Mattersight Corp (Form: 10-K, Received: 03/12/2015 16:53:52)

Mattersight Corporation (“Company”)

Richard Dresden (“Employee”)

/s/ MARK ISERLOTH

/s/ RICHARD DRESDEN

Chief Financial Officer

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-27975

Mattersight Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware

36-4304577

(State or other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

200 S. Wacker Drive, Suite 820

Chicago, Illinois 60606

(Address of Registrant’s Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (877) 235-6925

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share		NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Annual Report on Form 10-K. ¨

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.

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company x

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The aggregate market value of Common Stock held by non-affiliates of the registrant, based upon the closing price per share of registrant’s Common Stock on June 30, 2014, as reported by The NASDAQ Stock Market LLC, is approximately $57,496,043.

The number of shares of the registrant’s Common Stock outstanding as of March 4, 2015 was 22,748,300.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Mattersight’s Proxy Statement for its 2015 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days after the end of Mattersight’s fiscal year, are incorporated herein by reference into Part III where indicated; provided, that if such Proxy Statement is not filed with the Securities and Exchange Commission within 120 days after the fiscal year end covered by this Annual Report on Form 10-K, an amendment to this Annual Report on Form 10-K shall be filed no later than the end of such 120-day period.

TABLE OF CONTENTS

PART I


Item		Page

Item 1.	Business		1
Item 1A.	Risk Factors		4
Item 1B.	Unresolved Staff Comments		8
Item 2.	Properties		8
Item 3.	Legal Proceedings		8
Item 4.	Mine Safety Disclosures		8

	PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		8
Item 6.	Selected Financial Data		11
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		22
Item 8.	Financial Statements and Supplementary Data		23
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		55
Item 9A.	Controls and Procedures		55
Item 9B.	Other Information		55

	PART III

Item 10.	Directors, Executive Officers and Corporate Governance		56
Item 11.	Executive Compensation		57
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		57
Item 13.	Certain Relationships and Related Transactions, and Director Independence		57
Item 14.	Principal Accounting Fees and Services		57

	PART IV

Item 15.	Exhibits and Financial Statement Schedules		58
Signatures			59
Exhibit Index			I-1

PART I

Item 1.

Business.

Overview

Mattersight Corporation (together with its subsidiaries and predecessors, “Mattersight,” “we,” “us,” or the “Company”) is a leader in enterprise analytics focused on customer and employee interactions and behaviors. Through its Behavioral Analytics-related services, including Predictive Behavioral Routing, Performance Management, and Predictive Analytics (collectively, “Behavioral Analytics”), Mattersight captures and analyzes customer and employee interactions, employee desktop data, and other contextual information to optimally route customers to the best available employee, improve operational performance, and predict future customer and employee outcomes. Mattersight’s analytics are based on millions of proprietary algorithms and the application of unique behavioral models. The Company’s SaaS delivery model combines analytics in the cloud with deep customer partnerships to drive significant business value. Mattersight’s solutions are used by leading companies in the healthcare, insurance, financial services, telecommunications, cable, utilities, education, hospitality, and government industries.

Through the performance of Behavioral Analytics, the Company generates two types of revenue:

(1)

Managed services revenue, which is recurring, annuity revenue from long-term (generally three- to five-year) contracts and pilots, which are shorter-term (generally three to twelve months), and includes subscription and amortized deployment revenue; and

(2)

Consulting services revenue, which is generally project-based and sold on a time-and-materials or fixed-fee basis and includes follow-on consulting services revenue.

The Company’s multi-channel technology captures the unstructured data of voice interactions (conversations), related customer and employee data, and employee desktop activity, and applies millions of proprietary algorithms against those interactions. Each interaction contains hundreds of attributes that get scored and ultimately detect patterns of behavior or business process that provide the transparency and predictability necessary to enhance revenue, improve the customer experience, improve efficiency, and predict and navigate outcomes. Adaptive across industries, programs, and industry-specific processes, the Company’s Behavioral Analytics offerings enable its clients to drive measurable economic benefit through the improvement of contact center performance, customer satisfaction and retention, fraud reduction, and streamlined back office operations. Specifically, through its Behavioral Analytics offerings, Mattersight helps its clients:

•

Identify optimal customer/employee behavioral pairing for call routing;

•

Identify and understand customer personality;

•

Automatically measure customer satisfaction and agent performance on every analyzed call;

•

Improve rapport between agent and customer;

•

Reduce call handle times while improving customer satisfaction;

•

Identify opportunities to improve self-service applications;

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Improve cross-sell and up-sell success rates;

•

Improve the efficiency and effectiveness of collection efforts;

•

Measure and improve supervisor effectiveness and coaching;

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Improve agent effectiveness by analyzing key attributes of desktop usage;

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Predict likelihood of customer attrition;

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Predict customer satisfaction and Net Promoter Scores ^® without customer surveys;

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Predict likelihood of debt repayment;

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Predict likelihood of a sale or cross-sell; and

•

Identify fraud callers and improve authentication processes.

The Company has designed a highly-scalable, flexible, and adaptive application platform to enable the Company to implement and operate its Behavioral Analytics offerings for its clients. These offerings are primarily delivered through a SaaS model, as a managed subscription service from which Mattersight derives Managed services revenue and Consulting services revenue. Managed services revenue consists of revenue from deployment and subscription services and Consulting services revenue consists of revenue from post-deployment follow-on services, including coaching, training, and custom data analysis.

In addition to our Behavioral Analytics offerings, Mattersight also generates revenue from the following services:

(1) Marketing Managed Services, which consist of marketing application hosting services, from which the Company derives Managed services revenue; and

(2) CRM Services, which consist of operational consulting services that enhance business performance through improved process efficiencies and redesign of workflows, from which the Company derives Consulting services revenue.

Types of Revenue

Managed Services Revenue

Managed services revenue is primarily driven by the execution of new Behavioral Analytics contracts, under which we deploy and provide our proprietary Behavioral Analytics offerings on a subscription basis. Based on each client’s business requirements, the client’s selection of our Behavioral Analytics offerings are configured and integrated into the client’s environment and then deployed in either a remote-hosted or an on-premise hosted environment. Thereafter, the Behavioral Analytics offerings are provided, on a subscription basis, for a period that is generally three to five years after the go-live date or, in the cases where the Company contracts with a client for a short-term pilot of a Behavioral Analytics offering prior to committing to a longer subscription period, if any, the subscription or pilot periods generally range from three to twelve months after the go-live date. The fees and costs related to the initial deployment are deferred and amortized over the subscription period.

We also generate Managed services revenue from Marketing Managed Services, specifically, from hosted customer and campaign data management. This source of Managed services revenue will continue to diminish over time as we focus on growth through Behavioral Analytics, including predictive behavioral routing.

Consulting Services Revenue

In addition to the Consulting services revenue generated by our Behavioral Analytics contracts, we derive a portion of this type of revenue from CRM Services for long-standing accounts. We expect Consulting services revenue from CRM Services to continue to diminish over time as demand for these services continues to decline and we focus on growth through Behavioral Analytics. We bill for Consulting services on a time-and-materials or fixed-fee basis.

Business Segments

The Company operates in a single business segment, focused primarily on Behavioral Analytics. Financial information concerning our business segment is included in “Financial Statements and Supplementary Data” Part II, Item 8 of this Annual Report on Form 10-K.

International Operations

The Company’s services are delivered to clients in the U.S. and the United Kingdom. The Company’s revenue is and has been recognized in the U.S. subsidiary. The Company’s long-lived assets are and have been predominately located in the U.S. and consist of equipment, software, furniture and fixtures, and leasehold improvements (net of accumulated depreciation and amortization).

Methods of Distribution

Our Managed services revenue and Consulting services revenue are generated by direct contractual relationships with our clients.

Intellectual Property Rights

General

Our ability to protect our software, methodologies, and other intellectual property is important to our success and our competitive position. We view as proprietary the software (including source code), algorithms, analyses, and other ideas, concepts, and developments that we create in order to provide, improve, and enhance our service offerings, as well as the work product we create in the course of providing services for clients. We seek to protect our intellectual property rights in these developments and work product by relying on a combination of patent, copyright, trademark, and trade secret law, and confidentiality and non-disclosure agreements with our employees and third parties.

Patents

As of December 31, 2014, we hold thirteen U.S. patents and one European patent and have applied for over twenty additional patents. These patents cover a broad range of our analytics capabilities, including methods for analyzing language to assess customer personality and analyzing data to improve employee performance. We regularly review new areas of development in order to assess patentability.

Trademarks

We have obtained U.S. federal trademark registration for the MATTERSIGHT word mark and the MATTERSIGHT “eye” logo, which incorporates our tagline “See What Matters”. We believe that the registration of the MATTERSIGHT word mark and logo mark in the U.S. is material to our operations.

Licenses

A majority of our clients require that we grant to them licenses in and to the intellectual property rights associated with the work product we create in the course of providing services. In some cases, our clients require assignment of ownership in the intellectual property rights to such work product, typically where such work product incorporates their confidential information or would provide them some competitive advantage in their industry. Absent an agreement to the contrary, each assignment of ownership in intellectual property rights would result in our inability to reuse the relevant work product with other clients. As a result, it is our practice to retain the rights in the underlying core intellectual property on which such work product is based, including methodologies, workplans, and software, as well as residual know-how. Further, it is our policy to obtain from our clients a license to permit us to sell service offerings using such work product to other clients. These arrangements may be nonexclusive or exclusive, and licensors to us may retain the right to sell products and services that compete with those of the Company.

Seasonality

Seasonal impact to our revenue and earnings is limited, as a significant portion of our revenue is earned through our Behavioral Analytics subscription services, which is a recurring annuity revenue stream that is not impacted by holidays and vacations.

Clients

During fiscal year 2014, our five and ten largest clients accounted for 75% and 91% of our total revenue, respectively. During fiscal year 2013, our five and ten largest clients accounted for 69% and 90% of our total revenue, respectively. In fiscal year 2012, our five and ten largest clients accounted for 66% and 89% of our total revenue, respectively. In fiscal year 2014, there were three clients that accounted for 10% or more of total revenue: United HealthCare Services, Inc.; Progressive Casualty Insurance Company; and Health Care Service Corporation; which accounted for 25%, 20%, and 11% of total revenue, respectively. In fiscal year 2013, there were four clients that accounted for 10% or more of total revenue: Vangent, Inc.; Progressive Casualty Insurance Company; Allstate Insurance Company; and United HealthCare Services, Inc., which accounted for 21%, 15%, 13%, and 11% of total revenue, respectively. In fiscal year 2012, there were three clients that accounted for 10% or more of total revenue: Vangent, Inc.; Allstate Insurance Company; and Progressive Casualty Insurance Company; which accounted for 19%, 16%, and 13% of total revenue, respectively. For fiscal years 2014, 2013, and 2012, seven, nine, and eight clients, respectively, each accounted for over $1 million of total revenue. See Note Two “Summary of Significant Accounting Policies” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Annual Report on Form 10-K.

Competition

Although we view the manner in which we provide Behavioral Analytics, and its benefits, to be unique, we nonetheless operate in a highly competitive and rapidly changing market and compete with a variety of organizations that offer services that may be viewed as similar to ours. These competitive organizations include data analytics solutions providers, voice recording and voice analytic services providers and software licensors, call routing solution providers, and strategic consulting firms. In our opinion, few competitors offer the full range and depth of services that we can provide, but they may compete with us on individual factors such as expertise, price, or capacity.

Many of our competitors have longer operating histories, more clients, longer relationships with their clients, greater brand or name recognition, and significantly greater financial, technical, marketing, and public relations resources than we do. As a result, our competitors may be in a better position to respond quickly to new or emerging technologies and changes in client requirements. They may also develop and promote their products and services more effectively than we do. New market entrants also pose a threat to our business. Existing or future competitors may develop or offer solutions that are comparable or superior to ours at a lower price.

Environmental Issues

There are no known material compliance issues with any Federal, state, or local environmental regulations.

Employees

As of December 31, 2014, we employed 197 persons, none of whom is represented by a union. We consider our employee relations to be good.

Available Information and Other

Our principal internet address is www.Mattersight.com . Our Annual, Quarterly, and Current Reports on Forms 10-K, 10-Q, and 8-K, and any amendments thereto, as well as the Forms 3, 4, and 5 beneficial ownership reports filed with respect to our stock, are made available free of charge on our website as soon as reasonably practicable after the reports have been filed with, or furnished to, the Securities and Exchange Commission (“SEC”). However, the information found on our website is not part of this or any other report filed by us with the SEC. These reports may also be obtained at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Information regarding the operation of the SEC’s public reference room may be obtained by calling the SEC at (800) SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements, and other information regarding SEC registrants, including Mattersight.

Mattersight was incorporated in Delaware in May 1999. Our executive office is currently located at 200 S. Wacker Drive, Suite 820, Chicago, Illinois 60606 and our main telephone number is (877) 235-6925.

Item 1A.

Risk Factors

There are a number of risks and uncertainties that could adversely affect our business and our overall financial performance. In addition to the matters discussed elsewhere in this Annual Report on Form 10-K, we believe the more significant of such risks and uncertainties include the following:

We have not realized an operating profit in fifteen years and there is no guarantee that we will realize an operating profit in the foreseeable future.

As of December 31, 2014, we had an accumulated deficit of $226.4 million. We expect to continue to use cash and incur operating expenses to support our growth, including costs associated with recruiting, training, and managing our sales force, costs to develop and acquire new technology, and promotional costs associated with reaching new clients. These investments, which typically are made in advance of revenue, may not yield an offsetting increase in revenue. As a result of these factors, our future revenue and income potential is uncertain.

Our financial results are subject to significant fluctuations because of many factors, any of which could adversely affect our stock price.

It is possible that in some future periods our operating results may be below the expectations of public market analysts and investors. In this event, the price of our publicly-traded securities may fall. Our revenue and operating results may vary significantly due to a number of factors, many of which are not in our control. We may incur an impairment of goodwill if our financial results are adversely impacted by these factors and we continue to incur financial losses or our stock price declines. These factors include:

•

Our ability to continue to grow our revenue and meet anticipated growth targets;

•

Our ability to maintain our current relationships, and develop new relationships, with clients, service providers, and business partners;

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Unanticipated cancellations or deferrals of, or reductions in the scope of, major Behavioral Analytics contracts;

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The length of the sales cycle associated with our solutions;

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Our ability to successfully introduce new, and upgrade our existing, service offerings for clients; and

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Our ability to respond effectively to competition.

If we are unable to address these risks, our business, results of operations, and prospects could suffer.

We depend on a limited number of clients for a significant portion of our revenue, and the loss of a significant client or a substantial decline in the size or scope of deployments for a significant client, could have a material adverse effect on our business.

We derive, and expect to continue to derive for the foreseeable future, a significant portion of our total revenue from a limited number of clients. See “Clients” in Part I Item 1 and “Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II Item 7 of this Annual Report on Form 10-K. To the extent that any significant client uses less of our services or terminates its relationship with us, as may occur as clients respond to conditions affecting their own businesses, our total revenue could decline substantially and that could significantly harm our business. In addition, because a high percentage of our revenue is dependent on a relatively small number of clients, delayed payments by a few of our larger clients could result in a reduction of our available cash, which in turn may cause fluctuation in our Days Sales Outstanding (“DSO”).

We depend on good relations with our major clients, and any harm to these good relations may materially and adversely affect our business and our ability to compete effectively.

To attract and retain clients, we depend to a large extent on our relationships with our clients and our reputation for high quality analytics and related services. If a client is not satisfied with our services, it may be damaging to our reputation and business. Any defects or errors in our services or solutions or failure to meet our clients’ expectations could result in:

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Delayed or lost revenue;

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Obligations to provide additional services to a client at a reduced fee or at no charge;

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Negative publicity, which could damage our reputation and adversely affect our ability to attract or retain clients; and

•

Claims for damages against us, regardless of our responsibility for such failure.

If we fail to meet our contractual obligations with our clients, then we could be subject to legal liability or loss of clients. Although our contracts include provisions to limit our exposure to legal claims related to the services and solutions we provide, these provisions may not protect us, or protect us sufficiently, in all cases.

We must maintain our reputation and expand our name recognition to remain competitive.

We believe that establishing and maintaining a good reputation and brand name is critical for attracting and expanding our targeted client base. This is particularly the case given that we relaunched our business under a new brand name in June 2011. We continue to invest substantially in marketing in order to make our new name known in the marketplace for our services and solutions. If potential clients do not know what solutions we provide, or if our reputation is damaged, then we may become less competitive or lose our market share. Promotion and enhancement of our name and brand will depend largely on both the efficacy of our relatively nascent marketing efforts and our success in providing high quality services, software, and solutions, neither of which can be assured.

Our clients use our solutions for critical applications. If clients do not perceive our solutions to be effective or of higher quality than those available from our competitors, or if our solutions result in errors, defects, or other performance problems, then our brand name and reputation could be materially and adversely affected.

Our industry is very competitive and, if we fail to compete successfully, our market share and business will be adversely affected.

Although we view the manner in which we provide Behavioral Analytics, and its benefits, to be unique, nonetheless we operate in a highly competitive and rapidly changing market and compete with a variety of organizations that offer services that may be viewed as similar to ours. These competitive organizations include data analytics solutions providers, voice recording and voice analytic service providers and software licensors, call routing solution providers, and strategic consulting firms. We compete with these organizations on factors such as expertise, price, and capacity.

Many of our competitors have longer operating histories, more clients, longer relationships with their clients, greater brand or name recognition, more registered patents, and significantly greater financial, technical, marketing, and public relations resources than we do. As a result, our competitors may be in a better position to respond quickly to new or emerging technologies and changes in client requirements. They may also develop and promote their products and services more effectively than we do. New market entrants also pose a threat to our business. Existing or future competitors may develop or offer solutions that are comparable or superior to ours at a lower price.

We must keep pace with the rapid rate of innovation in our industry in order to build our business.

The data analytics market, and particularly behavioral analytics, is relatively new and rapidly evolving. Our future business depends in part upon continued growth in the acceptance and use of Behavioral Analytics by our current and prospective clients. Their acceptance and usage in turn may depend upon factors such as: the actual or perceived benefits of adoption of Behavioral Analytics and related methodologies and technologies, including the predictability of a meaningful return on investment, cost efficiencies, or other measurable economic benefits; the actual or perceived reliability, scalability, ease of use, and access to such new technologies and methodologies; and the willingness to adopt new business methods. Furthermore, our future growth depends on our continuing ability to innovate in the field of data analytics and to incorporate emerging industry standards.

We cannot assure that we will be successful in anticipating or responding to these challenges on a timely or competitive basis or at all, or that our ideas and solutions will be successful in the marketplace. In addition, new or disruptive technologies and methodologies by our competitors may make our service or solution offerings uncompetitive. Any of these circumstances could significantly harm our business and financial results.

Because our services and solutions are sophisticated, we must devote significant time and effort to our sales and installation processes, with significant risk of loss if we are not successful.

Because our services and solutions are not simple, mass-market items with which our potential clients are already familiar, it is necessary for us to devote significant time and effort to the process of educating our potential clients about the benefits and value of our services and solutions as part of the sales process. In addition, because our services and solutions are sophisticated and in most cases are not readily usable by clients without our assistance in integration and configuration, training, and analysis, we must devote significant time during the installation and ongoing analysis process in order for our services and solutions to be successfully deployed. These efforts during both the sales and installation processes increase the time and difficulty of completing transactions, make it more difficult to efficiently deploy our limited resources, and create risk that we will have invested in an opportunity that ultimately does not come to fruition. If we are unable to demonstrate the benefits and value of our services and solutions to clients and efficiently convert our sales leads into successful sales and installations, our results of operations may be adversely affected.

The unauthorized disclosure of the confidential customer data that we maintain could result in a significant loss of business and subject us to substantial liability.

In providing Behavioral Analytics, we record and analyze telephone calls and other interactions between our clients’ call center and back office agents and their customers. These interactions may contain numerous references to highly sensitive confidential or personally-identifiable data of the customers of our clients, and many of our clients are required to comply with Federal and state laws concerning privacy and security, such as the Health Insurance Portability and Accountability Act of 1996 and the Gramm-Leach-Bliley Act of 1999. In addition, we have made certain contractual commitments to our clients regarding this confidential data.

Particularly with regard to clients in highly-regulated industries such as healthcare and financial services, many of our clients demand that we agree not to limit our liability in the event of a security breach resulting in the loss of, or unauthorized access to, personally-identifiable data. As a result, the disclosure or loss of such data despite the extensive precautions we undertake could result in the considerable diminution of our business and prospects and could subject us to substantial liability.

In addition, the laws, regulations, and industry standards governing these matters are changing rapidly. It is possible that the resources we devote to comply with such laws, regulations, and industry standards, and our clients’ particular requirements, could increase materially. In our contracts, we generally agree to indemnify our clients for expenses and liabilities resulting from unauthorized access to or disclosure of confidential data. These indemnity obligations are generally not subject to contractual limitations on liability. As a result, the amount of liability we could incur in connection with these indemnity obligations could exceed the revenue we receive from the client under the applicable contract.

Our financial results could be adversely affected by economic and political conditions and the effects of these conditions on our clients’ businesses and levels of business activity.

Economic and political conditions in the U.S. affect our clients’ businesses and the markets they serve. A severe and/or prolonged economic downturn or a negative or uncertain political climate could adversely affect our clients’ financial conditions and the levels of business activity of our clients and the industries we serve. This may reduce demand for our services or depress pricing of those services and have a material adverse effect on our results of operations. Changes in U.S. economic conditions could also shift demand to services for which we do not have competitive advantages, and this could negatively affect the amount of business that we are able to obtain. In addition, these economic conditions may cause our clients to delay payments for services we have provided to them, resulting in a negative impact to our cash flow. If we are unable to successfully anticipate changing economic and political conditions, then we may be unable to effectively plan for and respond to those changes, and our business could be negatively affected.

We rely heavily on our senior management team for the success of our business.

Given the highly specialized nature of our services, senior management must have a thorough understanding of our service offerings as well as the skills and experience necessary to manage the organization. If one or more members of our senior management team leaves and we cannot replace them with a suitable candidate quickly, then we could experience difficulty in managing our business properly, and this could harm our business prospects, client relationships, employee morale, and results of operations. We recently announced that our Vice President and Chief Financial Officer, Mark Iserloth, is resigning effective March 13, 2015. While his responsibilities are being assumed by our Executive Vice President of Product and Customer Operations, this change could be disruptive to our operations.

Our ability to recruit talented professionals and retain our existing professionals is critical to the success of our business.

We believe that our success depends substantially on our ability to attract, train, motivate, and retain highly skilled management, strategic, technical, product development, data analysis, and other key professional employees. Our business straddles the information-technology and data analytics services industries, which are people-intensive and face shortages of qualified personnel, especially those with specialized skills or experience. We compete with other companies to recruit and hire from this limited pool, particularly in Austin, Texas, the location of our research and development team and in Chicago, Illinois, the location of our data science and analytics teams.

If we cannot hire and retain qualified personnel, or if a significant number of our current employees should leave, and we have difficulty replacing such persons, then we could potentially suffer the loss of client relationships or new business opportunities and our business could be seriously harmed. In addition, there is no guarantee that the employee and client non-solicitation and non-competition agreements we have entered into with our senior professionals would deter them from departing us for our competitors or that such agreements would be upheld and enforced by a court or other arbiter across all jurisdictions where we engage in business.

We have a limited ability to protect our intellectual property rights, which are important to our success and competitive position.

Our ability to protect our software, algorithms, databases, methodologies, and other intellectual property is important to our success and our competitive position. We view as proprietary the software (including source code), algorithms, databases, analysis, and other ideas, concepts, and developments that we create in order to provide, improve, and enhance our service offerings, as well as the work product we create in the course of providing services for clients. We seek to protect our intellectual property rights in these developments and work product by applying for patents, copyrights, and trademarks, as appropriate, as well as by enforcing applicable trade secret laws and contractual restrictions on scope of use, disclosure, copying, reverse engineering, and assignment.

Despite our efforts to protect our intellectual property rights from unauthorized use or disclosure, others may attempt to disclose, obtain, or use our rights. The steps we take may not be adequate to prevent or deter infringement or other misappropriation of our intellectual property rights. In addition, we may not detect unauthorized use of, or take timely and effective actions to enforce and protect, our intellectual property rights.

We may be required to obtain licenses from others to refine, develop, market, and deliver current and new services and solutions. There can be no assurance that we will be able to obtain any of these licenses on commercially reasonable terms or at all, or that rights granted by these licenses ultimately will be valid and enforceable.

Others could claim that our services, products, or solutions infringe upon their intellectual property rights or violate contractual protections.

We or our clients may be subject to claims that our services, products, or solutions, or the products of our software providers or other alliance partners, infringe upon the intellectual property rights of others. Any such infringement claims may result in substantial costs, divert management attention and other resources, harm our reputation, and prevent us from offering some services, products, or solutions. A successful infringement claim against us could materially and adversely affect our business.

In our contracts, we agree to indemnify our clients for expenses and liabilities resulting from claimed infringement by our services, products, or solutions, in most cases excluding third-party components, of the intellectual property rights of others. In some instances, the amount of these indemnity obligations may be greater than the revenue we receive from the client under the applicable contract. In addition, we may develop work product in connection with specific projects for our clients. Although our contracts with our clients generally provide that we retain the ownership rights to our work product, it is possible that clients may assert rights to, and seek to limit our ability to resell or reuse, our work product. Furthermore, in some cases we assign to clients the copyright and, at times, other intellectual property rights, in and to some aspects of the software, documentation, or other work product developed for these clients in connection with these projects, which limits our ability to resell or reuse this intellectual property.

Increasing government regulation could cause us to lose clients or impair our business.

We are subject not only to laws and regulations applicable to businesses generally, but we are also subject to certain U.S. and foreign laws and regulations applicable to our service offerings, including, but not limited to, those related to data privacy and security, electronic commerce, and call recording. Laws and regulations enacted in the U.S., both at the state and Federal level, as well as significant new rules issued with respect thereto, impose substantial requirements relating to the privacy and security of personal data, as well as the reporting of breaches with respect to personal data. Legislation that may be enacted in the future may add further requirements in these and other areas. In addition, we may be affected indirectly by legislation that impacts our existing and prospective clients, who may pass along to us by contract their legal obligations in these and other areas. Any such laws and regulations therefore could affect our existing business relationships or prevent us from obtaining new clients.

It may be difficult for us to access debt or equity markets to meet our financial needs.

In the event, for any reason, we need to raise additional funds in the future, through public or private debt or equity financings, such funds may not be available or may not be available on terms favorable to us. The failure by us to obtain such financing, if needed, may have a material adverse effect upon our business, financial condition and results of operations.

Item 1B.

Unresolved Staff Comments.

Not applicable.

Item 2.

Properties.

Our principal physical properties employed in our business consist of our leased office facilities in Chicago, Illinois; Edina, Minnesota; and Austin, Texas. Our executive offices are located at 200 South Wacker Drive, Suite 820, Chicago, Illinois 60606.

Our total employable space is approximately 44,000 square feet. We do not own any real estate. We believe that our leased facilities are appropriate for our current business requirements; however, we are currently exploring opportunities to expand our space to accommodate the future growth of our Chicago operations.

Item 3.

Legal Proceedings.

From time to time, the Company has been subject to legal claims arising in connection with its business and the results of these claims, when they arise, cannot be predicted with certainty. There are no asserted claims against the Company that, in the opinion of management, if adversely decided, would have a material effect on the Company’s financial position, results of operations, or cash flows.

Item 4.

Mine Safety Disclosures

Not applicable.

PART II.

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

Our common stock, par value $0.01 per share (“Common Stock”), is traded on the NASDAQ Global Market under the symbol MATR. The following table sets forth, for the periods indicated, the quarterly high and low sales prices of our Common Stock on the NASDAQ Global Market.


	High		Low
Fiscal Year 2014
Fourth Quarter	$	6.62	$	5.01
Third Quarter		6.25		4.41
Second Quarter		7.21		4.66
First Quarter		7.85		4.75
Fiscal Year 2013
Fourth Quarter	$	5.21	$	3.74
Third Quarter		4.60		2.65
Second Quarter		5.25		2.76
First Quarter		5.19		3.71

There were approximately 120 owners of record of Common Stock as of March 4, 2015. The last reported sale price of the Common Stock on the NASDAQ Global Market on March 4, 2015 was $6.85.

See “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” included in Part III Item 12 of this Annual Report on Form 10-K for more information about securities authorized for issuance under our various compensation plans.

Sale of Unregistered Securities

On May 20, 2014, Silicon Valley Bank elected to fully exercise a warrant by exchanging 75,698 warrant shares through a cashless exercise on the terms provided in the applicable warrant agreement. As a result, the Company issued 47,404 shares of Common Stock to Silicon Valley Bank, in full settlement of the warrant.

On June 4, 2014, PfG elected to partially exercise a warrant by exchanging 57,196 of its 129,032 warrant shares through a cashless exercise on the terms provided in the applicable warrant agreement. As a result, the Company issued 35,862 shares of Common Stock to PfG on June 4, 2014.

On June 4, 2014, PfG Equity Investors, LLC elected to partially exercise a warrant by exchanging 4,945 of its 10,322 warrant shares through a cashless exercise on the terms provided the applicable warrant agreement. As a result, the Company issued 3,100 shares of Common Stock to PfG Equity Investors, LLC on June 4, 2014.

The shares of Common Stock issued upon exercise of the warrants have not been and will not be registered under the Securities Act of 1933, as amended, or any state securities law and were issued pursuant to an exemption from registration provided by Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

On July 23, 2014, the Company entered into a Common Stock Purchase Agreement (the “2014 Purchase Agreement”) with certain accredited investors party thereto (the “2014 Purchasers”). Under the terms of the 2014 Purchase Agreement, the Company sold, and the 2014 Purchasers purchased from the Company, 2,891,566 shares of Common Stock (the “2014 Shares”), at a price of $4.15 per share. The 2014 Shares represented 15% of the issued and outstanding shares of Common Stock immediately prior to the execution of the 2014 Purchase Agreement. The offering closed on July 29, 2014. The aggregate gross proceeds, net of fees, the Company received from the offering were approximately $11.1 million. Proceeds from the private placement are being used for general corporate and working capital purposes. Craig-Hallum Capital Group LLC, which acted as the sole placement agent for the offering, received a commission equal to 7% of the aggregate purchase price (excluding certain accounts), for an aggregate commission of $0.8 million, and was reimbursed for its out-of-pocket expenses.

The 2014 Shares were offered and sold to the 2014 Purchasers under the 2014 Purchase Agreement in transactions exempt from registration under the Securities Act of 1933, as amended, or state securities laws, in reliance on Section 4(2) thereof and Rule 506 of Regulation D of the Securities Act and in reliance on similar exemptions under applicable state laws. Each of the 2014 Purchasers represented that it is an accredited investor within the meaning of Rule 501(a) of Regulation D, and acquiring the 2014 Shares for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The 2014 Shares were offered without any general solicitation by the Company or its representatives. The Company filed a registration statement on Form S-3 (the “2014 Registration Statement”) with the SEC on August 12, 2014 to register the resale by the 2014 Purchasers of the 2014 Shares and the 2014 Registration Statement became effective on August 25, 2014.

On November 26, 2013, the Company entered into a Common Stock Purchase Agreement (the “2013 Purchase Agreement”), with certain accredited investors party thereto (collectively, the “2013 Purchasers”). Under the terms of the 2013 Purchase Agreement, the Company sold, and the 2013 Purchasers purchased from the Company, 1,538,462 shares of Common Stock (the “2013 Shares”), at a price of $3.90 per share. The aggregate gross proceeds the Company received from the offering, net of fees, were approximately $5.6 million. Approximately 39.9% of the 2013 Shares were purchased by directors of the Company, or by their affiliates. Commissions of $0.3 million were paid in connection with the sale of the 2013 Shares. The 2013 Shares were sold without registration under the Securities Act or state securities laws, in reliance on Rule 506 of the Securities Act and in reliance on similar exemptions under applicable state laws. Each of the purchasers is an accredited investor within the meaning of Rule 501(a) of Regulation D and the 2013 Shares were sold without any general solicitation by the Company or its representatives. The Company filed a registration statement on Form S-3 with the SEC on December 31, 2013 to register the resale by the 2013 Purchasers of the 2013 Shares and the registration statement became effective on February 6, 2014.

Stock Performance Graph

The following graph compares the cumulative total stockholder return on Common Stock with the cumulative total return of (i) a peer group of other publicly-traded information-technology consulting companies selected by the Company (the “Peer Group Index”), and (ii) the NASDAQ Global Market Index. Cumulative total stockholder return is based on the period from December 26, 2009 through the Company’s fiscal year end on Wednesday, December 31, 2014. The comparison assumes that $100 was invested on December 26, 2009 in each of Mattersight Common Stock, the Peer Group Index, and the NASDAQ Global Market Index, and that any and all dividends were reinvested.

Comparative Cumulative Total Return for Mattersight Corporation,

Peer Group Index, and NASDAQ Global Market Index

LOGO


	12/26/09		1/1/11		12/31/11		12/31/12		12/31/13		12/31/14
Mattersight Common Stock	$	100.00	$	91.43	$	66.43	$	71.00	$	68.43	$	89.29
Peer Group Index ⁽¹⁾		100.00		123.53		116.87		117.22		154.80		201.93
NASDAQ Global Market Index		100.00		117.43		118.27		138.47		196.27		223.17

(1)

The Peer Group Index consists of Verint Systems, Inc. and Nice Systems Limited. In fiscal year 2011, The Hackett Group, Sapient Corporation, Ciber, Inc., and Convergys Corporation were removed because they had previously been included in the Peer Group Index in order to provide peer comparison for our ICS Business Unit, which was divested. In fiscal year 2010, Nice Systems Limited was added to the Peer Group Index to replace Diamond Management & Technology Consultants, which was removed because its public information was no longer available.

Repurchase of Equity Securities

The following table provides information relating to the Company’s purchase of shares of its Common Stock in the fourth quarter of 2014. These purchases reflect shares withheld upon vesting of restricted stock to satisfy tax-withholding obligations.


Period	Total Number of Shares Purchased		Average Price Paid Per Share
October 1, 2014 – October 31, 2014		—	$	—
November 1, 2014 – November 30, 2014		—	$	—
December 1, 2014 – December 31, 2014		13,379	$	5.93

Total		13,379	$	5.93

Dividends

Historically, we have not paid cash dividends on our Common Stock, and we do not expect to do so in the future. Under the terms of its certificate of designations, our 7% Series B Convertible Preferred Stock (the “Series B Stock”) accrues dividends at a rate of 7% per year, payable semi-annually in January and July if declared by the Company’s Board of Directors. If not declared, unpaid dividends are cumulative and accrue at the rate of 7% per annum. The Board of Directors did not declare a dividend payment on the Series B Stock, which was accrued, for each of the dividend periods from July 1, 2012 through December 31, 2014, (the aggregate amount of these dividends was approximately $1.5 million). During fiscal year 2012, the Company’s Board of Directors declared a cash dividend of $0.1785 per share on the Series B Stock for the dividend period January 1, 2012 through June 30, 2012. The dividend payment of $0.3 million was paid on July 2, 2012. Payment of future dividends on the Series B Stock will be determined by the Company’s Board of Directors based on the Company’s outlook and macroeconomic conditions. If the Company’s Board of Directors were to declare a semi-annual cash dividend on the Series B Stock for dividend periods subsequent to January 1, 2015, the dividend payment would be approximately $0.3 million, on the 1,648,185 shares of Series B Stock issued and outstanding as of December 31, 2014.

The amount of each dividend accrual would decrease by any conversions of the Series B Stock into Common Stock, as Series B Stock conversions require us to pay accrued but unpaid dividends at the time of conversion. Conversions of Series B Stock became permissible at the option of the holder after June 19, 2002. For further discussion see “Liquidity and Capital Resources” included in Part II, Item 7 of this Annual Report on Form 10-K.

During fiscal year 2012, the Company purchased 19,758 shares of Series B Stock and paid accrued and unpaid dividends of $2 thousand in connection with such purchase.

Equity Compensation Information

See Part III, Item 12 of this Annual Report on Form 10-K for information regarding shares of Common Stock that may be issued under the Company’s existing equity compensation plans.

Item 6.

Selected Financial Data.

The following tables summarize our selected financial data. This information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements of the Company and notes thereto, which are included elsewhere in this Annual Report on Form 10-K.


	(In thousands, except per share data) ⁽¹⁾
	December 31, 2014			December 31, 2013			December 31, 2012			December 31, 2011			January 1, 2011
Total revenue	$	30,319		$	34,494		$	33,863		$	29,095		$	30,885
Loss from continuing operations	$	(14,232	)	$	(11,172	)	$	(15,470	)	$	(10,560	)	$	(16,304	)
Basic loss from continuing operations per share	$	(0.74	)	$	(0.70	)	$	(1.01	)	$	(1.29	)	$	(1.28	)
Total assets	$	32,078		$	30,749		$	31,362		$	49,265		$	66,192
Long-term obligations	$	3,990		$	4,473		$	3,605		$	4,437		$	6,247
Series B Stock	$	8,406		$	8,411		$	8,411		$	8,521		$	18,100
Capital leases	$	2,813		$	2,832		$	2,305		$	2,823		$	2,217

(1)	See Note One “Description of Business” and Note Two “Summary of Significant Accounting Principles” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Annual Report on Form 10-K for business discussion.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the “Selected Financial Data” and the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to the costs and timing of completion of client projects, our ability to collect accounts receivable, the timing and amounts of expected payments associated with cost reduction activities, and the ability to realize our net deferred tax assets, contingencies, and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

The fiscal year-end dates referenced herein for fiscal years 2014, 2013, and 2012 are December 31, 2014, December 31, 2013, and December 31, 2012, respectively.

We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

Discontinued Operations

ICS Business Unit Transaction

The Company sold the ICS Business Unit and “eLoyalty” registered trademark / trade name to Magellan Acquisition Sub, LLC, a Colorado limited liability company and wholly-owned subsidiary of TeleTech Holdings, Inc., a Delaware corporation, closed on May 28, 2011, and the Company changed its name from eLoyalty Corporation to Mattersight Corporation effective May 31, 2011. Therefore, the results of operations of the ICS Business Unit are reported as discontinued operations.

Revenue Recognition

Behavioral Analytics Revenue

Behavioral Analytics revenue consists of Managed services revenue and Consulting services revenue derived from the performance of Behavioral Analytics.

Managed services revenue consists of planning, deployment, training, and subscription fees derived from Behavioral Analytics contracts. Planning, deployment, and training fees, which are considered to be installation fees related to Behavioral Analytics subscription contracts, are deferred until the installation is complete and are then recognized over the applicable subscription period. Subscription periods generally range from three to five years after the go-live date or, in cases where the Company contracts with a client for a short-term pilot of a Behavioral Analytics offering prior to committing to a longer subscription period, if any, the subscription or pilot periods generally range from three to twelve months after the go-live date. Installation costs incurred are deferred up to an amount not to exceed the amount of deferred installation revenue and additional amounts that are recoverable based on the contractual arrangement. These costs are included in Prepaid expenses and Other long-term assets. Such costs are amortized over the subscription period. Costs in excess of the foregoing revenue amount are expensed in the period incurred.

The amount of revenue generated from subscription fees is based on a number of factors, such as the number of users to whom the Behavioral Analytics offering is provided, the type and number of Behavioral Analytics offerings deployed to the client, and in some cases, the number of hours of calls analyzed during the relevant month of the subscription period. This revenue is recognized as the service is performed for the client.

Consulting services revenue primarily consists of fees charged to the Company’s clients to provide post-deployment follow-on consulting services, which include custom data analysis, the implementation of enhancements, and training. These follow-on consulting services are generally performed for the Company’s clients on a fixed-fee basis. Revenue is recognized as the services are performed, with performance generally assessed on the ratio of actual hours incurred to-date compared to the total estimated hours over the entire term of the contract.

Other Revenue

Other revenue consists of Marketing Managed Services revenue and CRM Services revenue.

Marketing Managed Services revenue is derived from marketing application hosting. This revenue is generally in the form of fixed monthly fees received from the Company’s clients and is recognized as the services are performed for the client. Any related setup fee would be recognized over the term of the hosting contract.

CRM Services revenue consists of fees generated from the Company’s operational consulting services, which are provided to the Company’s clients on a time-and-materials or fixed-fee basis. The Company recognizes revenue as the services are performed for time-and-materials projects. For fixed-fee projects, revenue is recognized based on the ratio of hours incurred to-date compared to the total estimated hours over the entire term of the contract.

Reimbursed Expenses

Reimbursed expenses revenue includes billable costs related to travel and other out-of-pocket expenses incurred while performing services for the Company’s clients. The cost of third-party product and support may be included within this category if the transaction does not satisfy the requirements for gross reporting. An equivalent amount of reimbursable expenses is included in Cost of revenue.

Unearned Revenue

Payments received for Managed services contracts in excess of the amount of revenue recognized for these contracts are recorded as unearned revenue until revenue recognition criteria are met.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from clients not paying for unpaid or disputed invoices for contractual services provided. Additional allowances may be required if the financial condition of our clients deteriorates.

Stock Warrants

In accordance with ASC 480-10, Distinguishing Liabilities from Equity , the Company classified certain warrants to purchase Common Stock that do not meet the requirements for classification as equity, as liabilities. Such liabilities are initially recorded at fair value with subsequent changes in fair value recorded as a component of gain or loss on warrant liability on the consolidated statements of operations in each reporting period. If these warrants subsequently meet the requirements of equity classification, the Company will reclassify the fair value to equity. Fair value of the warrants was measured using a Monte Carlo option pricing model and in applying this model certain assumptions were used. See Note Twenty-One “Stock Warrants” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Annual Report on Form 10-K.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. Determining fair value of stock-based awards at the grant date requires certain assumptions. The Company uses historical information as the basis for the selection of expected life, expected volatility, expected dividend yield assumptions, and anticipated forfeiture rates. The risk-free interest rate is selected based on the yields from U.S. Treasury Strips with a remaining term equal to the expected term of the options being valued.

Goodwill

Goodwill is tested annually for impairment or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. In performing our annual impairment test, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. If it is concluded that this is the case for the reporting unit, we perform a detailed quantitative assessment using a two-step test approach. In the first step, the fair value of the reporting unit is compared with its carrying value. If the fair value exceeds the carrying value, then goodwill is not impaired and no further testing is performed. The second step is performed if the carrying value exceeds the fair value. The implied fair value of the reporting unit’s goodwill must be determined and compared to the carrying value of the goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference will be recorded. The Company currently operates in a single business segment or reporting unit.

In 2014, after completing our annual qualitative review, we concluded that it was not more likely than not that the carrying value of our reporting unit exceeded its fair value. Accordingly, we concluded that further quantitative analysis and testing was not required, and no goodwill impairment charge was required.

There has been no impairment identified as a result of the annual reviews of goodwill as of December 31, 2014 and December 31, 2013. The carrying value of goodwill was $1.0 million as of December 31, 2014 and December 31, 2013.

Intangible Assets

Intangible assets reflect costs related to patent and trademark applications, Marketing Managed Services customer relationships acquired in 2004, and the 2003 purchase of a license for certain intellectual property. Patent and trademark applications are amortized over 120 months. The other intangible assets are fully amortized. The original cost of intangible assets as of December 31, 2014 and December 31, 2013 was $3.4 million and $3.2 million, respectively. Accumulated amortization of intangible assets was $2.8 million as of December 31, 2014 and December 31, 2013. Currently, amortization expense of intangible assets is expected to be $91 thousand annually.

Severance and Related Costs

Severance and related costs includes cost-reduction actions, principally consisting of personnel reductions and an office consolidation. The portion of the accruals that related to employee severance represents contractual severance for identified employees and generally is not subject to a significant revision. The portion of the accruals that related to office space reductions, office closures, and associated contractual lease obligations are based in part on assumptions and estimates of the timing and amount of sublease rentals, which may be affected by overall economic and local market conditions. To the extent estimates of the success of our sublease efforts changed, adjustments increasing or decreasing the related accruals have been recognized.

Income Taxes

We have recorded income tax valuation allowances on our net deferred tax assets to account for the unpredictability surrounding the timing of realization of our U.S. and non-U.S. net deferred tax assets due to uncertain economic conditions. The valuation allowances may be reversed at a point in time when management determines realization of these tax assets has become more likely than not, based on a return to predictable levels of profitability.

The Company uses an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes are provided when tax laws and financial accounting standards differ with respect to the amount of income for the year, the basis of assets and liabilities and for tax loss carryforwards. The Company does not provide U.S. deferred income taxes on earnings of U.S. or foreign subsidiaries, which are expected to be indefinitely reinvested.

The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Significant judgment is used to determine the likelihood of the benefit. There is additional guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods, and disclosure requirements.

Other Significant Accounting Policies

For a description of the Company’s other significant accounting policies, see Note Two “Summary of Significant Accounting Policies” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Annual Report on Form 10-K.

Forward-Looking Statements

Statements in this Annual Report on Form 10-K that are not historical facts are “forward-looking statements” and are made pursuant to the safe harbor provisions of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements, which may be identified by use of words such as “plan,” “may,” “might,” “believe,” “expect,” “intend,” “could,” “would,” “should,” and other words and terms of similar meaning, in connection with any discussion of our prospects, financial statements, business, financial condition, revenues, results of operations, or liquidity, involve risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. In addition to other factors and matters contained or incorporated in this document, important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements include, without limitation, those noted under “Risk Factors” included in Part I Item 1A of this Annual Report on Form 10-K for the year ended December 31, 2014, as well as the following:

•

Uncertainties associated with the attraction of, and the ability to execute contracts with, new clients, the continuation of existing, and execution of new, engagements with existing clients, the conversion of free pilots to paid subscription contracts, and the timing of related client commitments;

•

Reliance on a relatively small number of clients for a significant percentage of our revenue;

•

Risks involving the variability and predictability of the number, size, scope, cost, and duration of, and revenue from, client engagements;

•

Management of the other risks associated with complex client projects and new service offerings, including execution risk; and

•

Management of growth and development of, and introduction of, new service offerings.

We cannot guarantee any future results, levels of activity, performance, or achievements. The statements made in this Annual Report on Form 10-K represent our views as of the date of this Annual Report on Form 10-K, and it should not be assumed that the statements made in this Annual Report on Form 10-K remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements, except as may be required by law.

Business Outlook

Based on research from third-party analysts, we believe the call center industry is ripe for disruption and innovation. We believe what the call center was designed to accomplish and how it was measured are parts of an outdated mode of business that is disconnected from the needs of today’s consumer. In fact, research from the Corporate Executive Board suggests that any call center interaction is four times more likely to drive customer disloyalty. Given a rise in self-service, these interactions are only becoming more complex and fraught with greater risk.

Through Behavior Analytics, we seek to provide our clients with personality-based software applications that mitigate the complexity and reduce the risk of these call center interactions. According to Gartner, there are 6 million call center seats in North America. Our estimation is that less than 3% of this market is penetrated by personality-based software applications. We believe that we are uniquely positioned to capitalize on this opportunity. Our strategy to increase revenue and capture market share includes the following elements:

•

Drive new bookings growth and increase operating leverage;

•

Leverage a “land & expand” model, focused on personality-based routing as the catalyst for new client acquisition;

•

Cross-sell coaching, quality assurance and analytic products after delivering a routing solution;

•

Continue to invest in innovative linguistic models and behavioral science;

•

Expand our sales and marketing capacity; and

•

Test the applicability of our proprietary behavioral model with clients outside of the call center industry.

Our personality-based software applications, which have been developed through substantial investment over a decade, are deeply embedded into our clients’ infrastructure and workflows. Our long-term client relationships are made up largely of multi-year contracts and high contract renewal rates. Our aspiration is that the introduction of a “land & expand” model with our routing product will accelerate the acquisition of new clients.

Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013

Services Revenue

Services revenue is total revenue excluding reimbursable expenses that are billed to our clients. Our services revenue decreased $4.0 million, or 12%, to $30.2 million in fiscal year 2014, from $34.2 million in fiscal year 2013. The $4.0 million decrease in services revenue in fiscal year 2014 was primarily due to the previously announced expiration of our contract with Vangent, Inc. on December 31, 2013.

Behavioral Analytics revenue was $29.4 million in fiscal year 2014 and $33.0 million in fiscal year 2013. The $3.6 million, or 11%, decrease in Behavioral Analytics revenue in fiscal year 2014 was also primarily due to the previously announced expiration of our contract with Vangent, Inc. on December 31, 2013.

Other revenue decreased by $0.4 million, or 35%, to $0.8 million in fiscal year 2014, from $1.2 million in fiscal year 2013. This decrease in revenue was primarily due to the completion of our only remaining CRM Services contract.

The Company’s top five clients accounted for 75% of total revenue in fiscal year 2014 and 69% of total revenue in fiscal year 2013. The top ten clients accounted for 91% of total revenue in fiscal year 2014 and 90% of total revenue in fiscal year 2013. In fiscal year 2014, three clients each accounted for 10% or more of total revenue and in fiscal year 2013 four clients each accounted for 10% or more of total revenue. In fiscal year 2014, United HealthCare Services, Inc., Progressive Casualty Insurance Company, and HealthCare Service Corporation accounted for 25%, 20%, and 11% of total revenue, respectively. In fiscal year 2013, Vangent, Inc., Progressive Casualty Insurance Company, Allstate Insurance Company, and United HealthCare Services, Inc., accounted for 21%, 15%, 13%, and 11% of total revenue, respectively. Higher concentration of revenue with a single client or a limited group of clients creates increased revenue risk if one of these clients significantly reduces its demand for our services.

Cost of Revenue Before Reimbursed Expenses, Exclusive of Depreciation and Amortization

Cost of Services

Cost of services primarily consists of labor costs, including salaries, fringe benefits, and incentive compensation, royalties, and other client-related third-party outside services. Cost of services excludes depreciation and amortization.

Cost of Behavioral Analytics revenue was $9.0 million, or 31% of Behavioral Analytics revenue, in fiscal year 2014, compared to $10.1 million, or 31% of Behavioral Analytics revenue, in fiscal year 2013. The favorable decrease in cost was primarily due to (i) improved productivity in our Delivery organization resulting in lower compensation costs, (ii) better leveraging of the cost structure supporting our subscription clients, and (iii) the decline in revenue.

Cost of other revenue was $0.3 million, or 36% of Other revenue in fiscal year 2014, compared to $0.6 million, or 51% of Other revenue, in fiscal year 2013.

Sales, Marketing and Development

Sales, marketing and development expenses consist primarily of salaries, incentive compensation, commissions, and employee benefits for business development, account management, marketing, and product development personnel. The personnel costs included in this item are net of any labor costs directly related to the generation of revenue, which are represented in Cost of services.

Sales, marketing and development expenses decreased $0.2 million, or 1%, to $21.6 million in fiscal year 2014 from $21.8 million in fiscal year 2013. The decrease is primarily due to lower compensation expense offset by higher operating lease expense.

General and Administrative

General and administrative expenses consist primarily of salaries, incentive compensation, and employee benefits for administrative personnel, as well as facilities costs, a provision for uncollectible amounts, and costs for our corporate technology infrastructure and applications.

General and administrative expenses increased $0.3 million, or 4%, to $9.1 million in fiscal year 2014 from $8.8 million in fiscal year 2013. The $0.3 million increase is due to higher compensation expense.

Severance and Related Costs

There were no severance and related costs in fiscal year 2014. In fiscal year 2013, there was $0.2 million of expense, which was related to severance and related costs for the elimination of one position.

Depreciation and Amortization

Depreciation and amortization decreased $0.4 million, or 12%, to $3.0 million in fiscal year 2014 from $3.4 million in fiscal year 2013. The decrease is due to capital lease disposals and assets that became fully depreciated near the end of the second and third quarters of 2014.

Amortization of Intangibles

Amortization of intangibles remained constant at $0.1 million in fiscal years 2014 and 2013.

Operating Loss

Primarily as a result of the factors described above, we experienced an operating loss of $13.0 million in fiscal year 2014, compared to an operating loss of $10.8 million in fiscal year 2013.

Interest and Other Expense, Net

Interest and other expense was $1.1 million of expense in fiscal year 2014 compared to $0.5 million of expense in fiscal year 2013. The increase was primarily related to a $0.5 million write-off of deferred financing fees in connection with the termination effective August 14, 2014 of the Loan and Security Agreement dated August 19, 2013, entered into by the Company, together with its wholly-owned subsidiaries Mattersight Europe Holding Corporation and Mattersight International Holding, Inc., as co-borrowers, and Partners for Growth IV, L.P.

Change in Fair Value of Warrant Liability

The change in fair value of warrant liability remained constant at $0.1 million in fiscal years 2014 and 2013. Changes in our common stock price are the main driver in calculating the fair value of our outstanding warrants.

Income Tax (Provision) Benefit

The income tax provision was less than $0.1 million in fiscal year 2014 and the tax benefit was $0.2 million in fiscal year 2013. The income tax benefit in fiscal year 2013 was due to a favorable tax ruling on a previously accrued income tax liability. As of December 31, 2014, total net deferred tax assets of $71.0 million were fully offset by a valuation allowance. The level of uncertainty in predicting when we will achieve profitability, sufficient to utilize our net U.S. and non-U.S. operating losses and realize our remaining deferred tax assets, requires that an income tax valuation allowance be recognized in the financial statements.

Income from Discontinued Operations

There was no income from discontinued operations in fiscal year 2014.

Net Loss Available to Common Stockholders

We reported net loss available to holders of Common Stock of $14.8 million in fiscal year 2014 compared to net loss available to holders of Common Stock of $11.8 million in fiscal year 2013. Accrued dividends to holders of Series B Stock were $0.6 million in both fiscal years 2014 and 2013. In fiscal year 2014, there was net loss of $0.74 per share on a basic and diluted basis, compared to net loss of $0.70 per share on a basic and diluted basis in fiscal year 2013.

Year Ended December 31, 2013 Compared with the Year Ended December 31, 2012

Services Revenue

Services revenue was total revenue excluding reimbursable expenses that are billed to our clients. Our services revenue increased $0.7 million, or 2%, to $34.2 million in fiscal year 2013, from $33.5 million in fiscal year 2012.

Behavioral Analytics revenue was $33.0 million in fiscal year 2013 and was $32.1 million in fiscal year 2012. The $0.9 million, or 3%, increase in Behavioral Analytics revenue in fiscal year 2013 was primarily due to revenue associated with new client agreements, expansion of several existing clients, and the payment by a customer of an early termination fee in connection with the cancellation of a contract.

Other revenue decreased by $0.1 million, or 8%, to $1.2 million in fiscal year 2013, from $1.3 million in fiscal year 2012. The decrease in revenue was mainly due to the completion of several contracts for Marketing Managed Services.

The Company’s top five clients accounted for 69% of total revenue in fiscal year 2013 and 66% of total revenue in fiscal year 2012. The top ten clients accounted for 90% of total revenue in fiscal year 2013 and 89% of total revenue in fiscal year 2012. In fiscal year 2013, there were four clients that accounted for 10% or more of total revenue, whereas three clients accounted for 10% or more of total revenue in fiscal year 2012. In fiscal year 2013, Vangent, Inc., Progressive Casualty Insurance Company, Allstate Insurance Company, and United HealthCare Services, Inc., accounted for 21%, 15%, 13%, and 11% of total revenue, respectively. In fiscal year 2012, Vangent, Inc., Allstate Insurance Company, and Progressive Casualty Insurance Co. accounted for 19%, 16%, and 13% of total revenue, respectively. Higher concentration of revenue with a single client or a limited group of clients creates increased revenue risk if one of these clients significantly reduces its demand for our services. As previously announced, our contract with Vangent, Inc. expired on December 31, 2013.

Cost of Revenue Before Reimbursed Expenses, Exclusive of Depreciation and Amortization

Cost of Services

Cost of Behavioral Analytics revenue was $10.1 million, or 31% of Behavioral Analytics revenue, in fiscal year 2013, compared to $12.2 million, or 38% of Behavioral Analytics revenue, in fiscal year 2012. The favorable decrease in cost and percentage was primarily due to improved productivity in our Delivery organization resulting in lower compensation costs and better leverage of our cost structure supporting our subscription clients.

Cost of other revenue was $0.6 million, or 51% of Other revenue, in fiscal year 2013, compared to $0.7 million, or 53% of Other revenue, in fiscal year 2012. The favorable $0.1 million decrease in cost and percentage was primarily due to lower CRM Service revenue.

Sales, Marketing and Development

Sales, marketing and development expenses decreased $1.3 million, or 6%, to $21.8 million in fiscal year 2013 from $23.1 million in fiscal year 2012. This decrease was primarily due to lower compensation expense.

General and Administrative

General and administrative expenses increased $0.5 million, or 6%, to $8.8 million in fiscal year 2013, from $8.3 million in fiscal year 2012. This increase was primarily due to higher compensation expense.

Severance and Related Costs

Severance and related costs includes cost-reduction actions, principally consisting of personnel reductions and an office consolidation. Cash savings related to cost-reduction actions taken during fiscal year 2013 are anticipated to be $0.2 million annually. Costs related to office space reductions and office closures were paid pursuant to contractual lease terms through January 2012.

In fiscal year 2013, there was $0.2 million of expense which was related to severance and related costs for the elimination of one position. In fiscal year 2012, the $0.7 million of expense was related to severance and related costs for the elimination of one position.

Depreciation and Amortization

Depreciation expense remained constant at $3.4 million in fiscal years 2013 and 2012.

Amortization of Intangibles

Amortization of intangibles remained constant at $0.1 million in fiscal years 2013 and 2012.

Operating Loss

Primarily as a result of the factors described above, we experienced an operating loss of $10.8 million for fiscal year 2013, compared to an operating loss of $15.0 million for fiscal year 2012, a $4.3 million, or 28%, improvement.

Interest and Other Expense, Net

Non-operating interest and other expense was $0.7 million of expense in fiscal year 2013 compared to $0.4 million of expense in fiscal year 2012. The increase of $0.3 million of expense was primarily related to interest expense on our short-term debt and capital lease obligation.

Income Tax Benefit (Provision)

The income tax benefit was $0.2 million in fiscal year 2013 and the tax provision was less than $0.1 million in fiscal year 2012. The income tax benefit in fiscal year 2013 was due to a favorable tax ruling on a previously accrued income tax liability. As of December 31, 2013, total net deferred tax assets of $67.6 million were fully offset by a valuation allowance. The level of uncertainty in predicting when we will achieve profitability, sufficient to utilize our net U.S. and non-U.S. operating losses and realize our remaining deferred tax assets, requires that an income tax valuation allowance be recognized in the financial statements.

Income from Discontinued Operations

There was no income from discontinued operations in fiscal year 2013. The income from discontinued operations in fiscal year 2012 was $0.2 million, net of tax benefit of $0.3 million, due to a favorable Internal Revenue Service (“IRS”) ruling on a previously accrued income tax liability partially offset by settlement costs relating to a former employee of the ICS Business Unit.

Net Loss Available to Common Stockholders

We reported net loss available to holders of Common Stock of $11.8 million in fiscal year 2013 compared to net loss available to holders of Common Stock of $15.9 million in fiscal year 2012. Accrued dividends to holders of Series B Stock were $0.6 million in both fiscal years 2013 and 2012. In fiscal year 2013, there was net loss of $0.70 per share on a basic and diluted basis, compared to net loss of $0.99 per share on a basic and diluted basis in fiscal year 2012.

Liquidity and Capital Resources

Introduction

Our principal capital requirements are to fund working capital needs, capital expenditures for Behavioral Analytics and infrastructure requirements, and other revenue generation and growth investments. As of December 31, 2014, our principal capital resources consisted of our cash and cash equivalents balance of $14.2 million, which includes $0.1 million in foreign bank accounts.

The increase in cash during fiscal year 2014 was primarily from proceeds received from the sale of the 2014 Shares pursuant to the 2014 Purchase Agreement of $11.1 million, net of fees, partially offset by the net loss before non-cash items, payment of Company bonuses, capital lease principal payments, capital expenditures, the acquisition of treasury stock, and an increase in accounts receivable.

The decrease in cash during fiscal year 2013 was primarily the result of the net loss before non-cash items, a $3.7 million net payment under our credit facility, capital lease principal payments, capital expenditures, and the acquisition of treasury stock, partially offset by proceeds of $5.6 million, net of fees, received from the sale of the 2013 Shares pursuant to the terms of the 2013 Purchase Agreement and a $1.9 million increase in unearned revenue.

Cash Flows from Operating Activities

Net cash used in operating activities during fiscal year 2014 was $6.9 million compared to cash of $1.6 million during fiscal year 2013. During fiscal year 2014, net cash used in operating activities consisted primarily of the net loss before non-cash items of $6.8 million and an increase in accounts receivable.

During fiscal year 2013, net cash provided by operating activities was $1.6 million. During fiscal year 2013, net cash provided by operating activities consisted primarily of a $1.9 million increase in unearned revenue, partially offset by the net loss before non-cash items of $1.9 million.

There was no net cash used in operating activities of discontinued operations during fiscal years 2014 and 2013.

Days Sales Outstanding (“DSO”) was 38 days at December 31, 2014, compared to 23 days at December 31, 2013, an increase of fifteen days. DSO increased due to two clients with higher 2014 Accounts Receivable associated with significant revenue growth, compared to an unusually low 2013 DSO that included revenue from a large client which had fully paid all outstanding invoices by the end of 2013. Because a high percentage of our revenue is dependent on a relatively small number of clients, delayed payments by a few of our larger clients could result in a reduction of our available cash, which in turn may cause fluctuation in our DSO. We do not expect any significant collection issues with our clients; see “Accounts Receivable Customer Concentration” for additional information on cash collections.

As of December 31, 2014, there were no outstanding liabilities for severance and related costs.

Cash Flows from Investing Activities

The Company used $1.0 million and $1.5 million of cash in investing activities during fiscal years 2014 and 2013, respectively.

Capital expenditures were primarily used to purchase computer hardware and software during fiscal years 2014 and 2013. We currently expect to incur new capital investments of between $3.0 million and $4.0 million for fiscal year 2015 and plan on funding approximately $1.5 million to $2.0 million of these purchases with capital leases.

There was no net cash used in discontinued investing activities during fiscal years 2014 and 2013.

Cash Flows from Financing Activities

Net cash provided by financing activities was $8.8 million during fiscal year 2014 compared to cash used in financing activities of $1.1 million during fiscal year 2013. Net cash proceeds of $8.8 million during fiscal year 2014 were primarily attributable to proceeds of $11.1 million, net of fees, from the sale of the 2014 Shares pursuant to the 2014 Purchase Agreement, partially offset by (i) $1.7 million of principal payments under our capital lease obligations and (ii) $0.8 million of cash used to acquire treasury stock to meet employee tax obligations associated with the Company’s stock-based compensation programs.

During fiscal year 2013, the Company used net cash of $1.1 million in financing activities primarily attributable to a $3.7 million net payment under our credit facility, $2.1 million of principal payments under our capital lease obligations, and $1.1 million of cash used to acquire treasury stock, partially offset by proceeds of $5.6 million, net of fees, from the sale of the 2013 Shares pursuant to the 2013 Purchase Agreement.

There was no net cash used in discontinued financing activities during fiscal year 2014 and 2013.

Historically, we have not paid cash dividends on our Common Stock, and we do not expect to do so in the future. Under the terms of its certificate of designations, our Series B Stock accrues dividends at a rate of 7% per year, payable semi-annually in January and July if declared by the Company’s Board of Directors. If not declared, unpaid dividends are cumulative and accrue at the rate of 7% per annum. The Board of Directors did not declare a dividend payment on the Series B Stock, which was accrued, for each of the dividend periods from July 1, 2012 through December 31, 2014, (the aggregate amount of these dividends was approximately $1.5 million). During fiscal year 2012, the Company’s Board of Directors declared a cash dividend of $0.1785 per share on the Series B Stock for the dividend period January 1, 2012 through June 30, 2012. The dividend payment of $0.3 million was paid on July 2, 2012. Payment of future dividends on the Series B Stock will be determined by the Company’s Board of Directors based on the Company’s outlook and macroeconomic conditions. If the Company’s Board of Directors were to declare a semi-annual cash dividend on the Series B Stock for dividend periods subsequent to January 1, 2015, the dividend payment would be approximately $0.3 million on the 1,648,185 shares of Series B Stock issued and outstanding as of December 31, 2014. The amount of each dividend accrual will be decreased by any conversions of the Series B Stock into Common Stock, as such conversions require the Company to pay accrued but unpaid dividends at the time of conversion. Conversions of Series B Stock became permissible at the option of the holder after June 19, 2002.

The Company expects to acquire between $0.3 million and $0.4 million of treasury stock during the first quarter of 2015 to meet employee tax obligations associated with the Company’s stock-based compensation programs.

Liquidity

Our near-term capital resources consist of our current cash balance, together with anticipated future cash flows, financing from capital leases, and our revolving line of credit (see “Credit Facility” below). Our balance of cash and cash equivalents was $14.2 million as of December 31, 2014.

We anticipate that our current unrestricted cash resources, together with operating revenue and capital lease financing, should be sufficient to satisfy our short-term working capital and capital expenditure needs for the next twelve months. Management will continue to assess opportunities to maximize cash resources by actively managing our cost structure and closely monitoring the collection of our accounts receivable. If, however, our operating activities, capital expenditure requirements, or net cash needs differ materially from current expectations due to uncertainties surrounding the current capital market, credit and general economic conditions, competition, or the termination of a large client contract, then there is no assurance that we would have access to additional external capital resources on acceptable terms.

Credit Facility

During fiscal year 2014, the Company, together with its wholly-owned subsidiaries Mattersight Europe Holding Corporation and Mattersight International Holding, Inc., as co-borrowers (the “Co-Borrowers”), entered into a Second Amendment to the Amended and Restated Loan and Security Agreement with Silicon Valley Bank (the “Second Amendment”) on June 27, 2014. The Second Amendment amended our financial covenants under the Amended and Restated Loan Agreement entered into by the Company, together with the Co-Borrowers, and Silicon Valley Bank on May 20, 2013 (the “Credit Facility”) by: (i) reducing the tangible net worth requirement from $3.0 million to $1.25 million and (ii) adding a minimum revenue requirement.

As of December 31, 2014, the Company’s $10.0 million revolving line of credit was set to mature in May 2015. Through the maturity date, the Company was obligated to pay a fee equal to one-eighth of one percent (0.125%) per annum of the average unused portion of the Credit Facility, payable quarterly in arrears. The Company had a zero balance outstanding under the Credit Facility as of December 31, 2014.

The Credit Facility imposes various restrictions on the Company, including usual and customary limitations on the ability of the Company or any of its subsidiaries to incur debt and to grant liens upon their assets, and prohibits certain consolidations, mergers, and sales and transfers of assets by the Company and its subsidiaries. The Credit Facility includes usual and customary events of default for facilities of this nature (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default, payment of all amounts payable under the Credit Facility may be accelerated and/or the lenders’ commitments may be terminated. In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts payable under the Credit Facility will automatically become immediately due and payable, and the lenders’ commitments will automatically terminate. The Company was in compliance with all of its debt covenants under the Credit Facility as of December 31, 2014, except for the minimum revenue covenant, for which the Company received a waiver from Silicon Valley Bank.

On March 10, 2015, the Company entered into a Second Amended and Restated Loan and Security Agreement (“Second Amended and Restated Credit Agreement”) with Silicon Valley Bank. The Second Amended and Restated Credit Agreement provides for, among other things, an increase of the maximum credit limit from $10 million to $15 million, an extension of the term from May 2015 to March 2017, and a change in interest rate from a variable interest grid to prime plus 1.25%. The Second Amended and Restated Credit Agreement additionally provides for an annual commitment fee of $56,250 and early termination fee of 1.0% in the first year, and 0.25% thereafter, prior to maturity.

See Note Ten “Short-Term Debt” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Annual Report on Form 10-K.

Accounts Receivable Customer Concentration

As of December 31, 2014, two clients, United HealthCare Services, Inc., and CVS Pharmacy, Inc., accounted for 41% and 19% of total gross accounts receivable, respectively. Of these amounts, we have collected 100% from United HealthCare Services, Inc., and 89% from CVS Pharmacy, Inc., through March 3, 2015. Of the total December 31, 2014 gross accounts receivable, we have collected 88% as of March 3, 2015. Because we have a high percentage of our revenue dependent on a relatively small number of clients, delayed payments by a few of our larger clients could result in a reduction of our available cash.

Capital Lease Obligations

Capital lease obligations as of December 31, 2014 and December 31, 2013 remained constant at $2.8 million. We are a party to a capital lease agreement with a leasing company to lease hardware and software. We expect to incur new capital lease obligations of between $1.5 million to $2.0 million for fiscal year 2015 as we continue to expand our investment in the infrastructure for Behavioral Analytics.

Contractual Obligations

Cash will also be required for operating leases and non-cancellable purchase obligations, as well as various commitments reflected as liabilities on our balance sheet as of December 31, 2014. These commitments are as follows:


(In millions) Contractual Obligations	Total		Less Than 1 Year		1 – 3 Years		3 – 5 Years		More Than 5 Years
Letters of credit	$	0.9	$	0.9	$	—	$	—	$	—
Operating leases		2.0		1.1		0.9		—		—
Capital leases		3.2		1.9		1.3		—		—
Purchase obligations		2.1		2.1		—		—		—

Total	$	8.2	$	6.0	$	2.2	$	—	$	—

Letters of Credit

The amounts set forth in the chart above reflect standby letters of credit issued as collateral for capital leases. Specifically, these amounts reflect the face amount of these letters of credit that expire in each period presented.

Leases

The amounts set forth in the chart above reflect future principal, interest, and executory costs of the leases entered into by the Company for technology and office equipment, as well as office and data center space. Liabilities for the principal portion of the capital lease obligations are reflected on our balance sheet as of December 31, 2014 and December 31, 2013.

Purchase Obligations

Purchase obligations include $1.5 million of commitments reflected as liabilities on our balance sheet as of December 31, 2014, as well as $0.6 million of non-cancellable obligations to purchase goods or services in the future. Purchase obligations include $0.9 million of commitments reflected as liabilities on our balance sheet as of December 31, 2013, as well as $0.6 million of non-cancellable obligations to purchase goods or services in the future.

Recent Accounting Pronouncements

In November 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. ASU 2014-16 does not change the current criteria in GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required, but clarifies how current GAAP should be interpreted in the evaluation of the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share, reducing existing diversity in practice. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15: Presentation of Financial Statements—Going Concern (Subtopic 205-40) (“ASU 2014-15”): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The update sets forth a requirement for management to evaluate whether there are conditions and events that raise substantial doubt about an entity’s ability to continue as a going concern, a responsibility that did not previously exist in GAAP. The amendments included in this update require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (i) provide a definition of the term “substantial doubt”, (ii) require an evaluation every reporting period, including interim periods, (iii) provide principles for considering the mitigating effect of management’s plans, (iv) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (v) require an express statement and other disclosures when substantial doubt is not alleviated, and (vi) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU 2014-15 will be effective for the Company in fiscal year 2016. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2014, FASB issued ASU 20-14-09: Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The new guidance sets forth a new five-step revenue recognition model that replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. ASU 2014-09 provides alternative methods of initial adoption and is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is not permitted. The Company is currently evaluating the impact that this standard will have on the Company’s consolidated financial statements.

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk.

Historically, we have not experienced material fluctuations in our results of operations due to foreign currency exchange rate changes. We do not currently engage, nor is there any plan to engage, in hedging foreign currency risk.

We also have interest rate risk with respect to changes in variable interest rates on our revolving line of credit, and our cash and cash equivalents and restricted cash. Interest on the line of credit is currently based on either Silicon Valley Bank’s prime rate, or LIBOR, which varies in accordance with prevailing market conditions. A change in interest rate impacts the interest expense on the line of credit and cash flows. This interest rate risk will not have a material impact on our financial position or results of operations.

Item 8.

Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF MATTERSIGHT CORPORATION


	Page
Financial Statements:
Report of Grant Thornton LLP Independent Registered Public Accounting Firm		24

Consolidated Balance Sheets — as of December 31, 2014 and December 31, 2013		25

Consolidated Statements of Operations — for the fiscal years ended 2014, 2013, and 2012		26

Consolidated Statements of Comprehensive Loss — for the fiscal years ended 2014, 2013, and 2012		27

Consolidated Statements of Cash Flows — for the fiscal years ended 2014, 2013, and 2012		28

Consolidated Statements of Changes in Stockholders’ Equity — for the fiscal years ended 2014, 2013, and 2012		29

Notes to Consolidated Financial Statements		30

Financial Statement Schedule:

Schedule II-Valuation and Qualifying Accounts — for the fiscal years ended 2014, 2013, and 2012		54

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Mattersight Corporation

We have audited the accompanying consolidated balance sheets of Mattersight Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Schedule II – Valuation and Qualifying Accounts. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule 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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits 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 Company’s 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 Mattersight Corporation and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ GRANT THORNTON LLP

Chicago, IL

March 12, 2015

MATTERSIGHT CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)


	December 31, 2014			December 31, 2013
ASSETS:
Current Assets:
Cash and cash equivalents	$	14,238		$	13,392
Receivables, net		3,460			2,384
Prepaid expenses		4,449			3,576
Other current assets		236			427

Total current assets		22,383			19,779
Equipment and leasehold improvements, net		4,657			5,158
Goodwill		972			972
Intangibles, net		571			409
Other long-term assets		3,495			4,431

Total assets	$	32,078		$	30,749

LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current Liabilities:
Accounts payable	$	1,183		$	752
Accrued compensation and related costs		2,241			1,844
Unearned revenue		7,859			7,215
Capital leases		1,637			1,599
Other current liabilities		2,549			2,499

Total current liabilities		15,469			13,909
Long-term unearned revenue		2,532			2,866
Long-term capital leases		1,176			1,233
Other long-term liabilities		282			374

Total liabilities		19,459			18,382

Series B Stock, $0.01 par value; 5,000,000 shares authorized and designated; 1,648,185 and 1,649,122 shares issued and outstanding at December 31, 2014 and December 31, 2013, respectively, with a liquidation preference of $9,877 and $9,294 at December 31, 2014 and December 31, 2013, respectively		8,406			8,411
Stockholders’ Equity:
Preferred Stock, $0.01 par value; 35,000,000 shares authorized; none issued and outstanding		—			—
Common Stock, $0.01 par value; 50,000,000 shares authorized; 24,046,977 and 20,465,984 shares issued at December 31, 2014 and December 31, 2013, respectively; and 22,324,093 and 18,886,966 outstanding at December 31, 2014 and December 31, 2013, respectively		240			205
Additional paid-in capital		243,282			228,038
Accumulated deficit		(226,404	)		(212,172	)
Treasury stock, at cost, 1,722,884 and 1,579,018 shares at December 31, 2014 and December 31, 2013, respectively		(8,879	)		(8,082	)
Accumulated other comprehensive loss		(4,026	)		(4,033	)

Total stockholders’ equity		4,213			3,956

Total liabilities and stockholders’ equity	$	32,078		$	30,749

See accompanying notes to consolidated financial statements.

MATTERSIGHT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)


	For the Fiscal Years Ended
	2014			2013			2012
Revenue:
Behavioral Analytics revenue	$	29,427		$	33,005		$	32,138
Other revenue		779			1,206			1,314

Total services revenue		30,206			34,211			33,452
Reimbursed expenses		113			283			411

Total revenue		30,319			34,494			33,863
Operating expenses:
Cost of Behavioral Analytics revenue		9,007			10,139			12,208
Cost of Other revenue		279			617			702

Cost of services		9,286			10,756			12,910
Reimbursed expenses		113			283			411

Total cost of revenue, exclusive of depreciation and amortization shown below:		9,399			11,039			13,321
Sales, marketing and development		21,647			21,760			23,142
General and administrative		9,140			8,782			8,255
Severance and related costs		—			154			693
Depreciation and amortization		3,022			3,450			3,419
Amortization of intangibles		106			66			81

Total operating expenses		43,314			45,251			48,911

Operating loss		(12,995	)		(10,757	)		(15,048	)
Interest and other (expense) income, net		(1,090	)		(534	)		(384	)
Change in fair value of warrant liability		(124	)		(125	)		—

Loss from continuing operations before income taxes		(14,209	)		(11,416	)		(15,432	)
Income tax (provision) benefit		(23	)		244			(38	)

Loss from continuing operations		(14,232	)		(11,172	)		(15,470	)
Income from discontinued operations, net of tax		—			—			249

Net loss		(14,232	)		(11,172	)		(15,221	)
Series B Stock fair value over stated value		—			—			(69	)
Dividends related to Series B Stock		(589	)		(589	)		(591	)

Net loss available to Common Stock holders	$	(14,821	)	$	(11,761	)	$	(15,881	)

Per share of Common Stock:
Basic loss from continuing operations	$	(0.74	)	$	(0.70	)	$	(1.01	)

Basic income from discontinued operations	$	—		$	—		$	0.02

Basic net loss available to Common Stock holders	$	(0.74	)	$	(0.70	)	$	(0.99	)

Per share of Common Stock:
Diluted loss from continuing operations	$	(0.74	)	$	(0.70	)	$	(1.01	)

Diluted income from discontinued operations	$	—		$	—		$	0.02

Diluted net loss available to Common Stock holders	$	(0.74	)	$	(0.70	)	$	(0.99	)

Shares used to calculate basic net loss per share		19,923			16,722			16,002

Shares used to calculate diluted net loss per share		19,923			16,722			16,002

Stock-based compensation, primarily restricted stock, is included in individual line items above:
Cost of Behavioral Analytics revenue	$	181		$	267		$	16
Sales, marketing and development		2,022			3,436			2,308
General and administrative		1,975			1,872			1,405
Severance and related costs		—			29			268

See accompanying notes to consolidated financial statements.

MATTERSIGHT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)


	For the Fiscal Years Ended
	2014			2013			2012
Net loss	$	(14,232	)	$	(11,172	)	$	(15,221	)
Other comprehensive loss:
Effect of currency translation		7			6			(1	)

Comprehensive net loss	$	(14,225	)	$	(11,166	)	$	(15,222	)

See accompanying notes to consolidated financial statements.

MATTERSIGHT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	For the Fiscal Years Ended
	2014			2013			2012
Cash Flows from Operating Activities:
Net loss	$	(14,232	)	$	(11,172	)	$	(15,221	)
Less: net income from discontinued operations		—			—			249

Net loss from continuing operations		(14,232	)		(11,172	)		(15,470	)
Adjustments to reconcile net loss from continuing operations to net cash (used in) provided by operating activities:
Depreciation and amortization		3,128			3,516			3,500
Stock-based compensation		4,178			5,575			3,729
Severance and related costs		—			29			268
Change in fair value of warrant liability		124			125			—
Other		—			2			2
Changes in assets and liabilities:
Receivables		(1,076	)		184			(27	)
Prepaid expenses		(85	)		739			1,879
Other assets		192			(112	)		(50	)
Accounts payable		352			(29	)		(31	)
Accrued compensation and related costs		397			509			(47	)
Unearned revenue		310			1,854			(4,592	)
Other liabilities		(222	)		330			(177	)

Total Adjustments		7,298			12,722			4,454

Net cash (used in) provided by continuing operations		(6,934	)		1,550			(11,016	)
Net cash provided by discontinued operations		—			—			24

Net cash (used in) provided by operating activities		(6,934	)		1,550			(10,992	)

Cash Flows from Investing Activities:
Capital expenditures		(766	)		(1,233	)		(2,081	)
Patents and trademarks		(251	)		(239	)		(79	)

Net cash used in continuing investing activities		(1,017	)		(1,472	)		(2,160	)
Net cash used in discontinued investing activities		—			—			—

Net cash used in investing activities		(1,017	)		(1,472	)		(2,160	)

Cash Flows from Financing Activities:
Proceeds from issuance of Common Stock, net		11,138			5,621			—
Proceeds from line of credit		7,000			2,400			3,691
Repayments from line of credit		(7,000	)		(6,096	)		—
Principal payments under capital lease obligations		(1,701	)		(2,117	)		(2,311	)
Acquisition of treasury stock		(797	)		(1,055	)		(1,136	)
Proceeds from stock compensation and employee stock purchase plans, net		165			138			802
Proceeds from issuance of stock warrants		—			4			—
Fees from issuance of Common Stock		—			—			(49	)
Decrease in restricted cash		—			—			1,500
Purchase of shares of Series B Stock		—			—			(3,743	)
Payment of Series B Stock dividends		—			—			(595	)

Net cash provided by (used in) continuing financing activities		8,805			(1,105	)		(1,841	)
Net cash used in discontinued financing activities		—			—			—

Net cash provided by used in financing activities		8,805			(1,105	)		(1,841	)

Effect of exchange rate changes on cash and cash equivalents by continuing operations		(8	)		—			4
Effect of exchange rate changes on cash and cash equivalents by discontinued operations		—			—			—

Effect of exchange rate changes on cash and cash equivalents		(8	)		—			4

Increase (decrease) in cash and cash equivalents		846			(1,027	)		(14,989	)
Cash and cash equivalents, beginning of period		13,392			14,419			29,408

Cash and cash equivalents of continuing operations, end of period	$	14,238		$	13,392		$	14,419

Non-Cash Investing and Financing Transactions:
Capital lease obligations incurred	$	1,692		$	2,973		$	1,793
Capital equipment purchased on credit		1,692			2,973			1,793
Fair value of warrants classified as liability		380			785			—
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	266		$	403		$	371

See accompanying notes to consolidated financial statements.

MATTERSIGHT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except share data)


	Common Stock Issued						Additional Paid-in Capital			Accumulated Deficit			Treasury Stock			Accumulated Other Compre- hensive Loss			Total Stock- holders’ Equity
	Shares			Amount			Additional Paid-in Capital			Accumulated Deficit			Treasury Stock			Accumulated Other Compre- hensive Loss			Total Stock- holders’ Equity
Balance, December 31, 2011		18,037,552		$	180		$	212,618		$	(185,779	)	$	(5,891	)	$	(4,038	)	$	17,090

Issuance of Common Stock for option awards exercised		173,600			1			663			—			—			—			664
Fees for issuance of Common Stock		—			—			(49	)		—			—			—			(49	)
Issuance of Common Stock related to employee stock programs		481,407			5			445			—			—			—			450
Amortization/forfeitures of unearned compensation		(286,448	)		(2	)		3,655			—			—			—			3,653
Purchase of treasury shares		—			—			—			—			(1,136	)		—			(1,136	)
Series B Stock purchased		—			—			(82	)		—			—			—			(82	)
Series B Stock conversions		1,737			—			8			—			—			—			8
Series B Stock dividend		—			—			(591	)		—			—			—			(591	)
Other comprehensive loss		—			—			—			—			—			(1	)		(1	)
Net loss		—			—			—			(15,221	)		—			—			(15,221	)

Balance, December 31, 2012		18,407,848		$	184		$	216,667		$	(201,000	)	$	(7,027	)	$	(4,039	)	$	4,785

Proceeds from issuance of Common Stock, net		1,538,462			15			5,606			—			—			—			5,621
Issuance of Common Stock for option awards exercised		4,498			—			16			—			—			—			16
Issuance of Common Stock related to employee stock programs		728,761			7			1,812			—			—			—			1,819
Amortization/forfeitures of unearned compensation		(213,664	)		(1	)		4,525			—			—			—			4,524
Purchase of treasury shares		—			—			—			—			(1,055	)		—			(1,055	)
Series B Stock conversions		79			—			1			—			—			—			1
Series B Stock dividend		—			—			(589	)		—			—			—			(589	)
Other comprehensive gain		—			—			—			—			—			6			6
Net loss		—			—			—			(11,172	)		—			—			(11,172	)

Balance, December 31, 2013		20,465,984		$	205		$	228,038		$	(212,172	)	$	(8,082	)	$	(4,033	)	$	3,956

Proceeds from issuance of Common Stock, net		2,891,566			29			11,109			—			—			—			11,138
Issuance of Common Stock for option awards exercised		2,914			—			14			—			—			—			14
Issuance of Common Stock for warrants exercised		86,366			1			528			—			—			—			529
Issuance of Common Stock related to employee stock programs		643,706			5			189			—			—			—			194
Amortization/forfeitures of unearned compensation		(44,496	)		—			3,988			—			—			—			3,988
Purchase of treasury shares		—			—			—			—			(797	)		—			(797	)
Series B Stock conversions		937			—			5			—			—			—			5
Series B Stock dividend		—			—			(589	)		—			—			—			(589	)
Other comprehensive gain		—			—			—			—			—			7			7
Net loss		—			—			—			(14,232	)		—			—			(14,232	)

Balance, December 31, 2014		24,046,977		$	240		$	243,282		$	(226,404	)	$	(8,879	)	$	(4,026	)	$	4,213

See accompanying notes to consolidated financial statements.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except share and per share data)

Note One — Description of Business

Mattersight Corporation (together with its subsidiaries and predecessors, “Mattersight,” “we,” “us,” or the “Company”) is a leader in enterprise analytics focused on customer and employee interactions and behaviors. Through its Behavioral Analytics- related services, including Predictive Behavioral Routing, Performance Management, and Predictive Analytics (collectively, “Behavioral Analytics”), Mattersight captures and analyzes customer and employee interactions, employee desktop data, and other contextual information to optimally route customers to the best available employee, improve operational performance, and predict future customer and employee outcomes. Mattersight’s analytics are based on millions of proprietary algorithms and the application of unique behavioral models. The Company’s SaaS delivery model combines analytics in the cloud with deep customer partnerships to drive significant business value. Mattersight’s solutions are used by leading companies in the healthcare, insurance, financial services, telecommunications, cable, utilities, education, hospitality, and government industries.

Through the performance of Behavioral Analytics, the Company generates two types of revenue:

(1)

(2)

Consulting services revenue, which is generally project-based and sold on a time-and-materials or fixed-fee basis and includes follow-on consulting services revenue.

•

Identify optimal customer/employee behavioral pairing for call routing;

•

Identify and understand customer personality;

•

Automatically measure customer satisfaction and agent performance on every analyzed call;

•

Improve rapport between agent and customer;

•

Reduce call handle times while improving customer satisfaction;

•

Identify opportunities to improve self-service applications;

•

Improve cross-sell and up-sell success rates;

•

Improve the efficiency and effectiveness of collection efforts;

•

Measure and improve supervisor effectiveness and coaching;

•

Improve agent effectiveness by analyzing key attributes of desktop usage;

•

Predict likelihood of customer attrition;

•

Predict customer satisfaction and Net Promoter Scores ^® without customer surveys;

•

Predict likelihood of debt repayment;

•

Predict likelihood of a sale or cross-sell; and

•

Identify fraud callers and improve authentication processes.

In addition to our Behavioral Analytics offerings, Mattersight also generates revenue from the following services:

(1) Marketing Managed Services, which consist of marketing application hosting services, from which the Company derives Managed services revenue; and

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Types of Revenue

Managed Services Revenue

We also generate Managed services revenue from Marketing Managed Services, specifically, from hosted customer and campaign data management. We expect that this source of Managed services revenue will continue to diminish over time as we focus on growth through Behavioral Analytics, including predictive behavioral routing.

Consulting Services Revenue

Note Two — Summary of Significant Accounting Policies

Fiscal Year-End

The fiscal year-ends presented are fiscal years 2014, 2013, and 2012, respectively.

By unanimous written consent effective December 26, 2012, the Company’s Board of Directors determined to change the Company’s fiscal year end from the last Saturday in December to December 31, beginning with fiscal year 2012.

Consolidation

The consolidated financial statements include the accounts of Mattersight and all of its subsidiaries. All significant intercompany transactions have been eliminated.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“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 amounts of revenue and expenses during the reporting period. Actual results could differ from those amounts.

Discontinued Operations

The Company sold its Integrated Contact Solutions (“ICS”) Business Unit and “eLoyalty” registered trademark / trade name to Magellan Acquisition Sub, LLC, a Colorado limited liability company and wholly-owned subsidiary of TeleTech Holdings, Inc., a Delaware corporation, on May 28, 2011, and the Company changed its name from eLoyalty Corporation to Mattersight Corporation effective May 31, 2011. Therefore, the 2012 results of operations of the ICS Business Unit are reported as discontinued operations. Beginning June 1, 2012, Mattersight reports financial results on a single business segment, primarily focused on Behavioral Analytics.

Revenue Recognition

Behavioral Analytics Revenue

Behavioral Analytics revenue consists of Managed services revenue and Consulting services revenue derived from the performance of Behavioral Analytics.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Revenue

Other revenue consists of Marketing Managed Services revenue and CRM Services revenue.

Cost of Revenue before Reimbursed Expenses, Exclusive of Depreciation and Amortization

If the Company’s estimates indicate that a contract loss will occur, then a loss provision is recorded in the period in which the loss first becomes probable and can be reasonably estimated.

Sales, Marketing and Development

Research and Development

Research and development expenses relate primarily to the development groups located in Austin, Texas and consist primarily of salaries, incentive compensation, employee benefits costs, and travel expenses for dedicated personnel net of any labor costs directly related to the generation of revenue, which are represented in Cost of services. Research and development expenses were approximately $5.0 million in fiscal year 2014, $4.4 million in fiscal year 2013, and $4.0 million in fiscal year 2012.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

General and Administrative

Severance and Related Costs

Loss Per Common Share

The per common share basic net loss available to holders of our Common Stock, par value $0.01 per share (“Common Stock”), has been computed by dividing the net loss available to holders of Common Stock for each period presented by the weighted average shares outstanding. The per common share diluted loss available to holders of Common Stock has been computed by dividing the net loss available to holders of Common Stock by the weighted average shares outstanding plus the dilutive effect of Common Stock equivalents, which is primarily related to our 7% Series B Convertible Preferred Stock (“Series B Stock”), using the “treasury stock” method. In periods in which there was a loss, the dilutive effect of Common Stock equivalents is not included in the diluted loss per share calculation as it was antidilutive.

Fair Value of Financial Instruments

The carrying values of current assets and liabilities approximated their fair values as of December 31, 2014 and December 31, 2013. Fair value is an exit price and establishes a three-tier valuation hierarchy for ranking the quality and reliability of the information used to determine fair values. The first tier, Level 1, uses quoted market prices in active markets for identical assets or liabilities. Level 2 uses inputs, other than quoted market prices for identical assets or liabilities in active markets, which are observable either directly or indirectly. Level 3 uses unobservable inputs in which there are little or no market data, and requires the entity to develop its own assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Cash and Cash Equivalents

The Company considers all highly liquid investments readily convertible into known amounts of cash (with original purchased maturities of three months or less) to be cash equivalents.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, which includes foreign bank accounts, restricted cash, and receivables. Cash and cash equivalents and restricted cash consist of money market funds and deposits with high credit quality financial institutions. At times, such deposits may be in excess of the Federal Deposit Insurance Corporation insurance limit. Accounts in the United States are insured by the Federal Deposit Insurance Corporation up to $250,000. At December 31, 2014, the Company had non-interest-bearing cash and interest-bearing money market balances in excess of federally insured limits by $13.7 million. The Company’s receivables are derived from billings to clients located primarily in the U.S. and are denominated in U.S. dollars. For fiscal year 2014, there were three clients that accounted for 10% or more of total revenue: United HealthCare Services, Inc., Progressive Casualty Insurance Company, and Health Care Service Corporation, which accounted for 25%, 20%, and 11% of total revenue, respectively. For fiscal year 2013, there were four clients that accounted for 10% or more of total revenue: Vangent, Inc., Progressive Casualty Insurance Company, Allstate Insurance Company, and United HealthCare Services, Inc., which accounted for 21%, 15%, 13%, and 11% of total revenue, respectively. For fiscal year 2012, there were three clients that accounted for 10% or more of total revenue: Vangent, Inc.; Allstate Insurance Company; and Progressive Casualty Insurance Company, which accounted for 19%, 16%, and 13% of total revenue, respectively. As of December 31, 2014, two clients, United HealthCare Services, Inc. and CVS Pharmacy, Inc. accounted for 41% and 19% of total gross accounts receivable, respectively. As of December 31, 2013, four clients, United HealthCare Services, Inc., CVS Pharmacy, Inc., Allstate Insurance Company, and The Financial Times Limited accounted for 36%, 19%, 12%, and 11% of total gross accounts receivable, respectively.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Equipment and Leasehold Improvements

Computers, software, furniture, and equipment are carried at cost and depreciated on a straight-line basis over their estimated useful lives. Leasehold improvements are amortized over the lesser of the useful life or the lease term. The useful life for computers and software is three years. For enterprise software applications where a longer useful life is deemed appropriate, five years is used. For furniture and equipment, a useful life of five years is used. Maintenance and repair costs are expensed as incurred. The cost and related accumulated depreciation of assets sold or disposed of are eliminated from the respective accounts and the resulting gain or loss is included in the statements of operations. The carrying value of equipment and leasehold improvements is only reviewed if a triggering event occurs to assess recoverability based on future undiscounted cash flows. An impairment loss, if any, would be measured as the excess of the carrying value over the fair value. There was a triggering event as of December 31, 2014 and December 31, 2013; however no impairment was required to be recognized.

The Company accounts for software developed for internal use in accordance with the guidance provided under ASC Topic 350, Intangibles – Goodwill and Other , which addresses accounting for the costs of computer software developed or obtained for internal use. As such, costs incurred that relate to the planning and post-implementation phases of development are expensed. Costs incurred during the application development stage are capitalized and amortized over the asset’s estimated useful life, which is generally three to five years.

The Company leases certain equipment using both capital leases and operating leases. Assets leased under capital leases are recorded at the present value of future lease payments and depreciated on a straight line basis. All capital leases are for terms of twenty-four, thirty, or thirty-six months.

Goodwill

Goodwill is tested annually for impairment or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. In performing our annual impairment test, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. If it is concluded that this is the case, we perform a detailed quantitative assessment using a two-step test approach. In the first step, the fair value of the reporting unit is compared with its carrying value. If the fair value exceeds the carrying value, then goodwill is not impaired and no further testing is performed. The second step is performed if the carrying value exceeds the fair value. The implied fair value of the reporting unit’s goodwill must be determined and compared to the carrying value of the goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference will be recorded. The Company currently operates in a single business segment or reporting unit.

In fiscal year 2014, after completing our annual qualitative review, we concluded that it was not more likely than not that the carrying value of our reporting unit exceeded its fair value. Accordingly, we concluded that further quantitative analysis and testing was not required, and no goodwill impairment charge was required.

Intangible Assets


	December 31, 2014			December 31, 2013
Gross intangible assets	$	3.4		$	3.2
Accumulated amortization of intangible assets		(2.8	)		(2.8	)

Total	$	0.6		$	0.4

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Long-Term Assets

Other long-term assets primarily consist of deferred costs and prepaid commissions related to Behavioral Analytics. These costs are recognized over the terms of the respective contracts, which range from three months to five years. Costs included in long-term assets will be recognized over the remaining term of the contracts beyond the first twelve months.

Income Taxes

The Company has recorded income tax valuation allowances on our net deferred tax assets to account for the unpredictability surrounding the timing of realization of our U.S. and non-U.S. net deferred tax assets due to uncertain economic conditions. The valuation allowances may be reversed at a point in time when management determines realization of these tax assets has become more likely than not, based on a return to predictable levels of profitability.

Short-Term Debt

On June 27, 2014, the Company, together with its wholly-owned subsidiaries Mattersight Europe Holding Corporation and Mattersight International Holding, Inc., as co-borrowers (the “Co-Borrowers”), entered into a Second Amendment to the Amended and Restated Loan and Security Agreement with Silicon Valley Bank (the “Second Amendment”). The Second Amendment amends our financial covenants under the Amended and Restated Loan Agreement entered into by the Company, together with the Co-Borrowers, and Silicon Valley Bank on May 20, 2013 (the “Credit Facility”) by: (i) reducing the tangible net worth requirement from $3.0 million to $1.25 million and (ii) adding a minimum revenue requirement.

As of December 31, 2014, the Company’s $10.0 million revolving line of credit under the Credit Facility was set to mature in May 2015. Through the maturity date, the Company was obligated to pay a fee equal to one-eighth of one percent (0.125%) per annum of the average unused portion of the Credit Facility, payable quarterly in arrears. The Company had a zero balance outstanding under the Credit Facility as of December 31, 2014. The Company was in compliance with all of its debt covenants under the Credit Facility as of December 31, 2014, except for the minimum revenue covenant for which the Company received a waiver from Silicon Valley Bank.

For more information relating to the terms of the Credit Facility, see Note Ten “Short-Term Debt” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Annual Report on Form 10-K.

Unearned Revenue

Payments received for Managed services contracts in excess of the amount of revenue recognized for these contracts are recorded as unearned revenue until revenue recognition criteria are met.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stockholders’ Equity

Stockholders’ equity includes Common Stock issued, additional paid-in capital, accumulated deficit, treasury stock, and accumulated other comprehensive loss. The 1.6 million shares of Series B Stock are not classified as permanent equity or a liability in the accompanying balance sheets. These shares of Series B Stock are conditionally redeemable and do not meet the definition of a mandatorily redeemable financial instrument. The holders of Series B Stock have the ability to initiate a redemption upon the occurrence of certain events that are considered outside the Company’s control.

Foreign Currency Translation

The functional currencies for the Company’s foreign subsidiaries are their local currencies. All assets and liabilities of foreign subsidiaries are translated to U.S. dollars at end of period exchange rates. The resulting translation adjustments are recorded as a component of stockholders’ equity and comprehensive loss. Income and expense items are translated at average exchange rates prevailing during the period. Foreign currency net gains were $7 thousand and $6 thousand for fiscal years 2014 and 2013, respectively, and for fiscal year 2012, a loss of $1 thousand. These foreign currency transactions from subsidiaries are included in interest and other income within the consolidated statements of operations.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. Determining fair value of stock-based awards at the grant date requires certain assumptions. The Company uses historical information as the primary basis for the selection of expected life, expected volatility, expected dividend yield assumptions, and anticipated forfeiture rates. The risk-free interest rate is selected based on the yields from U.S. Treasury Strips with a remaining term equal to the expected term of the options being valued.

Stock Warrants

In accordance with ASC 480-10, Distinguishing Liabilities from Equity , the Company classified certain warrants to purchase Common Stock as liabilities that do not meet the requirements for classification as equity. Such liabilities are initially recorded at fair value with subsequent changes in fair value recorded as a component of gain or loss on warrant liability on the consolidated statements of operations in each reporting period. If these warrants subsequently meet the requirements of equity classification, the Company reclassifies the fair value to equity. Fair value of the warrants was measured using a Monte Carlo option pricing model and in applying this model certain assumptions were used. See Note Twenty-One, “Stock Warrants”.

Recent Accounting Pronouncements

In August 2014, FASB issued ASU No. 2014-15: Presentation of Financial Statements – Going Concern (Subtopic 205-40) (“ASU 2014-15”): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The update sets forth a requirement for management to evaluate whether there are conditions and events that raise substantial doubt about an entity’s ability to continue as a going concern, a responsibility that did not previously exist in GAAP. The amendments included in this update require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (i) provide a definition of the term substantial doubt, (ii) require an evaluation every reporting period, including interim periods, (iii) provide principles for considering the mitigating effect of management’s plans, (iv) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (v) require an express statement and other disclosures when substantial doubt is not alleviated, and (vi) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). ASU 2014-15 will be effective for the Company in fiscal year 2016. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In May 2014, FASB issued ASU No. 2014-09: Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The new guidance sets forth a new five-step revenue recognition model that replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. ASU 2014-09 provides alternative methods of initial adoption and is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is not permitted. The Company is currently evaluating the impact that this standard will have on the Company’s consolidated financial statements.

Note Three — Discontinued Operations

The following table summarizes the components included within income from discontinued operations, net of tax within the Company’s Consolidated Statements of Operations for the periods indicated.


	For the Fiscal Years Ended
	2014		2013		2012
Total expenses	$	—	$	—	$	(0.1	)
Benefit for income taxes		—		—		0.3
Income from discontinued operations		—		—		0.2

Intraperiod tax allocation requires that the provision for income taxes be allocated between continuing operations and other categories of earnings (such as discontinued operations or other comprehensive income) for each tax jurisdiction. In periods in which there is a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, the tax provision is first allocated to the other categories of earnings. A related tax benefit is then recorded in continuing operations. While intraperiod tax allocation in general does not change the overall tax provision, it may result in a gross-up of the individual components, thereby changing the amount of tax provision included in each category. For the fiscal years ended December 31, 2014 and December 31, 2013, the intraperiod allocation was not applicable because we no longer have any discontinued operations activity. Since continuing operations and discontinued operations both reported a pre-tax loss for the year ended December 31, 2012, an intraperiod tax allocation was not required for the year. Included in continuing operations income tax provision is tax expense of $38 thousand for the year ended December 31, 2012. Included in discontinued operations income tax provision is a tax benefit of $0.3 million due to a favorable ruling from the Internal Revenue Service for the year ended December 31, 2012. Depending upon the level of the Company’s future earnings and losses and their impact on income from discontinued operations, it is possible that these tax adjustments may change or even reverse in future periods.

Note Four — Severance and Related Costs

Severance costs are comprised primarily of contractual salary and related fringe benefits over the severance payment period. Facility costs include losses on contractual lease commitments, net of estimated sublease recoveries, and impairment of leasehold improvements and certain office assets.

For fiscal year 2014, the Company did not have any expense related to severance and related costs. For fiscal year 2013, the Company recorded $0.2 million of expense related to severance and related costs for the elimination of one position. For fiscal year 2012, the Company recorded $0.7 million of expense related to severance and related costs for the elimination of one position.

For fiscal years 2013 and 2012, the Company made cash payments of $0.2 million and $0.7 million related to severance and related costs

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The severance and related costs and their utilization for the fiscal years ended 2012, 2013, and 2014 are as follows:


	Employee Severance			Facilities		Total
Balance, December 31, 2011	$	—		$	—	$	—

Charges		0.7			—		0.7
Adjustments		—			—		—

Charged to severance and related costs		0.7			—		0.7
Payments		(0.7	)		—		(0.7	)
Other		—			—		—

Balance, December 31, 2012	$	—		$	—	$	—

Charges		0.2			—		0.2
Adjustments		—			—		—

Charged to severance and related costs		0.2			—		0.2
Payments		(0.2	)		—		(0.2	)
Other		—			—		—

Balance, December 31, 2013	$	—		$	—	$	—

Charges		—			—		—
Adjustments		—			—		—

Charged to severance and related costs		—			—		—
Payments		—			—		—
Other		—			—		—

Balance, December 31, 2014	$	—		$	—	$	—

As of December 31, 2014, all severance and related costs have been paid.

Note Five — Receivables, Net

Receivables consist of the following:


	As of
	December 31, 2014		December 31, 2013
Amounts billed to clients	$	3.3	$	2.3
Unbilled revenue		0.2		0.1

		3.5		2.4
Allowances for doubtful accounts*		—		—

Receivables, net	$	3.5	$	2.4

*	Less than $0.1 million.

Amounts billed to clients represent fees and reimbursable project-related expenses. Unbilled revenue represents fees, project-related expenses, materials, and subcontractor costs performed in advance of billings in accordance with contract terms. Unbilled revenue at December 31, 2014 and December 31, 2013 consists of amounts due from clients and is anticipated to be collected within normal terms. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its clients to make required payments and clients indicating their intention to dispute their obligation to pay for contractual services provided by us. If the financial condition of the Company’s clients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Note Six — Current Prepaid Expenses

Current prepaid expenses primarily consist of deferred costs and prepaid commissions related to Behavioral Analytics contracts. These costs are recognized over the subscription periods of the respective contracts, generally three to five years after the go-live date or, in cases where the Company contracts with a client for a short-term pilot of the Behavioral Analytics offering prior to committing to a longer subscription period, if any, the subscription or pilot periods generally range from three to twelve months after the go-live date. Costs included in current prepaid expenses will be recognized within the next twelve months.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Current prepaid expenses consisted of the following:


	As of
	December 31, 2014		December 31, 2013
Deferred costs	$	1.4	$	1.1
Prepaid commissions		1.5		1.2
Other		1.6		1.3

Total	$	4.5	$	3.6

Note Seven — Equipment and Leasehold Improvements

Equipment and leasehold improvements consist of the following:


	As of
	December 31, 2014			December 31, 2013
Computers and software	$	15.8		$	18.7
Furniture and equipment		0.5			0.5
Leasehold improvements		1.0			1.0

Equipment and leasehold improvements, gross		17.3			20.2
Accumulated depreciation and amortization		(12.6	)		(15.0	)

Equipment and leasehold improvements, net	$	4.7		$	5.2

Depreciation and amortization expense was $3.0 million, $3.4 million, and $3.4 million, for fiscal years 2014, 2013, and 2012, respectively. Assets acquired under capital leases were $1.7 million, $3.0 million, and $1.8 million, in fiscal years 2014, 2013, and 2012, respectively. Depreciation and amortization expense on capital lease assets was $1.7 million, $2.2 million, and $2.2 million, in fiscal years 2014, 2013, and 2012, respectively.

Note Eight — Income Taxes

Loss before income taxes consisted of the following:


	For the Fiscal Years Ended
	2014			2013			2012
United States	$	(14.2	)	$	(11.3	)	$	(15.0	)
Foreign		—			(0.1	)		(0.4	)

Total	$	(14.2	)	$	(11.4	)	$	(15.4	)

The income tax benefit consists of the following:


	For the Fiscal Years Ended
	2014		2013		2012
Current:
Federal	$	—	$	—	$	—
State		—		0.2		—
Foreign		—		—		—

Total current		—		0.2		—

Deferred:
Federal		—		—		—
State		—		—		—
Foreign		—		—		—

Total deferred		—		—		—

Income tax benefit	$	—	$	0.2	$	—

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The 2012 earnings and gain from discontinued operations included $0.3 million of tax benefit due to a favorable ruling from the Internal Revenue Service.

Total income tax benefit differed from the amount computed by applying the federal statutory income tax rate due to the following:


	For the Fiscal Years Ended
	2014			2013			2012
Federal tax benefit, at statutory rate	$	5.0		$	4.0		$	5.4
State tax benefit, net of federal benefit		0.4			0.3			0.4
Nondeductible expenses		(0.2	)		(0.1	)		0.3
Other		(0.3	)		(0.1	)		0.3
Valuation allowance		(4.9	)		(3.9	)		(6.4	)

Income tax benefit	$	—		$	0.2		$	—

A reconciliation of the gross amounts of unrecognized tax benefits at the beginning and end of the year are as follows:


	For the Fiscal Years Ended
	2014		2013			2012
Balance at beginning of year	$	12.6	$	12.9		$	12.9
Additions based on tax positions related to the current year		—		—			—
Additions for tax positions of prior years		0.1		—			—
Reductions for tax positions of prior years		—		(0.3	)		—
Reductions for tax positions as a result of lapse of statute		—		—			—
Settlements		—		—			—

Balance at end of year	$	12.7	$	12.6		$	12.9

Due to the Company’s worldwide net operating loss carryforward position, these unrecognized tax benefits will not impact the Company’s effective tax rate, if recognized. Any change in the amount of unrecognized tax benefits within the next twelve months is not expected to result in a significant impact on the results of operations or the financial position of the Company.

Due to the Company’s worldwide net operating loss carryforward position, accrued interest and penalties associated with uncertain tax positions as of December 31, 2014 are not material. Interest and penalties associated with uncertain tax positions are recorded as part of income tax expense.

The statutes of limitation for the Company’s income tax returns after 2001 effectively remain open for examination by the IRS because the net operating loss carryforward from those years can be examined by the IRS for a period of three years after filing the tax return for the year the loss is used.

Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from three to five years. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. The Company and its subsidiaries may have various state and foreign income tax returns for immaterial jurisdictions in the process of examination throughout the reporting period.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred tax assets and liabilities comprised the following:


	As of
	December 31, 2014			December 31, 2013
Deferred tax assets:
Net operating loss carryforwards	$	66.2		$	64.0
Other accruals		4.8			4.7
Depreciation and amortization, including goodwill		0.3			0.6
Tax credit carryforward		0.5			0.5
Valuation allowance		(71.0	)		(67.6	)

Total deferred tax assets		0.8			2.2

Deferred tax liabilities:
Prepaid expenses		(0.9	)		(2.3	)

Total deferred tax liabilities		(0.9	)		(2.3	)

Net deferred tax liability	$	(0.1	)	$	(0.1	)

Deferred income taxes are not provided on certain undistributed earnings of foreign subsidiaries that are expected to be permanently reinvested in those companies. These earnings aggregated to an immaterial amount at each of December 31, 2014 and December 31, 2013.

During fiscal year 2002, the Company established a valuation allowance related to deferred tax assets for the U.S. This was in addition to the valuation allowance established in 2001 for non-U.S. deferred tax assets. The Company continues to provide a valuation allowance on significantly all domestic and foreign deferred tax assets as the Company has determined that it is more likely than not that the deferred tax assets in these jurisdictions will not be realized. As of December 31, 2014, net deferred tax assets of $71.0 million were fully offset by a valuation allowance. The Company’s U.S. Federal net operating losses (“NOLs”) of $215.4 million and U.S. State NOLs of $131.3 million will expire beginning in 2022 and 2015, respectively. The Company’s non-U.S. NOLs of $1.0 million are subject to various expiration dates beginning in 2015. The Company also carries $0.5 million in Research and Development credit carryforwards that will expire beginning in 2020.

The Company’s ability to utilize its NOLs could become subject to significant limitations under Section 382 of the Internal Revenue Code if the Company were to undergo an ownership change. An ownership change would occur if the stockholders who own or have owned, directly or indirectly, 5% or more of the Company’s Common Stock or are otherwise treated as 5% stockholders under Section 382 and the regulations promulgated thereunder, increase their aggregate percentage ownership of the Company’s stock by more than 50 percentage points over the lowest percentage of the stock owned by these stockholders at any time during the testing period, which is generally the three-year period preceding the potential ownership change. In the event of an ownership change, Section 382 imposes an annual limitation on the amount of taxable income a corporation may offset with NOL carryforwards. Any unused annual limitation may be carried over to later years until the applicable expiration date for the respective NOL carryforwards. The Company has undergone a Section 382 analysis and does not believe there is a limitation on the use of NOLs under Section 382. If a change in ownership is deemed to have occurred during the past three years, then it may be possible that the Company’s NOL carryforward could be subject to limitation under Section 382 for tax return purposes. However, since its NOL carryforward is fully reserved with a valuation allowance, there would be no impact for financial statement purposes from a Section 382 limitation.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note Nine — Other Long-Term Assets

Other long-term assets primarily consist of deferred costs and prepaid commissions related to Behavioral Analytics. These costs are recognized over the terms of the respective contracts, generally three to five years. Costs included in long-term assets will be recognized over the remaining term of the contracts beyond the first twelve months. Other long-term assets consisted of the following:


	As of
	December 31, 2014		December 31, 2013
Deferred costs	$	1.3	$	1.8
Prepaid commissions		1.7		1.8
Noncurrent deferred tax asset		0.1		0.1
Other		0.4		0.7

Total	$	3.5	$	4.4

Note Ten — Short-Term Debt

During fiscal year 2014, the Company provided written notice of termination, effective as of August 14, 2014, of the Loan and Security Agreement entered into by the Company, together with its wholly-owned subsidiaries Mattersight Europe Holding Corporation and Mattersight International Holding, Inc., as co-borrowers (the “Co-Borrowers”), and Partners for Growth IV, L.P. (“PfG”) on August 19, 2013 (the “PfG Credit Facility”). The Company voluntarily terminated the Credit Facility. At the time of termination, there were no amounts outstanding under the PfG Credit Facility and no penalties were incurred or paid by the Company in connection with the termination.

In connection with the execution of the PfG Credit Facility, the Company granted to PfG, certain affiliates of PfG, and Silicon Valley Bank, warrants (collectively, the “PfG Warrants”) to purchase shares of Common Stock. See Note Twenty-One — Stock Warrants for additional information.

In addition, on June 27, 2014, the Company, together with the Co-Borrowers, entered into a Second Amendment to the Amended and Restated Loan and Security Agreement with Silicon Valley Bank (the “Second Amendment”). The Second Amendment amends our financial covenants under the Amended and Restated Loan Agreement entered into by the Company, together with the Co-Borrowers, and Silicon Valley Bank on May 20, 2013 (the “Credit Facility”) by: (i) reducing the tangible net worth requirement from $3.0 million to $1.25 million and (ii) adding a minimum revenue requirement.

As of December 31, 2014, the Company’s $10.0 million revolving line of credit under the Credit Facility was set to mature in May 2015. Through the maturity date, the Company was obligated to pay a fee equal to one-eighth of one percent (0.125%) per annum of the average unused portion of the Credit Facility, payable quarterly in arrears. There was less than $0.2 million of interest expense for the year ended December 31, 2014. There was $0.1 million of interest expense for the year ended December 31, 2013. The interest rate for the year ended December 31, 2014 was 4%. The Company was in compliance with all of its debt covenants under the Credit Facility as of December 31, 2014, except for the minimum revenue covenant for which the Company received a waiver from Silicon Valley Bank. The Company has not drawn on the Credit Facility and there are no amounts outstanding as of December 31, 2014.

Note Eleven — Employee Benefit Plans

The Company’s U.S. employees are eligible to participate in the Mattersight Corporation 401(k) Plan (the “401(k) Plan”) on the first day of the month coinciding with or following their date of hire. The 401(k) Plan allows employees to contribute up to 30% of their eligible compensation and up to 100% of their bonus compensation, subject to IRS statutory limits. For fiscal years 2014 and 2013, Mattersight suspended the employer matching contributions for both U.S. and non-U.S. plans. For fiscal year 2012, the employer match contribution was $0.2 million. The Company funded non-U.S. contributory plans as required by statutory regulations. For fiscal year 2012, amounts funded by the Company were immaterial for non-U.S. plans. Effective January 1, 2015, Mattersight reinstated the 401(k) match for all eligible employees.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note Twelve — Capital Stock and Series B Stock

Under the terms of its Certificate of Incorporation, as amended, the Company’s authorized capital stock consists of (i) 50,000,000 shares of Common Stock, and (ii) 40,000,000 shares of preferred stock (“Preferred Stock”). Under the terms of the Certificate of Designations of 7% Series B Convertible Preferred Stock, the Company designated 5,000,000 shares of the 40,000,000 shares of Preferred Stock as its Series B Stock. 1,648,185 and 1,649,122 shares of Series B Stock were issued and outstanding as of December 31, 2014 and December 31, 2013, respectively.

On July 23, 2014, the Company entered into a Common Stock Purchase Agreement (the “2014 Purchase Agreement”) with certain accredited investors party thereto (the “2014 Purchasers”). Under the terms of the 2014 Purchase Agreement, the Company sold, and the 2014 Purchasers purchased from the Company, 2,891,566 shares of Common Stock (the “2014 Shares”), at a price of $4.15 per share, to certain institutional investors. The 2014 Shares represented 15% of the issued and outstanding shares of Common Stock immediately prior to the execution of the 2014 Purchase Agreement. The offering closed on July 29, 2014. The aggregate gross proceeds, net of fees, that the Company received from the offering were approximately $11.1 million. Proceeds from the private placement are being used for general corporate and working capital purposes. Craig-Hallum Capital Group LLC, which acted as the sole placement agent for the offering, received a commission equal to 7% of the aggregate purchase price (excluding certain accounts), for an aggregate commission of $0.8 million, and was reimbursed for its out-of-pocket expenses.

On November 26, 2013, the Company entered into a Common Stock Purchase Agreement (the “2013 Purchase Agreement”), with certain accredited investors party thereto (collectively, the “2013 Purchasers”). Under the terms of the 2013 Purchase Agreement, the Company sold, and the 2013 Purchasers purchased from the Company, 1,538,462 shares of Common Stock (the “2013 Shares”), at a price of $3.90 per share. The aggregate gross proceeds, net of fees, the Company received from the offering, net of fees, were approximately $5.6 million. Approximately 39.9% of the 2013 Shares were purchased by directors of the Company, or by their affiliates. Commissions of $0.3 million were paid in connection with the sale of the 2013 Shares. The 2013 Shares were sold without registration under the Securities Act or state securities laws, in reliance on Rule 506 of the Securities Act and in reliance on similar exemptions under applicable state laws. Each of the purchasers is an accredited investor within the meaning of Rule 501(a) of Regulation D and the 2013 Shares were sold without any general solicitation by the Company or its representatives.

During fiscal year 2012, the Company announced its intention to commence a tender offer to purchase up to 111,605 shares of Series B Stock at a cash purchase price of $8.60 per share, plus accrued and unpaid dividends.

In accordance with the terms and conditions of the tender offer, Mattersight purchased 19,758 shares of its Series B Stock, at a price of $8.71 per share (representing $8.60 per share plus accrued and unpaid dividends), for an aggregate cost of approximately $0.2 million, excluding fees and expenses related to the tender offer. These shares represented approximately 1.2% of the Series B Stock outstanding as of April 13, 2012.

The Series B Stock accrues dividends at a rate of 7% per annum, is entitled to a preference upon liquidation, and is convertible on a one-for-one basis into shares of Common Stock, subject to adjustment for stock splits, stock dividends, and similar actions. The Series B Stock generally votes on a one-for-one basis with the Common Stock, subject to adjustment for certain actions and specified matters as to which the Series B Stock is entitled to a separate class vote.

Note Thirteen — Stock-Based Compensation

The Company has two stock-based compensation plans: the Mattersight Corporation 1999 Stock Incentive Plan (the “1999 Plan”) and the Mattersight Corporation Employee Stock Purchase Plan (the “ESPP”).

Under the 1999 Plan, awards of restricted stock, installment stock, salary replacement, commissions, stock options, and stock appreciation rights may be granted to directors, officers, employees, consultants, independent contractors, and agents of the Company and its subsidiaries. Awards granted under the 1999 Plan are made at the discretion of the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”). If shares or options awarded under the 1999 Plan are not issued due to cancellation of unvested or unexercised options or shares, then those shares or options again become available for issuance under the 1999 Plan. Under the 1999 Plan, on the first day of each fiscal year, the aggregate number of shares available for issuance under the 1999 Plan is automatically increased by an amount equal to 5% of the total number of shares of Common Stock that are outstanding. At the 2008 Annual Meeting of Stockholders, stockholders approved the amendment and restatement of the 1999 Plan to increase the number of shares available for issuance under the 1999 Plan by 1,500,000.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock-based compensation expense was $4.2 million, $5.6 million, and $3.7 million, for the fiscal years ended 2014, 2013, and 2012, respectively. The Company recognizes stock compensation expense on a straight-line basis over the vesting period. The Company has established its forfeiture rate based on historical experience. The Company does not recognize the windfall tax benefit related to the excess tax deduction because the Company currently does not anticipate realizing the tax savings associated with this deduction. The amount of this excess tax deduction was $0 for each of fiscal years ended December 31, 2014 and December 31, 2013.

As of December 31, 2014, there were a total of 1,399,683 shares of Common Stock available for future grants under the 1999 Plan and from treasury stock. The Company’s Common Stock is traded on the NASDAQ Global Market under the symbol MATR.

Restricted Stock

Restricted stock awards are shares of Common Stock granted to an individual that do not immediately vest but rather, vest over a period of time. During the vesting period, the holder of granted restricted stock receives all of the benefits of ownership (right to dividends, voting rights, etc.), other than the right to sell or otherwise transfer any interest in the stock. Installment stock awards are grants to an individual of a contractual right to receive future shares of Common Stock in specified amounts on specified vesting dates, subject to the individual remaining a Mattersight employee on the specified vesting dates. The holder has no benefits of ownership in installment stock until such time as the installment stock actually vests. On September 11, 2014, each member of the Company’s Board of Directors received 10,000 shares of restricted stock, of which 25% vested on November 30, 2014 and the remaining balance will vest over the following three quarters. Commencing in 2015, in addition to the Annual Grant (as defined under the section titled “Stock Options” below), each non-employee director will receive 10,000 shares of restricted stock annually, the day after the Company’s annual stockholders’ meeting, which will vest in equal quarterly increments over four quarters.

Restricted and installment stock award activity was as follows for the fiscal years ended December 31, 2012, December 31, 2013, and December 31, 2014:


	Shares			Weighted Average Price
Nonvested balance at December 31, 2011		1,286,113		$	6.33

Granted		445,496		$	7.54
Vested		(601,298	)	$	6.54
Forfeited		(308,948	)	$	6.37

Nonvested balance at December 31, 2012		821,363		$	6.81

Granted		193,661		$	4.52
Vested		(351,137	)	$	6.39
Forfeited		(213,664	)	$	6.62

Nonvested balance at December 31, 2013		450,223		$	6.25

Granted		609,355		$	5.70
Vested		(458,888	)	$	6.12
Forfeited		(44,496	)	$	6.13

Nonvested balance at December 31, 2014		556,194		$	5.76


	For the Fiscal Years Ended
	2014		2013		2012
Total fair value of restricted and installment stock awards vested	$	2.6	$	1.4	$	3.6
Compensation expense related to restricted stock awards	$	1.7	$	2.1	$	2.5

As of December 31, 2014, there remains $2.3 million of unrecognized compensation expense related to restricted stock awards. These costs are expected to be recognized over a weighted average period of 1.8 years. The Company estimated the forfeiture rate at 3% for fiscal years 2014, 2013, and 2012.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock Options

Stock option awards may be in the form of incentive or non-qualified options. Stock options are granted with an exercise price per share equal to the fair market value of a share of the Common Stock on the date of grant, and have a maximum term of 10 years. The stock option terms are set by the Compensation Committee and generally become exercisable over a period of four years. The vesting can begin in equal monthly or quarterly increments over the vesting period.

In addition, the 1999 Plan provides that each non-employee director, upon commencing service, shall receive a non-qualified stock option to purchase 50,000 shares of Common Stock that vests ratably over a period of 48 months. The 1999 Plan also provided that each non-employee director received a non-qualified stock option to purchase 5,000 shares of Common Stock, which was granted annually, the day after the Company’s annual stockholders’ meeting (the “Annual Grant”). Stock options granted to non-employee directors have an exercise price per share equal to the fair market value of a share of Common Stock on the grant date, and are exercisable for up to 10 years. By action of the Board of Directors, the 1999 Plan was amended such that, commencing with the 2013 annual stockholders’ meeting, the size of the Annual Grant to each non-employee director increased from 5,000 to 10,000 shares.

During the fiscal year 2014, the Company granted options to purchase a total of 654,000 shares of Common Stock to certain employees. On February 12, 2014, one employee received options to purchase a total of 70,000 shares of Common Stock. The exercise price per share was $5.81, the closing price for shares of Common Stock on February 12, 2014, the grant date. The options will vest 25% on February 28, 2015, and the balance will vest ratably over the following 12 quarters, with a maximum exercise term of 10 years. On April 21, 2014, the Company’s executive officers received options to purchase a total of 225,000 shares of Common Stock. The exercise price per share was $6.38, the closing price for shares of Common Stock on April 21, 2014, the grant date. The options vested 6.25% on May 31, 2014, and the balance will vest ratably over the following 15 quarters, with a maximum exercise term of 10 years. On May 9, 2014, certain Company employees received options to purchase a total of 169,500 shares of Common Stock. The exercise price per share was $4.95, the closing price for shares of Common Stock on May 9, 2014, the grant date. Certain of the options will vest 6.25% on August 31, 2014, with the balance vesting ratably over the following 15 quarters, whereas others will vest 25% on May 31, 2015, with the balance vesting ratably over the following 12 quarters; all such options have a maximum exercise term of 10 years. On May 16, 2014, the Company’s Board of Directors received options to purchase a total of 70,000 shares of Common Stock. The exercise price per share was $4.99, the closing price for shares of Common Stock on May 16, 2014, the grant date. The options will vest 25% on May 31, 2015, and the balance will vest ratably over the following 12 quarters, with a maximum exercise term of 10 years. On August 14, 2014, certain Company employees received options to purchase a total of 19,500 shares of Common Stock. The exercise price per share was $4.88, the closing price for shares of Common Stock on August 14, 2014, the grant date. The options vested 6.25% on November 30, 2014, and the balance will vest ratably over the following 15 quarters, with a maximum exercise term of 10 years. On November 5, 2014, one employee received options to purchase a total of 10,000 shares of Common Stock. The exercise price per share was $5.45, the closing price for shares of Common Stock on November 5, 2014, the grant date. The options vested 6.25% on November 30, 2014, and the balance will vest ratably over the following 15 quarters, with a maximum exercise term of 10 years. On November 10, 2014, one employee received options to purchase a total of 90,000 shares of Common Stock. The exercise price per share was $5.58, the closing price for shares of Common Stock on November 10, 2014, the grant date. The options will vest 25% on November 30, 2015, with the balance vesting ratably over the following 12 quarters, with a maximum exercise term of 10 years.

During fiscal year 2013, options to purchase a total of 467,500 shares of Common Stock were granted. On February 13, 2013, one employee received options to purchase a total of 5,000 shares of Common Stock. The exercise price per share was $4.48, the closing price for shares of Common Stock on the grant date. The options vested 25% on February 28, 2014, and the balance will vest ratably over the following 12 quarters, with a maximum exercise term of 10 years. On March 15, 2013, the Company’s executive officers and other employees received options to purchase a total of 342,500 shares of Common Stock. The exercise price per share was $4.69, the closing price for shares of Common Stock on the grant date. The options vested 6.25% on May 31, 2013, and the balance will vest ratably over the following 15 quarters, with a maximum exercise term of 10 years. On May 17, 2013, options to purchase a total of 70,000 shares of Common Stock were granted to the Company’s Board of Directors. The exercise price per share was $3.80, the closing price for shares of Common Stock on the grant date. The options vested 25% on May 31, 2014, and the balance will vest ratably over the following 12 quarters, with a maximum exercise term of 10 years. On November 6, 2013, options to purchase a total of 50,000 shares of Common Stock were granted to two employees. The exercise price per share was $4.10, the closing price for shares of Common Stock on the grant date. The options vested 6.25% on November 30, 2013, and the balance will vest ratably over the following 15 quarters, with a maximum exercise term of 10 years.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During fiscal year 2012, options to purchase a total of 818,543 shares of Common Stock were granted. On February 27, 2012, options to purchase from the Company a total of 600,000 shares of Common Stock were granted to the Company’s executive officers. The options vested 6.25% on February 29, 2012, and the balance will vest ratably over the following 15 quarters, with a maximum term of 10 years. The exercise price per share was $5.79, the closing price of a share of Common Stock on the grant date. On May 17, 2012, certain employees received options to purchase from the Company a total of 73,336 shares of Common Stock. These options vested 6.25% on August 31, 2012, and the balance will vest ratably over the following 15 quarters, with a maximum term of 10 years. The exercise price per share was $7.99, the closing price of a share of Common Stock on the grant date. On May 18, 2012, the Company’s non-employee directors received options to purchase from the Company a total of 32,042 shares of Common Stock. These options vested 25% on May 31, 2013, and the balance will vest ratably over the following 12 quarters, with a maximum term of 10 years. The exercise price per share was $7.70, the closing price of a share of Common Stock on the grant date. On August 8, 2012, two executive officers received options to purchase from the Company a total of 113,165 shares of Common Stock. The exercise price per share was $7.71, the closing price of a share of Common Stock on the grant date. The options issued to the first executive vested 6.25% on August 31, 2012, and the balance will vest ratably over the following 15 quarters, with a maximum exercise term of 10 years. The options issued to the second executive vested 25% on August 31, 2013, and the balance will vest ratably over the following 12 quarters, with a maximum exercise term of 10 years.

Option activity was as follows for the fiscal years ended December 31, 2012, December 31, 2013, and December 31, 2014:


	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Weighted Average Fair Value of Option Grants
Outstanding as of December 31, 2011		1,227,935		$	10.95		5.4

Exercisable as of December 31, 2011		986,626		$	12.30

Granted		818,543		$	6.33			$	3.77
Exercised		(173,600	)	$	3.84
Forfeited		(106,642	)	$	18.78

Outstanding as of December 31, 2012		1,766,236		$	9.03		7.4

Exercisable as of December 31, 2012		1,004,232		$	11.09

Outstanding intrinsic value at December 31, 2012	$	0.2

Exercisable intrinsic value at December 31, 2012	$	0.2

Granted		467,500		$	4.49			$	2.68
Exercised		(4,498	)	$	3.47
Forfeited		(215,000	)	$	9.15

Outstanding as of December 31, 2013		2,014,238		$	7.98		7.0

Exercisable as of December 31, 2013		1,204,786		$	9.66

Outstanding intrinsic value at December 31, 2013	$	0.3

Exercisable intrinsic value at December 31, 2013	$	0.1

Granted		654,000		$	5.63			$	3.33
Exercised		(2,914	)	$	5.15
Forfeited		(28,728	)	$	5.85

Outstanding as of December 31, 2014		2,636,596		$	7.42		6.8

Exercisable as of December 31, 2014		1,582,165		$	8.70

Outstanding intrinsic value at December 31, 2014	$	2.1

Exercisable intrinsic value at December 31, 2014	$	1.1

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	For the Fiscal Years Ended
	2014		2013		2012
Compensation expense related to option awards	$	1.4	$	1.1	$	0.5


	For the Fiscal Years Ended
	2014		2013		2012
Total fair value of stock options vested	$	1.3	$	1.1	$	1.0
Intrinsic value of stock options exercised		—		—		0.4
Proceeds received from option exercises		—		—		0.7

As of December 31, 2014, there remained $3.2 million of unrecognized compensation expense related to stock options. These costs are expected to be recognized over a weighted average period of 1.8 years.

The fair value for options granted during fiscal years 2014, 2013, and 2012 was estimated on the date of grant using a Black Scholes option-pricing model. The Company used the following weighted average assumptions:


	For the Fiscal Years Ended
	2014			2013			2012
Risk-free interest rates		1.4	%		0.7	%		0.6	%
Expected dividend yield		—			—			—
Expected volatility		65	%		67	%		67	%
Expected lives		6.0 years			6.0 years			6.0 years

Historical Company information is the primary basis for the selection of expected life, expected volatility, and expected dividend yield assumptions. The risk-free interest rate is selected based on the yields from U.S. Treasury Strips with a remaining term equal to the expected term of the options being valued.

Other Stock Compensation

Employee Stock Purchase Plan

The ESPP is intended to qualify as an “employee stock purchase plan” under section 423 of the Internal Revenue Code. Under the ESPP, eligible employees are permitted to purchase shares of Common Stock at below-market prices. The purchase period opens on the first day and ends on the last business day of each calendar quarter. The shares of Common Stock issued in respect of employee purchases under the ESPP during the fiscal years ended 2014, 2013, and 2012 were as follows:


	For the Fiscal Years Ended
	2014		2013		2012
Shares of Common Stock issued		34,351		40,959		27,939

Expense related to ESPP (in thousands)	$	44	$	39	$	46

The fair value for ESPP purchases during fiscal years 2014, 2013, and 2012 was estimated using a Black Scholes model. The Company used the following weighted average assumptions:


	For the Fiscal Years Ended
	2014			2013			2012
Risk-free interest rates		0.04	%		0.05	%		0.06	%
Expected dividend yield		—			—			—
Expected volatility		42	%		46	%		49	%
Expected lives		0.25 years			0.25 years			0.24 years

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Salary Replacement Program

On May 9, 2013, the Compensation Committee approved the reinstatement of the Salary Replacement Program (the “Program”) for the period from July 1, 2013 through June 30, 2014 (the “Effective Period”). Participation was mandatory for any employee whose annual base salary was equal to or greater than $125,000 (each such employee, a “Participant”). Under the Program, Participants received periodic grants of unrestricted Common Stock (subject to Compensation Committee approval of each grant to the executive officers) in exchange for a 25% reduction in the cash salaries otherwise payable to Participants.

The Compensation Committee suspended the Program effective October 1, 2013, after which date the Company ceased reducing the cash salaries of Participants for periodic grants of unrestricted Common Stock. A total of 146,267 shares of Common Stock were granted to Participants during fiscal year 2013. The Company recorded $0.6 million of expense for the Program during fiscal year 2013.

Commissions

The Company paid commissions with shares of unrestricted Common Stock from May 2013 to July 2013. A total of 345,324 shares of unrestricted Common Stock were granted to employees in payment of earned commissions during fiscal year 2013. In connection therewith, the Company recorded $0.5 million of expense during fiscal year 2013.

Note Fourteen — Loss Per Share

The following table sets forth the computation of the loss and shares used in the calculation of basic and diluted loss per share:


	For the Fiscal Years Ended
	2014			2013			2012
Loss from continuing operations	$	(14.2	)	$	(11.2	)	$	(15.5	)
Series B Stock fair value over stated value		—			—			—
Dividends related to Series B Stock ⁽¹⁾		(0.6	)		(0.6	)		(0.6	)

Loss from continuing operations available to Common Stock holders		(14.8	)		(11.8	)		(16.1	)
Income from discontinued operations		—			—			0.2

Net loss available to Common Stock holders	$	(14.8	)	$	(11.8	)	$	(15.9	)

Per share of Common Stock
Basic/diluted loss from continuing operations	$	(0.74	)	$	(0.70	)	$	(1.01	)

Basic/diluted income from discontinued operations	$	—		$	—		$	0.02

Basic/diluted net loss available to Common Stock holders	$	(0.74	)	$	(0.70	)	$	(0.99	)

Weighted average shares outstanding (basic and diluted) (in millions)		19.92			16.72			16.00

Currently anti-dilutive common stock equivalents(2) (in millions)		2.02			1.70			1.97

(1)

The Board of Directors did not declare a dividend payment on the Series B Stock, which was accrued, for each of the dividend periods from July 1, 2012 through December 31, 2014 (the aggregate amount of these dividends was approximately $1.5 million). The Board of Directors declared a cash dividend of $0.1785 per share on the Series B Stock for the dividend period January 1, 2012 through June 30, 2012. The dividend payment of $0.3 million was paid on July 2, 2012. The dividend payment of $0.3 million for the dividend period July 1, 2011 through December 31, 2011 was paid on January 3, 2012.

(2)	In periods in which there was a loss, the effect of Common Stock equivalents, which is primarily related to the Series B Stock, was not included in the diluted loss per share calculation as it was antidilutive.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note Fifteen — Segments

The Company operates in a single business segment, focused primarily on Behavioral Analytics.

Note Sixteen — Fair Value Measurements

The Company reports certain assets and liabilities at fair value. Fair value is an exit price and establishes a three-tier valuation hierarchy for ranking the quality and reliability of the information used to determine fair values. The first tier, Level 1, uses quoted market prices in active markets for identical assets or liabilities. Level 2 uses inputs, other than quoted market prices for identical assets or liabilities in active markets, which are observable either directly or indirectly. Level 3 uses unobservable inputs in which there are little or no market data, and requires the entity to develop its own assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2014 and December 31, 2013:


	Fair Value Measurements at December 31, 2014 Using
	Total carrying value at December 31, 2014		Quoted Prices in Active Markets (Level 1)		Other Observable (Level 2)		Significant Unobservable (Level 3)
Money market fund	$	13.7	$	13.7	$	—	$	—
Warrant liability	$	0.4	$	—	$	—	$	0.4


	Fair Value Measurements at December 31, 2013 Using
	Total carrying value at December 31, 2013		Quoted Prices in Active Markets (Level 1)		Other Observable (Level 2)		Significant Unobservable (Level 3)
Money market fund	$	12.7	$	12.7	$	—	$	—
Warrant liability	$	0.8	$	—	$	—	$	0.8

For more information relating to warrant inputs for level 3 liability, see Note Twenty-One “Stock Warrants” of the “Notes to Consolidated Financial Statements” included in Part II Item 8 of this Annual Report on Form 10-K.

The following table represents the activity in the Company’s Level 3 warrants during the fiscal year ended 2014:


(In millions)	December 31, 2014
Level 3 warrants, beginning of period	$	—
Addition — PfG Warrants, initial fair value		0.6
Change in fair value of warrant liability		0.2

Level 3 warrants, ending balance at December 31, 2013	$	0.8
Change in fair value of warrant liability		0.1
Warrant exercise		(0.5	)

Level 3 warrants, ending balance at December 31, 2014	$	0.4

Note Seventeen — Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximated their fair values as of December 31, 2014 and December 31, 2013 due to the short-term nature of these instruments.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note Eighteen — Leases

Capital Leases

The Company acquired $1.7 million and $3.0 million of computer equipment and leasehold improvements using capital leases during fiscal years 2014 and 2013, respectively. These assets were related primarily to investments in Behavioral Analytics. There was $1.7 million, $2.2 million, and $2.2 million, of depreciation on capital leases during fiscal years 2014, 2013, and 2012, respectively. All capital leases are for terms of twenty-four, thirty, or thirty-six months. The liabilities for these capital leases are included in “Other current liabilities” and “Other long-term liabilities” on the balance sheet.

The following is a schedule, by year, of future minimum lease payments under capital leases, together with the present value of the net minimum lease payments as of December 31, 2014:


(In millions)
Year	Amount
2015	$	1.9
2016		1.0
2017		0.3
2018		—

Total minimum lease payments	$	3.2
Less: estimated executory costs		(0.2	)

Net minimum lease payments	$	3.0
Less: amount representing interest		(0.2	)

Present value of minimum lease payments	$	2.8

Capital leases included in equipment and leasehold improvements (see Note Seven):


	As of
	December 31, 2014			December 31, 2013
Computers and software	$	5.7		$	5.6
Accumulated depreciation and amortization		(2.9	)		(2.8	)

Computers and software, net	$	2.8		$	2.8

Capital leases consisted of the following:


	As of
	December 31, 2014		December 31, 2013
Other current liabilities	$	1.6	$	1.6
Other long-term liabilities		1.2		1.2

Total	$	2.8	$	2.8

Operating Leases

The Company leases various office facilities under leases expiring at various dates through February 28, 2015. Additionally, the Company leases various property and office equipment under operating leases, generally under three year terms, expiring at various dates. Certain lease agreements contain escalating rent clauses, which require higher rent payments in future years. The Company expenses rent on a straight-line basis over the term of the lease, including any rent-free periods. In addition, the Company received certain leasehold improvement incentives, and recorded these incentives as deferred rent, which is amortized as a reduction of rent expense over the life of the lease. Net deferred rent on the consolidated balance sheet as of December 31, 2014, 2013, and 2012 was $0.1 million, $0.3 million, and $0.4 million, respectively. Rental expense for all operating leases approximated $2.0 million, $1.4 million, and $1.1 million, for fiscal years ended 2014, 2013, and 2012, respectively.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Future minimum rental commitments under non-cancelable operating leases with terms in excess of one year are as follows:


Year	Amount
2015	$	1.1
2016		0.7
2017		0.2
2018		—
2019		—
Thereafter		—

Total minimum payments required	$	2.0

Note Nineteen — Other Current Liabilities Including Capital Leases


	As of
	December 31, 2014		December 31, 2013
Capital leases	$	1.6	$	1.6
Warrant liability		0.4		0.8
Series B Stock dividend payable		1.5		0.9
Other		0.7		0.8

Total	$	4.2	$	4.1

Note Twenty — Other Long-Term Liabilities Including Capital Leases


	As of
	December 31, 2014		December 31, 2013
Capital leases	$	1.2	$	1.2
Noncurrent deferred tax liability		0.3		0.2
Other		—		0.2

Total	$	1.5	$	1.6

Note Twenty-One — Stock Warrants

During the second half of fiscal year 2013, the Company granted the following warrants: (i) to PfG, a warrant to purchase up to a value of $360,000 or 129,032 shares of Common Stock, (ii) to PfG Equity Investors, LLC, a warrant to purchase up to a value of $28,800 or 10,322 shares of Common Stock, and (iii) to Silicon Valley Bank, a warrant to purchase up to a value of $211,200 or 75,698 shares of Common Stock (collectively, the “PfG Warrants”). The Company received approximately $4 thousand in connection with the issuance of the PfG Warrants, which the parties agreed was fair consideration.

The PfG Warrants, and the shares of Common Stock to be issued upon exercise of the PfG Warrants, have not been and will not be registered under the Securities Act of 1933, as amended, or any state securities law and were issued pursuant to an exemption from registration provided by Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder. Neither the PfG Warrants nor the shares of Common Stock issuable upon exercise of the PfG Warrants, may be subsequently offered or sold within the United States absent registration or exemption from such registration requirements and compliance with applicable state laws. The warrant liability as of December 31, 2014 and December 31, 2013 was $0.4 million and $0.8 million, respectively.

On June 4, 2014, PfG elected to partially exercise its warrant by exchanging 57,196 of the 129,032 warrant shares through a cashless exercise on the terms provided in the applicable warrant agreement. As a result, the Company issued 35,862 shares of Common Stock to PfG on June 4, 2014, and 71,836 warrant shares remain exercisable as of December 31, 2014.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On June 4, 2014, PfG Equity Investors, LLC elected to partially exercise its warrant by exchanging 4,945 of the 10,322 warrant shares through a cashless exercise on the terms provided the applicable warrant agreement. As a result, the Company issued 3,100 shares of Common Stock to PfG Equity Investors, LLC on June 4, 2014, and 5,377 warrant shares remain exercisable as of December 31, 2014.

On May 20, 2014, Silicon Valley Bank elected to fully exercise its warrant by exchanging 75,698 warrant shares through a cashless exercise on the terms provided in the applicable warrant agreement. As a result, the Company issued 47,404 shares of Common Stock to Silicon Valley Bank, in full settlement of the warrant.

A summary of the status of the PfG Warrants at December 31, 2014, and the changes during fiscal year 2014, are presented in the following table:


	Date		Shares of Common Stock, par value $0.01, represented by Warrants		Exchange Price	Expiration Date
Granted		August 19, 2013		215,064	$2.79, subject to adjustment		August 19, 2018
Exercised		—		—
Expired		—		—

Outstanding as of December 31, 2013		—		215,064	$2.79, subject to adjustment		August 19, 2018
Granted		—		—
Exercised		May 20, 2014		75,698	$2.79
Exercised		June 4, 2014		62,153	$2.79
Expired		—		—

Outstanding as of December 31, 2014		—		77,213	$2.79, subject to adjustment		August 19, 2018

Exercisable as of December 31, 2014		—		77,213	$2.79, subject to adjustment		August 19, 2018

The fair value of the warrant liability was estimated using the Monte Carlo option pricing model and the following assumptions:


	December 31, 2014			December 31, 2013
Risk-free interest rates		1.45	%		1.57	%
Expected dividend yield		—			—
Expected volatility		55	%		58	%
Expected lives		3.6 years			5.0 years
Weighted average grant date fair value	$	4.93		$	3.65

Note Twenty-Two — Litigation and Other Contingencies

The Company is a party to various agreements, including all client contracts, under which it may be obligated to indemnify the other party with respect to certain matters, including, but not limited to, indemnification against third-party claims of infringement of intellectual property rights with respect to services, software, and other deliverables provided by the Company. These obligations may be subject to various limitations on the remedies available to the other party, including, without limitation, limits on the amounts recoverable and the time during which claims may be made, and may be supported by indemnities given to the Company by applicable third parties. Payment by the Company under these indemnification clauses is generally subject to the other party making a claim that is subject to challenge by the Company. Historically, the Company has not been obligated to pay any claim for indemnification under its agreements, and management is not aware of future indemnification payments that it would be obligated to make.

MATTERSIGHT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Under its By-Laws, subject to certain exceptions, the Company has agreed to indemnify its officers and directors for certain events or occurrences while the officer or director is, or was, serving at its request in such capacity or in certain related capacities. The Company has separate indemnification agreements with each of its directors and officers that requires it, subject to certain exceptions, to indemnify them to the fullest extent authorized or permitted by its By-Laws and the Delaware General Corporation Law. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer liability insurance policy that limits its exposure and enables it to recover a portion of any amounts paid under these indemnification agreements. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. The Company had no liabilities recorded for these agreements as of December 31, 2014.

Note Twenty-Three — Quarterly Data (Unaudited)


	For the Fiscal Year Ended 2014
	1st			2nd			3rd			4th			Year
Total revenue	$	7.0		$	7.3		$	7.7		$	8.3		$	30.3
Gross margin	$	4.8		$	5.0		$	5.3		$	5.8		$	20.9
Operating loss	$	(3.4	)	$	(3.4	)	$	(3.4	)	$	(2.8	)	$	(13.0	)
Net loss	$	(4.0	)	$	(3.3	)	$	(4.1	)	$	(2.8	)	$	(14.2	)
Net loss available to Common Stock holders	$	(4.1	)	$	(3.4	)	$	(4.3	)	$	(3.0	)	$	(14.8	)
Basic net loss per share available to Common Stock holders	$	(0.22	)	$	(0.18	)	$	(0.21	)	$	(0.14	)	$	(0.74	)
Diluted net loss per share available to Common Stock holders	$	(0.22	)	$	(0.18	)	$	(0.21	)	$	(0.14	)	$	(0.74	)
Shares used to calculate basic and diluted net loss per share (in millions)		18.50			18.68			20.79			21.72			19.92


	For the Fiscal Year Ended 2013
	1st			2nd			3rd			4th			Year
Total revenue	$	8.6		$	7.9		$	8.7		$	9.3		$	34.5
Gross margin	$	5.6		$	5.2		$	5.7		$	6.9		$	23.4
Operating loss	$	(3.8	)	$	(3.2	)	$	(2.5	) ⁽¹⁾	$	(1.3	)	$	(10.8	) ⁽¹⁾
Net loss	$	(3.7	)	$	(3.3	)	$	(2.6	) ⁽¹⁾	$	(1.6	)	$	(11.2	) ⁽¹⁾
Net loss available to Common Stock holders	$	(3.8	)	$	(3.5	)	$	(2.8	) ⁽¹⁾	$	(1.7	)	$	(11.8	) ⁽¹⁾
Basic net loss per share available to Common Stock holders	$	(0.23	)	$	(0.21	)	$	(0.17	)	$	(0.10	)	$	(0.70	)
Diluted net loss per share available to Common Stock holders	$	(0.23	)	$	(0.21	)	$	(0.17	)	$	(0.10	)	$	(0.70	)
Shares used to calculate basic and diluted net loss per share (in millions)		16.32			16.47			16.76			17.34			16.72

(1)	Includes $0.2 million of expense for the third quarter of fiscal year 2013 primarily related to severance and related costs associated with cost reduction plans. For fiscal year 2013, severance and related costs associated with cost reduction plans was $0.2 million.

Note Twenty-Four — Subsequent Events

MATTERSIGHT CORPORATION

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

(In millions)


Description of Allowance and Reserves	Balance at Beginning of Period		Additions Charged to Costs and Expenses		Additions Charged to Other Accounts		Deductions		Balance at End of Period
Valuation allowance for doubtful accounts * :
Fiscal year ended December 31, 2014	$	—		—		—		—	$	—
Fiscal year ended December 31, 2013	$	—		—		—		—	$	—
Fiscal year ended December 31, 2012	$	—		—		—		—	$	—
Valuation allowance for deferred tax assets:
Fiscal year ended December 31, 2014	$	67.6		3.4		—		—	$	71.0
Fiscal year ended December 31, 2013	$	63.8		3.8		—		—	$	67.6
Fiscal year ended December 31, 2012	$	55.8		8.0		—		—	$	63.8

*	Less than $0.1 million.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A.

Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

Based on their evaluation for the period covered by this Annual Report on Form 10-K, Mattersight’s Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2014, the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) were not effective. Management identified a material weakness in our internal control over financial reporting related to non-routine transactions and the process and procedures used in applying appropriate accounting to the termination of a line-of-credit arrangement during the third quarter of 2014. Specifically, the Company did not write off the remaining deferred financing fees when the line-of-credit was terminated in accordance with ASC 470, “Debt.” This adjustment was recorded in the third quarter of 2014.

(b) Management’s Annual Report on Internal Control over Financial Reporting

Mattersight’s management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on that evaluation, management identified a material weakness in our internal control over financial reporting related to non-routine transactions and the process and procedures used in applying appropriate accounting to the termination of a line-of-credit arrangement during the third quarter of 2014. Specifically, the Company did not write-off the remaining deferred financing fees when the line-of-credit was terminated in accordance with ASC 470, “Debt,” This adjustment was recorded in the third quarter. Solely as a result of this material weakness, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective.

Subsequent to the discovery of the material weakness, we have changed our internal control process and procedures used in applying the appropriate accounting to the modification or termination of a line-of-credit arrangement. Specifically, any remaining deferred financing fees relating to a terminated line-of-credit arrangement shall be written off at the time of the change. We will also consult with third party experts when we have unusual, non-routine or complex transactions to ensure proper accounting treatment. We believe these actions have strengthened our internal control over financial reporting and will address the material weakness identified during the third quarter of 2014, however, the material weakness cannot be remediated fully until the remediation processes have been in operation for a period of time and successfully tested.

The Company conducted its evaluation of the effectiveness of internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework . Based on its evaluation, our management concluded that our internal control over financial reporting was effective as of the end of the period covered by this Annual Report on Form 10-K.

(c) Attestation Report of the Registered Public Accounting Firm

Not applicable.

(d) Changes in Internal Control over Financial Reporting

Other than the actions and implementation measures described above, there has been no change in Mattersight’s internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, Mattersight’s internal control over financial reporting.

Item 9B.

Other Information.

On March 10, 2015, the Company entered into a Second Amended and Restated Loan and Security Agreement with Silicon Valley Bank. The Second Amended and Restated Credit Agreement provides for, among other things, an increase of the maximum credit limit from $10 million to $15 million, an extension of the term from May 2015 to March 2017, and a change in interest rate from a variable interest grid to prime plus 1.25%. The Second Amended and Restated Credit Agreement additionally provides for an annual commitment fee of $56,250 and early termination fee of 1.0% in the first year, and 0.25% thereafter, prior to maturity.

The description above is a summary only and is qualified in its entirety by reference to Second Amended and Restated Loan and Security Agreement, filed as Exhibit 10.23 and incorporated herein by reference.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

For information about our corporate Directors and the committees of our Board of Directors, see the captions “Election of Directors” and “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement to be filed by Mattersight for its 2015 Annual Meeting of Stockholders, which is incorporated herein by reference in response to this item.

The following table includes the name, age (as of March 12, 2015), and current position of each of our executive officers.


Name	Age		Current Position
Kelly D. Conway*		58	President and Chief Executive Officer
Christopher J. Danson		47	Executive Vice President of Delivery
Richard M. Dresden		46	Executive Vice President of Sales
David R. Gustafson		37	Executive Vice President of Product and Customer Operations
Mark Iserloth		51	Vice President and Chief Financial Officer

*	Member of the Board of Directors

Except as required by individual employment agreements between executive officers and the Company, there exists no arrangement or understanding between any executive officer and any other person pursuant to which such executive officer was elected. Each executive officer serves until his or her removal or resignation.

The principal business experience of the executive officers for at least the last five years is as follows:

Kelly D. Conway has served as the President and Chief Executive Officer and a Director of the Company, which was spun out of Technology Solutions Company (“TSC”) in 2000, since its incorporation in May 1999. Mr. Conway joined TSC in November 1993 as Senior Vice President, assumed the position of Executive Vice President in July 1995, and became Group President in October 1998. Prior to joining TSC, Mr. Conway served as a Partner in the management consulting firm of Spencer, Shenk and Capers and also held various positions, including President and Chief Executive Officer, with Telcom Technologies, a manufacturer of automatic call distribution equipment.

Christopher J. Danson has been Executive Vice President of Delivery since February 2012, prior to which he served as Vice President of Delivery since June 2011. Prior to that role, Mr. Danson served as Vice President of ICS and CRM Delivery since January 2005. His responsibilities over at least the past five years have included executive leadership of the business and technical delivery functions, which encompasses product development, rules and analytics development/tuning, data centers, security, training and adoption, service delivery management, support operations and business intelligence. In total, Mr. Danson has spent more than 22 years with the Company, having spent the first seven years of his tenure with TSC.

Richard M. Dresden joined the Company as its Executive Vice President of Sales in February 2014. In this role, Mr. Dresden has responsibility for developing the Company’s sales strategy, go-to-market initiatives, and revenue growth, and expanding the Company’s customer base. From June 2009 until joining Mattersight, Mr. Dresden was a Vice President at Savvis (which was acquired by Centurylink, Inc.) and the Head of Sales for the Financial Services vertical where he managed a sales team of over 50 people and drove significant revenue and bookings growth. Mr. Dresden was the founding executive for Savvis’ ITO (IT outsourcing) division where he recruited and managed the cross-functional team to launch the business unit.

David R. Gustafson is currently the Company’s Executive Vice President of Product and Customer Operations, and will serve as its interim Chief Financial Officer commencing March 13, 2015 until such time as a permanent replacement for Mr. Iserloth, the Company’s Vice President and Chief Financial Officer through March 12, 2015, is hired. Previously, Mr. Gustafson was Executive Vice President of Products and Marketing during the period from July 2013 through July 2014, and he served as Vice President of Marketing and Product Management during the period from February 2012 through June 2013. Prior to that role, Mr. Gustafson served as Vice President of BA Business Delivery since September 2008. Mr. Gustafson has responsibility for product management, product delivery, implementation services, service delivery, customer success, and the Company’s behavioral and data science teams. In total, Mr. Gustafson has spent more than fourteen years at Mattersight.

Mark Iserloth has been Vice President and Chief Financial Officer of the Company since July 2012. Mr. Iserloth has responsibility for the Company’s Finance, Accounting, Human Resources, and other administrative functions. Prior to joining Mattersight, Mr. Iserloth was Chief Financial Officer of Trustwave Holdings, Inc. for four years. Prior to joining Trustwave, Mr. Iserloth was Chief Financial Officer of Initiate Systems, Inc. for eight years. We recently announced that our Vice President and Chief Financial Officer, Mark Iserloth, is resigning effective March 13, 2015.

The Company maintains a code of ethical business conduct (the “Code of Conduct”) applicable to all of our directors, officers, and other employees, including our Chief Executive Officer and Chief Financial Officer (who serves as our principal financial officer) and Vice President of Financial Reporting (who serves as our principal accounting officer). The Code of Conduct addresses ethical conduct, SEC disclosure, legal compliance, and other matters as contemplated by Section 406 of the Sarbanes-Oxley Act of 2002. A copy of the Code of Conduct is available on our website at www.Mattersight.com. We will make a copy of it available to any person, without charge, upon written request to Mattersight Corporation, 200 S. Wacker Drive, Suite 820, Chicago, Illinois 60606, Attn: Corporate Secretary. To the extent permitted by applicable rules of the NASDAQ Global Market, we intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendments to or waivers of the Code of Conduct for our Chief Executive Officer or Chief Financial Officer by posting such information on our website.

Item 11.

Executive Compensation.

The information under “Executive Compensation,” and “Director Compensation” in the Proxy Statement to be filed by the Company for its 2015 Annual Meeting of Stockholders is incorporated herein by reference in response to this item.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information under the heading “Security Ownership of Certain Beneficial Owners and Management — Beneficial Ownership Information” in the Proxy Statement to be filed by the Company for its 2015 Annual Meeting of Stockholders is incorporated herein by reference in response to this item.

The following table shows, as of December 31, 2014, information regarding outstanding awards under all compensation plans of the Company (including individual compensation arrangements) under which equity securities of the Company may be delivered:


Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights ⁽¹⁾		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Compensation Plans (excluding securities reflected in column ^{(1) (2)}
Equity compensation plans approved by security holders		2,636,596	$	7.42		1,399,683	⁽³⁾
Equity compensation plans not approved by security holders ⁽⁴⁾		—	$	—		—

Total		2,636,596	$	7.42		1,399,683	⁽⁵⁾

(1)	Reflects number of shares of Common Stock and stock warrants.

(2)

All of the securities available for future issuance listed herein may be issued other than upon the exercise of outstanding options, warrants, or similar rights. All of these shares are available for an award in the form of restricted stock, bonus stock, or similar awards under the Company’s applicable equity compensation plans.

(3)

The Company’s plan that has been approved by its stockholders is the 1999 Plan, which includes an “automatic increase” feature whereby, as of the first day of each fiscal year, the number of shares of Common Stock available for awards, other than incentive stock options, automatically increases by an amount equal to five percent (5%) of the number of shares of Common Stock then outstanding.

(4)	There are currently no equity compensation plans that have not been approved by security holders.

(5)	Does not include (i) shares of restricted Common Stock held by employees, of which 556,194 shares were issued and outstanding as of December 31, 2014, which are included in the amount of issued and outstanding shares.

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

The information under the heading “Transactions with Related Persons” in the Proxy Statement to be filed by Mattersight for its 2015 Annual Meeting of Stockholders is incorporated herein by reference in response to this item.

Item 14.

Principal Accounting Fees and Services.

The information under the caption “Ratification of Selection of Independent Public Accountants—Principal Accounting Fees and Services” in the Proxy Statement to be filed by the Company for its 2015 Annual Meeting of Stockholders is incorporated herein by reference in response to this item.

PART IV

Item 15.

Exhibits and Financial Statement Schedules.

(a)	Documents filed as part of this report:

(1)

Financial Statements.

The consolidated financial statements filed as part of this report are listed and indexed under Item 8 of this Annual Report on Form 10-K and such list is incorporated herein by reference.

(2)

Financial Statement Schedule.

The financial statement schedule filed as part of this report is listed and indexed under Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. We have omitted financial statement schedules other than that listed under Item 8 because such schedules are not required or applicable.

(3)

Exhibits.

The list of exhibits filed with or incorporated by reference into this report is contained in the Exhibit Index to this report on Page I-1, which is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on March 12, 2015.


MATTERSIGHT CORPORATION

By		/ S / K ELLY D. C ONWAY
		Kelly D. Conway
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant in the capacities indicated on March 12, 2015.


Name		Capacity

/ S / K ELLY D. C ONWAY Kelly D. Conway		Director, President and Chief Executive Officer (Principal Executive Officer)

* Tench Coxe		Chairman of the Board and Director

* Philip R. Dur		Director

* Henry J. Feinberg		Director

* John T. Kohler		Director

* David B. Mullen		Director

* Michael J. Murray		Director

* John C. Staley		Director

/ S / M ARK I SERLOTH Mark Iserloth		Vice President and Chief Financial Officer (Principal Financial Officer)

/S/ Glenn Polson Glenn Polson		Vice President of Financial Reporting (Principal Accounting Officer)



*By:		/ S / M ARK I SERLOTH
		Mark Iserloth, Attorney-in-Fact

EXHIBIT INDEX

We are including as exhibits to this Annual Report on Form 10-K certain documents that we have previously filed with the SEC as exhibits, and we are incorporating such documents as exhibits herein by reference from the respective filings identified in parentheses below. The management contracts and compensatory plans or arrangements required to be filed as exhibits to this Annual Report on Form 10-K pursuant to Item 14(c) are those listed below as Exhibits and noted by an asterisk.


Exhibit No.		Description of Exhibit

3(i).1		Certificate of Incorporation of Mattersight Corporation, as amended (filed as Exhibit 3.1 to Mattersight’s Registration Statement on Form S-1 (Registration No. 333-94293) (the “S-1”)).

3(i).2		Certificate of Amendment to Mattersight Corporation’s Certificate of Incorporation effective December 19, 2001 (filed as Exhibit 3.3 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 29, 2001).

3(i).3		Certificate of Amendment to Mattersight Corporation’s Certificate of Incorporation effective December 19, 2001 (filed as Exhibit 3.4 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 29, 2001).

3(i).4		Certificate of Amendment to Mattersight Corporation’s Certificate of Incorporation effective May 31, 2011 (filed on May 31, 2011 as Exhibit 3.1 to Mattersight Corporation’s Current Report on Form 8-K).

3(ii).1		By-Laws of Mattersight Corporation (filed as Exhibit 3.2 to the S-1).

3(ii).2		Amendment to By-Laws of Mattersight Corporation (filed on November 16, 2007 as Exhibit 3.1 to Mattersight Corporation’s Current Report on Form 8-K).

4.1		Certificate of Designation of Series A Junior Participating Preferred Stock of Mattersight Corporation (included as Exhibit 4.2 to Amendment No. 1 to Mattersight Corporation’s Registration Statement on Form 8-A (File No. 0-27975) filed with the SEC on March 24, 2000).

4.2		Certificate of Increase of Series A Junior Participating Preferred Stock of Mattersight Corporation, filed December 19, 2001 (filed as Exhibit 3.5 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 29, 2001).

4.3		Certificate of Designation of 7% Series B Convertible Preferred Stock of Mattersight Corporation, filed December 19, 2001 (filed as Exhibit 3.6 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 29, 2001).

4.4		Certificate of Adjustment dated January 10, 2002 (filed as Exhibit 4.3 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 29, 2001).

4.5		Form of Common Stock Certificate (incorporated by reference to Exhibit No. 4.1 to Mattersight Corporation’s Registration Statement on Form S-1/A filed on August 8, 2006).

4.6		Current Form of Common Stock Certificate (adopted as of December 3, 2013) (filed as Exhibit 4.6 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 30, 2013).

4.7		Registration Rights Agreement dated December 19, 2011 by and between Mattersight Corporation and IGC Fund VI, L.P. (filed on December 22, 2011 as Exhibit 10.5 to Mattersight Corporation’s Current Report on Form 8-K).

4.8		Warrant to purchase Mattersight Corporation common stock dated August 19, 2013, issued to PFG Equity Investors, LLC (filed on August 23, 2013 as Exhibit 4.1 to Mattersight Corporation’s Current Report on Form 8-K).

4.9		Warrant to purchase Mattersight Corporation common stock dated August 19, 2013, issued to Partners for Growth IV, L.P. (filed on August 23, 2013 as Exhibit 4.2 to the Mattersight Corporation’s Current Report on Form 8-K).

4.10		Warrant to purchase Mattersight Corporation common stock dated August 19, 2013, issued to Silicon Valley Bank (filed on August 23, 2013 as Exhibit 4.3 to Mattersight Corporation’s Current Report on Form 8-K).

4.11		Conditional Warrant to purchase Mattersight Corporation common stock dated August 19, 2013, issued to Partners for Growth IV, L.P. (filed on August 23, 2013 as Exhibit 4.4 to Mattersight Corporation’s Current Report on Form 8-K).

10.1+		Mattersight Corporation 1999 Stock Incentive Plan (Conformed Copy as Amended through November 5, 2014).

I-1


Exhibit No.		Description of Exhibit

10.2*		Form of Restricted Stock Award Agreement between applicable participant and Mattersight Corporation (filed as Exhibit 10.23 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended January 1, 2005).

10.3*		Current Form of Restricted Stock Award Agreement between applicable participant and Mattersight Corporation (filed as Exhibit 10.5 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012).

10.4*		Form of Installment Stock Award Agreement between applicable participant and Mattersight Corporation (filed as Exhibit 10.24 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended January 1, 2005).

10.5*		Form of Option Award Agreement between applicable participant and Mattersight Corporation (filed as Exhibit 10.8 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 30, 2006).

10.6*		Current Form of Option Award Agreement between applicable participant and Mattersight Corporation (filed as Exhibit 10.8 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012).

10.7		Amended and Restated Loan and Security Agreement between Silicon Valley Bank, Mattersight Corporation, Mattersight Europe Holding Corporation, and Mattersight International Holding, Inc., dated May 30, 2013 (filed on June 4, 2013 as Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K).

10.8		Amendment No. 2 to Amended and Restated Loan Agreement, dated as of June 27, 2014 between Silicon Valley Bank and Mattersight Corporation (filed on July 3, 2014 as Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K).

10.9*		Form of Common Stock Purchase Agreement dated November 26, 2013 by and between Mattersight Corporation and the purchasers named therein (filed on November 26, 2013 as Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K).

10.10*		Form of Common Stock Purchase Agreement dated July 23, 2014 by and between Mattersight Corporation and the purchasers named therein (filed on July 24, 2014 as Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K).

10.11*		Current Form of Indemnification Agreement entered into between Mattersight Corporation and participant (filed as Exhibit 10.12 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012).

10.12*		Second Amended and Restated Employment Agreement, effective as of April 19, 2011 between Kelly D. Conway and Mattersight Corporation (filed as Exhibit 10.3 to Mattersight Corporation’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2011).

10.13*		Amended and Restated Executive Employment Agreement, effective as of September 8, 2008, between Christopher J. Danson and Mattersight Corporation (filed as Exhibit 10.31 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 27, 2008).

10.14*		Executive Employment Agreement, effective July 23, 2012, between Mark Iserloth and Mattersight Corporation (filed on July 23, 2012 as Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K).

10.15*		Executive Employment Agreement, effective as of May 23, 2012, between David R. Gustafson and Mattersight Corporation (filed as Exhibit 10.22 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012).

10.16*		First Amendment to Executive Employment Agreement, dated July 1, 2013, between David R. Gustafson and Mattersight Corporation (filed on July 3, 2013 as Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K).

10.17*		Second Amendment to Executive Employment Agreement, dated August 8, 2013, between David R. Gustafson and Mattersight Corporation (filed on August 13, 2013 as Exhibit 10.1 to Mattersight Corporation’s Current Report on Form 8-K).

10.18*		Executive Employment Agreement, effective as of February 10, 2014, between Richard Dresden and Mattersight Corporation (filed as Exhibit 10.26 to Mattersight Corporation’s Annual Report on Form 10-K for the year ended December 30, 2013).

10.19+		First Amendment to Executive Employment Agreement, dated November 24, 2014, between Richard Dresden and Mattersight Corporation.

10.20*		Mattersight Corporation 2006/2007 Salary Replacement Program (as Amended and Restated as of May 9, 2013) (incorporated by reference to Exhibit 99.1 to the Company’s 8-K filed on May 13, 2013).

I-2


Exhibit No.		Description of Exhibit

10.21+		Summary of Director Compensation.

10.22+		Summary of 2015 Executive Officer Compensation.

10.23+		Second Amended and Restated Loan and Security Agreement between Silicon Valley Bank, Mattersight Corporation, Mattersight Europe Holding Corporation, and Mattersight International Holding, Inc., dated March 10, 2015.

21.1+		Subsidiaries of Mattersight Corporation.

23.1+		Consent of Grant Thornton LLP.

24.1+		Power of Attorney from Tench Coxe, Director.

24.2+		Power of Attorney from Philip R. Dur, Director.

24.3+		Power of Attorney from Henry J. Feinberg, Director.

24.4+		Power of Attorney from John T. Kohler, Director.

24.5+		Power of Attorney from Michael J. Murray, Director.

24.6+		Power of Attorney from John C. Staley, Director.

24.7+		Power of Attorney from David B. Mullen, Director.

31.1+		Certification of Kelly D. Conway under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2+		Certification of Mark Iserloth under Section 302 of the Sarbanes-Oxley Act of 2002.

32.1+		Certification of Kelly D. Conway and Mark Iserloth under Section 906 of the Sarbanes-Oxley Act of 2002.

101+**		The following financial information from the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, is formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of December 31, 2014 and December 31, 2013; (ii) Consolidated Statements of Operations for the fiscal years ended December 31, 2014, December 31, 2013, and December 31, 2012; (iii) Consolidated Statements of Comprehensive loss for the fiscal years ended December 31, 2014, December 31, 2013, and December 31, 2012; (iv) Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2014, December 31, 2013, and December 31, 2012; (v) Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended December 31, 2014, December 31, 2013, and December 31, 2012; (vi) notes to the Consolidated Financial Statements; and (vii) Financial Statement Schedule II.

+	Filed herewith.

*	Represents a management contract or compensatory plan or arrangement.

**	The XBRL information is filed herewith.

I-3

Exhibit 10.1

MATTERSIGHT CORPORATION

1999 STOCK INCENTIVE PLAN

(Conformed Copy as Amended through November 5, 2014)

I. INTRODUCTION

1.1 Purposes . The purposes of the 1999 Stock Incentive Plan (the “Plan”) of Mattersight Corporation, a Delaware corporation (the “Company”), are to: (i) align the interests of the Company’s stockholders and the recipients of awards under this Plan by increasing the proprietary interest of such recipients in the Company’s growth and success; (ii) advance the interests of the Company by attracting and retaining directors (including Non-Employee Directors), officers, other key employees, consultants, independent contractors and agents; and (iii) motivate such persons to act in the long-term best interests of the Company’s stockholders.

1.2 Certain Definitions .

“ Agreement ” shall mean the written agreement evidencing an award hereunder between the Company and the recipient of such award.

“ Board ” shall mean the Board of Directors of the Company.

“ Bonus Stock ” shall mean shares of Common Stock that are not subject to a Restriction Period or Performance Measures.

“ Bonus Stock Award ” shall mean an award of Bonus Stock under this Plan.

“ Cause ” shall have the meaning set forth in any employment, severance or other agreement between any of the Company Parties and the Participant. If there is no employment agreement between any of the Company Parties and the Participant, or if such agreement does not define “Cause,” then “Cause” will mean a finding by the Committee of the Participant’s: (i) theft or embezzlement, or attempted theft or embezzlement, of money or property of any of the Company Parties, perpetration or attempted perpetration of fraud, or participation in a fraud or attempted fraud, on any of the Company Parties, or unauthorized appropriation of, or attempt to misappropriate, any tangible or intangible assets or property of any of the Company Parties; (ii) act or acts of disloyalty, moral turpitude or material misconduct that is injurious to the interest, property, value, operations, business or reputation of any of the Company Parties, or conviction of a crime that results in injury to any of the Company Parties; or (iii) repeated refusal (other than by reason of Disability) to carry out reasonable instructions from the Participant’s superiors or the Board. Notwithstanding any provision of the Plan or any employment, severance or other agreement, “Cause” shall include any violation by the Participant, during or after the Participant’s service, of a non-competition, non-solicitation, non-disclosure or other restrictive covenant applicable to the Participant in any employment, severance or other agreement with any of the Company Parties.

“ Change in Control ” shall have the meaning set forth in Section 6.12(b).

“ Code ” shall mean the Internal Revenue Code of 1986, as amended.

“ Committee ” shall mean: (i) prior to the date that the Company shall become a separate publicly held corporation for purposes of Section 162(m) of the Code, the Committee under the Technology Solutions Company 1996 Stock Incentive Plan; and (ii) on or after such date, one or more committees of the Board that have been designated by the Board to carry out certain respective actions under this Plan on behalf of the Board, subject to the limitations provided by the Board in any such designations; provided, however, that where necessary for compliance with Section 16 of the Exchange Act and the rules and regulations promulgated thereunder, or where the Board deems it to be advisable for any reason whatsoever, such committee will consist of two or more members of the Board, each of whom shall be a “Non-Employee Director” within the meaning of Rule 16b-3 of the Exchange Act; and provided further, that where the grant of an award is being made to any person who at the time of the grant is a “covered employee,” or who is then believed likely to be a “covered employee” at any time during the period an award hereunder to such person would be outstanding, and where necessary for such grant to qualify as performance based compensation under the provisions of Section 162(m) of the Code, such committee will consist of two or more members of the Board, each of whom shall be an “outside director” within the meaning of Section 162(m) of the Code. Notwithstanding any such committee designations, the Board retains the right to assume full authority to administer the Plan in all respects hereunder pursuant to Section 1.3 hereof.

“ Common Stock ” shall mean the Common Stock, $.01 par value, of the Company.

“ Company ” shall have the meaning set forth in Section 1.1.

“ Company Parties ” means, collectively and without duplication, the Company and any of its Subsidiaries.

“ Disability ” shall have the meaning set forth in any employment, severance or other agreement between any of the Company Parties and the Participant. If there is no employment agreement between any of the Company Parties and the Participant, or if such agreement does not define “Disability,” then “Disability” shall mean a physical or mental condition of a Participant resulting from a bodily injury, disease or mental disorder that renders the Participant eligible for benefits under the Company’s long-term disability Plan (as in effect as of the date of the Participant’s termination of employment and regardless of whether the Participant is otherwise eligible for benefits under such Plan), as determined by the Company in its sole discretion.

“ Effective Date ” shall have the meaning set forth in Section 6.5.

“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.

“ Fair Market Value ” shall mean the closing transaction price of a share of Common Stock as reported by The NASDAQ Stock Market or the principal national securities exchange on which the Common Stock is then traded, on the date that such value is being determined, or, if there shall be no reported transactions for such date, on the next preceding date that transactions were reported; provided, however, that if: (i) the determination date occurs prior to the initial date that shares of Common Stock are traded on The NASDAQ Stock Market or a national securities exchange; or (ii) the Fair Market Value for any date cannot be so determined, Fair Market Value shall be determined by the Committee by whatever means or method as the Committee, in the good faith exercise of its discretion, shall at such time deem appropriate.

“ Free-Standing SAR ” shall mean a SAR that is not issued in tandem with, or by reference to, an option and that entitles the holder thereof to receive, upon exercise, shares of Common Stock (that may be Restricted Stock), cash or a combination thereof with an aggregate value equal to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the base price of such SAR, multiplied by the number of such SARs that are exercised.

“ Incentive Stock Option ” shall mean an option to purchase shares of Common Stock that meets the requirements of Section 422 of the Code, or any successor provision, and that is designated as an Incentive Stock Option.

“ Incumbent Board ” shall have the meaning set forth in Section 6.12(b)(2) hereof.

“ Mature Shares ” shall mean shares of Common Stock for which the holder thereof has good title, free and clear of all liens and encumbrances and that such holder has held for at least six months.

“ Non-Employee Director ” shall mean any director of the Company who is not an officer or employee of the Company or any Subsidiary; provided, however, that prior to the Reference Date, “Non-Employee Director” shall mean any director of the Company who is not an officer or employee of the Company, TSC, any subsidiary of TSC or any Subsidiary.

“ Non-Statutory Stock Option ” shall mean a stock option that is not an Incentive Stock Option.

“ Outstanding Common Stock ” shall have the meaning set forth in Section 6.12(b)(1) hereof.

“ Outstanding Voting Securities ” shall have the meaning set forth in Section 6.12(b)(1) hereof.

“ Participants ” shall have the meaning set forth in Section 1.4 hereof.

“ Performance-Based Exception ” means the performance-based exception from the tax deductibility limitations of Section 162(m) of the Code and any regulations promulgated thereunder.

“ Performance Measures ” shall mean the criteria and objectives, established by the Committee and approved by the Company’s stockholders, that shall be satisfied or met: (i) as a condition to the exercisability of all or a portion of an option, SAR, RSU, or Performance Unit; (ii) as a condition to the grant of a Stock Award or RSUs; or (iii) during the applicable Restriction Period or Performance Period as a condition to the holder’s receipt, in the case of a Restricted Stock Award or RSUs, of the shares of Common Stock or share equivalent units subject to such award, or, in the case of a Performance Share Award or Performance Units, of the shares of Common Stock or share equivalent units subject to such award and/or of payment with respect to such award. Unless and until the Committee proposes and the Company’s stockholders approve a change in the general performance measures set forth in this paragraph, the performance measure(s) to be used for purposes of awards designed to qualify for the Performance-Based Exception will be chosen from among the following alternatives:

(a) net earnings;

(b) operating earnings or income;

(d) services revenue growth;

(e) net income (absolute or competitive growth rates comparative);

(f) net income applicable to Common Stock;

(g) income statement performance;

(h) cash flow, including operating cash flow, free cash flow, discounted cash flow return on investment, and cash flow in excess of cost of capital;

(i) earnings per share of Common Stock;

(j) return on stockholders equity (absolute or peer-group comparative);

(k) stock price (absolute or peer-group comparative);

(l) absolute and/or relative return on Common stockholders equity;

(m) absolute and/or relative return on capital;

(n) absolute and/or relative return on assets;

(o) economic value added (income in excess of cost of capital);

(p) customer satisfaction;

(q) client growth;

(r) enhancement of functionality of technology;

(s) managed backlog growth;

(t) development of infrastructure and teams within the Company;

(u) expense reduction; and

(v) ratio of operating expenses to operating revenues.

The Committee will have the discretion to adjust targets set for pre-established performance objectives; however, awards designed to qualify for the Performance-Based Exception may not be adjusted upward, except to the extent permitted under Section 162(m) of the Code, to reflect accounting changes or other events.

If Section 162(m) of the Code or other applicable tax or securities laws change to allow the Committee discretion to change the types of performance measures without obtaining stockholder approval, the Committee will have sole discretion to make such changes without obtaining stockholder approval. In addition, if the Committee determines it is advisable to grant awards that will not qualify for the Performance-Based Exception, the Committee may grant awards that do not so qualify.

“ Performance Period ” shall mean any period designated by the Committee during which the Performance Measures applicable to a Performance Share Award or Performance Units shall be measured.

“ Performance Share ” shall mean a right , contingent upon the attainment of specified Performance Measures within a specified Performance Period, to receive one share of Common Stock, which may be Restricted Stock, or in lieu of all or a portion thereof, the Fair Market Value of such Performance Share in cash.

“ Performance Share Award ” shall mean an award of Performance Shares under this Plan.

“ Performance Unit ” shall mean an award with an initial value established by the Committee at the time of grant that is based on the Participant’s attainment of specified performance objectives.

“ Permanent and Total Disability ” shall have the meaning set forth in Section 22(e)(3) of the Code or any successor thereto.

“ Reference Date ” shall mean the initial date that the Company shall be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act.

“ Restricted Stock ” shall mean shares of Common Stock that are subject to a Restriction Period.

“ Restricted Stock Award ” shall mean an award of Restricted Stock under this Plan.

“ Restricted Stock Units ” or “ RSUs ” shall mean a notional account established pursuant to an award granted to a Participant, as described in Article III, that is: (a) credited with amounts equal to Shares; (b) subject to restrictions; and (c) payable in cash or shares of Common Stock.

“ Restriction Period ” shall mean any period designated by the Committee during which the Common Stock subject to a Restricted Stock Award or share equivalent units subject to RSUs may not be sold, transferred, assigned, pledged, hypothecated or otherwise encumbered or disposed of, except as provided in this Plan or the Agreement relating to such award.

“ SAR ” shall mean a stock appreciation right that may be a Free-Standing SAR or a Tandem SAR.

“ Spin-Off ” shall mean a pro rata distribution by TSC to its stockholders of all of the shares of Common Stock then owned by TSC.

“ Stock Award ” shall mean a Restricted Stock Award or Bonus Stock Award.

“ Subsidiary ” shall mean any corporation or entity, other than the Company, in an unbroken chain of corporations or other entities beginning with the Company if each of the corporations, or other entities other than the last corporation or entity in the unbroken chain owns 50% or more of the voting stock in one of the other corporations in such chain, except that with respect to Incentive Stock Options, “Subsidiary” means “subsidiary corporation” as defined in Section 424(f) of the Code.

“ Substitute Options ” shall have the meaning set forth in Section 2.4.

“ Tandem SAR ” shall mean a SAR that is granted in tandem with, or by reference to, an option (including a Non-Statutory Stock Option granted prior to the date of grant of the SAR), that entitles the holder thereof to receive, upon exercise of such SAR and surrender for cancellation of all or a portion of such option, shares of Common Stock (that may be Restricted Stock), cash or a combination thereof with an aggregate value equal to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the base price of such SAR, multiplied by the number of shares of Common Stock subject to such option, or portion thereof, that is surrendered.

“ Tax Date ” shall have the meaning set forth in Section 6.9.

“ Ten Percent Holder ” shall have the meaning set forth in Section 2.1(a).

“ TSC ” shall mean Technology Solutions Company, a Delaware corporation, and its successors.

“ TSC Options ” shall have the meaning set forth in Section 2.4.

1.3 Administration . This Plan shall be administered by the Committee, pursuant to and subject to the terms of the Board’s designation thereof and delegation thereto in accordance with Section 1.2 hereof. The Board or the Committee may delegate some or all of their authority under the Plan to officers or employees of the Company or

other persons, as permitted by law and to the extent otherwise consistent with the terms of the Plan. Notwithstanding any such Board or Committee designation or delegation, the Board retains the right to assume full authority to administer the Plan in all respects hereunder. Any one or a combination of the following awards may be made under this Plan to eligible persons: (i) options to purchase shares of Common Stock in the form of Incentive Stock Options or Non-Statutory Stock Options; (ii) SARs in the form of Tandem SARs or Free-Standing SARs; (iii) Stock Awards in the form of Restricted Stock or Bonus Stock; (iv) RSUs; (v) Performance Shares; and (vi) Performance Units. The Board or, if applicable, the Committee shall, subject to the terms of this Plan, select eligible persons for participation in this Plan and determine the form, amount and timing of each award to such persons and, if applicable, the number of shares of Common Stock, the number of SARs, RSUs, or Performance Units, and the number of Performance Shares subject to such an award, the exercise price or base price associated with the award, the time and conditions of exercise or settlement of the award and all other terms and conditions of the award, including, without limitation, the form of the Agreement evidencing the award. The Board or, if applicable, the Committee may, in its sole discretion and for any reason at any time, subject to the requirements imposed under Section 162(m) of the Code and regulations promulgated thereunder in the case of an award intended to be qualified performance-based compensation, take action such that: (i) any or all outstanding options or SARs shall become exercisable in part or in full; (ii) all or a portion of the Restriction Period applicable to any outstanding Restricted Stock Award or RSUs shall lapse; (iii) all or a portion of the Performance Period applicable to any outstanding Performance Share Award or Performance Units shall lapse; and (iv) the Performance Measures applicable to any outstanding Restricted Stock Award or RSUs (if any) and to any outstanding Performance Share Award or Performance Units shall be deemed to be satisfied at the maximum or any other level. The Board or, if applicable, the Committee shall, subject to the terms of this Plan, interpret this Plan and the application thereof, establish rules and regulations it deems necessary or desirable for the administration of this Plan and may impose, incidental to the grant of an award, conditions with respect to the award, such as limiting competitive employment or other activities. All such interpretations, rules, regulations and conditions shall be final, binding and conclusive.

1.4 Eligibility . Participants in this Plan shall consist of such directors, officers, other key employees, consultants, independent contractors and agents of the Company and its Subsidiaries and, prior to the Spin-Off, directors, officers and other key employees of TSC and its subsidiaries, as the Committee in its sole discretion may select from time to time and such other persons receiving Substitute Options (collectively, “Participants”). For purposes of this Plan, references to employment shall also mean service as a director or pursuant to an agency or independent contractor relationship, and references to employment by the Company shall also mean employment by a Subsidiary or such other employer designated in the Agreement evidencing the award. Notwithstanding the preceding sentence, in the case of: (i) options granted hereunder prior to the Reference Date; and (ii) Substitute Options, references to employment with the Company shall include all employment with TSC or any of its subsidiaries. The Committee’s selection of a person to participate in this Plan at any time shall not require the Committee to select such person to participate in this Plan at any other time. Notwithstanding anything contained herein to the contrary, no person other than an employee of the Company or a Subsidiary may be granted an Incentive Stock Option hereunder.

1.5 Shares Available. Subject to adjustment as provided in Section 6.11, the total number of shares of Common Stock initially available for all grants of awards over the term of the Plan, other than Substitute Options, was 534,000. As of the first day of each fiscal year of the Company beginning on or after January 1, 2000, the total number of shares of Common Stock available for all grants under this Plan, other than Incentive Stock Options, shall automatically increase by an amount equal to five percent (5%) of the number of shares of Common Stock then outstanding. Effective upon approval by the Company’s stockholders of the amendment to increase by 1,500,000 the maximum number of shares of Common Stock under the Plan (which amendment is submitted to such stockholders for their approval at the Company’s 2008 Annual Meeting of Stockholders), the maximum number of shares of Common Stock authorized for all grants of awards under this Plan, subject to adjustment as provided in Section 6.11, is 6,386,097 including a total of: i) 3,113,341 shares that became available on the first day of fiscal years 2000-2008 pursuant to the automatic increase feature contained in the Plan as noted above; ii) 738,756 shares initially made available pursuant to the Substitute Options granted in connection with the Spin-Off; iii) 500,000 shares that became available pursuant to an amendment to the Plan that was approved by the Company’s stockholders at the Company’s 2002 Annual Meeting of Stockholders; and iv) 534,000 shares initially available for issuance under the Plan. If approved, a maximum of 1,034,000 shares will be available for grants of Incentive Stock Options.

To the extent that shares of Common Stock subject to an outstanding option granted hereunder (except to the extent shares of Common Stock are issued or delivered by the Company in connection with the exercise of a Tandem SAR), Free-Standing SAR, Stock Award, RSU, Performance Share, or other award are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or by reason of the delivery or withholding of shares of Common Stock to pay all or a portion of the exercise price of an award, if any, or to satisfy all or a portion of the tax withholding obligations relating to an award, then such shares of Common Stock shall again be available under this Plan.

Shares of Common Stock shall be made available from authorized and unissued shares of Common Stock, or authorized and issued shares of Common Stock reacquired and held as treasury shares or otherwise or a combination thereof.

To the extent required by Section 162(m) of the Code and the rules and regulations thereunder, the maximum number of shares of Common Stock or share equivalent units with respect to which options, SARs, Stock Awards, RSUs, Performance Share Awards, Performance Units, or a combination thereof, may be granted to any person during: (i) the 1999 fiscal year shall be 75,000; and (ii) any other fiscal year of the Company shall be 500,000, subject to adjustment as provided in Section 6.11.

II. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

2.1 Stock Options . The Committee may, in its discretion, grant options to purchase shares of Common Stock to such eligible persons as may be selected by the Committee. Each option, or portion thereof, that is granted to a person other than an employee of the Company or a Subsidiary or that is otherwise not an Incentive Stock Option, shall be a Non-Statutory Stock Option. Each Incentive Stock Option shall be granted within ten years of the effective date of this Plan. To the extent that the aggregate Fair Market Value (determined as of the date of grant) of shares of Common Stock with respect to which options designated as Incentive Stock Options are exercisable for the first time by a participant during any calendar year (under this Plan or any other Plan of the Company (or any parent or subsidiary as defined in Section 424 of the Code) exceeds the amount (currently $100,000) established by the Code, such options shall constitute Non-Statutory Stock Options.

Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable:

(a) Number of Shares and Purchase Price. The number of shares of Common Stock subject to an option and the purchase price per share of Common Stock purchasable upon exercise of the option shall be determined by the Committee; provided, however, that the purchase price per share of Common Stock purchasable upon exercise of any option shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of such option; provided further, that if an Incentive Stock Option shall be granted to any person who, at the time such option is granted, owns capital stock possessing more than ten percent of the total combined voting power of all classes of capital stock of the Company (or of any parent or subsidiary as defined in Section 424 of the Code) (a “Ten Percent Holder”), the purchase price per share of Common Stock shall be the price (currently 110% of Fair Market Value) required by the Code in order to constitute an Incentive Stock Option.

(b) Option Period and Exercisability. The period during which an option may be exercised shall be determined by the Committee; provided, however, that no Incentive Stock Option shall be exercised later than ten years after its date of grant; provided further, that if an Incentive Stock Option shall be granted to a Ten Percent Holder, such option shall not be exercised later than five years after its date of grant; provided further, that if an exercise of a Non-Statutory Stock Option would violate applicable securities laws, the Non-Statutory Stock Option will be exercisable no more than 30 days after the exercise of the option first would no longer violate applicable securities laws. The Committee may, in its discretion, establish Performance Measures that shall be satisfied or met as a condition to the grant of an option or to the exercisability of all or a portion of an option. The Committee shall determine whether an option shall become exercisable in cumulative or non-cumulative installments and in part or in full at any time. An exercisable option, or portion thereof, may be exercised only with respect to whole shares of Common Stock.

(c) Method of Exercise. An option may be exercised: (i) by giving written notice to the Company specifying the number of whole shares of Common Stock to be purchased and accompanied by payment therefore in full (or arrangement made for such payment to the Company’s satisfaction) either (A) in cash, (B)

by delivery of Mature Shares having an aggregate Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable by reason of such exercise, (C) in cash by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise or (D) a combination of (A) and (B), in each case to the extent set forth in the Agreement relating to the option; (ii) if applicable, by surrendering to the Company any Tandem SARs that are cancelled by reason of the exercise of the option; and (iii) by executing such documents as the Company may reasonably request. The Company shall have sole discretion to disapprove of an election pursuant to any of clauses (B)-(D) and in the case of an optionee who is subject to Section 16 of the Exchange Act, the Company may require that the method of making such payment be in compliance with Section 16 and the rules and regulations thereunder. Any fraction of a share of Common Stock that would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the optionee. No certificate representing Common Stock shall be delivered until the full purchase price therefor has been paid (or arrangement made for such payment to the Company’s satisfaction).

2.2 Stock Appreciation Rights . The Committee may, in its discretion, grant SARs to such eligible persons as may be selected by the Committee. The Agreement relating to a SAR shall specify whether the SAR is a Tandem SAR or a Free-Standing SAR.

SARs shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable:

(a) Number of SARs and Base Price. The number of SARs subject to an award shall be determined by the Committee. Any Tandem SAR related to an Incentive Stock Option shall be granted at the same time that such Incentive Stock Option is granted. The base price of a Tandem SAR shall be the purchase price per share of Common Stock of the related option. The base price of a Free-Standing SAR shall be determined by the Committee.

(b) Exercise Period and Exercisability. The Agreement relating to an award of SARs shall specify whether such award may be settled in shares of Common Stock (including shares of Restricted Stock) or cash or a combination thereof. The period for the exercise of a SAR shall be determined by the Committee; provided, however, that no Tandem SAR shall be exercised later than the expiration, cancellation, forfeiture or other termination of the related option. The Committee may, in its discretion, establish Performance Measures that shall be satisfied or met as a condition to the grant of a SAR or to the exercisability of all or a portion of a SAR. The Committee shall determine whether a SAR may be exercised in cumulative or non-cumulative installments and in part or in full at any time. An exercisable SAR, or portion thereof, may be exercised, in the case of a Tandem SAR, only with respect to whole shares of Common Stock and, in the case of a Free-Standing SAR, only with respect to a whole number of SARs. If a SAR is exercised for shares of Restricted Stock, a certificate or certificates representing such Restricted Stock shall be issued in accordance with Section 3.2(c) and the holder of such Restricted Stock shall have such rights of a stockholder of the Company as determined pursuant to Section 3.2(d). Prior to the exercise of a SAR for shares of Common Stock, including Restricted Stock, the holder of such SAR shall have no rights as a stockholder of the Company with respect to the shares of Common Stock subject to such SAR and shall have rights as a stockholder of the Company in accordance with Section 6.14.

(c) Method of Exercise. A Tandem SAR may be exercised: i) by giving written notice to the Company specifying the number of whole SARs that are being exercised; (ii) by surrendering to the Company any options that are cancelled by reason of the exercise of the Tandem SAR; and (iii) by executing such documents as the Company may reasonably request. A Free-Standing SAR may be exercised: (i) by giving written notice to the Company specifying the whole number of SARs that are being exercised; and (ii) by executing such documents as the Company may reasonably request.

2.3 Termination of Employment or Service. Subject to Section 1.4, all of the terms relating to the exercise, cancellation or other disposition of an option or SAR upon a termination of employment with or service to the Company of the holder of such option or SAR, as the case may be, whether by reason of Disability, retirement, death or other termination, shall be determined by the Committee. Such determination shall be made at the time of the grant of such option or SAR, as the case may be, and shall be specified in the Agreement relating to such option or SAR.

2.4 Substitute Awards . In the event of a Spin-Off, the Committee shall be authorized to grant substitute options (“Substitute Options”) to purchase Common Stock, in accordance with the terms hereof, to holders of options to acquire Common Stock of TSC (“TSC Options”). The number of shares of Common Stock subject to Substitute Options shall be determined as follows:

(a) eLoyalty Employees and Directors. A Substitute Option shall be granted to each holder of a TSC Option who, immediately after the Spin-Off, is an employee or director of the Company (but who is not also a director of TSC). The number of shares of Common Stock subject to such Substitute Option shall be determined by multiplying the number of shares subject to the TSC Option to which such Substitute Option relates by a ratio, the numerator of which is the trading price of a share of TSC Common Stock, traded “regular way,” and the denominator of which is the trading price of a share of Common Stock, traded on a “when-issued” basis, in each case over a fixed period of time determined by the Committee on or around the record date of the Spin-Off.

(b) Other TSC Option Holders. A Substitute Option shall be granted to each holder of a nonqualified TSC Option granted prior to June 22, 1999 who, immediately after the Spin-Off, is either: (i) an employee or director of TSC; or (ii) an employee or director of neither TSC nor the Company. The number of shares of Common Stock subject to such Substitute Option shall equal the number of shares of Common Stock that would be distributed in the Spin-Off with respect to a number of shares of TSC Common Stock equal to the number of shares subject to the TSC Option to which such Substitute Option relates immediately prior to the Spin-Off.

The Committee shall determine the exercise price of each Substitute Option in a manner that preserves the economic value of the TSC Option to which such Substitute Option relates. The terms and conditions of each Substitute Option, including, without limitation, the expiration date of the option, the time or times when, and the manner in which, such Substitute Option shall be exercisable, the duration of the exercise period, the method of exercise, settlement and payment, and, subject to Section 1.4, the rules in the event of termination of employment, shall be the same as those of the TSC Option to which the Substitute Option relates.

Pursuant to its authority provided under this Section, the Committee granted a total of 738,756 shares of Substitute Options in connection with the spin-off of eLoyalty from TSC on February 15, 2000.

III. STOCK AWARDS AND RESTRICTED STOCK UNITS

3.1 Stock Awards . The Committee may, in its discretion, grant Stock Awards and/or RSUs to such eligible persons as may be selected by the Committee. The Agreement relating to a Stock Award shall specify whether the Stock Award is a Restricted Stock Award or Bonus Stock Award.

3.2 Terms of Stock Awards . Stock Awards and RSUs shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable.

(a) Number of Shares and Other Terms. The number of shares of Common Stock subject to a Restricted Stock Award or Bonus Stock Award, the number of share equivalent units subject to RSUs, and the Performance Measures (if any) and Restriction Period applicable to a Restricted Stock Award or RSUs shall be determined by the Committee.

(b) Vesting and Forfeiture. The Agreement relating to a Restricted Stock Award or RSUs shall provide, in the manner determined by the Committee, in its discretion, and subject to the provisions of this Plan, for the vesting of the shares of Common Stock or share equivalent units subject to such award: (i) if specified Performance Measures are satisfied or met during the specified Restriction Period; or (ii) if the holder of such award remains continuously in the employment of or service to the Company during the specified Restriction Period and for the forfeiture of the shares of Common Stock or share equivalent units subject to such award: (x) if specified Performance Measures are not satisfied or met during the specified Restriction Period; or (y) if the holder of such award does not remain continuously in the employment of or service to the Company during the specified Restriction Period.

Bonus Stock Awards shall not be subject to any Performance Measures or Restriction Periods.

(c) Share Certificates. During the Restriction Period, a certificate or certificates representing a Restricted Stock Award may be registered in the holder’s name and may bear a legend, in addition to any

legend that may be required pursuant to Section 6.10, indicating that the ownership of the shares of Common Stock represented by such certificate is subject to the restrictions, terms and conditions of this Plan and the Agreement relating to the Restricted Stock Award. All such certificates shall be deposited with the Company, together with stock powers or other instruments of assignment (including a power of attorney), each endorsed in blank with a guarantee of signature if deemed necessary or appropriate by the Company, that would permit transfer to the Company of all or a portion of the shares of Common Stock subject to the Restricted Stock Award in the event such award is forfeited in whole or in part. Upon termination of any applicable Restriction Period (and the satisfaction or attainment of applicable Performance Measures), or upon the grant of a Bonus Stock Award, in each case subject to the Company’s right to require payment of any taxes in accordance with Section 6.9, a certificate or certificates evidencing ownership of the requisite number of shares of Common Stock shall be delivered to the holder of such award.

(d) Rights with Respect to Restricted Stock Awards. Unless otherwise set forth in the Agreement relating to a Restricted Stock Award, and subject to the terms and conditions of a Restricted Stock Award, the holder of such award shall have all rights as a stockholder of the Company, including, but not limited to, voting rights, the right to receive dividends and the right to participate in any capital adjustment applicable to all holders of Common Stock; provided, however, that a distribution with respect to shares of Common Stock, other than a regular cash dividend, shall be deposited with the Company and shall be subject to the same restrictions as the shares of Common Stock with respect to which such distribution was made.

(e) Rights with Respect to Restricted Stock Units. During the Restriction Period, Participants awarded RSUs hereunder will be credited with regular cash dividends or dividend equivalents paid with respect to those share equivalent units. Dividends may be paid currently, accrued as contingent cash obligations, or converted into additional share equivalent units, upon such terms as the Committee establishes. The Board or Committee may apply any restrictions it deems advisable to the crediting and payment of dividends and other distributions.

(f) Awards to Certain Executive Officers. Notwithstanding any other provision of this Article III, and only to the extent necessary to ensure the deductibility of the award to the Company, the Fair Market Value of the number of shares of Common Stock subject to a Stock Award or Performance Shares, or share equivalent units subject to RSUs, granted to a “covered employee” within the meaning of Section 162(m) of the Code shall not exceed $2,000,000: (i) at the time of grant in the case of a Stock Award, Performance Shares, or RSUs granted upon the attainment of Performance Measures; or (ii) in the case of a Restricted Stock Award, Performance Shares, or RSUs with Performance Measures that shall be satisfied or met as a condition to the holder’s receipt of the shares of Common Stock or share equivalent units subject to such award, on the earlier of: (x) the date on which the Performance Measures are satisfied or met; and (y) the date the holder makes an election under Section 83(b) of the Code.

3.3 Termination of Employment or Service . All of the terms relating to the satisfaction of Performance Measures and the termination of the Restriction Period relating to a Restricted Stock Award or RSUs, or any cancellation or forfeiture of such Restricted Stock Award or RSUs upon a termination of employment with or service to the Company of the holder of such Restricted Stock Award or RSUs, whether by reason of Disability, retirement, death or other termination, shall be set forth in the Agreement relating to such Restricted Stock Award or RSUs.

IV. PERFORMANCE SHARE AWARDS AND PERFORMANCE UNITS

4.1 Performance Share Awards and Performance Units. The Committee may, in its discretion, grant Performance Share Awards or Performance Units to such eligible persons as may be selected by the Committee.

4.2 Terms of Performance Share Awards and Performance Units . Performance Share Awards and Performance Units shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable.

(a) Number of Performance Shares and Performance Units and Performance Measures. The number of Performance Shares or share equivalent units subject to any award and the Performance Measures and Performance Period applicable to such award shall be determined by the Committee.

(b) Vesting and Forfeiture. The Agreement relating to a Performance Share Award or Performance Units shall provide, in the manner determined by the Committee, in its discretion, and subject to the provisions of this Plan, for the vesting of such award, if specified Performance Measures are satisfied or met during the specified Performance Period, and for the forfeiture of such award, if specified Performance Measures are not satisfied or met during the specified Performance Period.

(c) Settlement of Vested Performance Share Awards. The Agreement relating to a Performance Share Award: (i) shall specify whether such award may be settled in shares of Common Stock (including shares of Restricted Stock) or cash or a combination thereof; and (ii) may specify whether the holder thereof shall be entitled to receive, on a current or deferred basis, dividend equivalents, and, if determined by the Committee, interest on or the deemed reinvestment of any deferred dividend equivalents, with respect to the number of shares of Common Stock subject to such award. If a Performance Share Award is settled in shares of Restricted Stock, a certificate or certificates representing such Restricted Stock shall be issued in accordance with Section 3.2(c) and the holder of such Restricted Stock shall have such rights of a stockholder of the Company as determined pursuant to Section 3.2(d). Prior to the settlement of a Performance Share Award in shares of Common Stock, including Restricted Stock, the holder of such award shall have no rights as a stockholder of the Company with respect to the shares of Common Stock subject to such award and shall have rights as a stockholder of the Company in accordance with Section 6.14.

4.3 Termination of Employment or Service . All of the terms relating to the satisfaction of Performance Measures and the termination of the Performance Period relating to a Performance Share Award or Performance Units, or any cancellation or forfeiture of such Performance Share Award or Performance Units upon a termination of employment with the Company of the holder of such Performance Share Award or Performance Units, whether by reason of Disability, retirement, death or other termination, shall be set forth in the Agreement relating to such Performance Share Award or Performance Units.

V. (RESERVED)

VI. GENERAL

6.1 Number. Except where otherwise indicated by the context, any plural term used in this Plan includes the singular and a singular term includes the plural.

6.2 Severability. If any provision of the Plan is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provision had not been included.

6.3 Requirements of Law. The granting of awards and the issuance of shares of Common Stock or cash payouts under the Plan will be subject to all applicable laws, rules, and regulations, and to any approvals by governmental agencies or national securities exchanges as may be required.

6.4 Securities Law Compliance. As to any individual who is, on the relevant date, an officer, director or ten percent beneficial owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 under the Exchange Act, or any successor rule. To the extent any provision of the Plan or action by the Committee fails to so comply, it will be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.

6.5 Effective Date and Term of Plan . The effective date for purposes of this amendment and restatement of the Plan shall be the date of approval by the Company’s stockholders of the amendment to increase by 1,500,000 the maximum number of shares of Common Stock under the Plan (which amendment is submitted to such stockholders for their approval at the Company’s 2008 Annual Meeting of Stockholders on May 15, 2008) (the “Effective Date”). This Plan was initially adopted by the Board and approved by the stockholders effective June 22, 1999. This Plan shall terminate ten years after its Effective Date, unless terminated earlier by the Board. Termination of this Plan shall not affect the terms or conditions of any award granted prior to termination.

6.6 Amendments . The Board may amend this Plan as it shall deem advisable, subject to any requirement of stockholder approval required by applicable law, rule or regulation, including Section 162(m) and Section 422 of the

Code; provided, however, that no amendment shall be made without stockholder approval if such amendment would (a) increase the maximum number of shares of Common Stock available under this Plan (subject to Section 6.17), (b) effect any change inconsistent with Section 422 of the Code or (c) extend the term of this Plan. No amendment may impair the rights of a holder of an outstanding award without the consent of such holder.

6.7 Agreement . Each award under this Plan shall be evidenced by an Agreement setting forth the terms and conditions applicable to such award. A copy of such document shall be provided to the recipient, and the Committee may, but need not, require that the recipient sign a copy of such document. Such document is referred to in the Plan as an “Agreement” regardless of whether any recipient signature is required.

6.8 Non-Transferability of Awards . Unless otherwise specified in the Agreement relating to an award, no award shall be transferable other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the first sentence of this Section 6.8, or the Agreement relating to an award, each award may be exercised or settled during the holder’s lifetime only by the holder or the holder’s legal representative or similar person. Except to the extent permitted by the first sentence of this Section 6.8 or the Agreement relating to an award, no award may be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of any such award, other than as permitted by the first sentence of this Section 6.8 or the Agreement relating to an award, such award and all rights thereunder shall immediately become null and void.

6.9 Tax Withholding . The Company shall have the right to require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash pursuant to an award made hereunder, payment by the holder of such award of any Federal, state, local or other taxes that may be required to be withheld or paid in connection with such award. An Agreement may provide that: (i) the Company shall withhold whole shares of Common Stock that would otherwise be delivered to a holder, having an aggregate Fair Market Value determined as of the date the obligation to withhold or pay taxes arises in connection with an award (the “Tax Date”), or withhold an amount of cash that would otherwise be payable to a holder, in each case in an amount not to exceed the Company’s minimum statutory withholding requirements; or (ii) the holder may satisfy any such obligation by any of the following means: (A) a cash payment to the Company, (B) delivery to the Company of Mature Shares having an aggregate Fair Market Value, determined as of the Tax Date, equal to the amount necessary to satisfy any such obligation, (C) authorizing the Company to withhold whole shares of Common Stock that would otherwise be delivered having an aggregate Fair Market Value, determined as of the Tax Date, or withhold an amount of cash that would otherwise be payable to a holder, equal to the minimum amount necessary to satisfy any such obligation, (D) in the case of the exercise of any option, a cash payment by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise or (E) any combination of (A), (B), and (C), in each case to the extent set forth in the Agreement relating to the award; provided, however, that the Company shall have sole discretion to disapprove of an election pursuant to any of clauses (B) - (E) and that in the case of a holder who is subject to Section 16 of the Exchange Act, the Company may require that the method of satisfying such an obligation be in compliance with Section 16 and the rules and regulations thereunder. Any fraction of a share of Common Stock that would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the holder.

6.10 Restrictions on Shares . Each award made hereunder shall be subject to the requirement that if at any time the Company determines that the listing, registration or qualification of the shares of Common Stock subject to such award upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the delivery of shares thereunder, such shares shall not be delivered unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company may require that certificates evidencing shares of Common Stock delivered pursuant to any award made hereunder bear a legend indicating that the sale, transfer or other disposition thereof by the holder is prohibited except in compliance with the Securities Act of 1933, as amended, and the rules and regulations thereunder.

6.11 Adjustment . In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a regular cash dividend, the number and class of

securities available under this Plan, the number and class of securities subject to each outstanding option or SAR and the purchase price per security, the terms of each outstanding SAR or RSU, the number and class of securities subject to each outstanding Stock Award, and the terms of each outstanding Performance Share Award, Performance Units, or any other applicable award shall be adjusted by the Committee as is equitably required to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. In the case of any stock split, including a stock split effected by means of a stock dividend, and in the case of any other dividend paid in shares of the Company, such adjustment shall be made automatically without the necessity of Committee action, on the customary arithmetical basis. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. If any such adjustment would result in a fractional security being: (a) available under this Plan, such fractional security shall be disregarded; or (b) subject to an award under this Plan, the Company shall pay the holder of such award, in connection with the first vesting, exercise or settlement of such award in whole or in part occurring after such adjustment, an amount in cash determined by multiplying: (i) the fraction of such security (rounded to the nearest hundredth) by; (ii) the excess, if any, of (A) the Fair Market Value on the vesting, exercise or settlement date over (B) the exercise or base price, if any, of such award. If any such adjustment provided for in this Section 6.11 requires the approval of stockholders in order to enable the Corporation to grant Incentive Stock Options, then no such adjustment or substitution of Incentive Stock Options will be made without prior stockholder approval. If the effect of any adjustment or substitution would be to cause an option to fail to continue to qualify as an Incentive Stock Option or to cause a modification, extension or renewal of such option within the meaning of Section 409A or 424 of the Code, the Committee may elect that such adjustment not be made but rather will use reasonable efforts to effect such other adjustment of each then outstanding option as the Committee in its sole discretion will deem equitable and that will not result in any disqualification, modification, extension or renewal (within the meaning of Section 409A or 424 of the Code) of such Incentive Stock Option.

6.12 Change in Control .

(a)(1) Notwithstanding any provision in this Plan or any Agreement, in the event of a Change in Control, the Board may, but shall not be required to, make such adjustments to outstanding awards hereunder as it deems appropriate, including, without limitation, electing that each outstanding award shall be surrendered to the Company by the holder thereof, and that each such award shall immediately be cancelled by the Company, and that the holder shall receive, within a specified period of time from the occurrence of the Change in Control, a cash payment from the Company in an amount equal to:

(i) in the case of an option, the number of shares of Common Stock then subject to such option, multiplied by the excess, if any, of the greater of: (A) the highest per share price offered to stockholders of the Company in any transaction whereby the Change in Control takes place; or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change in Control, over the purchase price per share of Common Stock subject to the option;

(ii) in the case of a Free-Standing SAR, the number of shares of Common Stock then subject to such SAR, multiplied by the excess, if any, of the greater of: (A) the highest per share price offered to stockholders of the Company in any transaction whereby the Change in Control takes place; or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change in Control, over the base price of the SAR;

(iii) in the case of a Restricted Stock Award, RSUs, or a Performance Award, the number of shares of Common Stock or share equivalent units or the number of Performance Shares or share equivalent units, as the case may be, then subject to such award, multiplied by the greater of: (A) the highest per share price offered to stockholders of the Company in any transaction whereby the Change in the Control takes place; or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change in Control; and

(iv) in the case of Performance Units, the number of Performance Units multiplied by the per unit value of each Performance Unit.

In the event of a Change in Control in which options are cancelled, each Tandem SAR related to a cancelled option shall be surrendered by the holder thereof and shall be cancelled simultaneously with the cancellation of the related option. The Company may, but is not required to, cooperate with any person who is subject to Section 16 of the Exchange Act to assure that any cash payment in accordance with the foregoing to such person is made in compliance with Section 16 and the rules and regulations thereunder.

In the event of a Change in Control, the Board may, but shall not be required to, substitute for each share of Common Stock available under this Plan, whether or not then subject to an outstanding award, the number and class of shares into which each outstanding share of Common Stock shall be converted pursuant to such Change in Control. In the event of any such substitution, the purchase price per share in the case of an option and the base price in the case of a SAR shall be appropriately adjusted by the Committee.

(b) Prior to the consummation of a Spin-Off, “Change in Control” shall mean any event, other than a Spin-Off, after which TSC is the beneficial owner of less than a majority of the Outstanding Voting Securities. After the consummation of a Spin-Off, “Change in Control” shall mean one or more of the following events:

(1) the acquisition by any individual, entity or group (a “Person”), including any “person” within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 25% or more of either: (i) the then outstanding shares of Common Stock of the Company (the “Outstanding Common Stock”); or (ii) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the “Outstanding Voting Securities”); excluding, however, the following: (A) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of an exercise, conversion or exchange privilege unless the security being so exercised, converted or exchanged was acquired directly from the Company); (B) any acquisition by the Company; (C) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (D) any acquisition by a corporation pursuant to a transaction that complies with clauses (i), (ii) and (iii) of subsection (3) of this Section 6.12(b); provided further, that for purposes of clause (B), if any Person (other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company) shall become the beneficial owner of 25% or more of the Outstanding Common Stock or 25% or more of the Outstanding Voting Securities by reason of an acquisition by the Company, and such Person shall, after such acquisition by the Company, become the beneficial owner of any additional shares of the Outstanding Common Stock or any additional Outstanding Voting Securities and such beneficial ownership is publicly announced, such additional beneficial ownership shall constitute a Change in Control;

(2) individuals who, as of the date of the Spin-Off constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a director of the Company subsequent to the date of the Spin-Off whose election, or nomination for election by the Company’s stockholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall not be deemed a member of the Incumbent Board;

(3) the consummation of a reorganization, merger or consolidation of the Company or sale or other disposition of all or substantially all of the assets of the Company (a “Corporate Transaction”); excluding, however, a Corporate Transaction pursuant to which: (i) all or substantially all of the individuals or entities who are the beneficial owners, respectively, of the Outstanding Common Stock and the Outstanding Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 60% of, respectively, the outstanding shares of Common Stock, and the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation that as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or indirectly) in substantially the same proportions relative to each other as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Common Stock and the Outstanding Voting Securities, as the case may be; (ii) no Person (other than: the Company; any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; the corporation resulting from such Corporate Transaction; and any Person that beneficially owned, immediately prior to such Corporate Transaction, directly or indirectly, 25% or more of the Outstanding Common Stock or the Outstanding Voting Securities, as the case may be) will beneficially own, directly or indirectly, 25% or more of, respectively, the outstanding shares of Common Stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding securities of such

corporation entitled to vote generally in the election of directors; and (iii) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or

(4) the consummation of a plan of complete liquidation or dissolution of the Company.

(c)(1) With respect to any optionee who is subject to Section 16 of the Exchange Act, notwithstanding the exercise period contained in any Agreement to which such optionee is a party and notwithstanding the expiration date of the term of such option (other than an Incentive Stock Option), in the event the Company is involved in a business combination that is intended to be treated as a pooling of interests for financial accounting purposes (a “Pooling Transaction”) or pursuant to which such optionee receives a substitute option to purchase securities of any entity, including an entity directly or indirectly acquiring the Company, then each option (or option in substitution thereof) held by such optionee shall be exercisable to the extent set forth in the Agreement evidencing such option until and including the latest of: (x) the expiration date of the term of the option; (y) the date that is six months and one day after the consummation of such business combination; and (z) the date that is ten business days after the date of expiration of any period during which such optionee may not dispose of a security issued in the Pooling Transaction in order for the Pooling Transaction to be accounted for as a pooling of interests; and

(2) With respect to any holder of a SAR (other than a SAR that may be settled only for cash) who is subject to Section 16 of the Exchange Act, notwithstanding the exercise periods set forth in any Agreement to which such holder is a party, and notwithstanding the expiration date of the term of such SAR (other than a Tandem SAR that is related to an Incentive Stock Option), in the event the Company is involved in a Pooling Transaction or pursuant to which such holder receives a substitute SAR relating to any entity, including an entity directly or indirectly acquiring the Company, then each such SAR (or SAR in substitution thereof) held by such holder shall be exercisable to the extent set forth in the Agreement evidencing such SAR until and including the latest of: (x) the expiration date of the term of such SAR; (y) the date that is six months and one day after the consummation of such business combination; and (z) the date that is ten business days after the date of expiration of any period during which such holder many not dispose of a security issued in the Pooling Transaction in order for the Pooling Transaction to be accounted for as a pooling of interests.

6.13 No Right of Participation or Employment . No person shall have any right to participate in this Plan. Neither this Plan nor any award made hereunder shall confer upon any person any right to continued employment by the Company, TSC, or any of their subsidiaries or affiliates or affect in any manner the right of the Company, TSC, or any of their subsidiaries or affiliates to terminate the employment of any person at any time without liability hereunder.

6.14 Rights as Stockholder . Except as otherwise specified in the Plan, no person shall have any right as a stockholder of the Company with respect to any shares of Common Stock or other equity security of the Company that is subject to an award hereunder unless and until such person becomes a stockholder of record with respect to such shares of Common Stock or equity security.

6.15 Unfunded Status of the Plan. The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments or deliveries of shares of Common Stock not yet made to a Participant by the Company, the Participant’s rights are no greater than those of a general creditor of the Company. The Committee may authorize the establishment of trusts or other arrangements to meet the obligations created under the Plan, so long as the arrangement does not cause the Plan to lose its legal status as an unfunded plan.

6.16 Waiver of Jury Trial. Each Participant hereby waives any respective right to a jury trial of any permitted claim or cause of action arising out of this Plan or any dealings between the Participant and the Company Parties relating to the subject matter of the Plan. The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this Plan, including, without limitation, contract claims, tort claims, and all other common law and statutory claims. This waiver is irrevocable, meaning that it may not be modified either orally or in writing, and this waiver shall apply to any subsequent amendments, supplements or other modifications to the Plan.

6.17 Governing Law . This Plan, each award hereunder and the related Agreement, and all determinations made and actions taken pursuant thereto, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to the principles of conflicts of laws.

VII. DEFERRALS AND SECTION 409A

7.1 Purpose . As provided in an Agreement, the Committee may permit or require a Participant to defer receipt of cash or shares of Common Stock that would otherwise be due to him or her under the Plan or otherwise create a deferred compensation arrangement (as defined in Section 409A of the Code) in accordance with this Article VII.

7.2 Initial Deferral Elections. The deferral of an award under the Plan or compensation otherwise payable to the Participant shall be set forth in the terms of the Agreement or as elected by the Participant pursuant to such rules and procedures as the Committee may establish. Any such initial deferral election by a Participant will designate a time and form of payment and shall be made at such time as provided below:

(a) A Participant may make a deferral election with respect to an award under the Plan (or compensation giving rise thereto) at any time in any calendar year preceding the year in which service giving rise to such compensation or award is rendered.

(b) In the case of the first year in which a Participant becomes eligible to receive an award or defer compensation under the Plan, the Participant may make a deferral election within 30 days after the date the Participant becomes eligible to participate in the Plan; provided, that such election may apply only with respect to the portion of the award or compensation attributable to service to be performed subsequent to the election.

(c) Where the grant of an award under the Plan or payment of compensation, or the applicable vesting, is conditioned upon the satisfaction of pre-established organizational or individual performance criteria relating to a performance period of at least 12 consecutive months in which the Participant performs service, a Participant may make a deferral election no later than six months prior to the end of the applicable performance period.

(d) Where the vesting of an award under the Plan is contingent upon the Participant’s continued service for a period of no less than 13 months, the Participant may make a deferral election within 30 days of receiving an award.

(e) A Participant may make a deferral election in other circumstances and at such times as may be permitted under Section 409A of the Code.

7.3 Distribution Dates. Any deferred compensation arrangement created under the Plan shall be distributed at such times as provided in the Agreement or a separate election form, which may include the earliest or latest of one or more of the following:

(a) a fixed date as set forth in the Agreement or pursuant to a Participant’s election;

(b) the Participant’s death;

(d) a “change in control,” as defined in Section 409A of the Code;

(e) an “unforeseeable emergency,” as defined in Section 409A of the Code and implemented by the Committee;

(f) a Participant’s “separation from service,” as defined in Section 409A of the Code or, in the case of a “specified employee” (as defined in Section 409A of the Code) six months following the Participant’s “separation from service”; or

(g) such other events as permitted under Section 409A of the Code and the regulations and guidance thereunder.

7.4 Restrictions on Distributions. No distribution of a deferral may be made pursuant to the Plan if the Committee reasonably determines that such distribution would: (i) violate federal securities laws or other applicable law; (ii) be nondeductible pursuant to Section 162(m) of the Code; or (iii) jeopardize the Company’s ability to continue as a going concern. In any such case, distribution shall be made at the earliest date at which the Committee determines such distribution would not trigger clause (i), (ii) or (iii) above.

7.5 Redeferrals. The Company, in its discretion, may permit an Employee to make a subsequent election to delay a distribution date, or, as applicable, to change the form distribution payments, attributable to one or more events triggering a distribution, so long as: (i) such election may not take effect until at least 12 months after the election is made; (ii) such election defers the distribution for a period of not less than five years from the date such distribution would otherwise have been made; and (iii) such election may not be made less than 12 months prior to the date the distribution was to be made.

7.6 Termination of Deferred Compensation Arrangements. In addition, the Committee may in its discretion terminate the deferred compensation arrangements created under the Plan subject to the following:

(a) the arrangement may be terminated within the 30 days preceding, or 12 months following, a change in control, as defined in Section 409A, provided that all payments under such arrangement are distributed in full within 12 months after termination;

(b) the arrangement may be terminated in the Committee’s discretion at any time provided that (i) all deferred compensation arrangements of similar type maintained by the Company are terminated, (ii) all payments are made at least 12 months and no more than 24 months after the termination, and (iii) the Company does not adopt a new arrangement of similar type for a period of five years following the termination of the arrangement; and

(c) the arrangement may be terminated within 12 months of a corporate dissolution taxed under Code Section 331 or with the approval of a bankruptcy court pursuant to 11 U.S.C. 503(b)(1)(A) provided that the payments under the arrangement are distributed by the latest of the: (i) the end of the calendar year of the termination; (ii) the calendar year in which such payments are fully vested; or (iii) the first calendar year in which such payment is administratively practicable.

7.7. Interpretation and Section 409A Payments. Any award under the Plan is intended either: (i) to be exempt from Section 409A of the Code under the stock right, short-term deferral or other exceptions available under Section 409A; or (ii) to comply with Section 409A of the Code, and shall be administered in a manner consistent with such intent. For purposes of Section 409A, each payment of deferred compensation under this Plan shall be considered a separate payment.

Exhibit 10.19

FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT

This FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT (this “Amendment”) is made and entered into as of this 1 ^st day of November 2014 (the “Effective Date”), by and between Mattersight Corporation, a Delaware Corporation (“Mattersight”) and Richard Dresden, a resident of the State of Illinois (the “Employee”).

A. Mattersight and Employee are parties to that certain Executive Employment Agreement, dated as of February 10, 2014 (the “Agreement”), setting forth the terms and conditions of Employee’s employment with Mattersight.

B. The parties desire to amend the Agreement as set forth herein, effective as of the Effective Date.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. All capitalized terms used and not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement.

2. The first sentence of Section 3, Salary, is hereby deleted in its entirety and replaced with the following:

“For services rendered hereunder, the Company shall pay Employee a base salary at the per annum rate of $275,000, less standard payroll deductions and withholdings, and payable in accordance with the Company’s regular payroll schedule.”

3. The Agreement shall remain unmodified other than as expressly set forth herein and, as so modified, shall remain in full force and effect.

IN WITNESS WHEREOF, Employee and a duly authorized officer of Mattersight have executed this Amendment as of the date set forth above.

Exhibit 10.21

Summary of Director Compensation

Directors who are not employees of Mattersight or any of its subsidiaries (“Non-Employee Directors”) receive a fixed annual fee for their contributions to the board of directors, the amount of which is calculated for each director based on the following assumptions:

•

$1,500 per board meeting (assuming four per year) plus an additional $500 per meeting for the Chairman of Board;

•

$2,000 per Audit Committee meeting (assuming eight per year) plus an additional $500 per meeting for the Audit Committee chairman;

•

$2,000 per Compensation Committee meeting (assuming four per year) plus an additional $500 per meeting for the Compensation Committee chairman; and

•

$2,000 per Nominating and Corporate Governance Committee meeting (assuming three per year) plus an additional $500 per meeting for the Nominating and Corporate Governance Committee chairman.

The board of directors approved these modifications by unanimous written consent dated November 9, 2012, and these modifications were put into effect as of January 1, 2013.

The Company also reimburses directors for their travel-related expenses incurred in attending meetings of the board of directors and its committees; however, Mattersight has adopted the practice of holding meetings of the board of directors and its committees by video conference, thereby minimizing the need to reimburse for these expenses.

In addition to meeting attendance fees, Non-Employee Directors are eligible to receive automatic grants of stock options under the Mattersight Corporation 1999 Stock Incentive Plan (the “1999 Plan”), which provides for each Non-Employee Director to receive: (i) an option to purchase 50,000 shares of Mattersight Common Stock, $.01 par value (“Common Stock”) upon commencement of service as a director (an “Initial Grant”); and (ii) an option to purchase 5,000 shares of Common Stock on the day after each annual meeting of stockholders during which such service continues (an “Annual Grant”). By unanimous written consent dated November 9, 2012, the board of directors approved an increase in the Annual Grant from 5,000 shares to 10,000 shares, effective as of January 1, 2013.

Stock options granted to Non-Employee Directors have an exercise price per share equal to the fair market value of a share of Common Stock on the grant date and a maximum term of ten years. Each Initial Grant vests ratably over a period of 48 months from the end of the month following the grant date. Prior to 2012, each Annual Grant vested ratably over a period of 48 months, commencing with a vesting of 25% on May 31 ^st of

the year following the grant date and 6.25% on each quarterly vesting date thereafter. By unanimous written consent effective September 11, 2014, the vesting of the Annual Grant was modified such that it will vest 25% on May 31 ^st of the year following the grant date, with the remaining balance vesting over the following three quarters.

In addition to the foregoing options, at its February 2009 meeting, as ratified by Unanimous Written Consent, the board of directors agreed to an additional grant of stock options under the 1999 Plan. Each Non-Employee Director received an option to purchase 50,000 shares of Common Stock. These stock options have an exercise price per share equal to the fair market value of a share of Common Stock on the grant date, which was February 18, 2009, and a maximum term of ten years, pursuant to the 1999 Plan. Vesting occurs ratably over a period of 16 quarters, with the first quarterly vesting having occurred on February 28, 2009.

By unanimous written consent effective September 11, 2014, each of the Company’s Board of Directors received 10,000 shares of restricted Common Stock, of which 25% vested on November 30, 2014 and the remaining balance will vest over the following three quarters. Commencing in 2015, in addition to the Annual Grant, each non-employee director will receive 10,000 shares of restricted Common Stock annually, the day after the Company’s annual stockholders’ meeting, which will vest in equal quarterly increments over four quarters.

Exhibit 10.22

Summary of 2015 Executive Officer Compensation

The following shows the 2015 annual salary for each of Mattersight’s current executive officers:


Kelly D. Conway, President and Chief Executive Officer:	$	350,000

Christopher J. Danson, Executive Vice President of Delivery:	$	300,000

Richard M. Dresden, Executive Vice President of Sales:	$	275,000

David R. Gustafson, Executive Vice President of Products and Customer Operations:	$	300,000

Mark Iserloth, Vice President and Chief Financial Officer:	$	280,000

Each of these executive officers have target bonus percentages as set forth in their employment agreements with Mattersight and modified with approval of the Compensation Committee of our Board of Directors from time to time. Additional information concerning the compensation of these executive officers is set forth in the Proxy Statement on Form 14A filed by Mattersight Corporation with the Securities and Exchange Commission.

Exhibit 10.23

EXECUTION COPY

SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

This SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “ Agreement ”) dated as of March 10, 2015 (the “ Effective Date ”) among (a) SILICON VALLEY BANK , a California corporation with a loan production office located at 380 Interlocken Crescent, Suite 600, Broomfield, Colorado 80021 (“ Bank ”), and (b) (i) MATTERSIGHT CORPORATION , a Delaware corporation (“ Mattersight Corporation ”), (ii) MATTERSIGHT EUROPE HOLDING CORPORATION , a Delaware corporation (“ Mattersight Europe ”), and (iii) MATTERSIGHT INTERNATIONAL HOLDING, INC. , an Illinois corporation, (“ Mattersight International ”; and together with Mattersight Corporation and Mattersight Europe, jointly and severally, individually and collectively, “ Borrower ”), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank. This Agreement amends and restates in its entirety that certain Amended and Restated Loan and Security Agreement, dated as of May 30, 2013, as amended by that certain First Amendment, dated as of August 20, 2013 and as further amended by that certain Second Amendment, dated as of June 27, 2014 (as amended, the “ Prior Loan Agreement ”). The parties agree as follows:

ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.

LOAN AND TERMS OF PAYMENT

2.1 Promise to Pay . Borrower hereby unconditionally promises to pay Bank the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement.

2.1.1 Revolving Advances .

(a) Availability . Subject to the terms and conditions of this Agreement, Bank shall make Advances not exceeding the Availability Amount. Amounts borrowed under the Revolving Line may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.

(b) Termination; Repayment . The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable. So long as Borrower has satisfied the Obligations (other than inchoate indemnity obligations, any other obligations which, by their terms, are to survive the termination of this Agreement, and any Obligations under Bank Services Agreements that are cash collateralized in accordance with Section 4.1 of this Agreement), subject to the payment of the fee described in Section 2.4(c), this Agreement may be terminated prior to the Revolving Line Maturity Date by Borrower, effective three (3) Business Days after written notice of termination is given to Bank.

2.2 Overadvances . If, at any time, the outstanding principal amount of any Advances exceeds the lesser of either the Revolving Line or the Borrowing Base, Borrower shall immediately pay to Bank in cash the amount of such excess (such excess, the “ Overadvance ”). Without limiting Borrower’s obligation to repay Bank any Overadvance, Borrower agrees to pay Bank interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.

2.3 Payment of Interest on the Credit Extensions .

(a) Interest Rate . Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to the Prime Rate plus one and one-quarter percent (1.25%), which interest shall be payable monthly in accordance with Section 2.3(f) below.

(b) Default Rate . Immediately upon the occurrence and during the continuance of an Event of Default, unless otherwise elected by Bank, Obligations shall bear interest at a rate per annum which is five percentage points (5.0%) above the rate that is otherwise applicable thereto (the “ Default Rate ”) unless Bank otherwise elects from time to time in its sole discretion to impose a smaller increase. Fees and expenses which are required to be paid by Borrower pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations. Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank.

(c) Adjustment to Interest Rate . Changes to the interest rate of any Credit Extension based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change.

(d) Computation; 360-Day Year . In computing interest, the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided , however , that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension. Interest shall be computed on the basis of a 360-day year for the actual number of days elapsed.

(e) Debit of Accounts . Bank may debit any of Borrower’s deposit accounts, including the Designated Deposit Account, for principal and interest payments or, after notice to Borrower, any other amounts Borrower owes Bank when due. These debits shall not constitute a set-off.

(f) Interest Payment Date . Unless otherwise provided, interest is payable monthly in arrears on the first calendar day of each month.

2.4 Fees . Borrower shall pay to Bank:

(a) Commitment Fee . A fully earned, non-refundable commitment fee of Fifty Six Thousand Two Hundred Fifty Dollars ($56,250.00), payable on the Effective Date;

(b) Anniversary Fee . An anniversary fee of Fifty Six Thousand Two Hundred Fifty Dollars ($56,250.00), which shall be fully earned, non-refundable and due and payable on each anniversary of Effective Date;

(c) Termination Fee . Upon termination of this Agreement for any reason prior to the Revolving Line Maturity Date, in addition to the payment of any other amounts then-owing, a termination fee in an amount equal to (i) one percent (1.00%) of the Revolving Line (i.e. One Hundred Fifty Thousand Dollars ($150,000.00)) if such termination occurs on or prior to the first anniversary of the Effective Date; or (ii) one-quarter of one percent (0.25%) of the Revolving Line (i.e. Thirty Seven Thousand Five Hundred Dollars ($37,500.00)) if such termination occurs at any time after the first anniversary of the Effective Date but prior to the Revolving Line Maturity Date; provided that no termination fee shall be charged if the credit facility hereunder is replaced with a new facility from Bank;

(d) Unused Revolving Line Facility Fee . A fee (the “ Unused Revolving Line Facility Fee ”), payable quarterly, in arrears, on a calendar year basis, in an amount equal to one-quarter of one percent (0.25%) per annum of the average unused portion of the Revolving Line. The unused portion of the Revolving Line, for purposes of this calculation, shall equal the difference between (x) the Revolving Line amount (as it may be reduced from time to time) and (y) the average for the period of the daily closing balance of the Revolving Line outstanding. Borrower shall not be entitled to any credit, rebate or repayment of any Unused Revolving Line Facility Fee previously earned by Bank pursuant to this Section notwithstanding any termination of the Agreement or the suspension or termination of Bank’s obligation to make loans and advances hereunder; and

(e) Bank Expenses . All Bank Expenses (including reasonable attorneys’ fees and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due.

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2.5 Payments. All payments (including prepayments) to be made by Borrower under any Loan Document shall be made in immediately available funds in Dollars, without setoff or counterclaim, before 1:00 p.m. Central time on the date when due. Payments of principal and/or interest received after 1:00 p.m. Central time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.

CONDITIONS OF LOANS

3.1 Conditions Precedent to Initial Credit Extension . Bank’s obligation to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:

(a) duly executed original signatures to the Loan Documents;

(b) to the extent amended and/or modified since last delivered by Borrower to Bank, each Borrower’s Operating Documents, certified by the Secretary of State for such Borrower’s jurisdiction of incorporation (as applicable), as of a date no earlier than thirty (30) days prior to the Effective Date;

(d) a long-form good standing certificate (where available) of each Borrower and certificates of foreign qualification/good standing of each Borrower, for all other states in which such Borrower is qualified to do business, in each case certified by the applicable Secretary of State as of a date no earlier than thirty (30) days prior to the Effective Date;

(e) certified copies, dated as of a recent date, of financing statement searches, as Bank shall request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;

(f) evidence satisfactory to Bank that the insurance policies required by Section 6.5 hereof are in full force and effect, together with appropriate evidence showing lender loss payable and/or additional insured clauses in favor of Bank; and

(g) payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof.

3.2 Conditions Precedent to all Credit Extensions . Bank’s obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:

(a) timely receipt of an executed Transaction Report;

(b) the representations and warranties in this Agreement shall be true, accurate, and complete in all material respects on the date of the Transaction Report and on the Funding Date of each Credit Extension; provided , however , that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided , further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Default or Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in this Agreement remain true, accurate, and complete in all material respects; provided , however , that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided , further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and

(c) in Bank’s reasonable discretion, there has not been any material impairment in the general affairs, management, results of operation, financial condition or the prospect of repayment of the Obligations, or any material adverse deviation by Borrower from the most recent business plan of Borrower presented to and accepted by Bank.

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3.3 Covenant to Deliver . Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension. Borrower expressly agrees that a Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrower’s obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Bank’s sole discretion.

3.4 Procedures for Borrowing . Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this Agreement, to obtain an Advance, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 1:00 p.m. Central time on the Funding Date of the Advance. Together with any such electronic or facsimile notification, Borrower shall deliver to Bank by electronic mail or facsimile a completed Transaction Report executed by a Responsible Officer or his or her designee. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. Bank shall credit Advances to the Designated Deposit Account. Bank may make Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Advances are necessary to meet Obligations which have become due.

CREATION OF SECURITY INTEREST

4.1 Grant of Security Interest . Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.

Borrower acknowledges that it previously has entered, and/or may in the future enter, into Bank Services Agreements with Bank. Regardless of the terms of any Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank thereunder shall be deemed to be Obligations hereunder and that it is the intent of Borrower and Bank to have all such Obligations secured by the first priority perfected security interest in the Collateral granted herein (subject only to Permitted Liens (which may only have superior priority to Bank’s Lien as expressly permitted herein)).

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are satisfied in full, and at such time, Bank shall, at Borrower’s sole cost and expense, terminate its security interest in the Collateral and all rights therein shall revert to Borrower. In the event (a) all Obligations (other than inchoate indemnity obligations), except for Bank Services, are satisfied in full, and (b) this Agreement is terminated, Bank shall terminate the security interest granted herein upon Borrower providing cash collateral acceptable to Bank in its good faith business judgment for Bank Services, if any. In the event such Bank Services consist of outstanding Letters of Credit, Borrower shall provide to Bank cash collateral in an amount equal to (i) one hundred two percent (102.0%) of the face amount of all such Letters of Credit denominated in Dollars, and (ii) one hundred seven percent (107.0%) of the Dollar Equivalent of the face amount of all such Letters of Credit denominated in a Foreign Currency, plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to such Letters of Credit.

4.2 Priority of Security Interest . Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens (which may only have superior priority to Bank’s Lien as expressly permitted herein)). If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.

4.3 Authorization to File Financing Statements . Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Bank’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code.

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REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

5.1 Due Organization, Authorization; Power and Authority . Borrower and each of its Subsidiaries are duly existing and in good standing, as Registered Organizations in their respective jurisdictions of formation and are qualified and licensed to do business and are in good standing in each other jurisdiction in which the conduct of their respective businesses or ownership of property requires that they be qualified, except where the failure to do so would not reasonably be expected to have a material adverse effect on Borrower’s business. In connection with this Agreement, each Borrower has delivered to Bank a completed certificate signed by Borrower, entitled “Perfection Certificate” (the “ Perfection Certificate ”). Borrower represents and warrants to Bank that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete in all material respects (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement). If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Bank of such occurrence and provide Bank with Borrower’s organizational identification number.

The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any material requirement of any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected in any material respect, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect and the filing of financing statements necessary to perfect the security interest granted in favor of Bank hereunder), or (v) constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default would reasonably be expected to have a material adverse effect on Borrower’s business.

5.2 Collateral . Borrower has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens. Borrower has no deposit accounts other than the deposit accounts with Bank, the deposit accounts, if any, described in the Perfection Certificate delivered to Bank in connection herewith, or of which Borrower has given Bank notice and taken such actions as are necessary to give Bank a perfected security interest therein.

The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate. None of the components of the Collateral with an aggregate value of One Hundred Thousand Dollars ($100,000.00) or more (in the aggregate for all Collateral at such location) shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2.

Borrower is the sole owner of the Intellectual Property material to the operation of its business that it owns or purports to own except for (a) non-exclusive licenses granted to its customers in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) material Intellectual Property licensed to Borrower and noted on the Perfection Certificate. Each Patent which it owns or purports to own and which is material to Borrower’s business is valid and enforceable, and no part of the Intellectual Property which Borrower owns or purports to own and which is material to Borrower’s business has been judged invalid or unenforceable, in whole or in part. To the best of Borrower’s knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Borrower’s business.

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Except as noted on the Perfection Certificate, Borrower is not a party to, nor is it bound by, any Restricted License.

5.3 Litigation . There are no actions or proceedings pending or, to the knowledge of the Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries that would reasonably be expected to result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, One Hundred Thousand Dollars ($100,000.00) or more (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier).

5.4 Financial Statements; Financial Condition . All consolidating financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects Borrower’s consolidating financial condition and Borrower’s consolidating results of operations. There has not been any material deterioration in Borrower’s consolidating financial condition since the date of the most recent financial statements submitted to Bank.

5.5 Solvency . The fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.

5.6 Regulatory Compliance . Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Neither Borrower nor any of its Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a “holding company” as each term is defined and used in the Public Utility Holding Company Act of 2005. Borrower has not violated any laws, ordinances or rules, the violation of which would reasonably be expected to have a material adverse effect on its business. None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Governmental Authorities that are necessary to continue their respective businesses as currently conducted, except where the failure to obtain such consents, approvals and authorizations would not reasonably be expected to have a material adverse effect on Borrower’s business.

5.7 Subsidiaries; Investments . Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments.

5.8 Tax Returns and Payments; Pension Contributions . Borrower has timely filed all required tax returns and reports, except for returns and reports for taxes, assessments, deposits and contributions in an aggregate amount not exceeding Twenty-Five Thousand Dollars ($25,000.00), and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower, except for taxes, assessments, deposits and contributions in an aggregate amount not exceeding Twenty-Five Thousand Dollars ($25,000.00). Borrower may defer payment of any contested taxes; provided that Borrower (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Bank in writing of the commencement of, and any material development in, the proceedings, (c) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a Permitted Lien. Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which would reasonably be expected to result in additional taxes becoming due and payable by Borrower. Borrower (x) has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and (y) has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which would reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency, except where Borrower’s failure to do so would not reasonably be expected to have a material adverse effect on Borrower’s business.

5.9 Use of Proceeds . Borrower shall use the proceeds of the Credit Extensions as working capital and to fund its general business requirements and not for personal, family, household or agricultural purposes.

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5.10 Full Disclosure . No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to Bank, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading (it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts or as a representation or warranty as to future performance and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).

5.11 Customer Accounts. For any customer Account that generates Monthly Recurring Revenue, all statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing such customer Accounts are and shall be true and correct in all material respects and all such invoices, instruments and other documents, and all of Borrower’s Books are genuine and in all material respects what they purport to be. All sales and other transactions underlying or giving rise to each customer Account that generates Monthly Recurring Revenue shall comply in all material respects with all applicable laws and governmental rules and regulations. Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are customer Accounts that generate Monthly Recurring Revenue. To the best of Borrower’s knowledge, (i) all signatures and endorsements on all documents, instruments, and agreements relating to all customer Accounts are genuine, and (ii) all such documents, instruments and agreements are legally enforceable in accordance with their terms. Borrower is the owner of and has the legal right to sell, transfer, assign and encumber each customer Account, and, to Borrower’s knowledge, there are no defenses, offsets, counterclaims or agreements for which the Account Debtor may claim any deduction or discount.

5.12 Definition of “Knowledge . ” For purposes of the Loan Documents, whenever a representation or warranty is made to Borrower’s knowledge or awareness, to the “best of” Borrower’s knowledge, or with a similar qualification, knowledge or awareness means the actual knowledge, after reasonable investigation, of the Responsible Officers.

AFFIRMATIVE COVENANTS

Borrower shall do all of the following:

6.1 Government Compliance . Maintain its and all its Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s business or operations. Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could have a material adverse effect on Borrower’s business.

6.2 Financial Statements, Reports, Certificates . Deliver to Bank:

(a) Transaction Reports . A Transaction Report (and any schedules related thereto, including, without limitation, total customers, “adds” and Churn metrics) (i) with each request for an Advance, and (ii) within thirty (30) days after the end of each month;

(b) Monthly Financial Statements . Within thirty (30) days after the last day of each month, a company prepared consolidating balance sheet and income statement covering Borrower’s consolidating operations for such month certified by a Responsible Officer and in a form acceptable to Bank (the “ Monthly Financial Statements ”);

(c) Monthly Compliance Certificate . Within thirty (30) days after the last day of each month and together with the Monthly Financial Statements, a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such month, Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Bank shall reasonably request;

(d) Accounts Payable/Accounts Receivable/Deferred Revenue Reports . Within thirty (30) days after the last day of each month, (i) aged listings of accounts receivable and accounts payable (by invoice date) and (ii) a Deferred Revenue report;

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(e) Annual Audited Financial Statements . As soon as available, but no later than one hundred fifty (150) days after the last day of Borrower’s fiscal year, audited consolidating financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm acceptable to Bank in its reasonable discretion;

(f) Other Statements . Within five (5) days of delivery, copies of all statements, reports and notices made available to Borrower’s security holders or to any holders of Subordinated Debt;

(g) SEC Filings . Within five (5) days of filing, copies of all periodic and other reports, proxy statements and other materials filed by Borrower with the SEC, any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be. Documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower posts such documents, or provides a link thereto, on Borrower’s website on the Internet at Borrower’s website address;

(h) Legal Action Notice . A prompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that would not reasonably be expected to result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, One Hundred Thousand Dollars ($100,000.00) or more (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier);

(i) Board-Approved Projections . As soon as available, but no later than thirty (30) days after the last day of each fiscal year of Borrower, and contemporaneously with any updates or changes thereto, (i) annual operating budgets (including, without limitation, income statements, balance sheets and cash flow statements) for the immediately following fiscal year of Borrower, and (ii) annual financial projections for the immediately following fiscal year of Borrower as approved by the Board, together with any related business forecasts used in the preparation of such annual financial projections, all prepared in a form reasonably satisfactory to Bank; and

(j) Other Financial Information . Budgets, sales projections, operating plans and other financial information reasonably requested by Bank.

6.3 Accounts Receivable .

(a) Schedules and Documents Relating to Accounts . Borrower shall deliver to Bank transaction reports and schedules of collections, total customers, “adds” and Churn metrics (each a “ Transaction Report ”), as provided in Section 6.2, on Bank’s standard forms; provided , however , that Borrower’s failure to execute and deliver the same shall not affect or limit Bank’s Lien and other rights in all of Borrower’s Accounts, nor shall Bank’s failure to advance or lend against a specific Account affect or limit Bank’s Lien and other rights therein. If reasonably requested by Bank, Borrower shall furnish Bank with copies (or, at Bank’s request and to the extent available, originals) of all material contracts, orders, invoices, and other similar documents, and all shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to such Accounts. In addition, Borrower shall deliver to Bank, on its reasonable request, the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Accounts, in the same form as received, with all necessary indorsements, and copies of all credit memos.

(b) Disputes . Borrower shall promptly notify Bank of all material disputes or claims relating to Accounts. Borrower may forgive (completely or partially), compromise, or settle any Account for less than payment in full, or agree to do any of the foregoing so long as (i) Borrower does so in good faith, in a commercially reasonable manner, in the ordinary course of business, in arm’s-length transactions, and reports the same to Bank in the regular reports provided to Bank; (ii) no Default or Event of Default has occurred and is continuing; and (iii) after taking into account all such discounts, settlements and forgiveness, the total outstanding Advances will not exceed the lesser of the Revolving Line or the Borrowing Base.

(c) Collection of Accounts . Borrower shall have the right to collect all Accounts, unless and until an Event of Default has occurred and is continuing. Borrower shall direct Account Debtors to deliver or transmit all payments in respect of Accounts into a lockbox account, or via electronic deposit capture into a “blocked account” as specified by Bank (either such account, the “ Cash Collateral Account ”), pursuant to a

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blocked account agreement in form and substance satisfactory to as Bank. Whether or not an Event of Default has occurred and is continuing, Borrower shall immediately deliver all payments on and proceeds of Accounts to the Cash Collateral Account. All amounts deposited in the Cash Collateral Account pursuant to this Section 6.3(c) shall be applied (i) prior to the occurrence and continuance of an Event of Default, at Borrower’s discretion to reduce the Obligations or transferred to the Designated Deposit Account; and (ii) following the occurrence and during the continuance of an Event of Default, as determined by Bank pursuant to Section 9.4.

(d) [ Reserved ].

(e) Verification . Following the occurrence and during the continuance of an Event of Default, Bank may verify directly with the respective Account Debtors the validity, amount and other matters relating to the Accounts, either in the name of Borrower or Bank or such other name as Bank may choose, and notify any Account Debtor of Bank’s security interest in such Account.

(f) No Liability . Bank shall not be responsible or liable for any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to an Account, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Account, or for settling any Account in good faith for less than the full amount thereof, nor shall Bank be deemed to be responsible for any of Borrower’s obligations under any contract or agreement giving rise to an Account. Nothing herein shall, however, relieve Bank from liability for its own acts of fraud, gross negligence or willful misconduct.

6.4 Taxes; Pensions . Timely file, and require each of its Subsidiaries to timely file, all required tax returns and reports, except as otherwise permitted pursuant to the terms of Section 5.8, and timely pay, and require each of its Subsidiaries to timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested or otherwise permitted pursuant to the terms of Section 5.8 hereof, and shall deliver to Bank, on reasonable demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, except where Borrower’s failure to do so would not reasonably be expected to have a material adverse effect on Borrower’s business.

6.5 Insurance . Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s industry and location and as Bank may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are reasonably satisfactory to Bank. All property policies shall have a lender’s loss payable endorsement showing Bank as lender loss payee and waive subrogation against Bank and shall provide that the insurer must endeavor to give Bank at least twenty (20) days’ notice before canceling, amending, or declining to renew its policy (provided such notice period shall be ten (10) days if such policy is cancelled or not renewed due to non-payment of premium). All liability policies shall show, or have endorsements showing, Bank as an additional insured, and all such policies (or the loss payable and additional insured endorsements) shall provide that the insurer shall endeavor to give Bank at least twenty (20) days’ notice before canceling, amending, or declining to renew its policy (provided such notice period shall be ten (10) days if such policy is cancelled or not renewed due to non-payment of premium). At Bank’s reasonable request, Borrower shall deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy shall, at Bank’s option, be payable to Bank on account of the Obligations. If Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Bank deems prudent.

6.6 Operating Accounts .

(a) Maintain all of Borrower’s and all of its Subsidiaries’ and its parent’s (if any) primary operating, depository and securities accounts with Bank and Bank’s Affiliates, which accounts at Bank and Bank’s Affiliates maintained in the name of Borrower shall represent at least eighty-five percent (85.0%) of the dollar value of Borrower’s, its Subsidiaries’ and its parent’s (if any) accounts at all financial institutions.

(b) Provide Bank five (5) days prior-written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Bank’s Affiliates. For each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or

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other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes, and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such.

6.7 Financial Covenants .

Maintain at all times, subject to periodic reporting as of the last day of each month, unless otherwise noted, on a consolidated basis with respect to Borrower:

(a) Tangible Net Worth . A Tangible Net Worth in an amount equal to or greater than One Dollar ($1.00), increasing by (i) fifty percent (50%) of positive quarterly Net Income plus (ii) fifty percent (50%) of the proceeds from issuances of equity and the principal amount of Subordinated Debt, in each case issued after the Effective Date.

(b) Minimum Revenue . Achieve minimum revenue, tested quarterly, on a trailing six month basis, of at least the following for the periods indicated: (i) for the quarterly period ending March 31, 2015, Fourteen Million Four Hundred Thousand Seven Hundred Dollars ($14,400,700); (ii) for the quarterly period ending June 30, 2015, Fifteen Million Six Hundred Ten Thousand Three Hundred Dollars($15,610,300); (iii) for the quarterly period ending September 30, 2015, Seventeen Million Three Hundred Ninety Three Thousand Six Hundred Dollars ($17,393,600); and (iv) for the quarterly period ending December 31, 2015, Nineteen Million Eighty Thousand One Hundred Dollars ($19,080,100). For the quarterly period ending March 31, 2016 and for each quarterly period ending thereafter, the minimum revenue requirements will be based on Borrower’s Board-approved projections delivered to Bank pursuant to Section 6.2(i) hereof, which requirement shall in any event be at least eighty-five (85%) of the projected revenue in such Board-approved projections for each such quarterly period.

6.8 Protection of Intellectual Property Rights .

(a) (i) Use commercially reasonable efforts to protect, defend and maintain the validity and enforceability of its Intellectual Property; (ii) promptly advise Bank in writing of material infringements of its Intellectual Property that is material to Borrower’s business; and (iii) not allow any Intellectual Property material to Borrower’s business to be abandoned, forfeited or dedicated to the public without Bank’s written consent.

(b) Provide written notice to Bank within thirty (30) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public and excluding renewals of any Restricted License disclosed in the Perfection Certificate). Borrower shall, at Bank’s reasonable request, use commercially reasonable efforts to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed “Collateral” and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank’s rights and remedies under this Agreement and the other Loan Documents.

6.9 Litigation Cooperation . From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and its officers, employees and agents and Borrower’s books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower.

6.10 Access to Collateral; Books and Records . In addition to the Initial Audit (which shall be completed by Bank on or before the date that is sixty (60) days after the Effective Date), allow Bank, or its agents, at reasonable times, on three (3) Business Days’ notice (provided no notice is required if an Event of Default has occurred and is continuing), to inspect the Collateral and audit and copy Borrower’s Books (provided that Borrower shall not be required to make available to Bank under this Section 6.10 information that is subject to attorney-client privilege or other information that Borrower is not permitted by statute, regulation or court order to disclose). Such inspections or audits shall be conducted no more often than once every twelve (12) months unless an Event of Default has occurred and is continuing. The Initial Audit and the other inspections and audits contemplated in this Section 6.10 shall be at Borrower’s expense, and the charge therefor shall be Eight Hundred Fifty Dollars ($850.00)

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per person per day (or such higher amount as shall represent Bank’s then-current standard charge for the same), plus reasonable out-of-pocket expenses. In the event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to reschedule the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank’s rights or remedies), Borrower shall pay Bank a fee of One Thousand Dollars ($1,000.00) plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling.

6.11 Existing Subsidiaries . Notwithstanding and without limiting the affirmative covenant contained in Section 6.12 and the negative covenants contained in Sections 7.3 and 7.7 hereof, if at any time either Mattersight Canada, individually, or the Other Subsidiaries, collectively, maintain gross assets in an aggregate amount greater than Five Hundred Thousand Dollars ($500,000.00), Borrower shall (a) cause Mattersight Canada or each of the Other Subsidiaries, as applicable, to provide to Bank a joinder to the Loan Agreement to cause Mattersight Canada or each of the Other Subsidiaries, as applicable, to become a co-borrower hereunder, together with such appropriate financing statements and/or Control Agreements, all in form and substance satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject only to Permitted Liens (which may only have superior priority to Bank’s Lien as expressly permitted herein)) in and to the assets of Mattersight Canada or each of the Other Subsidiaries, as applicable), (b) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in Mattersight Canada or each of the Other Subsidiaries, as applicable, in form and substance satisfactory to Bank, and (c) provide to Bank all other documentation in form and substance satisfactory to Bank, including one or more opinions of counsel satisfactory to Bank, which in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above. Any document, agreement, or instrument executed or issued pursuant to this Section 6.11 shall be a Loan Document.

6.12 Formation or Acquisition of Subsidiaries . Notwithstanding and without limiting the affirmative covenant contained in Section 6.11 and the negative covenants contained in Sections 7.3 and 7.7 hereof, at the time that Borrower forms any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary after the Effective Date, Borrower shall, unless otherwise directed by Bank in writing, (a) cause such new Subsidiary to provide to Bank a joinder to the Loan Agreement to cause such Subsidiary to become a co-borrower hereunder, together with such appropriate financing statements and/or Control Agreements, all in form and substance satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject only to Permitted Liens (which may only have superior priority to Bank’s Lien as expressly permitted herein)) in and to the assets of such newly formed or acquired Subsidiary), (b) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in such new Subsidiary, in form and substance satisfactory to Bank; provided , that with respect to any Foreign Subsidiary formed or acquired after the Effective Date, in the event that (i) the grant of a continuing pledge and security interest in and to the assets of any such Foreign Subsidiary, (ii) the guaranty of the Obligations of the Borrower by any such Foreign Subsidiary and/or (iii) the pledge by Borrower of a perfected security interest in one hundred percent (100%) of the stock, units or other evidence of ownership of each Foreign Subsidiary, could reasonably be expected to have an adverse tax effect on the Borrower, then the Borrower shall only be required to grant and pledge to Bank a perfected security interest in up to sixty-five percent (65%) of the stock, units or other evidence of ownership of such Foreign Subsidiary, and (c) provide to Bank all other documentation in form and substance satisfactory to Bank, including one or more opinions of counsel satisfactory to Bank, which in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above. Any document, agreement, or instrument executed or issued pursuant to this Section 6.12 shall be a Loan Document.

6.13 Further Assurances . Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes of this Agreement.

6.14 Post-Closing Conditions .

(a) Borrower shall deliver to Bank, on or prior to the date that is ten (10) days after the Effective Date, the duly executed original signature pages to the Loan Documents and other agreements described in Section 3.1, above.

6.15 Remittance of Proceeds . Except as otherwise provided in Section 6.3(c), deliver, in kind, all proceeds arising from the disposition of any Collateral to Bank in the original form in which received by Borrower not later than five (5) Business Days after receipt by Borrower, to be applied to the Obligations pursuant to the terms of Section 9.4 hereof; provided that , Borrower shall not be obligated to remit to Bank the proceeds of Transfers permitted pursuant to Section 7.1. Borrower agrees that it will not commingle proceeds of Collateral with any of

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Borrower’s other funds or property, but will hold such proceeds separate and apart from such other funds and property and in an express trust for Bank. Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement.

NEGATIVE COVENANTS

Borrower shall not do any of the following without Bank’s prior written consent:

7.1 Dispositions . Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “ Transfer ”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) [reserved]; (b) of worn-out or obsolete Equipment or Equipment that is no longer used, useful or useable in connection with Borrower’s business; (c) in connection with Permitted Liens and Permitted Investments; (d) of non-exclusive licenses and non-exclusive sublicenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; (e) of Cash Equivalents for cash or other Cash Equivalents of equal or greater value; (f) other Transfers in an aggregate amount not to exceed Ten Thousand Dollars ($10,000.00) in any fiscal year of Borrower; and (g) in connection with any scheduled termination of a capital lease permitted hereunder.

7.2 Changes in Business, Management, Ownership, or Business Locations . (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) cause or permit its President and Chief Executive Officer, who is, as of the Effective Date, Kelly D. Conway, to cease to hold such positions (other than by death or disability of such Person), unless both (A) at least ten (10) days’ prior written notice shall have been given to Bank, and (B) a replacement for such Person shall be made within sixty (60) days following such Person’s departure from Borrower that is acceptable to the Board; or (ii) enter into any transaction or series of related transactions in which the stockholders of Borrower who were not stockholders immediately prior to the first such transaction own more than forty-nine percent (49.0%) of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions (other than by the sale of Borrower’s equity securities in a public offering or to venture capital investors so long as Borrower identifies to Bank the venture capital investors prior to the closing of the transaction and provides to Bank a description of the material terms of the transaction). Notwithstanding the foregoing, Borrower may liquidate or dissolve an Other Subsidiary as long as any assets of such Other Subsidiary are transferred to Borrower.

Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than One Hundred Thousand Dollars ($100,000.00) in Borrower’s assets or property) or deliver any portion of the Collateral valued, individually or in the aggregate, in excess of One Hundred Thousand Dollars ($100,000.00) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization. If Borrower intends to deliver any portion of the Collateral valued, individually or in the aggregate, in excess of One Hundred Thousand Dollars ($100,000.00) to a bailee, and Bank and such bailee are not already parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral, then Borrower will first receive the written consent of Bank, and such bailee shall execute and deliver a bailee agreement in form and substance satisfactory to Bank in its sole discretion.

7.3 Mergers or Acquisitions . Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.

7.4 Indebtedness . Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.

7.5 Encumbrance . Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein, or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s Intellectual Property, except for Permitted Liens or as otherwise permitted in Section 7.1 hereof.

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7.6 Maintenance of Collateral Accounts . Maintain any Collateral Account except pursuant to the terms of Section 6.6(b) hereof.

7.7 Distributions; Investments . (a) Except for Permitted Investments, pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock; provided that (i) Borrower or any Subsidiary may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof, (ii) Borrower may pay dividends solely in common stock, (iii) any Subsidiary may pay to Borrower (or a Borrower may pay to another Borrower) cash dividends on the stock of such Subsidiary or such Borrower paid and declared solely for the purpose of funding payments by such Borrower in respect of taxes owing by such Borrower in respect of another Borrower or a Subsidiary, and (iv) Mattersight Corporation may, in an aggregate combined amount for (A) and (B) not to exceed Seven Hundred Fifty Thousand Dollars ($750,000.00) in any calendar year: (A) pay cash dividends, semi-annually in arrears, with respect to the shares of Series B stock issued by Mattersight Corporation, and (B) from time to time redeem shares of Series B stock issued by Mattersight Corporation ( provided that , for the avoidance of doubt, the holders of Series B stock issued by Mattersight Corporation may convert such stock into common stock of Mattersight Corporation from time to time); or (b) directly or indirectly make any Investment other than Permitted Investments, or permit any of its Subsidiaries to do so.

7.8 Transactions with Affiliates . Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person and loans owing from Subsidiaries that are not a Borrower to Borrower or another Subsidiary that constitute Permitted Subsidiary Investments or Other Permitted Investments.

7.9 Subordinated Debt . (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof or adversely affect the subordination thereof to Obligations owed to Bank.

7.10 Compliance . Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation would reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which would reasonably be expected to result in liabilities of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency, in an aggregate amount exceeding One Hundred Thousand Dollars ($100,000.00).

EVENTS OF DEFAULT

Any one of the following shall constitute an event of default (an “ Event of Default ”) under this Agreement:

8.1 Payment Default . Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments due on the Revolving Line Maturity Date). During the cure period, the failure to make or pay any payment specified under clause (a) or (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);

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8.2 Covenant Default .

(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4, 6.5, 6.6, 6.7, 6.8(b), 6.10, 6.11, 6.12 or 6.14, or violates any covenant in Section 7; or

(b) Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided , however , that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Cure periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in clause (a) above;

8.3 Material Adverse Change . A Material Adverse Change occurs;

8.4 Attachment; Levy; Restraint on Business .

(a) (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under the control of Borrower (including a Subsidiary) on deposit or otherwise maintained with Bank or any Bank Affiliate, or (ii) a notice of lien or levy is filed against any of Borrower’s assets by any government agency, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided , however , no Credit Extensions shall be made during any ten (10) day cure period; or

(b) (i) any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from conducting any material part of its business;

8.5 Insolvency . (a) Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within forty-five (45) days (but no Credit Extensions shall be made while of any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);

8.6 Other Agreements . There is, under any agreement to which Borrower is a party with a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of Fifty Thousand Dollars ($50,000.00); or (b) any default by Borrower, the result of which could have a material adverse effect on Borrower’s business;

8.7 Judgments . One or more final judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least Fifty Thousand Dollars ($50,000.00) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower and the same are not, within thirty (30) days after the entry thereof, discharged or execution thereof stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay ( provided that no Credit Extensions will be made prior to the discharge, stay, or bonding of such judgment, order, or decree);

8.8 Misrepresentations . Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made; or

8.9 Subordinated Debt . Any document, instrument, or agreement evidencing any Subordinated Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and effect, any Person shall be in breach thereof or contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Obligations shall for any reason be subordinated or shall not have the priority contemplated by this Agreement.

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BANK’S RIGHTS AND REMEDIES

9.1 Rights and Remedies . While an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following:

(a) declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);

(b) stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Bank;

(c) for any Letters of Credit, demand that Borrower (i) deposit cash with Bank in an amount equal to the sum of (A) one hundred two percent (102.0%) of the face amount of all such Letters of Credit denominated in Dollars, and (B) one hundred seven percent (107.0%) of the Dollar Equivalent of the face amount of all such Letters of Credit denominated in a Foreign Currency, for all such Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;

(d) terminate any FX Forward Contracts;

(e) settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, notify any Person owing Borrower money of Bank’s security interest in such funds, and verify the amount of such account;

(f) make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral if Bank requests and make it available as Bank designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank’s rights or remedies;

(g) apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower;

(h) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade names, Trademarks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;

(i) place a “hold” on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;

(j) demand and receive possession of Borrower’s Books; and

(k) exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).

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9.2 Power of Attorney . Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits. Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Bank’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder. Bank’s foregoing appointment as Borrower’s attorney-in-fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions terminates.

9.3 Protective Payments . If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral. Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.

9.4 Application of Payments and Proceeds Upon Default . If an Event of Default has occurred and is continuing, Bank may apply any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Bank shall determine in its sole discretion. Any surplus shall be paid to Borrower or other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency. If Bank, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.

9.5 Bank’s Liability for Collateral . So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.

9.6 No Waiver; Remedies Cumulative . Bank’s failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given. Bank’s rights and remedies under this Agreement and the other Loan Documents are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank’s exercise of one right or remedy is not an election and shall not preclude Bank from exercising any other remedy under this Agreement or other remedy available at law or in equity, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay in exercising any remedy is not a waiver, election, or acquiescence.

9.7 Demand Waiver . Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable.

9.8 Borrower Liability . Each Borrower may, acting singly, request Credit Extensions hereunder. Each Borrower hereby appoints each other Borrower as agent for such Borrower for all purposes hereunder, including with respect to requesting Credit Extensions hereunder. Each Borrower hereunder shall be jointly and severally obligated to repay all Credit Extensions made hereunder, regardless of which Borrower actually receives

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said Credit Extensions, as if each Borrower hereunder directly received all Credit Extensions. Each Borrower waives (a) any suretyship defenses available to it under the Code or any other applicable law, and (b) any right to require Bank to: (i) proceed against any Borrower or any other person; (ii) proceed against or exhaust any security; or (iii) pursue any other remedy. Bank may exercise or not exercise any right or remedy it has against any Borrower or any security it holds (including the right to foreclose by judicial or non-judicial sale) without affecting any Borrower’s liability. Notwithstanding any other provision of this Agreement or other related document, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating Borrower to the rights of Bank under this Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section shall be null and void. If any payment is made to a Borrower in contravention of this Section, such Borrower shall hold such payment in trust for Bank and such payment shall be promptly delivered to Bank for application to the Obligations, whether matured or unmatured.

NOTICES

All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.


If to Borrower:		Mattersight Corporation
		Mattersight Europe Holding Corporation
		Mattersight International Holding, Inc.
		200 South Wacker Drive, Suite 820
		Chicago, Illinois 60606
		Attn: Christine R. Carson, Esq.
		Fax: (775) 252-9987
		Email: chris.carson@mattersight.com

with a copy (which shall not constitute notice) to:

		Winston & Strawn LLP
		35 W. Wacker Drive
		Chicago, Illinois 60601
		Attn: Steven J. Gavin, Esq.
		Fax: (312) 558-5700
		Email: sgavin@winston.com

If to Bank:		Silicon Valley Bank
		380 Interlocken Crescent, Suite 600
		Broomfield, Colorado 80021
		Attn: Mr. Tom Hertzberg
		Fax: (303) 469-9088
		Email: thertzberg@svb.com

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with a copy (which shall not constitute notice) to:

	Riemer & Braunstein LLP
	Three Center Plaza
	Boston, Massachusetts 02108
	Attn:	Michael R. Horner, Esquire
	Fax:	(617) 880-3456
	Email:	mhorner@riemerlaw.com

CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

Illinois law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Chicago, Illinois; provided , however , that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank. Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Borrower and Bank hereby waive personal service of the summons, complaints, and other process issued in such action or suit and agree that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower or Bank at the applicable address set forth in Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrower’s or Bank’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL .

GENERAL PROVISIONS

12.1 Successors and Assigns . This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights or obligations under it without Bank’s prior written consent (which may be granted or withheld in Bank’s discretion). Bank has the right, without the consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents.

12.2 Indemnification . Borrower agrees to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank (each, an “ Indemnified Person ”) harmless against: (a) all obligations, demands, claims, and liabilities (collectively, “ Claims ”) claimed or asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or expenses (including Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between Bank and Borrower contemplated by the Loan Documents (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person’s gross negligence or willful misconduct.

12.3 Time of Essence . Time is of the essence for the performance of all Obligations in this Agreement.

12.4 Severability of Provisions . Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

12.5 Correction of Loan Documents . Bank may correct patent errors and fill in any blanks in the Loan Documents consistent with the agreement of the parties.

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12.6 Amendments in Writing; Waiver; Integration . No purported amendment or modification of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the party against which enforcement or admission is sought. Without limiting the generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document. Any waiver granted shall be limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver. The Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.

12.7 Counterparts . This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.

12.8 Survival . All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been paid in full and satisfied. Without limiting the foregoing, except as otherwise provided in Section 4.1, the grant of security interest by Borrower in Section 4.1 shall survive until the termination of all Bank Services Agreements. The obligation of Borrower in Section 12.2 to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run.

12.9 Confidentiality . In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank’s Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with Bank, collectively, “ Bank Entities ”); (b) to prospective transferees or purchasers of any interest in the Credit Extensions ( provided , however , Bank shall use its best efforts to obtain any prospective transferee’s or purchaser’s agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise required in connection with Bank’s examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and (f) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein. Confidential information does not include information that is either: (i) in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (ii) disclosed to Bank by a third party if Bank does not know that the third party is prohibited from disclosing the information.

Bank Entities may use the confidential information for reporting purposes and the development and distribution of databases and market analyses so long as such confidential information is aggregated and anonymized prior to distribution unless otherwise expressly permitted by Borrower. The provisions of the immediately preceding sentence shall survive the termination of this Agreement.

12.10 Right of Set Off . Borrower hereby grants to Bank, a lien, security interest and right of set off as security for all Obligations to Bank, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Bank or any entity under the control of Bank (including a Bank subsidiary) or in transit to any of them. At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Bank may set off the same or any part thereof and apply the same to any liability or obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

12.11 Electronic Execution of Documents . The words “execution,” “signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.

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12.12 Captions . The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

12.13 Construction of Agreement . The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement. In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.

12.14 Relationship . The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement. The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm’s-length contract.

12.15 Third Parties . Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.

12.16 No Novation . Borrower and Bank hereby agree that, effective upon the execution and delivery of this Agreement by each such party, the terms and provisions of the Prior Loan Agreement and each other Loan Document (as such term is defined in the Prior Loan Agreement), shall be and hereby are amended, restated and superseded in their entirety by the terms and provisions of this Agreement. Nothing herein contained shall be construed as a substitution or novation of the obligations of Borrower outstanding under the Prior Loan Agreement, any instruments securing the same, which obligations shall remain in full force and effect, except to the extent that the terms thereof are modified hereby or by instruments or other Loan Documents executed concurrently herewith. Nothing expressed or implied in this Agreement shall be construed as a release or other discharge of any Borrower from any of the Obligations or any liabilities under the Prior Loan Agreement or any of the security agreements, pledge agreements, mortgages, guaranties or other Loan Documents (as such term is defined in the Prior Loan Agreement), executed in connection therewith. Borrower hereby (i) confirms and agrees that each Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that on and after the Effective Date all references in any such Loan Document to the “Loan and Security Agreement”, the “Loan Agreement” the “Agreement”, “thereto”, “thereof”, “thereunder” or words of like import referring to the Prior Loan Agreement shall mean the Prior Loan Agreement as amended and restated by this Agreement; and (ii) confirms and agrees that to the extent that the Prior Loan Agreement or any Loan Document executed in connection therewith purports to assign or pledge to the Bank, or to grant to the Bank a security interest in or lien on, any collateral as security for the Obligations of Borrower or any guarantor from time to time existing in respect of the Prior Loan Agreement, such pledge, assignment or grant of the security interest or lien is hereby ratified and confirmed in all respects and shall remain effective as of the first date it became effective.

DEFINITIONS

13.1 Definitions . As used in the Loan Documents, the word “shall” is mandatory, the word “may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not limiting, and the singular includes the plural. As used in this Agreement, the following capitalized terms have the following meanings:

“ Account ” is any “account” as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.

“ Account Debtor ” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.

“ Advance ” or “ Advances ” means an advance (or advances) under the Revolving Line.

“ Affiliate ” is, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.

“ Agreement ” is defined in the preamble hereof.

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“ Availability Amount ” is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base minus (b) the outstanding principal balance of any Advances.

The following definitions are utilized in calculating and determining the Availability Amount:

“ Advance Rate ” is three hundred percent (300%); provided , that Bank may reduce the foregoing Advance Rate based on events or conditions as determined by Bank, in its reasonable discretion, including, without limitation, based on (i) the results of periodic inspections and audits of the Collateral, and/or (ii) the net loss of customers/subscribers.

“ Annualized Revenue Retention Rate ” is a percentage equal to the sum of (a) one hundred percent (100%) minus (b) the product of (i) Churn multiplied by (ii) four (4).

“ Borrowing Base ” is the product of (i) Advance Rate, multiplied by (ii) Annualized Revenue Retention Rate, multiplied by (iii) the most recent month’s Monthly Recurring Revenue.

“ Churn ” is the net Monthly Recurring Revenue lost in the most recent quarter due to customer attrition or reduced usage for any given customer divided by the total Monthly Recurring Revenue from the last day of the prior quarter. The Churn shall be calculated by Bank based on information provided by Borrower and acceptable to Bank, in its reasonable discretion, quarterly, on the last day of each fiscal quarter for the immediately preceding fiscal quarter, or such earlier time as Bank may reasonably determine necessary.

“ Monthly Recurring Revenue ” is, for any calendar month, the total services, software license and subscription rental revenue of Borrower received from customer contracts in the ordinary course of Borrower’s business, in each case determine in accordance with GAAP and specifically excluding revenue or accounts receivable based on (i) sales of inventory, goods or equipment, (ii) transaction revenue not received in the ordinary course of business, (iii) sales of services not in the ordinary course of business, (iv) revenue received due to one-time, non-recurring transactions, (v) add-on purchases by Borrower’s existing clients not resulting in a continuing stream of revenue, (vi) advertising revenue and usage based processing and advertising revenue, (vii) non-recurring, non-continuous or irregular sources of revenue (including, without limitation, non-recurring set-up fees) and (viii) such other exclusions as Bank shall determine, in its reasonable discretion and after consultation with Borrower.

For example, if the Borrower ends Q1 with 20 customers that generated $8,500,000 in Monthly Recurring Revenue and then the same list of 20 clients generates $8,415,000 in Q2 MRR, then quarterly Churn would equal 1.00%. As such, annualized Churn would be 4.00% (1.00 % x 4), or revenue retention of 96.0%. The Availability Amount for the next quarter would be (i) (a) the lesser of the Revolving Line or (b) 300% x 96.0% x the Monthly Recurring Revenue, less (ii) all outstanding Advances.

“ Bank ” is defined in the preamble hereof.

“ Bank Entities ” is defined in Section 12.9.

“ Bank Expenses ” are all documented audit fees and expenses and all out-of-pocket costs, and expenses (including reasonable, documented attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.

“ Bank Services ” are any products, credit services, and/or financial accommodations previously, now, or hereafter provided to Borrower or any of its Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any letters of credit, cash management services (including, without limitation, merchant services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign exchange services as any such products or services may be identified in Bank’s various agreements related thereto (each, a “ Bank Services Agreement ”).

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“ Bank Services Agreement ” is defined in the definition entitled “Bank Services” appearing alphabetically in Section 13.1.

“ Board ” is Borrower’s board of directors.

“ Borrower ” is defined in the preamble hereof.

“ Borrower’s Books ” are all Borrower’s books and records including ledgers, federal and state tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

“ Borrowing Resolutions ” are, with respect to any Person, those resolutions adopted by such Person’s board of directors and delivered by such Person to Bank approving the Loan Documents to which such Person is a party and the transactions contemplated thereby.

“ Business Day ” is any day that is not a Saturday, Sunday or a day on which Bank is closed.

“ Cash Equivalents ” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; and (c) Bank’s certificates of deposit issued maturing no more than one (1) year after issue.

“ Claims ” is defined in Section 12.2.

“ Code ” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of Illinois; provided , that , to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further , that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of Illinois, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

“ Collateral ” is any and all properties, rights and assets of Borrower described on Exhibit A .

“ Collateral Account ” is any Deposit Account, Securities Account, or Commodity Account.

“ Commodity Account ” is any “commodity account” as defined in the Code with such additions to such term as may hereafter be made.

“ Compliance Certificate ” is that certain certificate in the form attached hereto as Exhibit B .

“ Contingent Obligation ” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

“ Control Agreement ” is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.

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“ Copyrights ” are any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.

“ Credit Extension ” is any Advance or any other extension of credit by Bank for Borrower’s benefit under this Agreement.

“ Default ” means any event which with notice or passage of time or both, would constitute an Event of Default.

“ Default Rate ” is defined in Section 2.3(b).

“ Deferred Revenue ” is all amounts received or invoiced in advance of performance under contracts and not yet recognized as revenue.

“ Deposit Account ” is any “deposit account” as defined in the Code with such additions to such term as may hereafter be made.

“ Designated Deposit Account ” is Borrower’s deposit account, account number 3300866737, maintained with Bank.

“ Dollars , ” “ dollars ” or use of the sign “ $ ” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the United States.

“ Dollar Equivalent ” is, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.

“ Domestic Subsidiary ” means a Subsidiary organized under the laws of the United States or any state or territory thereof or the District of Columbia.

“ Effective Date ” is defined in the preamble hereof.

“ Equipment ” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

“ ERISA ” is the Employee Retirement Income Security Act of 1974, and its regulations.

“ Event of Default ” is defined in Section 8.

“ Exchange Act ” is the Securities Exchange Act of 1934, as amended.

“ Foreign Currency ” means lawful money of a country other than the United States.

“ Foreign Subsidiary ” means any Subsidiary which is not a Domestic Subsidiary.

“ Funding Date ” is any date on which a Credit Extension is made to or for the account of Borrower which shall be a Business Day.

“ FX Forward Contract ” is any foreign exchange contract by and between Borrower and Bank under which Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency on a specified date.

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“ GAAP ” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

“ General Intangibles ” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

“ Governmental Approval ” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

“ Governmental Authority ” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

“ Indebtedness ” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.

“ Indemnified Person ” is defined in Section 12.2.

“ Initial Audit ” is Bank’s inspection of Borrower’s Accounts, the Collateral, and Borrower’s Books, with results satisfactory to Bank in its sole and absolute discretion.

“ Insolvency Proceeding ” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

“ Intellectual Property ” means all of Borrower’s right, title, and interest in and to the following:

(a) its Copyrights, Trademarks and Patents;

(b) any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how and operating manuals;

(d) any and all design rights which may be available to a Borrower;

(e) any and all claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identified above; and

(f) all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.

“ Inventory ” is all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

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“ Investment ” is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.

“ Letter of Credit ” is a standby or commercial letter of credit issued by Bank upon request of Borrower based upon an application, guarantee, indemnity or similar agreement .

“ Lien ” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.

“ Loan Documents ” are, collectively, this Agreement, the Perfection Certificate, the Pledge Agreement, any Bank Services Agreement, any subordination agreement, any notes or guaranties executed by Borrower, and any other present or future agreement between Borrower and/or for the benefit of Bank, all as amended, restated, or otherwise modified.

“ Material Adverse Change ” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; (c) a material impairment of the prospect of repayment of any portion of the Obligations; or (d) Bank determines, based upon information available to it and in its reasonable judgment, that there is a reasonable likelihood that Borrower shall fail to comply with one or more of the financial covenants in Section 6 during the next succeeding financial reporting period.

“ Mattersight Canada ” is Mattersight (Canada) Corporation, a company organized under the laws of Canada.

“ Mattersight Corporation ” is defined in the preamble hereof.

“ Mattersight Europe ” is defined in the preamble hereof.

“ Mattersight International ” is defined in the preamble hereof.

“ Monthly Financial Statements ” is defined in Section 6.2(a).

“ Obligations ” are Borrower’s obligations to pay when due any debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank now or later, whether under this Agreement, the other Loan Documents, or otherwise, including, without limitation, any interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and the performance of Borrower’s duties under the Loan Documents.

“ Operating Documents ” are, for any Person, such Person’s formation documents, as certified with the Secretary of State of such Person’s state of formation on a date that is no earlier than thirty (30) days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.

“ Other Permitted Investments ” is defined in subsection (e) of the definition entitled “Permitted Investments” appearing alphabetically in this Section 13.1.

“ Other Subsidiaries ” are each of the Subsidiaries of each Borrower in existence as of the Effective Date, except (a) Mattersight Canada, and (b) any Subsidiary of any Borrower that is itself a Borrower.

“ Patents ” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

“ Perfection Certificate ” is defined in Section 5.1.

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“ Permitted Indebtedness ” is:

(a) Borrower’s Indebtedness to Bank under this Agreement and the other Loan Documents;

(b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate;

(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;

(e) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;

(f) intercompany Indebtedness of a Subsidiary that is not a Borrower hereunder to a Borrower or another Subsidiary constituting Other Permitted Investments hereunder;

(g) unsecured Indebtedness of (i) any Borrower owed to any other Borrower and (ii) any Subsidiary owed to Borrower, in a maximum amount under this clause (ii) not to exceed $25,000 in the aggregate in any fiscal year;

(h) Indebtedness secured by Liens permitted under clauses (a) and (c) of the definition of “Permitted Liens” hereunder; and

(i) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (h) above; provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.

“ Permitted Investments ” are:

(a) Investments (including, without limitation, Subsidiaries) existing on the Effective Date and shown on the Perfection Certificate;

(b) Investments consisting of Cash Equivalents;

(c) Investments by Borrower in Subsidiaries not to exceed Three Hundred Seventy-Five Thousand Dollars ($375,000.00) in the aggregate in any fiscal year (collectively, “ Permitted Subsidiary Investments ”);

(d) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrower’s board of directors; and

(e) other Investments in an aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000.00) in any fiscal year or Five Hundred Thousand Dollars ($500,000.00) during the term of this Agreement (collectively, “ Other Permitted Investments ”).

“ Permitted Liens ” are:

(a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising under this Agreement and the other Loan Documents;

(b) Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good faith and for which Borrower maintains adequate reserves on its books; provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;

(c) purchase money Liens or capital leases (i) on Equipment acquired or held by Borrower incurred for financing the acquisition or capital lease of such Equipment securing no more than Six Million Dollars ($6,000,000.00) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment; and

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(d) Liens of carriers, warehousemen, mechanics, materialmen, suppliers, or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens attach only to Inventory, securing liabilities in the aggregate amount not to exceed One Hundred Thousand Dollars ($100,000.00), and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;

(e) Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);

(f) Liens in favor of other financial institutions arising in connection with Borrower’s deposit and/or securities accounts held at such institutions; provided that Bank has a perfected security interest in the amounts held in such deposit and/or securities accounts; and

(g) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (f), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase.

“ Permitted Subsidiary Investments ” is defined in subsection (c) of the definition entitled “Permitted Investments” appearing alphabetically in this Section 13.1.

“ Person ” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

“ Pledge Agreement ” means the Amended and Restated Stock Pledge Agreement, executed by Borrower and Bank, dated as of the Effective Date (as my be amended, amended and restated, modified or supplemented from time to time).

“ Prime Rate ” means the rate of interest published in the “Money Rates” section of The Wall Street Journal , Eastern Edition as the “United States Prime Rate,” even if such rate is not the lowest or best rate available. In the event that The Wall Street Journal , Eastern Edition is not published or such rate does not appear in The Wall Street Journal , Eastern Edition, the Prime Rate shall be determined by Bank until such time as the Prime Rate becomes available in accordance with past practices.

“ Registered Organization ” is any “registered organization” as defined in the Code with such additions to such term as may hereafter be made.

“ Requirement of Law ” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“ Responsible Officer ” is any of the Chief Executive Officer, President, Chief Financial Officer and Controller of Borrower.

“ Restricted License ” is any material license or other agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with the Bank’s right to sell any Collateral.

“ Revolving Line ” is an Advance or Advances in an aggregate amount not to exceed Fifteen Million Dollars ($15,000,000.00) outstanding at any time.

“ Revolving Line Maturity Date ” is March 10, 2017 (24 months after the Effective Date), unless terminated prior thereto as provided herein.

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“ SEC ” shall mean the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.

“ Secretary’s Certificate ” is, with respect to any Person, a certificate executed by such Person’s Secretary on behalf of such Person certifying that (a) such Person has the authority to execute, deliver, and perform its obligations under each of the Loan Documents to which it is a party, (b) that attached as Exhibit A to such certificate is a true, correct, and complete copy of the Borrowing Resolutions then in full force and effect authorizing and ratifying the execution, delivery, and performance by such Person of the Loan Documents to which it is a party, (c) the name(s) of the Person(s) authorized to execute the Loan Documents on behalf of such Person, together with a sample of the true signature(s) of such Person(s), and (d) that Bank may conclusively rely on such certificate unless and until such Person shall have delivered to Bank a further certificate canceling or amending such prior certificate.

“ Securities Account ” is any “securities account” as defined in the Code with such additions to such term as may hereafter be made.

“ Subordinated Debt ” is indebtedness incurred by Borrower subordinated to all of Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank.

“ Subsidiary ” is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of Borrower.

“ Tangible Net Worth ” is, on any date, the consolidated total assets of Borrower and its Subsidiaries minus (a) any amounts attributable to (i) goodwill, (ii) intangible items including unamortized debt discount and expense, Patents, Trademarks, Copyrights, and research and development expenses except prepaid expenses, (iii) notes, accounts receivable and other obligations owing to Borrower from its officers or other Affiliates, and (iv) reserves not already deducted from assets, minus (b) Total Liabilities, plus (c) Subordinated Debt.

“ Total Liabilities ” is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness.

“ Trademarks ” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.

“ Transaction Report ” is defined in Section 6.3(a).

“ Transfer ” is defined in Section 7.1.

“ Unused Revolving Line Facility Fee ” is defined in Section 2.4(b).

[Signature Page Follows]

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IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed as of the Effective Date.


BORROWER:

MATTERSIGHT CORPORATION

By:		/s/ C HRISTINE R. C ARSEN
Name:		Christine R. Carsen
Title:		VP, General Counsel, and Corporate Secretary

MATTERSIGHT EUROPE HOLDING CORPORATION

By:		/s/ C HRISTINE R. C ARSEN
Name:		Christine R. Carsen
Title:		Secretary

MATTERSIGHT INTERNATIONAL HOLDING, INC.

By:		/s/ C HRISTINE R. C ARSEN
Name:		Christine R. Carsen
Title:		Secretary

BANK:

SILICON VALLEY BANK

By:		/s/ T OM H ERTZBERG
Name:		Tom Hertzberg
Title:		Vice President

EXHIBIT A – COLLATERAL DESCRIPTION

The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property:

All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (except as provided below), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, certificates of deposit, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and

all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

Notwithstanding the foregoing, the Collateral does not include: (a) any Intellectual Property; provided , however , the Collateral shall include all Accounts and all proceeds of Intellectual Property. If a judicial authority (including a U.S. Bankruptcy Court) would hold that a security interest in the underlying Intellectual Property is necessary to have a security interest in such Accounts and such property that are proceeds of Intellectual Property, then the Collateral shall automatically, and effective as of the Effective Date, include the Intellectual Property to the extent necessary to permit perfection of Bank’s security interest in such Accounts and such other property of Borrower that are proceeds of the Intellectual Property; or (b) more than sixty-five percent (65%) of the presently existing and hereafter arising issued and outstanding shares of capital stock owned by Borrower of any Foreign Subsidiary in existence as of the Effective Date and disclosed to Bank, which shares entitle the holder thereof to vote for directors or any other matter. Pursuant to the terms of a certain negative pledge arrangement with Bank, Borrower has agreed not to encumber any of its Intellectual Property without Bank’s prior written consent.

EXHIBIT B

COMPLIANCE CERTIFICATE


TO:	SILICON VALLEY BANK	Date:
FROM:	MATTERSIGHT CORPORATION
	MATTERSIGHT EUROPE HOLDING CORPORATION
	MATTERSIGHT INTERNATIONAL HOLDING, INC. (jointly and severally, individually and collectively, “ Borrower ”)

The undersigned authorized officer of Borrower certifies that under the terms and conditions of the Second Amended and Restated Loan and Security Agreement among Borrower and Bank (as amended, the “ Agreement ”):

(1) Borrower is in complete compliance for the period ending with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided , however , that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided , further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, except as otherwise permitted pursuant to the terms of Section 5.8 of the Agreement, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower, except as otherwise permitted pursuant to the terms of Section 5.8 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.

Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

Please indicate compliance status by circling Yes/No under “Complies” column.


Reporting Covenant	Required	Complies

Monthly consolidating financial statements with	Monthly within 30 days	Yes No
Compliance Certificate
Annual consolidating financial statement (CPA Audited)	FYE within 150 days	Yes No
10-Q, 10-K and 8-K	Within 5 days after filing with SEC	Yes No
A/R, A/P Agings, and Deferred Revenue reports	Monthly within 30 days	Yes No
Board-approved Projections	FYE within 30 days	Yes No
Transaction Reports	Monthly within 30 days and with each request for a Credit Extension	Yes No


Financial Covenant	Required		Actual	Complies

Minimum Tangible Net Worth (at all times, to be tested monthly)		*	$	Yes No
Minimum Revenue (tested quarterly)		**	$	Yes No

*	See Section 6.7(a)

**	See Section 6.7(b)

The following Intellectual Property not previously disclosed to Bank was registered after the Effective Date (if no registrations, state “None”):

The following financial covenant analysis and other financial information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.

The following are the exceptions with respect to the certification above: (If no exceptions exist, state “No exceptions to note.”)


MATTERSIGHT CORPORATION

By:
Name:
Title:

MATTERSIGHT EUROPE HOLDING CORPORATION

By:
Name:
Title:

MATTERSIGHT INTERNATIONAL HOLDING, INC.

By:
Name:
Title:


BANK USE ONLY

Received by:
		AUTHORIZED SIGNER

Date:

Verified:
		AUTHORIZED SIGNER

Date:


Compliance Status:		Yes No

Schedule 1 to Compliance Certificate

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.

Financial Covenant Analysis

Dated:

I.	Tangible Net Worth (Section 6.7(a))

Required: Maintain at all times, to be tested as of the last day of each month and calculated on a consolidated basis for Borrower and its Subsidiaries, a Tangible Net Worth in an amount equal to or greater than One Dollar ($1.00), increasing by (i) fifty percent (50%) of positive quarterly Net Income plus (ii) fifty percent (50%) of the proceeds from issuances of equity and the principal amount of Subordinated Debt, in each case issued after the Effective Date.

Actual:


A.	Consolidated total assets of Borrower and its Subsidiaries	$

B.	Subordinated Debt	$

C.	ADJUSTED TOTAL ASSETS (the sum of lines A and B)	$

D.	Amounts attributed to goodwill	$

E.	Intangible items including unamortized debt discount and expense, Patents, Trademarks, Copyrights, and research and development expenses except prepaid expenses	$

F.	Notes, accounts receivable and other obligations owing to Borrower from its officers or other Affiliates	$

G.	Reserves not already deducted from assets	$

H.	Obligations that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness	$

I.	TANGIBLE NET WORTH (line C minus line D minus line E minus line F minus line G minus line H)	$

Is line I equal to or greater than $1.00, as increased by (i) fifty percent (50%) of positive quarterly Net Income plus (ii) fifty percent (50%) of the proceeds from issuances of equity and the principal amount of Subordinated Debt, in each case issued after the Effective Date?


No, not in compliance		Yes, in compliance

II.

Minimum Revenue (Section 6.7(b))

Required: Achieve minimum revenue, tested quarterly, on a trailing six month basis, of at least the following for the periods indicated: (i) for the quarterly period ending March 31, 2015, Fourteen Million Four Hundred Thousand Seven Hundred Dollars ($14,400,700); (ii) for the quarterly period ending June 30, 2015, Fifteen Million Six Hundred Ten Thousand Three Hundred Dollars($15,610,300); (iii) for the quarterly period ending September 30, 2015, Seventeen Million Three Hundred Ninety Three Thousand Six Hundred Dollars ($17,393,600); and (iv) for the quarterly period ending December 31, 2015, Nineteen Million Eighty Thousand One Hundred Dollars ($19,080,100). For the quarterly period ending March 31, 2016 and for each quarterly period ending thereafter, the minimum revenue requirements will be based on Borrower’s Board-approved projections delivered to Bank pursuant to Section 6.2(i) hereof, which requirement shall in any event be at least eighty-five percent (85%) of the projected revenue in such Board-approved projections for each such quarterly period.

Actual: All amounts tested on a trailing six month basis:


A.		Quarterly Period Ending:

B		Actual Revenue for such Quarterly Period:

Is line B greater than or equal to $ ?


No, not in compliance		Yes, in Compliance

Exhibit 21.1

MATTERSIGHT SUBSIDIARIES


Name of Company		Jurisdiction of Incorporation

Mattersight Europe Holding Corporation		Delaware
Mattersight International Holding, Inc.		Illinois
Mattersight (Netherlands) B.V.		Netherlands
Mattersight (Canada) Corporation		Canada
Mattersight (Deutschland) GmbH		Germany
Mattersight (UK) Limited		England & Wales
Mattersight Corporation (Australia) Pty. Ltd.		Australia

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated March 12, 2015, with respect to the consolidated financial statements and schedule included in the Annual Report of Mattersight Corporation and Subsidiaries on Form 10-K for the year ended December 31, 2014. We hereby consent to the incorporation by reference of said report in the Registration Statements of Mattersight Corporation on Forms S-3 (File Nos. 333-180153 effective May 18, 2012, 333-193146 effective February 6, 2014, and 333-198091 effective August 25, 2014) and Forms S-8 (File Nos. 333-96473 effective February 9, 2000, 333-30374 effective February 14, 2000, 333-68540 effective August 28, 2001, 333-101031 effective November 6, 2002, 333-143114 effective May 21, 2007, 333-150671 effective May 6, 2008, 333-172187 effective February 11, 2011, and 333-194543 effective March 13, 2014).

/s/ Grant Thornton LLP

Chicago, Illinois

March 12, 2015

Exhibit 24.1

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or officer of Mattersight Corporation, a Delaware corporation (the “Company”), hereby constitutes and appoints each of Kelly D. Conway, Mark Iserloth, and Christine R. Carsen signing singly, as the undersigned’s true and lawful attorney-in-fact and agent, with full powers of substitution and re-substitution, to:

(a) execute for and in the name of the undersigned, in any and all capacities, the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, as well as any and all amendments thereto on Form 10-K/A deemed necessary, appropriate, or desirable (collectively, the “Form 10-K”), pursuant to the Securities Exchange Act of 1934 and the rules thereunder;

(b) execute for and in the name of the undersigned, in any and all capacities, the Registration Statement on Form S-3 to be filed in March 2015 related to the registration of, creation, issuance, and sale from time to time of (i) common stock of the Company, par value $0.01 per share (the “Common Stock”), (ii) preferred stock of the Company, par value $0.01 per share (the “Preferred Stock,” and together with the Common Stock, the “Equity Securities”), (iii) debt securities of the Company (the “Debt Securities”), (iv) warrants or other instruments, including subscription rights and stock purchase contracts or stock purchase units, to purchase or otherwise acquire Debt Securities and/or Equity Securities, and (v) guarantees of the Debt Securities, in the aggregate principal and/or offering amount (excluding the amount of any original issue discount) approved by the Board of Directors of the Company, as well as any or all amendments (including post-effective amendments) deemed necessary, appropriate, or desirable (collectively, the “Form S-3”), pursuant to the Securities Exchange Act of 1934 and the rules thereunder.

(c) file the Form 10-K and the Form S-3, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission and any stock exchange or market or similar authority on which the Company’s Common Stock is listed for trading and any other governmental or regulatory authority, and otherwise to act for him and on his behalf in connection therewith; and

(d) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be required, appropriate, or desirable to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this Power of Attorney and the rights and powers herein granted.

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 12 ^th day of February 2015.

/s/ T ENCH C OXE

Signature

Tench Coxe

Printed Name

Exhibit 24.2

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 11 ^th day of February 2015.

/s/ P HILIP R. D UR

Signature

Philip R. Dur

Printed Name

Exhibit 24.3

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 11 ^th day of February 2015.

/s/ H ENRY J. F EINBERG

Signature

Henry J. Feinberg

Printed Name

Exhibit 24.4

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 13 ^th day of February 2015.

/s/ J OHN T. K OHLER

Signature

John T. Kohler

Printed Name

Exhibit 24.5

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 11 ^th day of February 2015.

/s/ M ICHAEL J. M URRAY

Signature

Michael J. Murray

Printed Name

Exhibit 24.6

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 11 ^th day of February 2015.

/s/ J OHN C. S TALEY

Signature

John C. Staley

Printed Name

Exhibit 24.7

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney as of this 11 ^th day of February 2015.

/s/ D AVID B. M ULLEN

Signature

David B. Mullen

Printed Name

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Kelly D. Conway, certify that:

1. I have reviewed this Annual Report on Form 10-K of Mattersight Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of the internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: March 12, 2015

By		/ S / K ELLY D. C ONWAY

		Kelly D. Conway
		President & Chief Executive Officer

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Mark Iserloth, certify that:

1. I have reviewed this Annual Report on Form 10-K of Mattersight Corporation;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: March 12, 2015

By		/s/ MARK ISERLOTH

		Mark Iserloth
		Vice President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Annual Report on Form 10-K of Mattersight Corporation (the “Company”) for the Year ended December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Kelly D. Conway, as Chief Executive Officer of the Company, and Mark Iserloth, as Chief Financial Officer of the Company, hereby certify, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 12, 2015

/s/ KELLY D. CONWAY

Kelly D. Conway

President & Chief Executive Officer

/s/ MARK ISERLOTH

Mark Iserloth

Vice President and Chief Financial Officer

This certification shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934. In addition, this certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.