What changed in this filing

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Item 1. Legal Proceedings

2024-11-12 compared with 2024-08-09 · 37 added, 99 removed, 83 unchanged (62% of the section changed)

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We cannot predict with certainty the long-term effects of the unitary patent system and any potential changes .

Risks Related to the Asset Sale

The pending Asset Sale is subject to a number of conditions beyond our control.

Failure to complete the Asset Sale could materially and adversely affect our future business, results of operations, financial condition and stock price .

The closing of the Asset Sale is conditioned on the satisfaction of certain closing conditions, including receipt of regulatory approvals and performance in all material respects by each party of its obligations under the Purchase Agreement .

We cannot predict whether and when the conditions will be satisfied.

If one or more of these conditions is not satisfied, and as a result, we do not complete the Asset Sale, or in the event the Asset Sale is not completed or is delayed for any other reason, our business, results of operations, financial condition and stock price may be harmed because:

management’s and our employees’ attention may be diverted from our day-to-day operations as they focus on matters related to the Asset Sale;

we could potentially lose key employees if such employees experience uncertainty about their future roles with us and decide to pursue other opportunities;

we could potentially lose customers or vendors, and new customer or vendor contracts could be delayed or decreased;

we have agreed to restrictions in the Purchase Agreement that limit how we conduct our business prior to the closing of the Asset Sale, including, among other things, restrictions on our ability to make certain capital expenditures, investments and acquisitions, sell, transfer or dispose of our assets, enter into material contracts outside of the ordinary course of business, amend our organizational documents and incur indebtedness;

these restrictions may not be in our best interests and may disrupt or otherwise adversely affect our business and our relationships with our customers, prevent us from pursuing otherwise attractive business opportunities, limit our ability to respond effectively to competitive pressures, industry developments and future opportunities, and otherwise harm our business, financial results and operations;

we have incurred and expect to continue to incur expenses related to the Asset Sale, such as legal, financial advisory and accounting fees, and other expenses that are payable by us whether or not the Asset Sale is completed;

we may be required to pay a termination fee of $5.075 million to Buyer if the Purchase Agreement is terminated under certain circumstances, the payment of which would negatively affect our financial results and liquidity;

activities related to the Asset Sale and related uncertainties may lead to a loss of revenue and market position unrelated to the Asset Sale that we may not be able to regain if the Asset Sale does not occur;

the failure to, or delays in, consummating the Asset Sale may result in a negative impression of us with customers, potential customers or the investment community.

The occurrence of these or other events individually or in combination could have a material adverse effect on our business, results of operations, financial condition and stock price .

In addition, our stock price has and may continue to fluctuate significantly based on announcements by us, Buyer or other third parties regarding the Asset Sale or our business.

The Purchase Agreement contains provisions that could discourage a potential competing acquirer.

The Purchase Agreement contains “no solicitation” provisions that restrict our ability to solicit, initiate, or knowingly encourage, facilitate or induce third party proposals for the acquisition of our common stock or to pursue an unsolicited offer, subject to certain limited exceptions.

In addition, Buyer has an opportunity to modify or amend the terms of the Asset Sale in response to any unsolicited competing acquisition proposal before the board of directors may withdraw or change its recommendation with respect to the Asset Sale.

Upon the termination of the Purchase Agreement to pursue an alternative transaction, including in connection with a Superior Proposal (as defined in the Purchase Agreement), we will be required to pay Buyer $5.075 million as a termination fee.

These provisions could discourage a potential third-party acquirer from considering or proposing an acquisition transaction, even if it were prepared to pay a higher price than what would be received in the Asset Sale, or propose to acquire our entire company.

These provisions might also result in a potential third-party acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable.

If the Purchase Agreement is terminated and we determine to seek another purchaser for our Physical Security Business or an alternative transaction, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Asset Sale .

Our executive officers and directors have interests in the Asset Sale that may be different from, or in addition to, the interests of our stockholders generally.

Our executive officers and members of the board of directors may be deemed to have interests in the Asset Sale that may be different from or in addition to those of our stockholders, generally.

These interests may create potential conflicts of interest.

The board of directors was aware of these potentially differing interests and considered them, among other matters, in evaluating and negotiating the Purchase Agreement and in reaching its decision to approve the Purchase Agreement and the transactions thereunder .

These interests include potential payments to, and the vesting of RSUs held by, our executive officers pursuant to the terms of agreements we previously entered into with those officers.

Steven Humphreys, our Chief Executive Officer and a member of our board of directors, and Justin Scarpulla, our Chief Financial Officer, will receive a grant of 365,000 RSUs and 65,000 RSUs, respectively, effective immediately prior to the closing of the Asset Sale, which RSUs will be fully vested on grant and will settle for either stock or cash upon the closing of the Asset Sale.

In addition, Mr.

Humphreys and certain other members of the Company’s senior management have agreed to depart from the Company upon the closing of the Asset Sale and to join Buyer.

Specifically, Mr.

Humphreys has entered into an offer letter with Buyer effective upon the closing of the Asset Sale, pursuant to which he will depart from his positions with the Company and become Deputy Chief Executive Officer of, and a member of the Executive Committee of, Vitaprotech .

Upon the closing of the Asset Sale, RSUs relating to unvested shares held by our employees who are employed by the Physical Security Business and remain employed by the Company through the closing of the Asset Sale and, effective immediately following the Asset Sale, become employees of Buyer (or an affiliate of Buyer) will become vested at Closing, while RSUs held by our remaining employees and non-employee directors will continue to vest according to their terms .

We will incur significant expenses in connection with the Asset Sale, whether or not it is consummated.

We have and will continue to incur substantial expenses related to the Asset Sale, whether or not it is completed.

We recorded transaction-related costs of approximately $3.0 million through June 30, 2024, and we will incur additional costs and expenses until completion of the Asset Sale.

In addition, we will incur additional financial advisory fees that are payable upon consummation of the Asset Sale.

We may also be required to pay $5.075 million to Buyer if we terminate the Purchase Agreement in certain circumstances.

Payment of these expenses if the Asset Sale is not completed would adversely affect our operating results and financial condition, our plans on further investment into the IoT Business, and would likely adversely affect our stock price.

We cannot be sure if or when the Asset Sale will be completed.

The consummation of the Asset Sale is subject to the satisfaction or waiver of various conditions which have yet to be satisfied, including :

the absence of any order that has the effect of enjoining or otherwise prohibiting the completion of the Asset Sale;

each party’s representations and warranties being true and correct to the applicable specified standard as of the closing of the Asset Sale;

each party’s material compliance with agreements, covenants and conditions;

Buyer’s receipt of the Seller Closing Certificate (as defined in the Purchase Agreement) and the Company’s receipt of the Buyer Closing Certificate (as defined in the Purchase Agreement);

obtaining clearance from CFIUS .

We cannot guarantee that the closing conditions set forth in the Purchase Agreement will be satisfied.

If we are unable to satisfy the closing conditions in Buyer’s favor or if other mutual closing conditions are not satisfied, Buyer will not be obligated to complete the Asset Sale.

If the Asset Sale is not completed, the board of directors, in discharging its fiduciary obligations, may evaluate other strategic alternatives that may be available, which alternatives may not be as favorable to our stockholders as the Asset Sale.

These may include retaining and operating the Physical Security Business or pursuing an alternate sale transaction that would yield reduced consideration or involve significant delays.

Any future sale of substantially all of the assets of the Company or other transactions may be subject to stockholder approval .

We may be subject to litigation related to the Asset Sale, which is expensive and could divert our attention and resources.

We may be subject to litigation in connection with the Asset Sale.

Litigation against us could result in substantial costs and divert our management’s attention from closing the Asset Sale, which could harm our business and increase our expenses, which could decrease our net proceeds from the Asset Sale .

For example, in June 2024, two purported stockholders filed stockholder actions in the New York Supreme Court for the County of New York, alleging breach of fiduciary duty in connection with the board of directors’ agreement to sell the Physical Security Business to Buyer by allegedly omitting certain information from the Company’s definitive proxy statement with respect to the Asset Sale (the “Proxy Statement”), and seeking injunctive relief to enjoin the Asset Sale until the allegedly omitted information was disclosed.

The Company has not been served in either action.

While we believe that the disclosures set forth in the Proxy Statement comply fully with all applicable law and denies the allegations in the actions, this type of litigation could result in substantial costs, divert our management’s attention and resources, and could adversely affect our business, financial condition and results of operations.

Risks Related to the Company’s IoT Business if the Asset Sale is Completed

Risks Related to the Company’s IoT Business

The growing number of competitors in the RFID industry is posing additional risks to our business.

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We have in the past, and may in the future, experience the loss of employees to our competitors.

If we are unable to retain our existing personnel, or attract and retain additional qualified personnel, specifically in connection with and following the completion of the Asset Sale, our growth may be limited.

If we are unable to retain our existing personnel, or attract and retain additional qualified personnel, specifically following the completion of the Asset Sale, our growth may be limited.

Our key employees are employed on an “at will” basis, meaning either we or the employee may terminate their employment with us at any time.

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Also, if our stock price declines, as it has recently, it may result in difficulty attracting and retaining personnel as equity incentives generally comprise a significant portion of our employee compensation .

The separation of our Physical Security Business following the closing of the Asset Sale may significantly disrupt our operations.

If the Asset Sale is completed, we will separate the Physical Security Business from our operations, and financial reporting and corporate functions, which will require us to reconfigure our current system processes, transactions, data and controls.

This transition will require significant management attention, capital and personnel resources, and the coordination of our system providers and internal business teams.

We may experience difficulties, including delays and higher than anticipated costs related to capital and personnel resources, as we manage these changes, including loss or corruption of data, delays in finalizing our financial records for each accounting period and related delays in completion of our financial reporting, unanticipated expenses, and lost revenue.

In addition, delays in finalizing our records could result in our failure to timely file our periodic reports with the SEC, which could limit our access to the public markets to raise debt or equity capital, restrict our ability to issue equity securities, and result in the delisting of our common stock and/or regulatory sanctions from the SEC or The Nasdaq Stock Market, any of which could have a material adverse impact on our operations.

Difficulties in implementing the separation of the Physical Security Business could disrupt our operations, divert management’s attention from key strategic initiatives and have an adverse effect on our results of operations, financial condition and cash flows .

The separation of the Physical Security Business following the closing of the Asset Sale may significantly disrupt our operations.

The separation of the Physical Security Business from our operations and financial reporting and corporate functions has required us to reconfigure our system processes, transactions, data and controls.

This transition has required significant management attention, capital and personnel resources, and the coordination of our system providers and internal business teams.

We may experience difficulties, including delays and higher than anticipated costs related to capital and personnel resources, as we continue to manage these changes, including loss or corruption of data, delays in finalizing our financial records for each accounting period and related delays in completion of our financial reporting, unanticipated expenses, and lost revenue.

In addition, any delays in finalizing our records could result in our failure to timely file our periodic reports with the SEC, which could limit our access to the public markets to raise debt or equity capital, restrict our ability to issue equity securities, and result in the delisting of our common stock and/or regulatory sanctions from the SEC or The Nasdaq Stock Market, any of which could have a material adverse impact on our operations.

Difficulties in continuing to implement the separation of the Physical Security Business could disrupt our operations, divert management’s attention from key strategic initiatives and have an adverse effect on our results of operations, financial condition and cash flows .

Failure to expand our IoT Business to penetrate new markets and scale successfully within those markets may negatively impact our revenues and financial condition.

Following the closing of the Asset Sale, our growth strategy for the IoT Business will depend in part on our ability to penetrate emerging markets, such as the medical device market, and scale successfully within those markets.

Following the closing of the Asset Sale, our growth strategy for the IoT Business depends in part on our ability to penetrate emerging markets, such as the medical device market, and scale successfully within those markets.

The medical device market and other new markets present distinct and substantial challenges and risks and will likely require us to develop new customized solutions to address the particular requirements of that market.

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Even if the medical device market and other emerging markets develop as expected, we may not be able to achieve the high gross margins associated with such markets, or, if we do achieve such gross margins, we may not be able to sustain them .

Following the closing of the Asset Sale, we will continue to incur significant expenses and administrative burdens as a public company despite our revenue being significantly lower, which could have an adverse effect on our business, financial condition and results of operations.

Following the closing of the Asset Sale, we will continue to incur significant legal, accounting, administrative and other costs and expenses as a public company.

Because our revenue will be significantly reduced as a result of the divestiture of the Physical Security Business, these expenses will represent a larger percentage of our revenue and will have a negative effect on our gross margins.

If we are unable to generate sufficient revenue through our IoT Business following the Asset Sale, these increased expenses as a percentage of our revenue may have an adverse effect on our business, financial condition and results of operations .

We continue to incur significant expenses and administrative burdens as a public company despite our revenue being significantly lower following the Asset Sale, which could have an adverse effect on our business, financial condition and results of operations.

Following the closing of the Asset Sale, we continue to incur significant legal, accounting, administrative and other costs and expenses as a public company.

Because our revenue has and will continue to be significantly reduced as a result of the divestiture of the Physical Security Business, these expenses will represent a larger percentage of our revenue and will have a negative effect on our gross margins.

If we are unable to generate sufficient revenue through our IoT Business, these increased expenses as a percentage of our revenue may have an adverse effect on our business, financial condition and results of operations .

Uncertainty regarding the use of proceeds from the Asset Sale and our future operations may negatively impact the value and liquidity of our common stock.

Upon the closing of the Asset Sale, we will receive $145.0 million in cash from Buyer, subject to customary adjustments pursuant to the terms of the Purchase Agreement.

As consideration for the Asset Sale, we received approximately $144.3 million in cash, subject to further customary adjustments as set forth in the Purchase Agreement.

Our board of directors will have discretion regarding the use of proceeds from the Asset Sale and plans to use a portion of the net proceeds to pursue growth opportunities for the IoT Business.

It may also use the funds to pay dividends and distributions on or redeem or repurchase our capital stock;

It may also use the funds to pay dividends and distributions on or redeem or repurchase our capital stock pursuant to our stock repurchase program;

for working capital and other general corporate purposes, which may include sales and marketing activities, research and development, general and administrative matters and capital expenditures;

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This uncertainty may negatively impact the value and liquidity of our common stock.

While our board of directors has approved a stock repurchase program following the Asset Sale, we cannot guarantee that the program will be fully completed.

The program does not obligate us to repurchase any specific dollar amount or number of shares of our common stock.

Additionally, it has no expiration date and may be suspended or terminated at any time at our discretion.

We may use the net proceeds for purposes that do not yield a significant return or any return at all for our stockholders.

In addition, pending their use, we may invest the net proceeds from the Asset Sale in a manner that does not produce income or that loses value, or in a manner that stockholders do not agree with.

For example, repurchases pursuant to our stock repurchase program could affect the trading price of our stock, increase volatility and reduce the market liquidity for our common stock.

If we do not invest or apply the net proceeds from the Asset Sale in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline .

The amount of net proceeds that we receive from the Asset Sale is subject to decrease .

Upon the closing of the Asset Sale, we will receive aggregate cash consideration of $145.0 million subject to certain upward adjustments related to cash and cash equivalents and working capital and certain downward adjustments related to the working capital of the Physical Security Business, indebtedness, and selling expenses.

The amount of the working capital of the Physical Security Business at any given point in time is dependent upon a number of factors beyond our control.

If the working capital of the Physical Security Business at the closing of the Asset Sale is less than $19.5 million, the net proceeds we will receive in connection with the Asset Sale will be decreased on a dollar-for-dollar basis, in addition to reductions with respect to our indebtedness and selling expenses at the closing of the Asset Sale.

There can be no assurance that the closing working capital of the Physical Security Business will be at or above $19.5 million, and that we will receive the full $145.0 million purchase price .

If the Asset Sale is completed, our business prospects may diminish and our stock price may decline.

If the Asset Sale closes, we will continue to operate our IoT Business despite the sale of assets that have historically generated a significant portion of our revenue.

We received approximately $144.3 million in cash as consideration for the Asset Sale, which amount is subject to further customary adjustments as set forth in the Purchase Agreement.

Such post-closing adjustment process, including any disputes between us and the Buyer regarding the final purchase price and any adjustments thereof, could result in a significant reduction to the amount of net proceeds that we receive from the Asset Sale .

Our business prospects may diminish following completion of the Asset Sale and our stock price has and may continue to decline.

We continue to operate our IoT Business despite the sale of assets that have historically generated a significant portion of our revenue.

For example, the Physical Security Business generated approximately 63% of the Company’s revenue for the fiscal year ended December 31, 2023.

The divestiture of the Physical Security Business will result in material cash proceeds to the Company and a reduction in operating expenses and liabilities;

however, our revenue following the closing of the Asset Sale will be limited to our IoT Business.

The divestiture of the Physical Security Business resulted in material cash proceeds to the Company and a reduction in operating expenses and liabilities;

however, our revenue following the closing of the Asset Sale is now limited to our IoT Business.

A failure by us to grow our IoT Business could result in our business prospects diminishing, and the value and liquidity of our common stock could be negatively impacted .

Even if the Asset Sale is completed, we cannot provide any assurances that we will realize the benefits we currently anticipate from the Asset Sale.

We cannot provide any assurances that we will realize the benefits we currently anticipate from the Asset Sale.

We expect to focus our resources, capital, and management attention towards expanding our IoT Business.

We cannot provide any assurances that we will realize the intended benefits of the Asset Sale.

We expect to continue to focus our resources, capital, and management attention towards expanding our IoT Business.

However, we may not be able to realize our goals for the IoT Business.

In addition, we will experience a significant decrease in revenue as a result of the sale of the Physical Security Business.

Any failure to realize the benefits we currently anticipate from the Asset Sale could have a material adverse impact on our future operating results and financial condition and could materially and adversely affect our stock price or trading volume .

In addition, we have and will continue to experience a significant decrease in revenue as a result of the sale of the Physical Security Business.

Any failure to realize the intended benefits of the Asset Sale could have a material adverse impact on our future operating results and financial condition and could materially and adversely affect our stock price or trading volume .

To the extent we pursue acquisitions, strategic alliances, or investments in other businesses, products, services, technologies or assets, we could experience operating difficulties and other consequences that may harm our business, financial condition, and operating results, and we may not be able to successfully consummate favorable transactions or successfully integrate such acquisitions.

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Changes in management following the closing of the Asset Sale may adversely affect the future performance of our IoT Business.

Upon the closing of the Asset Sale, Mr.

Humphreys and certain other members of the Company’s senior management will join Buyer.

Following the completion of the Asset Sale and the departure of these members of senior management, the senior management of the Company will include Kirsten Newquist, currently President, IoT Solutions, Justin Scarpulla, Chief Financial Officer, Edward Kirnbauer, Vice President, Global Corporate Controller, Dr.

In connection with the closing of the Asset Sale, our former Chief Executive Officer, Steven Humphreys, and certain other members of our senior management joined Buyer.

The senior management of the Company currently includes Kirsten Newquist, Chief Executive Officer, Justin Scarpulla, Chief Financial Officer, Edward Kirnbauer, Vice President, Global Corporate Controller, Dr.

Manfred Mueller, Chief Strategy Officer, Amir Khoshniyati, Executive Vice President and General Manager, IoT Solutions, and Boon Yong (BY) Koh, Executive Vice President, Operations.

Newquist joined the Company on April 15, 2024.

Humphreys’ departure, Ms.

Newquist will assume the role of Chief Executive Officer of the Company and is expected to serve as a member of the board of directors.

In connection with these changes in management and the sale of our Physical Security Business, there will be changes to the Company’s operations and our key strategies and tactical initiatives related to our IoT Business over time.

In connection with these changes in management and the sale of our Physical Security Business, there have been and will continue to be changes to the Company’s operations and our key strategies and tactical initiatives related to our IoT Business over time.

If we do not successfully implement and adapt to these changes, we may be unable to successfully execute our long-term business development plans for our IoT Business, which could adversely affect our financial condition and results of operations.

Further, the future performance of our IoT Business will depend, in part, on the successful transition of our workforce to our new operating and organizational structure following the Asset Sale, and our inability to

successfully manage these transitions could be viewed negatively by our customers, employees, investors and other third-party partners, and could have an adverse impact on our business and results of operations .

We will be subject to five-year non-competition and non-solicitation covenants under the Purchase Agreement, which will prevent us from reentering the Physical Security Business.

Following the closing of the Asset Sale, we will be subject to five-year non-competition and non-solicitation covenants in the Purchase Agreement.

During such five-year period, the Company and its controlled affiliates will be restricted from directly or indirectly engaging with, managing or operating, or having any ownership interest in any person that engages with, manages, or operates, a business that is competitive with the Physical Security Business or competes for customers of the Physical Security Business, in each case, with respect to geographies that the Physical Security Business participated in as of the closing of the Asset Sale.

Further, the future performance of our IoT Business will depend, in part, on the successful transition of our workforce to our new operating and organizational structure, and our inability to successfully manage these transitions could be viewed negatively by our customers, employees, investors and other third-party partners, and could have an adverse impact on our business and results of operations .

We are subject to five-year non-competition and non-solicitation covenants under the Purchase Agreement, which will prevent us from reentering the Physical Security Business.

We are subject to five-year non-competition and non-solicitation covenants in the Purchase Agreement.

During such five-year period, the Company and its controlled affiliates are restricted from directly or indirectly engaging with, managing or operating, or having any ownership interest in any person that engages with, manages, or operates, a business that is competitive with the Physical Security Business or competes for customers of the Physical Security Business, in each case, with respect to geographies that the Physical Security Business participated in as of the closing of the Asset Sale.

In addition, during this five-year period, the Company has agreed, not to directly or indirectly hire, engage, recruit, employ, solicit or otherwise attempt to employ or engage or enter into any business relationship with any Business Employee or Acquired Entity Employee (each as defined in the Purchase Agreement), or induce or attempt to induce any such employee to leave his or her employment with Buyer or Buyer’s affiliates, subject to certain customary limitations.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Legal Proceedings