What changed in this filing

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Item 1A. Risk Factors

2019-03-01 compared with 2018-03-07 · 32 added, 31 removed, 210 unchanged (23% of the section changed)

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You should also refer to other information included or incorporated by reference in this report.

The intended monetization of our partner company interests and distribution of net proceeds to shareholders are subject to factors beyond our control.

The intended monetization of our partner company interests and return of capital to shareholders are subject to factors beyond our control.

In January 2018, we announced that we will not deploy any capital into new partner companies.

We will instead focus on supporting, and maximizing monetization opportunities for our existing partner company interests to enable distributions of net proceeds to shareholders.

However, this strategic plan may require providing significant additional capital and operational support to such existing partner companies and we may not be able to sell our partner company interests during any specific time frame or otherwise on desirable terms, if at all, and there can be no assurance as to how long this process will take or the results that this process will yield.

We will instead focus on supporting, and maximizing monetization opportunities for our existing partner company interests to return value to shareholders.

However, this strategic plan may require providing additional capital and operational support to such existing partner companies and we may not be able to sell our partner company interests during any specific time frame or otherwise on desirable terms, if at all, and there can be no assurance as to how long this process will take or the results that this process will yield.

There can be no assurance as to whether we will realize the value of escrowed proceeds, holdbacks or other contingent consideration, if any, associated with the sale of partner company interests.

Additionally, there can be no assurance that we will be able to satisfy our liabilities during this process.

Further, the method, timing and amount of any distributions resulting from the monetization of existing partner companies will be at the discretion of our Board of Directors and will depend on market and business conditions and our overall liabilities, capital structure and liquidity position.

Further, the method, timing and amount of any return of capital resulting from the monetization of existing partner companies will be at the discretion of our Board of Directors and will depend on market and business conditions and our overall liabilities, capital structure and liquidity position.

The continuing costs and burdens associated with being a public company will constitute a much larger percentage of our expenses and we may in the future delist our Common Stock with the New York Stock Exchange and seek to deregister our Common Stock with the SEC.

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The costs and burdens of being a public company will be a significant and continually increasing portion of our expenses if we are able to monetize partner company interests.

As part of such monetization efforts, we will likely in the future, once the majority of our partner company interests have been monetized and proceeds therefrom distributed, delist our Common Stock from the New York Stock Exchange and seek to deregister our Common Stock with the SEC.

As part of such monetization efforts, we will likely in the future, once the majority of our partner company interests have been monetized and proceeds therefrom returned to shareholders, delist our Common Stock from the New York Stock Exchange and seek to deregister our Common Stock with the SEC.

However, there can be no assurance as to the timing of such transactions, or whether such transactions will be completed at all, and we will continue to face the costs and burdens of being a public company until such time as our Common Stock is delisted with the New York Stock Exchange and deregistered with the SEC.

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Our Credit Facility subjects us to interest rate risk.

In May 2017, we entered into a $75.0 million secured, revolving credit facility (“Credit Facility”) with HPS Investment Partners, LLC (“Lender”).

In May 2017, we entered into a secured credit facility with HPS Investment Partners, LLC (“Lender”), the “Credit Facility”).

Debt service costs under the Credit Facility are subject to interest rate changes.

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Servicing the indebtedness under the Credit Facility will require a significant amount of cash and our ability to generate cash depends on many factors beyond our control.

Our ability to make payments on the indebtedness under the Credit Facility will depend on our ability to generate cash in the future.

Our ability to service and pay the indebtedness under the Credit Facility will depend on our ability to generate cash in the future.

We generate cash from proceeds we receive in connection with the sales of our interests in our partner companies.

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Our ability to generate cash is also, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

The risk exists that our business will be unable to generate sufficient cash flow to service our indebtedness under the Credit Facility.

The risk exists that our business will be unable to generate sufficient cash flow to service and pay our indebtedness under the Credit Facility.

Covenants in the agreements governing the Credit Facility could adversely affect our business and/or result in the operation of our business in a way other than as desired by management;

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Sell, transfer, lease, convey or otherwise dispose of all or any part of our business or property;

Exceed concentration limits with respect to the amount of capital deployed to any single partner company;

Exceed concentration limits with respect to the amount of capital deployed to one or more partner companies operating in the same or similar industries;

Deploy capital to partner companies operating outside of certain specified industries;

Make deployments to companies other than our existing partner companies;

Make deployments that, when combined with deployments after January 1, 2018, exceed $40.0 million in the aggregate;

Following May, 2018, incur or pay for any expenses in any twelve-month period in excess of $11.5 million;

Incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons;

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In addition, the Credit Facility requires us to among other things, maintain (i) a liquidity threshold of at least $20 million of unrestricted cash;

(ii) a tangible net worth, plus unrestricted cash, of at least 1.75x the amount then outstanding under the Credit Facility;

and (iii) a minimum aggregate appraised value of the Company’s ownership interests in its partner companies, plus unrestricted cash in excess of the liquidity threshold, of at least $350 million.

and (ii) a minimum aggregate appraised value of the Company’s ownership interests in its partner companies, plus unrestricted cash in excess of the liquidity threshold, of at least $350 million less certain prepayments made under the Credit Facility.

The foregoing covenants could adversely affect our ability to finance our operations, engage in business activities that may be in our interest and plan for or react to market conditions or otherwise execute our business strategies.

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If the Lender were to accelerate the maturity of the indebtedness, we may not have sufficient liquidity to repay the entire balance of the outstanding borrowings and other obligations under the Credit Facility.

A significant amount of our deployed capital may be concentrated in partner companies operating in the same or similar industries, limiting the diversification of our capital deployments.

Except as may be agreed to with our debt providers, we do not have fixed guidelines for diversification of capital deployments, and our capital deployments could be concentrated in several partner companies that operate in the same or similar industries.

As we execute against our strategy, a significant amount of our deployed capital may be concentrated in partner companies operating in the same or similar industries, limiting our diversification.

Our capital deployments could be concentrated in several partner companies that operate in the same or similar industries.

This may cause us to be more susceptible to any single economic, regulatory or other occurrence affecting those particular industries than we would otherwise be if our partner companies operated in more diversified industries.

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As a result, we have substantial cash requirements.

Our partner companies generally provide us with no cash flow from their operations.

Our partner companies do not provide us with cash flow from their operations.

To the extent our partner companies generate any cash from operations, they generally retain the funds to develop their own businesses.

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We hold significant positions in our partner companies.

Consequently, if we were to divest all or part of our holdings in a partner company, we may have to sell our interests at a relative discount to a price which may be received by a seller of a smaller portion.

If we were to divest all or part of our holdings in a partner company, we may have to sell our interests at a relative discount to intrinsic value.

For partner companies with publicly traded stock, we may be unable to sell our holdings at then-quoted market prices.

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Our success is dependent on our senior management team’s ability to execute our strategy.

In January 2018, we announced our intent to reduce overhead costs, which included a reduction in certain members of senior management.

On April 6, 2018, we publicly announced a series of management changes intended to streamline our organizational structure and reduce our operating costs.

These aggressive cost-reduction initiatives better aligned our cost structure with the strategy we announced in January 2018.

A loss of one or more of the remaining members of our senior management team without adequate replacement could have a material adverse effect on us.

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Although we currently own a significant, influential interest in some of our partner companies, we do not maintain a controlling interest in any of our partner companies.

Acquisitions of interests in partner companies in which we share or have no control, and the dilution of our interests in or loss of control of partner companies, will involve additional risks that could cause the performance of our interests and our operating results to suffer, including:

Acquisitions of interests in partner companies in which we share or have

no control, and the dilution of our interests in or loss of control of partner companies, will involve additional risks that could cause the performance of our interests and our operating results to suffer, including:

the management of a partner company having economic or business interests or objectives that are different from ours;

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In order to continue to comply with the 40% Test, we may need to take various actions which we would otherwise not pursue.

For example, we may need to retain a controlling interest in a partner company that we no longer consider strategic, we may not be able to acquire an interest in a company unless we are able to obtain a controlling ownership interest in the company, or we may be limited in the manner or timing in which we sell our interests in a partner company.

For example, we may be limited in the manner or timing in which we sell our interests in a partner company.

Our ownership levels also may be affected if our partner companies are acquired by third parties or if our partner companies issue stock which dilutes our ownership interest.

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Based on our business model, some or all of our partner companies will need to raise additional capital to fund their operations at any given time.

We may not be able to fund some or all of such amounts and such amounts may not be available from third parties on acceptable terms, if at all.

Further, if our partner companies do raise additional capital, either debt or equity, such capital may rank senior to our interests in such companies.

We may not be able to, or decline to, fund some or all of such amounts and such amounts may not be available from third parties on acceptable terms, if at all.

Further, if our partner companies do raise additional capital from third parties, either debt or equity, such capital may rank senior to, or dilute, our interests in such companies.

We cannot be certain that our partner companies will be able to obtain additional financing on favorable terms when needed, if at all.

Because our resources and our ability to raise capital are not unlimited, we may not be able to provide partner companies with sufficient capital resources to enable them to reach a cash-flow positive position or a sale of the company, even if we wish to do so.

We may not be able to, or decline to, provide partner companies with sufficient capital resources to enable them to reach a cash-flow positive position or a sale of the company.

General economic disruptions and downturns may also negatively affect the ability of some of our partner companies to fund their operations from other stockholders and capital sources.

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In such event, our interest in any such partner company will become less valuable.

If our partner companies raise additional capital, either debt or equity, that ranks senior to the capital we have deployed, such capital may entitle its holders to receive returns of capital before the dates on which we are entitled to receive any return of our deployed capital.

If our partner companies raise additional capital from third parties, either debt or equity, such capital may be dilutive, making our interests less valuable or if such capital ranks senior to the capital we have deployed, such capital may entitle its holders to receive returns of capital before we are entitled to receive any return of our deployed capital.

Also, in the event of any insolvency, liquidation, dissolution, reorganization or bankruptcy of a partner company, holders of such partner company’s instruments that rank senior to our deployed capital will typically be entitled to receive payment in full before we receive any return of our deployed capital.

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Even though we believe our partner companies’ products do not infringe any third party’s patents, they may have to pay substantial damages, possibly including treble damages, if it is ultimately determined that they do.

They may have to obtain a license to sell their products if it is determined that their products infringe

on another person’s intellectual property.

They may have to obtain a license to sell their products if it is determined that their products infringe on another person’s intellectual property.

Our partner companies might be prohibited from selling their products before they obtain a license, which, if available at all, may require them to pay substantial royalties.

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Because manufacture and sale of certain partner company products entail an inherent risk of product liability, certain partner companies maintain product liability insurance.

Although none of our current partner companies have experienced any material losses in this regard, there can be no assurance that they will be able to maintain or acquire adequate product liability insurance in the future and any product liability claim could have a material adverse effect on a partner company’s financial stability, revenues and results of operations.

stability, revenues and results of operations.

In addition, many of the engagements of our partner companies involve projects that are critical to the operation of their clients’ businesses.

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If Medicare or private payers change the rates at which our partner companies or their customers are reimbursed by insurance providers for their products, such changes could adversely impact our partner companies.

Some of our partner companies may be subject to significant environmental, health and safety regulation.

Some of our partner companies may be subject to significant environmental, health, data security and safety regulation.

Some of our partner companies may be subject to licensing and regulation under federal, state and local laws and regulations relating to the protection of the environment and human health and safety, including laws and regulations relating to the handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials, as well as to the safety and health of manufacturing and laboratory employees.

In addition, the federal Occupational Safety and Health Administration has established extensive requirements relating to workplace safety.

In addition, some of our partner companies are subject to federal, state and local financial securities and data security regulations, including, without limitation, the Health Insurance Portability and Accountability Act of 1996, as amended, and the European General Data Protection Regulation, which impose varying degrees of additional obligations, costs and risks upon such partner companies, including the imposition of significant penalties in the event of any non-compliance.

Further, the federal Occupational Safety and Health Administration has established extensive requirements relating to workplace safety.

Compliance with such regulations could increase operating costs at certain of our partner companies, and the failure to comply could negatively affect the operations and results of some of our partner companies.

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Some of these data centers are operated by third parties, and the partner companies have limited control over those facilities.

A disruption or failure of these systems or data centers in the event of a natural disaster, telecommunications failure, power outage, cyber-attack, war, terrorist attack or other catastrophic event could cause system interruptions, reputational harm, delays in product development, breaches of data security and loss of

critical data.

Such an event could also prevent the partner companies from fulfilling customer orders or maintaining certain service level requirements, particularly in respect of their SaaS offerings.

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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-K

Item 1A. Risk Factors