure of the Company to perform its obligations hereunder or under law, and will reimburse the Underwriter for any legal or other expenses reasonably incurred by it in connection with evaluating, investigating or defending against such loss, claim, damage, liability or action; provided, however , that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, the Pricing Disclosure Package, the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus or any issuer information filed or required to be filed pursuant to Rule 433(d) under the Act, or any Section 5(d) Writing, in reliance upon and in conformity with written information furnished to the Company by the Underwriter specifically for use in the preparation thereof, which written information is described in Section 7(f), or (v) the failure of any Participant to pay for and accept delivery of Reserved Units that the Participant has agreed to purchase, or related to, arising out of, or in connection with the Directed Share Program other than losses, claims, damages or liabilities (or expenses relating thereto) that are finally judicially determined to have resulted from the bad faith or gross negligence of the Underwriter.
(b) The Underwriter will indemnify, defend and hold harmless the Company, its affiliates, directors, officers and employees, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any losses, claims, damages or liabilities to which the Company may become subject, under the Securities Act or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of such Underwriter), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Pricing Disclosure Package, the Prospectus, or any amendment or supplement thereto any Issuer Free Writing Prospectus or any issuer information filed or required to be filed pursuant to Rule 433(d) under the Act, or any Section 5(d) Writing, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, the Pricing Disclosure Package, the Prospectus, or any amendment or supplement thereto any Issuer Free Writing Prospectus or any issuer information filed or required to be filed pursuant to Rule 433(d) under the Act, or any Section 5(d) Writing, in reliance upon and in conformity with written information furnished to the Company by the Underwriter specifically for use in the preparation thereof, which written information is described in Section 7(f), and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with defending against any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the failure to notify the
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indemnifying party shall not relieve the indemnifying party from any liability that it may have to any indemnified party except to the extent such indemnifying party has been materially prejudiced by such failure. In case any such action shall be brought against any indemnified party, it shall notify the indemnifying party of the commencement thereof, and the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of the indemnifying partys election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof; provided , however , that if (i) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (ii) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party), or (iii) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, the indemnified party shall have the right to employ a single counsel to represent it in any claim in respect of which indemnity may be sought under subsection (a) or (b) of this Section 7, in which event the reasonable fees and expenses of such separate counsel shall be borne by the indemnifying party or parties and reimbursed to the indemnified party as incurred.
The indemnifying party under this Section 7 shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is a party or could be named and indemnity was or would be sought hereunder by such indemnified party, unless such settlement, compromise or consent (a) includes an unconditional release of such indemnified party from all liability for claims that are the subject matter of such action, suit or proceeding and (b) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 7 is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriter on the other from the offering and sale of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriter on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as
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well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriter on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriter, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriter and the parties relevant intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Underwriter agree that it would not be just and equitable if contributions pursuant to this subsection (d) were to be determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the first sentence of this subsection (d). The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending against any action or claim that is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), the Underwriter shall not be required to contribute any amount in excess of the amount of the Underwriters discounts and commissions referenced in Section 4(a) actually received by the Underwriter pursuant to this Agreement. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
(e) The obligations of the Company under this Section 7 shall be in addition to any liability that the Company may otherwise have and the benefits of such obligations shall extend, upon the same terms and conditions, to each person, if any, who controls the Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act; and the obligations of the Underwriter under this Section 7 shall be in addition to any liability that the Underwriter may otherwise have and the benefits of such obligations shall extend, upon the same terms and conditions, to the Company, and officers, directors and each person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act.
(f) For purposes of this Agreement, the Underwriter confirms, and the Company acknowledges, that there is no information concerning the Underwriter furnished in writing to the Company by the Underwriter specifically for preparation of or inclusion in the Registration Statement, the Pricing Disclosure Package, the Prospectus, any Issuer Free Writing Prospectus or any issuer information filed or required to be filed pursuant to Rule 433(d) under the Act, or any Section 5(d) Writing, other than the statements set forth in the last paragraph on the cover page of the Prospectus and the statements set forth in the Underwriting section of the Prospectus and Pricing Disclosure Package, only insofar as such statements relate to the amount of selling concession and re-allowance or to over-allotment and related activities that may be undertaken by the Underwriter.
8. Representations and Agreements to Survive Delivery . All representations, warranties, and agreements of the Company herein or in certificates delivered pursuant hereto, including, but not limited to, the agreements of the Underwriter and the Company contained in
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Section 5(a)(viii) and Section 7 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriter or any controlling person thereof, or the Company or any of its officers, directors, or controlling persons, and shall survive delivery of, and payment for, the Units to and by the Underwriter hereunder.
9. Termination of this Agreement.
(a) The Underwriter shall have the right to terminate this Agreement by giving notice to the Company as hereinafter specified at any time at or prior to the Closing Date, if in the discretion of the Underwriter, (i) there has occurred any material adverse change in the securities markets or any event, act or occurrence that has materially disrupted, or in the opinion of the Underwriter, will in the future materially disrupt, the securities markets or there shall be such a material adverse change in general financial, political or economic conditions or the effect of international conditions on the financial markets in the United States as to make it, in the judgment of the Underwriter, inadvisable or impracticable to market the Securities or enforce contracts for the sale of the Securities (ii) trading in the Companys Common Stock shall have been suspended by the Commission or the Nasdaq Capital Market or trading in securities generally on the Nasdaq Global Market, New York Stock Exchange or NYSE Amex shall have been suspended, (iii) minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required, on the Nasdaq Global Market or New York Stock Exchange, by such exchange or by order of the Commission or any other governmental authority having jurisdiction, (iv) a banking moratorium shall have been declared by federal or state authorities, or (v) there shall have occurred any attack on or outbreak or escalation of hostilities or act of terrorism involving the United States resulting in any declaration by the United States of a national emergency or war, any substantial change or development involving a prospective substantial change in United States or international political, financial or economic conditions or any other calamity or crisis, or (vi) the Company suffers any loss by strike, fire, flood, earthquake, accident or other calamity, whether or not covered by insurance, or (vii) in the judgment of the Underwriter, there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the assets, properties, condition, financial or otherwise, or in the results of operations, business affairs or business prospects of the Company and its subsidiaries considered as a whole, whether or not arising in the ordinary course of business. Any such termination shall be without liability of any party to any other party except that the provisions of Section 5(a)(viii) and Section 7 hereof shall at all times be effective and shall survive such termination.
(b) If the Underwriter elects to terminate this Agreement as provided in this Section, the Company shall be notified promptly by the Underwriter by telephone, confirmed by letter.
10. Notices . Except as otherwise provided herein, all communications hereunder shall be in writing and, if to Roth, shall be mailed, delivered or telecopied to Roth Capital Partners, LLC, 888 San Clemente Drive, Newport Beach, CA 92660, telecopy number: (949) 720-7227, Attention: Managing Director; and if to the Company, shall be mailed, delivered or telecopied to it at NV5 Holdings, Inc., telecopy number: (954) 495-2101, Attention: Richard Tong; or in each case to such other address as the person to be notified may have requested in writing. Any party to this Agreement may change such address for notices by sending to the parties to this Agreement written notice of a new address for such purpose.
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11. Persons Entitled to Benefit of Agreement . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns and the controlling persons, officers and directors referred to in Section 7. Nothing in this Agreement is intended or shall be construed to give to any other person, firm or corporation any legal or equitable remedy or claim under or in respect of this Agreement or any provision herein contained. The term successors and assigns as herein used shall not include any purchaser, as such purchaser, of any of the Underwritten Units from the Underwriter.
12. Absence of Fiduciary Relationship . The Company acknowledges and agrees that: (a) the Underwriter has been retained solely to act as underwriter in connection with the sale of the Units and that no fiduciary, advisory or agency relationship between the Company and the Underwriter has been created in respect of any of the transactions contemplated by this Agreement, irrespective of whether the Underwriter has advised or is advising the Company on other matters; (b) the price and other terms of the Units set forth in this Agreement were established by the Company following discussions and arms-length negotiations with the Underwriter and the Company is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated by this Agreement; (c) it has been advised that the Underwriter and its affiliates are engaged in a broad range of transactions that may involve interests that differ from those of the Company and that the Underwriter has no obligation to disclose such interest and transactions to the Company by virtue of any fiduciary, advisory or agency relationship; (d) it has been advised that the Underwriter is acting, in respect of the transactions contemplated by this Agreement, solely for the benefit of the Underwriter, and not on behalf of the Company.
13. Amendments and Waivers . No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. The failure of a party to exercise any right or remedy shall not be deemed or constitute a waiver of such right or remedy in the future. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (regardless of whether similar), nor shall any such waiver be deemed or constitute a continuing waiver unless otherwise expressly provided.
14. Partial Unenforceability . The invalidity or unenforceability of any section, paragraph, clause or provision of this Agreement shall not affect the validity or enforceability of any other section, paragraph, clause or provision.
15. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of California.
16. Submission to Jurisdiction . The Company irrevocably (a) submits to the jurisdiction of any court of the State of California for the purpose of any suit, action, or other proceeding arising out of this Agreement, or any of the agreements or transactions contemplated by this Agreement, the Registration Statement and the Prospectus (each a Proceeding), (b) agrees that all claims in respect of any Proceeding may be heard and determined in any such
24
court, (c) waives, to the fullest extent permitted by law, any immunity from jurisdiction of any such court or from any legal process therein, (d) agrees not to commence any Proceeding other than in such courts, and (e) waives, to the fullest extent permitted by law, any claim that such Proceeding is brought in an inconvenient forum. THE COMPANY (ON BEHALF OF ITSELF AND, TO THE FULLEST EXTENT PERMITTED BY LAW, ON BEHALF OF ITS RESPECTIVE EQUITY HOLDERS AND CREDITORS) HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED UPON, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, THE REGISTRATION STATEMENT, AND THE PROSPECTUS.
17. Counterparts. This Agreement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original and all such counterparts shall together constitute one and the same instrument.
25
Please sign and return to the Company the enclosed duplicates of this letter whereupon this letter will become a binding agreement between the Company and the Underwriter in accordance with its terms.
Very truly yours, | ||
NV5 HOLDINGS, INC. | ||
By: |
|
|
Name: | Dickerson Wright | |
Title: | Chairman and Chief Executive Officer |
Confirmed as of the date first above-
mentioned by the Underwriter.
ROTH CAPITAL PARTNERS, LLC
By: |
|
|
Name: | Aaron M. Gurewitz | |
Title: | Head of Equity Capital Market |
[Signature page to Underwriting Agreement]
SCHEDULE I
(a) FREE WRITING PROSPECTUSES INCLUDED IN THE PRICING DISCLOSURE PACKAGE
FREE WRITING PROSPECTUS
Filed Pursuant to Rule 433
Relating to Preliminary Prospectus dated March , 2013
Registration Statement No. 333-186229
Dated March , 2013
NV5 HOLDINGS, INC.
1,000,000 Units
Issuer: | NV5 Holdings, Inc. (the Company) | |
Symbol: |
NVEE.U (Units) NVEE (Shares) NVEE.W (Warrants) |
|
Security: | 1,000,000 Units, each Unit consisting of one share of Common Stock and one Warrant to purchase one share of Common Stock at an exercise price of $ per share. | |
Size: | 1,000,000 Firm Units | |
Over-allotment option: | 150,000 Option Units | |
Public offering price: | $6.00 per Unit | |
Underwriting discounts and commissions: | $ per Unit | |
Net proceeds (excluding the over-allotment): | $ (after deducting the underwriters discounts and commissions and estimated offering expenses payable by the Company) | |
Trade date: | March , 2013 | |
Settlement date: | , 2013 | |
CUSIP Nos.: |
62945V 208 (Units) 62945V 109 (Shares) 62945V 117 (Warrants) |
|
Underwriter: | Roth Capital Partners, LLC |
The issuer has filed a registration statement (including a preliminary prospectus dated March , 2013) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering.
Schedule I-1
You may get these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, the issuer, any underwriter or any dealer participating in the offering will arrange to send you the preliminary prospectus if you request it from Roth Capital Partners, LLC, Attention: Syndicate Department, 888 San Clemente Drive, Newport Beach, CA 92660, by telephone at 1-800-678-9147, by e-mail to rothecm@roth.com, by fax to (949) 720-7227. You may also access the most recent preliminary prospectus dated March , 2013 included in Amendment No. _ to the registration statement via the following link: http://www.sec.gov/Archives/edgar/
This communication should be read in conjunction with the preliminary prospectus.
ANY DISCLAIMERS OR OTHER NOTICES THAT MAY APPEAR BELOW ARE NOT APPLICABLE TO THIS COMMUNICATION AND SHOULD BE DISREGARDED. SUCH DISCLAIMERS OR OTHER NOTICES WERE AUTOMATICALLY GENERATED AS A RESULT OF THIS COMMUNICATION BEING SENT VIA BLOOMBERG OR ANOTHER EMAIL SYSTEM.
(b) SECTION 5(D) WRITINGS
[None.]
Schedule I-2
SCHEDULE II
Company Counsel Opinions
Schedule II-1
SCHEDULE III
Parties Subject to Lock-Up
Signatories to the lock-up agreements contemplated by Section 6(j).
Schedule III-1
EXHIBIT A
Form of Underwriters Warrants
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.
NV5 HOLDINGS, INC.
UNIT WARRANT
Warrant No. [ ] | Original Issue Date: , 2013 |
NV5 Holdings, Inc., a Delaware corporation (the Company ), hereby certifies that, as partial compensation for, its services as an underwriter to the Company, Roth Capital Partners, LLC or its registered assigns (the Holder ), is entitled to purchase from the Company up to a total of units (each, a Unit, provided however that from and after the Separation Date as defined in the Prospectus, any reference herein to a Unit shall constitute a reference to an equivalent number of securities comprising such Unit), each unit consisting of one share of the Companys common stock, par value $0.01 per share (the Common Stock ), and one warrant to purchase one share of Common Stock on the terms as described in the Prospectus (each, a Warrant and collectively, the Warrants, and each such Unit, a Warrant Unit and all such Units, the Warrant Units ), at any time and from time to time from and after 365 days following the effective date of the Registration Statement on Form S-1 (File No. 333-186229), in accordance with FINRA Rule 5110(g)(1), and through and including , 2016, the third anniversary of such effective date (the Expiration Date ), and subject to the following terms and conditions:
1. Definitions . As used in this Unit Warrant, the following terms shall have the respective definitions set forth in this Section 1.
Exhibit A-1
Affiliate means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144.
Business Day means any day except Saturday, Sunday and any day which is a federal legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
Common Stock means the common stock of the Company, $0.01 par value per share, and any securities into which such common stock may hereafter be reclassified or for which it may be exchanged as a class.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Exercise Price means $ , subject to adjustment in accordance with Section 9.
Fundamental Transaction means any of the following: (1) the Company effects any merger or consolidation of the Company with or into another Person, (2) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (4) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property.
New York Courts means the state and federal courts sitting in the City of New York, Borough of Manhattan.
Original Issue Date means the Original Issue Date first set forth on the first page of this Warrant.
Person means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
Prospectus means the prospectus dated [ ], 2013 filed with the Securities and Exchange Commission pursuant to Rule 424 promulgated under the Securities Act.
Rule 144 means Rule 144 promulgated by the Securities and Exchange Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission having substantially the same effect as such Rule.
Securities Act means the Securities Act of 1933, as amended.
Subsidiary means any significant subsidiary as defined in Rule 1-02(w) of Regulation S-X promulgated by the Securities and Exchange Commission under the Exchange Act.
Exhibit A-2
Trading Day means (i) a day on which the Common Stock is traded on a Trading Market, or (ii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the Pink Sheets LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i) or (ii) hereof, then Trading Day shall mean a Business Day.
Trading Market means whichever of the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.
Underlying Shares means the shares of Common Stock included in the Warrant Units and those shares of Common Stock issuable upon exercise of the Warrants included in such Warrant Units.
Warrant Units means the Units issuable upon exercise of this Unit Warrant.
2. Registration of Unit Warrant . The Company shall register this Unit Warrant upon records to be maintained by the Company for that purpose (the Warrant Register ), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Unit Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
3. Registration of Transfers . The Company shall register the transfer of any portion of this Unit Warrant in the Warrant Register, upon surrender of this Unit Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Company at its address specified herein. Upon any such registration or transfer, a new Unit Warrant to purchase Units, in substantially the form of this Unit Warrant (any such new Unit Warrant, a New Unit Warrant ), evidencing the portion of this Unit Warrant so transferred shall be issued to the transferee and a New Unit Warrant evidencing the remaining portion of this Unit Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Unit Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Unit Warrant.
4. Exercise and Duration of Unit Warrants . This Unit Warrant shall be exercisable by the registered Holder at any time and from time to time from and after 365 days following the effective date of the Registration Statement on Form S-1 (File No. 333-186229) (the Effective Date ), in accordance with FINRA Rule 5110(g)(1), through and including the Expiration Date. At 6:30 p.m., New York City time on the Expiration Date, the portion of this Unit Warrant not exercised prior thereto shall be and become void and of no value. The Company may not call or redeem any portion of this Unit Warrant without the prior written consent of the affected Holder. This Unit Warrant shall not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of this Unit Warrant by any person for a period of 180 days immediately following the effective date of the Registration Statement on Form S-1 (File No. 333-186229), except as provided in FINRA Rule 5110(g)(2).
Exhibit A-3
5. Delivery of Warrant Units .
(a) To effect exercises hereunder, the Holder shall not be required to physically surrender this Unit Warrant unless the aggregate Warrant Units represented by this Unit Warrant is being exercised. Upon delivery of the Exercise Notice (in the form attached hereto) to the Company (with the attached Warrant Units Exercise Log) at its address for notice set forth herein and upon payment of the Exercise Price multiplied by the number of Warrant Units that the Holder intends to purchase hereunder, the Company shall promptly (but in no event later than three Trading Days after the Date of Exercise (as defined herein)) issue and deliver to the Holder, a certificate for the Warrant Units issuable upon such exercise. The Company shall, upon request of the Holder and subsequent to the date on which a registration statement covering the resale of the Warrant Units has been declared effective by the Securities and Exchange Commission, use its reasonable best efforts to deliver Warrant Units hereunder electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions, if available, provided , that, the Company may, but will not be required to change its transfer agent if its current transfer agent cannot deliver Warrant Units electronically through the Depository Trust Corporation. A Date of Exercise means the date on which the Holder shall have delivered to the Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately completed and duly signed and (ii) payment of the Exercise Price for the number of Warrant Units so indicated by the Holder to be purchased.
(b) If by the third Trading Day after a Date of Exercise the Company fails to deliver the required number of Warrant Units in the manner required pursuant to Section 5(a), then the Holder will have the right to rescind such exercise.
(c) If by the third Trading Day after a Date of Exercise the Company fails to deliver the required number of Warrant Units in the manner required pursuant to Section 5(a), and if after such third Trading Day and prior to the receipt of such Warrant Units, the Holder purchases (in an open market transaction or otherwise) Units, shares of Common Stock or Warrants to deliver in satisfaction of a sale by the Holder of the Warrant Units which the Holder anticipated receiving upon such exercise (a Buy-In ), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holders total purchase price (including brokerage commissions, if any) for the Units, shares of Common Stock or Warrants so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Units that the Company was required to deliver to the Holder in connection with the exercise at issue by (B) the closing bid price of Units, shares of Common Stock or Warrants, as the case may be, on the Date of Exercise and (2) at the option of the Holder, either reinstate the portion of the Unit Warrant and equivalent number of Warrant Units for which such exercise was not honored or deliver to the Holder the number of Units, shares of Common Stock or Warrants that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In.
Exhibit A-4
(d) The Companys obligations to issue and deliver Warrant Units in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Units. Nothing herein shall limit a Holders right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Companys failure to timely deliver certificates representing Warrant Units upon exercise of the Unit Warrant as required pursuant to the terms hereof.
6. Charges, Taxes and Expenses . Issuance and delivery of Warrant Units upon exercise of this Unit Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Units or Unit Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Unit Warrant or receiving Warrant Units upon exercise hereof.
7. Replacement of Unit Warrant . If this Unit Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Unit Warrant, a New Unit Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity (which shall not include a surety bond), if requested. Applicants for a New Unit Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. If a New Unit Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Unit Warrant to the Company as a condition precedent to the Companys obligation to issue the New Unit Warrant.
8. Reservation of Warrant Units . The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Units, Warrants and shares of Common Stock, solely for the purpose of enabling it to issue Warrant Units upon exercise of this Unit Warrant as herein provided, the number of Warrant Units, Warrants and shares of Common Stock which are then issuable and deliverable upon the exercise of this entire Unit Warrant, free from preemptive rights or any other contingent purchase rights of Persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Units so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.
Exhibit A-5
9. Certain Adjustments . The Exercise Price and number of Warrant Units issuable upon exercise of this Unit Warrant are subject to adjustment from time to time as set forth in this Section 9 .
(a) Stock Dividends and Splits . If the Company, at any time while this Unit Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.
(b) Fundamental Transactions . If, at any time while this Unit Warrant is outstanding there is a Fundamental Transaction, then the Holder shall have the right thereafter to receive, upon exercise of this Unit Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Units then issuable upon exercise in full of this Unit Warrant (the Alternate Consideration ). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Unit Warrant following such Fundamental Transaction. At the Holders option and request, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant substantially in the form of this Unit Warrant and consistent with the foregoing provisions and evidencing the Holders right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (b) and insuring that the Unit Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
(c) Number of Warrant Units . Simultaneously with any adjustment to the Exercise Price pursuant to this Section 9, the number of Warrant Units that may be purchased upon exercise of this Unit Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the adjusted number of Warrant Units shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.
Exhibit A-6
(d) Calculations . All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100 th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.
(e) Notice of Adjustments . Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Unit Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Units or other securities issuable upon exercise of this Unit Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Companys Transfer Agent.
(f) Notice of Corporate Events . If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction (but only to the extent such disclosure would not result in the dissemination of material, non-public information to the Holder) at least 10 calendar days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Unit Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.
10. Payment of Exercise Price . The Holder may pay the Exercise Price in one of the following manners:
(a) Cash Exercise . The Holder may deliver immediately available funds; or
(b) Cashless Exercise . The Holder may notify the Company in an Exercise Notice of its election to utilize cashless exercise, in which event the Company shall issue to the Holder the number of Warrant Units determined as follows:
X = Y [(A-B)/A] |
||
where: |
||
X = the number of Warrant Units to be issued to the Holder. |
||
Y = the number of Warrant Units with respect to which this Unit Warrant is
being
exercised. |
Exhibit A-7
A = the average of the daily volume weighted average price for Units for the five Trading Days immediately prior to (but not including) the Exercise Date. |
||
B = the Exercise Price. |
For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Units issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Units shall be deemed to have commenced, on the date this Unit Warrant was originally issued.
11. Limitations on Exercise . Notwithstanding anything to the contrary contained herein, the number of Warrant Units that may be acquired by the Holder upon any exercise of this Unit Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holders for purposes of Section 13(d) of the Exchange Act, does not exceed 9.99% of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. This provision shall not restrict the number of shares of Common Stock which a Holder may receive or beneficially own in order to determine the amount of securities or other consideration that such Holder may receive in the event of a Fundamental Transaction as contemplated in Section 9 of this Unit Warrant. This restriction may not be waived. Notwithstanding anything to the contrary contained in this Unit Warrant, (a) no term of this Section may be waived by any party, nor amended such that the threshold percentage of ownership would be directly or indirectly increased, (b) this restriction runs with the Unit Warrant and may not be modified or waived by any subsequent holder hereof and (c) any attempted waiver, modification or amendment of this Section will be void ab initio .
12. Registration Rights .
(a) Demand Registration . The Company, upon written demand (a Demand Notice ) of the Holder(s) of at least 51% of the Unit Warrants and/or the underlying securities ( Majority Holders ), agrees to register (a Demand Registration ), on one occasion, all or any portion of the Units underlying this Unit Warrant, including the shares underlying the Warrants included in the Unit Warrant (collectively the Registrable Securities ). On such occasion, the Company will file a registration statement or a post-effective amendment to the Registration Statement covering the Registrable Securities within sixty (60) days after receipt of a Demand Notice and use its commercially reasonable efforts to have such registration statement or post-effective amendment declared effective promptly thereafter, subject to compliance with review by the Commission; provided, however, that the Company shall not be required to comply with a Demand Notice if the Company has filed a registration statement with respect to which the Holder is entitled to piggyback registration rights pursuant to Section 12(b) hereof and either: (i) the Holder was given the opportunity to exercise its rights under Section 12(b) hereof in connection with the offering covered by such registration statement or (ii) if such registration
Exhibit A-8
statement relates to an underwritten primary offering of securities of the Company, until the offering covered by such registration statement has been withdrawn or until thirty (30) days after such offering is consummated. A Demand Notice may be given at any time during a period of three (3) years beginning six (6) months from the Effective Date. The Company covenants and agrees to give written notice of its receipt of the Demand Notice by any Holder(s) to all other registered Holders of the Unit Warrants and/or the Registrable Securities within ten (10) days from the date of the receipt of such Demand Notice. The Holders shall not effect more than two (2) Demand Registrations pursuant to this Section 12(a). A registration will not count as a Demand Registration until the registration statement filed with the Commission with respect to such Demand Registration has been declared effective and the Company has complied with all of its obligations under hereunder with respect thereto; provided, however, that if, after such registration statement has been declared effective, the offering of Registrable Securities pursuant to a Demand Registration is interfered with by any stop order or injunction of the Commission or any other governmental agency or court, the registration statement with respect to such Demand Registration will be deemed not to have been declared effective, unless and until, (i) such stop order or injunction is removed, rescinded or otherwise terminated, and (ii) the Majority Holders thereafter elect to continue the offering. The Company shall bear all fees and expenses attendant to the first Demand Registration pursuant to Section 12(a), including the reasonable and documented expenses of a single legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities, but the Holders shall pay any and all underwriting commissions or brokerage fees related to the Registrable Securities, if applicable. The Holders shall bear all fees and expenses (including all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them) in connection with the second Demand Registration described in Section 12(a) hereof. The Company agrees to use its commercially reasonable efforts to cause the filing required herein to become effective promptly and to qualify or register the Registrable Securities in such States as are reasonably requested by the Holder(s); provided, however, that in no event shall the Company be required to register the Registrable Securities in a State in which such registration would cause: (i) the Company to be obligated to register or license to do business in such State or submit to general service of process in such State, or (ii) the principal stockholders of the Company to be obligated to escrow their shares of capital stock of the Company. The Company shall use its commercially reasonable efforts to cause any registration statement filed pursuant to the demand right granted under Section 12(a) to remain effective for a period of at least twelve (12) consecutive months from the date that the Holders of the Registrable Securities covered by such registration statement are first given the opportunity to sell all of such securities. The Holders shall only use the prospectuses provided by the Company to sell the shares covered by such registration statements, and will immediately cease to use any prospectus furnished by the Company if the Company advises the Holder that such prospectus may no longer be used due to a material misstatement or omission.
(b) Piggy-Back Registration . In addition to the demand rights of registration described in Section 12(a) hereof, the Holder shall have the right, for a period of three (3) years commencing six (6) months from the Effective Date, to include the Registrable Securities as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to Form S-8 or any equivalent form); provided, however, that if, solely in connection with any primary underwritten public offering for the account of the Company, the managing
Exhibit A-9
underwriter(s) thereof shall, in its reasonable discretion, impose a limitation on the number of shares of Common Stock underlying the Units which may be included in the registration statement because, in such underwriter(s) judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such registration statement only such limited portion of the Registrable Securities with respect to which the Holder requested inclusion hereunder as the underwriter(s) shall reasonably permit. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Holders; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such registration statement or are not entitled to pro rata inclusion with the Registrable Securities. The Holders shall be entitled to unlimited piggy-back registration rights pursuant to this Section 12(b). Any holder of Registrable Securities may elect to withdraw such Holders request for inclusion of Registrable Securities in any piggy-back registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of the registration statement. The Company (whether on its own determination or as the result of a withdrawal by persons making a demand pursuant to written contractual obligations) may withdraw a registration statement at any time prior to the effectiveness of the registration statement. [Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by the Holders of Registrable Securities in connection with such piggy-back registration as provided in Section 12(b).] The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to Section 12(b) hereof, including the reasonable and documented expenses of a single legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities, but the Holders shall pay any and all underwriting commissions or brokerage fees related to the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than fifteen (15) days written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each registration statement filed by the Company until such time as all of the Registrable Securities have been sold by the Holder. The holders of the Registrable Securities shall exercise the piggy-back rights provided for herein by giving written notice, within ten (10) days of the receipt of the Companys notice of its intention to file a registration statement. The Company shall use its commercially reasonable efforts to cause any registration statement filed pursuant to the piggyback right granted under Section 12(b) to remain effective for a period of at least nine (9) consecutive months from the date that the Holders of the Registrable Securities covered by such registration statement are first given the opportunity to sell all of such securities.
(c) Indemnification . The Company shall indemnify the Holder(s) of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (Exchange Act), against all loss, claim, damage, expense or liability (including all reasonable attorneys fees and other expenses reasonably incurred in investigating, preparing or defending against litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the Underwriters (as defined below) and the Company or between the any of the Underwriters and any third party or otherwise) to which any of them may become subject under the Act, the
Exhibit A-10
Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriters contained in the Underwriting Agreement between Roth and the Company, dated as of , 2013 (the Underwriting Agreement). The Holder(s) of the Registrable Securities to be sold pursuant to the Offering, and their successors and assigns, shall severally, and not jointly, indemnify the Company, against all loss, claim, damage, expense or liability (including all reasonable attorneys fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 8 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company.
13. No Fractional Units . No fractional Warrant Units will be issued in connection with any exercise of this Unit Warrant. In lieu of any fractional shares which would, otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the closing price of one Warrant Unit as reported by the applicable Trading Market on the date of exercise.
14. Notices . Any and all notices or other communications or deliveries hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be: (i) if to the Company, to toNV5 Holdings, Inc., Attn: General Counsel, Facsimile No.: (954) 495-2101 (or such other address as the Company shall indicate in writing in accordance with this Section), or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section.
15. Warrant Agent . The Company shall serve as warrant agent under this Unit Warrant. Upon 10 days notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holders last address as shown on the Warrant Register.
Exhibit A-11
16. Miscellaneous .
(a) This Unit Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Unit Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Unit Warrant. This Unit Warrant may be amended only in writing signed by the Company and the Holder and their successors and assigns. The foregoing sentence shall be subject to the restrictions on waivers and amendments set forth in Section 11 of this Unit Warrant.
(b) All questions concerning the construction, validity, enforcement and interpretation of this Unit Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of this Unit Warrant and the transactions herein contemplated ( Proceedings ) (whether brought against a party hereto or its respective Affiliates, employees or agents) shall be commenced exclusively in the New York Courts. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Unit Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Unit Warrant or the transactions contemplated hereby. If either party shall commence a Proceeding to enforce any provisions of this Unit Warrant, then the prevailing party in such Proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.
(c) The headings herein are for convenience only, do not constitute a part of this Unit Warrant and shall not be deemed to limit or affect any of the provisions hereof.
(d) In case any one or more of the provisions of this Unit Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Unit Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Unit Warrant.
(e) Prior to exercise of this Unit Warrant, the Holder hereof shall not, by reason of being a Holder, be entitled to any rights of a stockholder with respect to the Warrant Units.
Exhibit A-12
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS]
Exhibit A-13
IN WITNESS WHEREOF, the Company has caused this Unit Warrant to be duly executed by its authorized officer as of the date first indicated above.
NV5 HOLDINGS, INC. | ||
By: |
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Name: | ||
Title: |
Exhibit A-14
EXERCISE NOTICE
NV5 HOLDINGS, INC.
UNIT WARRANT DATED , 2013
The undersigned Holder hereby irrevocably elects to purchase Units pursuant to the above referenced Unit Warrant. Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Unit Warrant.
(1) | The undersigned Holder hereby exercises its right to purchase Warrant Units pursuant to the Unit Warrant. |
(2) | The holder shall pay the sum of $ to the Company in accordance with the terms of the Unit Warrant. |
(3) | Pursuant to this Exercise Notice, the Company shall deliver to the holder Warrant Units in accordance with the terms of the Unit Warrant. |
(4) | By its delivery of this Exercise Notice, the undersigned represents and warrants to the Company that in giving effect to the exercise evidenced hereby the Holder will not beneficially own in excess of the number of shares of Common Stock (determined in accordance with Section 13(d) of the Securities Exchange Act of 1934) permitted to be owned under Section 11 of the Unit Warrant to which this notice relates. |
Dated: , | Name of Holder: | |||||||
(Print) |
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By: |
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Name: |
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Title: |
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(Signature must conform in all respects to name of holder as specified on the face of the Unit Warrant) |
45
Warrant Units Exercise Log
Date |
Number of Warrant Units Available to be Exercised |
Number of Warrant Units Exercised |
Number of Warrant Units
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46
NV5 HOLDINGS, INC.
UNIT WARRANT DATED , 2013
UNIT WARRANT NO. [ ]
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Unit Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto the right represented by the above-captioned Unit Warrant to purchase Units to which such Unit Warrant relates and appoints attorney to transfer said right on the books of the Company with full power of substitution in the premises.
Dated: ,
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(Signature must conform in all respects to name of holder as specified on the face of the Unit Warrant) | ||
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Address of Transferee | ||
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In the presence of: |
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47
EXHIBIT B
Form of Lock-Up Agreement
March , 2013
ROTH CAPITAL PARTNERS, LLC
24 Corporate Plaza Drive
Newport Beach, CA 92660
Re: | NV5 Holdings, Inc. |
Ladies and Gentlemen:
As an inducement to the underwriter (the Underwriter ) to execute an underwriting agreement (the Underwriting Agreement ) providing for a public offering (the Offering ) by the Underwriter of units (the Units ), each consisting of one share of the Companys common stock, par value per share (the Common Stock ), and one warrant to purchase one share of Common Stock (each, a Warrant and collectively, the Warrants ), of NV5 Holdings, Inc., a corporation organized and existing under the laws of State of Delaware (the Company ), the undersigned hereby agrees that without, in each case, the prior written consent of Roth Capital Partners, LLC ( Roth ) during the period specified in the second succeeding paragraph (the Lock-Up Period ), the undersigned will not (1) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, make any short sale or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into, exercisable or exchangeable for or that represent the right to receive shares of Common Stock (including, without limitation, shares of Common Stock which may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange Commission and securities which may be issued upon exercise of a stock option or warrant) whether now owned or hereafter acquired (the Undersigneds Securities ) or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Undersigneds Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of shares of Common Stock or such other securities, in cash or otherwise. The foregoing restriction is expressly agreed to preclude the undersigned from engaging in any hedging or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of the Undersigneds Securities even if such Undersigneds Securities would be disposed of by someone other than the undersigned. Such prohibited hedging or other transactions would include, without limitation, any short sale or any purchase, sale or grant of any right (including without limitation any put or call option) with respect to any of the Undersigneds Securities or with respect to any security that includes, relates to, or derives any significant part of its value from such Undersigneds Securities.
Exhibit B-1
In addition, the undersigned agrees that, without the prior written consent of the Roth, it will not, during the Lock-Up Period, make any demand for or exercise any right with respect to, the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for shares of Common Stock other than as contemplated in the registration statement relating to the Offering.
The initial Lock-Up Period will commence on the date of this Lock-Up Agreement and continue and include the date 180 days after the date of the final prospectus used to sell Units in the Offering pursuant to the Underwriting Agreement, provided, however, that if the Company ceases to be an Emerging Growth Company at any time prior to the expiration of the Lock-Up Period and if (1) during the last 17 days of the initial Lock-Up Period, the Company releases earnings results or material news or a material event relating to the Company occurs or (2) prior to the expiration of the initial Lock-Up Period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the initial Lock-Up Period, then in each case the Lock-Up Period will be extended until the expiration of the 18-day period beginning on the date of release of the earnings results or the occurrence of the material news or material event, as applicable, unless Roth waives, in writing, such extension.
The undersigned hereby acknowledges that the Company will be requested to agree in the Underwriting Agreement to provide written notice to the undersigned of any event that would result in an extension of the Lock-Up Period pursuant to the previous paragraph and agrees that any such notice properly delivered will be deemed to have been given to, and received by, the undersigned. The undersigned further agrees that, prior to engaging in any transaction or taking any other action that is subject to the terms of this Lock-Up Agreement during the period from the date of this Lock-Up Agreement to and including the 34 th day following the expiration of the initial Lock-Up Period, it will give notice thereof to the Company and will not consummate such transaction or take any such action unless it has received written confirmation from the Company that the Lock-Up Period (as may have been extended pursuant to the previous paragraph) has expired.
Notwithstanding the foregoing, (1) the undersigned may transfer the Undersigneds Securities (i) as a bona fide gift or gifts and (ii) to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, or (2) if the undersigned is a corporation, company, business trust, association, limited liability company, partnership, limited liability partnership, limited liability limited partnership or other entity (collectively, the Entities or, individually, the Entity ), the undersigned may transfer shares of Common Stock or securities convertible into or exchangeable or exercisable for any shares of Common Stock to any person or Entity which controls, is directly or indirectly controlled by, or is under common control with the undersigned and, if the undersigned is a partnership or limited liability company, it may transfer the Units, shares of Common Stock or Warrants or securities convertible into or exchangeable or exercisable for any Units, shares of Common Stock or Warrants to its partners, former partners or an affiliated partnership (or members, former members or an affiliated limited liability company) managed by the same manager or managing partner (or managing member, as the case may be) or management company, or managed by an entity controlling, controlled by, or under common control with, such manager or managing partner (or managing member) or management company in accordance with partnership (or membership) interests; provided, in each case of transfer pursuant to clause (1) or (2), that (x) such transfer shall not involve a disposition for value, (y) the
Exhibit B-2
transferee agrees in writing with the Underwriters to be bound by the terms of this Lock-Up Agreement, and (z) no filing by any party under Section 16(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act ), shall be required or shall be made voluntarily in connection with such transfer. For purposes of this Lock-Up Agreement, immediate family shall mean any relationship by blood, marriage or adoption, not more remote than first cousin.
In addition, the foregoing restrictions shall not apply to (i) the exercise of stock options granted pursuant to the Companys equity incentive plans; provided that it shall apply to any of the Undersigneds Securities issued upon such exercise, or (ii) the establishment of any contract, instruction or plan (a Plan ) that satisfies all of the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act; provided that no sales of the Undersigneds Securities shall be made pursuant to such a Plan prior to the expiration of the Lock-Up Period (as such may have been extended pursuant to the provisions hereof), and such a Plan may only be established if no public announcement of the establishment or existence thereof and no filing with the Securities and Exchange Commission or other regulatory authority in respect thereof or transactions thereunder or contemplated thereby, by the undersigned, the Company or any other person, shall be required, and no such announcement or filing is made voluntarily, by the undersigned, the Company or any other person, prior to the expiration of the Lock-Up Period (as such may have been extended pursuant to the provisions hereof).
In furtherance of the foregoing, the Company and its transfer agent and registrar are hereby authorized to decline to make any transfer of shares of Common Stock or Warrants or securities convertible into or exchangeable or exercisable for any Units, shares of Common Stock or Warrants if such transfer would constitute a violation or breach of this Lock-Up Agreement.
The undersigned understands that the undersigned shall be released from all obligations under this Lock-Up Agreement if (i) the Company or the Underwriter inform the other that it does not intend to proceed with the Offering, (ii) the Registration Statement does not become effective, or if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Units, shares of Common Stock or Warrants to be sold thereunder, or (iii) the Offering is not completed by June 30, 2013.
The undersigned understands that the Underwriters are entering into the Underwriting Agreement and proceeding with the Offering in reliance upon this Lock-Up Agreement.
This Lock-Up Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
Whether or not the Offering actually occurs depends on a number of factors, including market conditions. Any Offering will only be made pursuant to the Underwriting Agreement, the terms of which are subject to negotiation among the parties thereto.
[Signature Page Follows]
Exhibit B-3
The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Lock-Up Agreement and that, upon request, the undersigned will execute any additional documents necessary in connection with the enforcement hereof. All authority herein conferred or agreed to be conferred and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned.
Very truly yours, |
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Printed Name of Holder |
By: |
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Signature |
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Printed Name of Person Signing (and indicate capacity of person signing if signing as custodian, trustee, or on behalf of an entity) |
Exhibit B-4
Exhibit 4.1
SPECIMEN UNIT CERTIFICATE
NUMBER UNITS
U-
SEE REVERSE FOR CERTAIN
DEFINITIONS
CUSIP 62945V 208
NV5 HOLDINGS, INC.
UNITS CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE WARRANT TO PURCHASE ONE SHARE
OF COMMON STOCK
THIS CERTIFIES THAT is the owner of Units.
Each unit ( Unit ) consists of one (1) share of common stock, $0.01 par value per share ( Common Stock ), of NV5 Holdings, Inc., a Delaware corporation (the Corporation ), and one (1) warrant to purchase one (1) share of Common Stock ( Warrant ). Each Warrant entitles the holder to purchase one (1) share of Common Stock for $ per share (subject to adjustment). Each Warrant will become immediately exercisable beginning on (the Separation Date ), and will expire on , 2018 or earlier upon redemption.
The shares of Common Stock and Warrants comprising the Units represented by this certificate are not transferable separately prior to the Separation Date. The terms of the Warrants are governed by a Warrant Agreement, dated as of , 2013, between the Corporation and Registrar and Transfer Company, as Warrant Agent, and are subject to the terms and provisions contained therein, all of which terms and provisions the holder of this certificate consents to by acceptance hereof. Copies of the Warrant Agreement are on file at the office of the Warrant Agent at 10 Commerce Drive, Cranford, New Jersey 07016, and are available to any Warrant holder on written request and without cost.
This certificate is not valid unless countersigned by the Transfer Agent and Registrar of the Corporation.
Witness the facsimile signature of its duly authorized officers.
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President | Secretary |
Countersigned and Registered:
By: |
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Registrar and Transfer Company |
NV5 HOLDINGS, INC.
The Corporation will furnish without charge to each stockholder who so requests, a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of shares or series thereof of the Corporation and the qualifications, limitations, or restrictions of such preferences and/or rights. This certificate and the Units represented hereby are issued and shall be held subject to the terms and conditions applicable to the securities underlying and comprising the Units.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM | | as tenants in common | UNIF GIFT MIN ACT | |
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Custodian |
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(Cust) | ||||||||||||||
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(Minor) | ||||||||||||||
TEN ENT | | as tenants by the entireties | ||||||||||||
Under Uniform Gifts to Minors Act | ||||||||||||||
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(State) | ||||||||||||||
JT TEN | | as joint tenants with right of survivorship and not as tenants in common |
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE |
|
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Units represented by the within Certificate, and do hereby irrevocably constitute and appoint
Attorney to transfer the said Units on the books of the within named Corporation with full power of substitution in the premises.
Dated |
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(SIGNATURE) | ||
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Notice: | The signature(s) to this assignment must correspond with the name(s) as written upon the face of the certificate in every particular without alteration or enlargement or any change whatever. |
Signature(s) Guaranteed By:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15).
Exhibit 4.2
SPECIMEN COMMON STOCK CERTIFICATE
NUMBER SHARES
NV-
SEE REVERSE FOR CERTAIN
DEFINITIONS
CUSIP 62945V 10 9
NV5 HOLDINGS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
THIS CERTIFIES that |
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is the owner of |
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Fully Paid and Non-Assessable Shares of the Common Stock, par value $0.01 per Share of NV5 Holdings, Inc. transferable only on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Certificate property endorsed.
This Certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar.
IN WITNESS WHEREOF, the said Corporation has caused this certificate to be signed by the facsimile signatures of its duly authorized officers and its Corporate seal to be hereunto affixed.
DATED:
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President | Secretary |
Countersigned and Registered
Registrar and Transfer Company
Transfer Agent and Registrar
By: |
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Authorized Signature |
NV5 HOLDINGS, INC.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM | | as tenants in common | UNIF GIFT MIN ACT | |
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Custodian |
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(Cust) | (Minor) | |||||||||||||
TEN ENT | | as tenants by the entireties | under Uniform Gifts to Minors Act | |||||||||||
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(State) | ||||||||||||||
JT TEN | | as joint tenants with right of survivorship and not as tenants in common |
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE |
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
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Shares of |
the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
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Attorney to |
transfer the said Shares on the books of the within named Corporation with full power of substitution in the premises.
Dated : |
Signature(s) Guaranteed
By: |
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THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15 | ||
Exhibit 4.5
FORM OF
WARRANT AGREEMENT
THIS WARRANT AGREEMENT ( Warrant Agreement ), dated as of , 2013, by and between NV5 HOLDINGS, INC. , a Delaware corporation (the Company ), and Registrar and Transfer Company , a New Jersey corporation (the Warrant Agent ).
W I T N E S S E T H
WHEREAS , the Company may engage in an initial public offering of up to 1,150,000 units (the Units ) at an offering price of $ per Unit (the Offering ). Each Unit consists of one share of common stock, $0.01 par value, of the Company (the Common Stock ), one Warrant to purchase one share of Common Stock (each, a Warrant and collectively, the Warrants ). The Warrants are exercisable upon the terms and conditions and subject to adjustment in certain circumstances, all as set forth in this Warrant Agreement.
WHEREAS, the Company may engage in the Offering of the Units, and in connection therewith, may issue and deliver up to 1,150,000 underlying Warrants to public investors. In addition, the Company has agreed to issue to the underwriter for the Offering, warrants to purchase 10.0% of the securities issued in the Offering (exclusive of any securities issued pursuant to the exercise of the underwriters over-allotment option), which may result in the issuance of an additional 100,000 Warrants. Each Warrant entitles the holder thereof to purchase one share of Common Stock at the purchase price of $ per share (the Warrant Price ), subject to adjustment as described herein, at any time commencing as of the Separation Date (as defined herein) and ending on , 2018 (the Expiration Date ) or upon earlier redemption.
WHEREAS , if the Company determines to engage in the Offering, the Company will file with the Securities and Exchange Commission a Registration Statement on Form S-1 for the registration under the Securities Act of 1933, as amended (the Act ), of, among other securities, the Units, the Common Stock, and the Warrants.
WHEREAS , the Company desires to appoint the Warrant Agent to act on its behalf in connection with the (i) issuance, transfer and exchange of the Book Entry Warrant Certificates (as defined herein) or Definitive Warrant Certificates (as defined herein), as applicable, representing the Warrants (collectively, the Warrant Certificates ), (ii) the exercise of the Warrants by the registered holders thereof (together with any permitted registered successors or assigns, the Registered Holders ) and (iii) the adjustment of the Warrants in certain events as contained herein in accordance with the terms of the Warrants and this Warrant Agreement;
NOW, THEREFORE , in consideration of the mutual agreements herein contained, the parties hereto hereby agree as follows:
1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the Warrant Agent as its agent to issue the Warrant Certificates, as set forth herein, subject to resignation or replacement of the Warrant Agent as provided herein. The Warrant Agent agrees to accept such appointment, subject to the terms and conditions as set forth herein and to issue, and exchange the Warrant Certificates pursuant to the terms provided for herein and to notify the Companys transfer agent to issue the certificates representing the appropriate number of shares of Common Stock (or other
1
consideration) upon exercise of the Warrants. The Company agrees to issue and honor the Warrants on the terms and conditions as herein set forth and to instruct its transfer agent to issue its Common Stock (or other securities) upon notice from the Warrant Agent of the proper exercise of any Warrant. The Warrant Agent is hereby empowered to enforce any rights of the Registered Holders for the benefit of any Registered Holders, subject to the terms and conditions contained herein.
2. ISSUANCE OF WARRANT CERTIFICATES.
2.1. Form of Warrant Certificate. All Warrants shall be issued substantially in the form annexed hereto as Exhibit A . The terms of any such Warrant Certificate are incorporated herein by reference. All of the Warrants shall initially be represented by one or more book-entry certificates (each a Book Entry Warrant Certificate ).
2.2. Execution of Warrants. The Warrants shall be issued in registered form only. No Warrants shall have been duly and validly issued until a Registered Holder has received a Warrant Certificate executed by the Chairman of the Board of Directors, Chief Executive Officer or the President of the Company and the Secretary, Treasurer or Assistant Secretary of the Company and such Certificate is countersigned by an authorized officer of the Warrant Agent. Any Warrant Certificate may be executed by the officers of the Company by means of a facsimile signature. In the event the person whose signature has been placed upon any Warrant shall have ceased to serve in the capacity in which such person signed the Warrant before such Warrant is issued, it may be issued with the same effect as if he or she had not ceased to be such at the date of issuance.
2.3. Maximum Number of Warrants. The Company hereby authorizes the Warrant Agent to issue up to an aggregate of Warrants pursuant to the Companys written instruction and the terms hereof, subject to adjustment as hereafter provided in Section 4 hereof.
2.4. Rights Of A Registered Holder. Subject to adjustment as provided herein, each Warrant shall evidence the right to purchase one share of the Companys Common Stock at the Warrant Price. Following the Expiration Date, any Warrant not previously exercised shall be null and void, and all rights thereunder and all rights in respect thereof under this Warrant Agreement shall cease at the close of business on the Expiration Date.
2.5. Warrant Register. The Warrant Agent shall maintain books (the Warrant Register ) for the registration of original issuance and the registration of transfer of the Warrants. Upon the initial issuance of the Warrants, the Warrant Agent shall issue and register the Warrants in the names of the respective holders thereof in such denominations and otherwise in accordance with instructions delivered to the Warrant Agent by the Company. All of the Warrants shall initially be represented by one or more Book-Entry Warrant Certificates deposited with the Depository Trust Company (the Depository ) and registered in the name of CEDE & Co., a nominee of the Depository. Ownership of beneficial interests in the Warrants shall be shown on, and the transfer of such ownership shall be effected through, records maintained by (i) the Depository or its nominee for each Book-Entry Warrant Certificate, or (ii) institutions that have accounts with the Depository (such institution, with respect to a Warrant in its account, a Participant ).
If the Depository subsequently ceases to make its book-entry settlement system available for the Warrants, the Company may instruct the Warrant Agent regarding making other arrangements for book-entry settlement. In the event that the Warrants are not eligible for, or it is no longer necessary to have the Warrants available in, book-entry form, the Warrant Agent shall provide written instructions to the Depository to deliver to the Warrant Agent for cancellation each Book-Entry Warrant Certificate, and the Company shall instruct the Warrant Agent to deliver to the Depository definitive certificates
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representing the Warrants ( Definitive Warrant Certificates ) in physical form evidencing such Warrants. Such Definitive Warrant Certificates shall be in the form annexed hereto as Exhibit A , as applicable, with appropriate insertions, modifications, and omissions, as provided above.
2.6. Beneficial Owner; Registered Holder. The term beneficial owner shall mean, on or after the Separation Date (as defined below), any person in whose name ownership of a beneficial interest in the Warrants evidenced by a Book-Entry Warrant Certificate is recorded in the records maintained by the Depository or its nominee, and prior to the Separation Date, the person in whose name the Unit of which such Warrant or part thereof was originally part of, as registered upon the register relating to such Units. Prior to due presentment for registration of transfer of any Warrant, the Company and the Warrant Agent may deem and treat the Registered Holder (the person in whose name such Warrant shall be registered upon the Warrant Register), as the absolute owner of such Warrant and of each Warrant represented thereby (notwithstanding any notation of ownership or other writing on the Warrant Certificate made by anyone other than the Company or the Warrant Agent), for the purpose of any exercise thereof, and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary.
2.7. Detachability of Warrants. The securities comprising the Units will not be separately transferable until , 2013 (the Separation Date ). On or after the Separation Date, the Registered Holder may surrender a Warrant to the Warrant Agent, whereupon the Warrant Agent shall execute and deliver to the Registered Holder a new Definitive Warrant Certificate entitling the Registered Holder to purchase the same number of shares of Common Stock, but without the legend which states:
UNTIL , 2013, THIS WARRANT MAY NOT BE TRANSFERRED SEPARATELY, SPLIT UP, COMBINED OR EXCHANGED, BUT MAY ONLY BE TRANSFERRED, SPLIT UP, COMBINED OR EXCHANGED TOGETHER WITH THE SHARES OF COMMON STOCK OF NV5 HOLDINGS, INC. WITH WHICH IT WAS SOLD AS A UNIT.
3. EXERCISE OF WARRANT.
3.1. Exercise Period. The Warrants may be exercised, in whole or in part, at any time commencing on the Separation Date and ending at 5:00 P.M., New York City time, on the Expiration Date or earlier upon redemption (the Exercise Period ); provided, however that Warrants will only be exercisable if a registration statement relating to the common stock issuable upon exercise of the Warrants is effective and current. If the Expiration Date is not a Business day (defined below), it shall automatically be extended to 5:00 P.M. on the next day which is a Business Day. Business Day means any day other than a Saturday, Sunday, or holiday on which banks in New York City are authorized by law to close.
3.2. Means of Exercise. In order to exercise a Warrant, the Registered Holder must present and surrender the Warrant Certificate to the Warrant Agent at its office, with the subscription form on the back of the Warrant Certificate (the Subscription Form ) duly executed and accompanied by payment in full, in the form of cash, by bank wire transfer in immediately available funds, or by certified check or bank draft payable to the Company or its successor, of the aggregate Warrant Price for the number of shares of Common Stock specified in such Subscription Form.
3.3. Payment. Subject to the provisions of the Warrant and this Warrant Agreement, a Warrant may be exercised by the Registered Holder thereof by delivering, not later than 5:00 P.M., New York City time, on any Business Day during the Exercise Period (the Exercise Date ) to the Warrant Agent at the office of the Warrant Agent, or at the office of its successor as Warrant Agent, (i) the Definitive Warrant Certificate evidencing the Warrants to be exercised, or in the case of a Book-Entry
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Warrant Certificate, the Warrants to be exercised (the Book-Entry Warrants ), free on the records of the Depositary to an account of the Warrant Agent at the Depositary designated for such purpose in writing by the Warrant Agent to the Depository from time to time, (ii) the Subscription Form properly completed and executed, or in the case of a Book-Entry Warrant Certificate, properly delivered by the Participant in accordance with the Depositorys procedures; and (iii) the Warrant Price for each full share of Common Stock as to which the Warrants are exercised and any and all applicable taxes due in connection with the exercise of the Warrants, the exchange of the Warrants for the Common Stock, and the issuance of the Common Stock in full, in lawful money of the United States, by cash, by bank wire transfer in immediately available funds, or by certified check or bank draft payable to the Company.
(a) If any of (i) the Definitive Warrant Certificate or the Book-Entry Warrant Certificate, (ii) the Subscription Form, or (iii) the Warrant Price therefor, is received by the Warrant Agent after 5:00 P.M., New York City time, on a specified day or if such day is not a Business Day, the Warrants will be deemed to be received and exercised on, and the applicable Exercise Date shall be the Business Day next succeeding such day. If the Warrants are received or deemed to be received after the Expiration Date, the exercise thereof will be null and void and any funds delivered to the Warrant Agent will be returned to the Registered Holder or Participant, as the case may be, as soon as practicable, and all rights thereunder and all rights in respect thereof under this Warrant Agreement shall cease at the close of business on the Expiration Date. In no event will interest accrue on funds deposited with the Warrant Agent in respect of an exercise or attempted exercise of Warrants. The validity of any exercise of Warrants will be determined by the Company in its sole discretion and such determination will be final and binding upon the Registered Holder and the Warrant Agent. Neither the Company nor the Warrant Agent shall have any obligation to inform a Registered Holder of the invalidity of any exercise of Warrants.
(b) The Warrant Agent shall deposit all funds received by it in payment of the Warrant Price in the account of the Company maintained with the Warrant Agent for such purpose and shall advise the Company at the end of each Business Day on which funds for the exercise of the Warrants are received of the amount so deposited to its account. The Warrant Agent shall promptly confirm such telephonic advice to the Company in writing.
(c) The Warrant Agent shall, by 11:00 A.M., New York City time, on the Business Day following the Exercise Date of any Warrant, advise the Company and the transfer agent and registrar in respect of (i) the shares of Common Stock issuable upon such exercise as to the number of Warrants exercised in accordance with the terms and conditions of this Warrant Agreement, (ii) the instructions of each Registered Holder or Participant, as the case may be, with respect to delivery of the shares of Common Stock issuable upon such exercise, and the delivery of Definitive Warrant Certificates, as appropriate, evidencing the balance, if any, of the Warrants remaining after such exercise, (iii) in case of a Book-Entry Warrant Certificate, the notation that shall be made to the records maintained by the Depository, its nominee for each Book-Entry Warrant Certificate, or a Participant, as appropriate, evidencing the balance, if any, of the Warrants remaining after such exercise, and (iv) such other information as the Company or such transfer agent and registrar shall reasonably require.
(d) The Company shall, by 5:00 P.M., New York City time, on the third Business Day next succeeding the Exercise Date of any Warrant and the clearance of the funds in payment of the Warrant Price, execute, issue, and deliver to the Warrant Agent, the shares of Common Stock to which such Registered Holder or Participant, as the case may be, is entitled, in fully registered form, registered in such name or names as may be directed by such Registered Holder or the Participant, as the case may be. Upon receipt of such shares of Common Stock, the Warrant Agent shall, by 5:00 P.M., New York City time, on the fifth Business Day next succeeding such Exercise Date, transmit such shares of Common Stock to or upon the order of the Registered Holder or Participant, as the case may be.
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(e) In lieu of delivering physical certificates representing the shares of Common Stock issuable upon exercise, provided the Companys transfer agent is participating in the Depository Fast Automated Securities Transfer program, the Company shall use its reasonable best efforts to cause its transfer agent to electronically transmit the shares of Common Stock issuable upon exercise to the Registered Holder or Participant by crediting the account of Registered Holders prime broker with Depository or of the Participant through its Deposit Withdrawal Agent Commission system. The time periods for delivery described in the immediately preceding paragraph shall apply to the electronic transmittals described herein.
(f) The accrual of dividends, if any, on the shares of Common Stock issued upon the valid exercise of any Warrant will be governed by the terms generally applicable to the shares of Common Stock. Starting with the Exercise Date, the former Registered Holder of the Warrants exercised will be entitled to the benefits generally available to other holders of shares of Common Stock and such former Registered Holders right to receive payments of dividends and any other amounts payable in respect of the shares of Common Stock shall be governed by, and shall be subject to, the terms and provisions generally applicable to such shares of Common Stock.
(g) Warrants may be exercised only in whole numbers of shares of Common Stock. No fractional shares of Common Stock are to be issued upon the exercise of the Warrant, but rather the number of shares of Common Stock to be issued shall be rounded down to the nearest whole number. If fewer than all of the Warrants evidenced by a Warrant Certificate are exercised, a new Warrant Certificate for the number of unexercised Warrants remaining shall be executed by the Company and countersigned by the Warrant Agent, and delivered to the holder of such Warrant Certificate at the address specified on the books of the Warrant Agent or as otherwise specified by such Registered Holder. If fewer than all the Warrants evidenced by a Book-Entry Warrant Certificate are exercised, a notation shall be made to the records maintained by the Depository, its nominee for each Book-Entry Warrant Certificate, or a Participant, as appropriate, evidencing the balance of the Warrants remaining after such exercise.
(h) The Company will pay all documentary stamp or other taxes or governmental charge attributable to the initial issuance of shares of Common Stock upon the exercise of Warrants; provided, however, that the Company shall not be required to pay any stamp or other tax or governmental charge required to be paid in connection with any transfer involved in the issue of the shares of Common Stock in a name other than that of the Registered Holder of a Warrant Certificate surrendered upon the exercise of Warrants; and in the event that any such transfer is involved, the Company shall not be required to issue or deliver any shares of Common Stock until such tax or other charge shall have been paid or it has been established to the Companys satisfaction that no such tax or other charge is due.
3.4. Issuance of Warrant Certificates. Subject to Section 5.4 of this Warrant Agreement, and notwithstanding the foregoing, the Company shall not be obligated to deliver any securities pursuant to the exercise of a Warrant unless (i) a registration statement under the Act with respect to the Common Stock is effective or (ii) in the opinion of counsel to the Company, the exercise of the Warrants is exempt from the registration requirements of the Act and such securities are qualified for sale or exempt from qualification under applicable securities laws of the states or other jurisdictions in which the Registered Holders reside. Warrants may not be exercised by, or securities issued to, any Registered Holder in any state in which such exercise would be unlawful.
3.5. Valid Issuance. All shares of Common Stock issued upon the proper exercise of a Warrant in conformity with this Warrant Agreement shall be validly issued, fully paid, and non-assessable.
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3.6. Date of Issuance. Each person in whose name any such certificate for shares of Common Stock is issued shall for all purposes be deemed to have become the holder of record of such shares on the date on which the Warrant was surrendered and payment of the Warrant Price was made, irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open.
3.7. No Cash Settlement. Notwithstanding anything to the contrary contained in this Warrant Agreement, under no circumstances will the Company be required to net cash settle the exercise of the Warrants. As a result, any or all of the Warrants may expire worthless.
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES PURCHASABLE AND OTHER ITEMS IN CERTAIN EVENTS. The Warrant Price and the number of shares of Common Stock purchasable upon exercise of any Warrant and the other terms and conditions of the Warrant shall be subject to adjustment and modification as follows in the circumstances provided:
4.1. The Warrant Price and the resulting number of shares of Common Stock issuable under each Warrant shall be subject to adjustment as follows:
(a) If the Company, after the date of this Warrant Agreement but before its exercise:
(i) | pays a dividend or any other distribution payable in shares of its Common Stock; |
(ii) | subdivides its outstanding shares of Common Stock into a greater number of shares; |
(iii) | combines its outstanding shares of Common Stock into a smaller number of shares; or |
(iv) | issues by reclassification of its shares of Common Stock any shares of capital stock of the Company (other than a change in par value); |
the Warrant Price in effect and the number of shares purchasable upon the exercise of such Warrant immediately prior to such action shall be adjusted so that the Registered Holder of each Warrant may receive the number of shares of Common Stock of the Company to which it would have been entitled upon such action if such Registered Holder had so exercised the Warrant immediately prior thereto. An adjustment made pursuant to this Section 4 shall become effective immediately after the record date for the determination of owners of Common Stock entitled thereto in the case of a dividend or distribution, and shall become effective immediately after the effective date in the case of a subdivision, combination, reclassification, or issuance of rights, options or warrants retroactive to the record date, if any, for such event.
(b) No payment or adjustment shall be made by or on behalf of the Company on account of any cash dividends on the Common Stock issued upon any exercise of a Warrant which was declared for payment to the holders of Common Stock of record as of a date prior to the date on which such Warrant is exercised.
(c) Upon each adjustment of the Warrant Price made pursuant to this Section 4 , each Warrant shall thereafter (until another such adjustment) evidence the right to purchase that number of shares of Common Stock (calculated to the nearest hundredth) obtained by dividing the initial Warrant Price by the Warrant Price in effect after such adjustment.
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(d) The Companys failure to give the notice required by this Section 4 or any defect therein shall not affect the validity of such action listed under this Section 4.1 .
(e) For the purpose of this Section 4.1 , the term shares of Common Stock shall mean (i) the class of Common Stock designated as the Common Stock at the date of this Warrant Agreement, or (ii) any other class of Common Stock resulting from successive changes or reclassifications of such shares consisting solely of changes in par value, from no par value to par value or from par value to no par value. In the event that at any time, as a result of an adjustment made pursuant to this Section 4 , the Registered Holder shall become entitled to purchase any shares of the Company other than shares of Common Stock, thereafter the number of such other shares so purchasable upon exercise of each Warrant and the Warrant Price of such shares shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares of Common Stock contained in this Section 4.1 .
4.2. Liquidation, Dissolution or Winding Up. Notwithstanding any other provisions hereof, in the event of the liquidation, dissolution, or winding up of the affairs of the Company (other than in connection with a merger or sale or conveyance of all or substantially all of its assets outside of the ordinary course of business), the right to exercise each Warrant shall terminate and expire at the close of business on the last full business day before the earliest date fixed for the payment of any distributable amount on the Common Stock. The Company shall cause a notice to be mailed to each Registered Holder at least twenty (20) days prior to the applicable record date for such payment stating the date on which such liquidation, dissolution or winding up is expected to become effective, and the date on which it is expected that holders of shares of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property or assets (including cash) deliverable upon such liquidation, dissolution or winding up, and that each Registered Holder may exercise outstanding Warrants during such 20-day period and, thereby, receive consideration in the liquidation on the same basis as other previously outstanding shares of the same class as the shares acquired upon exercise. The Companys failure to give notice required by this Section 4.2 or any defect therein shall not affect the validity of such liquidation, dissolution or winding up.
4.3. Merger, Consolidation, etc.
(a) In case of any merger of the Company into any other entity or sale or conveyance of all or substantially all of its assets outside of the ordinary course of business, or similar reorganization, including, but not limited to, in connection with the formation of a holding company (such merger, sale, conveyance, or reorganization a Change ), then, as a condition of such Change, lawful and adequate provisions shall be made whereby the Registered Holders shall thereafter have the right to receive upon payment of the Warrant Price in effect immediately prior to such Change, upon the basis and upon the terms and conditions specified in this Warrant Agreement (including, but not limited to, all provisions contained in this Section 4 ), and in lieu of the shares of the Companys Common Stock purchasable upon the exercise of the Warrants, such shares of Common Stock, securities, cash or assets which such Registered Holder would have been entitled to receive after the happening of such Change had such Warrant been exercised immediately prior to such Change. The provisions of this Section 4.3 shall similarly apply to successive Changes. The Company shall cause a notice to be mailed to each Registered Holder at least twenty (20) days prior to the applicable record date for the Change covered by this Section 4.3(a) and shall provide notice of the Change and shall set forth the first and last date on which the Registered Holder may exercise outstanding Warrants. The Companys failure to give the notice required by this Section 4.3(a) or any defect therein shall not affect the validity of the Change covered by this Section 4.3(a) .
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(b) Notwithstanding the foregoing, if as a result of such Change, holders of the Companys Common Stock shall receive consideration other than solely in shares of Common Stock or other securities in exchange for their Common Stock, the Company may, at its option, fulfill its obligation hereunder by causing the notice required by Section 4.3(a) hereof to include notice to Registered Holders of the opportunity to exercise their Warrants before the applicable record date for the Change, and thereby receive consideration in the Change, on the same basis as other previously outstanding shares of the same class as the shares acquired upon exercise. If the notice specified in the preceding sentence is provided to Registered Holders, Warrants not exercised in accordance with this Section 4.3(b) before consummation of the Change shall be cancelled and become null and void on the effective date of the Change. The notice provided by the Warrant Agent pursuant to this Section 4.3(b) shall include a description of the terms of this Warrant Agreement providing for cancellation of the Warrants in the event that Warrants are not exercised by the prescribed date. The Companys failure to give any notice required by this Section 4.3(b) or any defect therein shall not affect the validity of any such Change.
4.4. Duty to Make Fair Adjustments in Certain Cases. If any event occurs as to which in the opinion of the Board of Directors of the Company the other provisions of this Section 4 are not strictly applicable, or if strictly applicable would not fairly protect the purchase rights of the Registered Holders in accordance with the essential intent and principles of this Warrant Agreement, then the Board of Directors shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, as to protect the purchase rights of the Registered Holders. Notwithstanding the foregoing, the issuance of Common Stock or any securities convertible into Common Stock by the Company either for cash or in a merger, consolidation, exchange or acquisition shall not, by itself, constitute a basis for requiring any adjustment in the Warrants unless specifically enumerated herein.
4.5. Good Faith Determination. Any determination as to whether an adjustment or limitation of exercise is required pursuant to this Section 4 (and the amount of any adjustment) shall be binding upon the Registered Holders and the Company if made in good faith by the Board of Directors.
4.6. Notice of Adjustment. Upon every adjustment of the Warrant Price or the number of shares issuable on exercise of a Warrant, the Company shall give written notice thereof to the Warrant Agent, which notice shall state the Warrant Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of a Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Upon the occurrence of any event specified in Sections 4.1 , 4.2 , or 4.3 , then, in any such event, the Company shall give written notice to the Registered Holder, at the last address set forth for such holder in the Warrant Register, of the record date or the effective date of the event. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such event
4.7. No Change of Warrant Certificate Necessary. Irrespective of any adjustment in the Warrant Price or in the number or kind of shares issuable upon exercise of the Warrants, the Warrant Certificates may continue to express the same price and number and kind of shares as are stated in the Warrant Certificates as initially issued. However, the Company may at any time in its sole discretion make any change in the form of Warrant that the Company may deem appropriate and that does not affect the substance thereof, and any Warrant thereafter issued or countersigned, whether in exchange or substitution for an outstanding Warrant or otherwise, may be in the form as so changed.
4.8. No Fractional Shares upon Adjustment. Notwithstanding any provision contained in this Warrant Agreement to the contrary, the Company shall not issue fractional shares upon exercise of Warrants. If, by reason of any adjustment made pursuant to this Section 4 , the holder of any Warrant would be entitled, upon the exercise of such Warrant, to receive a fractional interest in a share, the Company shall, upon such exercise, round up to the nearest whole number the number of the shares of Common Stock to be issued to the Warrant holder.
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4.9. Notice of Certain Transactions. In the event that the Company shall propose to (a) offer the holders of its Common Stock rights to subscribe for or to purchase any securities convertible into shares of Common Stock or shares of stock of any class or any other securities, rights or options, (b) issue any rights, options or warrants entitling the holders of Common Stock to subscribe for shares of Common Stock or (c) make a tender offer, redemption offer or exchange offer with respect to the Common Stock, the Company shall send to the Registered Holders a notice of such proposed action or offer. Such notice shall be mailed to the Registered Holders at their addresses as they appear in the Warrant Register, which shall specify the record date for the purposes of such dividend, distribution or rights, or the date such issuance or event is to take place and the date of participation therein by the holders of Common Stock, if any such date is to be fixed, and shall briefly indicate the effect of such action on the Common Stock and on the number and kind of any other shares of stock and on other property, if any, and the number of shares of Common Stock and other property, if any, issuable upon exercise of each Warrant and the Warrant Price after giving effect to any adjustment pursuant to this Section 4 which would be required as a result of such action. Such notice shall be given as promptly as practicable after the Board has determined to take any such action and (x) in the case of any action covered by clause (a) or (b) above, at least 10 days prior to the record date for determining the holders of the Common Stock for purposes of such action or (y) in the case of any other such action, at least 20 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of Common Stock, whichever shall be the earlier.
5. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and agrees for the benefit of the Registered Holders:
5.1. Due Authorization and Valid Issuance. That all shares of Common Stock which may be issued upon the exercise of the rights represented by the Warrant Certificates will, upon issue and payment of the aggregate Warrant Price therefore, be duly authorized, validly issued, fully paid and non-assessable and free and clear of all liens and encumbrances, with no personal liability attaching to the ownership thereof.
5.2. Sufficient Number of Shares. That during the period within which the rights represented by the Warrant Certificates may be exercised, the Company will at all times have authorized and reserved for the purpose of issue upon exercise of the rights evidenced by the Warrant Certificates, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by the Warrant Certificates.
5.3. Assurance of No Securities Law Violation. That the Company will take all such action as may be necessary to ensure that the shares of Common Stock issuable upon the exercise of the Warrants may be so issued without violation of any applicable federal or state law or regulation, or of any requirements of any securities exchange upon which any capital Common Stock of the Company may be listed, if any.
5.4. Registration of Common Stock. The Company agrees that prior to the commencement of the Exercise Period, it shall use its best efforts to prepare and file with the Securities and Exchange Commission a post-effective amendment to the Registration Statement, or a new registration statement, for the registration under the Act of the Common Stock issuable upon exercise of the Warrants, and it shall take such action as is necessary to qualify for sale, in those states in which the Warrants were initially offered by the Company, the Common Stock issuable upon exercise of the Warrants. In either case, the Company will use its best efforts to cause the same to become effective on or prior to the
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commencement of the Exercise Period and to maintain the effectiveness of such registration statement and ensure that a prospectus is available for delivery to the Warrant holders until the expiration of the Warrants in accordance with the provisions of this Warrant Agreement. The Warrants shall not be exercisable and the Company shall not be obligated to issue Common Stock unless, at the time a holder seeks to exercise Warrants, a prospectus related to the Common Stock issuable upon exercise of the Warrants is current and the Common Stock has been registered or qualified or deemed to be exempt under the laws of the state of residence of the holder of the Warrants. In addition, the Company agrees to use its best efforts to register such securities under the blue sky laws of the states of residence of exercising warrant holders, if permitted by the blue sky laws of such jurisdictions, in the event that an exemption is not available. The provisions of this Section 7.4 may not be modified, amended or deleted without the prior written consent of Roth Capital Partners, LLC.
6. EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT CERTIFICATE.
6.1. Exchange. The Warrants shall be exchangeable at the option of the Registered Holder, upon presentation and surrender of the Warrant Certificate at the office of the Warrant Agent for other Warrant Certificates of different denominations. Any Warrant Certificate may be divided or combined with other Warrant Certificates into a Warrant Certificate evidencing the same aggregate number of Warrants.
6.2. Transfer or Assignment. Prior to the Separation Date, the Warrants may be transferred or exchanged only as part of the Unit in which such Warrant is included, and only for the purpose of effecting, or in conjunction with, a transfer or exchange of such Unit. For the avoidance of doubt, each transfer of a Unit on the register relating to such Units shall operate also to transfer the Warrants included in such Unit. Upon surrender of the Warrant Certificate and similar Warrant Certificates at the principal office of the Warrant Agent, by the Registered Holder hereof in person or by an attorney duly authorized in writing, with the election to transfer section properly completed and duly executed, such Warrant Certificates may be transferred or exchanged in the manner provided in the Warrant Certificate and without payment of any service charge, for another Warrant Certificate or Warrant Certificates of like tenor, evidencing in the aggregate the number of Warrants evidenced by the Warrant Certificates so surrendered and registered in the name or names as requested by the then registered owner thereof or by an attorney duly authorized in writing; provided, however, that except as otherwise provided herein or in any Book-Entry Warrant Certificate, each Book-Entry Warrant Certificate may be transferred only in whole and only to the Depository, to another nominee of the Depository, to a successor depository, or to a nominee of a successor depository; provided further, however, that in the event that a Warrant surrendered for transfer bears a restrictive legend, the Warrant Agent shall not cancel such Warrant and issue new Warrants in exchange therefor until the Warrant Agent has received an opinion of counsel for the Company stating that such transfer may be made and indicating whether the new Warrants must also bear a restrictive legend. Upon any such registration of transfer, the Company shall execute, and the Warrant Agent shall countersign and deliver, in the name of the designated transferee a new Warrant certificate or Warrant certificates of any authorized denomination evidencing in the aggregate a like number of unexercised Warrants. Warrants transferred pursuant to this Section shall be accompanied by a proper payment of any applicable transfer taxes.
6.3. Lost or Destroyed Warrant Certificates. Upon receipt by the Warrant Agent of evidence satisfactory to it of the loss, theft, destruction or mutilation of a Warrant Certificate and (i) in the case of such loss, theft or destruction, of reasonably satisfactory indemnification and bonding, or (ii) if mutilated, upon surrender and cancellation of such Warrant Certificate, the Warrant Agent shall execute and deliver a new Warrant Certificate of like tenor. Any such new Warrant Certificate executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not the Warrant Certificate so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone.
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6.4. Fractional Warrants. The Warrant Agent shall not be required to effect any registration of transfer or exchange which will result in the issuance of a Warrant Certificate for a fraction of a Warrant.
7. REDEMPTION.
7.1. Redemption. Subject to Section 5.4 hereof, not less than all of the outstanding Warrants may be redeemed, at the option of the Company, at any time after they become exercisable and prior to the Expiration Date, at the office of the Warrant Agent, upon the notice referred to in Section 7.2 , at the price of $0.01 per Warrant (the Redemption Price ), provided, however, that the last reported sales price of the Common Stock has been equal to or greater than the $ per share for the 20-trading-day period ending on the third business day prior to the notice of redemption to the Registered Holders and there is an effective registration statement covering the shares of Common Stock issuable upon exercise of the Warrants current and available.
7.2. Date Fixed for, and Notice of, Redemption. In the event the Company shall elect to redeem all of the Warrants permitted to be redeemed pursuant to Section 7.1 (the Redeemable Warrants ), the Company shall fix a date for the redemption. Notice of redemption shall be mailed by first class mail, postage prepaid, by the Company not less than 30 days prior to the date fixed for redemption to the Registered Holders of the Redeemable Warrants at their last addresses as they shall appear on the registration books. Any notice mailed in the manner herein provided shall be conclusively presumed to have been duly given on the date sent whether or not the Registered Holder received such notice.
7.3. Exercise After Notice of Redemption. The Redeemable Warrants may be exercised for cash in accordance with Section 3 of this Warrant Agreement at any time after notice of redemption shall have been given by the Company pursuant to Section 7.2 hereof and prior to the time and date fixed for redemption. On and after the redemption date, the record holder of the Redeemable Warrants shall have no further rights except to receive the Redemption Price upon surrender of the Redeemable Warrants.
7.4. Outstanding Warrants Only. The Company understands that the redemption rights provided for by this Section 7 apply only to outstanding Redeemable Warrants. To the extent a person holds rights to purchase Redeemable Warrants, such purchase rights shall not be extinguished by redemption. However, once such purchase rights are exercised, the Company may redeem the Redeemable Warrants issued upon such exercise provided that the criteria for redemption is met, including the opportunity of the Redeemable Warrant holders to exercise prior to redemption pursuant to Section 7.3 .
8. NO ISSUANCE OF FRACTIONAL INTERESTS IN COMMON STOCK. The Company shall not be required to issue fractional shares of Common Stock on the exercise of the Warrants. If any fraction of a share of Common Stock would be issuable upon the exercise of the Warrants (or any specified portion thereof), the Company shall pay an amount in cash (or reduce the Exercise Price by an amount) equal to the product of such fraction and the fair market value of a share of the Common Stock, as determined by the Company in the good faith exercise of its discretion.
9. NO RIGHTS AS STOCKHOLDERS. Except as specifically provided in this Warrant Agreement, nothing contained in this Warrant Agreement or in the Warrant Certificates shall be construed as conferring upon the Registered Holders or any permitted transferees the right to vote or to receive dividends or to receive notice as holders of Common Stock in respect of any meeting of holders of Common Stock for the election of directors of the Company or any other matter, or any rights whatsoever as holders of Common Stock of the Company.
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10. AGREEMENT OF REGISTERED HOLDERS. Every Registered Holder of a Warrant, by such Registered Holders acceptance thereof, consents and agrees with the Company, the Warrant Agent and every other Registered Holder of a Warrant that the Company and the Warrant Agent may deem and treat the person in whose name the Warrant Certificate is registered as the Registered Holder and as the absolute, true and lawful owner of the Warrants represented thereby for all purposes, and neither the Company nor the Warrant Agent shall be affected by any notice or knowledge to the contrary.
11. DUTIES OF WARRANT AGENT. The Warrant Agent acts hereunder as agent and in a ministerial capacity for the Company, and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not, by issuing and delivering Warrant Certificates or by any other act hereunder be deemed to make any representations as to the validity, value or authorization of the Warrant Certificates or the Warrants represented thereby or of any securities or other property delivered upon exercise of any Warrant or whether any Common Stock issued upon exercise of any Warrant is fully paid and non-assessable.
The Warrant Agent shall not at any time be under any duty or responsibility to any Registered Holder of Warrant Certificates to make or cause to be made any adjustment of the Warrant Price provided in this Warrant Agreement, or to determine whether any fact exists which may require any such adjustment, or with respect to the nature or extent of any such adjustment, when made, or with respect to the method employed in making the same. It shall not (i) be liable for any recital or statement of facts contained herein or for any action taken, suffered or omitted by it in reliance on any Warrant Certificate or other document or instrument believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties, (ii) be responsible for any failure on the part of the Company to comply with any of its covenants and obligations contained in this Warrant Agreement or in any Warrant Certificate, or (iii) be liable for any act or omission in connection with this Warrant Agreement except for its own negligence or willful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to it (who may be counsel for the Company) and shall incur no liability or responsibility for any action taken, suffered or omitted by it in good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or demand by the Company shall be sufficiently evidenced if given orally by the Chairman of the Board of Directors, the Chief Executive Officer, President or Chief Financial Officer of the Company, provided that such instructions shall be reaffirmed in a written instrument executed by the officer giving such written instructions and delivered to the Warrant Agent pursuant to Section 13.5 hereof. The Warrant Agent shall not be liable for any action taken, suffered or omitted by it in accordance with such notice, statement, instruction, request, direction, order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation for its services hereunder and to reimburse it for its reasonable expenses hereunder and further agrees to indemnify the Warrant Agent and save it harmless against any and all losses, expenses and liabilities, including judgments, costs and counsel fees, for anything done or omitted by the Warrant Agent in the execution of its duties and powers hereunder except losses, expenses and liabilities arising as a result of the Warrant Agents negligence or willful misconduct.
The Warrant Agent may resign its duties and be discharged from all further duties and liabilities hereunder (except liabilities arising as a result of the Warrant Agents own negligence or willful misconduct), after giving sixty (60) days prior written notice to the Company. At least thirty (30) days
12
prior to the date such resignation is to become effective, the Warrant Agent shall cause a copy of such notice of resignation to be mailed to the Registered Holder of each Warrant Certificate at the Companys expense. Upon such resignation, or any inability of the Warrant Agent to act as such hereunder, the Company shall appoint a new Warrant agent in writing. The Company shall have complete discretion in the naming of a new Warrant agent, who may be an affiliate, subsidiary or department of the Company, or any person used by the Company as transfer agent for the Common Stock. If the Company shall fail to make such appointment within a period of fifteen (15) days after it has been notified in writing of such resignation by the resigning Warrant Agent, then the Registered Holder of any Warrant Certificate may apply to any court of competent jurisdiction for the appointment of a new Warrant agent.
The Company may, upon notice to the Registered Holders, remove and replace the Warrant Agent if the Warrant Agent is the transfer agent for the Companys Common Stock and the Warrant Agent ceases to be the transfer agent for the Companys Common Stock for any reason.
After acceptance in writing of an appointment by a new Warrant agent is received by the Company, such new Warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as the Warrant Agent, without any further assurance, conveyance, act or deed. Any former Warrant agent hereby agrees to cooperate with and deliver all records and Warrant Certificates to the new Warrant agent at the direction of the new agent and the Company.
Not later than the effective date of an appointment of a new Warrant agent by the Company, the Company shall file notice with the resigning or terminated Warrant agent and shall forthwith cause a copy of such notice to be mailed to each Registered Holder.
Any corporation into which the Warrant Agent or any new Warrant agent may be converted or merged or any corporation resulting from any consolidation to which the Warrant Agent or any new Warrant agent shall be a party or any corporation succeeding to the trust business of the Warrant Agent shall be a successor Warrant agent under this Warrant Agreement without any further act. Any such successor Warrant agent shall promptly cause notice of its succession as Warrant agent to be mailed to the Company and to each Registered Holder.
Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company.
12. MODIFICATION OF AGREEMENT. The Warrant Agent and the Company may by supplemental agreement make any changes or corrections in this Warrant Agreement: (i) that they shall deem appropriate to cure any ambiguity or to correct any defective or inconsistent provision or manifest mistake or error herein contained; or (ii) that they may deem necessary or desirable and which shall not adversely affect the purchase or other material rights of the Registered Holders of Warrant Certificates. This Warrant Agreement shall not otherwise be modified, supplemented or amended in any respect except with the consent in writing of the Registered Holders of Warrant Certificates representing not less than 50% of the Warrants then outstanding, but no such amendment, modification or supplement which changes the number or nature of the securities purchasable upon the exercise of any Warrant, the Warrant Price or accelerates the Expiration Date, shall be made without the consent in writing of each and every Registered Holder (but no consent shall be required for such changes as are specifically contemplated by this Warrant Agreement as originally executed).
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13. MISCELLANEOUS.
13.1. Entire Agreement. This Warrant Agreement and the form of Warrant Certificate annexed hereto as Exhibit A contains the entire Warrant Agreement between the parties hereto with respect to the transactions contemplated by this Warrant Agreement and supersedes all prior negotiations, arrangements or understandings with respect thereto.
13.2. Counterparts. This Warrant Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and each of which shall be deemed an original.
13.3. Governing Law. This Warrant Agreement shall be governed by the laws of the State of New Jersey, without giving effect to the principles of conflicts of laws thereof.
13.4. Descriptive Headings. The descriptive headings of this Warrant Agreement are for convenience only and shall not control or affect the meaning or construction of any provision of this Warrant Agreement.
13.5. Notices. Any notice or other communications required hereunder to be given to a Registered Holder shall be in writing and shall be sufficiently given, if mailed (first class, postage prepaid), or personally delivered, addressed in the name and at the address of such Registered Holder appearing from time to time on the records of the Warrant Agent. Notices or other communications to the Company shall be deemed to have been sufficiently given if delivered by hand or certified mailed to the Company as follows, or at such other address as the Company shall have designated by written notice to the Warrant Agent:
NV5 Holdings, Inc.
200 South Park Road, Suite 350
Hollywood, Florida 33021
Attn: General Counsel
with a copy to:
DLA Piper LLP (US)
2525 East Camelback Road, Suite 1000
Phoenix, Arizona 85016
Attn: David P. Lewis, Esq.
Notices or other communications to the Warrant Agent shall be deemed to have been sufficiently given if delivered by hand or mailed (first class, postage prepaid) to its then principal office. Notice by mail shall be deemed given when deposited in the mail, postage prepaid.
13.6. Successors. All the covenants and provisions of this Warrant Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns.
13.7. Persons Having Rights Under this Warrant Agreement. Nothing in this Agreement expressed and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the parties hereto and the Registered Holders of the Warrants and, for the purposes of Sections 5.4 , 7.1 and 7.4 hereof, the representative of the underwriters, any right, remedy or claim under or by reason of this Warrant Agreement or of any covenant, condition, stipulation, promise, or agreement hereof. The representative of the underwriters (on behalf of the underwriters) shall be deemed to be a third party beneficiary of this Agreement with respect to Sections 5.4 , 7.1 and 7.4 hereof. All covenants, conditions, stipulations,
14
promises, and agreements contained in this Warrant Agreement shall be for the sole and exclusive benefit of the parties hereto (and the representative of the underwriters with respect Sections 5.4 , 7.1 and 7.4 hereof) and their successors and assigns and of the Registered Holders of the Warrants.
IN WITNESS WHEREOF , the Company and the Warrant Agent have executed this Warrant Agreement by their duly authorized officers as of the date first set forth above.
NV5 HOLDINGS, INC. | ||
By: |
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Its: |
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REGISTRAR AND TRANSFER COMPANY | ||
By: |
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Its: |
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15
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT CERTIFICATE (INCLUDING THE SECURITIES ISSUABLE UPON THE EXERCISE OF THE WARRANT) ARE SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN THE WARRANT AGREEMENT DATED AS OF , 2013, BY AND BETWEEN THE COMPANY AND THE WARRANT AGENT (THE WARRANT AGREEMENT ). COPIES OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANYS PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE.
UNTIL , 2013, THIS WARRANT MAY NOT BE TRANSFERRED SEPARATELY, SPLIT UP, COMBINED OR EXCHANGED, BUT MAY ONLY BE TRANSFERRED, SPLIT UP, COMBINED OR EXCHANGED TOGETHER WITH THE SHARES OF COMMON STOCK OF NV5 HOLDINGS, INC. WITH WHICH IT WAS SOLD AS A UNIT.
SPECIMEN WARRANT CERTIFICATE
Certificate Number | ||
Warrants |
THIS WARRANT WILL BE VOID IF NOT EXERCISED PRIOR TO 5:00 P.M.
NEW YORK CITY TIME, ON THE EXPIRATION DATE
NV5 HOLDINGS, INC.
CUSIP 62945V 117
WARRANT
This certifies that FOR VALUE RECEIVED or his, her or its registered assigns (the Holder ) is the registered owner of warrants ( Warrants ) of NV5 Holdings, Inc., a Delaware corporation (the Company ). The Warrants are subject to the terms and conditions set forth in this certificate and the Warrant Agreement, and all capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Warrant Agreement. Each Warrant entitles the Holder to purchase one share of common stock, par value $0.01, of the Company ( Common Stock ), at any time after the Separation Date upon the presentation and surrender of this Warrant Certificate with the Subscription Form on the reverse side hereof duly executed, at the corporate office of the Warrant Agent, accompanied by payment of the Warrant Price in the form permitted under the Warrant Agreement.
This Warrant Certificate and each Warrant represented hereby are issued pursuant to and are subject in all respects to the terms and conditions set forth in the Warrant Agreement, a copy of which may be obtained from the Company at 200 South Park Road, Suite 350, Hollywood, Florida 33021 or the Warrant Agent at 10 Commerce Drive, Cranford, New Jersey 07016, by a written request from the Holder hereof or which may be inspected by any Holder or his agent at the principal office of the Company or the Warrant Agent.
No fractional shares of Common Stock will be issued upon exercise of the Warrant. In the case of the exercise of less than all the Warrants represented hereby, the Company shall cancel this Warrant Certificate upon the surrender hereof and shall execute and deliver a new Warrant Certificate or Warrant Certificates of like tenor, which the Warrant Agent shall countersign, for the balance of such Warrants.
1
Prior to due presentment for registration of transfer hereof, the Company and the Warrant Agent shall treat the Holder as the absolute owner hereof and of each Warrant represented hereby for all purposes and shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of New Jersey.
This Warrant Certificate is not valid unless countersigned by the Warrant Agent.
This Warrant does not entitle the Holder to any of the rights of a stockholder of the Company.
Subject to Section 7 of the Warrant Agreement, the Company may redeem all, but not less than all, of the Warrants, at the option of the Company, at any time after the Warrants become exercisable and prior to their expiration, at the office of the Warrant Agent, upon the notice referred to in Section 7.2 of the Warrant Agreement, at the price of $0.01 per Warrant (the Redemption Price ), provided, however, that the last sales price of the Common Stock has been equal to or greater than the $ per share for the 20-trading-day period ending on the third business day prior to the notice of redemption to the Registered Holders.
IN WITNESS WHEREOF , the Company has caused this Warrant Certificate to be duly executed, manually or in facsimile by two of its officers thereunto duly authorized and a facsimile of its corporate seal to be imprinted thereon.
(SEAL) | NV5 HOLDINGS, INC. | |||||
Dated: | By: |
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Chairman, CEO or President | ||||||
Dated: | By: |
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Secretary, Treasurer or Assistant Secretary |
REGISTRAR AND TRANSFER COMPANY | ||
As Warrant Agent | ||
By: |
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Authorized Officer |
2
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
The undersigned registered holder irrevocably elects to exercise Warrants represented by this Warrant Certificate, and to purchase the shares of Common Stock issuable upon the exercise of such Warrants, and requests that certificates for such shares shall be issued in the name of
Name |
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(please typewrite or print in block letters) |
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Tax Identification Number |
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and be delivered to |
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and, if such number of Warrants shall not be all the Warrants evidenced by this Warrant Certificate, that a new Warrant Certificate for the balance of such Warrants be registered in the name of, and delivered to, the registered holder at the address stated below:
Dated: | Signature |
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1
Exhibit 5.1
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DLA Piper LLP (US) 2525 East Camelback Road, Suite 1000 Phoenix, Arizona 85016-4232 www.dlapiper.com |
March 11, 2013
NV5 Holdings, Inc.
200 South Park Road, Suite 350
Hollywood, Florida 33021
Re: Registration Statement on Form S-1 (File No. 333-186229)
Ladies and Gentlemen:
We have acted as counsel to NV5 Holdings, Inc., a Delaware corporation (the Company ), in connection with the preparation of the above-referenced registration statement filed with the Securities and Exchange Commission (the SEC ) on January 28, 2013 (as amended and supplemented from time to time, the Registration Statement ) under the Securities Act of 1933, as amended (the Act ), registering the offering by the Company of the Securities (as defined below), including Securities which may be issued on the exercise of the underwriters over-allotment option.
As used herein, the term Securities includes: (i) 1,150,000 units (the Units ), each consisting of one share of the Companys common stock, par value $0.01 per share (the Common Stock ), and a warrant to purchase one share of Common Stock (each, a Warrant , and collectively, the Warrants ); (ii) 1,150,000 shares of Common Stock included in the Units; (iii) 1,150,000 Warrants included in the Units; (iv) 1,150,000 shares of Common Stock underlying the Warrants included in the Units; (v) the warrant to be issued to Roth Capital Partners, LLC to purchase 100,000 units identical to the Units (the Representatives Warrant ); (vi) 100,000 units underlying the Representatives Warrant; (vii) 100,000 shares of Common Stock included in the units underlying the Representatives Warrant; (viii) 100,000 Warrants underlying the units underlying the Representatives Warrant; (ix) 100,000 shares of Common Stock underlying the Warrants included in the units underlying the Representatives Warrant; and (x) any additional securities issued pursuant to Rule 462(b) of the Act.
This opinion is being furnished in accordance with the requirements of Item 16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.
For the purposes of rendering this Opinion, we have examined the Registration Statement, the certificate of incorporation and by-laws, each as amended, of the Company, certified as true, accurate and complete by an officer of the Company, minutes of meetings and actions by written consent of the Board of Directors of the Company, certified as true, accurate and complete, and in full force and effect, by an officer of the Company, and such other documents, records and certificates as we have deemed necessary to enable us to express the opinion hereinafter set forth. We have assumed, without independent investigation, the authenticity and completeness of all records, documents, and instruments submitted to us as originals, the genuineness of all signatures, the legal capacity of natural persons and the completeness and conformity to the originals of all records, documents, and instruments submitted to us as copies.
Based upon and subject to the foregoing and to the other qualifications and limitations set forth herein, we are of the opinion that the Securities have been duly authorized, and if, as, and when issued by the Company in accordance with and in the manner described in prospectus set forth in the Registration Statement (as amended and supplemented through the date of issuance) and, in the case of those Securities underlying warrants, when issued in accordance with the terms of the applicable warrants, will be validly issued, fully paid and non-assessable.
This opinion is given to you solely for use in connection with the issuance and sale of the Securities in accordance with the Registration Statement and the related prospectus and is not to be relied on for any other purpose. Our opinion is expressly limited to the matters set forth above, and we render no opinion, whether by implication or otherwise, as to any other matters relating to the Company, the Securities, or the Registration Statement. We express no opinion as to the applicability or effect of any laws, orders, or judgments of any state or other jurisdiction
1
other than the Delaware General Corporation Law (including the statutory provisions, all applicable provisions of the Delaware Constitution and the reported judicial decisions interpreting the foregoing). Our opinion is given as of the date set forth above, and is based solely upon existing laws, rules, and regulations. We assume no obligation to advise you of, or update or supplement the opinions contained herein to reflect, any facts, circumstances or changes in laws that may come to our attention after the date hereof.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to this firm under the caption Legal Matters in the prospectus that is part of the Registration Statement. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Act, the rules and regulations of the SEC promulgated thereunder, or Item 509 of Regulation S-K.
Very truly yours, |
/s/ DLA Piper LLP (US) |
DLA Piper LLP (US) |
Exhibit 10.1
NV5 HOLDINGS, INC.
2011 EQUITY INCENTIVE PLAN
(As Amended through March 8, 2013)
TABLE OF CONTENTS
Page | ||||||||||
1. |
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Establishment, Purpose and Term of Plan |
1 | |||||||
1.1 |
Establishment |
1 | ||||||||
1.2 |
Purpose |
1 | ||||||||
1.3 |
Term of Plan |
1 | ||||||||
2. |
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Definitions and Construction |
1 | |||||||
2.1 |
Definitions |
1 | ||||||||
2.2 |
Construction |
8 | ||||||||
3. |
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Administration |
8 | |||||||
3.1 |
Administration by the Committee |
8 | ||||||||
3.2 |
Authority of Officers |
8 | ||||||||
3.3 |
Administration with Respect to Insiders |
8 | ||||||||
3.4 |
Committee Complying with Section 162(m) |
8 | ||||||||
3.5 |
Powers of the Committee |
8 | ||||||||
3.6 |
Option or SAR Repricing |
9 | ||||||||
3.7 |
Indemnification |
9 | ||||||||
4. |
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Shares Subject to Plan |
10 | |||||||
4.1 |
Maximum Number of Shares Issuable |
10 | ||||||||
4.2 |
Annual Increase in Maximum Number of Shares Issuable |
10 | ||||||||
4.3 |
Share Counting |
10 | ||||||||
4.4 |
Adjustments for Changes in Capital Structure |
10 | ||||||||
4.5 |
Assumption or Substitution of Awards |
11 | ||||||||
5. |
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Eligibility, Participation and Award Limitations |
11 | |||||||
5.1 |
Persons Eligible for Awards |
11 | ||||||||
5.2 |
Participation in the Plan |
11 | ||||||||
5.3 |
Incentive Stock Option Limitations |
11 | ||||||||
6. |
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Stock Options |
12 | |||||||
6.1 |
Exercise Price |
12 | ||||||||
6.2 |
Exercisability and Term of Options |
12 | ||||||||
6.3 |
Payment of Exercise Price |
12 | ||||||||
6.4 |
Effect of Termination of Service |
13 | ||||||||
6.5 |
Transferability of Options |
14 | ||||||||
7. |
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Stock Appreciation Rights |
14 | |||||||
7.1 |
Types of SARs Authorized |
14 | ||||||||
7.2 |
Exercise Price |
15 | ||||||||
7.3 |
Exercisability and Term of SARs |
15 | ||||||||
7.4 |
Exercise of SARs |
15 | ||||||||
7.5 |
Deemed Exercise of SARs |
16 | ||||||||
7.6 |
Effect of Termination of Service |
16 | ||||||||
7.7 |
Transferability of SARs |
16 |
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TABLE OF CONTENTS
(continued)
Page | ||||||||
8. |
Restricted Stock Awards |
16 | ||||||
8.1 |
Types of Restricted Stock Awards Authorized |
16 | ||||||
8.2 |
Purchase Price |
16 | ||||||
8.3 |
Purchase Period |
16 | ||||||
8.4 |
Payment of Purchase Price |
17 | ||||||
8.5 |
Vesting and Restrictions on Transfer |
17 | ||||||
8.6 |
Voting Rights; Dividends and Distributions |
17 | ||||||
8.7 |
Effect of Termination of Service |
17 | ||||||
8.8 |
Nontransferability of Restricted Stock Award Rights |
18 | ||||||
9. |
Restricted Stock Unit Awards |
18 | ||||||
9.1 |
Grant of Restricted Stock Unit Awards |
18 | ||||||
9.2 |
Purchase Price |
18 | ||||||
9.3 |
Vesting |
18 | ||||||
9.4 |
Voting Rights, Dividend Equivalent Rights and Distributions |
18 | ||||||
9.5 |
Effect of Termination of Service |
19 | ||||||
9.6 |
Settlement of Restricted Stock Unit Awards |
19 | ||||||
9.7 |
Nontransferability of Restricted Stock Unit Awards |
19 | ||||||
10. |
Performance Awards |
20 | ||||||
10.1 |
Types of Performance Awards Authorized |
20 | ||||||
10.2 |
Initial Value of Performance Shares and Performance Units |
20 | ||||||
10.3 |
Establishment of Performance Period, Performance Goals and Performance Award Formula |
20 | ||||||
10.4 |
Measurement of Performance Goals |
20 | ||||||
10.5 |
Settlement of Performance Awards |
22 | ||||||
10.6 |
Voting Rights; Dividend Equivalent Rights and Distributions |
23 | ||||||
10.7 |
Effect of Termination of Service |
24 | ||||||
10.8 |
Nontransferability of Performance Awards |
24 | ||||||
11. |
Cash-Based Awards and Other Stock-Based Awards |
24 | ||||||
11.1 |
Grant of Cash-Based Awards |
24 | ||||||
11.2 |
Grant of Other Stock-Based Awards |
24 | ||||||
11.3 |
Value of Cash-Based and Other Stock-Based Awards |
25 | ||||||
11.4 |
Payment or Settlement of Cash-Based Awards and Other Stock-Based Awards |
25 | ||||||
11.5 |
Voting Rights; Dividend Equivalent Rights and Distributions |
25 | ||||||
11.6 |
Effect of Termination of Service |
25 | ||||||
11.7 |
Nontransferability of Cash-Based Awards and Other Stock-Based Awards |
25 | ||||||
12. |
Standard Forms of Award Agreement |
26 | ||||||
12.1 |
Award Agreements |
26 | ||||||
12.2 |
Authority to Vary Terms |
26 |
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TABLE OF CONTENTS
(continued)
Page | ||||||||
13. |
Change in Control |
26 | ||||||
13.1 |
Effect of Change in Control on Awards |
26 | ||||||
13.2 |
Effect of Change in Control on Nonemployee Director Awards |
27 | ||||||
13.3 |
Federal Excise Tax Under Section 4999 of the Code |
27 | ||||||
14. |
Compliance with Securities Law |
28 | ||||||
15. |
Compliance with Section 409A |
28 | ||||||
15.1 |
Awards Subject to Section 409A |
28 | ||||||
15.2 |
Deferral and/or Distribution Elections |
29 | ||||||
15.3 |
Subsequent Elections |
29 | ||||||
15.4 |
Payment of Section 409A Deferred Compensation |
29 | ||||||
16. |
Tax Withholding |
31 | ||||||
16.1 |
Tax Withholding in General |
31 | ||||||
16.2 |
Withholding in or Directed Sale of Shares |
31 | ||||||
17. |
Amendment, Suspension or Termination of Plan |
32 | ||||||
18. |
Miscellaneous Provisions |
32 | ||||||
18.1 |
Repurchase Rights |
32 | ||||||
18.2 |
Forfeiture Events |
32 | ||||||
18.3 |
Provision of Information |
33 | ||||||
18.4 |
Rights as Employee, Consultant or Director |
33 | ||||||
18.5 |
Rights as a Stockholder |
33 | ||||||
18.6 |
Delivery of Title to Shares |
33 | ||||||
18.7 |
Fractional Shares |
33 | ||||||
18.8 |
Retirement and Welfare Plans |
33 | ||||||
18.9 |
Beneficiary Designation |
33 | ||||||
18.10 |
Severability |
33 | ||||||
18.11 |
No Constraint on Corporate Action |
34 | ||||||
18.12 |
Unfunded Obligation |
34 | ||||||
18.13 |
Choice of Law |
34 |
iii
NV5 Holdings, Inc.
2011 Equity Incentive Plan
( As Amended through March 8, 2013)
1. | E STABLISHMENT , P URPOSE AND T ERM OF P LAN . |
1.1 Establishment . The NV5 Holdings, Inc. 2011 Equity Incentive Plan (the Plan ) was established effective as of October 5, 2011, the date of its initial approval by the stockholders of the Company, and is hereby amended and restated effective as of March 8, 2013, the date of its subsequent approval by the stockholders of the Company (the Amended Effective Date ).
1.2 Purpose . The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group. The Plan seeks to achieve this purpose by providing for Awards in the form of Options, Stock Appreciation Rights, Restricted Stock Purchase Rights, Restricted Stock Bonuses, Restricted Stock Units, Performance Shares, Performance Units, Cash-Based Awards and Other Stock-Based Awards.
1.3 Term of Plan. The Plan shall continue in effect until its termination by the Committee; provided, however, that all Awards shall be granted, if at all, within ten (10) years from the Amended Effective Date.
2. | D EFINITIONS AND C ONSTRUCTION . |
2.1 Definitions. Whenever used herein, the following terms shall have their respective meanings set forth below:
(a) Affiliate means (i) a parent entity, other than a Parent Corporation, that directly, or indirectly through one or more intermediary entities, controls the Company or (ii) a subsidiary entity, other than a Subsidiary Corporation, that is controlled by the Company directly or indirectly through one or more intermediary entities. For this purpose, the terms parent, subsidiary, control and controlled by shall have the meanings assigned such terms for the purposes of registration of securities on Form S-8 under the Securities Act.
(b) Award means any Option, Stock Appreciation Right, Restricted Stock Purchase Right, Restricted Stock Bonus, Restricted Stock Unit, Performance Share, Performance Unit, Cash-Based Award or Other Stock-Based Award granted under the Plan.
(c) Award Agreement means a written or electronic agreement between the Company and a Participant setting forth the terms, conditions and restrictions applicable to an Award.
(d) Board means the Board of Directors of the Company.
(e) Cash-Based Award means an Award denominated in cash and granted pursuant to Section 11.
( f ) Cashless Exercise means a Cashless Exercise as defined in Section 6.3(b)(i).
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(g) Cause means, unless such term or an equivalent term is otherwise defined by the applicable Award Agreement or other written agreement between a Participant and a Participating Company applicable to an Award, any of the following: (i) the Participants theft, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, or falsification of any Participating Company documents or records; (ii) the Participants material failure to abide by a Participating Companys code of conduct or other policies (including, without limitation, policies relating to confidentiality and reasonable workplace conduct); (iii) the Participants unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of a Participating Company (including, without limitation, the Participants improper use or disclosure of a Participating Companys confidential or proprietary information); (iv) any intentional act by the Participant which has a material detrimental effect on a Participating Companys reputation or business; (v) the Participants repeated failure to perform any reasonable assigned duties after written notice from a Participating Company of, and a reasonable opportunity to cure, such failure; (vi) any material breach by the Participant of any employment, service, non-disclosure, non-competition, non-solicitation or other similar agreement between the Participant and a Participating Company, which breach is not cured pursuant to the terms of such agreement; or (vii) the Participants conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or which impairs the Participants ability to perform his or her duties with a Participating Company.
(h) Change in Control means, unless such term or an equivalent term is otherwise defined by the applicable Award Agreement or other written agreement between the Participant and a Participating Company applicable to an Award, the occurrence of any one or a combination of the following:
(i) any person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total Fair Market Value or total combined voting power of the Companys then-outstanding securities entitled to vote generally in the election of Directors; provided, however, that a Change in Control shall not be deemed to have occurred if such degree of beneficial ownership results from any of the following: (A) an acquisition by any person who on the Amended Effective Date is the beneficial owner of more than fifty percent (50%) of such voting power, (B) any acquisition directly from the Company, including, without limitation, pursuant to or in connection with a public offering of securities, (C) any acquisition by the Company, (D) any acquisition by a trustee or other fiduciary under an employee benefit plan of a Participating Company or (E) any acquisition by an entity owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the voting securities of the Company; or
(ii) an Ownership Change Event or series of related Ownership Change Events (collectively, a Transaction ) in which the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding securities entitled to vote generally in the election of Directors or, in the case of an Ownership Change Event described in Section 2.1(ee)(iii), the entity to which the assets of the Company were transferred (the Transferee ), as the case may be; or
(iii) approval by the stockholders of a plan of complete liquidation or dissolution of the Company;
provided, however, that a Change in Control shall be deemed not to include a transaction described in subsections (i) or (ii) of this Section 2.1(h) in which a majority of the members of the board of directors of the continuing, surviving or successor entity, or parent thereof, immediately after such transaction is comprised of Incumbent Directors.
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For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Committee shall determine whether multiple acquisitions of the voting securities of the Company and/or multiple Ownership Change Events are related and to be treated in the aggregate as a single Change in Control, and its determination shall be final, binding and conclusive.
(i) Code means the Internal Revenue Code of 1986, as amended, and any applicable regulations or administrative guidelines promulgated thereunder.
(j) Committee means the Compensation Committee and such other committee or subcommittee of the Board, if any, duly appointed to administer the Plan and having such powers in each instance as shall be specified by the Board. If, at any time, there is no committee of the Board then authorized or properly constituted to administer the Plan, the Board shall exercise all of the powers of the Committee granted herein, and, in any event, the Board may in its discretion exercise any or all of such powers.
(k) Company means NV5 Holdings, Inc., a Delaware corporation, or any successor corporation thereto.
(l) Consultant means a person engaged to provide consulting or advisory services (other than as an Employee or a member of the Board) to a Participating Company, provided that the identity of such person, the nature of such services or the entity to which such services are provided would not preclude the Company from offering or selling securities to such person pursuant to the Plan in reliance on registration on Form S-8 under the Securities Act.
(m) Covered Employee means, at any time the Plan is subject to Section 162(m), any Employee who is or may reasonably be expected to become a covered employee as defined in Section 162(m), or any successor statute, and who is designated, either as an individual Employee or a member of a class of Employees, by the Committee no later than the earlier of (i) the date that is ninety (90) days after the beginning of the Performance Period, or (ii) the date on which twenty-five percent (25%) of the Performance Period has elapsed, as a Covered Employee under this Plan for such applicable Performance Period.
(n) Director means a member of the Board.
(o) Disability means the permanent and total disability of the Participant, within the meaning of Section 22(e)(3) of the Code.
(p) Dividend Equivalent Right means the right of a Participant, granted at the discretion of the Committee or as otherwise provided by the Plan, to receive a credit for the account of such Participant in an amount equal to the cash dividends paid on one share of Stock for each share of Stock represented by an Award held by such Participant.
(q) Employee means any person treated as an employee (including an Officer or a member of the Board who is also treated as an employee) in the records of a Participating Company and, with respect to any Incentive Stock Option granted to such person, who is an employee for
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purposes of Section 422 of the Code; provided, however, that neither service as a member of the Board nor payment of a directors fee shall be sufficient to constitute employment for purposes of the Plan. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individuals employment or termination of employment, as the case may be. For purposes of an individuals rights, if any, under the terms of the Plan as of the time of the Companys determination of whether or not the individual is an Employee, all such determinations by the Company shall be final, binding and conclusive as to such rights, if any, notwithstanding that the Company or any court of law or governmental agency subsequently makes a contrary determination as to such individuals status as an Employee.
(r) Exchange Act means the Securities Exchange Act of 1934, as amended.
(s) Fair Market Value means, as of any date, the value of a share of Stock or other property as determined by the Committee, in its discretion, or by the Company, in its discretion, if such determination is expressly allocated to the Company herein, subject to the following:
(i) Except as otherwise determined by the Committee, if, on such date, the Stock is listed or quoted on a national or regional securities exchange or quotation system, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock as quoted on the national or regional securities exchange or quotation system constituting the primary market for the Stock, as reported in The Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or quotation system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded or quoted prior to the relevant date, or such other appropriate day as shall be determined by the Committee, in its discretion.
(ii) Notwithstanding the foregoing, the Committee may, in its discretion, determine the Fair Market Value of a share of Stock on the basis of the opening, closing, or average of the high and low sale prices of a share of Stock on such date or the preceding trading day, the actual sale price of a share of Stock received by a Participant, any other reasonable basis using actual transactions in the Stock as reported on a national or regional securities exchange or quotation system, or on any other basis consistent with the requirements of Section 409A. The Committee may also determine the Fair Market Value upon the average selling price of the Stock during a specified period that is within thirty (30) days before or thirty (30) days after such date, provided that, with respect to the grant of an Option or SAR, the commitment to grant such Award based on such valuation method must be irrevocable before the beginning of the specified period. The Committee may vary its method of determination of the Fair Market Value as provided in this Section for different purposes under the Plan to the extent consistent with the requirements of Section 409A.
(iii) If, on such date, the Stock is not listed or quoted on a national or regional securities exchange or quotation system, the Fair Market Value of a share of Stock shall be as determined by the Committee in good faith without regard to any restriction other than a restriction which, by its terms, will never lapse, and in a manner consistent with the requirements of Section 409A.
(t) Full Value Award means any Award settled in Stock, other than (i) an Option, (ii) a Stock Appreciation Right, or (iii) a Restricted Stock Purchase Right or an Other Stock-Based Award under which the Company will receive monetary consideration equal to the Fair Market Value (determined on the effective date of grant) of the shares subject to such Award.
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(u) Incentive Stock Option means an Option intended to be (as set forth in the Award Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code.
(v) Incumbent Director means a director who either (i) is a member of the Board as of the Amended Effective Date or (ii) is elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but excluding a director who was elected or nominated in connection with an actual or threatened proxy contest relating to the election of directors of the Company).
(w) Insider means an Officer, Director or any other person whose transactions in Stock are subject to Section 16 of the Exchange Act.
( x ) Net Exercise means a Net Exercise as defined in Section 6.3(b)(iii).
(y) Nonemployee Director means a Director who is not an Employee.
(z) Nonemployee Director Award means any Award granted to a Nonemployee Director.
(aa) Nonstatutory Stock Option means an Option not intended to be (as set forth in the Award Agreement) or which does not qualify as an incentive stock option within the meaning of Section 422(b) of the Code.
(bb) Officer means any person designated by the Board as an officer of the Company.
(cc) Option means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan.
(dd) Other Stock-Based Award means an Award denominated in shares of Stock and granted pursuant to Section 11.
(ee) Ownership Change Event means the occurrence of any of the following with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of securities of the Company representing more than fifty percent (50%) of the total combined voting power of the Companys then outstanding securities entitled to vote generally in the election of Directors; (ii) a merger or consolidation in which the Company is a party; or (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company (other than a sale, exchange or transfer to one or more subsidiaries of the Company).
(ff) Parent Corporation means any present or future parent corporation of the Company, as defined in Section 424(e) of the Code.
(gg) Participant means any eligible person who has been granted one or more Awards.
(hh) Participating Company means the Company or any Parent Corporation, Subsidiary Corporation or Affiliate.
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(ii) Participating Company Group means, at any point in time, the Company and all other entities collectively which are then Participating Companies.
(jj) Performance Award means an Award of Performance Shares or Performance Units.
(kk) Performance Award Formula means, for any Performance Award, a formula or table established by the Committee pursuant to Section 10.3 which provides the basis for computing the value of a Performance Award at one or more levels of attainment of the applicable Performance Goal(s) measured as of the end of the applicable Performance Period.
(ll) Performance-Based Compensation means compensation under an Award that satisfies the requirements of Section 162(m) for certain performance-based compensation paid to Covered Employees.
(mm) Performance Goal means a performance goal established by the Committee pursuant to Section 10.3.
(nn) Performance Period means a period established by the Committee pursuant to Section 10.3 at the end of which one or more Performance Goals are to be measured.
(oo) Performance Share means a right granted to a Participant pursuant to Section 10 to receive a payment equal to the value of a Performance Share, as determined by the Committee, based upon attainment of applicable Performance Goal(s).
(pp) Performance Unit means a right granted to a Participant pursuant to Section 10 to receive a payment equal to the value of a Performance Unit, as determined by the Committee, based upon attainment of applicable Performance Goal(s).
(qq) Restricted Stock Award means an Award of a Restricted Stock Bonus or a Restricted Stock Purchase Right.
(rr) Restricted Stock Bonus means Stock granted to a Participant pursuant to Section 8.
(ss) Restricted Stock Purchase Right means a right to purchase Stock granted to a Participant pursuant to Section 8.
(tt) Restricted Stock Unit means a right granted to a Participant pursuant to Section 9 to receive on a future date or event a share of Stock or cash in lieu thereof, as determined by the Committee.
(uu) Rule 16b-3 means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation.
(vv) SAR or Stock Appreciation Right means a right granted to a Participant pursuant to Section 7 to receive payment, for each share of Stock subject to such Award, of an amount equal to the excess, if any, of the Fair Market Value of a share of Stock on the date of exercise of the Award over the exercise price thereof.
(ww) Section 162(m) means Section 162(m) of the Code.
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(xx) Section 409A means Section 409A of the Code.
(yy) Section 409A Deferred Compensation means compensation provided pursuant to an Award that constitutes nonqualified deferred compensation within the meaning of Section 409A.
(zz) Securities Act means the Securities Act of 1933, as amended.
(aaa) Service means a Participants employment or service with the Participating Company Group, whether as an Employee, a Director or a Consultant. Unless otherwise provided by the Committee, a Participants Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders such Service or a change in the Participating Company for which the Participant renders such Service, provided that there is no interruption or termination of the Participants Service. Furthermore, a Participants Service shall not be deemed to have been interrupted or terminated if the Participant takes any military leave, sick leave, or other bona fide leave of absence approved by the Company. However, unless otherwise provided by the Committee, if any such leave taken by a Participant exceeds ninety (90) days, then on the ninety-first (91st) day following the commencement of such leave the Participants Service shall be deemed to have terminated, unless the Participants right to return to Service is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, an unpaid leave of absence shall not be treated as Service for purposes of determining vesting under the Participants Award Agreement. A Participants Service shall be deemed to have terminated either upon an actual termination of Service or upon the business entity for which the Participant performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its discretion, shall determine whether the Participants Service has terminated and the effective date of such termination.
(bbb) Stock means the common stock of the Company, as adjusted from time to time in accordance with Section 4.4.
(ccc) Stock Tender Exercise means a Stock Tender Exercise as defined in Section 6.3(b)(ii).
(ddd) Subsidiary Corporation means any present or future subsidiary corporation of the Company, as defined in Section 424(f) of the Code.
(eee) Ten Percent Owner means a Participant who, at the time an Option is granted to the Participant, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company (other than an Affiliate) within the meaning of Section 422(b)(6) of the Code.
(fff) Trading Compliance Policy means the written policy of the Company pertaining to the purchase, sale, transfer or other disposition of the Companys equity securities by Directors, Officers, Employees or other service providers who may possess material, nonpublic information regarding the Company or its securities.
(ggg) Vesting Conditions mean those conditions established in accordance with the Plan prior to the satisfaction of which an Award or shares subject to an Award remain subject to forfeiture or a repurchase option in favor of the Company exercisable for the Participants monetary purchase price, if any, for such shares upon the Participants termination of Service.
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2.2 Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term or is not intended to be exclusive, unless the context clearly requires otherwise.
3. | A DMINISTRATION . |
3.1 Administration by the Committee. The Plan shall be administered by the Committee. All questions of interpretation of the Plan, of any Award Agreement or of any other form of agreement or other document employed by the Company in the administration of the Plan or of any Award shall be determined by the Committee, and such determinations shall be final, binding and conclusive upon all persons having an interest in the Plan or such Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by the Committee in the exercise of its discretion pursuant to the Plan or Award Agreement or other agreement thereunder (other than determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons having an interest therein. All expenses incurred in the administration of the Plan shall be paid by the Company.
3.2 Authority of Officers. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election that is the responsibility of or that is allocated to the Company herein, provided that the Officer has apparent authority with respect to such matter, right, obligation, determination or election.
3.3 Administration with Respect to Insiders. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3.
3.4 Committee Complying with Section 162(m). If the Company is a publicly held corporation within the meaning of Section 162(m), the Board may establish a Committee of outside directors within the meaning of Section 162(m) to approve the grant of any Award intended to result in the payment of Performance-Based Compensation.
3.5 Powers of the Committee . In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Committee shall have the full and final power and authority, in its discretion:
(a) to determine the persons to whom, and the time or times at which, Awards shall be granted and the number of shares of Stock, units or monetary value to be subject to each Award;
(b) to determine the type of Award granted;
(c) to determine the Fair Market Value of shares of Stock or other property;
(d) to determine the terms, conditions and restrictions applicable to each Award (which need not be identical) and any shares acquired pursuant thereto, including, without limitation, (i) the exercise or purchase price of shares pursuant to any Award, (ii) the method of payment for shares purchased pursuant to any Award, (iii) the method for satisfaction of any tax withholding obligation arising in connection with any Award, including by the withholding or delivery of shares, (iv) the timing, terms and conditions of the exercisability or vesting of any Award or any shares acquired
8
pursuant thereto, (v) the Performance Measures, Performance Period, Performance Award Formula and Performance Goals applicable to any Award and the extent to which such Performance Goals have been attained, (vi) the time of the expiration of any Award, (vii) the effect of the Participants termination of Service on any of the foregoing, and (viii) all other terms, conditions and restrictions applicable to any Award or shares acquired pursuant thereto not inconsistent with the terms of the Plan;
(e) to determine whether an Award will be settled in shares of Stock, cash, other property or in any combination thereof;
(f) to approve one or more forms of Award Agreement;
(g) to amend, modify, extend, cancel or renew any Award or to waive any restrictions or conditions applicable to any Award or any shares acquired pursuant thereto;
(h) to accelerate, continue, extend or defer the exercisability or vesting of any Award or any shares acquired pursuant thereto, including with respect to the period following a Participants termination of Service;
(i) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt sub-plans or supplements to, or alternative versions of, the Plan, including, without limitation, as the Committee deems necessary or desirable to comply with the laws or regulations of or to accommodate the tax policy, accounting principles or custom of, foreign jurisdictions whose citizens may be granted Awards; and
(j) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement and to make all other determinations and take such other actions with respect to the Plan or any Award as the Committee may deem advisable to the extent not inconsistent with the provisions of the Plan or applicable law.
3.6 Option or SAR Repricing. Without the affirmative vote of holders of a majority of the shares of Stock cast in person or by proxy at a meeting of the stockholders of the Company at which a quorum representing a majority of all outstanding shares of Stock is present or represented by proxy, the Committee shall not approve a program providing for either (a) the cancellation of outstanding Options or SARs having exercise prices per share greater than the then Fair Market Value of a share of Stock ( Underwater Awards ) and the grant in substitution therefore of new Options or SARs having a lower exercise price, Full Value Awards, or payments in cash, or (b) the amendment of outstanding Underwater Awards to reduce the exercise price thereof. This Section shall not apply to adjustments pursuant to the assumption of or substitution for an Option or SAR in a manner that would comply with Section 424(a) or Section 409A of the Code or to an adjustment pursuant to Section 4.4.
3.7 Indemnification. In addition to such other rights of indemnification as they may have as members of the Board or the Committee or as officers or employees of the Participating Company Group, to the extent permitted by applicable law, members of the Board or the Committee and any officers or employees of the Participating Company Group to whom authority to act for the Board, the Committee or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a
9
judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.
4. | S HARES S UBJECT TO P LAN . |
4.1 Maximum Number of Shares Issuable. Subject to adjustment as provided in Sections 4.2, 4.3, and 4.3, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be equal to 400,000 shares and shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof.
4.2 Annual Increase in Maximum Number of Shares Issuable. Subject to adjustment as provided in Section 4.4, the maximum aggregate number of shares of Stock that may be issued under the Plan as set forth in Section 4.1 shall be cumulatively increased on January 1, 2014 and on each subsequent January 1 through and including January 1, 2023, by a number of shares (the Annual Increase ) equal to the smaller of (a) 3.5% of the number of shares of Stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the Board.
4.3 Share Counting. If an outstanding Award for any reason expires or is terminated or canceled without having been exercised or settled in full, or if shares of Stock acquired pursuant to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company for an amount not greater than the Participants purchase price, the shares of Stock allocable to the terminated portion of such Award or such forfeited or repurchased shares of Stock shall again be available for issuance under the Plan. Shares of Stock shall not be deemed to have been issued pursuant to the Plan with respect to any portion of an Award that is settled in cash or to the extent that shares are withheld or reacquired by the Company in satisfaction of tax withholding obligations pursuant to Section 16.2. Upon payment in shares of Stock pursuant to the exercise of an SAR, the number of shares available for issuance under the Plan shall be reduced only by the number of shares actually issued in such payment. If the exercise price of an Option is paid by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Participant, or by means of a Net Exercise, the number of shares available for issuance under the Plan shall be reduced by the net number of shares for which the Option is exercised.
4.4 Adjustments for Changes in Capital Structure . Subject to any required action by the stockholders of the Company and the requirements of Sections 409A and 424 of the Code to the extent applicable, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting regular, periodic cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number and kind of shares subject to the Plan and to any outstanding Awards, the Annual Increase, the Award limits set forth in Section 5.3, and in the exercise or purchase price per share under any outstanding Award in order to prevent dilution or enlargement of Participants rights under the Plan. For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as effected without receipt of consideration by the Company. If a majority of the shares which are of the same class as the shares that are subject to outstanding Awards are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the New Shares ), the Committee may unilaterally amend the outstanding Awards to provide that such Awards are for New
10
Shares. In the event of any such amendment, the number of shares subject to, and the exercise or purchase price per share of, the outstanding Awards shall be adjusted in a fair and equitable manner as determined by the Committee, in its discretion. Any fractional share resulting from an adjustment pursuant to this Section shall be rounded down to the nearest whole number, and in no event may the exercise or purchase price under any Award be decreased to an amount less than the par value, if any, of the stock subject to such Award. The Committee in its discretion, may also make such adjustments in the terms of any Award to reflect, or related to, such changes in the capital structure of the Company or distributions as it deems appropriate, including modification of Performance Goals, Performance Award Formulas and Performance Periods. The adjustments determined by the Committee pursuant to this Section shall be final, binding and conclusive.
4.5 Assumption or Substitution of Awards. The Committee may, without affecting the number of shares of Stock reserved or available hereunder, authorize the issuance or assumption of benefits under this Plan in connection with any merger, consolidation, acquisition of property or stock, or reorganization upon such terms and conditions as it may deem appropriate, subject to compliance with Section 409A and any other applicable provisions of the Code.
5. | E LIGIBILITY , P ARTICIPATION AND A WARD L IMITATIONS . |
5.1 Persons Eligible for Awards. Awards may be granted only to Employees, Consultants and Directors.
5.2 Participation in the Plan. Awards are granted solely at the discretion of the Committee. Eligible persons may be granted more than one Award. However, eligibility in accordance with this Section shall not entitle any person to be granted an Award, or, having been granted an Award, to be granted an additional Award.
5.3 Incentive Stock Option Limitations.
(a) Maximum Number of Shares Issuable Pursuant to Incentive Stock Options. Subject to adjustment as provided in Section 4.4, the maximum aggregate number of shares of Stock that may be issued under the Plan pursuant to the exercise of Incentive Stock Options shall not exceed 400,000 shares, cumulatively increased on January 1, 2012 and on each subsequent January 1, through and including January 1, 2021, by a number of shares equal to the smaller of the Annual Increase determined under Section 4.2. The maximum aggregate number of shares of Stock that may be issued under the Plan pursuant to all Awards other than Incentive Stock Options shall be the number of shares determined in accordance with Section 4.1, subject to adjustment as provided in Sections 4.2, 4.3, and 4.3.
(b) Persons Eligible. An Incentive Stock Option may be granted only to a person who, on the effective date of grant, is an Employee of the Company, a Parent Corporation or a Subsidiary Corporation (each being an ISO-Qualifying Corporation ). Any person who is not an Employee of an ISO-Qualifying Corporation on the effective date of the grant of an Option to such person may be granted only a Nonstatutory Stock Option.
(c) Fair Market Value Limitation. To the extent that options designated as Incentive Stock Options (granted under all stock option plans of the Participating Company Group, including the Plan) become exercisable by a Participant for the first time during any calendar year for stock having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount shall be treated as Nonstatutory Stock Options. For purposes of this Section, options designated as Incentive Stock Options shall be taken into account in the order in
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which they were granted, and the Fair Market Value of stock shall be determined as of the time the option with respect to such stock is granted. If the Code is amended to provide for a limitation different from that set forth in this Section, such different limitation shall be deemed incorporated herein effective as of the date and with respect to such Options as required or permitted by such amendment to the Code. If an Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section, the Participant may designate which portion of such Option the Participant is exercising. In the absence of such designation, the Participant shall be deemed to have exercised the Incentive Stock Option portion of the Option first. Upon exercise, shares issued pursuant to each such portion shall be separately identified.
6. | S TOCK O PTIONS . |
Options shall be evidenced by Award Agreements specifying the number of shares of Stock covered thereby, in such form as the Committee shall from time to time establish. Award Agreements evidencing Options may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
6.1 Exercise Price. The exercise price for each Option shall be established in the discretion of the Committee; provided, however, that (a) the exercise price per share shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option and (b) no Incentive Stock Option granted to a Ten Percent Owner shall have an exercise price per share less than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner that would qualify under the provisions of Section 409A or 424(a) of the Code.
6.2 Exercisability and Term of Options. Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Committee and set forth in the Award Agreement evidencing such Option; provided, however, that (a) no Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, (b) no Incentive Stock Option granted to a Ten Percent Owner shall be exercisable after the expiration of five (5) years after the effective date of grant of such Option and (c) no Option granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, shall be first exercisable until at least six (6) months following the date of grant of such Option (except in the event of such Employees death, disability or retirement, upon a Change in Control, or as otherwise permitted by the Worker Economic Opportunity Act). Subject to the foregoing, unless otherwise specified by the Committee in the grant of an Option, each Option shall terminate ten (10) years after the effective date of grant of the Option, unless earlier terminated in accordance with its provisions.
6.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check or in cash equivalent; (ii) if permitted by the Committee and subject to the limitations contained in Section 6.3(b), by means of (1) a Cashless Exercise, (2) a Stock Tender Exercise or (3) a Net Exercise; (iii) by such other consideration as may be approved by the Committee from time to time to the extent permitted by applicable law, or (iv) by any combination thereof. The Committee may at any time or from time to time grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration.
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(b) Limitations on Forms of Consideration.
(i) Cashless Exercise. A Cashless Exercise means the delivery of a properly executed notice of exercise together with irrevocable instructions to a broker providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Companys sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise, including with respect to one or more Participants specified by the Company notwithstanding that such program or procedures may be available to other Participants.
(ii) Stock Tender Exercise. A Stock Tender Exercise means the delivery of a property executed exercise notice accompanies by a Participants tender to the Company, or attestation to the ownership, in a form acceptable to the Company of whole shares of Stock owned by the Participant having a Fair Market Value that does not exceed the aggregate exercise price for the shares with respect to which the Option is exercised. A Stock Tender Exercise shall not be permitted if it would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Companys stock. If required by the Company, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Participant for a period of time required by the Company (and not used for another option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company.
(iii) Net Exercise. A Net Exercise means the delivery of a properly executed exercise notice followed by a procedure pursuant to which (1) the Company will reduce the number of shares otherwise issuable to a Participant upon the exercise of an Option by the largest whole number of shares having a Fair Market Value that does not exceed the aggregate exercise price for the shares with respect to which the Option is exercised, and (2) the Participant shall pay to the Company in cash the remaining balance of such aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued.
6.4 Effect of Termination of Service.
(a) Option Exercisability. Subject to earlier termination of the Option as otherwise provided by this Plan and unless otherwise provided by the Committee, an Option shall terminate immediately upon the Participants termination of Service to the extent that it is then unvested and shall be exercisable after the Participants termination of Service to the extent it is then vested only during the applicable time period determined in accordance with this Section and thereafter shall terminate.
(i) Disability. If the Participants Service terminates because of the Disability of the Participant, the Option, to the extent unexercised and exercisable for vested shares on the date on which the Participants Service terminated, may be exercised by the Participant (or the Participants guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Participants Service terminated, but in any event no later than the date of expiration of the Options term as set forth in the Award Agreement evidencing such Option (the Option Expiration Date ).
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(ii) Death. If the Participants Service terminates because of the death of the Participant, the Option, to the extent unexercised and exercisable for vested shares on the date on which the Participants Service terminated, may be exercised by the Participants legal representative or other person who acquired the right to exercise the Option by reason of the Participants death at any time prior to the expiration of twelve (12) months after the date on which the Participants Service terminated, but in any event no later than the Option Expiration Date. The Participants Service shall be deemed to have terminated on account of death if the Participant dies within three (3) months after the Participants termination of Service.
(iii) Termination for Cause. Notwithstanding any other provision of the Plan to the contrary, if the Participants Service is terminated for Cause or if, following the Participants termination of Service and during any period in which the Option otherwise would remain exercisable, the Participant engages in any act that would constitute Cause, the Option shall terminate in its entirety and cease to be exercisable immediately upon such termination of Service or act.
(iv) Other Termination of Service. If the Participants Service terminates for any reason, except Disability, death or Cause, the Option, to the extent unexercised and exercisable for vested shares on the date on which the Participants Service terminated, may be exercised by the Participant at any time prior to the expiration of three (3) months after the date on which the Participants Service terminated, but in any event no later than the Option Expiration Date.
(b) Extension if Exercise Prevented by Law . Notwithstanding the foregoing, other than termination of Service for Cause, if the exercise of an Option within the applicable time periods set forth in Section 6.4(a) is prevented by the provisions of Section 14 below, the Option shall remain exercisable until the later of (i) thirty (30) days after the date such exercise first would no longer be prevented by such provisions or (ii) the end of the applicable time period under Section 6.4(a), but in any event no later than the Option Expiration Date.
6.5 Transferability of Options. During the lifetime of the Participant, an Option shall be exercisable only by the Participant or the Participants guardian or legal representative. An Option shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participants beneficiary, except transfer by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent permitted by the Committee, in its discretion, and set forth in the Award Agreement evidencing such Option, an Option shall be assignable or transferable subject to the applicable limitations, if any, described in the General Instructions to Form S-8 under the Securities Act or, in the case of an Incentive Stock Option, only as permitted by applicable regulations under Section 421 of the Code in a manner that does not disqualify such Option as an Incentive Stock Option.
7. | S TOCK A PPRECIATION R IGHTS . |
Stock Appreciation Rights shall be evidenced by Award Agreements specifying the number of shares of Stock subject to the Award, in such form as the Committee shall from time to time establish. Award Agreements evidencing SARs may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
7.1 Types of SARs Authorized. SARs may be granted in tandem with all or any portion of a related Option (a Tandem SAR ) or may be granted independently of any Option (a Freestanding SAR ). A Tandem SAR may only be granted concurrently with the grant of the related Option.
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7.2 Exercise Price. The exercise price for each SAR shall be established in the discretion of the Committee; provided, however, that (a) the exercise price per share subject to a Tandem SAR shall be the exercise price per share under the related Option and (b) the exercise price per share subject to a Freestanding SAR shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the SAR. Notwithstanding the foregoing, an SAR may be granted with an exercise price lower than the minimum exercise price set forth above if such SAR is granted pursuant to an assumption or substitution for another stock appreciation right in a manner that would qualify under the provisions of Section 409A of the Code.
7.3 Exercisability and Term of SARs.
(a) Tandem SARs. Tandem SARs shall be exercisable only at the time and to the extent, and only to the extent, that the related Option is exercisable, subject to such provisions as the Committee may specify where the Tandem SAR is granted with respect to less than the full number of shares of Stock subject to the related Option. The Committee may, in its discretion, provide in any Award Agreement evidencing a Tandem SAR that such SAR may not be exercised without the advance approval of the Company and, if such approval is not given, then the Option shall nevertheless remain exercisable in accordance with its terms. A Tandem SAR shall terminate and cease to be exercisable no later than the date on which the related Option expires or is terminated or canceled. Upon the exercise of a Tandem SAR with respect to some or all of the shares subject to such SAR, the related Option shall be canceled automatically as to the number of shares with respect to which the Tandem SAR was exercised. Upon the exercise of an Option related to a Tandem SAR as to some or all of the shares subject to such Option, the related Tandem SAR shall be canceled automatically as to the number of shares with respect to which the related Option was exercised.
(b) Freestanding SARs. Freestanding SARs shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Committee and set forth in the Award Agreement evidencing such SAR; provided, however, that (i) no Freestanding SAR shall be exercisable after the expiration of ten (10) years after the effective date of grant of such SAR and (ii) no Freestanding SAR granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, shall be first exercisable until at least six (6) months following the date of grant of such SAR (except in the event of such Employees death, disability or retirement, upon a Change in Control, or as otherwise permitted by the Worker Economic Opportunity Act). Subject to the foregoing, unless otherwise specified by the Committee in the grant of a Freestanding SAR, each Freestanding SAR shall terminate ten (10) years after the effective date of grant of the SAR, unless earlier terminated in accordance with its provisions.
7.4 Exercise of SARs. Upon the exercise (or deemed exercise pursuant to Section 7.5) of an SAR, the Participant (or the Participants legal representative or other person who acquired the right to exercise the SAR by reason of the Participants death) shall be entitled to receive payment of an amount for each share with respect to which the SAR is exercised equal to the excess, if any, of the Fair Market Value of a share of Stock on the date of exercise of the SAR over the exercise price. Payment of such amount shall be made (a) in the case of a Tandem SAR, solely in shares of Stock in a lump sum upon the date of exercise of the SAR and (b) in the case of a Freestanding SAR, in cash, shares of Stock, or any combination thereof as determined by the Committee, in a lump sum upon the date of exercise of the SAR. When payment is to be made in shares of Stock, the number of shares to be issued shall be determined on the basis of the Fair Market Value of a share of Stock on the date of exercise of the SAR. For purposes of Section 7, an SAR shall be deemed exercised on the date on which the Company receives notice of exercise from the Participant or as otherwise provided in Section 7.5.
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7.5 Deemed Exercise of SARs. If, on the date on which an SAR would otherwise terminate or expire, the SAR by its terms remains exercisable immediately prior to such termination or expiration and, if so exercised, would result in a payment to the holder of such SAR, then any portion of such SAR which has not previously been exercised shall automatically be deemed to be exercised as of such date with respect to such portion.
7.6 Effect of Termination of Service. Subject to earlier termination of the SAR as otherwise provided herein and unless otherwise provided by the Committee, an SAR shall be exercisable after a Participants termination of Service only to the extent and during the applicable time period determined in accordance with Section 6.4 (treating the SAR as if it were an Option) and thereafter shall terminate.
7.7 Transferability of SARs. During the lifetime of the Participant, an SAR shall be exercisable only by the Participant or the Participants guardian or legal representative. An SAR shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participants beneficiary, except transfer by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent permitted by the Committee, in its discretion, and set forth in the Award Agreement evidencing such Award, a Tandem SAR related to a Nonstatutory Stock Option or a Freestanding SAR shall be assignable or transferable subject to the applicable limitations, if any, described in the General Instructions to Form S-8 under the Securities Act.
8. | R ESTRICTED S TOCK A WARDS . |
Restricted Stock Awards shall be evidenced by Award Agreements specifying whether the Award is a Restricted Stock Bonus or a Restricted Stock Purchase Right and the number of shares of Stock subject to the Award, in such form as the Committee shall from time to time establish. Award Agreements evidencing Restricted Stock Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
8.1 Types of Restricted Stock Awards Authorized. Restricted Stock Awards may be granted in the form of either a Restricted Stock Bonus or a Restricted Stock Purchase Right. Restricted Stock Awards may be granted upon such conditions as the Committee shall determine, including, without limitation, upon the attainment of one or more Performance Goals described in Section 10.4. If either the grant of or satisfaction of Vesting Conditions applicable to a Restricted Stock Award is to be contingent upon the attainment of one or more Performance Goals, the Committee shall follow procedures substantially equivalent to those set forth in Sections 10.3 through 10.5(a).
8.2 Purchase Price. The purchase price for shares of Stock issuable under each Restricted Stock Purchase Right shall be established by the Committee in its discretion. No monetary payment (other than applicable tax withholding) shall be required as a condition of receiving shares of Stock pursuant to a Restricted Stock Bonus, the consideration for which shall be services actually rendered to a Participating Company or for its benefit. Notwithstanding the foregoing, if required by applicable state corporate law, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares of Stock subject to a Restricted Stock Award.
8.3 Purchase Period. A Restricted Stock Purchase Right shall be exercisable within a period established by the Committee, which shall in no event exceed thirty (30) days from the effective date of the grant of the Restricted Stock Purchase Right.
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8.4 Payment of Purchase Price. Except as otherwise provided below, payment of the purchase price for the number of shares of Stock being purchased pursuant to any Restricted Stock Purchase Right shall be made (a) in cash, by check or in cash equivalent, (b) by such other consideration as may be approved by the Committee from time to time to the extent permitted by applicable law, or (c) by any combination thereof.
8.5 Vesting and Restrictions on Transfer. Shares issued pursuant to any Restricted Stock Award may (but need not) be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 10.4, as shall be established by the Committee and set forth in the Award Agreement evidencing such Award. During any period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting Conditions, such shares may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of other than pursuant to an Ownership Change Event or as provided in Section 8.8. The Committee, in its discretion, may provide in any Award Agreement evidencing a Restricted Stock Award that, if the satisfaction of Vesting Conditions with respect to any shares subject to such Restricted Stock Award would otherwise occur on a day on which the sale of such shares would violate the provisions of the Trading Compliance Policy, then satisfaction of the Vesting Conditions automatically shall be determined on the next trading day on which the sale of such shares would not violate the Trading Compliance Policy. Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
8.6 Voting Rights; Dividends and Distributions. Except as provided in this Section, Section 8.5 and any Award Agreement, during any period in which shares acquired pursuant to a Restricted Stock Award remain subject to Vesting Conditions, the Participant shall have all of the rights of a stockholder of the Company holding shares of Stock, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares; provided, however, that if so determined by the Committee and provided by the Award Agreement, such dividends and distributions shall be subject to the same Vesting Conditions as the shares subject to the Restricted Stock Award with respect to which such dividends or distributions were paid, and otherwise shall be paid no later than the end of the calendar year in which such dividends or distributions are paid to stockholders (or, if later, the 15th day of the third month following the date such dividends or distributions are paid to stockholders). In the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.4, any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant is entitled by reason of the Participants Restricted Stock Award shall be immediately subject to the same Vesting Conditions as the shares subject to the Restricted Stock Award with respect to which such dividends or distributions were paid or adjustments were made.
8.7 Effect of Termination of Service. Unless otherwise provided by the Committee in the Award Agreement evidencing a Restricted Stock Award, if a Participants Service terminates for any reason, whether voluntary or involuntary (including the Participants death or disability), then (a) the Company shall have the option to repurchase for the purchase price paid by the Participant any shares acquired by the Participant pursuant to a Restricted Stock Purchase Right which remain subject to Vesting Conditions as of the date of the Participants termination of Service and (b) the Participant shall forfeit to the Company any shares acquired by the Participant pursuant to a Restricted Stock Bonus which remain subject to Vesting Conditions as of the date of the Participants termination of Service. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company.
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8.8 Nontransferability of Restricted Stock Award Rights. Rights to acquire shares of Stock pursuant to a Restricted Stock Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance or garnishment by creditors of the Participant or the Participants beneficiary, except transfer by will or the laws of descent and distribution. All rights with respect to a Restricted Stock Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participants guardian or legal representative.
9. | R ESTRICTED S TOCK U NIT A WARDS . |
Restricted Stock Unit Awards shall be evidenced by Award Agreements specifying the number of Restricted Stock Units subject to the Award, in such form as the Committee shall from time to time establish. Award Agreements evidencing Restricted Stock Units may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
9.1 Grant of Restricted Stock Unit Awards. Restricted Stock Unit Awards may be granted upon such conditions as the Committee shall determine, including, without limitation, upon the attainment of one or more Performance Goals described in Section 10.4. If either the grant of a Restricted Stock Unit Award or the Vesting Conditions with respect to such Award is to be contingent upon the attainment of one or more Performance Goals, the Committee shall follow procedures substantially equivalent to those set forth in Sections 10.3 through 10.5(a).
9.2 Purchase Price. No monetary payment (other than applicable tax withholding, if any) shall be required as a condition of receiving a Restricted Stock Unit Award, the consideration for which shall be services actually rendered to a Participating Company or for its benefit. Notwithstanding the foregoing, if required by applicable state corporate law, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares of Stock issued upon settlement of the Restricted Stock Unit Award.
9.3 Vesting. Restricted Stock Unit Awards may (but need not) be made subject to Vesting Conditions based upon the satisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 10.4, as shall be established by the Committee and set forth in the Award Agreement evidencing such Award. The Committee, in its discretion, may provide in any Award Agreement evidencing a Restricted Stock Unit Award that, if the satisfaction of Vesting Conditions with respect to any shares subject to the Award would otherwise occur on a day on which the sale of such shares would violate the provisions of the Trading Compliance Policy, then the satisfaction of the Vesting Conditions automatically shall be determined on the first to occur of (a) the next trading day on which the sale of such shares would not violate the Trading Compliance Policy or (b) the later of (i) last day of the calendar year in which the original vesting date occurred or (ii) the last day of the Companys taxable year in which the original vesting date occurred.
9.4 Voting Rights, Dividend Equivalent Rights and Distributions. Participants shall have no voting rights with respect to shares of Stock represented by Restricted Stock Units until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). However, the Committee, in its discretion, may provide in the Award Agreement evidencing any Restricted Stock Unit Award that the Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Stock during the period beginning on the date such Award is granted and ending, with respect to each share subject to the Award, on the earlier of the date the Award is settled or the date on which it is terminated. Such Dividend Equivalent Rights, if any, shall be paid by crediting the Participant with a cash amount or with
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additional whole Restricted Stock Units as of the date of payment of such cash dividends on Stock, as determined by the Committee. The number of additional Restricted Stock Units (rounded to the nearest whole number), if any, to be so credited shall be determined by dividing (a) the amount of cash dividends paid on such date with respect to the number of shares of Stock represented by the Restricted Stock Units previously credited to the Participant by (b) the Fair Market Value per share of Stock on such date. If so determined by the Committee and provided by the Award Agreement, such cash amount or additional Restricted Stock Units shall be subject to the same terms and conditions and shall be settled in the same manner and at the same time as the Restricted Stock Units originally subject to the Restricted Stock Unit Award. In the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.4, appropriate adjustments shall be made in the Participants Restricted Stock Unit Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant would be entitled by reason of the shares of Stock issuable upon settlement of the Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same Vesting Conditions as are applicable to the Award.
9.5 Effect of Termination of Service. Unless otherwise provided by the Committee and set forth in the Award Agreement evidencing a Restricted Stock Unit Award, if a Participants Service terminates for any reason, whether voluntary or involuntary (including the Participants death or disability), then the Participant shall forfeit to the Company any Restricted Stock Units pursuant to the Award which remain subject to Vesting Conditions as of the date of the Participants termination of Service.
9.6 Settlement of Restricted Stock Unit Awards. The Company shall issue to a Participant on the date on which Restricted Stock Units subject to the Participants Restricted Stock Unit Award vest or on such other date determined by the Committee, in its discretion, and set forth in the Award Agreement one (1) share of Stock (and/or any other new, substituted or additional securities or other property pursuant to an adjustment described in Section 9.4) for each Restricted Stock Unit then becoming vested or otherwise to be settled on such date, subject to the withholding of applicable taxes, if any. If permitted by the Committee, the Participant may elect, consistent with the requirements of Section 409A, to defer receipt of all or any portion of the shares of Stock or other property otherwise issuable to the Participant pursuant to this Section, and such deferred issuance date(s) and amount(s) elected by the Participant shall be set forth in the Award Agreement. Notwithstanding the foregoing, the Committee, in its discretion, may provide for settlement of any Restricted Stock Unit Award by payment to the Participant in cash of an amount equal to the Fair Market Value on the payment date of the shares of Stock or other property otherwise issuable to the Participant pursuant to this Section.
9.7 Nontransferability of Restricted Stock Unit Awards. The right to receive shares pursuant to a Restricted Stock Unit Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participants beneficiary, except transfer by will or by the laws of descent and distribution. All rights with respect to a Restricted Stock Unit Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participants guardian or legal representative.
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10. | P ERFORMANCE A WARDS . |
Performance Awards shall be evidenced by Award Agreements in such form as the Committee shall from time to time establish. Award Agreements evidencing Performance Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
10.1 Types of Performance Awards Authorized. Performance Awards may be granted in the form of either Performance Shares or Performance Units. Each Award Agreement evidencing a Performance Award shall specify the number of Performance Shares or Performance Units subject thereto, the Performance Award Formula, the Performance Goal(s) and Performance Period applicable to the Award, and the other terms, conditions and restrictions of the Award.
10.2 Initial Value of Performance Shares and Performance Units. Unless otherwise provided by the Committee in granting a Performance Award, each Performance Share shall have an initial monetary value equal to the Fair Market Value of one (1) share of Stock, subject to adjustment as provided in Section 4.4, on the effective date of grant of the Performance Share, and each Performance Unit shall have an initial monetary value established by the Committee at the time of grant. The final value payable to the Participant in settlement of a Performance Award determined on the basis of the applicable Performance Award Formula will depend on the extent to which Performance Goals established by the Committee are attained within the applicable Performance Period established by the Committee.
10.3 Establishment of Performance Period, Performance Goals and Performance Award Formula. In granting each Performance Award, the Committee shall establish in writing the applicable Performance Period, Performance Award Formula and one or more Performance Goals which, when measured at the end of the Performance Period, shall determine on the basis of the Performance Award Formula the final value of the Performance Award to be paid to the Participant. Unless otherwise permitted in compliance with the requirements under Section 162(m) with respect to each Performance Award intended to result in the payment of Performance-Based Compensation, the Committee shall establish the Performance Goal(s) and Performance Award Formula applicable to each Performance Award no later than the earlier of (a) the date ninety (90) days after the commencement of the applicable Performance Period or (b) the date on which 25% of the Performance Period has elapsed, and, in any event, at a time when the outcome of the Performance Goals remains substantially uncertain. Once established, the Performance Goals and Performance Award Formula applicable to a Covered Employee shall not be changed during the Performance Period. The Company shall notify each Participant granted a Performance Award of the terms of such Award, including the Performance Period, Performance Goal(s) and Performance Award Formula.
10.4 Measurement of Performance Goals. Performance Goals shall be established by the Committee on the basis of targets to be attained ( Performance Targets ) with respect to one or more measures of business or financial performance (each, a Performance Measure ), subject to the following:
(a) Performance Measures. Performance Measures shall be calculated in accordance with the Companys financial statements, or, if such terms are not used in the Companys financial statements, they shall be calculated in accordance with generally accepted accounting principles, a method used generally in the Companys industry, or in accordance with a methodology established by the Committee prior to the grant of the Performance Award. Performance Measures shall be calculated with respect to the Company and each Subsidiary Corporation consolidated therewith for financial reporting purposes or such division or other business unit as may be selected by the Committee. Unless otherwise determined by the Committee prior to the grant of the Performance Award, the Performance Measures applicable to the Performance Award shall be calculated prior to the accrual of expense for any Performance Award for the same Performance Period and excluding the effect (whether positive or negative) on the Performance Measures of any change in accounting standards or any extraordinary,
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unusual or nonrecurring item, as determined by the Committee, occurring after the establishment of the Performance Goals applicable to the Performance Award. Each such adjustment, if any, shall be made solely for the purpose of providing a consistent basis from period to period for the calculation of Performance Measures in order to prevent the dilution or enlargement of the Participants rights with respect to a Performance Award. Performance Measures may be one or more of the following, as determined by the Committee:
(i) revenue;
(ii) sales;
(iii) expenses;
(iv) operating income;
(v) gross margin;
(vi) operating margin;
(vii) earnings before any one or more of: stock-based compensation expense, interest, taxes, depreciation and amortization;
(viii) pre-tax profit;
(ix) net operating income;
(x) net income;
(xi) economic value added;
(xii) free cash flow;
(xiii) operating cash flow;
(xiv) balance of cash, cash equivalents and marketable securities;
(xv) stock price;
(xvi) earnings per share;
(xvii) return on stockholder equity;
(xviii) return on capital;
(xix) return on assets;
(xx) return on investment;
(xxi) total stockholder return;
(xxii) employee satisfaction;
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(xxiii) employee retention;
(xxiv) market share;
(xxv) customer satisfaction;
(xxvi) product development;
(xxvii) research and development expenses;
(xxviii) completion of an identified special project; and
(xxix) completion of a joint venture or other corporate transaction.
(b) Performance Targets. Performance Targets may include a minimum, maximum, target level and intermediate levels of performance, with the final value of a Performance Award determined under the applicable Performance Award Formula by the level attained during the applicable Performance Period. A Performance Target may be stated as an absolute value, an increase or decrease in a value, or as a value determined relative to an index, budget or other standard selected by the Committee.
10.5 Settlement of Performance Awards.
(a) Determination of Final Value. As soon as practicable following the completion of the Performance Period applicable to a Performance Award, the Committee shall certify in writing the extent to which the applicable Performance Goals have been attained and the resulting final value of the Award earned by the Participant and to be paid upon its settlement in accordance with the applicable Performance Award Formula.
(b) Discretionary Adjustment of Award Formula. In its discretion, the Committee may, either at the time it grants a Performance Award or at any time thereafter, provide for the positive or negative adjustment of the Performance Award Formula applicable to a Performance Award granted to any Participant who is not a Covered Employee to reflect such Participants individual performance in his or her position with the Company or such other factors as the Committee may determine. If permitted under a Covered Employees Award Agreement, the Committee shall have the discretion, on the basis of such criteria as may be established by the Committee, to reduce some or all of the value of the Performance Award that would otherwise be paid to the Covered Employee upon its settlement notwithstanding the attainment of any Performance Goal and the resulting value of the Performance Award determined in accordance with the Performance Award Formula. No such reduction may result in an increase in the amount payable upon settlement of another Participants Performance Award that is intended to result in Performance-Based Compensation.
(c) Effect of Leaves of Absence. Unless otherwise required by law or a Participants Award Agreement, payment of the final value, if any, of a Performance Award held by a Participant who has taken in excess of thirty (30) days in unpaid leaves of absence during a Performance Period shall be prorated on the basis of the number of days of the Participants Service during the Performance Period during which the Participant was not on an unpaid leave of absence.
(d) Notice to Participants. As soon as practicable following the Committees determination and certification in accordance with Sections 10.5(a) and (b), the Company shall notify each Participant of the determination of the Committee.
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(e) Payment in Settlement of Performance Awards. As soon as practicable following the Committees determination and certification in accordance with Sections 10.5(a) and (b), but in any event within the Short-Term Deferral Period described in Section 15.1 (except as otherwise provided below or consistent with the requirements of Section 409A), payment shall be made to each eligible Participant (or such Participants legal representative or other person who acquired the right to receive such payment by reason of the Participants death) of the final value of the Participants Performance Award. Payment of such amount shall be made in cash, shares of Stock, or a combination thereof as determined by the Committee. Unless otherwise provided in the Award Agreement evidencing a Performance Award, payment shall be made in a lump sum. If permitted by the Committee, the Participant may elect, consistent with the requirements of Section 409A, to defer receipt of all or any portion of the payment to be made to the Participant pursuant to this Section, and such deferred payment date(s) elected by the Participant shall be set forth in the Award Agreement. If any payment is to be made on a deferred basis, the Committee may, but shall not be obligated to, provide for the payment during the deferral period of Dividend Equivalent Rights or interest.
(f) Provisions Applicable to Payment in Shares. If payment is to be made in shares of Stock, the number of such shares shall be determined by dividing the final value of the Performance Award by the Fair Market Value of a share of Stock determined by the method specified in the Award Agreement. Shares of Stock issued in payment of any Performance Award may be fully vested and freely transferable shares or may be shares of Stock subject to Vesting Conditions as provided in Section 8.5. Any shares subject to Vesting Conditions shall be evidenced by an appropriate Award Agreement and shall be subject to the provisions of Sections 8.5 through 8.8 above.
10.6 Voting Rights; Dividend Equivalent Rights and Distributions. Participants shall have no voting rights with respect to shares of Stock represented by Performance Share Awards until the date of the issuance of such shares, if any (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). However, the Committee, in its discretion, may provide in the Award Agreement evidencing any Performance Share Award that the Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Stock during the period beginning on the date the Award is granted and ending, with respect to each share subject to the Award, on the earlier of the date on which the Performance Shares are settled or the date on which they are forfeited. Such Dividend Equivalent Rights, if any, shall be credited to the Participant either in cash or in the form of additional whole Performance Shares as of the date of payment of such cash dividends on Stock, as determined by the Committee. The number of additional Performance Shares (rounded to the nearest whole number), if any, to be so credited shall be determined by dividing (a) the amount of cash dividends paid on the dividend payment date with respect to the number of shares of Stock represented by the Performance Shares previously credited to the Participant by (b) the Fair Market Value per share of Stock on such date. Dividend Equivalent Rights may be paid currently or may be accumulated and paid to the extent that Performance Shares become nonforfeitable, as determined by the Committee. Settlement of Dividend Equivalent Rights may be made in cash, shares of Stock, or a combination thereof as determined by the Committee, and may be paid on the same basis as settlement of the related Performance Share as provided in Section 10.5. Dividend Equivalent Rights shall not be paid with respect to Performance Units. In the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.4, appropriate adjustments shall be made in the Participants Performance Share Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant would be entitled by reason of the shares of Stock issuable upon settlement of the Performance Share Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same Performance Goals as are applicable to the Award.
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10.7 Effect of Termination of Service. Unless otherwise provided by the Committee and set forth in the Award Agreement evidencing a Performance Award, the effect of a Participants termination of Service on the Performance Award shall be as follows:
(a) Death or Disability. If the Participants Service terminates because of the death or Disability of the Participant before the completion of the Performance Period applicable to the Performance Award, the final value of the Participants Performance Award shall be determined by the extent to which the applicable Performance Goals have been attained with respect to the entire Performance Period and shall be prorated based on the number of months of the Participants Service during the Performance Period. Payment shall be made following the end of the Performance Period in any manner permitted by Section 10.5.
(b) Other Termination of Service. If the Participants Service terminates for any reason except death or Disability before the completion of the Performance Period applicable to the Performance Award, such Award shall be forfeited in its entirety; provided, however, that in the event of an involuntary termination of the Participants Service, the Committee, in its discretion, may waive the automatic forfeiture of all or any portion of any such Award and determine the final value of the Performance Award in the manner provided by Section 10.7(a). Payment of any amount pursuant to this Section shall be made following the end of the Performance Period in any manner permitted by Section 10.5.
10.8 Nontransferability of Performance Awards. Prior to settlement in accordance with the provisions of the Plan, no Performance Award shall be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participants beneficiary, except transfer by will or by the laws of descent and distribution. All rights with respect to a Performance Award granted to a Participant hereunder shall be exercisable during his or her lifetime only by such Participant or the Participants guardian or legal representative.
11. | C ASH -B ASED A WARDS AND O THER S TOCK -B ASED A WARDS . |
Cash-Based Awards and Other Stock-Based Awards shall be evidenced by Award Agreements in such form as the Committee shall from time to time establish. Award Agreements evidencing Cash-Based Awards and Other Stock-Based Awards may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions:
11.1 Grant of Cash-Based Awards . Subject to the provisions of the Plan, the Committee, at any time and from time to time, may grant Cash-Based Awards to Participants in such amounts and upon such terms and conditions, including the achievement of performance criteria, as the Committee may determine.
11.2 Grant of Other Stock-Based Awards . The Committee may grant other types of equity-based or equity-related Awards not otherwise described by the terms of this Plan (including the grant or offer for sale of unrestricted securities, stock-equivalent units, stock appreciation units, securities or debentures convertible into common stock or other forms determined by the Committee) in such amounts and subject to such terms and conditions as the Committee shall determine. Other Stock-Based Awards may be made available as a form of payment in the settlement of other Awards or as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock-Based Awards may involve the transfer of actual shares of Stock to Participants, or payment in cash or otherwise of amounts based on the value of Stock and may include, without limitation, Awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States.
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11.3 Value of Cash-Based and Other Stock-Based Awards . Each Cash-Based Award shall specify a monetary payment amount or payment range as determined by the Committee. Each Other Stock-Based Award shall be expressed in terms of shares of Stock or units based on such shares of Stock, as determined by the Committee. The Committee may require the satisfaction of such Service requirements, conditions, restrictions or performance criteria, including, without limitation, Performance Goals as described in Section 10.4, as shall be established by the Committee and set forth in the Award Agreement evidencing such Award. If the Committee exercises its discretion to establish performance criteria, the final value of Cash-Based Awards or Other Stock-Based Awards that will be paid to the Participant will depend on the extent to which the performance criteria are met. The establishment of performance criteria with respect to the grant or vesting of any Cash-Based Award or Other Stock-Based Award intended to result in Performance-Based Compensation shall follow procedures substantially equivalent to those applicable to Performance Awards set forth in Section 10.
11.4 Payment or Settlement of Cash-Based Awards and Other Stock-Based Awards . Payment or settlement, if any, with respect to a Cash-Based Award or an Other Stock-Based Award shall be made in accordance with the terms of the Award, in cash, shares of Stock or other securities or any combination thereof as the Committee determines. The determination and certification of the final value with respect to any Cash-Based Award or Other Stock-Based Award intended to result in Performance-Based Compensation shall comply with the requirements applicable to Performance Awards set forth in Section 10. To the extent applicable, payment or settlement with respect to each Cash-Based Award and Other Stock-Based Award shall be made in compliance with the requirements of Section 409A.
11.5 Voting Rights; Dividend Equivalent Rights and Distributions. Participants shall have no voting rights with respect to shares of Stock represented by Other Stock-Based Awards until the date of the issuance of such shares of Stock (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), if any, in settlement of such Award. However, the Committee, in its discretion, may provide in the Award Agreement evidencing any Other Stock-Based Award that the Participant shall be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Stock during the period beginning on the date such Award is granted and ending, with respect to each share subject to the Award, on the earlier of the date the Award is settled or the date on which it is terminated. Such Dividend Equivalent Rights, if any, shall be paid in accordance with the provisions set forth in Section 9.4. Dividend Equivalent Rights shall not be granted with respect to Cash-Based Awards. In the event of a dividend or distribution paid in shares of Stock or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 4.4, appropriate adjustments shall be made in the Participants Other Stock-Based Award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the Participant would be entitled by reason of the shares of Stock issuable upon settlement of such Award, and all such new, substituted or additional securities or other property shall be immediately subject to the same Vesting Conditions and performance criteria, if any, as are applicable to the Award.
11.6 Effect of Termination of Service . Each Award Agreement evidencing a Cash-Based Award or Other Stock-Based Award shall set forth the extent to which the Participant shall have the right to retain such Award following termination of the Participants Service. Such provisions shall be determined in the discretion of the Committee, need not be uniform among all Cash-Based Awards or Other Stock-Based Awards, and may reflect distinctions based on the reasons for termination, subject to the requirements of Section 409A, if applicable.
11.7 Nontransferability of Cash-Based Awards and Other Stock-Based Awards. Prior to the payment or settlement of a Cash-Based Award or Other Stock-Based Award, the Award shall
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not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participants beneficiary, except transfer by will or by the laws of descent and distribution. The Committee may impose such additional restrictions on any shares of Stock issued in settlement of Cash-Based Awards and Other Stock-Based Awards as it may deem advisable, including, without limitation, minimum holding period requirements, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such shares of Stock are then listed and/or traded, or under any state securities laws or foreign law applicable to such shares of Stock.
12. | S TANDARD F ORMS OF A WARD A GREEMENT . |
12.1 Award Agreements . Each Award shall comply with and be subject to the terms and conditions set forth in the appropriate form of Award Agreement approved by the Committee and as amended from time to time. No Award or purported Award shall be a valid and binding obligation of the Company unless evidenced by a fully executed Award Agreement, which execution may be evidenced by electronic means.
12.2 Authority to Vary Terms . The Committee shall have the authority from time to time to vary the terms of any standard form of Award Agreement either in connection with the grant or amendment of an individual Award or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Award Agreement are not inconsistent with the terms of the Plan.
13. | C HANGE IN C ONTROL . |
13.1 Effect of Change in Control on Awards. Subject to the requirements and limitations of Section 409A, if applicable, the Committee may provide for any one or more of the following:
(a) Accelerated Vesting. In its discretion, the Committee may provide in the grant of any Award or at any other time may take such action as it deems appropriate to provide for acceleration of the exercisability, vesting and/or settlement in connection with a Change in Control of each or any outstanding Award or portion thereof and shares acquired pursuant thereto upon such conditions, including termination of the Participants Service prior to, upon, or following such Change in Control, and to such extent as the Committee shall determine.
(b) Assumption, Continuation or Substitution. In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the Acquiror ), may, without the consent of any Participant, assume or continue the Companys rights and obligations under each or any Award or portion thereof outstanding immediately prior to the Change in Control or substitute for each or any such outstanding Award or portion thereof a substantially equivalent award with respect to the Acquirors stock, as applicable. For purposes of this Section, if so determined by the Committee in its discretion, an Award denominated in shares of Stock shall be deemed assumed if, following the Change in Control, the Award confers the right to receive, subject to the terms and conditions of the Plan and the applicable Award Agreement, for each share of Stock subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a share of Stock on the effective date of the Change in Control was entitled (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Stock); provided, however, that if such consideration is not solely common stock of the Acquiror, the Committee may, with the consent of the Acquiror, provide for the consideration to be received upon the
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exercise or settlement of the Award, for each share of Stock subject to the Award, to consist solely of common stock of the Acquiror equal in Fair Market Value to the per share consideration received by holders of Stock pursuant to the Change in Control. Any Award or portion thereof which is neither assumed or continued by the Acquiror in connection with the Change in Control nor exercised or settled as of the time of consummation of the Change in Control shall terminate and cease to be outstanding effective as of the time of consummation of the Change in Control.
(c) Cash-Out of Outstanding Stock-Based Awards. The Committee may, in its discretion and without the consent of any Participant, determine that, upon the occurrence of a Change in Control, each or any Award denominated in shares of Stock or portion thereof outstanding immediately prior to the Change in Control and not previously exercised or settled shall be canceled in exchange for a payment with respect to each vested share (and each unvested share, if so determined by the Committee) of Stock subject to such canceled Award in (i) cash, (ii) stock of the Company or of a corporation or other business entity a party to the Change in Control, or (iii) other property which, in any such case, shall be in an amount having a Fair Market Value equal to the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control, reduced (but not below zero) by the exercise or purchase price per share, if any, under such Award. In the event such determination is made by the Committee, an Award having an exercise or purchase price per share equal to or greater than the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control may be canceled without payment of consideration to the holder thereof. Payment pursuant to this Section (reduced by applicable withholding taxes, if any) shall be made to Participants in respect of the vested portions of their canceled Awards as soon as practicable following the date of the Change in Control and in respect of the unvested portions of their canceled Awards in accordance with the vesting schedules applicable to such Awards.
13.2 Effect of Change in Control on Nonemployee Director Awards. Subject to the requirements and limitations of Section 409A, if applicable, including as provided by Section 15.4(f), in the event of a Change in Control, each outstanding Nonemployee Director Award shall become immediately exercisable and vested in full and, except to the extent assumed, continued or substituted for pursuant to Section 13.1(b), shall be settled effective immediately prior to the time of consummation of the Change in Control.
13.3 Federal Excise Tax Under Section 4999 of the Code.
(a) Excess Parachute Payment. In the event that any acceleration of vesting pursuant to an Award and any other payment or benefit received or to be received by a Participant would subject the Participant to any excise tax pursuant to Section 4999 of the Code due to the characterization of such acceleration of vesting, payment or benefit as an excess parachute payment under Section 280G of the Code, the Participant may elect to reduce the amount of any acceleration of vesting called for under the Award in order to avoid such characterization.
(b) Determination by Independent Accountants. To aid the Participant in making any election called for under Section 13.3(a), no later than the date of the occurrence of any event that might reasonably be anticipated to result in an excess parachute payment to the Participant as described in Section 13.3(a), the Company shall request a determination in writing by independent public accountants selected by the Company (the Accountants ). As soon as practicable thereafter, the Accountants shall determine and report to the Company and the Participant the amount of such acceleration of vesting, payments and benefits which would produce the greatest after-tax benefit to the Participant. For the purposes of such determination, the Accountants may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Participant shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make their required determination. The Company shall bear all fees and expenses the Accountants charge in connection with their services contemplated by this Section.
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14. | C OMPLIANCE WITH S ECURITIES L AW . |
The grant of Awards and the issuance of shares of Stock pursuant to any Award shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities and the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, no Award may be exercised or shares issued pursuant to an Award unless (a) a registration statement under the Securities Act shall at the time of such exercise or issuance be in effect with respect to the shares issuable pursuant to the Award, or (b) in the opinion of legal counsel to the Company, the shares issuable pursuant to the Award may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Companys legal counsel to be necessary to the lawful issuance and sale of any shares under the Plan shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to issuance of any Stock, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
15. | C OMPLIANCE WITH S ECTION 409A. |
15.1 Awards Subject to Section 409A. The Company intends that Awards granted pursuant to the Plan shall either be exempt from or comply with Section 409A, and the Plan shall be so construed. The provisions of this Section 15 shall apply to any Award or portion thereof that constitutes or provides for payment of Section 409A Deferred Compensation. Such Awards may include, without limitation:
(a) A Nonstatutory Stock Option or SAR that includes any feature for the deferral of compensation other than the deferral of recognition of income until the later of (i) the exercise or disposition of the Award or (ii) the time the stock acquired pursuant to the exercise of the Award first becomes substantially vested.
(b) Any Restricted Stock Unit Award, Performance Award, Cash-Based Award or Other Stock-Based Award that either (i) provides by its terms for settlement of all or any portion of the Award at a time or upon an event that will or may occur later than the end of the Short-Term Deferral Period (as defined below) or (ii) permits the Participant granted the Award to elect one or more dates or events upon which the Award will be settled after the end of the Short-Term Deferral Period.
Subject to the provisions of Section 409A, the term Short-Term Deferral Period means the 2 1 / 2 month period ending on the later of (i) the 15th day of the third month following the end of the Participants taxable year in which the right to payment under the applicable portion of the Award is no longer subject to a substantial risk of forfeiture or (ii) the 15th day of the third month following the end of the Companys taxable year in which the right to payment under the applicable portion of the Award is no longer subject to a substantial risk of forfeiture. For this purpose, the term substantial risk of forfeiture shall have the meaning provided by Section 409A.
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15.2 Deferral and/or Distribution Elections. Except as otherwise permitted or required by Section 409A, the following rules shall apply to any compensation deferral and/or payment elections (each, an Election ) that may be permitted or required by the Committee pursuant to an Award providing Section 409A Deferred Compensation:
(a) Elections must be in writing and specify the amount of the payment in settlement of an Award being deferred, as well as the time and form of payment as permitted by this Plan.
(b) Elections shall be made by the end of the Participants taxable year prior to the year in which services commence for which an Award may be granted to such Participant.
(c) Elections shall continue in effect until a written revocation or change in Election is received by the Company, except that a written revocation or change in Election must be received by the Company prior to the last day for making the Election determined in accordance with paragraph (b) above or as permitted by Section 15.3.
15.3 Subsequent Elections . Except as otherwise permitted or required by Section 409A, any Award providing Section 409A Deferred Compensation which permits a subsequent Election to delay the payment or change the form of payment in settlement of such Award shall comply with the following requirements:
(a) No subsequent Election may take effect until at least twelve (12) months after the date on which the subsequent Election is made.
(b) Each subsequent Election related to a payment in settlement of an Award not described in Section 15.4(a)(ii), 15.4(a)(iii) or 15.4(a)(vi) must result in a delay of the payment for a period of not less than five (5) years from the date on which such payment would otherwise have been made.
(c) No subsequent Election related to a payment pursuant to Section 15.4(a)(iv) shall be made less than twelve (12) months before the date on which such payment would otherwise have been made.
(d) Subsequent Elections shall continue in effect until a written revocation or change in the subsequent Election is received by the Company, except that a written revocation or change in a subsequent Election must be received by the Company prior to the last day for making the subsequent Election determined in accordance the preceding paragraphs of this Section 15.3.
15.4 Payment of Section 409A Deferred Compensation .
(a) Permissible Payments. Except as otherwise permitted or required by Section 409A, an Award providing Section 409A Deferred Compensation must provide for payment in settlement of the Award only upon one or more of the following:
(i) The Participants separation from service (as defined by Section 409A);
(ii) The Participants becoming disabled (as defined by Section 409A);
(iii) The Participants death;
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(iv) A time or fixed schedule that is either (i) specified by the Committee upon the grant of an Award and set forth in the Award Agreement evidencing such Award or (ii) specified by the Participant in an Election complying with the requirements of Section 15.2 or 15.3, as applicable;
(v) A change in the ownership or effective control or the Company or in the ownership of a substantial portion of the assets of the Company determined in accordance with Section 409A; or
(vi) The occurrence of an unforeseeable emergency (as defined by Section 409A).
(b) Installment Payments . It is the intent of this Plan that any right of a Participant to receive installment payments (within the meaning of Section 409A) shall, for all purposes of Section 409A, be treated as a right to a series of separate payments.
(c) Required Delay in Payment to Specified Employee Pursuant to Separation from Service. Notwithstanding any provision of the Plan or an Award Agreement to the contrary, except as otherwise permitted by Section 409A, no payment pursuant to Section 15.4(a)(i) in settlement of an Award providing for Section 409A Deferred Compensation may be made to a Participant who is a specified employee (as defined by Section 409A) as of the date of the Participants separation from service before the date (the Delayed Payment Date ) that is six (6) months after the date of such Participants separation from service, or, if earlier, the date of the Participants death. All such amounts that would, but for this paragraph, become payable prior to the Delayed Payment Date shall be accumulated and paid on the Delayed Payment Date.
(d) Payment Upon Disability. All distributions of Section 409A Deferred Compensation payable by reason of a Participant becoming disabled shall be paid in a lump sum or in periodic installments as established by the Participants Election. If the Participant has made no Election with respect to distributions of Section 409A Deferred Compensation upon becoming disabled, all such distributions shall be paid in a lump sum upon the determination that the Participant has become disabled.
(e) Payment Upon Death . If a Participant dies before complete distribution of amounts payable upon settlement of an Award subject to Section 409A, such undistributed amounts shall be distributed to his or her beneficiary under the distribution method for death established by the Participants Election upon receipt by the Committee of satisfactory notice and confirmation of the Participants death. If the Participant has made no Election with respect to distributions of Section 409A Deferred Compensation upon death, all such distributions shall be paid in a lump sum upon receipt by the Committee of satisfactory notice and confirmation of the Participants death.
(f) Payment Upon Change in Control. Notwithstanding any provision of the Plan or an Award Agreement to the contrary, to the extent that any amount constituting Section 409A Deferred Compensation would become payable under this Plan by reason of a Change in Control, such amount shall become payable only if the event constituting a Change in Control would also constitute a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A. Any Award which constitutes Section 409A Deferred Compensation and which would vest and otherwise become payable upon a Change in Control as a result of the failure of the Acquiror to assume, continue or substitute for such Award in accordance with Section 13.1(b) shall vest to the extent provided by such Award but shall be converted automatically at the effective time of such Change in Control into a right to receive, in cash on the date or dates such award would have been settled in accordance with its then existing settlement schedule (or as required by Section 15.4(c)), an amount or amounts equal in the aggregate to the intrinsic value of the Award at the time of the Change in Control.
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(g) Payment Upon Unforeseeable Emergency. The Committee shall have the authority to provide in the Award Agreement evidencing any Award providing for Section 409A Deferred Compensation for payment in settlement of all or a portion of such Award in the event that a Participant establishes, to the satisfaction of the Committee, the occurrence of an unforeseeable emergency. In such event, the amount(s) distributed with respect to such unforeseeable emergency cannot exceed the amounts reasonably necessary to satisfy the emergency need plus amounts necessary to pay taxes reasonably anticipated as a result of such distribution(s), after taking into account the extent to which such emergency need is or may be relieved through reimbursement or compensation by insurance or otherwise, by liquidation of the Participants assets (to the extent the liquidation of such assets would not itself cause severe financial hardship) or by cessation of deferrals under the Award. All distributions with respect to an unforeseeable emergency shall be made in a lump sum upon the Committees determination that an unforeseeable emergency has occurred. The Committees decision with respect to whether an unforeseeable emergency has occurred and the manner in which, if at all, the payment in settlement of an Award shall be altered or modified, shall be final, conclusive, and not subject to approval or appeal.
(h) Prohibition of Acceleration of Payments. Notwithstanding any provision of the Plan or an Award Agreement to the contrary, this Plan does not permit the acceleration of the time or schedule of any payment under an Award providing Section 409A Deferred Compensation, except as permitted by Section 409A.
(i) No Representation Regarding Section 409A Compliance . Notwithstanding any other provision of the Plan, the Company makes no representation that Awards shall be exempt from or comply with Section 409A. No Participating Company shall be liable for any tax, penalty or interest imposed on a Participant by Section 409A.
16. | T AX W ITHHOLDING . |
16.1 Tax Withholding in General. The Company shall have the right to deduct from any and all payments made under the Plan, or to require the Participant, through payroll withholding, cash payment or otherwise, to make adequate provision for, the federal, state, local and foreign taxes (including social insurance), if any, required by law to be withheld by any Participating Company with respect to an Award or the shares acquired pursuant thereto. The Company shall have no obligation to deliver shares of Stock, to release shares of Stock from an escrow established pursuant to an Award Agreement, or to make any payment in cash under the Plan until the Participating Company Groups tax withholding obligations have been satisfied by the Participant.
16.2 Withholding in or Directed Sale of Shares. The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable to a Participant upon the exercise or settlement of an Award, or to accept from the Participant the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the tax withholding obligations of any Participating Company. The Fair Market Value of any shares of Stock withheld or tendered to satisfy any such tax withholding obligations shall not exceed the amount determined by the applicable minimum statutory withholding rates. The Company may require a Participant to direct a broker, upon the vesting, exercise or settlement of an Award, to sell a portion of the shares subject to the Award determined by the Company in its discretion to be sufficient to cover the tax withholding obligations of any Participating Company and to remit an amount equal to such tax withholding obligations to such Participating Company in cash.
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17. | A MENDMENT , S USPENSION OR T ERMINATION OF P LAN . |
The Committee may amend, suspend or terminate the Plan at any time. However, without the approval of the Companys stockholders, there shall be (a) no increase in the maximum aggregate number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.4), (b) no change in the class of persons eligible to receive Incentive Stock Options, and (c) no other amendment of the Plan that would require approval of the Companys stockholders under any applicable law, regulation or rule, including the rules of any stock exchange or quotation system upon which the Stock may then be listed or quoted. No amendment, suspension or termination of the Plan shall affect any then outstanding Award unless expressly provided by the Committee. Except as provided by the next sentence, no amendment, suspension or termination of the Plan may have a materially adverse effect on any then outstanding Award without the consent of the Participant. Notwithstanding any other provision of the Plan to the contrary, the Committee may, in its sole and absolute discretion and without the consent of any Participant, amend the Plan or any Award Agreement, to take effect retroactively or otherwise, as it deems necessary or advisable for the purpose of conforming the Plan or such Award Agreement to any present or future law, regulation or rule applicable to the Plan, including, but not limited to, Section 409A.
18. | M ISCELLANEOUS P ROVISIONS . |
18.1 Repurchase Rights . Shares issued under the Plan may be subject to one or more repurchase options, or other conditions and restrictions as determined by the Committee in its discretion at the time the Award is granted. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company. Upon request by the Company, each Participant shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
18.2 Forfeiture Events.
(a) The Committee may specify in an Award Agreement that the Participants rights, payments, and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, but shall not be limited to, termination of Service for Cause or any act by a Participant, whether before or after termination of Service, that would constitute Cause for termination of Service.
(b) If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, any Participant who knowingly or through gross negligence engaged in the misconduct, or who knowingly or through gross negligence failed to prevent the misconduct, and any Participant who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, shall reimburse the Company for (i) the amount of any payment in settlement of an Award received by such Participant during the twelve- (12-) month period following the first public issuance or filing with the United States Securities and Exchange Commission (whichever first occurred) of the financial document embodying such financial reporting requirement, and (ii) any profits realized by such Participant from the sale of securities of the Company during such twelve- (12-) month period.
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18.3 Provision of Information. Each Participant shall be given access to information concerning the Company equivalent to that information generally made available to the Companys common stockholders.
18.4 Rights as Employee, Consultant or Director. No person, even though eligible pursuant to Section 5, shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. Nothing in the Plan or any Award granted under the Plan shall confer on any Participant a right to remain an Employee, Consultant or Director or interfere with or limit in any way any right of a Participating Company to terminate the Participants Service at any time. To the extent that an Employee of a Participating Company other than the Company receives an Award under the Plan, that Award shall in no event be understood or interpreted to mean that the Company is the Employees employer or that the Employee has an employment relationship with the Company.
18.5 Rights as a Stockholder. A Participant shall have no rights as a stockholder with respect to any shares covered by an Award until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such shares are issued, except as provided in Section 4.4 or another provision of the Plan.
18.6 Delivery of Title to Shares. Subject to any governing rules or regulations, the Company shall issue or cause to be issued the shares of Stock acquired pursuant to an Award and shall deliver such shares to or for the benefit of the Participant by means of one or more of the following: (a) by delivering to the Participant evidence of book entry shares of Stock credited to the account of the Participant, (b) by depositing such shares of Stock for the benefit of the Participant with any broker with which the Participant has an account relationship, or (c) by delivering such shares of Stock to the Participant in certificate form.
18.7 Fractional Shares. The Company shall not be required to issue fractional shares upon the exercise or settlement of any Award.
18.8 Retirement and Welfare Plans . Neither Awards made under this Plan nor shares of Stock or cash paid pursuant to such Awards may be included as compensation for purposes of computing the benefits payable to any Participant under any Participating Companys retirement plans (both qualified and non-qualified) or welfare benefit plans unless such other plan expressly provides that such compensation shall be taken into account in computing a Participants benefit.
18.9 Beneficiary Designation. Subject to local laws and procedures, each Participant may file with the Company a written designation of a beneficiary who is to receive any benefit under the Plan to which the Participant is entitled in the event of such Participants death before he or she receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participants lifetime. If a married Participant designates a beneficiary other than the Participants spouse, the effectiveness of such designation may be subject to the consent of the Participants spouse. If a Participant dies without an effective designation of a beneficiary who is living at the time of the Participants death, the Company will pay any remaining unpaid benefits to the Participants legal representative.
18.10 Severability . If any one or more of the provisions (or any part thereof) of this Plan shall be held invalid, illegal or unenforceable in any respect, such provision shall be modified so as to make it valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions (or any part thereof) of the Plan shall not in any way be affected or impaired thereby.
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18.11 No Constraint on Corporate Action. Nothing in this Plan shall be construed to: (a) limit, impair, or otherwise affect the Companys or another Participating Companys right or power to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets; or (b) limit the right or power of the Company or another Participating Company to take any action which such entity deems to be necessary or appropriate.
18.12 Unfunded Obligation. Participants shall have the status of general unsecured creditors of the Company. Any amounts payable to Participants pursuant to the Plan shall be considered unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974. No Participating Company shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or any Participant account shall not create or constitute a trust or fiduciary relationship between the Committee or any Participating Company and a Participant, or otherwise create any vested or beneficial interest in any Participant or the Participants creditors in any assets of any Participating Company. The Participants shall have no claim against any Participating Company for any changes in the value of any assets which may be invested or reinvested by the Company with respect to the Plan.
18.13 Choice of Law. Except to the extent governed by applicable federal law, the validity, interpretation, construction and performance of the Plan and each Award Agreement shall be governed by the laws of the State of Delaware, without regard to its conflict of law rules.
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Exhibit 10.2
NV5 HOLDINGS, INC.
RESTRICTED STOCK AGREEMENT
NV5 Holdings, Inc. (the Company ) has granted to the Participant named in the Notice of Grant of Restricted Stock (the Grant Notice ) to which this Restricted Stock Agreement (the Agreement ) is attached an Award consisting of Shares subject to the terms and conditions set forth in the Grant Notice and this Agreement. The Award has been granted pursuant to and shall in all respects be subject to the terms and conditions of the NV5 Holdings, Inc. 2011 Equity Incentive Plan (the Plan ), as amended to the Date of Grant, the provisions of which are incorporated herein by reference. By signing the Grant Notice, the Participant: (a) acknowledges receipt of and represents that the Participant has read and is familiar with the Grant Notice, this Agreement, and the Plan, (b) accepts the Award subject to all of the terms and conditions of the Grant Notice, this Agreement and the Plan and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Grant Notice, this Agreement or the Plan.
1. | D EFINITIONS AND C ONSTRUCTION . |
1.1 Definitions . Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Grant Notice or the Plan.
1.2 Construction . Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term or is not intended to be exclusive, unless the context clearly requires otherwise.
2. | A DMINISTRATION . |
All questions of interpretation concerning the Grant Notice, this Agreement, the Plan or any other form of agreement or other document employed by the Company in the administration of the Plan or the Award shall be determined by the Committee. All such determinations by the Committee shall be final, binding and conclusive upon all persons having an interest in the Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by the Committee in the exercise of its discretion pursuant to the Plan or the Award or other agreement thereunder (other than determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons having an interest in the Award. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation or election.
3. | T HE A WARD . |
3.1 Grant and Issuance of Shares. On the Date of Grant, the Participant shall acquire and the Company shall issue, subject to the provisions of this Agreement, a number of Shares equal to the Total Number of Shares. As a condition to the issuance of the Shares, the
Participant shall execute and deliver the Grant Notice to the Company, and, if required by the Company, an Assignment Separate from Certificate duly endorsed (with date and number of shares blank) in the form provided by the Company.
3.2 No Monetary Payment Required. The Participant is not required to make any monetary payment (other than to satisfy applicable tax withholding, if any, with respect to the issuance or vesting of the Shares) as a condition to receiving the Shares, the consideration for which shall be past services actually rendered or future services to be rendered to a Participating Company or for its benefit. Notwithstanding the foregoing, if required by applicable law, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the Shares issued pursuant to the Award.
3.3 Beneficial Ownership of Shares; Certificate Registration . The Participant hereby authorizes the Company, in its sole discretion, to deposit the Shares with the Companys transfer agent, including any successor transfer agent, to be held in book entry form during the term of the Escrow pursuant to Section 6. Furthermore, the Participant hereby authorizes the Company, in its sole discretion, to deposit, following the term of such Escrow, for the benefit of the Participant with any broker with which the Participant has an account relationship of which the Company has notice any or all Shares which are no longer subject to such Escrow. Except as provided by the foregoing, a certificate for the Shares shall be registered in the name of the Participant, or, if applicable, in the names of the heirs of the Participant.
3.4 Issuance of Shares in Compliance with Law . The issuance of the Shares shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. No Shares shall be issued hereunder if their issuance would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Companys legal counsel to be necessary to the lawful issuance of any Shares shall relieve the Company of any liability in respect of the failure to issue such Shares as to which such requisite authority shall not have been obtained. As a condition to the issuance of the Shares, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
4. | V ESTING OF S HARES . |
Shares acquired pursuant to this Agreement shall become Vested Shares as provided in the Grant Notice. For purposes of determining the number of Vested Shares following an Ownership Change Event, credited Service shall include all Service with any corporation which is a Participating Company at the time the Service is rendered, whether or not such corporation is a Participating Company both before and after the Ownership Change Event.
5. | C OMPANY R EACQUISITION R IGHT . |
5.1 Grant of Company Reacquisition Right . Except to the extent otherwise provided by the Superseding Agreement, if any, in the event that (a) the Participants Service terminates for any reason or no reason, with or without cause, or (b) the Participant, the Participants legal representative, or other holder of the Shares, attempts to sell, exchange, transfer, pledge, or otherwise dispose of (other than pursuant to an Ownership Change Event), including, without limitation, any transfer to a nominee or agent of the Participant, any Shares which are not Vested Shares ( Unvested Shares ), the Participant shall forfeit and the Company shall automatically reacquire the Unvested Shares, and the Participant shall not be entitled to any payment therefor (the Company Reacquisition Right ).
5.2 Ownership Change Event, Non-Cash Dividends, Distributions and Adjustments . Upon the occurrence of an Ownership Change Event, a dividend or distribution to the stockholders of the Company paid in shares of Stock or other property, or any other adjustment upon a change in the capital structure of the Company as described in Section 9, any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends paid on Stock pursuant to the Companys dividend policy) to which the Participant is entitled by reason of the Participants ownership of Unvested Shares shall be immediately subject to the Company Reacquisition Right and included in the terms Shares, Stock and Unvested Shares for all purposes of the Company Reacquisition Right with the same force and effect as the Unvested Shares immediately prior to the Ownership Change Event, dividend, distribution or adjustment, as the case may be. For purposes of determining the number of Vested Shares following an Ownership Change Event, dividend, distribution or adjustment, credited Service shall include all Service with any corporation which is a Participating Company at the time the Service is rendered, whether or not such corporation is a Participating Company both before and after any such event.
5.3 Obligation to Repay Certain Cash Dividends and Distributions. The Participant shall, at the discretion of the Company, be obligated to promptly repay to the Company upon termination of the Participants Service any dividends and other distributions paid to the Participant in cash with respect to Unvested Shares reacquired by the Company pursuant to the Company Reacquisition Right.
6. | E SCROW . |
6.1 Appointment of Agent. To ensure that Shares subject to the Company Reacquisition Right will be available for reacquisition, the Participant and the Company hereby appoint the Secretary of the Company, or any other person designated by the Company, as their agent and as attorney-in-fact for the Participant (the Agent ) to hold any and all Unvested Shares and to sell, assign and transfer to the Company any such Unvested Shares reacquired by the Company pursuant to the Company Reacquisition Right. The Participant understands that appointment of the Agent is a material inducement to make this Agreement and that such appointment is coupled with an interest and is irrevocable. The Agent shall not be personally liable for any act the Agent may do or omit to do hereunder as escrow agent, agent for the Company, or attorney in fact for the Participant while acting in good faith and in the exercise of the Agents own good judgment, and any act done or omitted by the Agent pursuant to the advice
of the Agents own attorneys shall be conclusive evidence of such good faith. The Agent may rely upon any letter, notice or other document executed by any signature purporting to be genuine and may resign at any time.
6.2 Establishment of Escrow . The Participant authorizes the Company to deposit the Unvested Shares with the Companys transfer agent to be held in book entry form, as provided in Section 3.3, and the Participant agrees to deliver to and deposit with the Agent each certificate, if any, evidencing the Shares and, if required by the Company, an Assignment Separate from Certificate with respect to such book entry shares and each such certificate duly endorsed (with date and number of Shares blank) in the form attached to this Agreement, to be held by the Agent under the terms and conditions of this Section 6 (the Escrow ). Upon the occurrence of an Ownership Change Event, a dividend or distribution to the stockholders of the Company paid in shares of Stock or other property (other than regular, periodic dividends paid on Stock pursuant to the Companys dividend policy) or any other adjustment upon a change in the capital structure of the Company, as described in Section 9, any and all new, substituted or additional securities or other property to which the Participant is entitled by reason of his or her ownership of the Shares that remain, following such Ownership Change Event, dividend, distribution or change described in Section 9, subject to the Company Reacquisition Right shall be immediately subject to the Escrow to the same extent as the Shares immediately before such event. The Company shall bear the expenses of the Escrow.
6.3 Delivery of Shares to Participant . The Escrow shall continue with respect to any Shares for so long as such Shares remain subject to the Company Reacquisition Right. Upon termination of the Company Reacquisition Right with respect to Shares, the Company shall so notify the Agent and direct the Agent to deliver such number of Shares to the Participant. As soon as practicable after receipt of such notice, the Agent shall cause the Shares specified by such notice to be delivered to the Participant, and the Escrow shall terminate with respect to such Shares.
7. | Tax Matters . |
7.1 Tax Withholding.
(a) In General. At the time the Grant Notice is executed, or at any time thereafter as requested by a Participating Company, the Participant hereby authorizes withholding from payroll and any other amounts payable to the Participant, and otherwise agrees to make adequate provision for, any sums required to satisfy the federal, state, local and foreign tax (including any social insurance) withholding obligations of the Participating Company, if any, which arise in connection with the Award, including, without limitation, obligations arising upon (a) the transfer of Shares to the Participant, (b) the lapsing of any restriction with respect to any Shares, (c) the filing of an election to recognize tax liability, or (d) the transfer by the Participant of any Shares. The Company shall have no obligation to deliver the Shares or to release any Shares from the Escrow established pursuant to Section 6 until the tax withholding obligations of the Participating Company have been satisfied by the Participant.
(b) Assignment of Sale Proceeds . Subject to compliance with applicable law and the Companys Trading Compliance Policy, if permitted by the Company, the
Participant may satisfy the Participating Companys tax withholding obligations in accordance with procedures established by the Company providing for delivery by the Participant to the Company or a broker approved by the Company of properly executed instructions, in a form approved by the Company, providing for the assignment to the Company of the proceeds of a sale with respect to some or all of the shares becoming Vested Shares on a Vesting Date as provided in the Grant Notice.
(c) Withholding in Shares. The Company shall have the right, but not the obligation, to require the Participant to satisfy all or any portion of a Participating Companys tax withholding obligations by withholding a number of whole, Vested Shares otherwise deliverable to the Participant or by the Participants tender to the Company of a number of whole, Vested Shares or vested shares acquired otherwise than pursuant to the Award having, in any such case, a fair market value, as determined by the Company as of the date on which the tax withholding obligations arise, not in excess of the amount of such tax withholding obligations determined by the applicable minimum statutory withholding rates.
7.2 Election Under Section 83(b) of the Code.
(a) The Participant understands that Section 83 of the Code taxes as ordinary income the difference between the amount paid for the Shares, if anything, and the fair market value of the Shares as of the date on which the Shares are substantially vested, within the meaning of Section 83. In this context, substantially vested means that the right of the Company to reacquire the Shares pursuant to the Company Reacquisition Right has lapsed. The Participant understands that he or she may elect to have his or her taxable income determined at the time he or she acquires the Shares rather than when and as the Company Reacquisition Right lapses by filing an election under Section 83(b) of the Code with the Internal Revenue Service no later than thirty (30) days after the date of acquisition of the Shares. The Participant understands that failure to make a timely filing under Section 83(b) will result in his or her recognition of ordinary income, as the Company Reacquisition Right lapses, on the difference between the purchase price, if anything, and the fair market value of the Shares at the time such restrictions lapse. The Participant further understands, however, that if Shares with respect to which an election under Section 83(b) has been made are forfeited to the Company pursuant to its Company Reacquisition Right, such forfeiture will be treated as a sale on which there is realized a loss equal to the excess (if any) of the amount paid (if any) by the Participant for the forfeited Shares over the amount realized (if any) upon their forfeiture. If the Participant has paid nothing for the forfeited Shares and has received no payment upon their forfeiture, the Participant understands that he or she will be unable to recognize any loss on the forfeiture of the Shares even though the Participant incurred a tax liability by making an election under Section 83(b).
(b) The Participant understands that he or she should consult with his or her tax advisor regarding the advisability of filing with the Internal Revenue Service an election under Section 83(b) of the Code, which must be filed no later than thirty (30) days after the date of the acquisition of the Shares pursuant to this Agreement. Failure to file an election under Section 83(b), if appropriate, may result in adverse tax consequences to the Participant. The Participant acknowledges that he or she has been advised to consult with a tax advisor regarding the tax consequences to the Participant of the acquisition of Shares hereunder. ANY ELECTION UNDER SECTION 83(b) THE PARTICIPANT WISHES TO MAKE MUST BE
FILED NO LATER THAN 30 DAYS AFTER THE DATE ON WHICH THE PARTICIPANT ACQUIRES THE SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE PARTICIPANT ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE PARTICIPANTS SOLE RESPONSIBILITY, EVEN IF THE PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
(c) The Participant will notify the Company in writing if the Participant files an election pursuant to Section 83(b) of the Code. The Company intends, in the event it does not receive from the Participant evidence of such filing, to claim a tax deduction for any amount which would otherwise be taxable to the Participant in the absence of such an election.
8. | E FFECT OF C HANGE IN C ONTROL . |
In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the Acquiror ), may, without the consent of the Participant, assume or continue in full force and effect the Companys rights and obligations under the Award or substitute for the Award a substantially equivalent award for the Acquirors stock. For purposes of this Section, the Award shall be deemed assumed if, following the Change in Control, the Award confers the right to receive, subject to the terms and conditions of the Plan and this Agreement, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a share of Stock on the effective date of the Change in Control was entitled. Notwithstanding the foregoing, Shares acquired pursuant to the Award prior to the Change in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of this Agreement except as otherwise provided herein.
9. | A DJUSTMENTS FOR C HANGES IN C APITAL S TRUCTURE . |
Subject to any required action by the stockholders of the Company, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (other than regular, periodic cash dividends paid on Stock pursuant to the Companys dividend policy) that has a material effect on the Fair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number and kind of shares of stock or other property subject to the Award, in order to prevent dilution or enlargement of the Participants rights under the Award. For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as effected without receipt of consideration by the Company. Any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends paid on Stock pursuant to the Companys dividend policy, subject to Section 5.3) to which Participant is entitled by reason of ownership of
shares acquired pursuant to this Award will be immediately subject to the provisions of this Award on the same basis as all shares originally acquired hereunder. Any fractional share resulting from an adjustment pursuant to this Section shall be rounded down to the nearest whole number. Such adjustments shall be determined by the Committee, and its determination shall be final, binding and conclusive.
10. | R IGHTS AS A S TOCKHOLDER , D IRECTOR , E MPLOYEE OR C ONSULTANT . |
The Participant shall have no rights as a stockholder with respect to any Shares subject to the Award until the date of the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date the Shares are issued, except as provided in Section 9. Subject to the provisions of this Agreement, the Participant shall exercise all rights and privileges of a stockholder of the Company with respect to Shares deposited in the Escrow pursuant to Section 6, including the right to vote such Shares and to receive all dividends and other distributions paid with respect to such Shares, subject to Section 5.3. If the Participant is an Employee, the Participant understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Participant, the Participants employment is at will and is for no specified term. Nothing in this Agreement shall confer upon the Participant any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Participants Service at any time.
11. | L EGENDS . |
The Company may at any time place legends referencing the Company Reacquisition Right and any applicable federal, state or foreign securities law restrictions on all certificates representing the Shares. The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing the Shares in the possession of the Participant in order to carry out the provisions of this Section. Unless otherwise specified by the Company, legends placed on such certificates may include, but shall not be limited to, the following:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS SET FORTH IN AN AGREEMENT BETWEEN THIS CORPORATION AND THE REGISTERED HOLDER, OR HIS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION.
12. | T RANSFERS IN V IOLATION OF A GREEMENT . |
No Shares may be sold, exchanged, transferred, assigned, pledged, hypothecated or otherwise disposed of, including by operation of law, in any manner which violates any of the provisions of this Agreement and, except pursuant to an Ownership Change Event, until the date on which such shares become Vested Shares, and any such attempted disposition shall be void. The Company shall not be required (a) to transfer on its books any Shares which will have been
transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such Shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such Shares will have been so transferred. In order to enforce its rights under this Section, the Company shall be authorized to give a stop transfer instruction with respect to the Shares to the Companys transfer agent.
13. | M ISCELLANEOUS P ROVISIONS . |
13.1 Termination or Amendment. The Committee may terminate or amend the Plan or this Agreement at any time; provided, however, that no such termination or amendment may have a materially adverse effect on the Participants rights under this Agreement without the consent of the Participant unless such termination or amendment is necessary to comply with applicable law or government regulation. No amendment or addition to this Agreement shall be effective unless in writing.
13.2 Nontransferability of the Award. The right to acquire Shares pursuant to the Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participants beneficiary, except transfer by will or by the laws of descent and distribution. All rights with respect to the Award shall be exercisable during the Participants lifetime only by the Participant or the Participants guardian or legal representative.
13.3 Further Instruments. The parties hereto agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.
13.4 Binding Effect. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer set forth herein, be binding upon the Participant and the Participants heirs, executors, administrators, successors and assigns.
13.5 Delivery of Documents and Notices. Any document relating to participation in the Plan or any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery at the e-mail address, if any, provided for the Participant by a Participating Company, or upon deposit in the U.S. Post Office or foreign postal service, by registered or certified mail, or with a nationally recognized overnight courier service, with postage and fees prepaid, addressed to the other party at the address of such party set forth in the Grant Notice or at such other address as such party may designate in writing from time to time to the other party.
(a) Description of Electronic Delivery. The Plan documents, which may include but do not necessarily include: the Plan, the Grant Notice, this Agreement, and any reports of the Company provided generally to the Companys stockholders, may be delivered to the Participant electronically. In addition, if permitted by the Company, the parties may deliver electronically any notices called for in connection with the Escrow and the Participant may deliver electronically the Grant Notice to the Company or to such third party involved in
administering the Plan as the Company may designate from time to time. Such means of electronic delivery may include but do not necessarily include the delivery of a link to a Company intranet or the Internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other means of electronic delivery specified by the Company.
(b) Consent to Electronic Delivery. The Participant acknowledges that the Participant has read Section 13.5(a) of this Agreement and consents to the electronic delivery of the Plan documents and, if permitted by the Company, the delivery of the Grant Notice and notices in connection with the Escrow, as described in Section 13.5(a). The Participant acknowledges that he or she may receive from the Company a paper copy of any documents delivered electronically at no cost to the Participant by contacting the Company by telephone or in writing. The Participant further acknowledges that the Participant will be provided with a paper copy of any documents if the attempted electronic delivery of such documents fails. Similarly, the Participant understands that the Participant must provide the Company or any designated third party administrator with a paper copy of any documents if the attempted electronic delivery of such documents fails. The Participant may revoke his or her consent to the electronic delivery of documents described in Section 13.5(a) or may change the electronic mail address to which such documents are to be delivered (if Participant has provided an electronic mail address) at any time by notifying the Company of such revoked consent or revised e-mail address by telephone, postal service or electronic mail. Finally, the Participant understands that he or she is not required to consent to electronic delivery of documents described in Section 13.5(a).
13.6 Integrated Agreement. The Grant Notice, this Agreement and the Plan, together with the Superseding Agreement, if any, shall constitute the entire understanding and agreement of the Participant and the Participating Company Group with respect to the subject matter contained herein or therein and supersede any prior agreements, understandings, restrictions, representations, or warranties among the Participant and the Participating Company Group with respect to such subject matter. To the extent contemplated herein or therein, the provisions of the Grant Notice, this Agreement and the Plan shall survive any settlement of the Award and shall remain in full force and effect.
13.7 Applicable Law. This Agreement shall be governed by the laws of the State of Delaware as such laws are applied to agreements between Delaware residents entered into and to be performed entirely within the State of Delaware.
13.8 Counterparts. The Grant Notice may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
Exhibit 10.3
NV5 HOLDINGS, INC.
RESTRICTED STOCK UNITS AGREEMENT
(Non-Employee Director)
NV5 Holdings, Inc. has granted to the Participant named in the Notice of Grant of Restricted Stock Units (the Grant Notice ) to which this Restricted Stock Units Agreement (the Agreement ) is attached an Award consisting of Restricted Stock Units subject to the terms and conditions set forth in the Grant Notice and this Agreement. The Award has been granted pursuant to and shall in all respects be subject to the terms conditions of the NV5 Holdings, Inc. 2011 Equity Incentive Plan (the Plan ), as amended to the Date of Grant, the provisions of which are incorporated herein by reference. By signing the Grant Notice, the Participant: (a) acknowledges receipt of and represents that the Participant has read and is familiar with the Grant Notice, this Agreement, the Plan and a prospectus for the Plan prepared in connection with the registration with the Securities and Exchange Commission of the shares issuable pursuant to the Award (the Plan Prospectus ), (b) accepts the Award subject to all of the terms and conditions of the Grant Notice, this Agreement and the Plan and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Grant Notice, this Agreement or the Plan.
1. | D EFINITIONS AND C ONSTRUCTION . |
1.1 Definitions . Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Grant Notice or the Plan.
(a) Dividend Equivalent Units mean additional Restricted Stock Units credited pursuant to Section 3.3.
(b) Units mean the Restricted Stock Units originally granted pursuant to the Award and the Dividend Equivalent Units credited pursuant to the Award, as both shall be adjusted from time to time pursuant to Section 9.
1.2 Construction . Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term or is not intended to be exclusive, unless the context clearly requires otherwise.
2. | A DMINISTRATION . |
All questions of interpretation concerning the Grant Notice, this Agreement, the Plan or any other form of agreement or other document employed by the Company in the administration of the Plan or the Award shall be determined by the Committee. All such determinations by the Committee shall be final, binding and conclusive upon all persons having an interest in the Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by the Committee in the exercise of its discretion pursuant to the Plan or the Award or other agreement thereunder (other than determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all
persons having an interest in the Award. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, or election.
3. | T HE A WARD . |
3.1 Grant of Units. On the Date of Grant, the Participant shall acquire, subject to the provisions of this Agreement, the Total Number of Units set forth in the Grant Notice, subject to adjustment as provided in Section 3.3 and Section 9. Each Unit represents a right to receive on a date determined in accordance with the Grant Notice and this Agreement one (1) share of Stock.
3.2 No Monetary Payment Required. The Participant is not required to make any monetary payment (other than applicable tax withholding, if any) as a condition to receiving the Units or shares of Stock issued upon settlement of the Units, the consideration for which shall be past services actually rendered or future services to be rendered to a Participating Company or for its benefit. Notwithstanding the foregoing, if required by applicable law, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the shares of Stock issued upon settlement of the Units.
3.3 Dividend Equivalent Units. On the date that the Company pays a cash dividend to holders of Stock generally, the Participant shall be credited with a number of additional whole Dividend Equivalent Units determined by dividing (a) the product of (i) the dollar amount of the cash dividend paid per share of Stock on such date and (ii) the number of Units which have not been settled or forfeited pursuant to the Company Reacquisition Right (as defined below) as of such date, by (b) the Fair Market Value per share of Stock on such date. Any resulting fractional Dividend Equivalent Unit shall be rounded to the nearest whole number. Such additional Dividend Equivalent Units shall be subject to the same terms and conditions and shall be settled or forfeited in the same manner and at the same time as the Units with respect to which they have been credited.
4. | V ESTING OF U NITS . |
4.1 Normal Vesting. Except as provided by Section 4.2, Units acquired pursuant to this Agreement shall become Vested Units as provided in the Grant Notice. Dividend Equivalent Units shall become Vested Units at the same time as the Units with respect to which they have been credited. For purposes of determining the number of Vested Units following an Ownership Change Event, credited Service shall include all Service with any corporation which is a Participating Company at the time the Service is rendered, whether or not such corporation is a Participating Company both before and after the Ownership Change Event.
4.2 Acceleration of Vesting Upon a Change in Control . In the event of a Change in Control, and provided that the Participants Service has not terminated prior to the date of consummation of the Change in Control, all unvested Units shall become Vested Units.
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5. | C OMPANY R EACQUISITION R IGHT . |
5.1 Grant of Company Reacquisition Right. Except to the extent otherwise provided by the Superseding Agreement, if any, in the event that the Participants Service terminates for any reason or no reason, with or without cause, the Participant shall forfeit and the Company shall automatically reacquire all Units which are not, as of the time of such termination, Vested Units ( Unvested Units ) , and the Participant shall not be entitled to any payment therefor (the Company Reacquisition Right ).
5.2 Ownership Change Event, Non-Cash Dividends, Distributions and Adjustments . Upon the occurrence of an Ownership Change Event, a dividend or distribution to the stockholders of the Company paid in shares of Stock or other property, or any other adjustment upon a change in the capital structure of the Company as described in Section 9, any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends paid on Stock pursuant to the Companys dividend policy, which shall be treated in accordance with Section 3.3) to which the Participant is entitled by reason of the Participants ownership of Unvested Units shall be immediately subject to the Company Reacquisition Right and included in the terms Units and Unvested Units for all purposes of the Company Reacquisition Right with the same force and effect as the Unvested Units immediately prior to the Ownership Change Event, dividend, distribution or adjustment, as the case may be. For purposes of determining the number of Vested Units following an Ownership Change Event, dividend, distribution or adjustment, credited Service shall include all Service with any corporation which is a Participating Company at the time the Service is rendered, whether or not such corporation is a Participating Company both before and after any such event.
6. | S ETTLEMENT OF THE A WARD . |
6.1 Issuance of Shares of Stock . Subject to the provisions of Section 6.3, the Company shall issue to the Participant on the Settlement Date with respect to each Vested Unit to be settled on such date one (1) share of Stock. Shares of Stock issued in settlement of Units shall not be subject to any restriction on transfer other than any such restriction as may be required pursuant to Section 6.3, Section 7 or the Companys Trading Compliance Policy.
6.2 Beneficial Ownership of Shares; Certificate Registration . The Participant hereby authorizes the Company, in its sole discretion, to deposit any or all shares acquired by the Participant pursuant to the settlement of the Award with the Companys transfer agent, including any successor transfer agent, to be held in book entry form, or to deposit such shares for the benefit of the Participant with any broker with which the Participant has an account relationship of which the Company has notice. Except as provided by the foregoing, a certificate for the shares acquired by the Participant shall be registered in the name of the Participant, or, if applicable, in the names of the heirs of the Participant.
6.3 Restrictions on Grant of the Award and Issuance of Shares . The grant of the Award and issuance of shares of Stock upon settlement of the Award shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. No shares of Stock may be issued hereunder if the issuance of such shares would constitute a violation of any applicable federal, state or foreign securities laws or other law or
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regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Companys legal counsel to be necessary to the lawful issuance of any shares subject to the Award shall relieve the Company of any liability in respect of the failure to issue such shares as to which such requisite authority shall not have been obtained. As a condition to the settlement of the Award, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
6.4 Fractional Shares . The Company shall not be required to issue fractional shares upon the settlement of the Award.
7. | T AX W ITHHOLDING . |
7.1 In General. At the time the Grant Notice is executed, or at any time thereafter as requested by a Participating Company, the Participant hereby authorizes withholding from payroll and any other amounts payable to the Participant, and otherwise agrees to make adequate provision for, any sums required to satisfy the federal, state, local and foreign tax (including any social insurance) withholding obligations of the Participating Company, if any, which arise in connection with the Award, the vesting of Units or the issuance of shares of Stock in settlement thereof. The Company shall have no obligation to deliver shares of Stock until the tax withholding obligations of the Participating Company have been satisfied by the Participant.
7.2 Assignment of Sale Proceeds. Subject to compliance with applicable law and the Companys Trading Compliance Policy, if permitted by the Company, the Participant may satisfy the Participating Companys tax withholding obligations in accordance with procedures established by the Company providing for delivery by the Participant to the Company or a broker approved by the Company of properly executed instructions, in a form approved by the Company, providing for the assignment to the Company of the proceeds of a sale with respect to some or all of the shares being acquired upon settlement of Units.
7.3 Withholding in Shares. The Company shall have the right, but not the obligation, to require the Participant to satisfy all or any portion of a Participating Companys tax withholding obligations by deducting from the shares of Stock otherwise deliverable to the Participant in settlement of the Award a number of whole shares having a fair market value, as determined by the Company as of the date on which the tax withholding obligations arise, not in excess of the amount of such tax withholding obligations determined by the applicable minimum statutory withholding rates.
8. | E FFECT OF C HANGE IN C ONTROL . |
In the event of a Change in Control, except to the extent that the Committee determines to cash out the Award in accordance with Section 13.1(c) of the Plan, the surviving, continuing, successor, or purchasing entity or parent thereof, as the case may be (the Acquiror ), may, without the consent of the Participant, assume or continue in full force and
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effect the Companys rights and obligations under all or any portion of the outstanding Units or substitute for all or any portion of the outstanding Units substantially equivalent rights with respect to the Acquirors stock. For purposes of this Section, a Unit shall be deemed assumed if, following the Change in Control, the Unit confers the right to receive, subject to the terms and conditions of the Plan and this Agreement, the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a share of Stock on the effective date of the Change in Control was entitled (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Stock); provided, however, that if such consideration is not solely common stock of the Acquiror, the Committee may, with the consent of the Acquiror, provide for the consideration to be received upon settlement of the Unit to consist solely of common stock of the Acquiror equal in Fair Market Value to the per share consideration received by holders of Stock pursuant to the Change in Control. The Award shall terminate and cease to be outstanding effective as of the time of consummation or the Change in Control to the extent that Units subject to the Award are neither assumed or continued by the Acquiror in connection with the Change in Control nor settled as of the time of the Change in Control.
9. | A DJUSTMENTS FOR C HANGES IN C APITAL S TRUCTURE . |
Subject to any required action by the stockholders of the Company and the requirements of Section 409A of the Code to the extent applicable, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (other than regular, periodic cash dividends paid on Stock pursuant to the Companys dividend policy) that has a material effect on the Fair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number of Units subject to the Award and/or the number and kind of shares or other property to be issued in settlement of the Award, in order to prevent dilution or enlargement of the Participants rights under the Award. For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as effected without receipt of consideration by the Company. Any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends paid on Stock pursuant to the Companys dividend policy, which shall be treated in accordance with Section 3.3) to which the Participant is entitled by reason of ownership of Units acquired pursuant to this Award will be immediately subject to the provisions of this Award on the same basis as all Units originally acquired hereunder. Any fractional Unit or share resulting from an adjustment pursuant to this Section shall be rounded down to the nearest whole number. Such adjustments shall be determined by the Committee, and its determination shall be final, binding and conclusive.
10. | R IGHTS AS A S TOCKHOLDER , D IRECTOR , E MPLOYEE OR C ONSULTANT . |
The Participant shall have no rights as a stockholder with respect to any shares which may be issued in settlement of this Award until the date of the issuance of such shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer
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agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date the shares are issued, except as provided in Section 3.3 and Section 9. If the Participant is an Employee, the Participant understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Participant, the Participants employment is at will and is for no specified term. Nothing in this Agreement shall confer upon the Participant any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Participants Service at any time.
11. | L EGENDS . |
The Company may at any time place legends referencing any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock issued pursuant to this Agreement. The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to this Award in the possession of the Participant in order to carry out the provisions of this Section.
12. | C OMPLIANCE WITH S ECTION 409A . |
It is intended that any election, payment or benefit which is made or provided pursuant to or in connection with this Award that may result in Section 409A Deferred Compensation shall comply in all respects with the applicable requirements of Section 409A (including applicable regulations or other administrative guidance thereunder, as determined by the Committee in good faith) to avoid the unfavorable tax consequences provided therein for non-compliance. In connection with effecting such compliance with Section 409A, the following shall apply:
12.1 Separation from Service; Required Delay in Payment to Specified Employee. Notwithstanding anything set forth herein to the contrary, no amount payable pursuant to this Agreement on account of the Participants termination of Service which constitutes a deferral of compensation within the meaning of the Treasury Regulations issued pursuant to Section 409A of the Code (the Section 409A Regulations ) shall be paid unless and until the Participant has incurred a separation from service within the meaning of the Section 409A Regulations. Furthermore, to the extent that the Participant is a specified employee within the meaning of the Section 409A Regulations as of the date of the Participants separation from service, no amount that constitutes a deferral of compensation which is payable on account of the Participants separation from service shall be paid to the Participant before the date (the Delayed Payment Date ) which is first day of the seventh month after the date of the Participants separation from service or, if earlier, the date of the Participants death following such separation from service. All such amounts that would, but for this Section, become payable prior to the Delayed Payment Date will be accumulated and paid on the Delayed Payment Date.
12.2 Other Changes in Time of Payment. Neither the Participant nor the Company shall take any action to accelerate or delay the payment of any benefits under this Agreement in any manner which would not be in compliance with the Section 409A Regulations.
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12.3 Amendments to Comply with Section 409A; Indemnification. Notwithstanding any other provision of this Agreement to the contrary, the Company is authorized to amend this Agreement, to void or amend any election made by the Participant under this Agreement and/or to delay the payment of any monies and/or provision of any benefits in such manner as may be determined by the Company, in its discretion, to be necessary or appropriate to comply with the Section 409A Regulations without prior notice to or consent of the Participant. The Participant hereby releases and holds harmless the Company, its directors, officers and stockholders from any and all claims that may arise from or relate to any tax liability, penalties, interest, costs, fees or other liability incurred by the Participant in connection with the Award, including as a result of the application of Section 409A.
12.4 Advice of Independent Tax Advisor. The Company has not obtained a tax ruling or other confirmation from the Internal Revenue Service with regard to the application of Section 409A to the Award, and the Company does not represent or warrant that this Agreement will avoid adverse tax consequences to the Participant, including as a result of the application of Section 409A to the Award. The Participant hereby acknowledges that he or she has been advised to seek the advice of his or her own independent tax advisor prior to entering into this Agreement and is not relying upon any representations of the Company or any of its agents as to the effect of or the advisability of entering into this Agreement.
13. | M ISCELLANEOUS P ROVISIONS . |
13.1 Termination or Amendment. The Committee may terminate or amend the Plan or this Agreement at any time; provided, however, that except as provided in Section 8 in connection with a Change in Control, no such termination or amendment may have a materially adverse effect on the Participants rights under this Agreement without the consent of the Participant unless such termination or amendment is necessary to comply with applicable law or government regulation, including, but not limited to, Section 409A. No amendment or addition to this Agreement shall be effective unless in writing.
13.2 Nontransferability of the Award. Prior to the issuance of shares of Stock on the applicable Settlement Date, neither this Award nor any Units subject to this Award shall be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participants beneficiary, except transfer by will or by the laws of descent and distribution. All rights with respect to the Award shall be exercisable during the Participants lifetime only by the Participant or the Participants guardian or legal representative.
13.3 Further Instruments. The parties hereto agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.
13.4 Binding Effect. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer set forth herein, be binding upon the Participant and the Participants heirs, executors, administrators, successors and assigns.
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13.5 Delivery of Documents and Notices. Any document relating to participation in the Plan or any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery at the e-mail address, if any, provided for the Participant by a Participating Company, or upon deposit in the U.S. Post Office or foreign postal service, by registered or certified mail, or with a nationally recognized overnight courier service, with postage and fees prepaid, addressed to the other party at the address of such party set forth in the Grant Notice or at such other address as such party may designate in writing from time to time to the other party.
(a) Description of Electronic Delivery. The Plan documents, which may include but do not necessarily include: the Plan, the Grant Notice, this Agreement, the Plan Prospectus, and any reports of the Company provided generally to the Companys stockholders, may be delivered to the Participant electronically. In addition, if permitted by the Company, the Participant may deliver electronically the Grant Notice to the Company or to such third party involved in administering the Plan as the Company may designate from time to time. Such means of electronic delivery may include but do not necessarily include the delivery of a link to a Company intranet or the Internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other means of electronic delivery specified by the Company.
(b) Consent to Electronic Delivery. The Participant acknowledges that the Participant has read Section 13.5(a) of this Agreement and consents to the electronic delivery of the Plan documents and, if permitted by the Company, the delivery of the Grant Notice, as described in Section 13.5(a). The Participant acknowledges that he or she may receive from the Company a paper copy of any documents delivered electronically at no cost to the Participant by contacting the Company by telephone or in writing. The Participant further acknowledges that the Participant will be provided with a paper copy of any documents if the attempted electronic delivery of such documents fails. Similarly, the Participant understands that the Participant must provide the Company or any designated third party administrator with a paper copy of any documents if the attempted electronic delivery of such documents fails. The Participant may revoke his or her consent to the electronic delivery of documents described in Section 13.5(a) or may change the electronic mail address to which such documents are to be delivered (if Participant has provided an electronic mail address) at any time by notifying the Company of such revoked consent or revised e-mail address by telephone, postal service or electronic mail. Finally, the Participant understands that he or she is not required to consent to electronic delivery of documents described in Section 13.5(a).
13.6 Integrated Agreement. The Grant Notice, this Agreement and the Plan, together with the Superseding Agreement, if any, shall constitute the entire understanding and agreement of the Participant and the Participating Company Group with respect to the subject matter contained herein or therein and supersede any prior agreements, understandings, restrictions, representations, or warranties among the Participant and the Participating Company Group with respect to such subject matter. To the extent contemplated herein or therein, the provisions of the Grant Notice, this Agreement and the Plan shall survive any settlement of the Award and shall remain in full force and effect.
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13.7 Applicable Law. This Agreement shall be governed by the laws of the State of Texas as such laws are applied to agreements between Texas residents entered into and to be performed entirely within the State of Texas.
13.8 Counterparts. The Grant Notice may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
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Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated April 11, 2012, with respect to the financial statements and schedules of NV5 Holdings, Inc. contained in the Registration Statement (Form S-1 No. 333-186229) and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption Experts.
/s/ GRANT THORNTON LLP
Fort Lauderdale, Florida
March 8, 2013