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EXCEL - IDEA: XBRL DOCUMENT - Voltari CorpFinancial_Report.xls

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K/A
 (Amendment No. 1)
(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 OR
o
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: 333-186564
 
Voltari Corporation
(Exact Name of Registrant as Specified in its Charter)
 
 
 
 
Delaware
 
90-0933943
(State of Incorporation)
 
(IRS Employer Identification No.)
601 West 26th Street, Suite 415
New York, NY 10001
(212) 388-5500
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Title of each class
 
Name of each exchange on which registered
Common Stock, par value $0.001 per share
 
NASDAQ
Securities registered pursuant to Section 12(g) of the Act:
13% Redeemable Series J Preferred Stock, par value $0.001 per share
Warrants to purchase shares of Common Stock 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  o    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  o    No  x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
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 (§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  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) 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 Form 10-K or any amendment to this Form 10-K.    o

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
 
 
 
 
 
 
o Large Accelerated Filer
  
o Accelerated Filer
  
o Non-accelerated Filer
(do not check if a smaller
reporting company)
 
x Smaller Reporting
Company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  o    No  x
At June 30, 2014, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant (based upon the closing sale price of such shares on NASDAQ on June 30, 2014) was approximately $7.8 million. Shares of Registrant’s common stock held by each executive officer and director and by each entity or person that, to the Registrant’s knowledge, owned 5% or more of Registrant’s outstanding common stock as of June 30, 2014 have been excluded because such persons may be deemed to be affiliates of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock as of April 13, 2015:
 
 
 
 
Title of Class
 
Number of Shares
Common Stock, $0.001 par value
 
9,063,358

1


EXPLANATIORY NOTE

Voltari Corporation is filing this Amendment No. 1 on Form 10-K/A (the “Form 10-K/A”) to amend its Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (the “Original Report”), filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2014. This Form 10-K/A is being filed to include the information required by Part III (Items 10, 11, 12, 13 and 14) of Form 10-K, which information was previously omitted from the Original Report in reliance on General Instruction G(3) to Form 10-K, and certain clarifying disclosures regarding the number of warrants outstanding to purchase the Company’s common stock in the Notes 9,10 and 12 to the Company's Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Results and Operations-Liquidity and Capital Resources.

In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by our principal executive officer and principal financial officer are included as exhibits to this Form 10-K/A under Item 15 of Part IV hereof.

Except as set forth in this explanatory note, no other changes have been made to the Original Report. This amendment speaks as of the filing date of the Original Report, does not reflect events that may have occurred after the filing date of the Original Report and does not modify or update in any way disclosures made in the Original Report, except as set forth in this explanatory note. This Form 10-K/A should be read in conjunction with the Original Report and with our other filings with the SEC made subsequent to the filing date of the Original Report.
 
References to “Voltari,” “us,” “we,” “Company” and “our” in this report refer to Voltari Corporation, together with its subsidiaries.



PART II


Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
The following discussion should be read in conjunction with our consolidated financial statements included elsewhere herein. Unless otherwise noted, all dollar amounts in tables are in thousands.
This annual report on Form 10-K, including this Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that are based on management's current expectations, estimates, forecasts, and projections about our business and operations. Our actual results may differ materially and adversely from those currently anticipated and expressed in any such forward-looking statements, including as a result of the factors we describe under “Risk Factors” and elsewhere in this annual report. See “Special Note Regarding Forward-Looking Statements” appearing at the beginning of this report and “Risk Factors” set forth in Part I - Item 1A of this report.

Business Overview
We empower our customers (including brands, marketers and advertising agencies) to maximize the reach and economic potential of the mobile ecosystem through the delivery of relevance-driven merchandising, digital marketing and advertising solutions, primarily over smartphones and other mobile devices. Voltari uses advanced predictive analytics capabilities and real-time data management (including sophisticated data curation and modeling) to deliver the right content to the right person at the right time. Voltari’s unique combination of technology, expertise and go-to-market approach delivers return-on-investment for our customers.

Advertisers pay us to deliver their ads to mobile users, and we pay website and mobile application owners (or their proxies) for the use of their ad space. We have undergone significant changes over the past two years as described in more detail below. We are now fully focused on our digital media and marketing business. In January of 2015, we significantly reduced the size of our engineering department and terminated operations at our Seattle Data Center as part of an effort to reduce our operating expenses, particularly the cost of research and development and the delivery of advertising. As a result we are making increased use of

2


third-party vendors in the placement of mobile advertising and are exploring with those vendors additional service offerings including the placement of advertising on desktop computers, so-called smart TV’s and other non-mobile devices.

In October 2014, we announced the expansion of our mobile advertising product suite with the formation of Emporia, an independent and transparent mobile channel for the purchase and sale of premium publisher inventory by a select group of advertisers. We are working with specialized data providers and the premiere hosts of rich media and video ad units to create unique behaviorally relevant vertical data sets for exclusive use on the Emporia platform and to formulate corresponding descriptors, which we refer to as Audience Shortcuts, of those mobile users included in participating advertisers’ target audience who have a real-time propensity for engagement with high-impact ad units (e.g., video and other rich media) at the time of service. Through Emporia, we hope to offer an intuitive self-service interface that will allow advertising agencies and their trading desks to activate users defined by Audience Shortcuts at the time, and only at the time, those users are available and predicted to engage with the advertiser’s content. We are in continuing discussions with publishers, advertisers, agencies, ad tech service providers and specialty data providers with respect to the establishment of the Emporia channel. There can be no assurance that these discussions will be successful or that the Emporia channel will be commercially viable.

Prior to July 1, 2013, most of our revenue was derived from providing hosting services to wireless carriers. Starting in 2012, we began our exit from most of our international carrier business and, on June 30, 2013, concluded our U.S. carrier business. On October 31, 2013, we completed the sale of our Gen5 business. On May 30, 2014, we completed the sale of our U.S. and Canadian messaging business. Further, on September 1, 2014, we completed the sale of our wireless carrier business in the UK. We are now fully focused on our digital media and marketing business and are planning to expand our product offerings to add online and display solutions to our suite of mobile data marketing services. We are also offering predictive analytics services to, and are in active discussions with, mobile website and application owners, mobile advertising trading desks and mobile ad exchanges. Our carrier, messaging and Gen5 businesses are reported as discontinued operations in the consolidated financial statements for all periods presented. The assets and liabilities related to our U.S. and Canadian messaging business, as well as U.K. carrier business, are reported as assets and liabilities held for sale on the consolidated balance sheets at December 31, 2013. See Note 4 - Discontinued Operations to our consolidated financial statements for more information.

As a result of the recent significant changes in our company, the termination and sale of our legacy businesses, the realignment of our strategic path and enhanced focus on our digital media and marketing business, our exploration of financing alternatives, and other changes in our business, our historical results of operations, including periods prior to the periods presented herein, are not necessarily indicative of the operating results to be expected in the future.

Key components of our results of operations
Sources of revenue
Our revenue is earned under contracts in our advertising business, which generally have durations shorter than six months. Our advertising contracts require us to deliver a number of impressions to identified audience segments in a fixed period of time. The metrics for these contracts vary based on the content of the advertising campaign.

Operating expenses
We classify our operating expenses into six categories: direct third-party, datacenter and network operations, product development and sustainment, sales and marketing, general and administrative and depreciation and amortization. Our operating expenses consist primarily of personnel costs, which include salaries, bonuses, commissions, payroll taxes, employee benefit costs and stock-based compensation expense. Other operating expenses include datacenter and office facility expenses, computer hardware, software and related maintenance and support expenses, bandwidth costs, and marketing and promotion, legal, audit, tax consulting and other professional service fees. We charge stock-based compensation expense resulting from the amortization of the fair value of stock options and restricted stock grants to each stock award holders' functional area.

Direct third-party expenses. Direct third-party expenses for our mobile media business include the costs to publish advertisements across various publisher platforms.

Datacenter and network operations. Datacenter and network operations expenses consisted primarily of personnel and outsourcing costs for operating our datacenter which we vacated in February 2015. Additional expenses include facility rents, power, bandwidth capacity and software maintenance and support.

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Product development and sustainment. Product development expenses primarily consisted of personnel costs and costs from our development vendors. Our product development efforts included improving and extending the functionality and performance of our service delivery platform, developing new solutions, customizing and implementing our solution set for our customers and providing other service and support functions for our solutions. Product development costs related to software used solely on an internal basis to provide our services, which we refer to as internal-use software, are capitalized and amortized over the expected asset life.

Sales and marketing. Sales and marketing expenses primarily consist of personnel costs for our sales and marketing staff, commissions earned by our sales personnel and the cost of marketing programs.

General and administrative. General and administrative expenses ("G&A"), primarily consist of personnel costs for our executive, finance, legal, human resources and administrative personnel, as well as legal, accounting and other professional fees.

Depreciation and amortization. Depreciation and amortization expenses consist primarily of depreciation of internal-use software, computer hardware and leasehold improvements in our datacenter, and amortization of capitalized software development costs, and purchased intangibles.

Other income (expense), net
Other income (expense), net, consists of interest we earn on our cash and cash equivalents, interest expense we incur as a result of our borrowings, if any, and non-operating income and expenses.

Provision (benefit) for income taxes
No provision for income taxes was recorded in 2013 or 2014. Due to our history of operating losses, we have accumulated substantial net operating losses, which constitute the majority of our deferred tax assets. Because of our history of operating losses, we maintain full valuation allowances against our deferred tax assets and consequently are not recognizing any tax benefit related to our current pre-tax losses. If we achieve sustained profitability, subject to certain provisions of the U.S. federal tax laws that may limit our use of our accumulated losses, we will continue to evaluate whether we should record a valuation allowance, based on a more likely than not standard, which would result in immediate recognition of a tax benefit and we would begin recording income tax provisions based on our earnings and applicable statutory tax rates going forward. Due to our large net operating loss carryforwards, we do not expect to pay U.S. federal income taxes in the next several years.

Results of Operations

4


The following tables set forth components of our results of operations for the periods indicated:
 
Year Ended December 31,
(in thousands)
2014
 
2013
Total revenues
$
12,240

 
$
8,791

Operating expenses
 
 
 
Direct third-party expenses
7,942

 
6,699

Datacenter and network operations, excluding depreciation
5,162

 
2,416

Product development and sustainment, excluding depreciation
3,375

 
1,557

Sales and marketing, excluding depreciation
5,210

 
6,089

General and administrative, excluding depreciation
6,083

 
12,088

Depreciation and amortization
4,165

 
3,785

Impairment charges
8,406

 

Total operating expenses
40,343

 
32,634

Operating loss
(28,103
)
 
(23,843
)
Other expense, net
 
 
 
Other expense
12

 
(100
)
Interest and investment income, net
5

 
23

Interest expense

 
(1,342
)
Other expense, net
17

 
(1,419
)
Loss before income taxes
(28,086
)
 
(25,262
)
Benefit for income taxes

 

Net loss from continuing operations
(28,086
)
 
(25,262
)
Net (loss) income from discontinued operations
(1,194
)
 
14,948

Net loss
$
(29,280
)
 
$
(10,314
)

Depreciation and amortization by function:
 
Year Ended December 31,
(in thousands)
2014
 
2013
Datacenter and network operations
$
3,097

 
$
2,334

Product development and sustainment
121

 
340

Sales and marketing
876

 
925

General and administrative
71

 
186

Total depreciation and amortization
$
4,165

 
$
3,785


5



As a percentage of revenues from continuing operations:
 
Year Ended December 31,
 
2014
 
2013
Total revenues
100
 %
 
100
 %
Operating expenses
 
 
 
Direct third-party expenses
65

 
76

Datacenter and network operations, excluding depreciation
42

 
27

Product development and sustainment, excluding depreciation
28

 
18

Sales and marketing, excluding depreciation
42

 
69

General and administrative, excluding depreciation
50

 
138

Depreciation and amortization
34

 
43

Impairment charges
69

 

Total operating expenses
330

 
371

Operating loss
(230
)
 
(271
)
Other expense, net

 
(16
)
Loss before income taxes
(230
)
 
(287
)
Benefit for income taxes

 

Net loss from continuing operations
(230
)
 
(287
)
Net (loss) income from discontinued operations
(9
)
 
170

Net loss
(239
)%
 
(117
)%

Year ended December 31, 2014 compared to the year ended December 31, 2013
Total revenues
 
Year Ended
 
 
 
 
 
December 31,
 
 
 
 
 
2014
 
2013
 
$ Change
 
% Change
 
(Dollars in thousands)
 
 
Total revenues
$
12,240

 
$
8,791

  
$
3,449

  
39.2
%

Total revenues for the year ended December 31, 2014 increased $3.4 million, or 39.2%, compared to the year ended December 31, 2013. This change is due to an increase in revenue from our advertising business resulting from new customer acquisitions and an increase in sales to existing customers. Customers individually comprising more than 10% of revenue totaled 27% in 2014, down from 40% in 2013, reflecting a broader customer base in 2014.




6


Operating expenses
 
Year ended
 
 
 
 
 
December 31,
 
 
 
 
 
2014
 
2013
 
$ Change
 
% Change
 
(Dollars in thousands)
 
 
Direct third-party expenses
$
7,942

 
$
6,699

  
$
1,243

 
18.6
 %
Datacenter and network operations*
5,162

 
2,416

  
2,746

 
113.7

Product development and sustainment*
3,375

 
1,557

  
1,818

 
116.8

Sales and marketing*
5,210

 
6,089

  
(879
)
 
(14.4
)
General and administrative*
6,083

 
12,088

  
(6,005
)
 
(49.7
)
Depreciation and amortization
4,165

 
3,785

  
380

 
10.0

Impairment charges
8,406

 

 
8,406

 

Total operating expenses
$
40,343

 
$
32,634

  
$
7,709

 
23.6
 %
*     excluding depreciation
 
Direct third-party expenses
For the year ended December 31, 2014, direct third-party expenses increased $1.2 million, or 18.6%, compared to the year ended December 31, 2013. This change was attributable to an increase in costs associated with our mobile media and advertising business. Direct third-party costs were 65% and 76% of revenues in 2014 and 2013, respectively. In 2015 we expect to make greater use of third-party vendors to support the placement of mobile advertising as part of an effort to reduce overall operating costs, principally by terminating the Seattle datacenter operations and reducing product development costs.
Datacenter and network operations, excluding depreciation
Datacenter and network operations expense, excluding depreciation, consists primarily of personnel and outsourcing costs to operate our datacenter, as well as rent, power, bandwidth capacity and software maintenance and support. During 2014, these costs amounted to $5.5 million, of which $5.2 million is included in net loss from continuing operations. During 2013, these costs amounted to $8.2 million, of which $2.4 million is included in operating loss from continuing operations.  In the first quarter of 2015 we terminated our Seattle datacenter operations in order to reduce operating costs.
For the year ended December 31, 2014, datacenter and network operations expense, excluding depreciation, increased $2.7 million, or 113.7%, compared to the year ended December 31, 2013. This increase was primarily driven by certain continuing costs previously borne by discontinued carrier and messaging operations. These costs include:
$2.2 million increase in bandwidth expenses, including hosting, infrastructure and server costs;
$0.3 million increase in salaries and benefits, facilities and equipment costs, and higher software maintenance primarily related to supporting our carrier-grade data center; and
$0.2 million increase in facilities and equipment costs, primarily related to software, maintenance and support as well as consulting fees.
Product development and sustainment, excluding depreciation
For the year ended December 31, 2014, product development and sustainment expense, excluding depreciation, increased $1.8 million, or 116.8%, compared to the year ended December 31, 2013. During 2014, we incurred greater non-capitalizable costs, primarily third-party consulting services, in connection with increased development of our Voltari-Connect platform, as well as Emporia product development. In the first quarter of 2015 we significantly reduced the size of our engineering staff in order to reduce operating costs.
Sales and marketing, excluding depreciation
For the year ended December 31, 2014, sales and marketing expense, excluding depreciation, decreased $0.9 million, or 14.4%, compared to the year ended December 31, 2013. This decrease was primarily due to a $0.9 million reduction in personnel and related costs and $0.5 million decrease in facilities and equipment costs, partially offset by a $0.5 million increase in advertising and marketing costs, primarily related to the Emporia product introduction.

7


General and administrative, excluding depreciation
For the year ended December 31, 2014, general and administrative expense, excluding depreciation, decreased $6.0 million, or 49.7%, compared to the year ended December 31, 2013. This decrease was primarily due to:
$2.6 million decrease in salaries and benefits and other employee related costs, primarily driven by a reduction in personnel and reduced use of contractors;
$3.3 million decrease in professional services fees, principally legal, accounting and other costs that were higher in the prior year due to work on various SEC filings in the first half of 2013 related to a reorganization transaction and the one-for-ten reverse stock split; and
$0.1 million net reduction in facilities, business taxes and other expense.
Depreciation and amortization
For the year ended December 31, 2014, depreciation and amortization expense increased $0.4 million, or 10.0%, compared to the year ended December 31, 2013. The increase is primarily due to a $1.3 million increase in amortization of capitalized software costs, as additional software under development became available for use and began amortization in 2014. This increase was partially offset by lower depreciation of $0.9 million in 2014 due to a greater number of fixed assets reaching the end of their depreciable lives in 2014.
Impairment charges
In the fourth quarter of 2014 we determined that our goodwill, capitalized software and certain fixed and intangible assets were impaired and recorded impairment charges of $8.4 million. We did not recognize any impairment charges during the year ended December 31, 2013. See Note 6 - Impairment Charges to our consolidated financial statements for more information.

Other expense, net  
 
Year ended
 
 
 
 
 
December 31,
 
 
 
 
 
2014
 
2013
 
$ Change
 
% Change
 
(Dollars in thousands)
 
 
Other income (expense)
$
12

 
$
(100
)
  
$
112

 
112.0
 %
Interest and investment income, net
5

 
23

 
(18
)
 
(78.3
)
Interest expense

 
(1,342
)
 
1,342

 
100.0

Total other income (expense), net
$
17

 
$
(1,419
)
  
$
1,436

 
101.2
 %
 
For the year ended December 31, 2014, interest expense decreased $1.3 million, or 100.0%, due to the repayment of our term loan with High River in August 2013. See Note 8 - Debt Facilities to our consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources for more information.

Net (Loss) Income from discontinued operations
 
Year ended
 
 
 
 
 
December 31,
 
 
 
 
 
2014
 
2013
 
$ Change
 
% Change
 
(Dollars in thousands)
 
 
Net (loss) income from discontinued operations
$
(1,194
)
 
$
14,948

 
$
(16,142
)
 
(108.0
)%

Net loss from discontinued operations for the year ended December 31, 2014 includes the results of our UK carrier operations and our messaging business in the U.S. and Canada. Net income from discontinued operations for the year ended December 31, 2013 includes the results of our carrier operations in North America, as well as Gen5 and our messaging business in the U.S. and Canada. The $15.4 million increase in loss from discontinued operations is due primarily to the termination of the profitable

8


North America carrier operations in 2013. See Note 4 - Discontinued Operations to our consolidated financial statements for more information.

Net loss
 
Year ended
 
 
 
 
 
December 31,
 
 
 
 
 
2014
 
2013
 
$ Change
 
% Change
 
(Dollars in thousands)
 
 
Net loss
$
(29,280
)
 
$
(10,314
)
 
$
(18,966
)
  
(183.9
)%
For the year ended December 31, 2014, our net loss was $29.3 million, compared to net loss of $10.3 million for the year ended December 31, 2013. The $19.0 million increase in net loss is primarily due to:
increased loss from discontinued operations of $16.1 million; and
2014 impairment charges of 8.4 million.
These reductions were partially offset by:
increased revenue of $3.4 million;
decreased operating expenses from continuing operations of $0.7 million; and
decreased other expenses, primarily interest expense, of $1.4 million.



Liquidity and Capital Resources
General
Our principal needs for liquidity have been to fund operating losses, working capital requirements, capital expenditures, debt service, restructuring expenses, international activity, acquisitions and integration. Our principal sources of liquidity as of December 31, 2014 consisted of cash and cash equivalents of $6.4 million.

Over the near term, we expect that the cost of operations and working capital requirements will continue to be our principal need for liquidity. In the long term, working capital requirements are expected to increase if we succeed in executing our longer-term business plan and growing our digital media and advertising business and new predictive analytics service offerings. Our cash flows may be affected by many factors including the economic environment, competitive conditions in the digital marketing and advertising industries and the success of our strategic realignment. We have seen a positive response to our strategic realignment of focusing on our core digital advertising and marketing business. In early 2015, we significantly reduced the size of our workforce providing engineering and information technology services. We continue to review our cost structure and may implement further cost saving initiatives. We believe we will have adequate resources to fund our operations, capital expenditures and working capital needs for the next 12 months using our cash and cash equivalents on hand and through access to the capital markets, including our rights offering, described below. Our short-term liquidity may be adversely affected if, and to the extent that, our Series J preferred stock becomes redeemable. See Redemption of Series J preferred stock below.

Our ability to achieve our business and cash flow plans is based on a number of assumptions which involve significant judgments and estimates of future performance, borrowing capacity and credit and equity finance availability, which cannot at all times be assured. Accordingly, we cannot assure that cash flows from operations and other internal and external sources of liquidity will at all times be sufficient for our cash requirements. If necessary, we may need to consider actions and steps to improve our cash position and mitigate any potential liquidity shortfall, such as modifying our business plan, pursuing additional financing to the extent available, reducing capital expenditures, pursuing and evaluating other alternatives and opportunities to obtain additional sources of liquidity and other potential actions to reduce costs. We cannot assure that any of these actions would be successful,

9


sufficient or available on favorable terms. Any inability to generate or obtain sufficient levels of liquidity to meet our cash requirements at the level and times needed could have a material adverse impact on our business and financial position.
  
Our ability to obtain any additional financing depends upon many factors, including our then existing level of indebtedness (if any) and restrictions in any debt facilities we may establish in the future, historical business performance, financial projections, prospects and creditworthiness and external economic conditions and general liquidity in the credit and capital markets. Any financing (or subsequent refinancing) could also be extended only at costs and require us to satisfy restrictive covenants, which could further limit or restrict our business and results of operations, or be dilutive to our stockholders.

Rights Offering - On February 27, 2015, we commenced a rights offering of up to an aggregate of 4,300,000 shares of our common stock. The rights offering was fully subscribed and closed on March 30, 2015. We received approximately $4.6 million in net proceeds from the rights offering and we intend to use these proceeds for general corporate and working capital purposes.

Following the completion of the rights offering on March 30, 2015, entities affiliated with Mr. Carl C. Icahn, the Company’s largest stockholder, became the owner of approximately 52.3% of our common stock. Entities affiliated with Mr. Icahn also own warrants to purchase an additional 9.7% of our common stock, which warrants are currently unexercisable by Mr. Icahn and such affiliated entities.

Redemption of Series J preferred stock - In connection with the change of control of the Company, and pursuant to the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Designations”), on March 30, 2015, the Company gave written notice to holders of its 13% Redeemable Series J Preferred Stock, $0.001 par value per share (the “Series J Preferred Stock”) of their right to redeem the Series J Preferred Stock held by such holders.

As disclosed herein, acquisition of Common Stock in the Rights Offering by entities affiliated with Mr. Carl C. Icahn resulted in a change of control of the Company, which constituted a redemption event pursuant to the terms and conditions of the Certificate of Designations (the “Rights Offering Redemption Event”). Upon the occurrence of a redemption event, and subject to certain conditions, each holder of shares of Series J Preferred Stock (each, a "Holder") has the right, at such Holder’s option, to require the Company to redeem all or a portion of such Holder’s shares of Series J Preferred Stock (the “Holder Redemption Option”) in accordance with the terms, procedures, and conditions set forth in the Certificate of Designations.

The Company will be required to redeem those shares of Series J Preferred Stock properly requested to be redeemed by the Holder. If all Holders of Series J Preferred Stock require the Company to redeem their shares, except for entities affiliated with Mr. Icahn, who have waived the Holder Redemption Option, the Company will be required to pay an aggregate Redemption Price of approximately $1.8 million, subject to State of Delaware law governing distributions to stockholders.

Cash Flows
As of December 31, 2014 and 2013, we had cash and cash equivalents of $6.4 million and $25.6 million, respectively, including cash of $0.9 million related to businesses held for sale at December 31, 2013. The decrease of $19.2 million primarily reflects $16.5 million of cash used in operating activities, $2.0 million of cash used in investing activities of and cash used in financing activities of $0.5 million.

Net Cash Used in Operating Activities
For the year ended December 31, 2014, net cash of $16.5 million was used in operating activities. Operating activities from continuing operations used $15.9 million of cash, consisting primarily of our net loss from continuing operations of $28.1 million, less significant non-cash impairment charges of $8.4 million, depreciation and amortization of $4.2 million, and stock compensation expense of $0.4 million. The $0.9 million use of cash due to the change in our operating assets and liabilities was primarily driven by an increase in accounts receivable, resulting from increased fourth quarter 2014 revenue as compared to 2013, as well as a decrease in accounts payable and accrued expenses, resulting from lower costs in 2014. Operating activities from discontinued operations used $0.6 million of cash during the year ended December 31, 2014.

Net Cash Used in Investing Activities
For the year ended December 31, 2014, net cash of $2.0 million was used in investing activities. During the period, we capitalized software development costs of $2.3 million, primarily associated with our Voltari-Connect platform, including costs to

10


develop new software products and significant enhancements to existing software products. We also used $0.1 million of cash to purchase property and equipment for our network operations.

In the fourth quarter of 2014 we determined that our goodwill, capitalized software and certain fixed and intangible assets were impaired and recorded impairment charges of $8.4 million. Due to the transformation of our business, changes in market requirements, lack of resources and funding or a change in our business strategy, in the near or long term we may not be in a position to or may decide not to continue or increase our product development costs which result in capitalized software development costs.

Proceeds from the sale of messaging and UK carrier businesses provided cash from discontinued operations of approximately $0.4 million cash during 2014.

Net Cash Used in Financing Activities
For the year ended December 31, 2014, $0.5 million of cash was used in financing activities, which consisted primarily of legal and other costs related to our 2015 rights offering.

Off-Balance Sheet Arrangements
As of December 31, 2014, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity and capital resources that are material to investors. In accordance with our normal business practices we indemnify our officers and our directors. We also indemnify customers under our contract terms from any copyright and patent infringement claims that may arise from use of our software technology.

Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions and in certain cases the difference may be material.

The following critical accounting policies are those accounting policies that, in our view, are most important in the portrayal of our financial condition and results of operations. Our critical accounting policies and estimates include those involved in recognition of revenue, software development costs, valuation of goodwill, valuation of long-lived and intangible assets, provision for income taxes, accounting for stock-based compensation and accounting for our redeemable preferred stock. Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Form 10-K provides additional information about these critical accounting policies, as well as our other significant accounting policies.

Revenue recognition

Our advertising revenues are derived principally from the sale of online advertisements. Advertising revenues on contracts are recognized as “impressions” (i.e., the number of times that an advertisement appears in web pages) are delivered, or as “clicks” (which are generated each time users on our websites click through our text-based advertisements to an advertiser's designated website) are provided to advertisers.
Revenues related to discontinued operations are derived from contracts which include individual or varying combinations of our managed services and often include professional service fees to customize and implement the specific software platform solutions required by the customer. We recognize revenue when all of the following conditions are satisfied: (i) there is persuasive evidence of an arrangement; (ii) delivery has occurred; (iii) the fee is fixed or determinable; and (iv) collectibility of the fee is reasonably assured. Certain of our arrangements include customer acceptance clauses or penalties for late delivery which we assess to determine whether revenue can be recognized ahead of the acceptance or delivery. The timing of revenue recognition in each case depends upon a variety of factors, including the specific terms of each arrangement and the nature of our deliverables and obligations.


11


Our UK carrier customer contracts, also reflected in revenue from discontinued operations, primarily consist of a fixed monthly managed service fee to host the software platform solution. Certain arrangements also include minimum monthly fee provisions, monthly fees for providing additional managed services required by the customer and/or service level requirements related to the hosted solutions which often entail financial penalties for non-compliance. We account for the managed services revenue on a monthly basis as earned. Our UK carrier contract does not include the right to self-host.

Software development costs
Effective January 1, 2013, we began capitalizing certain software development costs associated with our Voltari-Connect platform and other software system projects, which include the costs to develop new software products or significant enhancements to existing software products, which are developed or obtained for internal use. Costs associated with preliminary project stage activities, training, maintenance and all post-implementation stage activities are expensed as incurred. We capitalize software development costs when application development begins, it is probable that the project will be completed and the software will be used as intended. These capitalized costs are included within Property and equipment, net, on our condensed consolidated balance sheets and amortized on a straight-line basis over the estimated useful life of the related asset, which is generally three years.

During the fourth quarter of 2014, previously capitalized internally developed software was taken out of service and the related costs are included in impairment charges.

Valuation of goodwill
Our business acquisitions typically result in the recording of goodwill, and we periodically assess whether the recorded value of goodwill has become impaired. We test for potential impairment annually, in the fourth quarter of each year, and whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. Testing for impairment of goodwill involves estimating the fair value of the associated reporting unit and comparing it to its carrying value. If the estimated fair value is lower than the carrying value, then a more detailed assessment is performed comparing the carrying value of the goodwill in the reporting unit to its implied fair value. If the implied fair value of goodwill is less than the carrying amount of that goodwill, then an impairment charge is recognized to reduce the carrying value of goodwill by the difference. Any impairment losses relating to goodwill are recognized in the consolidated financial statements. For additional information, see Note 6 - Impairment Charges to our consolidated financial statements included elsewhere in this Form 10-K.

The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. We use valuation techniques consistent with the market approach and income approach to measure fair value for purposes of impairment testing. An estimate of fair value can be affected by many assumptions, requiring that management make significant judgments in arriving at these estimates, including the expected operational performance of our businesses in the future, market conditions and other factors. Although there are inherent uncertainties in this assessment process, the estimates and assumptions we use to estimate future cash flows—including sales volumes, pricing, market penetration, competition, technological obsolescence and discount rates—are consistent with our internal planning.

Valuation of long-lived and intangible assets
We periodically evaluate events or changes in circumstances that indicate the carrying amount of our long-lived and intangible assets may not be recoverable or that the useful lives of the assets may no longer be appropriate. Factors which could trigger an impairment review or a change in the remaining useful life of our long-lived and intangible assets include significant underperformance relative to historical or projected future operating results, significant changes in our use of the assets or in our business strategy, loss of or changes in customer relationships and significant negative industry or economic trends. When indications of impairment arise for a particular asset or group of assets, we assess the future recoverability of the carrying value of the asset (or asset group) based on an undiscounted cash flow analysis. If carrying value exceeds projected, net, undiscounted cash flows, an additional analysis is performed to determine the fair value of the asset (or asset group), typically a discounted cash flow analysis, based on an income and/or cost approach, and an impairment charge is recorded for the excess of carrying value over fair value. Any impairment losses relating to long-lived and intangible assets are recognized in the consolidated financial statements. For additional information, see Note 6 - Impairment Charges to our consolidated financial statements included elsewhere in this Form 10-K.


12


The process of assessing potential impairment of our long-lived and intangible assets is highly subjective and requires significant judgment. An estimate of future undiscounted cash flow can be affected by many assumptions, requiring that management make significant judgments in arriving at these estimates. Although there are inherent uncertainties in this assessment process, the estimates and assumptions we use to estimate future cash flows including sales volumes, pricing, market penetration, competition and technological obsolescence are consistent with our internal planning. Significant future changes in these estimates or their related assumptions could result in additional impairment charges related to individual or groups of these assets.

Provision (benefit) for income taxes
We are subject to federal and various state income taxes in the U.S., and to a lesser extent, income-based taxes in various foreign jurisdictions, including, but not limited to Canada. In 2012, we effected a restructuring of our workforce and other cost savings initiatives. As a part of this process we commenced the exit from our operations in India, the Asia Pacific region, France and the Netherlands. Deferred tax assets, related valuation allowances, current tax liabilities and deferred tax liabilities are determined separately by tax jurisdiction. In making these determinations, we calculate tax assets, related valuation allowances, current tax liabilities and deferred tax liabilities, and we assess temporary differences resulting from differing treatment of items for tax and accounting purposes. We recognize only tax positions that are “more likely than not” to be sustained based solely on their technical merits. Although we believe that our tax estimates are reasonable, the ultimate tax determination involves significant judgment that is subject to audit by tax authorities in the ordinary course of business.

At December 31, 2014, our gross deferred tax assets consisted primarily of domestic net operating losses and book to tax differences in tangible and intangible assets, as well as research and development credit carryforwards. As of December 31, 2014, we had U.S. federal and state net operating loss carryforwards of approximately $410.3 million and $67.5 million, respectively, which begin to expire at varying dates starting in 2020 for U.S. federal income tax purposes and in the current year for state income tax purposes. Because of our history of generating operating losses, we maintain full valuation allowances against these deferred tax assets and consequently do not recognize tax benefits for our current operating losses. If we determine it is more likely than not that all or a portion of the deferred tax assets will be realized, we will eliminate or reduce the corresponding valuation allowances which would result in immediate recognition of an associated tax benefit. Going forward, we will reassess the need for any remaining valuation allowances or the necessity to recognize additional valuation allowances. In the event we do eliminate all or a portion of the valuation allowances in the future, we will begin recording income tax provisions based on our earnings and applicable statutory tax rates from that time forward.

Stock-based compensation
We measure and recognize stock-based compensation expense using a fair value-based method for all share-based awards made to employees and nonemployee directors, including grants of stock options and other stock-based awards. We estimate the fair value of share-based awards, including stock options, using the Black-Scholes option-pricing model for awards with service-based conditions and the Monte Carlo Simulation pricing model for awards with market-based conditions. Determining the fair value of share-based awards using both pricing models requires the use of subjective assumptions, including the expected term of the award, expected stock price volatility and risk free interest rate. The assumptions used in calculating the fair value of share-based awards granted since January 1, 2013, are set forth below:
 
Year ended December 31,
 
2014
 
2013
Expected life of options granted
6 years

 
3.9 - 5 years

Expected volatility
58
%
 
58.7% - 75%

Range of risk-free interest rates
1.9
%
 
0.7% - 1.3%

Expected dividend yield
%
 
%
The assumptions used in determining the fair value of share-based awards represent our best estimates, but these estimates involve inherent uncertainties. As a result, if factors change, and we use different assumptions, our share-based compensation could be materially different in the future. The risk-free interest rate used for each grant is based on a U.S. Treasury instrument with a term similar to the expected term of the share-based award. The expected term of options has been estimated utilizing the vesting period of the option, the contractual life of the option and our option exercise history. Because there was no public market for our common stock prior to our IPO in 2010, we lacked company-specific historical and implied volatility information. Therefore, in estimating our expected stock volatility, we have taken into account volatility information of publicly-traded peer

13


companies, and we expect to continue to use this methodology until such time as we have adequate historical data regarding the volatility of our publicly-traded stock price. Also, we recognize compensation expense for only the portion of share-based awards that are expected to vest. Accordingly, we estimated forfeitures of stock options and stock awards based on our historical forfeiture rate, taking into account any unusual events, and our expectations for forfeitures in the future. If our actual forfeiture rate varies from our historical rates and estimates, additional adjustments to compensation expense may be required in future periods.

The exercise prices of our common stock option grants are based on the closing price of our common stock traded on NASDAQ under the symbol VLTC. All of our employee stock options are granted at exercise prices equal to or greater than the fair value of common stock as of the grant date.

Redeemable preferred stock and common stock warrants
In October 2012, we issued 1,199,643 shares of Series J preferred stock and 10,149,824 warrants to purchase 1,014,982 (after giving effect to the one-for-ten reverse stock split) shares of our common stock. Net proceeds from the rights offering of $27.8 million were allocated between Series J preferred stock and common stock warrants based on their estimated relative fair market values at the date of issuance as determined with the assistance of a third party valuation specialist. Our Series J preferred stock contains certain redemption features which are outside of our control. Accordingly, our Series J preferred stock is classified as mezzanine equity and reported as Redeemable preferred stock on our consolidated balance sheet, net of issuance costs, at December 31, 2014. The difference between the carrying value of the Series J preferred stock and its liquidation value is being accreted over an anticipated redemption period of five years using the effective interest method. Holders of the Series J preferred stock are entitled to an annual dividend of 13%, which is payable in-cash or in-kind, at the discretion of the Company, on a quarterly basis. Dividends declared on the Series J preferred stock and accretion associated with the Series J preferred stock reduce the amount of net earnings that are available to common stockholders and are presented as separate amounts on the consolidated statements of operations. The common stock warrants are recorded as Additional paid-in capital on our consolidated balance sheet at December 31, 2014.

Recent Accounting Pronouncements

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard requires management to evaluate for each reporting period whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern and provide related footnote disclosure in certain circumstances. The new standard is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early application is permitted. The Company expects to adopt this standard for our annual period ending December 31, 2016 and is currently evaluating the impact of the adoption of the new standard on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The guidance in this ASU supersedes nearly all existing revenue recognition guidance under U.S. GAAP and creates a single, principle-based revenue recognition framework that is codified in a new FASB ASC Topic 606. The core principle of this guidance is for the recognition of revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new revenue standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those years. Early adoption is not permitted. The new standard allows for either full retrospective or modified retrospective adoption. The Company is currently evaluating the transition method that will be elected and the potential effects of the adoption of the new standard on our consolidated financial statements.

In April 2014, the FASB issued ASU No. 2014-08, which amends FASB ASC Topic 205, Presentation of Financial Statements and FASB ASC Topic 360, Property, Plant, and Equipment. This standard amends the definition of a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. This guidance is effective on a prospective basis for annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted, but only for disposals that have not been reported in

14


financial statements previously issued or available for issuance. The Company expects to adopt this standard on a prospective basis beginning January 1, 2015. Adoption is not expected to have a material impact on our consolidated financial statements.

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This guidance is effective for interim and annual reporting periods beginning after December 15, 2013, with early adoption permitted. We adopted this standard on January 1, 2014, and such adoption did not have an impact on our consolidated financial statements.

In March, 2013 The FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force). This guidance resolves diversity in practice around the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The amendments in this ASU are effective prospectively for annual and interim reporting periods beginning after December 15, 2013. Provisions of this ASU, which are consistent with our past practice, became applicable and were adopted during the fourth quarter of 2014.

Item 8.
Consolidated Financial Statements.

Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Voltari Corporation
We have audited the accompanying consolidated balance sheets of Voltari Corporation (a Delaware corporation) and subsidiaries (collectively, 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 two 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 Item 15(a)(2). 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.

15



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 Voltari Corporation and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the two 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, presents fairly, in all material respects, the information set forth therein.

/s/ Grant Thornton LLP

Seattle, Washington
March 31, 2015

16


Voltari Corporation
Consolidated Balance Sheets
(in thousands, except share data)
 
 
December 31,
2014
 
December 31,
2013
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
6,448

 
$
24,745

Accounts receivable, net of allowance for doubtful accounts of $109 and $26, respectively
3,494

 
3,002

Prepaid expenses and other current assets
1,533

 
1,215

Assets held for sale

 
2,149

Total current assets
11,475

 
31,111

Property and equipment, net
667

 
5,815

Goodwill

 
2,416

Intangible assets, net

 
2,766

Other assets
188

 
296

Total assets
$
12,330

 
$
42,404

 
 
 
 
Liabilities, redeemable preferred stock and stockholders’ equity
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued expenses
$
3,386

 
$
4,358

Accrued compensation
721

 
1,098

Other current liabilities
1,451

 
1,157

Liabilities held for sale

 
568

Total current liabilities
5,558

 
7,181

Other non-current liabilities
29

 
21

Total liabilities
5,587

 
7,202

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Redeemable preferred stock, $0.001 par value; 1,199,643 shares issued and outstanding at December 31, 2014 and 2013, respectively. Redemption value: $39,950 and $35,152 at December 31, 2014 and 2013, respectively.
36,380

 
31,124

 
 
 
 
Stockholders’ equity
 
 
 
Common stock, $0.001 par value; 625,000,000 shares authorized; 4,763,358 and 4,698,108 shares issued and outstanding at December 31, 2014 and 2013, respectively
5

 
5

Additional paid-in capital
563,643

 
568,714

Accumulated deficit
(593,316
)
 
(564,036
)
Accumulated other comprehensive income (loss)
31

 
(605
)
Total stockholders’ equity
(29,637
)
 
4,078

Total liabilities, redeemable preferred stock and stockholders’ equity
$
12,330

 
$
42,404


The accompanying notes are an integral part of these consolidated financial statements.

17


Voltari Corporation
Consolidated Statements of Operations
(in thousands, except share data and per share amounts)
 
Year Ended December 31,
 
2014

2013
 
 
 
 
Revenue
$
12,240

 
$
8,791

 
 
 
 
Operating expenses
 
 
 
Direct third-party expenses
7,942

 
6,699

Datacenter and network operations, excluding depreciation
5,162

 
2,416

Product development and sustainment, excluding depreciation
3,375

 
1,557

Sales and marketing, excluding depreciation
5,210

 
6,089

General and administrative, excluding depreciation
6,083

 
12,088

Depreciation and amortization
4,165

 
3,785

Impairment charges
8,406

 

Total operating expenses
40,343

 
32,634

Operating loss
(28,103
)
 
(23,843
)
Other expense, net
 
 
 
Other expense
12

 
(100
)
Interest and investment income, net
5

 
23

Interest expense

 
(1,342
)
Total other expense, net
17

 
(1,419
)
Loss from continuing operations before income taxes
(28,086
)
 
(25,262
)
Benefit for income taxes

 

Net loss from continuing operations
(28,086
)
 
(25,262
)
Net (loss) income from discontinued operations
(1,194
)
 
14,948

Net loss
$
(29,280
)
 
$
(10,314
)
Accretion of redeemable preferred stock
(611
)
 
(525
)
Series J redeemable preferred stock dividends
(4,798
)
 
(4,221
)
Net loss attributable to common stockholders
$
(34,689
)
 
$
(15,060
)
 
 
 
 
Net income (loss) per share attributable to common stockholders - basic and diluted:
 
 
 
Continuing operations
$
(7.17
)
 
$
(6.45
)
Discontinued operations
(0.26
)
 
3.21

Total net loss per share attributable to common stockholders (1)
$
(7.43
)
 
$
(3.24
)
 
 
 
 
Weighted-average common shares outstanding – basic and diluted
4,668,844

 
4,650,920

 
 
 
 
Depreciation and amortization by function
 
 
 
Datacenter and network operations
$
3,097

 
$
2,334

Product development and sustainment
121

 
340

Sales and marketing
876

 
925

General and administrative
71

 
186

Total depreciation and amortization
$
4,165

 
$
3,785


The accompanying notes are an integral part of these consolidated financial statements.

18


Voltari Corporation
Consolidated Statements of Comprehensive Loss
(in thousands)


 
Year Ended December 31,
 
2014

2013
Net loss
$
(29,280
)
 
$
(10,314
)
Other comprehensive income:
 
 
 
Reclassification adjustment for realization of cumulative translation adjustment included in Net loss
759

 
(8
)
Foreign currency translation adjustment
(123
)
 
44

Other comprehensive income
636

 
36

Comprehensive loss
$
(28,644
)
 
$
(10,278
)
The accompanying notes are an integral part of these consolidated financial statements.


19


Voltari Corporation
Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except share data)
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive Income (Loss)
 
 
 
Shares (1)
 
Amount
 
 
 
 
Total
Balance as of December 31, 2012
4,673,275

 
$
47

 
$
573,166

 
$
(553,722
)
 
$
(641
)
 
18,850

Net loss

 

 

 
(10,314
)
 

 
(10,314
)
Other comprehensive income

 

 

 

 
36

 
36

Redeemable preferred stock dividends

 

 
(4,221
)
 

 

 
(4,221
)
Accretion of redeemable preferred stock

 

 
(525
)
 

 

 
(525
)
Adjustment for reverse stock split
(135
)
 
(42
)
 
42

 

 

 

Restricted stock activity
24,968

 

 
(97
)
 

 

 
(97
)
Stock-based compensation expense

 

 
349

 

 

 
349

Balance as of December 31, 2013
4,698,108

 
5

 
568,714

 
(564,036
)
 
(605
)
 
4,078

Net loss

 

 

 
(29,280
)
 

 
(29,280
)
Other comprehensive income

 

 

 

 
636

 
636

Redeemable preferred stock dividends

 

 
(4,797
)
 

 

 
(4,797
)
Accretion of redeemable preferred stock

 

 
(611
)
 

 

 
(611
)
Restricted stock activity
65,250

 

 
(15
)
 

 

 
(15
)
Stock-based compensation expense

 

 
352

 

 

 
352

Balance as of December 31, 2014
4,763,358

 
$
5

 
$
563,643

 
$
(593,316
)
 
$
31

 
$
(29,637
)
(1) Prior period disclosures have been adjusted to reflect the impact of the one-for-ten reverse stock split that took effect on April 23, 2013, as discussed in Note 2.
The accompanying notes are an integral part of these consolidated financial statements.

20


Voltari Corporation
Consolidated Statements of Cash Flows
(in thousands)
 
 
Year Ended December 31,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net loss
$
(29,280
)
 
$
(10,314
)
Loss (Income) from discontinued operations
1,194

 
(14,948
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
Depreciation and amortization
4,165

 
3,785

Stock-based compensation expense
352

 
349

Impairment charges
8,406

 

Other non-cash adjustments
207

 
(155
)
Changes in operating assets and liabilities:
 
 
Accounts receivable
(596
)
 
(1,019
)
Prepaid expenses and other current assets
352

 
732

Other assets
(18
)
 
(18
)
Accounts payable and accrued expenses
(683
)
 
(3,854
)
Net cash used in operating activities - continuing operations
(15,901
)
 
(25,442
)
Net cash (used in) provided by operating activities - discontinued operations
(573
)
 
23,125

Net cash used in operating activities
(16,474
)
 
(2,317
)
 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(74
)
 
(545
)
Capitalization of software development costs
(2,308
)
 
(3,262
)
Net cash used in investing activities - continuing operations
(2,382
)
 
(3,807
)
Net cash provided by (used in) investing activities - discontinued operations
363

 


Net cash used in investing activities
(2,019
)
 
(3,807
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Repayments of debt facilities

 
(20,000
)
Rights offering costs
(521
)
 
(149
)
Cash paid for tax withholdings on restricted stock
(15
)
 
(98
)
Restricted short-term investments

 
406

Net cash provided by (used in) financing activities - continuing operations
(536
)
 
(19,841
)
Effect of exchange rate changes on cash and cash equivalents
(123
)
 
36

Net decrease in cash and cash equivalents
(19,152
)
 
(25,929
)
Cash and cash equivalents at beginning of period
24,745

 
49,738

Cash reclassified to assets held for sale at beginning of period
855

 
1,791

Cash reclassified to assets held for sale at end of period

 
(855
)
Cash and cash equivalents at end of period
$
6,448

 
$
24,745

 
 
 
 
Supplemental schedule of cash flow information:
 
 
 
Cash Paid for Interest
$

 
$
3,796

The accompanying notes are an integral part of these consolidated financial statements.

21

Voltari Corporation
Notes to Consolidated Financial Statements






1. Organization

Voltari Corporation (“Voltari” or the “Company”), a Delaware corporation, was incorporated in December, 2012 as a wholly-owned subsidiary of Motricity, Inc. (“Motricity”). Through a reorganization, Motricity became a wholly-owned subsidiary of Voltari in April, 2013. In April, 2013 the Company effected a one-for-ten reverse stock split of the outstanding shares of our common stock. The number of shares of our common stock outstanding has been adjusted retrospectively to reflect the reverse stock split in all periods presented. In addition, the exercise price and the number of common shares issuable under our share-based compensation plans and upon exercise of our outstanding warrants to purchase common stock, as well as the issued and outstanding share capital, have been correspondingly adjusted to reflect the reverse stock split.

Advertisers pay us to deliver their ads to mobile users, and we pay website and mobile application owners (or their proxies) for the use of their ad space. Our proprietary technology and data management platform allows us to analyze and augment the information accompanying web and mobile advertising opportunities and quickly deliver highly targeted and engaging ad content to consumers in both programmatic and mediated environments. Our platform and that of our third-party vendors, uses mass volumes of third-party data along with ad response and location data and, when available, first-party consumer data to generate, in real time, a score for each unique advertising opportunity which can be measured against an advertiser's creative materials and campaign goals.

2. Summary of Significant Accounting Policies

Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated upon consolidation.

In April, 2013, the Company effected a one-for-ten reverse stock split of its common stock. As a result, the number of shares of our common stock outstanding has been adjusted retrospectively to reflect the reverse stock split in all periods presented. In addition, the exercise price and the number of common shares issuable under our share-based compensation plans and upon exercise of our outstanding warrants to purchase common stock, as well as the issued and outstanding share capital have been correspondingly adjusted to reflect the reverse stock split. See Note 1 - Organization for more information.

Liquidity
As of December 31, 2014, we have a total stockholders’ deficit of $29.6 million and incurred a net loss of $34.7 million for the year then ended.  Cash and cash equivalents totaled $6.4 million as of December 31, 2014, a decrease of $18.3 million from December 31, 2013
Management believes that we have sufficient cash and cash equivalents at December 31, 2014 coupled with the completion of our Rights Offering (See Note 16 - Subsequent Event) to support forecasted operating results, working capital requirements, capital expenditures, and commitments at least through December 31, 2015.
Reclassifications
Prior to July 1, 2013, most of our revenue was derived from providing hosting services to wireless carriers. In 2012, we began to exit from our international carrier business in India and the Asia Pacific region and in 2012 completed the divestitures of our France and Netherlands subsidiaries. Effective June 30, 2013, AT&T terminated material revenue generating contracts with us and we assigned all of our rights and interests under our Verizon Portal Agreement to Opalhaven Corporation (“Opalhaven”), resulting in our exit from the U.S. carrier business. On October 31, 2013, we completed the sale of our Gen5 business. On May 30, 2014, we completed the sale of our U.S. and Canadian messaging business. Further, on September 1, 2014, we completed the sale of our wireless carrier business in the UK. Our carrier, messaging and Gen5 businesses are reported as discontinued operations in the consolidated financial statements for all periods presented. The assets and liabilities related to our U.S. and Canadian messaging business, as well as U.K. carrier business, are reported as assets and liabilities held for sale on the consolidated balance sheets at December 31, 2013. See Note 4 - Discontinued Operations for more information.

Use of Estimates

22

Voltari Corporation
Notes to Consolidated Financial Statements





The preparation of consolidated financial statements in conformity with the generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates include the allowance for doubtful accounts, valuation of deferred tax assets, the recoverability or impairment of goodwill and long-lived assets, including property and equipment and intangible assets, stock-based compensation, litigation and other loss contingencies. Actual results could differ from those estimates.

Revenue Recognition
Our advertising revenues are derived principally from the sale of online advertisements. Advertising revenues on contracts are recognized as “impressions” (i.e., the number of times that an advertisement appears in web pages) are delivered, or as “clicks” (which are generated each time users on our websites click through our advertisements to an advertiser's designated website) are provided to advertisers.
Revenues related to discontinued operations are derived from contracts which include individual or varying combinations of our managed services and often include professional service fees to customize and implement the specific software platform solutions required by the customer. We recognize revenue when all of the following conditions are satisfied: (i) there is persuasive evidence of an arrangement; (ii) delivery has occurred; (iii) the fee is fixed or determinable; and (iv) collectibility of the fee is reasonably assured. Certain of our arrangements include customer acceptance clauses or penalties for late delivery which we assess to determine whether revenue can be recognized ahead of the acceptance or delivery. The timing of revenue recognition in each case depends upon a variety of factors, including the specific terms of each arrangement and the nature of our deliverables and obligations.

Cash and Cash Equivalents
We consider all highly liquid investments with remaining maturities of three months or less at the date of purchase to be cash and cash equivalents. At December 31, 2014 and 2013, we had cash and cash equivalents held in foreign bank accounts of $0.1 million and $1.2 million, respectively. Cash and cash equivalents includes restricted short-term investments of $0.1 million and $0.2 million at December 31, 2014 and 2013, respectively, comprised of cash set aside to secure certain leases.

Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are presented at their face amount, less an allowance for doubtful accounts, on the consolidated balance sheet. Accounts receivable consist of amounts billed and currently due from customers and revenues earned but not yet billed. We evaluate the collectibility of accounts receivable based on a combination of factors. We recognize reserves for bad debts based on estimates developed using standard quantitative measures which incorporate historical write-offs and current economic conditions. Although, in circumstances where we are aware of a specific customer’s inability to meet its financial obligations, a specific reserve is recorded to reduce the related accounts receivable to an amount we believe is collectible. Delinquent accounts are written off when they are determined to be uncollectible.

Long-Lived Assets
Long-lived assets include assets such as property and equipment and intangible assets, other than those with indefinite lives. We assess the carrying value of our long-lived asset groups when indicators of impairment exist and recognize an impairment loss when the carrying amount of a long-lived asset is not recoverable from the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Indicators of impairment include significant underperformance relative to historical or projected future operating results, significant changes in our use of the assets or in our business strategy, loss of or changes in customer relationships and significant negative industry or economic trends. When indications of impairment arise for a particular asset or group of assets, we assess the future recoverability of the carrying value of the asset (or asset group) based on an undiscounted cash flow analysis. If carrying value exceeds projected net undiscounted cash flows, an additional analysis is performed to determine the fair value of the asset (or asset group), typically a discounted cash flow analysis, and an impairment charge is recorded for the excess of carrying value over fair value. See Note 6 - Impairment Charges for more information.

Property and equipment are recorded at historical cost less accumulated depreciation, unless impaired. Depreciation is charged to operations over the estimated useful lives of the assets using the straight-line method or a variable method reflecting the pattern in which the economic benefits are anticipated to be utilized. Upon retirement or sale, the historical cost of assets disposed of and

23

Voltari Corporation
Notes to Consolidated Financial Statements





the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized. Expenditures for repairs and maintenance are charged to expense as incurred.

All costs related to the development of internal-use software other than those incurred during the application development stage are expensed, including costs for minor upgrades and enhancements when there is no reasonable cost-effective way to separate these costs from maintenance activities. Costs incurred during the application development stage are capitalized and amortized over the estimated useful life of the software, which is generally three years.

Identifiable intangible assets are recorded at cost or, when acquired as part of a business acquisition, estimated fair value. The recorded amount is amortized to expense over the estimated useful life of the asset using the straight-line method or a variable method reflecting the pattern in which the economic benefits are anticipated to be realized. At each balance sheet date, the unamortized costs for all intangible assets are reviewed by management and reduced to net realizable value when necessary.
  
Goodwill
Goodwill represents the excess of the purchase price of an acquired enterprise or assets over the fair value of the identifiable net assets acquired. We test goodwill for impairment in the fourth quarter of each year, and whenever events or changes in circumstances arise during the year that indicate the carrying amount of goodwill may not be recoverable. In evaluating whether an impairment of goodwill exists, we first compare the estimated fair value of a reporting unit to its carrying value, including goodwill. If the estimated fair value is lower than the carrying value, then a more detailed assessment is performed comparing the carrying value of the goodwill in the reporting unit to its implied fair value. If the implied fair value of goodwill is less than the carrying amount of that goodwill, then an impairment charge is recognized to reduce the carrying value of goodwill by the difference. See Note 6 - Impairment Charges for more information.

Comprehensive Loss
Comprehensive loss includes net loss as currently reported under U.S. GAAP and other comprehensive loss. Other comprehensive loss considers the effects of additional economic events, such as foreign currency translation adjustments, that are not required to be recorded in determining net loss, but rather are reported as a separate component of stockholders’ equity. Accumulated other comprehensive income consists of foreign currency translation adjustments.

Advertising Costs
The costs of advertising are either expensed as incurred or fully expensed the first time the advertising takes place. Advertising expenses totaled $0.1 million for each of the years ended December 31, 2014 and 2013, respectively.

Software Development Costs
Our software development expenses consist primarily of salaries and fees paid to outside vendors. Costs incurred in connection with research activities are charged to operating expenses as incurred and are included within product development and sustainment, excluding depreciation, in the consolidated statements of operations. Research and development expenses for the years ended December 31, 2014 and 2013 were $2.6 million and $1.4 million, respectively.

Effective January 1, 2013, we began capitalizing certain software development costs associated with our Voltari-Connect platform and other software system projects, which include the costs to develop new software products or significant enhancements to existing software products, which are developed or obtained for internal use. Costs associated with preliminary project stage activities, training, maintenance and all post-implementation stage activities are expensed as incurred. We capitalize software development costs when application development begins, it is probable that the project will be completed and the software will be used as intended. These capitalized costs are included within Property and equipment, net, on our condensed consolidated balance sheets and amortized on a straight-line basis over the estimated useful life of the related asset, which is generally three years. In the fourth quarter of 2014 we recognized an impairment charge of $3.8 million relating to capitalized software development costs. See Note 6 - Impairment Charges for more information.

Stock-Based Compensation
We measure and recognize stock-based compensation expense using a fair value-based method for all share-based awards made to employees and nonemployee directors, including grants of stock options and other stock-based awards. We estimate the fair value

24

Voltari Corporation
Notes to Consolidated Financial Statements





of share-based awards, including stock options, using the Black-Scholes option-pricing model for awards with service-based conditions and the Monte Carlo Simulation pricing model for option awards with market-based conditions. The application of this standard requires significant judgment and the use of estimates, particularly with regards to assumptions such as stock price volatility, expected option lives and risk-free interest rate, all of which are utilized to value equity-based compensation. We recognize stock compensation expense, net of estimated forfeitures, using a straight line method over the requisite service period of the individual grants, which generally equals the vesting period.

Income Taxes
We utilize the balance sheet method of accounting for income taxes. Accordingly, we are required to estimate our income taxes in each of the jurisdictions in which we operate as part of the process of preparing our consolidated financial statements. This process involves estimating our actual current tax exposure, including assessing the risks associated with tax audits, together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. Due to the evolving nature and complexity of tax rules combined with the number of jurisdictions in which we operate, it is possible that our estimates of our tax liability could change in the future, which may result in additional tax liabilities and adversely affect our results of operations, financial condition and cash flows.

We follow the authoritative accounting guidance prescribing a threshold and measurement attribute for the financial recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance defines the level of assurance that a tax position must meet in order to be recognized in the financial statements and also provides for de-recognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. The guidance utilizes a two-step approach for evaluating uncertain tax positions. Step one, recognition, requires a company to determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. If a tax position is not considered “more likely than not” to be sustained, no benefits of the position are recognized. Step two, measurement, is based on the largest amount of benefit which is more likely than not to be realized on effective settlement.

Net Loss Per Share Attributable to Common Stockholders
Basic and diluted net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Our net loss attributable to common stockholders was not allocated to preferred stock using the two-class method, as the preferred stock does not have a contractual obligation to share in the net loss attributable to common stockholders.

Our potentially dilutive shares, which include outstanding common stock options, restricted stock, redeemable preferred stock and common stock warrants, have not been included in the computation of diluted net loss per share attributable to common stockholders for all periods presented, as the results would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share. See Note 13 - Net Loss Per Share Attributable to Common Stockholders.

Operating Segment
The authoritative guidance for disclosures about segments of an enterprise establishes standards for reporting information about operating segments. It defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”) in deciding how to allocate resources and in assessing performance. We currently operate and manage our business as a single segment. Our CODM allocates resources and assesses performance of the business at the consolidated level. Our CODM reviews revenue by customer and by type of service to understand and evaluate revenue trends. We have one business activity, and there are no segment managers who are held accountable for operations, operating results or components below the consolidated unit level. Accordingly, we consider ourselves to be in a single operating and reportable segment structure.

We generated substantially all revenue from continuing operations in the U.S. during the years ended December 31, 2014 and 2013, respectively. For the year ended December 31, 2014, two customers comprised 17% and 12%, respectively, of revenue from continuing operations and for the year ended December 31, 2013 two customers comprised 25% and 15%, respectively, of revenue from continuing operations. As of December 31, 2014 and 2013, the majority of our long-lived assets were located in the U.S.


25

Voltari Corporation
Notes to Consolidated Financial Statements





Fair Value of Financial Instruments
As of December 31, 2014 and 2013, we had cash and cash equivalents of $6.4 million and $24.7 million, respectively. The carrying amount of certain financial instruments, including accounts receivable, accounts payable and accrued expenses, approximates fair value due to their short maturities.

There were no transfers between levels in the fair value hierarchy during the years ended December 31, 2014 or 2013.

Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, to the extent balances exceed limits that are insured by the Federal Deposit Insurance Corporation, and accounts receivable.
At December 31, 2014, two customers each comprised 10% of invoiced accounts receivable and at December 31, 2013 three customers comprised 12%, 10% and 10%, respectively, of invoiced accounts receivable.

Foreign Currency
The functional currencies of our international subsidiaries are the local currencies. We translate the financial statements of our international subsidiaries to U.S. dollars using end-of-period exchange rates for assets and liabilities and average currency exchange rates for revenues and expenses. Translation adjustments resulting from this process are included in Other comprehensive income (loss) and are reflected as a separate component of stockholders’ equity. Realized and unrealized transaction gains and losses are included in Other income (expense), net in the period in which they occur, except on intercompany balances considered to be long-term, and have not been significant for any periods presented. Transaction gains and losses on intercompany balances considered to be long-term are recorded in Other comprehensive income (loss).

Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard requires management to evaluate for each reporting period whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern and provide related footnote disclosure in certain circumstances. The new standard is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early application is permitted. The Company expects to adopt this standard for our annual period ending December 31, 2016 and is currently evaluating the impact of the adoption of the new standard on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The guidance in this ASU supersedes nearly all existing revenue recognition guidance under U.S. GAAP and creates a single, principle-based revenue recognition framework that is codified in a new FASB ASC Topic 606. The core principle of this guidance is for the recognition of revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new revenue standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those years. Early adoption is not permitted. The new standard allows for either full retrospective or modified retrospective adoption. The Company is currently evaluating the transition method that will be elected and the potential effects of the adoption of the new standard on our consolidated financial statements.

In April 2014, the FASB issued ASU No. 2014-08, which amends FASB ASC Topic 205, Presentation of Financial Statements and FASB ASC Topic 360, Property, Plant, and Equipment. This standard amends the definition of a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. This guidance is effective on a prospective basis for annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted, but only for disposals that have not been reported in financial statements previously issued or available for issuance. The Company expects to adopt this standard on a prospective basis beginning January 1, 2015. Adoption is not expected to have a material impact on our consolidated financial statements.


26

Voltari Corporation
Notes to Consolidated Financial Statements





In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This guidance is effective for interim and annual reporting periods beginning after December 15, 2013, with early adoption permitted. We adopted this standard on January 1, 2014, and such adoption did not have an impact on our consolidated financial statements.

In March, 2013 The FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force). This guidance resolves diversity in practice around the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The amendments in this ASU are effective prospectively for annual and interim reporting periods beginning after December 15, 2013. Provisions of this ASU, which are consistent with our past practice, became applicable and was adopted during the fourth quarter of 2014.


3. Property and Equipment, net

Information related to our major categories of our property and equipment, net, is as follows (dollars in thousands):
 
Useful Life
 
As of December 31,
 
(in years)
 
2014
 
2013
Capitalized software
3
 
$
51,682

 
$
49,498

Computer software and equipment
3-5
 
19,532

 
24,357

Leasehold improvements
4-10
 
5,569

 
5,569

Equipment, furniture and fixtures
7
 
763

 
1,474

Total property and equipment
 
 
77,546

 
80,898

Less: Accumulated depreciation and amortization
 
 
(41,849
)
 
(44,002
)
Less: Accumulated impairments
 
 
(35,030
)
 
(31,081
)
Property and equipment, net
 
 
$
667

 
$
5,815


There was no capitalized interest associated with property and equipment for the years ended December 31, 2014 and 2013. We capitalized software development costs of $2.3 million and $3.5 million during the years ended December 31, 2014 and 2013, respectively. Depreciation expense from continuing operations was $3.4 million and $3.1 million for the years ended December 31, 2014 and 2013, respectively.

We determined our property and equipment, including capitalized software, was impaired in the fourth quarter of 2014, primarily due to planned termination of our Seattle datacenter operations and changes in the use of those assets, consistent with efforts to reduce operating costs. The impairment charge associated with property and equipment for the year ended December 31, 2014 was $3.9 million, including $3.8 million related to capitalized software. See Note 6 - Impairment Charges for more information.


4. Discontinued Operations

U.S. Carrier Operations
We decided to wind down our U.S. carrier operations as a result of the termination of two material revenue generating agreements with AT&T effective June 30, 2013. Accordingly, all operations related to our U.S. carrier business are reported as discontinued operations in the consolidated financial statements for the year ended December 31, 2013.

Gen5 and Messaging Operations
On October 31, 2013, we completed the sale of our Gen5 business and on May 30, 2014, we completed the sale of our U.S. and Canadian messaging business. The operations related to the Gen5 business are reported as discontinued operations in the

27


consolidated financial statements for the year ended December 31, 2013. The U.S. and Canadian messaging business are reported as discontinued operations in the consolidated financial statements for the years ended December 31, 2014 and 2013.

UK Wireless Carrier Operations
On September 1, 2014, we completed the sale of our UK carrier business. The operations related to our UK carrier business are reported as discontinued operations in the consolidated financial statements for the years ended December 31, 2014 and 2013.

Discontinued operations on the consolidated statement of operations for the year ended December 31, 2014 is as follows (in thousands):

 
Year Ended December 31, 2014
 
 
U.S. Messaging & Other
 
Canadian Messaging & Gen5
 
UK Carrier
 
Total
Revenue
 
$
372

 
$
451

 
$
793

 
$
1,616

Operating income (loss)
 
$
(386
)
 
$
(87
)
 
$
226

 
$
(247
)
Gain on sale
 
74

 
21

 
163

 
258

Other income (expense)
 
(74
)
 
1

 
4

 
(69
)
Loss on realization of cumulative translation adjustment reclassified out of Accumulated Other Comprehensive Loss
 

 
(229
)
 
(530
)
 
(759
)
Pre-tax income (loss)
 
(386
)
 
(294
)
 
(137
)
 
(817
)
Provision for income taxes
 
377

 

 

 
377

Net income (loss) from discontinued operations
 
$
(763
)
 
$
(294
)
 
$
(137
)
 
$
(1,194
)


Discontinued operations on the consolidated statement of operations for the year ended December 31, 2013 is as follows (in thousands):
 
Year Ended December 31, 2013
 
 
U.S. Carrier
 
U.S. Messaging & Other
 
Canadian Messaging & Gen5
 
UK Carrier
 
Total
Revenue
 
$
28,759

 
$
922

 
$
3,665

 
$
1,494

 
$
34,840

Operating income (loss)
 
$
15,245

 
$
(511
)
 
$
(444
)
 
$
915

 
$
15,205

Loss on sale of Gen5
 

 

 
(470
)
 

 
(470
)
Other income (expense)
 

 
510

 
399

 
(4
)
 
905

Pre-tax income (loss)
 
15,245

 
(1
)
 
(515
)
 
911

 
15,640

Provision for income taxes
 

 
692

 

 

 
692

Net income (loss) from discontinued operations
 
$
15,245

 
$
(693
)
 
$
(515
)
 
$
911

 
$
14,948


As of December 31, 2014, we had substantially liquidated all assets and liabilities associated with our subsidiaries in Canada and the UK and there were no assets or liabilities associated with discontinued operations included on our consolidated balance sheet as of December 31, 2014. As of December 31, 2013, assets and liabilities related to our UK carrier business, as well as messaging business in the U.S. and Canada were classified as held for sale on our consolidated balance sheets and consisted of the following (in thousands):

28


 
December 31, 2013
Assets:
 
Cash and cash equivalents
$
855

Accounts receivable, net of allowance for doubtful accounts of $49
1,048

Prepaid expenses and other current assets
22

Property and equipment, net
2

Intangible assets, net
199

Other assets
23

Total assets
$
2,149

Liabilities:
 
Accounts payable and accrued expenses
207

Accrued compensation
122

Deferred revenue

Other current liabilities
239

Total liabilities
$
568




5. Goodwill and Intangible Assets

The changes in the carrying amount of our goodwill for the years ended December 31, 2014 and 2013 are as follows (in thousands):
Goodwill balance as of December 31, 2012
$
2,416

Goodwill balance as of December 31, 2013
2,416

Impairment of goodwill
(2,416
)
Goodwill balance as of December 31, 2014
$


In the fourth quarter of 2014, we performed our annual impairment testing and determined our goodwill was impaired, primarily due to continued operating losses, change in our strategic direction, as well as a sustained decline in our stock price and as a result of our analysis of discounted future cash flows. Our impairment charge associated with goodwill for the year ended December 31, 2014 was $2.4 million. See Note 6 - Impairment Charges for more information.

No impairment of goodwill was identified during the year ended December 31, 2013 based on the results of our annual impairment test.


Intangible Assets
The following tables provide information regarding our intangible assets, net for the periods presented (dollars in thousands):


29

Voltari Corporation
Notes to Consolidated Financial Statements





 
As of December 31, 2014
 
Gross Carrying
Amount
 
Accumulated Amortization
 
Impairment
 
Net Carrying
Amount
Customer relationships
$
13,288

 
$
(13,282
)
 
$
(6
)
 
$

Technology
8,413

 
(6,378
)
 
(2,035
)
 

Total intangible assets, net
$
21,701

 
$
(19,660
)
 
$
(2,041
)
 
$


 
As of December 31, 2013
 
Gross Carrying
Amount
 
Accumulated Amortization
 
Net Carrying
Amount
 
Weighted-Average Amortization Period (in years)
Customer relationships
$
14,228

 
$
(14,054
)
 
$
174

 
1.2
Technology
8,693

 
(5,902
)
 
2,791

 
4.0
Total
22,921

 
(19,956
)
 
2,965

 
 
Less: Held for Sale
1,220

 
(1,021
)
 
199

 
 
Total intangible assets, net
$
21,701

 
$
(18,935
)
 
$
2,766

 
 

Intangible assets include assets capitalized as a result of our acquisitions. Amortization expense included in continuing operations was $0.7 million for each of the years ended December 31, 2014 and 2013, respectively. Based on the results of our impairment testing conducted in 2014, we recognized impairment charges related to our intangible assets of $2.0 million for the year ended December 31, 2014. See Note 6 - Impairment Charges for more information.

6. Impairment Charges

Based upon a combination of factors and developments, including continuing operating losses and a sustained decline in our stock price, we had strong indications that our goodwill was likely impaired as of December 2014. In addition, expected changes in use of certain of our capitalized software and other property and equipment required an impairment analysis and resulted in impairment charges which are described in greater detail below.
Long-Lived Assets
As a result of termination of our Seattle datacenter operations in the first quarter of 2015 and planned changes in the use of assets consistent with efforts to reduce operating costs, we determined our property and equipment, including capitalized software, as well as intangible assets, were impaired in the fourth quarter of 2014. Certain capitalized software and other long-lived assets classified as property and equipment, net, are no longer used in our operations and carrying value of those assets exceeds the expected net sales proceeds. We have consequently recognized impairment charges of $3.9 million in 2014, including $3.8 million related to capitalized software costs.

Goodwill
As a result of continuing operating losses, a sustained decline in our stock price, a discounted cash flow analysis and market value analysis, we determined there was not sufficient value to support the carrying value of the reporting unit's goodwill. Consequently, we recorded a $2.4 million goodwill impairment charge in the fourth quarter of 2014.

Fiscal 2014

The following table outlines our impairment charges for 2014:

30

Voltari Corporation
Notes to Consolidated Financial Statements





Goodwill
$
2,416

Intangible assets
2,041

Property and equipment
3,949

 Total impairment charges
$
8,406


Fiscal 2013
The annual goodwill impairment test is a two-step process. First, we determine if the carrying value exceeds the fair value of the reporting unit. Fair value is calculated by a combination of a discounted cash flow model, a market approach model, and a market approach based on an option-pricing backsolve method. If the fair value exceeds the carrying amount, goodwill is not considered impaired. If the carrying amount exceeds the fair value, the second step must be performed to measure the amount of the impairment loss, if any. In the second step, we compare the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. An impairment loss would be recognized in an amount equal to the excess of the carrying amount of the goodwill over the implied fair value of the goodwill.

The discounted cash flow analysis requires us to make various judgments, estimates and assumptions, many of which are interdependent, about future revenues, operating margins, growth rates, capital expenditures, working capital and discount rates. The starting point for the assumptions used in our discounted cash flow analysis is the annual long-range financial forecast. The annual planning process that we undertake to prepare the long-range financial forecast takes into consideration a multitude of factors, including historical growth rates and operating performance, related industry trends, macroeconomic conditions, and marketplace data, among others. Assumptions are also made for perpetual growth rates for periods beyond the long-range financial forecast period. Our estimates of fair value are sensitive to changes in all of these variables, certain of which relate to broader macroeconomic conditions outside our control.

The market approach analysis includes applying a multiple, based on comparable market transactions, to certain operating metrics of the reporting unit.

We used the Option-Pricing Method backsolve ("OPM backsolve") to calculate the fair value of our equity, including preferred stock. The OPM backsolve method derives the implied equity value for the reporting unit from arm’s length transactions in the Company’s common stock. We used assumptions including exercise price, risk-free rate, expected term of liquidity, volatility, dividend yield and solved for the value of equity such that the publicly quoted common stock price is equal to the OPM backsolve value. The OPM treats preferred stock, common stock, options, and warrants as series of call options on the total equity value of a company, with the exercise price based on the liquidation preference of the preferred stock. Therefore, the common stock has value only if the funds available for distribution to the stockholders exceed the value of the liquidation preference at the time of a liquidity event such as a merger, sale, or initial public offering, assuming the company has funds available to make a liquidation preference meaningful and collectible by the stockholders. The OPM uses the Black-Scholes option-pricing model to price the call options.

The results of our annual impairment test performed in the fourth quarter of 2013 indicated that the fair value of our reporting unit exceeded its carrying amount by 33.5% and therefore our goodwill was not impaired.

31

Voltari Corporation
Notes to Consolidated Financial Statements






7. Debt Facilities

We entered into a $20 million term loan with High River on September 16, 2011, and subsequently amended the terms on November 14, 2011 and on February 28, 2012. The term loan accrued interest at 9% per year, which was paid-in-kind quarterly through capitalizing interest and adding it to the principal balance. We repaid the term loan in full, approximately $23.8 million in principal and accrued interest, on August 19, 2013. See Note 14 - Related Party Transactions for further information.

8. Commitments and Contingencies

Operating Leases
We lease office space and equipment under various non-cancellable operating lease agreements. Rent expense for non-cancellable operating leases with scheduled rent increases and landlord incentives is recognized on a straight-line basis over the lease term, beginning with the effective lease commencement date. Our leasing agreements have varying renewal options.

Estimated future minimum net rentals payable under these agreements at December 31, 2014 are as follows (in thousands):
Year Ending December 31,
 
2015
436

2016
444

2017
387

2018
292

2019

Total
$
1,559

The table was prepared assuming the maximum commitments currently outstanding, but such commitments could decrease based on termination negotiations. Minimum net rentals payable under non-cancellable operating lease agreements are presented net of tenant allowances, if any.

Rental expense under operating lease agreements included in continuing operations for the years ended December 31, 2014 and 2013 was $1.6 million and $1.7 million, respectively.

Other Contractual Arrangements
We have entered into several agreements with various vendors who provide additional operational support and services to the Company. The arrangements are primarily of a duration of twelve months or less or cancellable with short-term notice. We have no material contractual arrangements beyond 2015.

Litigation
From time to time, we are subject to claims in legal proceedings arising in the normal course of business. We do not believe that we are currently party to any pending legal action that could reasonably be expected to have a material adverse effect on our business, financial condition, results of operations or cash flows. See Note 16 - Legal Proceedings for details regarding outstanding litigation.

9. Redeemable Preferred Stock

Upon successful completion of our rights offering in October 2012, we issued 1,199,643 shares of Series J preferred stock and 10,149,824 warrants to purchase 1,014,982 (after giving effect to the one-for-ten reverse stock split) shares of our common stock, in exchange for approximately $30 million in cash proceeds. Net proceeds from the rights offering of approximately $27.8 million were allocated between Series J preferred stock and common stock warrants based on their estimated relative fair market values at the date of issuance as determined by management with the assistance of a third party valuation specialist. The portion of the net proceeds from the rights offering attributable to the Series J preferred stock was determined to be approximately $26.4 million and is included in Redeemable preferred stock on our consolidated balance sheets at December 31, 2014 and 2013.

32

Voltari Corporation
Notes to Consolidated Financial Statements






Our Series J preferred stock contains certain redemption features and is classified as mezzanine equity at December 31, 2014 and 2013 since the shares are (i) redeemable at the option of the holder upon the occurrence of certain events and (ii) have conditions for redemption which are not solely within our control. Our Series J preferred stock is redeemable at the option of the holder if the Company undergoes a change in control, which includes a person becoming a beneficial owner of securities representing at least 50% of the voting power of our company, a sale of substantially all of our assets, and certain business combinations and mergers which cause a change in 20% or more of the voting power of our company, and if we experience an ownership change (within the meaning of Section 382), which results in a substantial limitation on our ability to use our net operating losses and related tax benefits. The difference between the carrying value of the Series J preferred stock and its liquidation value is being accreted over an anticipated redemption period of 5 years using the effective interest method. The shares of Series J preferred stock have limited voting rights and are not convertible into shares of our common stock or any other series or class of our capital stock.

Holders of the Series J preferred stock are entitled to an annual dividend of 13%, which is payable in-cash or in-kind at our discretion, on a quarterly basis. To date, we have elected to pay all quarterly dividend payments on our Series J preferred stock, in the cumulative amount of $10.0 million, in-kind rather than in-cash. Accordingly, we have increased the carrying value of our redeemable preferred stock for the amount of the paid-in-kind dividend payments made on each January 1, April 1, July 1, and October 1 since issuance. Dividends on the Series J preferred stock and the accretion increase the amount of net loss that is attributable to common stockholders and are presented as separate amounts on the consolidated statements of operations.

Our Series J preferred stock has a preference upon dissolution, liquidation or winding up of the Company in respect of assets available for distribution to stockholders. The liquidation preference of the Series J preferred stock is initially $25 per share. If the dividend on the Series J preferred stock is paid in-kind, which has been the case to date, the liquidation preference is adjusted and increased quarterly (i) until October 11, 2017, by an amount equal to 3.5% of the liquidation preference per share, as in effect at such time and (ii) thereafter by an amount equal to 3.5% of the liquidation preference per share, as in effect at such time. The quarterly accretion will continue until the shares are redeemed, or until the Company's affairs are liquidated, dissolved or wound-up.

As of December 31, 2014, our Series J preferred stock has an aggregate redemption value of approximately $39.9 million, including paid-in-kind dividends of $8.7 million and accrued dividends of $1.3 million which are included within Other current liabilities on our consolidated balance sheet. We recorded accretion associated with our Series J preferred stock of $0.6 million and $0.5 million for the years ended December 31, 2014 and 2013, respectively.

10. Stock Options, Restricted Stock and Warrants

Overview
Pursuant to the 2010 Long-Term Incentive Plan (“2010 LTIP”), we may grant equity awards up to an aggregate of 636,562 shares under the 2010 LTIP. Awards granted under the 2010 LTIP may include incentive stock options or nonqualified stock options, stock appreciation rights, restricted stock and other stock-based or cash-based awards. Option terms may not exceed 10 years and the exercise price cannot be less than 100% of the estimated fair market value per share of our common stock on the grant date. The maximum number of shares subject to any performance award granted to any participant during any fiscal year shall be 26,666 shares. The maximum cash payment made under a performance award granted to any participant with respect to any fiscal year shall be $5.4 million.

All shares, stock options, restricted stock, restricted stock awards, restricted stock units and warrants have been adjusted to reflect the impact of the one-for-ten reverse stock split that took effect on April 23, 2013, as discussed in Note 2.

Stock Options
Stock-based compensation expense associated with stock options was $0.1 million for each of the years ended December 31, 2014 and 2013, respectively.

As of December 31, 2014, there was $0.1 million of total unrecognized stock-based compensation costs, net of estimated forfeitures, related to unvested options that are expected to be recognized over a weighted-average period of 2.24 years.

The following table summarizes all stock option activity for the year ended December 31, 2014:

33


Stock Options
Shares
 
Weighted-Average Exercise Price Per Share
 
Remaining Average Contractual Term (Years)
 
Aggregate Intrinsic Value
Outstanding, December 31, 2013
107,330

 
$
17.58

 
5.22
 
$

Granted
181,000

 
3.40

 
 
 
 
Forfeited
(26,505
)
 
5.80

 
 
 
 
Expired
(11,686
)
 
64.18

 
 
 
 
Outstanding, December 31, 2014
250,139

 
$
6.39

 
4.38
 
$

 
 
 
 
 
 
 
 
Exercisable at December 31, 2014
10,652

 
$
57.02

 
6.97
 
$

Vested and expected to vest at December 31, 2014
85,902

 
$
11.65

 
5.35
 
$


The weighted-average grant date fair value of stock options granted during the years ended December 31, 2014 and 2013 was $1.04 and $1.46, respectively. There were no options exercised during 2013.

We granted a total of 181,000 stock options to executives and various employees during 2014. The stock option awards will vest based upon a combination of employee service and the achievement of certain specified market conditions as follows: (i) twenty-five percent (25%) of the shares subject to the option will vest in four (4) equal tranches on each anniversary of the vesting commencement date (i.e., 6.25%); and (ii) the remaining seventy-five percent (75%) of the shares subject to the option will vest on the third (3rd) anniversary of the applicable vesting commencement date, subject to the achievement of the following performance targets: thirty three percent (33%) of seventy-five percent (75%) of the shares of our common stock subject to the option must achieve a target price of $7.00; thirty-three percent (33%) of seventy-five percent (75%) of the shares of our common stock subject to the option must achieve a target price of $10.50; and (iii) thirty-three percent (33%) of seventy-five percent (75%) of the shares of our common stock subject to the option must achieve a target price of $14.00. The target price of our common stock will be determined based upon the average of the closing prices of our shares of common stock on a nationally recognized securities exchange over a ninety (90) day period and if the shares are not so listed, the fair market value will be determined by our board of directors. We utilized the Black-Scholes model to determine the fair value of the 25% of the shares which will vest on each anniversary of the vesting commencement date and utilized the Monte Carlo Simulation model to value the remaining 75% of the shares subject to the option which will vest based upon the achievement of specified stock price performance targets.

In determining the compensation cost of stock options awards, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model for awards with service-based conditions and the Monte Carlo Simulation pricing model for awards with market-based conditions. The assumptions used in these calculations are summarized as follows:
 
Year ended December 31,
 
2014
 
2013
Expected term
6 years
 
3.9 - 5 years

Expected volatility
58%
 
58.7% - 75%

Range of risk-free interest rates
1.9%
 
0.7% - 1.3%

Expected dividend yield
%
 
%

We estimate the expected term based on the historical exercise behavior of our employees. We calculate expected volatility for stock options using historical volatility for a peer group of companies together with the closing prices of our publicly-traded stock. The risk-free interest rate for the expected terms of the stock options is based on the U.S. Treasury constant maturities in effect at the time of grant. We have not paid and do not expect to pay dividends on our common stock. Consequently, we use an expected dividend yield of zero.


Restricted Stock Awards and Restricted Stock Units
Stock-based compensation expense associated with restricted stock awards and restricted stock units was $0.3 million for each of the years ended December 31, 2014 and 2013, respectively, and is included in datacenter and network operations, product development and sustainment, sales and marketing and general and administrative expenses.

34



As of December 31, 2014, there was approximately $0.1 million of unamortized stock-based compensation expense related to unvested restricted stock awards, which is expected to be recognized over a weighted-average period of 0.65 years. The total fair value of restricted stock awards and restricted stock units vested during the years ended December 31, 2014 and 2013 was $0.2 million and $0.3 million, respectively.

Restricted Stock Awards
The following table summarizes all restricted stock award activity for the year ended December 31, 2014:
Restricted Stock Awards
Shares
 
Weighted Average Grant Date Fair Value
Unvested at December 31, 2013
42,633

 
$
5.88

Granted
73,525

 
1.70

Vested
(42,633
)
 
5.88

Forfeited

 

Unvested at December 31, 2014
73,525

 
$
1.70

 
 
 
 

Restricted stock awards have voting and dividend rights upon grant and are then considered outstanding. When the restricted stock award is vested, it is then included in weighted-average common shares outstanding. These rights are forfeited should the stock not vest. In August 2014, we granted a total of 73,525 restricted stock awards to our non-employee directors in connection with their service to the Company. These restricted stock awards will vest in August 2015.

Restricted Stock Units
The following table summarizes all restricted stock unit activity for the year ended December 31, 2014:
Restricted Stock Units
Shares
 
Weighted Average Grant Date Fair Value
Unvested at December 31, 2013
404

 
$
241.36

Vested
(404
)
 
241.36

Unvested at December 31, 2014

 


 
 
 
 


Warrants

In October 2012, we issued 10,149,824 warrants to purchase 1,014,982 shares of common stock at an exercise price of $6.50 per share (the purchase of one share requires the exercise of ten warrants) in connection with the closing of our 2012 rights offering. Net proceeds from the rights offering of approximately $27.8 million were allocated between Series J preferred stock and common stock warrants based on their estimated relative fair market values at the date of issuance as determined with the assistance of a third party valuation specialist. The portion of the net proceeds from the rights offering attributable to the common stock warrants was determined to be approximately $1.3 million and is recorded in Additional paid-in capital on our consolidated balance sheets at December 31, 2014 and 2013. As of December 31, 2014, all 10,149,824 warrants to purchase common stock were outstanding, expiring October 11, 2017.


11. Income Taxes

Substantially all pre-tax loss from continuing operations is derived from the U.S. No tax expense was recorded for the years ended December 31, 2014 and 2013. We maintain a full valuation allowance against our net deferred tax assets, which precludes us from recognizing a tax benefit for our current operating losses. Our historical lack of profitability is a key factor in concluding that there is insufficient evidence to support the realizability of our deferred tax assets.


35


Significant components of our deferred tax assets and liabilities consist of the following as of December 31 (in thousands):
 
Year Ended December 31,
 
2014
 
2013
Domestic net operating loss carryforwards
$
142,820

 
$
119,803

Amortization of intangible assets
23,785

 
30,324

Foreign net operating loss carryforwards
9,120

 
3,086

Research and development credits
5,436

 
5,165

Other
5,806

 
6,413

Deferred tax assets
186,967

 
164,791

Valuation allowance
(186,967
)
 
(164,791
)
Net deferred tax assets
$

 
$


As of December 31, 2014, the Company provided a full valuation allowance against its gross deferred tax assets because realization of these benefits could not be reasonably assured. The $22.2 million increase in the valuation allowance for the period December 31, 2013 to December 31, 2014 was related to the generation of operating losses during the current year, coupled with the write off of foreign tax attributes. The deferred tax assets include net assets acquired in business combinations.

We have research and development credit carryforwards of $5.4 million at December 31, 2014, that will begin to expire in 2021.

As of December 31, 2014, the Company had federal and state net operating loss carryforwards of $410.3 million and $67.5 million, respectively. These net operating loss carryforwards begin to expire in 2019 for U.S. federal income tax purposes and in the current year for state income tax purposes. The ultimate availability of the federal and state net operating loss carryforwards to offset future income may be subject to limitation under the rules regarding changes in stock ownership as determined by the Internal Revenue Code.

The Company has determined that there are no unrecognized tax benefits as of December 31, 2014 and 2013. Historically, the Company has not incurred interest or penalties associated with unrecognized tax benefits and no interest or penalties were recognized during the years ended December 31, 2014 or 2013. The Company has adopted a policy whereby amounts related to interest and penalties associated with unrecognized tax benefits are classified as income tax expense when incurred.

Taxes computed at the statutory federal income tax rate of 34% are reconciled to the income tax provision as follows:
 
Year Ended December 31,
 
2014
 
2013
United States federal tax at statutory rate
34.0
 %
 
34.0
 %
Change in valuation allowance
(79.6
)
 
(30.9
)
Foreign entity liquidation
43.6

 

State taxes (net of federal tax benefit)
2.0

 
(3.3
)
Other

 
0.2

Effective rate
 %
 
 %

We did not make any income tax payments related to our continuing operations in 2014 or 2013. The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. With few exceptions, due to the generation of net operating losses, all tax years for which the Company filed a tax return remain open.


36


12. Net Loss Per Share Attributable to Common Stockholders

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the period indicated (dollars in thousands):
 
Year Ended December 31,
 
2014
 
2013
Net loss attributable to common stockholders
$
(34,689
)
 
$
(15,060
)
Weighted-average common shares outstanding - basic and diluted
4,668,844

 
4,650,920

Net loss per share attributable to common stockholders - basic and diluted
$
(7.43
)
 
$
(3.24
)

Basic and diluted net loss per share attributable to common stockholders has been computed based on net loss and the weighted-average number of common shares outstanding during the applicable period. We have excluded warrants and options to purchase common stock, when the potentially issuable shares covered by these securities are antidilutive. The following table presents the outstanding antidilutive securities excluded from the calculation of net loss per share attributable to common stockholders:
 
Year Ended December 31,
 
2014
 
2013
Common stock issuable upon exercise of warrants
1,014,982

 
1,215,660

Options to purchase common stock
250,139

 
107,330

Restricted stock
73,525

 
43,037

Total securities excluded from net loss per share attributable to common stockholders
1,338,646

 
1,366,027


13. Defined Contribution Plan

We maintain a defined contribution plan (“401(k) Savings Plan”) for eligible employees. The 401(k) Savings Plan assets are held in trust and invested as directed by the plan participants, and shares of our common stock are not an eligible investment election. We provide a match on a specified portion of eligible employees’ contributions as approved by our board of directors.

37


Historically, we have made matching contributions equal to 50% of the portion of contributions that do not exceed 6% of eligible pay. Our matching contributions, included in General and Administrative expenses, totaled $0.1 million in 2014 and 2013, respectively.

14. Related Party Transactions

We repaid the term loan from High River in full on August 19, 2013 (see Note 8 - Debt Facilities for further information). High River is beneficially owned by Carl C. Icahn, who, as of March 10, 2015 , beneficially owns approximately 28.7% of the Company's outstanding shares of common stock, controls approximately 14.2% of the voting power of our common stock and beneficially owns approximately 95.5% of our Series J preferred stock.

On July 18, 2014, an entity affiliated with Carl C. Icahn, Koala Holding LP, the record holder of 977,136 shares, or approximately 81.45%, of our issued and outstanding Series J preferred stock, executed and delivered a written consent approving an amendment to Exhibit A to our Amended and Restated Certificate of Incorporation, which we refer to as the Amendment, which sets forth the rights, privileges and restrictions granted to and imposed on the Series J preferred stock. Pursuant to the Amendment, the Company may declare and distribute dividends on its securities that rank junior to the Series J preferred stock, consisting solely of warrants or other rights to acquire newly issued shares of our common stock against the payment of a cash purchase price to the Company, without declaring or setting apart for payment dividends on the Series J preferred stock.

Insight Portfolio Group LLC, owned by a number of other entities with which Mr. Carl C. Icahn has a relationship, was formed in order to maximize the potential buying power of participating companies in negotiating with a wide range of suppliers of goods, services and tangible and intangible property at negotiated rates. The Company was a member of the buying group in 2014 and 2013 and pays a fee of $50,000 per year for the services of Insight Portfolio Group.


15. Legal Proceedings

Putative Securities Class Action. We previously announced that Joe Callan filed a putative securities class action complaint in the U.S. District Court, Western District of Washington at Seattle on behalf of all persons who purchased or otherwise acquired common stock of Motricity between June 18, 2010 and August 9, 2011 or in Motricity’s initial public offering. Motricity, which was our predecessor registrant, is now our wholly-owned subsidiary and has changed its name to Voltari Operating Corp. The defendants in the case were Motricity, certain of our current and former directors and officers, including Ryan K. Wuerch, James R. Smith, Jr., Allyn P. Hebner, James N. Ryan, Jeffrey A. Bowden, Hunter C. Gary, Brett Icahn, Lady Barbara Judge CBE, Suzanne H. King, Brian V. Turner; and the underwriters in Motricity’s initial public offering, including J.P. Morgan Securities, Inc., Goldman, Sachs & Co., Deutsche Bank Securities Inc., RBC Capital Markets Corporation, Robert W. Baird & Co Incorporated, Needham & Company, LLC and Pacific Crest Securities LLC. The complaint alleged violations under Sections 11 and 15 of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), by all defendants and under Section 10(b) of the Exchange Act by Motricity and those of our former and current officers who are named as defendants. The complaint sought, inter alia, damages, including interest and plaintiff’s costs and rescission. A second putative securities class action complaint was filed by Mark Couch in October 2011 in the same court, also related to alleged violations under Sections 11 and 15 of the Securities Act, and Sections 10(b) and 20(a) of the Exchange Act. On November 7, 2011, the class actions were consolidated, and lead plaintiffs were appointed pursuant to the Private Securities Litigation Reform Act. On December 16, 2011, plaintiffs filed a consolidated complaint which added a claim under Section 12 of the Securities Act to its allegations of violations of the securities laws and extended the putative class period from August 9, 2011 to November 14, 2011. The plaintiffs filed an amended complaint on May 11, 2012 and a second amended complaint on July 11, 2012. On August 1, 2012, we filed a motion to dismiss the second amended complaint, which was granted on January 17, 2013. A third amended complaint was filed on April 17, 2013. On May 30, 2013, we filed a motion to dismiss the third amended complaint, which was granted by the Court on October 1, 2013. On October 31, 2013, the plaintiffs filed a notice of appeal of the dismissal to the United States Court of Appeals for the Ninth Circuit. On April 25, 2014, the plaintiffs filed their opening appellate brief and on July 24, 2014 we filed our answering brief.
From time to time, we are subject to claims in legal proceedings arising in the normal course of business. We do not believe that we are currently party to any pending legal action that could reasonably be expected to have a material adverse effect on our business, financial condition, results of operations or cash flows.
16. Subsequent Event

Rights Offering - On February 27, 2015, we commenced a rights offering of up to an aggregate of 4,300,000 shares of our common stock. Under the terms of the rights offering, we distributed to stockholders of record at the close of business on February 13, 2015 transferable subscription rights to purchase 0.9027 shares of common stock for every share of common stock owned on the record date. The rights offering included an over-subscription privilege, which permitted each subscriber that exercised its basic subscription right in full the option to purchase additional shares of common stock that remained unsubscribed at the expiration of the offering. If a subscriber exercised its basic subscription right or over-subscription privilege to purchase less than 1,300,000 shares in the rights offering, the subscriber paid a price of $0.97 per whole share. If a subscriber exercised its basic subscription right or over-subscription privilege to purchase 1,300,000 shares or more in the rights offering and owned 33% or more of our issued and outstanding common stock following completion of the rights offering, the subscriber paid a price of$1.36 per whole share.

The rights offering was fully subscribed and closed on March 30, 2015. We received approximately $4.6 million in net proceeds from the rights offering, including approximately 96% from entities affiliated with Mr. Carl C. Icahn. We intend to use these proceeds for general corporate and working capital purposes. Prepaid expenses and other current assets at December 31, 2014 includes costs related to the rights offering of $0.7 million.

Following the completion of the rights offering on March 30, 2015, entities affiliated with Mr. Carl C. Icahn, the Company’s largest stockholder, became the owner of approximately 52.3% of our common stock. Entities affiliated with Mr. Icahn also own warrants to purchase an additional 9.7% of our common stock, which warrants are currently unexercisable by Mr. Icahn and such affiliated entities.


38

Voltari Corporation
Notes to Consolidated Financial Statements





Redemption of Series J preferred stock - In connection with the change of control of the Company, and pursuant to the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Designations”), on March 30, 2015, the Company gave written notice to holders of its 13% Redeemable Series J Preferred Stock, $0.001 par value per share (the “Series J Preferred Stock”) of their right to redeem the Series J Preferred Stock held by such holders.

As disclosed herein, acquisition of Common Stock in the Rights Offering by entities affiliated with Mr. Carl C. Icahn resulted in a change of control of the Company, which constituted a redemption event pursuant to the terms and conditions of the Certificate of Designations (the “Rights Offering Redemption Event”). Upon the occurrence of a redemption event, and subject to certain conditions, each holder of shares of Series J Preferred Stock (each, a "Holder") has the right, at such Holder’s option, to require the Company to redeem all or a portion of such Holder’s shares of Series J Preferred Stock (the “Holder Redemption Option”) in accordance with the terms, procedures, and conditions set forth in the Certificate of Designations.

The Company will be required to redeem those shares of Series J Preferred Stock properly requested to be redeemed by the Holder. If all Holders of Series J Preferred Stock require the Company to redeem their shares, except for entities affiliated with Mr. Icahn, who have waived the Holder Redemption Option, the Company will be required to pay an aggregate Redemption Price of approximately $1.8 million, subject to State of Delaware law governing distributions to stockholders.


39


SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
 
Year Ended December 31,
(in thousands)
2014
 
2013
Tax Valuation Allowance:
 
 
 
Beginning balance
$
164,791

 
$
165,008

Charged to net loss
22,176

 
(217
)
Ending balance
186,967

 
164,791

 
 
 
 
Allowance for Doubtful Accounts:
 
 
 
Beginning balance
$
75

 
$
287

Charged to costs and expenses
73

 
(11
)
Charges utilized/write-offs
(39
)
 
(201
)
Effect of foreign currency translation

 

Total
109

 
75

Less: Held for Sale

 
(49
)
Ending Balance
$
109

 
$
26



40


PART III

Item 10.
Directors, Executive Officers and Corporate Governance.

Directors
The following table sets forth the names, titles and certain biographical information of our directors.

 
 
 
 
 
Name
Age
 
Position
Director Since
James L. Nelson (1)(2)(3)
65
 
Chairman of the Board
2011
Jaffrey A. Firestone (2)(3)(4)
58
 
Director
2011
Hunter C. Gary (1)(3)
40
 
Director
2007
Kevin Lewis (1)(4)
44
 
Director
2013
Andrew Roberto (2) (5)
29
 
Director
2014
(1)
Member of our Compensation Committee
(2)
Member of our Strategic Alternatives Committee
(3)
Member of our Governance and Nominating Committee
(4)
Member of our Audit Committee
(5)
Member of our Audit Committee until April 16, 2015
James L. Nelson has served as one of our directors and as a member of our compensation, governance and nominating and strategic alternatives committees since June 2011 and as chairman of the board since January 2012. Mr. Nelson has served as a director and member of the audit committee of Icahn Enterprises L.P. and its general partner, Icahn Enterprises G.P., Inc., since June 2001. Mr. Nelson has served as a director and member of the audit committee of several companies, including Viskase Companies, Inc. from April 2003 through April 2010, American Entertainment Properties Corp. from May 2005 until November 2007, and Atlantic Coast Entertainment Holdings, Inc. from May 2005 until November 2007. Mr. Nelson also served as a member of the board of directors of Tropicana Entertainment Inc. from March 2010 until May 2014 and as a member of its audit committee from March 2010 to January 2014. Mr. Nelson was Chairman and Chief Executive Officer of Eaglescliff Corporation, a specialty investment banking, consulting and wealth management company from 1986 until 2009. From March 1998 through 2003, Mr. Nelson was Chairman and Chief Executive Officer of Orbit Aviation, Inc., a company engaged in the acquisition and completion of Boeing Business Jets for private and corporate clients. From August 1995 until July 1999, Mr. Nelson was Chief Executive Officer and Co-Chairman of Orbitex Management, Inc., a financial services company in the mutual fund sector. From August 1995 until March 2001, he was on the Board of Orbitex Financial Services Group. From January 2008 through June 2008, Mr. Nelson served as a director and member of the audit committee of Shuffle Master, Inc., a gaming manufacturing company. From March 2008 until March 2010, Mr. Nelson was a director and served on the audit committee of Pacific Energy Resources Ltd., an energy producer. From April 2008 to November 2012, Mr. Nelson served as a director and as Chairman of the audit committee of the board of directors of Cequel Communications, an owner and operator of a large cable television system. From April 2010 through November 2013, Mr. Nelson served as a director and member of the audit committee of Take Two Interactive Software, Inc., a publisher, developer, and distributor of video games and video game peripherals. From May 2013 to April 2014, Mr. Nelson was a director and member of the Governance and Nominating Committee of Single Touch Systems, Inc. From November 2013 to August 2014, Mr. Nelson has served as a director of VII Peaks Co-Optivist Income BDC II, Inc., an externally managed, closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940. From April 2014 to August 2014, Mr. Nelson has served as a director of Ubiquity Broadcasting Corporation, a vertically integrated, technology-focused media company. Since April 2014, Mr. Nelson has served

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as a director of Herbalife Ltd., a nutrition company. Mr. Nelson brings to his service as a director his significant experience and leadership roles serving as Chief Executive Officer, Director and Chairman of the audit committee of various companies.
Jaffrey A. Firestone has served as one of our directors since July 2011. Since 2006, Mr. Firestone has served as Chairman and Chief Executive Officer at Prodigy Pictures Inc., a leader in the production of quality film, television and cross-platform media. Previously, Mr. Firestone established Fireworks Entertainment in 1996 to produce, distribute and finance television programs and feature films. In 1998, Fireworks Entertainment was acquired by CanWest Global Communications Corporation and Mr. Firestone was named Chairman and Chief Executive Officer and oversaw the company’s Los Angeles and London based television operations as well as its Los Angeles feature film division, Fireworks Pictures. In addition, Mr. Firestone oversaw the company’s interest in New York based IDP Distribution, an independent distribution and marketing company formed by Fireworks in 2000 as a joint venture with Samuel Goldwyn Films and Stratosphere Entertainment. Mr. Firestone has served on the board of directors for the Academy of Canadian Cinema and Television and the Academy of Television Arts and Sciences International Council in Los Angeles. Mr. Firestone has led two successful initial public offerings and in 1998, was nominated for entrepreneur of the year. Mr. Firestone has extensive experience in dealing with financial reporting, which, in addition to his service on another board, enables him to advise our board on a range of matters including financial matters.
Hunter C. Gary has served as one of our directors since 2007. He has served as Senior Vice President of Icahn Enterprises L.P., a diversified holding company engaged in a variety of businesses, including investment, automotive, energy, gaming, railcar, food packaging, metals, real estate and home fashion, since November 2010. At Icahn Enterprise L.P., Mr. Gary is responsible for monitoring portfolio company operations, implementing operational value enhancement as well as leading the real estate segment. Prior to that time, Mr. Gary was employed by Icahn Associates Corporation, an affiliate of Icahn Enterprises L.P., in various roles since June 2003, most recently as the Chief Operating Officer of Icahn Sourcing LLC. Mr. Gary has been a director of: Herbalife Ltd., a nutrition company, since April 2014; Cadus Corporation, a company engaged in the acquisition of real estate for renovation or construction and resale, since February 2014, and as President and Chief Executive Officer of Cadus since March 2014; Federal-Mogul Corporation, a supplier of automotive powertrain and safety components, since October 2012; Viskase Companies Inc., a meat casing company, since August 2012; PSC Metals Inc., a metal recycling company, since May 2012; XO Holdings, a competitive provider of telecom services, since September 2011; Tropicana Entertainment Inc., since March 2010 and Tropicana Entertainment Cayman Holdings Co. Ltd., since January 2011, companies that are primarily engaged in the business of owning and operating casinos and resorts; American Railcar Industries, Inc., a railcar manufacturing company, since January 2008; and WestPoint Home LLC, a home textiles manufacturer, since June 2007. American Railcar Industries, Cadus Corporation, Federal-Mogul Corporation, PSC Metals Inc., Tropicana Entertainment Inc., Viskase Companies, Voltari Corporation, WestPoint Home LLC and XO Holdings each are indirectly controlled by Carl C. Icahn. Mr. Icahn also has non–controlling interests in Herbalife through the ownership of securities. Mr. Gary is married to Mr. Carl Icahn’s wife’s daughter. Mr. Gary received his Bachelor of Science with senior honors from Georgetown University as well as a certificate of executive development from Columbia Graduate School of Business. The Board of Directors has concluded that Mr. Gary should serve as a director of Voltari Corporation because of his extensive experience in dealing with operations matters for a variety of companies, which, in addition to his service on other boards, enables him to advise our board on a range of matters including operations and oversight.
Kevin Lewis has served as one of our directors since January 2013. Mr. Lewis is currently the Chief Marketing Officer of Total Wine & More, the largest independent retailer of beer, wine and spirits in the U.S. Previously, Mr. Lewis served as the Chief Marketing Officer of Blockbuster LLC, the video rental retail chain subsidiary of Dish Network Corp. and was previously employed by Blockbuster Inc. as the Senior Vice President of Digital Entertainment. Blockbuster Inc. voluntarily filed for Chapter 11 bankruptcy protection in September 2010 and subsequently emerged from bankruptcy in March 2011 via a sale of the company to Dish Network Corp. Mr. Lewis was employed by subsidiaries of Koninklijke Philips Electronics, an industrial conglomerate which engages in the healthcare, consumer lifestyle and lighting product business worldwide, as the Chief of Strategy and New Business for Philips Consumer Lifestyle from 2007 until 2009 and the Chief of Strategy and Vice-President, Business Development for Philips Consumer Electronics from 2004 until 2007. From 1993 until 2004, Mr. Lewis held multiple roles at The Boston Consulting Group, a management consulting company. Mr. Lewis received his B.A. in international relations from Stanford University and an MBA, with distinction, from INSEAD. Mr. Lewis’s management and corporate development experience and his experience with the development, implementation and sale of products relying on emerging digital technology will enable him to provide insight and advice as we develop our plans to grow the Company’s business.

Andrew Roberto, CFA has served as an Analyst at Icahn Enterprises L.P. since May 2012. Icahn Enterprises is a diversified holding company engaged in a variety of businesses, including investment, automotive, energy, gaming, railcar, food packaging, metals, real estate and home fashion. Mr. Roberto is responsible for identifying, analyzing and monitoring investment

42


opportunities and portfolio companies for Icahn Enterprises. Prior to joining Icahn Enterprises, Mr. Roberto served as a research analyst at RBS Securities covering the automotive, industrial, coal, homebuilding and building products sectors as a member of the high yield and distressed debt trading team. Mr. Roberto began his career at AllianceBernstein, where he focused on client services and relationship management. Mr. Roberto has been a director of: Voltari Corporation, a mobile data services provider, since August 2014; American Railcar Industries, Inc., a railcar manufacturing company, since February 2014; CVR Energy, Inc., a diversified holding company primarily engaged in the petroleum refining and nitrogen fertilizer manufacturing industries, since February 2014; CVR Partners LP, a nitrogen fertilizer company, since February 2014; CVR Refining, LP, an independent downstream energy limited partnership, since February 2014; WestPoint Home LLC, a home textiles manufacturer, since February 2014; and Viskase Companies, Inc., a meat casing company, since February 2014. Mr. Roberto was previously a director of American Railcar Leasing LLC, a lessor and seller of specialized railroad tank and covered hopper railcars, from February 2014 to June 2014. American Railcar Industries, American Railcar Leasing, CVR Energy, CVR Partners, Voltari, Westpoint Home and Viskase are each indirectly controlled by Carl C. Icahn. Mr. Roberto received his B.A. in Economics from Williams College and is a CFA Charterholder.
Stockholder Recommendations of Director Candidates
The Governance and Nominating Committee considers nominees for election or appointment to our Board of Directors that are recommended by stockholders. Such recommendations should be submitted in writing to the attention of the Governance and Nominating Committee, c/o Corporate Secretary, Voltari Corporation, 601 West 26th Street, Suite 415, New York, NY 10001.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other of our equity securities. Specific due dates for these reports have been established, and we are required to disclose any failure to file by these dates during fiscal year 2014. Our officers, directors and greater than 10% stockholders are required by the SEC regulations to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such reports furnished to us and representations that no other reports were required during the fiscal year 2014 all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners were complied with.
Code of Ethics
We have a Code of Business Conduct and Ethics, which applies to all employees, officers and directors of Voltari and its direct and indirect subsidiaries. Our Code of Business Conduct and Ethics meets the requirements of a “code of ethics” as defined by Item 406 of Regulation S-K, and applies to our Chief Executive Officer, Chief Financial Officer (who is both our principal financial and principal accounting officer), as well as all other employees. Our Code of Business Conduct and Ethics is posted on our website at www.voltari.com in the “Corporate Governance” section of our Investor Relations home page.
Audit Committee
Our board of directors has established a standing Audit Committee. The Audit Committee consisted of three members: Jaffrey A. Firestone, Kevin Lewis and Andrew Roberto until April 16, 2015, at which time Mr. Roberto resigned from the Audit Committee. Each member of the Audit Committee is a non-employee member of our board of directors. Mr. Firestone is the chairperson of our Audit Committee. Our board of directors has affirmatively determined that Messrs. Firestone and Lewis meet the definition of “independent directors” for purposes of serving on an audit committee under applicable SEC and NASDAQ Stock Market rules. In addition, Mr. Firestone qualifies as our “audit committee financial expert.” A copy of our Audit Committee Charter can be found on our corporate website at www.voltari.com.
The Audit Committee met 4 times during the fiscal year 2014.
Audit Committee Report

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In connection with the issuance of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, the Audit Committee:

 
1.
Reviewed and discussed with management the Company’s audited financial statements as of December 31, 2014 and 2013;
 
2.
Discussed with Grant Thornton the matters required to be discussed by the Auditing Standard No.16 "Communications with Audit Committee" issued by the Public Company Accounting Oversight Board ("PCAOB")
 
3.
Requested and obtained from Grant Thornton the written disclosures and the letter required by applicable requirements of the PCAOB regarding Grant Thornton’s communications with the audit committee concerning independence, and has discussed with Grant Thornton its independence.
Based on the review and discussions referred to in paragraphs numbered (1)-(3) above, the audit committee recommended to our board of directors that the audited financial statements as of December 31, 2014 and 2013 be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, for filing with the SEC.

 
Respectfully Submitted by the Audit Committee:
 
Jaffrey A. Firestone, Chairperson
 
Kevin Lewis
 
Andrew Roberto

Executive Officers
The following table sets forth the name, age and title of our executive officers.
Name
 
Age
 
Position(s)
Richard Sadowsky
 
58
 
Acting Chief Executive Officer,
President and Secretary
John Breeman
 
59
 
Chief Financial Officer
Richard Sadowsky was appointed Acting Chief Executive Officer in December 2013. He served as Chief Administrative Officer and General Counsel between November 2012 and December 2013. Prior to that, Mr. Sadowsky provided services to the Company pursuant to a secondment agreement with the law firm of SNR Denton US LLP from July 5, 2012 through December 31, 2012. Pursuant to an offer letter from the Company, Mr. Sadowsky became an employee of the Company effective January 1, 2013. Prior to joining the Company, Mr. Sadowsky was a partner with SNR Denton US LLP since 2002.
John Breeman has served as our Chief Financial Officer since August 14, 2013. Before joining Voltari, Mr. Breeman most recently served as Chief Financial Officer of Mojiva Inc. from June 2011 until April 2013, a company in the mobile advertising space. Prior to that, Mr. Breeman was a consultant at Peregrine Associates, LLC from August 2009 until June 2011 and Senior Vice President, Corporate Development at IDT Corporation from April 2007 until June 2009. Mr. Breeman also has held financial and corporate development positions at AT&T and Siemens Corporation. Mr. Breeman began his career as a CPA and management consultant working with Big Four accounting firms Ernst & Young and Deloitte, leaving Deloitte as a Senior Manager to join industry.


Item 11.
Executive Compensation.


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The following is a description of the material elements of compensation for our named executive officers listed below who served the Company as named executive officers at the end of fiscal year 2014:
Richard Sadowsky, our Acting Chief Executive Officer, President and Secretary and our former Chief Administrative Officer and General Counsel; and
John Breeman, our Chief Financial Officer.

Summary Compensation Table
The following table provides summary information concerning compensation paid or accrued by us to or on behalf of our named executive officers for services provided to us during the years ended December 31, 2014 and 2013. The information presented in this table reflects the one-for-ten reverse stock split, which became effective on April 23, 2013.
Name &
Principal Position
 
Year
 
Salary
($)
 
Bonus
($) (1)
 
Option
Awards
($) (2)
 
Non-Equity
Incentive
Plan
Compensation
($) (3)
 
All Other
Compensation
($) (4)
 
Total
($)
Richard Sadowsky
 
2014
 
310,000

 

 
49,738

 

 
6,837

 
366,555

Acting Chief Executive Officer, President and Secretary
 
2013
 
285,961

 
100,000

 
31,500

 

 
13,514

 
430,975

 
 
 
 
 
 
 
 
John Breeman
 
2014
 
231,151

 

 
10,362

 

 
6,904

 
248,417

Chief Financial Officer
 
2013
 
84,192

 
20,000

 
15,875

 

 
5,248

 
125,315


(1)
The Compensation Committee awarded discretionary cash bonuses in the amount to Mr. Sadowsky and Mr. Breeman in connection with their contributions to the Company in the fiscal year ended December 31, 2013 outside of our 2013-14 Corporate Incentive Plan. As of the most recent practicable date prior to the mailing of this prospectus, the Compensation Committee has not determined whether to award discretionary cash bonuses to Mr. Sadowsky and Mr. Breeman for the fiscal year ended December 31, 2014. The Compensation Committee expects to make this determination prior to the Company’s 2015 annual meeting of stockholders.
(2)
Represents FASB ASC 718 grant date fair value of stock option awards, which vest as follows: 25% of the shares subject to the option will vest in four equal installments on each anniversary of the holder’s employment date, subject to continued employment on those dates, and 75% of the shares subject to the option will vest subject to achieving certain stock price targets for our common stock on the third anniversary of the vesting commencement date, subject to continued employment on that date. For further discussion, see the sections captioned “2010 Long Term Incentive Plan” and “Employment Agreements.”
(3)
No bonus awards were made for 2013 and 2014 under our Corporate Incentive Plan for 2013-14 and our Amended and Restated Corporate Incentive Plan for 2013 and 2014, respectively. For more information, see below under Short-Term Incentives.
(4)
All Other Compensation for the 2014 fiscal year for our named executive officers consisted of the following:


Name
 
401(k)
Match
($)
 
Medical
and Dental
($)
 
Total of All
Other Comp
($)
Richard Sadowsky
 
6,150
 
687
 
6,837
John Breeman
 
6,404
 
500
 
6,904
The Compensation Committee of the board of directors, referred to as the Compensation Committee, determines all components of executive compensation and considers the following elements (discussed in detail below), to promote our pay-for-performance philosophy and compensation goals and objectives:
base salary;

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annual cash incentive awards linked to overall performance;
grants of long-term equity-based compensation, such as options;
termination and change of control provisions; and
benefits generally available to employees.
We combine these elements in order to formulate compensation packages that provide competitive pay, reward the achievement of financial, operational and strategic objectives and align the interests of our named executive officers and other senior personnel with those of our stockholders. These particular elements provide a well-proportioned mix of secure compensation, retention value and at-risk compensation, which produces short-term and long-term performance incentives and rewards. By following this approach, we provide the executive with a measure of financial and job security, while motivating the executive to focus on business metrics that will produce a high level of short-term and long-term performance for the Company and long-term wealth creation for the executive, as well as reducing the risk of recruitment of top executive talent by competitors. The mix of metrics used for our annual performance bonus and long-term incentive program likewise provides an appropriate balance between short-term financial performance and long-term financial and stock performance.
Base Salary
The primary component of short-term compensation of our named executive officers has historically been base salary. The base salary established for each of our named executive officers is intended to reflect competitive wages for positions in companies of similar size and stage of development operating in the software and mobile data services industry and to represent each individual’s job duties and responsibilities, experience, and other discretionary factors deemed relevant by our Chief Executive Officer and Compensation Committee. Base salary is also designed to provide our named executive officers with a steady cash flow during the course of the fiscal year that is not contingent on short-term variations in our corporate performance. Our Chief Executive Officer makes recommendations for each named executive officer’s base salary (including his own), based on such executive’s experience and with reference to the base salaries of similarly situated executives in the software and mobile data services industry, that are then reviewed and approved by the Compensation Committee.
Base salaries are reviewed during the first half of the fiscal year by our Compensation Committee, and may be recommended for adjustment from time to time based on the results of this review. In past years, the Compensation Committee, with guidance from our Chief Executive Officer, reviewed the performance of all named executive officers, and based on this review and any relevant competitive market data (obtained through salary survey information provided by our human resources department, informal discussions with recruiting firms and research), set the executive compensation package for each named executive officer for the following year.
Annual base salary increases have historically been based upon our pay-for-performance philosophy, whereby pre-determined quantitative and qualitative individual goals and objectives are established at the beginning of the performance period for named executive officers below the Chief Executive Officer, and measured and assessed at the end of the performance year. Based upon each individual’s performance rating and compensation range position, individuals are eligible for a merit-based increase in their base salaries based upon the established guidelines within budget for the performance year. The Compensation Committee determines whether to increase the base salaries of any of our named executive officers based upon its assessment of each named executive officer’s performance and utilizes recommendations from its independent compensation consultant, which since May 2012, has been Frederic W. Cook & Co.
Short-Term Incentives
On an annual basis, or at the commencement of a named executive officer’s employment with us, the Compensation Committee typically sets a target level of short-term incentive compensation that is structured as a percentage of such named executive officer’s annual base salary. Our executives participate in our annual corporate incentive plan, referred to as the CIP, which ensures that short-term incentives are tied directly to our financial performance for the fiscal year. Depending upon corporate performance, a named executive officer may receive between 0% and 150% of his target incentive amount. These corporate performance objectives are designed to be challenging but achievable. The performance metrics and objectives are weighted in a specific manner as defined by the Compensation Committee in the CIP. These bonuses are intended to annually reward named executive officers who have had a positive impact on corporate results. We believe that establishing competitive cash bonus

46


opportunities helps us attract and retain qualified and highly skilled executives and allows our executives to fully focus on the business objectives of the Company without the burden of considering potential loss of wealth due to extenuating circumstances.
Amended and Restated 2013-14 CIP. On May 20, 2014, the Compensation Committee approved the Company’s Amended and Restated 2013-14 Corporate Incentive Plan, referred to as the Amended and Restated 2013-14 CIP. The Amended and Restated 2013-14 CIP is intended to aid in the retention of highly qualified employees by providing eligible employees with additional compensation for their contributions to the achievement of the Company’s objectives. In order to be eligible to participate in the Amended and Restated 2013-14 CIP and receive a bonus award, a participant must be a full-time, active employee working in a bonus eligible position. The participant must be actively employed and in good standing on the actual bonus payment date in order to receive a payout. The Committee set target bonuses that are structured by position or job level as a percentage of an eligible employee’s annual base salary. For the Company’s Acting Chief Executive Officer and its Chief Financial Officer, the Amended and Restated 2013-14 CIP provides that, subject to the achievement of certain minimum financial targets, 25% of the target bonus is tied to the achievement of EBITDA objectives, 25% is tied to the achievement of revenue objectives and 50% of the target bonus is discretionary and to be determined in the sole and absolute discretion of the Compensation Committee. For all eligible participants, payouts based on the achievement of EBITDA and revenue objectives cannot exceed 150% of the portion of the target bonus tied to each such objective.
The Amended and Restated 2013-14 CIP provided that if the Compensation Committee determined that information used to calculate the achievement of the financial targets was incorrect (including but not limited to mistakes in the Company’s audited financial statements for the year), then the Compensation Committee could either adjust bonus awards (upward or downward) or, with respect to officers that are reporting persons pursuant to Section 16(a) of the Exchange Act, recover all (or a portion) of a bonus award.
In order for a named executive officer to have received any payment under the Amended and Restated 2013-14 CIP for the year ended December 31, 2014, the Company would have had to meet the thresholds for each of the EBITDA and revenue targets included in the Amended and Restated 2013-14 CIP, as applicable, established by the Compensation Committee. The Amended and Restated 2013-14 CIP incorporated graduated thresholds for incremental payouts, ranging from 0% to 150%, based upon pre-determined quantitative goals and objectives, with each performance category assigned its own weight.
Long-Term Equity-Based Compensation
The Compensation Committee believes that equity-based compensation is an important component of our executive compensation program and that providing a significant portion of our named executive officers’ total compensation package in equity-based compensation aligns the incentives of our executives with the interests of our stockholders and with our long-term corporate success. Additionally, the Compensation Committee believes that equity-based compensation awards enable us to attract, motivate, retain and adequately compensate executive talent. The Compensation Committee believes equity awards provide executives with a significant long-term interest in our success by rewarding the creation of stockholder value over time. To that end, we have historically awarded equity-based compensation in the form of restricted stock and stock options.
The Compensation Committee anticipates issuing future annual equity grants to the named executive officers as a combination of market stock units and stock options which will be subject to performance and time vesting requirements.
For further discussion, see the sections captioned “Equity Incentive Plans” and “Employment Agreements.”
Equity Incentive Plans
The Compensation Committee of our predecessor entity Motricity approved the terms of the Motricity, Inc. Amended and Restated 2010 Long-Term Incentive Plan, referred to as the 2010 LTIP, and recommended it to the board of directors. The board of directors approved the 2010 LTIP on September 26, 2011, and the stockholders approved the 2010 LTIP on October 28, 2011. The 2010 LTIP provides for grants of stock options, stock appreciation rights, restricted stock, other stock-based awards and other cash-based awards. Directors, officers and other employees of us and our subsidiaries, as well as others performing consulting or advisory services for us, are eligible for grants under the 2010 LTIP. The purpose of the 2010 LTIP is to provide incentives that will attract, retain and motivate highly competent officers, directors, employees and consultants by providing them with appropriate incentives and rewards either through a proprietary interest in our long-term success or compensation based on their performance in fulfilling their personal responsibilities. The following is a summary description of the 2010 LTIP and is qualified

47


in its entirety by reference to the full text of the 2010 LTIP, which is set forth as Appendix A to Motricity’s Definitive Proxy Statement filed with the Securities and Exchange Commission on September 27, 2011.
In connection with the reorganization that consummated on April 9, 2013, at which time we became the successor entity to Motricity, we assumed all stock-based benefits plans of Motricity, including the 1999 Stock Option Plan of Motricity, Inc., Amended and Restated 2004 Stock Incentive Plan of Motricity, Inc. and the Motricity, Inc. 2010 Long-Term Incentive Plan, as amended and restated, referred to collectively as the Plans. At the effective time of the reorganization, each outstanding option to purchase shares of Motricity Common Stock became exercisable for the same number of shares of Voltari Common Stock, with no changes in the option exercise price or other terms and conditions of such options.
Administration. The 2010 LTIP is administered by the Compensation Committee and all actions taken with respect to the 2010 LTIP will be made in accordance with the Compensation Committee’s charter, which is publicly available on the Company’s website at www.voltari.com. For purposes of the 2010 LTIP, to the extent required by applicable law, it is intended that each member of the Compensation Committee qualify as (a) a “non-employee director” under Rule 16b-3, (b) an “outside director” under Section 162(m) of the Internal Revenue Code (the “Code”), and (c) an “independent director” under the rules of the principal U.S. national securities exchange on which our shares are listed. The Compensation Committee has full authority to administer and interpret the 2010 LTIP. Among the Compensation Committee’s powers are to determine the form, amount and other terms and conditions of awards, clarify, construe or resolve any ambiguity in any provision of the 2010 LTIP or any award agreement, amend the terms of outstanding awards and adopt such rules, forms, instruments and guidelines for administering the 2010 LTIP as it deems necessary or proper. All actions, interpretations and determinations by the Compensation Committee or by our board of directors are final and binding.
Available Shares. The aggregate number of shares of common stock which may be issued or used for reference purposes under the 2010 LTIP or with respect to which awards may be granted may not exceed 636,562 shares, (which reflects a one-for-ten reverse stock split that became effective on April 23, 2013) and which may be either
authorized and unissued shares of common stock or shares of common stock held in or acquired for our treasury. In general, if awards under the 2010 LTIP are for any reason canceled, or expire or terminate unexercised, or are settled in cash, the shares covered by such awards will again be available for the grant of future awards under the 2010 LTIP. Following the Section 162(m) “transition period” (as described in “Tax and Accounting Considerations” below), the maximum number of shares subject to any award of stock options, or stock appreciation rights, referred to as SARs, or shares of restricted stock, or other stock-based awards subject to the attainment of specified performance goals which may be granted during any fiscal year to any participant will be 26,666 shares per type of award (which reflects the one-for-ten reverse stock split, which became effective on April 23, 2013), provided that the maximum number of shares issued in any one year period for all types of awards does not exceed 4% of the Company’s issued and outstanding shares of common stock. Except as otherwise required by the Code, there are no annual individual share limitations applicable to participants for restricted stock or other stock-based awards that are not subject to the attainment of specified performance goals. The maximum number of shares subject to any performance award during any fiscal year to any participant shall be 26,666 shares (which reflects the one-for-ten reverse stock split, which became effective on April 23, 2013). The maximum value of a cash payment made under a performance award which may be granted with respect to any fiscal year to any participant shall be $5,440,000. The maximum value of cash payments made under performance awards granted with respect to any fiscal year to all participants shall be $14,104,670. The foregoing share limitations imposed under the 2010 LTIP are subject to adjustment to the extent the Compensation Committee deems such adjustment appropriate and equitable to prevent dilution or enlargement of participants’ rights.
Eligibility for Participation. Members of our board of directors, as well as employees of, and consultants to, us or any of our subsidiaries and affiliates are eligible to receive awards under the 2010 LTIP. The selection of participants is within the sole discretion of the Compensation Committee.
Stock Options. The Compensation Committee may grant non-qualified stock options and incentive stock options (only to eligible employees) to purchase shares of common stock. The Compensation Committee will determine the number of shares of common stock subject to each option, the term of each option (which may not exceed five years in the case of an incentive stock option granted to a 10% stockholder), the exercise price, the vesting schedule (if any), and the other material terms of each option. No incentive stock option or nonqualified stock option may have an exercise price less than the fair market value of a share of common stock at the time of grant (or, in the case of an incentive stock option granted to a 10% stockholder, 110% of such share’s fair market value). Options will be exercisable at such time or times and subject to such terms and conditions as determined by the Compensation Committee at grant and the exercisability of such options may be accelerated by the Compensation Committee in

48


its sole discretion. The 2010 LTIP specifically provides that an outstanding option may not be modified to reduce the exercise price nor may a new option at a lower price be substituted for a surrendered option, unless such action is approved by the stockholders of the Company. The maximum number of shares of common stock with respect to which incentive stock options may be granted under the 2010 LTIP is 636,562 shares (which reflects the one-for-ten reverse stock split, which became effective on April 23, 2013).
Award Agreement. Awards granted under the 2010 LTIP shall be evidenced by award agreements (which need not be identical) that provide additional terms, conditions, restrictions and/or limitations covering the grant of the award, including, without limitation, additional terms providing for the acceleration of exercisability, or vesting of awards or conditions regarding the participant’s employment, as determined by the Compensation Committee in its sole discretion. In May 2012, the Compensation Committee adopted a revised form of stock option agreement for our named executive officers which provides that any stock options issued to the named executive officers will vest as follows, subject to continued employment on each vesting date: (i) 25% of the options will vest in four equal tranches on each anniversary of the vesting commencement date (i.e., 6.25%); and (ii) the remaining 75% of the options will vest on the third anniversary of the applicable vesting commencement date, subject to the achievement of the following performance targets: one-third of the options will vest if our common stock achieve a pre-determined target price of as set by the board of directors from time to time; another one-third of the options will vest if our common stock achieve a higher pre-determined target price of as set by the board of directors from time to time; and (iii) the last one-third of the options must achieve a pre-determined target price as set by the board of directors from time to time. The target prices listed reflect the one-for-ten reverse stock split, which became effective on April 23, 2013. The achievement of the target price will be determined based upon the average of the closing prices of our shares of common stock on a nationally recognized securities exchange over a 90 day period or, if the shares are not so listed, the fair market value will be determined by our board of directors.
Awards Under the 2010 LTIP. The following types of awards are available under the 2010 LTIP:
Restricted Stock. The Compensation Committee may award shares of restricted stock. Except as otherwise provided by the Compensation Committee upon the award of restricted stock, the recipient generally has the rights of a stockholder with respect to the shares, including the right to receive dividends, the right to vote the shares of restricted stock and, conditioned upon full vesting of shares of restricted stock, the right to tender such shares, subject to the conditions and restrictions generally applicable to restricted stock or specifically set forth in the recipient’s restricted stock agreement. The Compensation Committee may determine at the time of award that the payment of dividends, if any, will be deferred until the expiration of the applicable restriction period. Recipients of restricted stock are required to enter into a restricted stock agreement with us that states the restrictions to which the shares are subject, which may include satisfaction of pre-established performance goals, and the criteria or date or dates on which such restrictions will lapse. If the grant of restricted stock or the lapse of the relevant restrictions is based on the attainment of performance goals, the Compensation Committee will establish for each recipient the applicable performance goals, formulae or standards and the applicable vesting percentages with respect to the attainment of such goals or satisfaction of such formulae or standards while the outcome of the performance goals are substantially uncertain. Such performance goals may incorporate provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisitions) and other similar events or circumstances. The performance goals for performance-based restricted stock will be based on one or more of the objective criteria set forth on Exhibit A to the 2010 LTIP and discussed in general below.
Stock Appreciation Rights. The Compensation Committee may grant SARs either with a stock option, which may be exercised only at such times and to the extent the related option is exercisable, referred to as a Tandem SAR, or independent of a stock option, referred to as a Non-Tandem SAR. A SAR is a right to receive a payment in shares of common stock or cash (as determined by the Compensation Committee) equal in value to the excess of the fair market value of one share of common stock on the date of exercise divided by the exercise price per share established in connection with the grant of the SAR. The term of each SAR may not exceed 10 years. The exercise price per share covered by a SAR will be the exercise price per share of the related option in the case of a Tandem SAR and will be the fair market value of common stock on the date of grant in the case of a Non-Tandem SAR. The Compensation Committee may also grant “limited SARs,” either as Tandem SARs or Non-Tandem SARs, which may become exercisable only upon the occurrence of an event as the Compensation Committee may, in its sole discretion, designate at the time of grant or thereafter.
Other Stock-Based Awards. The Compensation Committee may, subject to limitations under applicable law, make a grant of such other stock-based awards (including, without limitation, stock equivalent units or restricted stock units) under the 2010 LTIP that

49


are denominated or payable in or valued by shares of common stock or factors that influence the value of such shares. The Compensation Committee shall determine the terms and conditions of any such other awards, which may include the achievement of certain minimum performance goals and/or a minimum vesting period. The performance goals for performance-based other stock-based awards will be based on one or more of the objective criteria set forth on Exhibit A to the 2010 LTIP and discussed in general below.
Other Cash-Based Awards. The Compensation Committee, in its discretion, may grant awards payable in cash. Cash-based awards shall be in such form, and dependent on such conditions, as the Compensation Committee shall determine, including, without limitation, being subject to the satisfaction of vesting conditions or awarded purely as a bonus and not subject to restrictions or conditions. If a cash-based award is subject to vesting conditions, the Compensation Committee may accelerate the vesting of such award in its discretion.
Performance Awards. The Compensation Committee may grant a performance award to a participant payable upon the attainment of specific performance goals. The Compensation Committee may grant performance awards that are intended to qualify as “performance-based compensation” under Section 162(m) of the Code, as well as performance awards that are not intended to qualify as “performance-based compensation” under Section 162(m) of the Code. If the performance award is payable in cash, it may be paid upon the attainment of the relevant performance goals either in cash or in shares of restricted stock (based on the then current fair market value of such shares), as determined by the Compensation Committee, in its sole discretion. Based on service, performance and/or such other factors or criteria, if any, as the Compensation Committee may determine, the Compensation Committee may, at or after grant, accelerate the vesting of all or any part of any performance award. The Compensation Committee has “negative discretion” to adjust bonus payments as permitted by Section 162(m) of the Code.
Performance Goals. The Compensation Committee may grant awards of restricted stock, performance awards, and other stock-based awards that are intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code. These awards may be granted, vest and be paid based on attainment of specified performance goals established by the Compensation Committee. These performance goals will be based on the attainment of a certain target level by the Company of, or a specified increase or decrease in, one or more of the following criteria selected by the Compensation Committee: (i) earnings per share; (ii) operating income; (iii) gross income; (iv) net income (before or after taxes); (v) cash flow; (vi) gross profit; (vii) gross profit return on investment; (viii) gross margin return on investment; (ix) gross margin; (x) operating margin; (xi) working capital; (xii) earnings before interest and taxes; (xiii) earnings before interest, tax, depreciation and amortization; (xiv) return on equity; (xv) return on assets; (xvi) return on capital; (xvii) return on invested capital; (xviii) net revenues; (xix) gross revenues; (xx) revenue growth; (xxi) annual recurring revenues; (xxii) recurring revenues; (xxiii) license revenues; (xxiv) sales or market share; (xxv) total stockholder return; (xxvi) economic value added; (xxvii) specified objectives with regard to limiting the level of increase in all or a portion of the Company’s bank debt or other long-term or short-term public or private debt or other similar financial obligations of the Company, which may be calculated net of cash balances and/or other offsets and adjustments as may be established by the Compensation Committee in its sole discretion; (xxviii) the fair market value of a share of common stock; (xxix) the growth in the value of an investment in common stock assuming the reinvestment of dividends; or (xxx) reduction in operating expenses.
To the extent permitted by law, when determining whether a performance goal has been achieved, the Compensation Committee may also exclude the impact of an event or occurrence which the Compensation Committee determines should be appropriately excluded, including: (i) restructurings, discontinued operations, extraordinary items and other unusual or non-recurring charges; (ii) an event either not directly related to our operations or not within the reasonable control of management; or (iii) a change in accounting standards required by generally accepted accounting principles. Performance goals may also be based on an individual participant’s performance goals, as determined by the Compensation Committee, in its sole discretion. In addition, all performance goals may be based upon the attainment of specified levels of our performance (or subsidiary, division or other operational unit) under one or more of the measures described above relative to the performance of other corporations. The Compensation Committee may designate additional business criteria on which the performance goals may be based or adjust, modify or amend those criteria.
Acquisition Event. In the event of a merger or consolidation in which the Company is not the surviving entity, a transaction that results in the acquisition of substantially all of the Company’s outstanding common stock, or the sale or transfer of all or substantially all of the Company’s assets, referred to collectively as an Acquisition Event, then the Compensation Committee may terminate all outstanding and unexercised options, SARs, or any other stock-based award that provides for a participant elected exercise by cashing out such awards upon the date of consummation of the Acquisition Event or by delivering notice of

50


termination to each participant at least 20 days prior to the date of consummation of the Acquisition Event, in which case during the period from the date on which such notice of termination is delivered to the consummation of the Acquisition Event, each such participant shall have the right to exercise in full all of his or her outstanding awards contingent on the occurrence of the Acquisition Event.
Stockholder Rights. Except as otherwise provided in the applicable award agreement, and with respect to an award of restricted stock, a participant has no rights as a stockholder with respect to shares of common stock covered by any award until the participant becomes the record holder of such shares.
Forfeiture and Clawback. Unless otherwise provided by the Compensation Committee in the governing award agreement, the 2010 LTIP provides that (a) in the event that the participant’s conduct meets the definition of “Cause” during the later of the 12-month period following exercise of an award or the 24-month period commencing on the date of vesting, distribution, or settlement of an award, the Company shall recover from the participant within the applicable period after such vesting, exercise, settlement, or distribution, an amount equal to any gain realized on such award, and (b) if the participant engages in conduct that meets the definition of “Cause,” then all outstanding awards terminate and expire.
Unless otherwise provided by the Compensation Committee in the governing award agreement, the 2010 LTIP also provides that in the event of a restatement of the Company’s financial statements that reduces the amount of any previously awarded performance award, where the performance goals would not otherwise have been met had the results been properly reported, the award will be cancelled and the participant will pay the Company an amount equal to any gain realized on such award within (a) 24 months preceding such financial restatement for any participant who has a position with the Company as a vice president, senior vice president, executive officer or named executive officer or (b) 12 months preceding such financial restatement for all other participants.
Ownership Guidelines and Holding Period. The 2010 LTIP contains ownership guidelines that have changed due to turnover in management and changes in the Company’s business. In May 2012, we updated the ownership guidelines for the named executive officers to require that our Chief Executive Officer is required to own, by September 2016, stock equal in value to at least three times the Chief Executive Officer’s annual base salary and that the other named executive officers are required to own, by September 2016, stock equal in value to at least one times such named executive officer’s annual base salary. Furthermore, under the revised guidelines, no named executive officer shall be permitted to transfer shares of our common stock obtained on vesting in restricted stock or exercise of an option other than to pay applicable federal and state tax withholdings, unless such officer has satisfied the stock ownership guidelines within five years of grant and that any failure to satisfy the guidelines will be treated as a violation of the Company’s policies and procedures and, in the sole discretion of our board of directors, may give rise to termination for cause.
Amendment and Termination. Notwithstanding any other provision of the 2010 LTIP, our board of directors may, at any time, amend any or all of the provisions of the 2010 LTIP, or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, unless otherwise required by law or specifically provided in the 2010 LTIP, the rights of a participant with respect to awards granted prior to such amendment, suspension or termination may not be adversely affected without the consent of such participant.
Transferability. Awards granted under the 2010 LTIP are generally nontransferable (other than by will or the laws of descent and distribution), except that the Compensation Committee may provide for the transferability of non-qualified stock options in an award agreement at the time of grant or thereafter to certain family members.
Policy Regarding Claw Back of Incentive Compensation
The Amended and Restated 2013-14 CIP includes a clawback policy pursuant to which named executive officers and other Amended and Restated 2013-14 CIP participants will be required to return all or a portion of incentive compensation paid to them (i) based on any correction or restatement of the Company’s audited financial statements or other factors that contributed to the calculation of the Financial Targets (as defined in the Amended and Restated 2013-14 CIP), or (ii) if such participant engaged in acts or omissions that results in a termination for Cause. In addition, the 2010 LTIP provides that in the event of a restatement of the Company’s financial statements that reduces the amount of any previously awarded performance award, where the performance goals would not otherwise have been met had the results been properly reported, the award will be canceled and the

51


participant will pay the Company an amount equal to any gain realized on such award. See “Equity Incentive Plans” for a further description of the clawback feature of the 2010 LTIP.
Severance and Change of Control Benefits
We believe that a strong, experienced management team is essential to the best interests of the Company and our stockholders. We recognize that the possibility of a change of control could arise and that such a possibility could result in the departure or distraction of members of the management team to the detriment of our Company and our stockholders.
To focus our named executive officers on their duties rather than potential distractions from a change of control of our Company, the Compensation Committee adopted an Executive Officer Severance/Change in Control Plan on March 16, 2011 and amended the plan effective May 30, 2012. Currently, Mr. Breeman participates in the plan. Under the plan as amended, any executive who participates in the plan who is terminated by the Company without cause will receive six months of continued base salary payments. In addition, any executive who participates in the plan who is terminated by the Company without cause or by the executive for good reason within the 12 months following a change in control will receive six months of continued base salary payments and accelerated vesting as to 75% of any then unvested options, restricted stock or performance stock units.
Tax and Accounting Considerations
Section 162(m) of the Code denies a federal income tax deduction for certain compensation in excess of $1 million per year paid to the Chief Executive Officer and the three other most highly paid executive officers (other than a company’s Chief Executive Officer and the Chief Financial Officer) of a publicly-traded corporation. Certain types of compensation, including compensation based on performance criteria that are approved in advance by stockholders, are excluded from the deduction limit. In addition, “grandfather” provisions may apply to certain compensation arrangements that were entered into by the corporation before it was publicly held. The Compensation Committee’s policy will be to qualify compensation paid to named executive officers for deductibility for federal income tax purposes to the extent feasible. However, to retain highly skilled executives and remain competitive with other employers, the Compensation Committee will have the right to authorize compensation that would not otherwise be deductible under Section 162(m) or otherwise when it considers it in our best interests to do so.
The Compensation Committee considers the manner in which Section 409A of the Code affects deferred compensation opportunities that we offer to our employees. Section 409A requires, among other things, that “non-qualified deferred compensation” be structured in a way that limits employees’ ability to accelerate or further defer certain kinds of deferred compensation. We intend to operate our existing compensation arrangements that are covered by Section 409A in accordance with the applicable rules thereunder, and we will continue to review and amend our compensation arrangements to comply with Section 409A to the extent deemed necessary by the Compensation Committee.
The Compensation Committee does not believe that tax gross-ups, other than with respect to relocation expenses and other similar perquisites which necessitate a gross-up in order to make the executive whole from a tax perspective, paid by companies to their named executive officers are in the best interests of stockholders. As a result, the Compensation Committee will not approve any employment agreement or compensation plan that provides our named executive officers with a gross-up for federal and/or state income taxes that may arise under either Section 409A of the Code or the golden parachute excise tax rules of Section 280G of the Code.

Outstanding Equity Awards at 2014 Fiscal Year End
The following table sets forth certain information with respect to outstanding equity awards of our named executive officers as of December 31, 2014 with respect to the named executive officer.

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Option Awards
Name
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
 
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
 
 
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
 
Option
Exercise
Price
($)
 
Option
Expiration
Date
Richard Sadowsky
1,406

 
21,094
(1)
 

 
4.30
 
01/01/2023
 

 
48,000
(2)
 

 
3.40
 
05/13/2024
John Breeman
625

 
9,375
(1)
 

 
4.85
 
11/06/2023
 

 
10,000
(2)
 

 
3.40
 
05/13/2024
(1)
The options vest as follows, subject to continued employment on each vesting date: 25% of the shares subject to the option will vest in four equal installments on each anniversary of the holder’s employment date and 75% of the shares subject to the option will vest, subject to achieving certain price targets for our common stock, on the three year anniversary of the holder’s employment date. For further discussion, see the sections captioned “Equity Incentive Plans” and “Employment Agreements.”
(2)
The options vest as follows, subject to continued employment on each vesting date: 25% of the shares subject to the option will vest in four equal installments on each anniversary of the vesting commencement date and 75% of the shares subject to the option will vest on the third anniversary of the vesting commencement date, subject to achieving certain price targets for our common stock. For further discussion, see the sections captioned “Equity Incentive Plans” and “Employment Agreements.”
Retirement Benefits & Non-qualified Deferred Compensation
We sponsor a 401(k) plan, which is a qualified retirement plan offered to all eligible employees, including our named executive officers, that permits eligible employees to elect to defer a portion of their compensation on a pre-tax basis. The Compensation Committee may in its sole discretion determine to approve a performance-based matching contribution, subject to the Company’s achievement of certain financial metrics. For fiscal year 2014, Messrs. Sadowsky and Breeman received matching contributions in the amounts of $6,150 and $6,404, respectively.
Employment Agreements
Richard Sadowsky. In connection with Mr. Sadowsky’s appointment to the position of General Counsel, the Company entered into a Secondment Agreement, dated July 1, 2012, with SNR Denton US LLP, the law firm in which Mr. Sadowsky was a partner from 2002 through 2012. On November 15, 2012, we appointed Mr. Sadowsky to the position of Chief Administrative Officer and entered into an employment offer letter with Mr. Sadowsky, referred to as the Sadowsky Offer Letter, pursuant to which he became a full-time employee of the Company effective on January 1, 2013. Under the terms of Mr. Sadowsky’s offer letter, Mr. Sadowsky was entitled to an annual base salary of $285,000. Additionally, in accordance with the terms of the Sadowsky Offer Letter and the 2010 LTIP, the Compensation Committee approved the grant to Mr. Sadowsky of options to purchase 22,500 shares of our common stock (which reflects the one-for-ten reverse stock split, which became effective on April 23, 2013), 25% of which options will vest in equal tranches on each of the first four anniversaries of Mr. Sadowsky’s employment date, subject to continued employment on such dates and 75% of which options shall vest on the third anniversary of Mr. Sadowsky’s employment date provided that certain stock price targets are achieved and subject to continued employment on such date. The Company granted these options on January 1, 2013. Under the terms of the Sadowsky Offer Letter, Mr. Sadowsky is eligible to participate in the CIP and is subject to non-disclosure, non-competition and non-solicitation covenants. The Sadowsky Offer Letter provides that, if we were to terminate Mr. Sadowsky’s employment on or before December 31. 2014 and without cause, as defined in our Amended and Restated Executive Severance and Change of Control Plan, as amended, he would receive six months of continued base salary payments. Mr. Sadowsky, having served as an officer of the Company for longer than two years, is no longer eligible to receive payments under that Plan. Effective December 20, 2013, we appointed Mr. Sadowsky to the

53


position of Acting Chief Executive Officer. In connection with this appointment, Mr. Sadowsky relinquished his titles of Chief Administrative Officer and General Counsel. Pursuant to an amendment to the Sadowsky Offer Letter, Mr. Sadowsky’s annual salary increased to $310,000 and Mr. Sadowsky’s ceasing to serve as Acting Chief Executive Officer and returning to his titles of Chief Administrative Officer and General Counsel would not constitute termination for Good Reason under the Company’s Amended and Restated Executive Severance and Change of Control Plan.
John Breeman. On August 14, 2013, we entered into an employment offer letter with Mr. Breeman, referred to as the Breeman Offer Letter, pursuant to which Mr. Breeman commenced serving as our Chief Financial Officer. Under the terms of the Breeman Offer Letter, Mr. Breeman is entitled to an annual base salary of $220,000. Additionally, in accordance with the terms of the Breeman Offer Letter and the Company’s 2010 Long-Term Incentive Plan, Mr. Breeman is eligible for an award of options to purchase 10,000 shares of the Company’s common stock, which options will be granted upon final approval by the Compensation Committee of the Company’s board of directors. The Company granted these options on November 6, 2013. Subject to continued employment on the applicable vesting dates, 25% of the options will vest in equal tranches on each of the first four anniversaries of Mr. Breeman’s employment date, and 75% of the options will vest on the third anniversary of Mr. Breeman’s employment date provided that certain stock price targets are achieved. Under the terms of the Breeman Offer Letter, Mr. Breeman will be eligible to participate in the Company’s CIP and is subject to non-disclosure, non-competition and non-solicitation covenants. Furthermore, under the Breeman Offer Letter, if the Company terminates Mr. Breeman’s employment without cause, as defined in the Company’s Amended and Restated Executive Severance and Change of Control Plan, he would receive six months of continued base salary payments. In January 2014, the Compensation Committee increased Mr. Breeman’s annual base salary to $231,151.
Non-Disclosure Agreements
In addition to the restrictive covenants contained in their offer letters, each of the named executive officers have agreed to comply with our non-disclosure and non-competition agreement, referred to as the Non-Disclosure Agreement, on the following terms, respectively:
Name
Employment
Document
 
Non-Disclosure
Agreement
 
Non-
Compete
 
 
Non-
Solicitation
Period
Length
 
Intellectual
Property
Protection
Richard Sadowsky
Offer Letter
 
Yes
 
1 Year
 
 
2 Years
 
1 Year
John Breeman
Offer Letter
 
Yes
 
1 Year
 
 
2 Years
 
1 Year
Each of the named executive officers also agrees that the remedy of damages for any breach by him of the provisions of either the employment agreement, offer letter or the Non-Disclosure Agreement is inadequate and that we may be entitled to injunctive relief, without posting any bond, and each agrees not to oppose granting of such relief on the grounds that the damages would adequately compensate us.
Director Compensation
To date, we have provided cash compensation to non-employee directors for their services as directors or members of committees of the board of directors. We have reimbursed and will continue to reimburse such non-employee directors for their reasonable expenses incurred in attending meetings of our board of directors and committees of the board of directors.

In accordance with our Compensation Committee Charter, our Compensation Committee has adopted a compensation program for such non-employee directors, or the “Non-Employee Director Compensation Policy.”
On August 12, 2013, the board of directors approved compensation for members of the board of directors effective with the quarter ending September 30, 2013 through the quarter ended March 30, 2014. During this period, board members received annual cash compensation in the amount of $30,000, with additional fees paid for service on standing committees. Fees to the non-employee directors were paid quarterly. In addition to the quarterly payment of $7,500 to each director, the chairperson of the Audit Committee was paid $3,750 quarterly, and the chairpersons of each other standing committee was paid $2,500 quarterly.

54


Each member of the Audit Committee, Compensation Committee, Governance and Nominating Committee and Strategic Alternatives Committee, other than the chair positions, received $1,250 quarterly. In addition, the board of directors approved grants of restricted stock equal in value to $50,000 to each non-employee director as part of their annual compensation, which restricted stock vests on the one year anniversary of issuance.
On April 21, 2014, the board of directors approved a reduction in compensation for the members of the board of directors. Commencing with the quarter ending June 30, 2014, board members receive annual cash compensation in the amount of $25,000, paid quarterly, for their service on the board and as members of the board’s standing committees. The chairperson of each standing committee is paid an additional $2,500 quarterly. As part of each non-employee director’s 2014 compensation, the board of directors granted each board member restricted stock equal in value to $25,000, based on the closing price for a share of common stock as reported by NASDAQ on the effective date of the grant.
On January 7, 2015, the Board of directors approved a further reduction in compensation for the members of the board of directors. Commencing with the quarter ending March 31, 2015, board members receive annual cash compensation in the amount of $10,000, paid quarterly, for their service on the board and as members of the board’s standing committees. The board of directors also determined that no restricted stock awards would be made to non-employee directors in 2015.
The non-employee director compensation policy also provides that non-employee directors must own a number of shares equal to some multiple of their cash retainer within five years of joining our board of directors. This ownership guideline was revised in May 2012 to require our non-employee members of the board to own three times their cash retainer within five years of joining our board of directors.
Below is a summary table of what our 2014 non-employee board members have received through December 31, 2014.
Name
 
Fees Earned
or Paid in
Cash ($)
 
Stock Awards
($) (1)
 
All Other
Compensation
($) (2)
 
Total ($)
James L. Nelson
 
60,000
 
25,000

 
14,710

 
99,710
Jaffrey A. Firestone
 
38,750
 
25,000

 
14,710

 
78,460
Hunter C. Gary
 
50,000
 
25,000

 
14,710

 
89,710
Brett M. Icahn (3)
 
17,500
 

 
14,710

 
32,210
Kevin Lewis
 
27,500
 
25,000

 
14,710

 
67,210
Andrew Roberto
 
12,500
 
25,000

 

 
37,500
(1)
The value of Stock Awards represents the grant date fair value of such award. The fair value of Stock Awards, which are restricted stock, is based on the closing price of our common stock on the grant date.
(2)
Amounts in this column reflect income received as a result of restricted stock released throughout 2014.
(3)
Brett M. Icahn did not stand for re-election to the board of directors at the Company’s 2014 annual meeting of stockholders.
All of our directors are eligible to participate in our 2010 LTIP and their compensatory equity grants will be granted under, and subject to the terms of, the 2010 LTIP.


Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following tables set forth, as of April 13, 2015, certain information regarding the ownership of our capital stock, by (1) each person known to us to beneficially own 5.0% or more of common stock; (2) each of our executive officers named in the 2013

55


Summary Compensation Table included in this proxy statement; and (3) all of our executive officers, directors and nominees for director, as a group. This information is based upon information received from or on behalf of the named individuals or from publicly available information and filings with the SEC by or on behalf of those persons.
Beneficial ownership, which is determined in accordance with the rules and regulations of the SEC, means the sole or shared power to vote or direct the voting or to dispose or direct the disposition of our common stock. The percentage of our common stock beneficially owned by a person or entity assumes that the person or entity has exercised all options and warrants and converted all convertible securities, the person or entity holds that are exercisable or convertible within 60 days of April 13, 2015, and that no other person or entity exercised any of their options or warrants or converted any of their convertible securities. Except as otherwise indicated below or in cases where community property laws apply, to our knowledge, the persons and entities named in the table possess sole voting and investment power over all shares of common stock shown as beneficially owned by the person or entity. The percentage of shares beneficially owned is based upon 9,063,358 shares of common stock and 1,170,327 shares of Series J preferred stock outstanding as of April 13, 2015. All share numbers listed below have been adjusted to reflect the one-for-ten reverse stock split implemented on April 23, 2013.
Common Stock
Name
Amount
and
Nature of
Beneficial
Ownership
 
Percent
of
Class
Entities affiliated with Carl C. Icahn (1)
4,739,620
 
52.3
%
c/o Icahn Associates Corp.
767 Fifth Avenue, 46th Floor
New York, NY 10153
 
 
 
Directors and Named Executive Officers:
 
 
 
Hunter C. Gary (2)
30,954
 
*

James L. Nelson (2)
14,705
 
*

Jaffrey A. Firestone (2)
31,606
 
*

Kevin Lewis (2)
23,208
 
*

Andrew Roberto (2)
14,705
 
*

Richard Sadowsky
2,812
 
*

John Breeman
625
 
*

All directors and executive officers as a group (8 persons)
120,260
 
1.3
%
*
Less than one percent of the outstanding shares of our common stock
(1)
Information in the table and this footnote is based upon information contained in a Schedule 13D/A filed with the SEC on March 31, 2015 by Mr. Carl C. Icahn and includes 4,061,417 shares of common stock, acquired upon exercise of the basic subscription rights and oversubscription rights allocated to Mr. Icahn and his affiliates in the 2015 Rights Offering (as defined herein), at a price of per share of $1.36. As a result of the 2015 Rights Offering, warrants to purchase up to 969,603 shares of common stock ceased to be exercisable by Mr. Icahn pursuant to the exercise limitation provisions of such warrants, which provide, among other things, that no warrant may be exercised by a person who beneficially owns in excess of 48.75% of the outstanding common stock.
(2)
Includes 14,705 shares of restricted stock (see the section captioned “Executive Compensation—Long-Term Equity-Based Compensation” for a description of the vesting of the restricted stock).

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Series J Preferred Stock
Name
 
Amount
and
Nature of
Beneficial
Ownership
 
Percent
of
Class
Entities affiliated with Carl C. Icahn (1)
 
1,146,131

 
97.9%

c/o Icahn Associates Corp.
767 Fifth Avenue, 46th Floor
New York, NY 10153
 
 
 
 
Directors and Named Executive Officers:
 
 
 
 
Hunter C. Gary
 

 

James L. Nelson
 

 

Jaffrey A. Firestone
 

 

Kevin Lewis
 

 

Andrew Roberto
 

 

Richard Sadowsky
 

 

John Breeman
 

 

All directors and executive officers as a group (8 persons)
 

 

(1)
Information in the table and this footnote is based upon information contained in a Schedule 13D/A filed with the SEC on March 31, 2015 by Mr. Carl C. Icahn.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table discloses the securities authorized for issuance under the Company’s equity compensation plan as of December 31, 2014.
 
 
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 equity
compensation
plans
(excluding
securities
reflected
in column
(a))
Plan Category
 
(a)
 
(b)
 
(c)
Equity compensation plan approved by security holders
 
250,139

 
6.39

 
445,589

Equity compensation plan not approved by security holders
 

 

 

Total
 
250,139

 
6.39

 
445,589

(1)
Includes 107,330 outstanding stock options and 404 outstanding restricted stock units.

57




Item 13.
Certain Relationships and Related Transactions, and Director Independence.


2015 Rights Offering
On February 27, 2015, we commenced a rights offering of up to an aggregate of 4,300,000 shares of our common stock (the “2015 Rights Offering”). Under the terms of the 2015 Rights Offering, we distributed to stockholders of record at the close of business on February 13, 2015 transferable subscription rights to purchase 0.9027 shares of common stock for every share of common stock owned on the record date. The 2015 Rights Offering included an over-subscription privilege, which permitted each subscriber that exercised its basic subscription right in full the option to purchase additional shares of common stock that remained unsubscribed at the expiration of the 2015 Rights Offering. If a subscriber exercised its basic subscription right or over-subscription privilege to purchase less than 1,300,000 shares in the 2015 Rights Offering, the subscriber paid a price of $0.97 per whole share. If a subscriber exercised its basic subscription right or over-subscription privilege to purchase 1,300,000 shares or more in the 2015 Rights Offering and owned 33% or more of our issued and outstanding common stock following completion of the 2015 Rights Offering, the subscriber paid a price of$1.36 per whole share.
The 2015 Rights Offering was fully subscribed and closed on March 30, 2015. We received approximately $4.6 million in net proceeds from the 2015 Rights Offering and we intend to use these proceeds for general corporate and working capital purposes. Following the completion of the 2015 Rights Offering on March 30, 2015, entities affiliated with Mr. Carl C. Icahn, the Company’s largest stockholder, became the owner of approximately 52.3% of our common stock. Entities affiliated with Mr. Icahn also own warrants to purchase an additional 9.7% of our common stock, which warrants are currently unexercisable by Mr. Icahn and such affiliated entities.
Redemption of the Series J Preferred Stock
The acquisition of shares of our common stock by certain entities affiliated with Mr. Carl C. Icahn in our 2015 Rights Offering resulted in a change of control of the Company, which constituted a redemption event (the “Rights Offering Redemption Event”) pursuant to the terms and conditions of Exhibit A to the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Designations”), establishing our Series J preferred stock. Upon the occurrence of a redemption event, and subject to certain conditions, each holder of shares of Series J preferred stock (each, a “Holder”) has the right, at such Holder’s option, to require the Company to redeem all or a portion of such Holder’s shares of Series J preferred stock (the “Holder Redemption Option”) in accordance with the terms, procedures, and conditions set forth in the Certificate of Designations.
In connection with the Rights Offering Redemption Event, and pursuant to Section 5(ii) of the Certificate of Designations, on March 30, 2015, the Company gave written notice to holders of its Series J preferred stock of their right to redeem the Series J preferred stock held by such holders. As of the Rights Offering Redemption Event, there were 1,199,643 shares of Series J Preferred Stock issued and outstanding. The entities affiliated with Mr. Carl C. Icahn that held shares of Series J preferred stock prior to April 13, 2015 waived, pursuant to the terms of a waiver letter, the Holder Redemption Option with respect to their shares of Series J preferred stock with respect to the Rights Offering Redemption Event.
On April 13, 2015, the Company redeemed 29,316 shares of the Series J preferred stock for a redemption price paid in cash equal to $34.53 per share of Series J preferred stock, upon the terms and subject to the conditions set forth in the Certificate of Designations, for an aggregate redemption price equal to approximately $1.0 million.
Arrangement with Icahn Sourcing
Arrangement with Insight Portfolio Group LLC (formerly known as Icahn Sourcing, LLC) Icahn Sourcing, LLC, which we refer to as Icahn Sourcing, was formed in order to maximize the potential buying power of a group of entities with which Mr. Carl C. Icahn has a relationship in negotiating with a wide range of suppliers of goods, services and tangible and intangible property at negotiated rates. The Company was a member of the buying group in 2012, 2013 and 2014. Prior to December 31, 2012 the

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Company did not pay Icahn Sourcing any fees or other amounts with respect to the buying group arrangement. Effective January 1, 2013 Icahn Sourcing restructured its ownership and changed its name to Insight Portfolio Group LLC (“Insight Portfolio Group”). In connection with the restructuring, a number of other entities with which Mr. Carl C. Icahn has a relationship acquired equity interests in Insight Portfolio Group and also agreed to pay certain of Insight Portfolio Group’s operating expenses. The Company pays a fee of $50,000 per year for the services of Insight Portfolio Group.
Term Loan
We entered into a $20.0 million term loan with High River on September 16, 2011, and subsequently amended the terms on November 14, 2011 and February 28, 2012. The term loan accrued interest at 9% per year, which was paid-in-kind quarterly through capitalizing interest and adding it to the principal balance, was secured by a first lien on substantially all of our assets and was guaranteed by two of Motricity’s subsidiaries, mCore International and Motricity Canada. On May 10, 2012, we further amended the terms of the term loan and High River agreed to provide us with a $5 million revolving credit facility. No amounts were borrowed under the revolving credit facility which was terminated upon the completion of our rights offering on October 11, 2012. We repaid the term loan in full, approximately $23.8 million in principal and accrued interest, on August 19, 2013.
High River is beneficially owned by Carl C. Icahn, who, as of April 13, 2015, beneficially owned approximately 52.3% of the Company’s outstanding shares of common stock and approximately 97.9% of our Series J preferred stock. Hunter C. Gary, a director of the Company, is married to Carl C. Icahn’s wife’s daughter. The term loan, as amended, was unanimously approved by a committee comprised of disinterested directors of the Company’s board of directors.
Corporate Opportunities Waiver
In order to address potential conflicts of interest between us and the funds affiliated with New Enterprise Associates, Inc. and TCV V L.P., and Koala Holding LP, and any person or entity affiliated with these investors (each, an “Exempted Investor”), our amended and restated certificate of incorporation contains provisions regulating and defining the conduct of our affairs as they may involve each Exempted Investor and its officers, directors or employees, and our powers, rights, duties and liabilities and those of our officers, directors and stockholders in connection with our relationship with each such investor.
Our amended and restated certificate of incorporation provides that no Exempted Investor is under any duty to present any corporate opportunity to us which may be a corporate opportunity for such Exempted Investor or any officer, director or employee thereof and us and each Exempted Investor or any officer, director or employee thereof will not be liable to us or our stockholders for breach of any fiduciary duty as our stockholder or director by reason of the fact that such Exempted Investor pursues or acquires that corporate opportunity for itself, directs that corporate opportunity to another person or does not present that corporate opportunity to us. For purposes of our amended and restated certificate of incorporation, “corporate opportunities” include business opportunities that we are financially able to undertake, that are, from their nature, in our line of business, are of practical advantage to us and are ones in which we have an interest or a reasonable expectancy, and in which, by embracing the opportunities, the self-interest of each Exempted Investor or its officers or directors will be brought into conflict with our self-interest. Any person purchasing or otherwise acquiring any interest in any shares of our capital stock will be deemed to have consented to these provisions of our amended and restated certificate of incorporation.
2012 Rights Offering
On July 24, 2012, we launched a rights offering pursuant to which we distributed to holders of record of our common stock at the close of business on July 23, 2012 one transferable subscription right per share of common stock owned. Each subscription right, subject to certain limitations, entitled the holder thereof to subscribe for a unit consisting of 0.02599 shares of Series J preferred stock and 0.21987 warrants to purchase a share of common stock at a subscription price of $0.65 per unit as well as an over-subscription right (the “2012 Rights Offering”). Mr. Carl C. Icahn and his affiliates were given the opportunity to participate in the 2012 Rights Offering on the same terms and conditions as all of our other stockholders. Mr. Carl C. Icahn and his affiliates collectively exercised their basic subscription right and over-subscription right in full. The 2012 Rights Offering was fully subscribed and closed on October 11, 2012. We received approximately $27.8 million in net proceeds from the 2012 Rights Offering. Immediately following the consummation of the 2012 Rights Offering, Mr. Carl C. Icahn beneficially owned approximately 30.4% of the Company’s common stock and controlled approximately 14.5% of the voting power of its common stock, and held 1,146,131 shares of Series J preferred stock, or approximately 95.5% of that class of stock, which class has limited voting rights.

59


Director Independence
Since March 30, 2015, Mr. Carl C. Icahn has controlled more than 50% of the voting power of our common stock. See "Security Ownership of Certain Beneficial Owners and Management". Consequently, we are considered a "controlled company" under applicable NASDAQ rules. Under these rules, a "controlled company" may elect not to comply with certain Nasdaq corporate governance requirements, including requirements that: (i) a majority of the Board of Directors consist of independent directors; (ii) director nominees be selected or recommended for the Board of Director's selection by a majority of the independent directors or by a nominating committee composed solely of independent directors; and (iii) compensation of executive officers be determined or recommended to the Board of Directors by a majority of independent directors or by a compensation committee that is composed entirely of independent directors.
The board of directors has determined that Messrs. Nelson, Lewis and Firestone are independent directors, as such term is defined in the corporate governance rules of NASDAQ. In considering independence, the board of directors considered, in addition to relationships disclosed under “Certain Relationships and Related Transactions, and Director Independence,” (i) Mr. Gary’s relationships with entities controlled by Mr. Carl C. Icahn described under “Directors and Executive Officers” and that Mr. Gary is married to Mr. Carl C. Icahn’s wife’s daughter and (ii) that Mr. Andrew Roberto works as a financial analyst for IEP, an entity controlled by Mr. Icahn.

Item 14.
Principal Accountant Fees and Services.

During the years ended December 31, 2014 and 2013, we incurred fees and related expenses for professional services rendered by Grant Thornton LLP relating to the audit and review of the financial statements of the respective years totaling approximately $0.3 million and $0.4 million, respectively. “Audit Fees” included fees for professional services and expenses relating to the reviews of our quarterly financial statements and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2014 and 2013, June 30, 2014 and 2013 and September 30, 2014 and 2013. “Audit Fees” for years ended December 31, 2014 and 2013 also include fees relating to the procedures relating to our Forms S-1, S-4 and S-8 filings.
Audit-Related Fees
None.
Tax Fees
None.
All Other Fees
None.
Pre-Approval Policies and Procedures
The Audit Committee has adopted policies and procedures for the pre-approval of audit and non-audit services rendered by our independent auditor. The policy generally pre-approves specified services in the defined categories of audit services, audit-related services and tax services up to specified amounts. Pre-approval may also be given as part of our Audit Committee’s approval of the scope of the engagement of the independent auditor. All audit-related and tax services for fiscal years 2014 and 2013 by Grant Thornton were pre-approved by the Audit Committee of the Company.
The Audit Committee has determined that the rendering of the services by Grant Thornton, other than the audit services, is compatible with maintaining the principal accountant’s independence.




60


PART IV

Item 15.
Exhibits and Financial Statement Schedules.
(a) The following documents are filed as part of this report:
1. Financial Statements
The following consolidated financial statements are submitted in Part II, Item 8 of this annual report:

2. Financial Statement Schedules
All other financial statement schedules have been omitted because the required information is either included in the financial statements or the notes thereto or is not applicable.

3. Exhibits
The exhibits listed in the Exhibit Index at the end of this report are filed as Exhibits to this Amendment No. 1 on Form 10-K/A and are meant to supplement the Exhibits listed and/or filed in the Registrant’s Annual Report on Form 10-K filed on March 31, 2015.


61




SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
 
VOLTARI CORPORATION
 
 
 
 
Date:
April 20, 2015
By:
/s/    Richard Sadowsky
 
 
 
Richard Sadowsky

 
 
 
Acting Chief Executive Officer

62



EXHIBIT INDEX

 
 
 
Exhibit Number
 
Exhibit Description
31.1
 
Certification pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Acting Chief Executive Officer.*
 
 
 
31.2
 
Certification pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer.*
 
 
 
32.1
 
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Acting Chief Executive Officer**
 
 
 
32.2
 
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer**
 
 
 
101.INS
 
XBRL Instance Document*
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document*
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document*
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document*
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document*
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document*

 
*
Filed herewith.
 
 
 
**
Furnished herewith.


63