S-4 1 fs42014_kitaramedia.htm REGISTRATION STATEMENT

As filed with the Securities and Exchange Commission on November 5, 2014

Registration No. 333-__________

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-4

 

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

KITARA HOLDCO CORP.

(Exact name of registrant as specified in its charter)

 

Delaware   7374   47-2133177
(State of Incorporation)   (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

 

525 Washington Blvd, Suite 2620

Jersey City, New Jersey 07310

(201) 539-2200

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Robert Regular, Chief Executive Officer

Kitara Holdco Corp.

525 Washington Blvd, Suite 2620

Jersey City, New Jersey 07310

(201) 539-2200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

With copies to:

 

David Alan Miller, Esq.

Jeffrey M. Gallant, Esq.

Graubard Miller

The Chrysler Building

405 Lexington Avenue

New York, New York 10174

Telephone: (212) 818-8800

Fax: (212) 818-8881

J. Keith Biancamano, Esq.

Andrew K. Hirsch, Esq.

Gibson, Dunn & Crutcher LLP

333 S. Grand Ave.

Los Angeles, CA 90071-3197

Telephone: (213) 229-7000

Facsimile: (213) 229-7520

 

  

Approximate date of commencement of proposed sale of securities to the public: As soon as practicable after this Registration Statement is declared effective and all other conditions to the merger contemplated by the Agreement and Plan of Reorganization, dated as of October 10, 2014, described in the enclosed Proxy Statement/Prospectus, have been satisfied or waived.

 

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

  Accelerated filer  ☐ Large accelerated filer  ☐
  Non-accelerated filer  ☐ Smaller reporting company þ

 (Do not check if a smaller reporting company)

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ☐

 

 
 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to be Registered  Amount to be Registered   Proposed Maximum Offering Price per Share   Proposed Maximum Aggregate Offering Price   Amount of Registration Fee 
Common Stock, par value $0.0001   105,265,065(1)  $0.5205(2)  $54,790,466.33   $6,366.65(3)

 

(1)The number of shares of common stock, $0.0001 per share, of the registrant being registered represents the estimated maximum number of shares of the registrant’s common stock to be issued to stockholders of Kitara Media Corp. (“Kitara”) in connection with the merger of a wholly-owned subsidiary of the registrant with and into Kitara, including the estimated maximum number of shares of the registrant’s common stock that may be issuable pursuant to options and warrants prior to the date the merger is expected to be completed.
(2)Pursuant to Rules 457(c), 457(f)(1) and 457(f)(3) under the Securities Act and solely for the purpose of calculating the registration fee, the proposed maximum offering price per share is the average of the high and low prices of Kitara’s common stock on October 30, 2014.
(3)Calculated by multiplying the proposed maximum aggregate offering price of securities to be registered by $116.20 per million dollars.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 
 

  

KITARA MEDIA CORP.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON DECEMBER [●], 2014

To Kitara Media Corp. Stockholders:

A Special Meeting of the Stockholders (“Special Meeting”) of Kitara Media Corp. (“Kitara”) will be held on December [●], 2014 at 10:00 a.m., local time, at the offices of our general counsel, Graubard Miller, located at The Chrysler Building, 405 Lexington Avenue, 11th Floor, New York, New York 10174. The purposes of the Special Meeting are to:

1.Consider and vote on a proposal to adopt the Agreement and Plan of Reorganization, dated as of October 10, 2014, by and among Kitara, Kitara Holdco Corp. (“New Holdco”) and Kitara Merger Sub, Inc. (“Merger Sub”), as it may be amended (the “merger agreement”), a copy of which is attached to the accompanying proxy statement/‌prospectus as Annex A, and approve the merger contemplated thereby—this proposal is referred to herein as the “Merger Proposal.”
2.Consider and vote on proposals to approve the following six material provisions in the New Holdco certificate of incorporation that will be in effect after the completion of the merger and that are not in, or that are different from comparable provisions in, the current Kitara amended and restated certificate of incorporation—these proposals are collectively referred to herein as the “Charter Amendment Proposals”:
a.New Holdco is authorized to issue 500,000,000 shares of common stock.
b.Any director or the entire board of directors generally may be removed, with or without cause, by the affirmative vote of at least 66 2/3% of the voting power of the stock outstanding and entitled to vote thereon.
c.The affirmative vote of at least 66 2/3% of the voting power of the stock outstanding and entitled to vote thereon, generally shall be required to amend any provision of the New Holdco certificate of incorporation.
d.The affirmative vote of at least 66 2/3% of the voting power of the stock outstanding and entitled to vote thereon, generally shall be required for the stockholders of New Holdco to amend any provision of the bylaws of New Holdco.
e.New Holdco shall not be bound or governed by, or otherwise subject to, Section 203 of the Delaware General Corporation Law.
f.Certain actions and proceedings with respect to New Holdco may be brought only in a court in the State of Delaware.
3.Consider and vote on a proposal to approve the New Holdco 2014 Long-Term Incentive Plan, which is an incentive equity compensation plan for directors, officers, employees, consultants and other service providers of New Holdco and its subsidiaries — this proposal is referred to herein as the “Equity Plan Proposal.”
4.Consider and vote on a proposal to adjourn the Special Meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the Special Meeting to adopt the merger agreement and approve the merger—this proposal is referred to herein as the “Adjournment Proposal.”

The board of directors of Kitara unanimously recommends a vote “FOR” the Merger Proposal, the Charter Amendment Proposals, the Equity Plan Proposal and, if necessary, the Adjournment Proposal.

The board of directors of Kitara has fixed November [●], 2014 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Special Meeting or any adjournment thereof. Only holders of record of shares of Kitara common stock at the close of business on the record date are entitled to notice of, and to vote at, the Special Meeting or any adjournments or postponements thereof.

For more information about the proposals and the Special Meeting, please review carefully the accompanying proxy statement/prospectus.

Whether or not you expect to attend the Special Meeting in person, please submit a proxy by telephone or over the internet as instructed in these materials, or complete, date, sign and return the enclosed proxy card, as promptly as possible in order to ensure that we receive your proxy with respect to your shares of Kitara common stock. Instructions are shown on the enclosed proxy card and a return envelope (postage pre-paid if mailed in the United States) is enclosed for your convenience.

Please do not send documents or certificates representing your ownership of Kitara common stock at this time. If the transactions contemplated by the merger agreement are consummated, we will notify you of the procedures for exchanging your shares of Kitara common stock.

  By Order of the Board of Directors,
   
  /s/ Jonathan J. Ledecky
  Chairman of the Board
   

Jersey City, New Jersey

   
[●], 2014    

 
 

 

The information in this proxy statement/prospectus is not complete and may be changed. The registrant may not sell the securities described herein until the registration statement filed with the Securities and Exchange Commission is declared effective. This proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROXY STATEMENT/PROSPECTUS
SUBJECT TO COMPLETION, DATED NOVEMBER 5, 2014

PROXY STATEMENT FOR SPECIAL MEETINGS OF STOCKHOLDERS OF
KITARA MEDIA CORP.

PROSPECTUS FOR SHARES OF COMMON STOCK OF
KITARA HOLDCO CORP.

Kitara Media Corp., or “Kitara,” has entered into (i) an Agreement and Plan of Reorganization, dated as of October 10, 2014, or the “merger agreement,” with Kitara Holdco Corp., or “New Holdco,” a wholly-owned subsidiary of Kitara, and Kitara Merger Sub, Inc., or “Merger Sub,” a wholly-owned subsidiary of New Holdco, and (ii) a Unit Exchange Agreement, dated as of October 10, 2014, or the “exchange agreement,” with New Holdco, Future Ads LLC, or “Future Ads,” and the holders of the outstanding limited liability company interests of Future Ads, or the “members.” If the transactions contemplated by the merger agreement and the exchange agreement are consummated, New Holdco will become the new publicly traded company and Kitara and Future Ads will become wholly-owned subsidiaries of New Holdco.

Pursuant to the merger agreement, Merger Sub will merge with and into Kitara, with Kitara surviving the merger as a wholly-owned subsidiary of New Holdco. We refer to this merger throughout this proxy statement/prospectus as the “merger.” In the merger, the outstanding shares of Kitara common stock will be converted into shares of New Holdco common stock. Immediately following the merger and as part of a single integrated transaction, pursuant to the exchange agreement, the members will exchange all of the outstanding limited liability company interests of Future Ads for cash, shares of New Holdco common stock and the right to receive certain additional payments, all as described in more detail in this proxy statement/prospectus. We refer to this exchange throughout this proxy statement/prospectus as the “exchange.” The merger and the exchange are conditioned on each other and neither will be consummated if the other cannot be consummated.

The transactions will be financed by funds managed or advised by Highbridge Principal Strategies LLC, or “Highbridge,” which we expect will be providing up to $96,000,000 in senior term loan and revolving loan credit to New Holdco and certain of its subsidiaries (including Kitara and Future Ads).

In the merger, you will receive one share of New Holdco common stock for each share of Kitara common stock you own. Immediately following completion of the merger and the exchange, we expect that New Holdco will have 250,097,333 shares outstanding. Immediately following the completion of the merger and the exchange, of the shares of New Holdco common stock to be outstanding, we expect that the former Kitara stockholders and certain of the former members of Future Ads will own 95,884,241 shares (or 38.3%) and 154,213,092 shares (or 61.7%), respectively. Additionally, we expect there to be an aggregate of 40,870,765 shares of New Holdco common stock reserved for issuance under stock options and warrants assumed by New Holdco and awards that may be granted under New Holdco’s new equity compensation plan.

Kitara will hold a special meeting of its stockholders, or the “Special Meeting,” to consider and vote on a proposal to adopt the merger agreement and approve the merger. The Special Meeting will be held on December [●], 2014 at 10:00 a.m., local time, at the offices of our general counsel, Graubard Miller, located at The Chrysler Building, 405 Lexington Avenue, 11th Floor, New York, New York 10174. Adoption of the merger agreement and approval of the merger requires the affirmative vote of the holders of a majority of the outstanding shares of Kitara common stock entitled to vote. In connection with the exchange agreement, Kitara entered into a voting agreement, or the “voting agreement,” with certain of the existing Kitara stockholders, including Kitara’s officers and directors, or the “supporting parties.” Under the voting agreement, the supporting parties have agreed, among other things, to vote their shares of Kitara common stock in favor of the adoption of the merger agreement and approval of the merger and any other matters necessary for consummation of the merger and any other transactions contemplated in the merger agreement. The supporting parties hold a majority of the currently outstanding Kitara common stock. Accordingly, the supporting parties may adopt the merger agreement and approve the merger without the affirmative vote of any other Kitara stockholder.

On October 10, 2014, the last full trading day before the merger agreement and exchange agreement were announced, the closing sales price of Kitara’s common stock, which trades on the Over-the-Counter Bulletin Board, or “OTCBB,” under the symbol “KITM,” was $0.305 per share. We expect that immediately following completion of the transactions contemplated by the merger agreement and exchange agreement, the shares of New Holdco common stock will trade on the OTCBB under the symbol “[●].”

Important information about the Special Meeting, the proposed transactions and related matters is contained in this proxy statement/prospectus, which we urge you to read in its entirety, including the annexes and exhibits.

Please carefully review this document, including the section entitled “Risk Factors” beginning on page 23, for a discussion of the risks relating to the transactions.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

The proxy statement/prospectus is dated [●], 2014, and is first being mailed to stockholders of Kitara on or about [●], 2014.

 
 

 

ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information about Kitara that is not included in or delivered with this proxy statement/prospectus. Please refer to the section entitled “Where You Can Find More Information” beginning on page 184. In addition, this information is available without charge to security holders upon written or oral request to:

Kitara Holdco Corp.
525 Washington Blvd., Suite 2620
Jersey City, New Jersey 07310

Attn: Corporate Secretary
(201) 539-2200

To obtain timely delivery, security holders must request the information no later than December [●], 2014, which is five business days before the date of the Special Meeting.

 

 

 

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING 1
SUMMARY 8
Parties to the Transactions 8
The Merger and Exchange 9
Kitara Board Reasons & Recommendations 10
Key Terms of Transaction Agreements 10
Exchange Agreement 10
Merger Agreement 11
Financing the Proposed Transaction 12
Ancillary Agreements 12
Voting Agreement 12
Lockup Agreements 13
Registration Rights Agreement 13
Stockholders’ Agreement 13
Regulatory Approvals 13
Tax Consequences to Kitara Stockholders 13
Differences with Respect to Rights of Kitara Stockholders and New Holdco Stockholders 14
Officers and Directors of New Holdco 14
Employment Agreements 14
Interests of Kitara Executive Officers and Directors in the Transactions 15
Interests of the Current Members, Managers and Executive Officers of Future Ads in the Transactions 15
Voting by Kitara’s Executive Officers and Directors 16
Appraisal Rights 16
SELECTED HISTORICAL FINANCIAL DATA 17
Selected Historical Financial Data of Kitara 17
Selected Historical Financial Data of Future Ads 18
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION 19
COMPARATIVE PER SHARE DATA 21
MARKET PRICE AND DIVIDEND INFORMATION 22
RISK FACTORS 23
Risks Related to the Transactions 23
Risks Related to the Business of Both Kitara and Future Ads 29
Risks Related to the Business of Kitara 35
Risks Related to the Business of Future Ads 40
Risks Related to New Holdco and New Holdco Securities 50
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 54
THE SPECIAL MEETING 56
Date, Time and Place of the Special Meeting 56
Purpose of the Special Meeting 56
Record Date; Outstanding Shares Entitled to Vote 56
Ownership of Kitara Common Stock 57
Quorum 57
Vote Required 57
Recommendation of Kitara’s Board of Directors 58
Voting by Kitara’s Directors and Executive Officers 58

 

i

 

How to Vote 58
Attending the Special Meeting 59
Voting of Proxies 59
Voting of Kitara Shares Held in Street Name 59
Revoking your Proxy 60
Proxy Solicitations 60
Other Business 60
Adjournments and Postponements 60
PROPOSAL NO. 1 — THE MERGER PROPOSAL 61
Vote Required for Approval 61
Recommendation of the Kitara Board of Directors 61
PROPOSAL NOS. 2A TO 2F — THE CHARTER AMENDMENT PROPOSALS 62
Proposal 2A — Increase in Authorized Shares 62
Proposal 2B — Super-Majority Requirement for Removal of Directors 63
Proposal 2C — Super-Majority Requirement for Amendments to Certificate of Incorporation 64
Proposal 2D — Super-Majority Requirement for Amendments to Bylaws by the Stockholders of New Holdco 64
Proposal 2E — Opt Out of Section 203 64
Proposal 2F — Exclusive Forum Provision 65
Vote Required for Approval of Each Charter Amendment Proposal 66
Recommendation of the Kitara Board of Directors 66
PROPOSAL NO. 3 — THE EQUITY PLAN PROPOSAL 67
Background 67
Summary of the 2014 Plan 68
Purpose 68
Administration 68
Stock Subject to the Plan 68
Eligibility 68
Types of Awards 69
Withholding Taxes 71
Term and Amendments 71
Federal Income Tax Consequences 72
New Plan Benefits 74
Vote Required for Approval 74
Recommendation of the Kitara Board of Directors 74
PROPOSAL NO. 4 — THE ADJOURNMENT PROPOSAL 75
Vote Required for Approval 75
Recommendation of the Kitara Board of Directors 75
THE TRANSACTIONS 76
General Description of the Transactions 76
Background of the Transactions 77
Kitara’s Reasons for the Transactions and Recommendation of Kitara’s Board of Directors 78
Interests of the Current Members, Managers and Executive Officers of Future Ads in the Transactions 81
Accounting Treatment of the Transactions 82
Trading of New Holdco Common Stock 82
Deregistration of Kitara Common Stock 82

 

ii

 

MATERIAL U.S. FEDERAL TAX CONSEQUENCES 83
U.S. Federal Income Tax Consequences of the Merger for U.S. Holders of Kitara Common Stock 83
Reporting Requirements 84
THE AGREEMENTS 85
Description of the Merger Agreement 85
The Merger; Consideration 85
Effective Time 85
Treatment of Kitara Stock Options and Warrants 85
Exchange Procedures in the Merger 86
Conditions to the Merger Agreement 86
Termination 86
Description of the Exchange Agreement 86
The Exchange; Consideration 86
Closing 88
Directors and Officers of New Holdco 89
Certain Representations and Warranties 89
No Solicitation 90
Reimbursement of Expenses 90
Financing 91
2014 Plan 91
Director and Officer Indemnification and Insurance 91
Conduct of Businesses Prior to the Closing 91
Conditions to the Transactions 94
Termination 95
Amendment and Waiver 95
Debt Financing 96
Ancillary Agreements 96
Voting Agreement 96
Lockup Agreements 97
Registration Rights Agreement 97
Stockholders’ Agreement 98
PRO FORMA FINANCIAL INFORMATION 100
SECURITY OWNERSHIP 112
Beneficial Ownership of Kitara Common Stock 112
Beneficial Ownership of Future Ads Limited Liability Company Interests 113
Post-Transaction Pro Forma Beneficial Ownership of New Holdco Common Stock 114
Equity Compensation Plans 116
KITARA’S BUSINESS 117
Overview 117
Our Solutions, Services and Technology 117
Advertising Solution 117
Audience Performance Optimization 118
Brand Safety 118
Publisher Solution 118
Video Content Solution 119
PROPEL+ Technology Platform 119
Video Portfolio 119
Proprietary Site Portfolio 120
Our Clients 120
Digital Advertisers 120
Digital Publishers 120
Video Content Providers 120

 

iii

 

Our Opportunity 121
Our Strategy 122
Competition 122
Technology and Development 122
Intellectual Property 123
Government Regulation 123
Privacy 123
Advertising 124
Employees 124
History of the Company 124
Facilities 125
Legal Proceedings 125
KITARA’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 126
Introduction 126
General 126
Results of Operations 127
Comparison of Three and Six Months Ended June 30, 2014 and 2013 127
Comparison of Years Ended December 31, 2013 and 2012 130
Liquidity and Capital Resources 132
Sources of Liquidity 132
Cash Flows 133
Contractual Obligations and Commitments 135
Off-Balance Sheet Arrangements 136
Critical Accounting Policies and Estimates 136
Capitalization of internally developed software 136
Revenue recognition 137
Business Combinations 137
KITARA’S RELATED PARTY TRANSACTIONS 138
Related Party Transactions 138
Related Party Policy 140
KITARA’S EXECUTIVE OFFICER AND DIRECTOR COMPENSATION 142
Summary Compensation Table 142
Employment Agreements 142
Outstanding Equity Awards at Fiscal Year End 145
Retirement Plans 145
Termination and Change in Control Payments 145
Director Compensation 146
FUTURE ADS’ BUSINESS 147
Overview 147
Industry Overview 147
Business 149
Advertiser Sales and Account Management 149
Audience Development 151
Solutions, Technology & Services 151
Opportunity 152
Strategy 153
Competition 153
Technology and Development 153
Intellectual Property 154

 

iv

 

Government Regulation 154
Privacy 154
Advertising Content 155
Employees 155
FUTURE ADS’ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 156
General 156
Results of Operations 156
Comparison of Six Month Periods Ended June 30, 2014 and 2013 156
Comparison of Three Month Periods Ended June 30, 2014 and 2013 158
Comparison of Years Ended December 31, 2013 and 2012 159
Comparison of Years Ended December 31, 2012 and 2011 161
Liquidity and Capital Resources 162
Sources of Liquidity 162
Cash Flows 162
Contractual Obligations and Commitments 164
Off-Balance Sheet Arrangements 164
Critical Account Policies and Estimates 164
Third party application developer partners 164
Download based partners 164
Variable Interest Entity 164
Other critical accounting policies and estimates 164
FUTURE ADS RELATED PARTY TRANSACTIONS 165
NEW HOLDCO’S EXECUTIVE OFFICERS AND DIRECTORS 166
Directors of New Holdco 166
Kitara Designees 166
Future Ads Designees 167
Executive Officers of New Holdco 168
Director Independence 168
New Holdco Executive Officer and Director Compensation 169
Compensation Discussion and Analysis 170
Severance Benefit 171
Other Compensation 171
New Employment Agreements 171
Director and Consultant Compensation 171
DESCRIPTION OF NEW HOLDCO CAPITAL STOCK 172
Authorized Shares of New Holdco Capital Stock 172
New Holdco Common Stock 172
Stockholder Voting 172
Dividends and Other Distributions 172
Stock Incentive Plan 173
New Holdco Preferred Stock 173
Other Matters 173
Corporate Opportunities 174
Limitation on Director’s Liability; Indemnification 174
Transfer Agent and Registrar 174
COMPARISON OF STOCKHOLDER RIGHTS 175
Capitalization 175
Dividends and Other Distributions 176
Number and Election of Directors 176
Removal of Directors 177

 

v

 

Vacancies on the Board of Directors 177
Nominations of Directors and Stockholder Proposals 178
Voting by Stockholders 178
Amendment of Certificate of Incorporation 179
Amendment of Bylaws; New Bylaws 179
Business Combinations; Corporate Opportunities 179
APPRAISAL RIGHTS 180
LEGAL MATTERS 184
EXPERTS 184
DEADLINE FOR 2015 KITARA STOCKHOLDER PROPOSALS 184
WHERE YOU CAN FIND MORE INFORMATION 184
INDEX TO FINANCIAL STATEMENTS FS-1

 

Annex A     Merger Agreement  
     
Annex B Exchange Agreement  
     
Annex C 2014 Long-Term Incentive Equity Plan  
     
Annex D Voting Agreement  
     
Annex E Lock Up Agreements  
     
Annex F Registration Rights Agreement  
     
Annex G Stockholders’ Agreement  
     
Annex H Certificate of Incorporation of Kitara Holdco Corp.  
     
Annex I Bylaws of Kitara Holdco Corp.  
     
Annex J Section 262 of the DGCL  

 

vi

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

 

The following are brief answers to common questions that you may have regarding the Special Meeting. We urge you to carefully read this entire proxy statement/prospectus because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional information is also contained in the annexes to this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 184.

 

Unless otherwise stated in this proxy statement/prospectus:

 

references herein to the “exchange” are to the exchange of Future Ads limited liability company interests for shares of New Holdco common stock, cash and the right to receive certain additional payments as contemplated by the exchange agreement;

 

references herein to the “exchange agreement” are to the Unit Exchange Agreement, dated as of October 10, 2014, by and among Kitara, New Holdco, Future Ads and the members, as the same may be amended or supplemented from time to time;

 

references herein to the “merger” are to the merger of Merger Sub with and into Kitara, with Kitara surviving the merger as a wholly-owned subsidiary of New Holdco, as contemplated by the merger agreement;

 

references herein to the “merger agreement” are to the Agreement and Plan of Reorganization, dated as of October 10, 2014, by and among Kitara, New Holdco and Merger Sub, as the same may be amended or supplemented from time to time;

 

references herein to the “transactions” are collectively to the merger and the exchange; and

 

references herein to “we,” “us” or “our” or to “our company,” unless otherwise indicated, are to both Kitara and Future Ads, before completion of the transactions, and to New Holdco and its subsidiaries, after the completion of the transactions.

 

Q:On what matters am I being asked to vote?

 

A:You are being asked to consider and vote on the following proposals:

 

A proposal to adopt the merger agreement, a copy of which is attached hereto as Annex A, and approve the merger contemplated thereby—this proposal is referred to herein as the “Merger Proposal.”

 

  Proposals to approve the following six provisions in the New Holdco certificate of incorporation that will be in effect after the completion of the merger and that are not in, or that are different from comparable provisions in, the current Kitara amended and restated certificate of incorporation—these proposals are collectively referred to herein as the “Charter Amendment Proposals”:

 

New Holdco is authorized to issue 500,000,000 shares of common stock.

 

Any director or the entire board of directors generally may be removed, with or without cause, by the affirmative vote of at least 66 2/3% of the voting power of the stock outstanding and entitled to vote thereon.

 

1

 

The affirmative vote of at least 66 2/3% of the voting power of the stock outstanding and entitled to vote thereon, generally shall be required to amend any provision of the New Holdco certificate of incorporation.

 

The affirmative vote of at least 66 2/3% of the voting power of the stock outstanding and entitled to vote thereon, generally shall be required for the stockholders of New Holdco to amend any provision of the bylaws of New Holdco.

 

New Holdco shall not be bound or governed by, or otherwise subject to, Section 203 of the Delaware General Corporation Law, or the “DGCL.”

 

Certain actions and proceedings with respect to New Holdco may be brought only in a court in the State of Delaware.

 

A proposal to approve the New Holdco 2014 Long-Term Incentive Equity Plan, or the “2014 Plan,” a copy of which is attached hereto as Annex C—this proposal is referred to herein as the “Equity Plan Proposal.”

 

A proposal to adjourn the Special Meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the Special Meeting to adopt the merger agreement and approve the merger—this proposal is referred to herein as the “Adjournment Proposal.”

 

If the Merger Proposal is approved, pursuant to the merger agreement, Merger Sub will merge with and into Kitara, with Kitara surviving the merger as a wholly-owned subsidiary of New Holdco. In connection with the merger, the outstanding shares of Kitara common stock will be converted into shares of New Holdco common stock and all outstanding stock options and warrants of Kitara will be assumed by New Holdco. Immediately following the merger, pursuant to the exchange agreement, the members will exchange all of the outstanding limited liability company interests of Future Ads for cash, shares of New Holdco common stock and the right to receive certain additional payments. As a result of the transactions, New Holdco will become the new publicly traded company and Kitara and Future Ads will become wholly-owned subsidiaries of New Holdco.

 

If the Charter Amendment Proposals are approved, among other things, New Holdco will be authorized to issue more shares of New Holdco common stock than Kitara was authorized to issue of Kitara common stock and super-majority voting requirements will be imposed for the removal of directors of New Holdco, for the amendment of the certificate of incorporation of New Holdco and for the amendment of the bylaws of New Holdco by the stockholders of New Holdco. In addition, New Holdco will be permitted to engage in certain business combinations with an interested stockholder (as defined in Section 203 of the DGCL) that otherwise would be subject to restrictions under Section 203 of the DGCL. If the Merger Proposal is not approved, the Charter Amendment Proposals will not be presented at the Special Meeting.

 

If the Equity Plan Proposal is approved, the 2014 Plan will provide for nine percent of the fully diluted shares of New Holdco common stock as of the closing to be reserved for issuance to directors, officers, employees, consultants and other service providers of New Holdco and its subsidiaries pursuant to the 2014 Plan. If the Merger Proposal is not approved, the Equity Plan Proposal will not be presented at the Special Meeting.

 

If the Merger Proposal is approved, the Adjournment Proposal will not be presented at the Special Meeting. If the Merger Proposal is not approved and the Adjournment Proposal is approved, the Kitara board of directors may adjourn the Special Meeting to a later date to permit further solicitation of proxies in favor of adoption of the merger agreement and approval of the merger.

 

2

 

Kitara is holding the Special Meeting to obtain approval of the Merger Proposal and the other proposals. The enclosed proxy card or voting instruction card allows you to vote your Kitara common stock without attending the Special Meeting.

 

Q:When and where is the Special Meeting?

 

A:The Special Meeting is scheduled to be held on December [●], 2014 at 10:00 a.m., local time, at the offices of our general counsel, Graubard Miller, located at The Chrysler Building, 405 Lexington Avenue, 11th Floor, New York, New York 10174.

 

Q:Who is entitled to vote at the Special Meeting?

 

A:The board of directors of Kitara has fixed November [●], 2014, as the record date for the Special Meeting. If you were a Kitara stockholder at the close of business on the record date, you are entitled to vote your Kitara shares at the Special Meeting.

 

Q:What constitutes a quorum for the Special Meeting?

 

A:A majority of the outstanding shares of Kitara common stock entitled to vote, present at the Special Meeting in person or by proxy, will constitute a quorum for the Special Meeting.

 

Q:Who can attend the Special Meeting?

 

A:All Kitara stockholders as of the record date may attend the Special Meeting. If you are a beneficial owner of Kitara shares held in street name and you wish to attend the Special Meeting, you must provide evidence of your ownership of Kitara shares, which you can obtain from your broker, banker or nominee.

 

Q:How many votes do I have?

 

A:You are entitled to one vote at the Special Meeting for each share of Kitara common stock that you owned as of the record date. As of the close of business on the record date, there were approximately [●] shares of Kitara common stock outstanding.

 

Q:What vote is required to approve the proposals being presented at the Special Meeting?

 

A:Merger Proposal: The affirmative vote of the holders of at least a majority of the outstanding shares of Kitara common stock is required to adopt the merger agreement and approve the merger. In connection with the exchange agreement, Kitara entered into a voting agreement with the supporting parties. Under the voting agreement, the supporting parties have agreed, among other things, to vote their shares of Kitara common stock in favor of the adoption of the merger agreement and approval of the merger. The supporting parties, who hold a majority of the shares of currently outstanding Kitara common stock, may adopt the merger agreement and approve the merger without the affirmative vote of any other Kitara stockholder.

 

Charter Amendment Proposals: Approval of each of the Charter Amendment Proposals will require the affirmative vote of the holders of a majority of the shares of Kitara common stock present in person or represented by proxy at the Special Meeting and entitled to vote on that proposal. Under the voting agreement, the supporting parties have agreed, among other things, to approve any other matters necessary for consummation of the merger and any other transactions contemplated in the merger agreement, which would include the Charter Amendment Proposals. The supporting parties, who hold a majority of the shares of currently outstanding Kitara common stock, may adopt the Charter Amendment Proposals without the affirmative vote of any other Kitara stockholder.

 

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Equity Plan Proposal: Approval of the Equity Plan Proposal will require the affirmative vote of the holders of a majority of the shares of Kitara common stock present in person or represented by proxy at the Special Meeting and entitled to vote on that proposal. Under the voting agreement, the supporting parties have agreed, among other things, to vote their shares of Kitara common stock in favor of the adoption of the Equity Plan Proposal. The supporting parties, who hold a majority of the shares of currently outstanding Kitara common stock, may adopt the Equity Plan Proposal without the affirmative vote of any other Kitara stockholder.

 

Adjournment Proposal: Approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority of the shares of Kitara common stock present in person or represented by proxy at the Special Meeting and entitled to vote on that proposal. Under the voting agreement, the supporting parties have agreed, among other things, to approve any other matters necessary for consummation of the merger and any other transactions contemplated in the merger agreement, which would include the Adjournment Proposal. The supporting parties, who hold a majority of the shares of currently outstanding Kitara common stock, may adopt the Adjournment Proposal without the affirmative vote of any other Kitara stockholder.

 

Q:What if my bank, broker or other nominee holds my shares of Kitara in “street name”?

 

A:If a bank, broker or other nominee holds your Kitara shares for your benefit but not in your own name, your Kitara shares are in “street name.” In that case, your bank, broker or other nominee will send you a voting instruction form to use for your Kitara shares. The availability of telephone and Internet voting depends on the voting procedures of your bank, broker or other nominee. Please follow the instructions on the voting instruction form they send you. If your Kitara shares are held in the name of your bank, broker or other nominee and you wish to vote in person at the Special Meeting, you must contact your bank, broker or other nominee and request a document called a “legal proxy.” You must bring this legal proxy to the Special Meeting in order to vote in person.

 

Q:How do I vote?

 

A:After reading and carefully considering the information contained in this proxy statement/prospectus, please vote promptly. In order to ensure your vote is recorded, please submit your proxy or voting instructions as set forth below as soon as possible even if you plan to attend the Special Meeting.

 

Internet. You can vote over the Internet by following the instructions included with your proxy card. If you vote over the Internet, do not return your proxy card. The availability of Internet voting for beneficial owners holding Kitara shares in street name will depend on the voting process of your broker, bank or nominee. Please follow the voting instructions in the materials you receive from your broker, bank or nominee.

 

Telephone. You can vote by telephone by following the instructions included with your proxy card. Telephone voting is available 24 hours a day. If you vote by telephone, do not return your proxy card. The availability of telephone voting for beneficial owners holding Kitara shares in street name will depend on the voting process of your broker, bank or nominee. Please follow the voting instructions in the materials you receive from your broker, bank or nominee.

 

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Mail. You can vote by mail by simply completing, signing, dating and mailing your proxy card or voting instruction card in the postage-paid envelope included with this proxy statement/prospectus.

 

In addition, all stockholders may vote in person at the Special Meeting. You may also be represented by another person at the Special Meeting by executing a proper proxy designating that person. If you are a beneficial owner of Kitara shares held in street name, you must obtain a legal proxy from your broker, bank or nominee and present it to the inspectors of election with your ballot when you vote at the Special Meeting.

 

For additional information on voting procedures, see “The Special Meeting – How to Vote,” beginning on page 58.

 

Q:What do I do if I receive more than one set of voting materials?

 

A:You may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your Kitara shares in more than one brokerage account, you will receive a separate instruction card for each brokerage account in which you hold shares. If you are a holder of record and your Kitara shares are held in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card you receive, or you may cast your vote by telephone or Internet by following the instructions on your proxy card.

 

Q:How will my proxy be voted?

 

A:If you vote by Internet, by telephone or by completing, signing, dating and mailing your proxy card or voting instruction card, your Kitara shares will be voted in accordance with your instructions. If you are a stockholder of record and you sign, date, and return your proxy card but do not indicate how you want to vote with respect to a proposal and do not indicate that you wish to abstain with respect to that proposal, your Kitara shares will be voted in favor of that proposal.

 

Q:What if I mark “abstain” when voting or do not instruct my bank, broker or other nominee how to vote on the proposals?

 

A:If you mark “abstain” when voting, your Kitara shares will still be counted in determining whether a quorum is present at the Special Meeting. However, if you fail to instruct your bank, broker or other nominee on how to vote the Kitara shares you hold in street name, your Kitara shares will not be counted in determining whether a quorum is present at the Special Meeting.

 

Merger Proposal: Because adoption of the merger agreement and approval of the merger requires the affirmative vote of the majority of the outstanding shares of common stock of Kitara as of the record date, if you mark “abstain” or if you fail to instruct your bank, broker or other nominee on how to vote the Kitara shares you hold in street name, it will have the same effect as a vote “AGAINST” the merger.

 

Charter Amendment Proposals: If you mark “abstain” with respect to any of the Charter Amendment Proposals, it will have the same effect as a vote “AGAINST” the proposal. If you fail to instruct your broker or other nominee on how to vote the Kitara shares you hold in street name, your Kitara shares will not be treated as present at the Special Meeting and entitled to vote on any such proposal, and as such, your failure to instruct your broker or nominee how to vote will not have any effect on the vote with respect to such proposal.

 

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Equity Plan Proposal: If you mark “abstain” with respect to the Equity Plan Proposal, it will have the same effect as a vote “AGAINST” the proposal. If you fail to instruct your broker or other nominee on how to vote the Kitara shares you hold in street name, your Kitara shares will not be treated as present at the Special Meeting and entitled to vote on that proposal, and as such, your failure to instruct your broker or nominee how to vote will not have any effect on the vote with respect to that proposal.

 

Adjournment Proposal: If you mark “abstain” with respect to the Adjournment Proposal, it will have the same effect as a vote “AGAINST” that proposal. If you fail to instruct your broker or other nominee on how to vote the Kitara shares you hold in street name with respect to the Adjournment Proposal, your Kitara shares will not be treated as present at the Special Meeting and entitled to vote on that proposal, and as such, your failure to instruct your broker or nominee how to vote will not have any effect on the vote with respect to that proposal.

 

Q:Can I change my vote after I have submitted a proxy or voting instruction card?

 

A:Yes. If you are a stockholder of record, you can change your vote at any time before your proxy is voted at the Special Meeting. If you are a beneficial owner of Kitara shares held in street name, you should follow the instructions of your broker, bank or nominee to change your vote. For additional information on changing your vote, see “The Special Meeting – Revoking your Proxy” beginning on page 60.

 

Q:Are Kitara stockholders entitled to exercise dissenters’ or appraisal rights in connection with the merger?

 

A:Yes. Holders of Kitara common stock who object to the merger may elect to pursue appraisal rights to receive the judicially determined “fair value” of their shares, but only if they comply with the procedures required under Delaware law. For additional information on the appraisal rights of Kitara stockholders, see “Appraisal Rights” beginning on page 180.

 

Q:Should I send in my Kitara stock certificates now?

 

A:No. If you hold Kitara stock certificates, after we have completed the merger, you will receive written instructions informing you how to exchange your Kitara stock certificates.

 

Q:How does the board of directors of Kitara recommend that I vote with respect to the proposed merger and the other proposals being presented at the Special Meeting?

 

A:Kitara’s board of directors recommends that the stockholders of Kitara vote “FOR” the Merger Proposal and the other proposals being presented at the Special Meeting. Additional information on the recommendation of Kitara’s board of directors is set forth in “The Transactions – Kitara’s Reasons for the Transactions and Recommendation of Kitara’s Board of Directors” beginning on page 78.

 

Q:When do you expect the merger and exchange to be completed?

 

A:The transactions are expected to close by December 31, 2014. However, the consummation of the transaction is subject to conditions other than Kitara stockholder approval, and it is possible that factors outside the control of Kitara and Future Ads could result in the merger being completed at a later time, or not at all.

  

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Q:Are there any risks that I should consider?

 

A:Yes. There are risks associated with all business combinations, including the proposed merger. There are also risks associated with New Holdco’s business and the ownership of New Holdco shares. We have described certain of these risks and other risks in more detail under “Risk Factors” beginning on page 23.

 

Q:Where can I find more information about Kitara?

 

A:Kitara files periodic reports and other information with the Securities and Exchange Commission, or the “SEC.” You may read and copy this information at the SEC’s public reference facility. Please call the SEC at 1-800-SEC-0330 for information about this facility. Kitara’s SEC filings are also available over the Internet at the SEC’s website at http://www.sec.gov. Additionally, certain of Kitara’s reports are available under the heading “Company – Investors” on Kitara’s corporate website at http://www.kitaramedia.com. The information contained or accessible on Kitara’s website is not part of this proxy statement/prospectus.

 

Q:Who can answer my questions I may have about the Special Meeting or the transactions?

 

A:If you have more questions about the transactions, please call Robert Regular of Kitara at (201) 539-2200.

 

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SUMMARY

 

The following summary highlights only selected information contained elsewhere in this proxy statement/prospectus and may not contain all the information that may be important to you. Accordingly, you are encouraged to read this proxy statement/prospectus carefully and in its entirety, including its annexes and the documents incorporated by reference into this proxy statement/prospectus. See the section entitled “Where You Can Find More Information” on page 184.

 

Parties to the Transactions

 

Kitara Media Corp.

 

Kitara is a digital media and technology company providing complete video solutions to advertisers, digital publishers, and video content providers. With nearly 500 million monthly video advertising views, Kitara delivers precise targeting and engagement for advertisers, accretive monetization and engaging video content for publishers, and expanded distribution for video content providers. Kitara’s internally developed proprietary technology platform PROPEL+ enables the automation and optimization of video advertising, video content and digital publishing spaces, while enhancing the video experience for consumers. Kitara’s common stock is traded on the OTCBB under the symbol “KITM.”

 

Kitara is a Delaware corporation originally formed under the name “Ascend Acquisition Corp.” on December 5, 2005. Kitara’s executive offices are located at 525 Washington Blvd., Suite 2620 Jersey City, New Jersey 07310, and its telephone number at that location is (201) 539-2200.

 

Kitara Holdco Corp.

 

New Holdco was formed solely for the purpose of being a holding company of both Kitara and Future Ads from and after completion of the transactions contemplated by the merger agreement and the exchange agreement. New Holdco is currently a wholly-owned subsidiary of Kitara. New Holdco has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement and exchange agreement.

 

New Holdco is a Delaware corporation formed on October 7, 2014. New Holdco’s executive offices are located at c/o Kitara Media Corp., 525 Washington Blvd., Suite 2620 Jersey City, New Jersey 07310, and its telephone number at that location is (201) 539-2200.

 

Kitara Merger Sub, Inc.

 

Merger Sub was formed solely for the purpose of consummating the merger with Kitara. Merger Sub is currently a wholly-owned subsidiary of New Holdco. Merger Sub has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement.

 

Merger Sub is a Delaware corporation formed on October 7, 2014. Merger Sub’s executive offices are located at c/o Kitara Media Corp., 525 Washington Blvd., Suite 2620 Jersey City, New Jersey 07310, and its telephone number at that location is (201) 539-2200.

 

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Future Ads LLC

 

Future Ads is a diversified online advertising company. Future Ads generates revenues through the sale of advertising to advertisers who want to reach consumers in the United States and internationally to promote their products and services. Future Ads delivers advertising through its real-time, bid-based, online advertising platform called Trafficvance. This technology platform allows advertisers to target audiences and deliver text, display and video based advertising. The Future Ads business and its Trafficvance platform provide advertisers with an effective way to serve, manage and maximize the performance of their online advertising purchasing. Future Ads offers both a self-serve platform and a managed services option that give advertisers diverse solutions to reach online audiences and acquire customers. Future Ads has over 1,400 advertiser customers and its platform has the capacity to serve approximately 26 million ads per day.

 

Future Ads is a California limited liability company originally formed on September 9, 2008. Future Ads’ executive offices are located at 2010 Main St., Suite #900, Irvine, California 92614, and its telephone number at that location is ‎(949) 251-0640.

 

The Merger and Exchange

 

On October 10, 2014, Kitara simultaneously entered into the merger agreement with New Holdco and Merger Sub and the exchange agreement with New Holdco, Future Ads and the members of Future Ads.

 

Pursuant to the merger agreement, Merger Sub will merge with and into Kitara, with Kitara surviving the merger as a wholly-owned subsidiary of New Holdco. In the merger, each outstanding share of Kitara common stock will be converted into one share of New Holdco common stock.

 

Immediately following the merger and as part of a single integrated transaction, pursuant to the exchange agreement, the members of Future Ads will exchange all of the outstanding Future Ads limited liability company interests for (i) $80,000,000 in cash, (ii) shares of New Holdco common stock that represent 53% of the fully diluted shares of New Holdco common stock outstanding as of the closing of the transactions, or the “closing,” (iii) the right to receive performance-based “earn out” payments that would enable the members to receive up to an additional $40,000,000 in cash or stock consideration based on Future Ads reaching certain EBITDA levels during the 2015 to 2018 fiscal years, (iv) on or prior to June 30, 2016, $10,000,000 in cash and/or shares of New Holdco common stock, which we refer to in this proxy statement/prospectus as the “deferred consideration,” and (v) immediately after the payment of certain fees to Highbridge on or about the fourth anniversary of the closing, $6,000,000 in cash. The consideration payable to the members is subject to a post-closing adjustment based on the working capital and indebtedness of Future Ads and the working capital of Kitara.

 

Furthermore, after the closing, New Holdco will reimburse the members for all transaction expenses paid by Future Ads, its subsidiaries or the members on or before the closing, and will assume all of their unpaid transaction expenses as of such date. Future Ads estimates that the aggregate transaction expenses reimbursed or assumed by New Holdco will be approximately $1.25 million.

 

The merger and the exchange are conditioned on each other and neither will be consummated if the other cannot be consummated. Immediately following the closing, New Holdco will be the new publicly traded company and Kitara and Future Ads will be wholly-owned subsidiaries of New Holdco. Immediately following the closing, of the shares of New Holdco common stock to be outstanding, we expect that the former Kitara stockholders and certain of the former members of Future Ads will own 95,884,241 shares (or 38.3%) and 154,213,092 shares (or 61.7%), respectively. Additionally, we expect there to be an aggregate of 40,870,765 shares of New Holdco common stock reserved for issuance under stock options and warrants assumed by New Holdco and awards that may be granted under the 2014 Plan.

  

For additional information on the transactions, see “The Transactions” beginning on page 76.

 

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Kitara Board Reasons & Recommendations

 

After careful consideration, the members of Kitara’s board of directors unanimously approved the merger agreement, the exchange agreement and the related agreements and transactions. For factors considered by the Kitara board of directors in reaching its decision to approve the merger agreement, the exchange agreement and the related agreements and transactions, see “The Transactions – Kitara’s Reasons for the Transactions and Recommendation of Kitara’s Board of Directors” beginning on page 78. The board of directors of Kitara unanimously recommends that Kitara stockholders vote “FOR” the adoption of the merger agreement and approval of the merger and “FOR” the other proposals being presented at the Special Meeting.

 

Key Terms of Transaction Agreements

 

The following sets forth certain additional key terms of the transaction agreements:

 

Exchange Agreement

 

Representations and Warranties

 

The exchange agreement contains certain representations and warranties of Kitara and New Holdco, on the one hand, and the members and Future Ads, on the other hand. The representations and warranties of the parties will not survive the closing, and thereafter no party will be under any liability whatsoever with respect to the representations and warranties other than in the case of fraud. For additional information relating to the representations and warranties, see “The Agreements – Description of the Exchange Agreement – Certain Representations and Warranties” beginning on page 89.

 

No Solicitation

 

Under the exchange agreement, Kitara and the members of Future Ads may not take, and will cause their respective affiliates, representatives and other agents and their respective subsidiaries to refrain from taking, any action to, directly or indirectly, among other things, approve, authorize, encourage, initiate, solicit or engage in discussion or negotiations with, or provide any information to, any person other than the parties to the exchange agreement, or their respective affiliates and representatives, concerning any alternate transaction (as defined in the exchange agreement and described in “The Agreements – Description of the Exchange Agreement – No Solicitation” beginning on page 90).

 

New Stock Plan

 

Pursuant to the exchange agreement, New Holdco and Kitara have created the 2014 Plan, which will provide for nine percent of the fully diluted outstanding shares of New Holdco common stock as of the closing to be reserved for issuance to directors, officers, employees, consultants and other service providers of New Holdco and its subsidiaries pursuant to the plan.

 

Subsequent Equity Financings

 

During the period commencing with the closing and ending on June 30, 2016 (or earlier if paid in shares as elected by the members), New Holdco and its affiliates shall use their reasonable best efforts to complete equity financings that will raise sufficient net proceeds to pay the $10,000,000 of deferred consideration to the members of Future Ads. For additional information relating to the deferred consideration, see “The Agreements – Description of the Exchange Agreement – The Exchange; Consideration” beginning on page 86.

 

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Conditions

 

As more fully described in this proxy statement/prospectus and as set forth in the exchange agreement, the consummation of the exchange depends on a number of conditions being satisfied or waived. These conditions include, but are not limited to:

 

no governmental authority having enacted, issued, promulgated, enforced or entered any law or order (whether temporary, preliminary or permanent) that is then in effect and that enjoins, restrains, makes illegal or otherwise prohibits the consummation of the exchange;

 

the waiting period under the Hart-Scott Rodino Act Antitrust Improvements Act of 1976, as amended, or the “HSR Act,” having expired or been terminated;

 

the merger having been completed or all of the conditions necessary for such completion having been satisfied and the merger being consummated contemporaneously with the exchange; and

 

the debt financing having been consummated.

 

Kitara’s and New Holdco’s obligation and the obligation of the members of Future Ads to consummate the exchange are subject to certain additional customary conditions. For additional information relating to the conditions to the consummation of the transactions, see “The Agreements – Description of the Exchange Agreement – Conditions to the Transactions” beginning on page 94.

 

Termination of the Exchange Agreement

 

The exchange agreement provides for certain customary termination rights for Kitara and the members, including by Kitara or by the members acting jointly, if the conditions to such party’s obligation to close the exchange cannot be fulfilled prior to January 31, 2015, if the exchange has not closed by such date, or if the debt financing has not been consummated by such date, in each case subject to certain conditions. The exchange agreement also may be terminated by mutual written consent of Kitara and the members acting jointly. For additional information on termination of the exchange agreement, see “The Agreements – Description of the Exchange Agreement – Termination” beginning on page 95.

 

Merger Agreement

 

Existing Stock Options and Warrants

 

At the effective time of the merger, New Holdco will assume and continue Kitara’s existing 2012 Long-Term Incentive Equity Plan, or the “2012 Plan,” and its 2013 Long-Term Incentive Equity Plan, or the “2013 Plan,” and all outstanding stock options thereunder. The plans and options will apply to New Holdco and the shares of New Holdco common stock in the same manner as they previously applied to Kitara and the shares of Kitara common stock. In addition, New Holdco will assume the other outstanding options and warrants of Kitara, in each case in accordance with the terms of the respective securities. For additional information on the assumption of the plans, options and warrants, see “The Agreements – Description of the Merger Agreement – Treatment of Kitara Stock Options and Warrants” beginning on page 85.

 

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Conditions

 

As more fully described in this proxy statement/prospectus and as set forth in the merger agreement, the consummation of the merger depends on a number of customary conditions being satisfied or waived. In addition, the merger will only be consummated if the transactions contemplated by the exchange agreement are also consummated. For additional information on conditions to the merger, see “The Agreements – Description of the Merger Agreement – Conditions to the Merger Agreement” beginning on page 86.

 

Termination

 

As more fully described in this proxy statement/prospectus and as set forth in the merger agreement, the merger agreement may be terminated and the merger abandoned at any time prior to the effective time of the merger if (a) the exchange agreement has been terminated in accordance with its terms or (b) with the consent of Future Ads, the Kitara board of directors determines that the consummation of the merger would not, for any reason, be advisable and in the best interests of Kitara and its stockholders. For additional information on termination of the merger agreement, see “The Agreements – Description of the Merger Agreement – Termination” beginning on page 86.

 

Financing the Proposed Transaction

 

Kitara and Future Ads have obtained a debt commitment letter for $96,000,000 in debt financing from Highbridge. The financing will consist of a new revolving credit facility in the amount of $15,000,000 (not more than $7,500,000 of which will be funded at the closing) and term loan credit facility in the amount of $81,000,000. Proceeds from the financing will be used to facilitate the merger and the exchange and specifically to: (i) pay the cash consideration to the members of Future Ads, (ii) refinance certain existing indebtedness of Kitara and its subsidiaries, (iii) pay fees and expenses related to the transactions (including the financing for the transactions) and (iv) fund the ongoing working capital requirements of New Holdco and its subsidiaries. On or about the fourth anniversary of the closing, New Holdco will pay a fee of $12,500,000 to Highbridge in cash or, if sufficient funds are not available, New Holdco common stock. For additional information relating to the financing, see “The Agreements – Debt Financing” beginning on page 96.

 

Pursuant to the exchange agreement, in the event that any portion of the debt financing contemplated by the debt commitment letter becomes unavailable on substantially the terms and conditions contemplated in the debt commitment letter, Kitara will notify Future Ads and use its commercially reasonable efforts to arrange alternative financing from alternative sources on financial terms no less favorable than those in the debt commitment letter. For additional information relating to the financing covenant, see “The Agreements – Description of the Exchange Agreement – Financing” beginning on page 91.

   

Ancillary Agreements

 

Voting Agreement

 

In connection with the exchange agreement, Kitara entered into a voting agreement with the supporting parties who hold a majority of the currently outstanding shares of Kitara common stock. Under the voting agreement, the supporting parties have agreed, among other things, to vote their shares of Kitara common stock (including any shares acquired after the date of the agreement) in favor of (i) the adoption of the merger agreement and approval of the merger and any other matters necessary for consummation of the merger and any other transactions contemplated in the merger agreement, including the Charter Amendment Proposals and the Adjournment Proposal, and (ii) the approval of the 2014 Plan. Since the supporting parties own more than 50% of the outstanding common stock of Kitara, the supporting parties may approve the Merger Proposal, the Charter Amendment Proposals, the Equity Plan Proposal and the Adjournment Proposal without the affirmative vote of any other Kitara stockholder. For additional information relating to the voting agreement, see “The Agreements – Ancillary Agreements – Voting Agreement” beginning on page 96.

 

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Lockup Agreements

 

Pursuant to the exchange agreement, New Holdco has entered into lockup agreements with certain of the members of Future Ads, or the “Future Ads lockup agreements,” and with certain of Kitara’s existing stockholders, including its officers and directors, or the “Kitara lockup agreements,” restricting the transfer of shares of New Holdco common stock by such persons for 12 months after the closing, subject to certain exceptions, including upon registration of their shares under certain circumstances. Because the members are entering into the registration rights agreement and certain of the Kitara stockholders subject to the lockup agreements have existing registration rights, the effective lockup period may be substantially shorter than 12 months. The Future Ads lockup agreements and Kitara lockup agreements are sometimes collectively referred to in this proxy statement/prospectus as the “lockup agreements.” For additional information relating to the Future Ads lockup agreements and the Kitara lockup agreements, see “The Agreements – Ancillary Agreements – Lockup Agreements” beginning on page 97.

 

Registration Rights Agreement

 

At the closing, New Holdco will enter into a registration rights agreement with respect to the shares of New Holdco common stock issued in the exchange, or the “exchange shares,” providing the holders of the exchange shares with certain “demand” and “piggyback” registration rights. For additional information relating to the registration rights agreement, see “The Agreements – Ancillary Agreements – Registration Rights Agreement” beginning on page 97.

 

Stockholders’ Agreement

 

At the closing, New Holdco will enter into a stockholders’ agreement with the members of Future Ads who are receiving shares of New Holdco common stock in the exchange. Pursuant to the stockholders’ agreement, among other things, these members of Future Ads initially will have the right to designate for appointment or nomination, as applicable, a majority of the directors comprising the New Holdco board of directors, and such directors will have consent rights with respect to specified actions proposed to be taken by New Holdco. For additional information relating to the stockholders’ agreement, see “The Agreements – Ancillary Agreements – Stockholders’ Agreement” beginning on page 98.

 

Regulatory Approvals

 

Consummation of the transactions is subject to prior receipt of those approvals and consents required under the HSR Act. Kitara and Future Ads have agreed to use all commercially reasonable efforts to obtain, as promptly as practicable, all governmental and third party consents, approvals, authorizations, qualifications and orders necessary for the consummation of the transactions and to promptly make all necessary filings, if any, and thereafter make any other required submissions, with respect the exchange agreement required under the HSR Act or other applicable law.

 

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Tax Consequences to Kitara Stockholders

 

The exchange and the merger are intended to qualify as a transaction described in Section 351(a) of the Internal Revenue Code of 1986, as amended, or the “Code.” If the exchange and merger so qualify, holders of Kitara common stock receiving shares of New Holdco common stock in the merger generally will not recognize any gain or loss as a result of the merger.

 

All holders of shares of Kitara common stock should read the section entitled “Material U.S. Federal Tax Consequences” beginning on page 83 for a more complete discussion of the U.S. federal income tax consequences of the merger. In addition, all holders of shares of Kitara common stock are urged to consult with their tax advisors regarding the tax consequences of the merger to them, including the effects of U.S. federal, state and local, non-U.S. and other tax laws.

 

Differences with Respect to Rights of Kitara Stockholders and New Holdco Stockholders

 

The rights of Kitara’s stockholders are governed by Kitara’s amended and restated certificate of incorporation, its amended and restated bylaws and the laws of the State of Delaware. Upon consummation of the transactions contemplated by the merger agreement, the Kitara stockholders will become stockholders of New Holdco and, accordingly, their rights will be governed by the certificate of incorporation and bylaws of New Holdco, and the laws of the State of Delaware. Although the rights and privileges of Kitara stockholders are, in many instances, comparable to those of New Holdco stockholders, there are some important differences. For a summary of the material differences between the rights of Kitara stockholders and the rights of New Holdco stockholders, see “Comparison of Stockholder Rights” beginning on page 175.

 

Officers and Directors of New Holdco

 

Upon the closing, New Holdco’s initial board of directors will consist of seven directors, with four to be designated by Future Ads and three to be designated by Kitara, in accordance with the stockholders’ agreement. It is expected that Future Ads will designate Jared Pobre, Marv Tseu, and two additional individuals who have not yet been determined. It is expected that Kitara will designate Robert Regular, Jonathan Ledecky and Sam Humphreys. After the closing, the management nominees for the board of directors will be determined as set forth in the stockholders’ agreement described above.

 

It is expected that, upon consummation of the transactions, Jared Pobre, Future Ads’ founder and Chief Executive Officer, will become the Chairman of the Board of New Holdco; Robert Regular, Kitara’s Chief Executive Officer, will become the Chief Executive Officer of New Holdco; Marv Tseu, Future Ads’ Chief Operating Officer, will become the President of New Holdco; and David Shapiro, Future Ads’ General Counsel and Executive Vice President, Business and Legal Affairs, will become the General Counsel and Executive Vice President, Business and Legal Affairs of New Holdco.

 

For more information on the new directors and officers of New Holdco, see “New Holdco’s Executive Officers and Directors” beginning on page 166.

 

Employment Agreements

 

Under the exchange agreement, New Holdco will use its reasonable best efforts to enter into employment agreements, or the “employment agreements,” with certain employees of Kitara and Future Ads, including Jared Pobre, Robert Regular, Marv Tseu and David Shapiro, on terms as may be mutually agreed to by New Holdco and the members.

 

14

 

Interests of Kitara Executive Officers and Directors in the Transactions

 

Certain of Kitara’s executive officers and directors may be deemed to have interests in the transactions contemplated by the merger agreement and exchange agreement that are different from or in addition to their interests as Kitara stockholders generally, including the following:

 

It is expected that Kitara will designate Robert Regular, the Chief Executive Officer of Kitara and a member of the Kitara board of directors, Jonathan Ledecky and Sam Humphreys, each a member of the Kitara board of directors, for appointment as directors of New Holdco after the transactions. Neither of Messrs. Ledecky or Humphreys will serve as an officer or employee of New Holdco. As such, in the future, each will receive any cash fees, stock options or stock awards that the New Holdco board of directors determines to pay to its non-executive directors.

 

It is expected that Mr. Regular will serve as the chief executive officer of New Holdco after the transactions. Mr. Regular will enter into an employment agreement with New Holdco on terms satisfactory to New Holdco and the members on or prior to the closing of the transactions.

 

An option to purchase shares of Kitara common stock held by Joshua Silberstein, Kitara’s President, will vest with respect to 250,000 shares only upon consummation of the transactions. Furthermore, in the event Mr. Silberstein obtains employment with a third party during the nine months after the effective date of his resignation, his monthly retainer as a consultant of approximately $30,000 will be reduced to approximately $15,000 during the remainder of such nine month period, except that no such reduction will apply if the transactions are consummated.

 

For additional information on interests of Kitara’s executive officers and directors in the transactions, see “The Transactions – Interests of Kitara Directors and Officers in the Transactions” beginning on page 80.

 

Interests of the Current Members, Managers and Executive Officers of Future Ads in the Transactions

 

The current members of Future Ads and certain members of Future Ads management have financial and other interests in the transactions contemplated by the merger agreement and the exchange agreement.

 

Pursuant to the exchange agreement, the current members of Future Ads will exchange all of the outstanding limited liability company interests of Future Ads to New Holdco for (i) $80,000,000 in cash, (ii) shares of New Holdco common stock that represent 53% of the fully diluted shares of New Holdco common stock outstanding as of the closing, (iii) the right to receive performance-based “earn out” payments that would enable the members to receive up to an additional $40,000,000 in cash or stock consideration based on Future Ads reaching certain EBITDA levels during the 2015 to 2018 fiscal years, (iv) on or prior to June 30, 2016, $10,000,000 of deferred consideration in cash and/or shares of New Holdco common stock and (v) immediately after the payment of certain fees to Highbridge on or about the fourth anniversary of the closing, $6,000,000 in cash. The consideration payable to the members is subject to adjustment as described elsewhere in this proxy statement/prospectus.

  

After the closing, New Holdco will reimburse the members for all transaction expenses paid by Future Ads, its subsidiaries or the members on or before the closing, and will assume all of their unpaid transaction expenses as of such date. Future Ads estimates that the aggregate transaction expenses reimbursed or assumed by New Holdco will be approximately $1.25 million.

 

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It is expected that Future Ads will designate Jared Pobre, the founder and Chief Executive Officer of Future Ads, Marv Tseu, the Chief Operating Officer of Future Ads, and two additional individuals who have not yet been determined for appointment as directors of New Holdco after the transactions.

 

It is expected that, after the transactions, Mr. Pobre will serve as the Chairman of the Board of New Holdco, Mr. Tseu will serve as President of New Holdco and David Shapiro, the General Counsel and Executive Vice President, Business and Legal Affairs of Future Ads, will serve as General Counsel and Executive Vice President, Business and Legal Affairs of New Holdco. Messrs. Pobre, Tseu and Shapiro and certain other executives of Future Ads will enter into employment agreements with New Holdco on terms satisfactory to New Holdco and the members on or prior to the closing of the transactions.

 

For additional information on the interests of the current members and management of Future Ads in the transaction, see “The Transactions – Interests of the Current Members, Managers and Executive Officers of Future Ads in the Transactions” beginning on page 81.

 

Voting by Kitara’s Executive Officers and Directors

 

As indicated above, the supporting parties, including Kitara’s executive officers and directors, have agreed to vote in favor of each of the Merger Proposal, the Charter Amendment Proposals, the Equity Plan Proposal and the Adjournment Proposal. For information on the percentage of outstanding shares entitled to vote at the Special Meeting that are held by Kitara’s executive officers and directors as of the record date, see “The Special Meeting — Voting by Kitara’s Directors and Executive Officers” beginning on page 58.

 

Appraisal Rights

 

Holders of Kitara common stock who object to the merger may elect to pursue appraisal rights to receive the judicially determined “fair value” of their shares, but only if they comply with the procedures required under Delaware law. In order to qualify for these rights, Kitara stockholders must (1) not vote in favor of adoption of the merger agreement, (2) make a written demand for appraisal prior to the taking of the vote on the adoption of the merger agreement at the special meeting and (3) otherwise comply with the Delaware law procedures for exercising appraisal rights. A properly executed proxy that is not marked “AGAINST” or “ABSTAIN” will be voted for adoption of the merger agreement and will disqualify the stockholder submitting that proxy from demanding appraisal rights.

 

A copy of Section 262 of the DGCL, is included as Annex J to this proxy statement/prospectus. Failure to follow the procedures set forth in Section 262 of the DGCL will result in the loss of appraisal rights.

 

For additional information on the appraisal rights of Kitara stockholders, see “Appraisal Rights” beginning on page 180.

 

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SELECTED HISTORICAL FINANCIAL DATA

 

Kitara and Future Ads are providing the following financial information to aid you in your analysis of the financial aspects of the transaction. This information is only a summary, and you should read it in conjunction with the historical financial statements of Kitara and Futures Ads and the related notes thereto included elsewhere in this proxy statement/prospectus.

 

Selected Historical Financial Data of Kitara

 

The following selected financial data have been derived from Kitara’s audited financial statements as of and for the years ended December 31, 2013 and 2012 and from Kitara’s unaudited financial statements as of and for the six months ended June 30, 2014 and 2013 that are included in this proxy statement/‌prospectus. Selected financial data as of and for the year ended December 31, 2011 below is derived from audited financial statements of Kitara for the specified periods that are not included in this proxy statement/prospectus. The financial statements have been prepared and presented in accordance with generally accepted accounting principles in the United States, or “GAAP.” Results of interim periods are not necessarily indicative of the results expected for a full year or for future periods. In the opinion of Kitara’s management, the unaudited consolidated financial statements for interim periods include all adjustments consisting of normal recurring adjustments necessary for a fair statement of the results for such interim periods.

 

   For the Six Months Ended June 30, 2014   For the Six Months Ended June 30, 2013 
         
Statement of Operations Data        
Revenue  $12,175,000   $10,428,000 
Income (loss) from operations  $(5,804,000)  $120,000 
Net income (loss)  $(5,976,000)  $120,000 
Income (loss) from operations per share  $(0.07)  $0.01 
Weighted average shares outstanding   87,586,903    20,000,000 
           
Balance Sheet Data          
Working capital  $4,279,000   $3,453,000 
Total assets  $24,647,000   $5,488,000 
Total liabilities  $5,823,000   $1,395,000 
Total stockholders’ equity  $18,824,000   $4,093,000 

  

   For the Year Ended 
   2013   2012   2011 
Statement of Operations Data            
Revenue  $25,377,000   $23,557,000   $34,024,000 
Income (loss) from operations  $(76,000)  $(2,825,000)   $3,131,000 
Net income (loss)  $(186,000)  $(2,830,000)  $3,130,000 
Loss from operations per share  $0.00   $(0.14)  $ 
Weighted average shares outstanding   41,897,560    20,000,000      
                
Balance Sheet Data               
Working capital (deficiency)  $3,694,000   $4,053,000   $3,009,000 
Total assets  $27,916,000   $8,354,000   $6,990,000 
Total liabilities  $9,920,000   $3,682,000   $2,567,000 
Total stockholders’ equity  $17,996,000   $4,672,000   $4,423,000 

  

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Selected Historical Financial Data of Future Ads

 

Following the transactions, Future Ads will be considered New Holdco’s predecessor for accounting purposes, as further described in this proxy statement/prospectus. The following selected financial data, have been derived from Future Ads’ audited financial statements as of and for the years ended December 31, 2013, 2012 and 2011 and from Future Ads’ unaudited financial statements as of and for the six months ended June 30, 2014 and 2013 that are included elsewhere in this proxy statement/prospectus (other than balance sheet data as of December 31, 2011). Selected financial data as of and for the years ended December 31, 2010 and 2009 below is derived from unaudited financial statements of Future Ads for the specified periods that are not included in this proxy statement/prospectus. The financial statements have been prepared and presented in accordance with GAAP. Results of interim periods are not necessarily indicative of the results expected for a full year or for future periods. In the opinion of Future Ads’ management, the unaudited consolidated financial statements for interim periods include all adjustments consisting of normal recurring adjustments necessary for a fair statement of the results for such interim periods.

 

   For the Six Months Ended
June 30,
 
   2014   2013 
         
Statement of Income Data          
Revenue  $45,650,341   $59,432,171 
Operating income  $15,561,031   $28,203,666 
Net income  $15,560,447   $28,201,375 
           
Balance Sheet Data          
Working capital (deficiency)  $157,305   $559,387 
Total assets  $10,297,815   $12,981,412 
Total liabilities  $8,450,912   $10,302,699 
Total members’ equity  $1,846,903   $2,678,713 

  

   For the Years Ended December 31, 
   2013   2012   2011   2010   2009 
Statement of Income Data                    
Revenue  $110,862,355   $89,353,265   $69,891,073   $79,922,463   $52,024,759 
Operating income  $45,412,642   $35,210,147   $25,283,298   $35,893,112   $11,189,728 
Net income  $45,408,780   $35,195,628   $25,262,052   $35,878,720   $11,193,120 
                          
Balance Sheet Data                         
Working capital  $1,751,041   $3,445,712   $1,371,681   $2,672,403   $3,014,616 
Total assets  $12,779,280   $15,258,060   $10,449,780   $7,926,070   $7,141,006 
Total liabilities  $9,442,320   $10,252,854   $7,289,763   $4,219,653   $3,430,708 
Total members’ equity  $3,336,960   $5,005,206   $3,160,017   $3,706,417   $3,710,297 

   

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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION

The unaudited pro forma condensed combined financial information presented below has been derived from Kitara’s and Future Ads’ historical financial statements included elsewhere in this proxy statement/prospectus. The pro forma adjustments give effect to the merger of Merger Sub with and into Kitara and the contribution by the members of Future Ads of all of the outstanding limited liability company interests of Future Ads to New Holdco in exchange for the consideration described herein. The unaudited pro forma condensed combined financial information should be read in conjunction with (1) “Kitara’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 126 and the historical financial statements of Kitara and the notes thereto beginning on page FS-2, (2) “Future Ads’ Management’s Discussion and Analysis of Financial Condition and Result of Operations” beginning on page 156 and the historical financial statements of Future Ads and notes thereto beginning on page FS-42 and (3) the detailed unaudited pro forma combined financial statements and footnotes included in “Pro Forma Financial Information” beginning on page 184.

The unaudited pro forma condensed combined statement of income for the six months ended June 30, 2014 has been prepared as though the merger occurred as of January 1, 2014 and the unaudited pro forma condensed combined statement of income for the year ended December 31, 2013 has been prepared as though the merger occurred as of January 1, 2013. The unaudited pro forma condensed combined balance sheet information at June 30, 2014 has been prepared as though the merger occurred on June 30, 2014. The pro forma adjustments are based on available information and assumptions that Kitara and Future Ads believe are reasonable. Such adjustments are estimates and are subject to change.

The unaudited pro forma condensed combined financial information is provided for informational purposes only and does not purport to represent what the actual combined results of operations or the combined financial position of New Holdco would have been had the transactions occurred on the dates assumed, nor are they necessarily indicative of future combined results of operations or combined financial position.

The transactions will be treated by New Holdco as a reverse merger under the acquisition method of accounting in accordance with generally accepted accounting principles in the United States, or “GAAP.” For accounting purposes, Future Ads will be considered to be acquiring Kitara in this transaction. Under the acquisition method of accounting, the assets and liabilities of Kitara will be recorded at their respective fair values and added to those of Future Ads.

All unaudited pro forma financial information contained in this proxy statement/prospectus has been prepared using the acquisition method to account for the transactions. The final allocation of the purchase price will be determined after the merger is completed and after completion of an analysis to determine the assigned fair values of Kitara’s tangible and identifiable intangible assets and liabilities. In addition, estimates related to merger-related charges are subject to final decisions related to combining Kitara and Future Ads. Accordingly, the final acquisition accounting adjustments may be materially different from the unaudited pro forma adjustments, which could have a material effect on the pro forma results of operations.

19

 

The actual amounts recorded as of the completion of the transactions may differ materially from the information presented in its unaudited pro forma condensed combined financial information as a result of several factors, including the following:

changes in Kitara’s and Future Ads’ net assets between the pro forma balance sheet date of June 30, 2014 and the closing of the transactions;
the value of New Holdco as of the effective date of the transactions;
the timing of the completion of the transactions; and
other changes that may occur prior to completion of the transactions, which could cause material differences in the information presented.

The unaudited pro forma condensed combined financial information does not reflect any cost savings or other synergies that the management of Kitara and Future Ads believe could have been achieved had the transactions been completed on the dates indicated and are not necessarily indicative of the financial position or results of operations presented as of the dates or for the periods indicated, or the results of operations or financial position that may be achieved in the future.

The unaudited pro forma condensed combined statements of income information do not include adjustments for all of the costs of operating as a combined company, including possible higher information technology, tax, accounting, treasury, investor relations, insurance and other expenses related to being a larger company versus amounts historically reflected. Such possible increased costs are not included in the unaudited pro forma condensed combined financial information as such increases are subject to change.

The unaudited pro forma condensed consolidated financial information constitutes forward-looking information and is subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” in this proxy statement/prospectus.

The following table represents New Holdco’s selected financial and operating data for the periods indicated:

   For the Six Months Ended June 30,
2014
   For the Year Ended December 31,  2013 
           
Statement of Operations Data          
Total revenues  $57,825,341   $146,647,031 
Total operating expenses  $48,068,310   $108,399,723 
Operating Income  $9,757,031   $38,247,308 
Net income  $2,268,478   $15,666,085 
Net income per common share  $0.01   $0.09 
           
Balance Sheet Data          
Total current assets  $21,845,301      
Total assets  $52,371,976      
Total current liabilities  $100,219,838      
Total stockholders’ equity  $(65,076,718)     

 

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COMPARATIVE PER SHARE DATA

 

The following table summarizes unaudited per share information for Kitara, unaudited equivalent per share information for Future Ads calculated by dividing the applicable historical financial results of Future Ads by the applicable number of new shares of New Holdco expected to be issued in the transaction to the current members of Future Ads, unaudited per share information for New Holdco on an unaudited pro forma combined basis. This information is only a summary, and you should read it in conjunction with the historical financial statements of Kitara and Future Ads and the notes thereto beginning on page FS-1. The pro forma information is presented for informational purposes only and is not intended to represent or to be indicative of the actual operating results or financial position that would have resulted if the transaction had occurred at the beginning of the period presented, nor is it necessarily indicative of the future operating results or financial position of New Holdco.

 

   Kitara
Historical
   Future Ads
Historical
   Pro Forma
New Holdco
 
     
Six months ended June 30, 2014:            
Net (loss) income  $(5,976,000)  $15,560,447   $2,268,478 
Stockholders’/members’ equity (deficit) at June 30, 2014  $18,824,000   $1,846,903   $(65,076,718)
Weighted average shares outstanding:               
Basic and diluted   87,586,903    154,213,092    191,959,006 
Basic and diluted net (loss) income per share  $(0.07)  $0.10   $0.01
Stockholders’/members’ equity per share at June 30, 2014  $0.21   $0.01   $(0.34)
                
Year ended December 31, 2013:               
Net (loss) income  $(76,000)  $45,408,780   $15,666,085 
Weighted average shares outstanding basic   41,897,560    154,213,092    177,098,870 
Weighted average shares outstanding diluted   41,897,560    154,213,092    179,380,188 
Basic earnings per share  $(0.00)  $0.29   $0.09 
Diluted earnings per share  $(0.00)  $0.29   $0.09 

 

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MARKET PRICE AND DIVIDEND INFORMATION

 

There is no established trading market for New Holdco’s common stock. Kitara’s common stock is traded on the OTCBB under the trading symbol “KITM.” It is anticipated that New Holdco’s common stock will trade on the OTCBB under the symbol “[●]” following consummation of the transactions. The following table sets forth the high and low sales prices of shares of Kitara common stock.

 

   Common Stock 
   High   Low 
Fiscal 2014:        
Fourth Quarter*  $0.70   $0.305 
Third Quarter  $0.88   $0.20 
Second Quarter  $1.00   $0.58 
First Quarter  $1.40   $0.25 
           
Fiscal 2013:          
Fourth Quarter  $1.49   $0.26 
Third Quarter  $0.75   $0.20 
Second Quarter  $0.35   $0.20 
First Quarter  $0.75   $0.30 
           
Fiscal 2012:          
Fourth Quarter  $0.79   $0.55 
Third Quarter  $0.85   $0.79 
Second Quarter  $0.85   $0.25 
First Quarter  $0.55   $0.05 

                      __________________

                     * Through November 4, 2014.

 

On October 10, 2014, the last trading day before the merger agreement and exchange agreement were announced, the closing price was $0.305. On November 4, 2014, the last full trading day before the date of this proxy statement/prospectus, the high and low sale prices of shares of Kitara common stock were $0.65 and $0.64, respectively, and closing sale price was $0.64.

 

As of the record date, there were [●] stockholders of record of Kitara’s common stock. We believe we have significantly more beneficial holders of common stock.

 

Kitara stockholders are advised to obtain current market quotations for Kitara common stock. The market price of Kitara’s common stock will fluctuate between the date of this proxy statement/prospectus and the completion of the merger and exchange. No assurance can be given concerning the market price of Kitara’s common stock before or after the effective time of the merger and exchange.

 

Kitara has not paid any cash dividends on its common stock to date. The payment of any dividends is within the discretion of Kitara’s board of directors. It is the present intention of the board of directors to retain all earnings, if any, for use in the business operations and, accordingly, the board does not anticipate declaring any dividends in the foreseeable future. New Holdco is a newly formed corporation and has not paid dividends on its common stock. New Holdco intends to retain earnings to finance the growth of its business. As a result, New Holdco does not anticipate paying cash dividends on its common stock for the foreseeable future. The determination to pay dividends in the future, if any, will be based upon New Holdco’s revenues and earnings, if any, capital requirements and its general financial condition, as well as the limitations on dividends and distributions that will exist under the terms of the debt financing from Highbridge (or another lender).

 

22

 

RISK FACTORS

 

In addition to the other information included in and found in the annexes attached to this proxy statement/‌prospectus, including the matters addressed in the “Cautionary Statement Regarding Forward — Looking Statements” on page 54, you should carefully consider the following risk factors in deciding whether to vote for the Merger Proposal. You should also read and consider the other information in this proxy statement/prospectus.

 

An investment in New Holdco’s common stock involves a high degree of risk. If any of the following risks or uncertainties occurs, New Holdco’s business, financial condition and operating results could be materially and adversely affected. As a result, the trading price of its common stock could decline and you may lose all or a part of your investment in New Holdco’s common stock. You should carefully consider all of the risks described below regarding the transactions, the business of Kitara, the business of Future Ads and New Holdco and its securities. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially and adversely affect our business operations.

 

Risks Related to the Transactions

 

The exchange and merger are subject to conditions, including certain conditions that may not be satisfied on a timely basis, if at all. Failure to complete the exchange and merger, or significant delays in completing the exchange and merger, could negatively affect Kitara’s share price and its future business and financial results.

 

The completion of the exchange and merger are subject to a number of conditions, including the adoption of the merger agreement and approval of the merger by Kitara common stockholders and the availability of $96,000,000 in debt financing in part for payment of the cash consideration to the members of Future Ads, which are not entirely within the control of Kitara and make the completion and timing of the merger uncertain. Either Kitara or Future Ads may terminate the exchange agreement if the exchange has not been completed on or before January 31, 2015.

 

Kitara and New Holdco have obtained a debt commitment letter for $96,000,000 in financing from Highbridge to be provided through a new revolving credit facility and a new term loan facility. The closing of the financing contemplated by the debt commitment letter, however, is subject to certain conditions, some of which are beyond the control of Kitara and New Holdco.

 

The debt financing contemplated by the debt commitment letter is subject to certain conditions, including, among others, Kitara and Future Ads having combined Consolidated Adjusted EBITDA (as defined in the debt commitment letter and described in “The Agreements – Debt Financing” on page 96) of at least $26,000,000 for the trailing 12 months prior to the closing and Future Ads having Consolidated Adjusted EBITDA of at least $31,500,000 for the trailing 12 months prior to the closing.

 

If the debt financing cannot be obtained or is significantly delayed, and the exchange agreement or merger agreement is terminated, or if there are significant delays in completing the transactions, there may be various consequences, including:

 

Kitara’s business may have been adversely affected by the failure to pursue other beneficial opportunities due to the focus of management on the transactions and certain restrictions under the exchange agreement, without realizing any of the anticipated benefits of completing the exchange and merger;

 

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Kitara will have paid certain costs relating to the exchange, merger and debt financing, such as legal, accounting, financial advisor and printing fees, without realizing any of the anticipated benefits of completing the exchange and merger;

 

the market price of Kitara’s common stock might decline to the extent that the current market price reflects a market assumption that the exchange and merger will be completed;

 

Kitara may experience negative reactions from the financial markets and from its customers and employees and/or could be subject to litigation related to a failure to complete the exchange and merger or to enforce its obligations under the exchange agreement; and

 

if the Kitara board seeks out another business combination following termination of the exchange agreement, Kitara’s stockholders cannot be certain that Kitara will be able to find a party willing to enter into a more or equally favorable arrangement than the terms provided for in the exchange agreement.

 

If the transactions are consummated, New Holdco will have significant leverage at closing.

 

Kitara and New Holdco must obtain at least $96,000,000 of debt financing in order to consummate the exchange. After the closing, New Holdco may seek to raise additional capital, if and when necessary. Accordingly, New Holdco is expected to have a high degree of leverage after the transactions that could have important consequences, including:

 

increasing New Holdco’s vulnerability to adverse economic, industry or competitive developments;

 

requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on the indebtedness, therefore reducing New Holdco’s ability to use cash flow to fund operations, capital expenditures and future business opportunities;

 

restricting New Holdco from making strategic acquisitions or causing New Holdco to make non-strategic divestitures;

 

limiting New Holdco’s ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; and

 

limiting New Holdco’s flexibility in planning for, or reacting to, changes in its business or market conditions and placing New Holdco at a competitive disadvantage compared to competitors who are less highly leveraged and who therefore may be able to take advantage of opportunities that New Holdco’s leverage prevents it from exploiting.

 

In addition, the terms of the financing that will be obtained by New Holdco from Highbridge (or another lender) will likely subject New Holdco to a number of financial or operational covenants as well as compliance with certain financial ratios. For example, the covenants may impose restrictions on it, including the ability to incur additional indebtedness and liens, make loans and investments, make capital expenditures, sell assets, engage in mergers, acquisitions and consolidations, enter into transactions with affiliates, enter into sale and leaseback transactions and pay dividends on New Holdco’s common stock. A breach of any of the covenants imposed on New Holdco by the terms of any indebtedness, including any financial or operational covenants, could result in a default under such indebtedness. In the event of a default, the lenders could terminate their commitments to New Holdco, and could accelerate the repayment of all of New Holdco’s indebtedness. In such case, New Holdco (and Kitara and Future Ads) may not have sufficient funds to pay the total amount of accelerated obligations, and the lenders could proceed against the collateral securing the facilities, which is expected to consist of substantially all of the assets of New Holdco, Kitara and Future Ads. Any acceleration in the repayment of indebtedness or related foreclosure could have a material adverse effect on New Holdco’s business.

 

24

 

New Holdco’s results of operations and financial condition following the transactions may materially differ from the pro forma information presented in this proxy statement/prospectus.

 

The pro forma financial information included in this proxy statement/prospectus is derived from Kitara’s and Future Ads’ separate historical audited and unaudited consolidated financial statements, as well as from certain internal, unaudited financial statements. The preparation of this pro forma information is based upon available information and certain assumptions and estimates that Kitara and Future Ads believe are reasonable. This pro forma information may be materially different from what New Holdco’s actual results of operations and financial condition would have been had the transactions occurred during the periods presented or what New Holdco’s results of operations and financial position will be after the consummation of the proposed transactions.

 

The consideration to be received by Kitara’s stockholders in the merger and by the members in the exchange is fixed (subject to certain limited exceptions) and will not be adjusted for changes affecting Kitara or Future Ads.

 

Under the merger agreement, each share of Kitara common stock will be converted into the right to receive one share of New Holdco common stock. Under the exchange agreement, the members will receive (i) $80,000,000 in cash, (ii) shares of New Holdco common stock that represent 53% of the fully diluted shares of New Holdco common stock outstanding as of the closing, (iii) performance-based “earn out” payments of up to an additional $40,000,000 in cash or stock based on Future Ads reaching certain EBITDA levels during the 2015 to 2018 fiscal years, (iv) on or prior to June 30, 2016, $10,000,000 of deferred consideration in cash and/or shares of New Holdco common stock and (v) immediately after the payment of certain fees to Highbridge on or about the fourth anniversary of the closing, $6,000,000 in cash. The consideration payable to the members is subject to a limited post-closing adjustment as described elsewhere in this proxy statement/prospectus based on Kitara’s working capital and Future Ads’ working capital and indebtedness at the closing. Accordingly, except for the post-closing adjustment and the earnout payments, the consideration payable at the closing under the merger agreement and the exchange agreement is fixed and will not be adjusted prior to completion of the transactions, including for changes in the businesses, operations, results and prospects of Kitara or Future Ads, which changes could in turn affect the value of the business of Future Ads without a commensurate change in the consideration payable to the members of Future Ads. As a result, such changes may affect the value of the New Holdco’s common stock that Kitara stockholders will receive upon completion of the merger or the market value of shares of Kitara’s common stock prior to completion of the merger. Market assessments of the benefits of the merger and general and industry-specific market and economic conditions also may have an effect on the market prices of New Holdco’s common stock and Kitara’s common stock. Neither Kitara nor Future Ads nor the members are permitted to terminate the merger agreement or exchange agreement solely because of changes in the market price of Kitara’s common stock and may only terminate the exchange agreement for changes in the business of Kitara or Future Ads under certain limited circumstances.

 

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The exchange and merger will result in a significant dilution of the interests of Kitara’s stockholders and any further issuance by New Holdco of equity securities will further dilute the interests of Kitara’s stockholders.

 

The consummation of the exchange and merger will result in a significant dilution of the interests of the holders of the outstanding shares of Kitara common stock. Since Kitara’s stockholders in the aggregate will own only 38.3% of New Holdco common stock outstanding immediately after the closing, each such stockholder will have a significantly smaller percentage ownership of New Holdco than such stockholder had of Kitara. In addition, New Holdco will in the future issue equity securities to raise funds for or to pay the $10,000,000 of deferred consideration, and may in the future issue equity securities to raise additional capital, as necessary, including upon the exercise of the stock options and warrants to be assumed by New Holdco or pursuant to awards under the 2014 Plan. The issuance of these equity securities will further dilute the ownership interests of Kitara’s stockholders. Consequently, Kitara stockholders will not be able to exercise as much influence over the management and policies of New Holdco as they currently exercise over Kitara.

 

There is a potential market overhang that could depress the value of New Holdco’s common stock, and future sales of its common stock could put a downward pressure on the price of New Holdco shares and could have a material adverse effect on the price of New Holdco shares.

 

Immediately after the consummation of the transaction, we estimate that the former members of Future Ads will own approximately 61.7% of the outstanding New Holdco common stock. Under the lockup agreements, the former members may dispose of a substantial percentage of their stock, including in open-market transactions and underwritten offerings, from time to time after the twelve month anniversary of closing or earlier in certain circumstances if the sale of the shares is registered under the Securities Act of 1933, as amended, or the “Securities Act.” In that regard, the registration rights agreement provides that the holders of the exchange shares will have the right to demand that New Holdco file a registration statement covering 15% or greater of the then-outstanding exchange shares (or, if New Holdco is eligible to use a “short form” registration statement, a “short form” registration statement covering 5% or greater of the then-outstanding exchange shares). New Holdco will not be obligated to effect more than two such “demand” registrations on a “long form” registration statement, but there is no limit on the number of “short form” registration statements it might be required to file. Once registered and released from the restrictions under the lockup agreements, shares of New Holdco common stock generally can be freely sold in the public market. Accordingly, the possibility that substantial amounts of our outstanding common stock may be sold by the members, or the perception that such sales could occur, could materially adversely affect the market price of the New Holdco common stock and impair the ability of New Holdco to raise additional capital through the sale of equity securities in the future. In addition, this selling activity could decrease the level of public interest in New Holdco’s common stock, inhibit buying activity that might otherwise help support the market price of New Holdco’s common stock, and prevent possible upward price movements in New Holdco’s common stock.

 

New Holdco may never realize the anticipated benefits from the transactions.

 

The transactions involve the integration of two companies that have previously operated independently and are geographically remote from each other. Although the parties believe that the combination of Kitara and Future Ads has the potential to result in substantial financial and operating benefits, including increased revenues, cost savings and other benefits, New Holdco does not assure you regarding when, whether or the extent to which the combined company will be able to realize increased revenues, cost savings or other benefits, if at all.

 

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Antitrust authorities may attempt to delay or prevent the consummation of the transactions.

 

Consummation of the transactions is subject to prior receipt of those approvals and consents required under the Hart-Scott Rodino Act Antitrust Improvements Act of 1976, as amended, or the “HSR Act.” Kitara and Future Ads have agreed to use all commercially reasonable efforts to obtain, as promptly as practicable, all governmental and third party consents, approvals, authorizations, qualifications and orders necessary for the consummation of the transactions and to promptly make all necessary filings, if any, and thereafter make any other required submissions, with respect the exchange agreement required under the HSR Act or other applicable law. No assurance can be given that the required approvals will be obtained and, even if all such approvals are obtained, no assurance can be given as to the terms, conditions and timing of the approvals or that they will satisfy the terms of the exchange agreement.

 

Lawsuits may be filed against Kitara, the members of its board of directors, New Holdco and Merger Sub challenging the proposed transactions. An adverse ruling in any such lawsuit may delay or prevent the transactions from being consummated and may result in costs to Kitara and Future Ads.

 

Kitara stockholders, as plaintiffs, may initiate stockholder class action lawsuits seeking, among other things, to enjoin the transactions. One of the conditions to the consummation of the exchange agreement is no United States national, federal, state or local governmental, regulatory or administrative authority, agency or commission or any judicial or arbitral body has enacted, issued, promulgated, enforced or entered any Law or order (whether temporary, preliminary or permanent) that is then in effect (and has not been vacated, withdrawn or overturned) and that enjoins, restrains, makes illegal or otherwise prohibits the consummation of the transactions contemplated by the exchange agreement.

 

Kitara has obligations under certain circumstances to hold harmless and indemnify each of the defendant directors against judgments, fines, settlements and expenses related to claims against such directors and otherwise to the fullest extent permitted under Delaware law and Kitara’s certificate of incorporation and bylaws. Such obligations may apply to any such stockholder class action lawsuits, if initiated. There can be no assurance that Kitara and the other defendants in these lawsuits will be successful in their defenses. An unfavorable outcome in any of the lawsuits could prevent or delay the consummation of the transactions and result in substantial costs to Kitara or Future Ads or both.

 

The integration of Kitara and Future Ads following the transactions will present significant challenges that may reduce the anticipated potential benefits of the transactions.

 

Kitara and Future Ads will face significant challenges in consolidating functions and integrating their organizations, procedures and operations in a timely and efficient manner, as well as retaining key personnel. The principal challenges will include the following:

 

integrating accounting systems and internal controls over accounting and financial reporting;

 

integrating Kitara’s and Future Ads’ existing businesses; and

 

preserving customer, supplier and other important business relationships.

 

The respective managements of Kitara and Future Ads will have to dedicate substantial effort to integrating the businesses. These efforts could divert management’s focus and resources from the company’s other business, corporate initiatives or strategic opportunities during the integration process.

 

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Kitara and Future Ads will incur significant transaction and merger-related integration costs in connection with the transactions.

 

Kitara and Future Ads expect to pay transaction costs of approximately $2.7 million in the aggregate. These transaction fees include legal and accounting fees and expenses, expenses associated with the financing of the transactions, SEC filing fees, printing expenses, mailing expenses and other related charges. These amounts are preliminary estimates that are subject to change. Approximately $1.625 million of the transaction costs already have been incurred as of the date of this proxy statement/‌prospectus and additional transaction costs will be incurred regardless of whether the transactions are consummated. If the transactions are not consummated, Kitara and Future Ads will each pay its own transaction costs, except that Kitara and Future Ads will each pay one half of the filing fees for the filing in connection with the HSR Act and Kitara and Future Ads will each pay one half of Highbridge’s reimbursable expenses. If the transactions are consummated, after the closing, New Holdco will reimburse the members for all transaction expenses paid by Future Ads, its subsidiaries or the members on or before the closing, and will assume all of their unpaid transaction expenses as of such date. Future Ads estimates that the aggregate transaction expenses reimbursed or assumed by New Holdco will be approximately $1.25 million. Kitara and Future Ads also expect to incur costs associated with integrating the operations of the two companies and these costs could be significant and could have a material adverse effect on New Holdco’s future operating results.

 

While the transactions are pending, Kitara and Future Ads will be subject to business uncertainties and contractual restrictions that could have a material adverse effect on their respective businesses.

 

Uncertainty about the effect of the transactions on customers and suppliers may have a material adverse effect on Kitara and Future Ads and, consequently, on New Holdco. These uncertainties could cause customers, suppliers and others who deal with Kitara and Future Ads to seek to change existing business relationships with Kitara and Future Ads. In addition, the exchange agreement restricts Kitara and Future Ads, without the other party’s consent and subject to certain exceptions, from making certain acquisitions and taking other specified actions until the transactions occur or the exchange agreement terminates. These restrictions may prevent Kitara and Future Ads from pursuing otherwise attractive business opportunities that may arise prior to completion of the transactions or termination of the exchange agreement and from making other changes to their businesses.

 

Failure to complete the transactions could negatively impact the stock price and the future business and financial results of Kitara.

 

The parties may not satisfy the conditions necessary to the completion of the transactions. If the transactions are not completed for any reason, Kitara could be subject to several risks, including the following:

 

having Kitara’s management’s focus directed toward the transactions and integration planning instead of on Kitara’s core business and other opportunities that could have been beneficial to Kitara; and

 

incurring substantial transaction costs related to the transactions.

 

Further, Kitara would not realize any of the expected benefits of having completed the transactions.

 

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If the transactions are not completed, the price of Kitara common stock may decline to the extent that the current market price of that stock reflects a market assumption that the transactions will be completed and that the related benefits will be realized, or a market perception that the transactions were not consummated due to an adverse change in Kitara’s business. In addition, Kitara’s business may be harmed, and the price of its stock may decline as a result, to the extent that customers, suppliers and others believe that Kitara cannot compete in the marketplace as effectively without the transactions or otherwise remain uncertain about Kitara’s future prospects in the absence of the transactions. Similarly, current and prospective employees of Kitara may experience uncertainty about their future roles with the resulting company and choose to pursue other opportunities, which could have a material adverse effect on Kitara if the transactions are not completed. The realization of any of these risks may materially adversely affect the business, financial results, financial condition and stock price of Kitara.

 

Some of the executive officers and directors of Kitara have interests in the transactions that are different from the interests of Kitara’s stockholders.

 

When considering the recommendation of their board of directors with respect to the transactions, stockholders should be aware that some executive officers and directors of Kitara have interests in the transactions that are different from, or in addition to, the interests of the Kitara stockholders. For additional information on interests of Kitara’s executive officers and directors in the transactions, see “The Transactions – Interests of Kitara Directors and Officers in the Transactions.” The Kitara stockholders should consider these interests in conjunction with the recommendation of the board of directors of Kitara that the stockholders approve the transactions.

 

Risks Related to the Business of Both Kitara and Future Ads

 

The risk factors listed herein will apply to the businesses of both Kitara and Future Ads after the transactions. References in this section to “we,” “us” and “our” refer to both entities as appropriate.

 

We may be unable to retain key advertisers, attract new advertisers or replace departing advertisers.

 

Our success requires us to maintain and expand our relationships with our existing advertisers (including the ad agencies that represent them), and to develop new relationships with other advertisers and ad agencies. We sell advertising through insertion orders with ad agencies and through advertising networks and exchanges. These advertising sources generally do not include long-term obligations requiring them to purchase from us and are cancelable upon short notice and without penalty in accordance with standard terms and conditions for the purchase of internet advertising published by the Interactive Advertising Bureau. As a result, we have limited visibility as to our future advertising revenue streams from our advertisers. Our advertisers’ usage may decline or fluctuate as a result of a number of factors, including, but not limited to:

 

efficiency of their advertising campaign utilizing our solutions;

 

changes in the economic prospects of advertisers or the economy generally;

 

our access to relevant inventory;

 

our ability to deliver video ad campaigns in full;

 

their satisfaction with our solutions and our client support;

 

the ability of our optimization algorithms underlying our solutions to deliver better rates of return on video ad spend dollars than competing solutions;

 

seasonal patterns in advertisers’ spending, which tend to be discretionary;

 

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the pricing of our or competing solutions; and

 

reductions in spending levels or changes in advertisers’ strategies regarding video advertising spending.

 

If a major advertiser decides to materially reduce its use of our services, it could do so on short or no notice. We cannot assure that our advertisers will continue to use our services or that we will be able to replace in a timely or effective manner departing advertisers with new advertisers from whom we generate comparable revenue.

 

Seasonal fluctuations in digital video advertising activity could adversely affect our cash flows.

 

Many advertisers devote a disproportionate amount of their advertising budgets to the fourth quarter of the calendar year to coincide with increased holiday purchasing. Accordingly, our revenue tends to be seasonal in nature with the fourth quarter of each calendar year historically representing the largest percentage of our total revenue for the year. Our operating cash flows could also fluctuate materially from period to period as a result of these seasonal fluctuations.

 

Our business depends on our ability to collect and use data to deliver ads, and to disclose data relating to the performance of our ads, and any limitation on these practices could significantly diminish the value of our solutions and cause us to lose customers and revenue.

 

Our ability to optimize the placement and scheduling of video advertisements for our advertisers and to grow our revenue depends on our ability to successfully leverage data that we collect from our advertisers, publishers, and third parties such as data providers. Our ability to successfully leverage such data, in turn, depends on our ability to collect and obtain rights to utilize such data. When we deliver an ad to an Internet-connected device, we are able to collect information about the placement of the ad and the interaction of the device user with the ad, such as whether the user visited a landing page or watched a video. We are also able to collect information about the user’s IP address, device, mobile location and some demographic characteristics. We may also contract with one or more third parties to obtain additional anonymous information about the device user who is viewing a particular ad, including information about the user’s interests. As we collect and aggregate this data provided by billions of ad impressions, we analyze it in order to optimize the placement and scheduling of ads across the advertising inventory provided to us by digital media properties. Any interruptions, failures, or defects in our data collection, mining, analysis, and storage systems could limit our ability to aggregate and analyze user data from our clients’ advertising campaigns. If that happens, we may not be able to optimize the placement of advertising for the benefit of our advertisers, which could make our solutions less valuable, and, as a result, we may lose clients and our revenue may decline.

 

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Our business practices with respect to data could give rise to liabilities, restrictions on our business or reputational harm as a result of evolving governmental regulation, legal requirements or industry standards relating to consumer privacy and data protection.

 

In the course of providing our solutions, we transmit and store information related to Internet-connected devices, user activity and the ads and other content we place. Federal, state and international laws and regulations govern the collection, use, processing, retention, sharing and security of data that we collect across our solutions. The U.S. government, including the Federal Trade Commission and the Department of Commerce, has also announced that it is reviewing the need for greater regulation of the collection of consumer information, including regulation aimed at restricting some targeted advertising practices. The Federal Trade Commission has also adopted revisions to the Children’s Online Privacy Protection Act that expand liability for the collection of information by operators of websites and other electronic solutions that are directed to children. We strive to comply with all applicable laws, regulations, policies and legal obligations relating to privacy and data collection, processing use and disclosure. However, the applicability of specific laws may be unclear in some cases and domestic and foreign government regulation and enforcement of data practices and data tracking technologies is expansive, not clearly defined and rapidly evolving. In addition, it is possible that these requirements may be interpreted and applied in a manner that is new or inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Complying with any new regulatory requirements could also force us to incur substantial costs or require us to change our business practices in a manner that could reduce our revenue or compromise our ability to effectively pursue our growth strategy. Any actual or perceived failure by us to comply with U.S. federal, state or international laws, including laws and regulations regulating privacy, data, security or consumer protection, or disclosure or unauthorized access by third parties to this information, could result in proceedings or actions against us by governmental entities, private parties or others. Any such proceedings or actions could hurt our reputation, result in significant expense to defend, distract our management, increase our costs of doing business, adversely affect the demand for our solutions and ultimately result in the imposition of monetary liability. We may also be contractually liable to indemnify and hold harmless our clients from the costs or consequences of litigation resulting from using our solutions or from the disclosure of confidential information, which could damage our reputation among our current and potential clients, require significant expenditures of capital and other resources and cause us to lose business and revenue.

 

If we fail to detect fraud or other actions that impact video ad campaign performance, we could lose the confidence of advertisers or agencies, which would cause our business to suffer.

 

Our business relies on effectively and efficiently delivering video ad campaigns for advertisers. We may in the future be subject to fraudulent and malicious activities such as the use of bots, non-human traffic delivered by machines that are designed to simulate human users and artificially inflate user traffic on websites. These activities could overstate the performance of any given video ad campaign and could harm our reputation. It may be difficult to detect fraudulent or malicious activity because we do not rely solely on our own content and rely in part on publisher partners for controls with respect to such activity. While we routinely assess the campaign performance on our digital media properties’ websites and our partner publishers’ websites, such assessments may not detect or prevent fraudulent or malicious activity. If fraudulent or other malicious activity is perpetrated by others, and we fail to detect or prevent it, the affected advertisers may experience or perceive a reduced return on their investment and our reputation may be harmed. High levels of fraudulent or malicious activity could lead to dissatisfaction with our solutions, refusals to pay, refund demands or withdrawal of future business. If we fail to detect fraud or other actions that impact the performance of our video ad campaigns, we could lose the confidence of our advertisers or agencies, which could cause our business to suffer.

 

Technological errors and system failures could significantly disrupt our operations and cause us to lose clients.

 

Our success depends on the continuing and uninterrupted performance of our solutions, which we utilize to place video ads and other content, monitor the performance of advertising campaigns, manage our content inventory and respond to publisher needs. Our revenue depends on our ability to categorize video content and deliver ads and other content, as well as measure ad campaigns on a real-time basis. Factors that may adversely affect the performance of our solutions include:

 

Inability to accurately process data and extract meaningful insights and trends;

 

Faulty or out-of-date algorithms that fail to properly process data or result in inability to capture brand-receptive audiences at scale;

 

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Technical or infrastructure problems causing digital video not to function, display properly or be placed next to inappropriate context;

 

Inability to control video completion rates, maintain user attention or prevent end users from skipping advertisements; and

 

Unavailability of standard digital video audience ratings and brand receptivity measurements for brand advertisers to effectively measure the success of their campaigns.

 

Sustained or repeated technological errors or system failures that interrupt our ability to deliver content and provide access to our licensed solutions, including technological failures affecting our ability to deliver video content quickly and accurately and to process viewers’ responses to video content or fill publisher content requests, could significantly reduce the attractiveness of our solutions and reduce our revenue. Any steps we take to increase the reliability and redundancy of our systems may be expensive and may not be successful in preventing technological errors and system failures. Any such technological errors or system failures could harm our ability to attract potential clients and retain and expand business with existing clients and our business, financial condition and operating results could be adversely affected.

 

Defects or errors in our solutions could harm our reputation, result in significant costs to us, impair our ability to deliver advertising campaigns and other content and impair our ability to meet our obligations to publishers and content providers.

 

The technology underlying our solutions, including our proprietary technology and technology provided by third-parties, may contain material defects or errors that can adversely affect our ability to operate our business and cause significant harm to our reputation. This risk is compounded by the complexity of the technology underlying our solutions and the large amounts of data we utilize. Although we test technologies before incorporating them into our solutions, we cannot guarantee that all of the technologies that we incorporate will not contain errors, bugs or other defects. Errors, defects, disruptions in service or other performance problems in our solutions could result in the incomplete or inaccurate delivery of an ad campaign or other content, including serving an ad campaign in an incomplete or inaccurate manner, in an incorrect geographical location or in an environment that is detrimental to the advertiser’s brand health. Any such failure, malfunction, or disruption in service could result in damage to our reputation, our clients withholding payment to us, advertisers, publishers or content providers making claims or initiating litigation against us, and our giving credits to our clients toward future services.

 

Security breaches, computer viruses and computer hacking attacks could harm our business and results of operations.

 

We collect, store and transmit information of, or on behalf of, our advertisers, publishers and content providers. We take steps to protect the security, integrity and confidentiality of such information, but there is no guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this information despite our efforts. Security breaches, computer malware and computer hacking attacks have become more prevalent in our industry and may occur on our systems or those of our information technology vendors in the future. Security breaches computer viruses or other harmful software code and computer hacking attacks could result in the unauthorized disclosure, misuse, or loss of information, legal claims and litigation, indemnity obligations, regulatory fines and penalties, contractual obligations and liabilities, and other liabilities. In addition, if our security measures or those of our vendors are breached or unauthorized access to consumer data otherwise occurs, our solutions may be perceived as not being secure, and advertisers, publishers and content providers may reduce the use of or stop using our solutions. Any of the foregoing could damage our reputation among our current and potential clients, require significant expenditures of capital and other resources and cause us to lose business and revenue.

 

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Our failure to protect our intellectual property rights could diminish the value of our services, weaken our competitive position and reduce our revenue.

 

We regard the protection of our intellectual property as critical to our success. We strive to protect our intellectual property rights by relying on contractual restrictions. We enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with third parties with whom we conduct business in order to limit access to, and disclosure and use of, our intellectual property and proprietary information. However, these contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation of our proprietary information or deter independent development of similar technologies by others. We may, in the future, seek to protect our intellectual property in new ways, such as by registering our trademarks and copyrights or applying for patents for technology we develop. Effective trade secret, copyright, trademark, domain name and patent protection is expensive to develop and maintain, both in terms of initial and ongoing registration requirements and the costs of defending our rights. Protecting our intellectual property through federal and state filings in the future may prove expensive and time-consuming.

 

We have licensed in the past, and may license in the future, some of our proprietary rights to third parties. These licensees may take unauthorized actions that diminish the value of our proprietary rights or harm our reputation.

 

Monitoring unauthorized use of our intellectual property is difficult and costly. Our efforts to protect our proprietary rights may not be adequate to prevent misappropriation of our intellectual property. Further, we may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Our competitors may also independently develop similar technology. The laws in the United States and elsewhere change rapidly, and any future changes could adversely affect us and our intellectual property rights. Our failure to meaningfully protect our intellectual property could result in competitors offering services that incorporate our most technologically advanced features, which could seriously reduce demand for our solutions. In addition, we may in the future need to initiate infringement claims or litigation. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which could harm our business, whether or not such litigation results in a determination that is unfavorable to us. In addition, litigation is inherently uncertain, and thus we may not be able to stop our competitors from infringing upon our intellectual property rights.

 

Our business may suffer if it is alleged or determined that our solutions or another aspect of our business infringes the intellectual property rights of others.

 

Companies in the online advertising industry are often required to defend against litigation claims that are based on allegations of infringement or other violations of intellectual property rights. Our success depends, in part, upon non-infringement of intellectual property rights owned by others and being able to resolve claims of intellectual property infringement or misappropriation without major financial expenditures or adverse consequences. In the future, we may face claims by third parties that we infringe upon or misappropriate their intellectual property rights, and we may be found to be infringing upon or to have misappropriated such rights. Such claims may be made by competitors or other parties. Regardless of whether claims that we are infringing patents or infringing or misappropriating other intellectual property rights have any merit, these claims are time-consuming and costly to evaluate and defend, and can impose a significant burden on management and employees. The outcome of any litigation is inherently uncertain, and we may receive unfavorable interim or preliminary rulings in the course of litigation. There can be no assurances that favorable final outcomes will be obtained in all cases. We may decide to settle lawsuits and disputes on terms that are unfavorable to us. Some of our competitors have substantially greater resources than we do and are able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. Claims that we are infringing patents or other intellectual property rights could:

 

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subject us to significant liabilities for monetary damages, which may be tripled in certain instances, and the attorneys’ fees of others;

 

prohibit us from developing, commercializing or continuing to provide some or all of our solutions unless we obtain licenses from, and pay royalties to, the holders of the patents or other intellectual property rights, which may not be available on commercially favorable terms, or at all;

 

subject us to indemnification obligations or obligations to refund fees to, and adversely affect our relationships with, our current or future advertisers, agencies, publishers and content providers;

 

result in injunctive relief against us, or otherwise result in delays or stoppages in providing all or certain aspects of our solutions;

 

cause advertisers, agencies, publishers or content providers to avoid working with us;

 

divert the attention and resources of management and technical personnel; and

 

require technology or branding changes to our solutions that would cause us to incur substantial cost and that we may be unable to execute effectively or at all.

 

Our business will suffer if we are unable to successfully integrate acquired companies into our business or otherwise manage the growth associated with multiple acquisitions.

 

Part of our overall growth strategy is to acquire businesses, personnel and technologies that are complementary to our existing business and expand our employee base and the breadth of our offerings. Our ability to grow through future acquisitions will depend on the availability of suitable acquisition and investment candidates at an acceptable cost, our ability to compete effectively to attract these candidates and the availability of financing to complete larger acquisitions. Future acquisitions or investments could result in potential dilutive issuances of equity securities, use of significant cash balances or incurrence of debt, contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could adversely affect our financial condition and results of operations. The benefits of an acquisition or investment may also take considerable time to develop, and we cannot be certain that any particular acquisition or investment will produce the intended benefits.

 

Integration of a new company’s operations, assets and personnel into ours will require significant attention from our management. The diversion of our management’s attention away from our business and any difficulties encountered in the integration process could harm our ability to manage our business. Future acquisitions will also expose us to potential risks, including risks associated with any acquired liabilities, the integration of new operations, technologies and personnel, unforeseen or hidden liabilities and unanticipated, information security vulnerabilities, the diversion of resources from our existing businesses, sites and technologies, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions, and potential loss of, or harm to, our relationships with employees, players, and other suppliers as a result of integration of new businesses.

 

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We may need additional capital in the future to meet our financial obligations and to pursue our business objectives. Additional capital may not be available on favorable terms, or at all, which could compromise our ability to meet our financial obligations and grow our business.

 

We may need additional capital in the future to expand our marketing and sales and technology development efforts or to make acquisitions. Additional financing may not be available on favorable terms, if at all. If adequate funds are not available on acceptable terms, we may be unable to fund the expansion of our marketing and sales and technology development efforts or take advantage of acquisition or other opportunities, which could harm our business and results of operations.

 

Financing, if any, may be in the form of debt or additional sales of equity securities, including common or preferred stock. The incurrence of debt or the sale of preferred stock may result in the imposition of operational limitations and other covenants and payment obligations, any of which may be burdensome to us. The sale of equity securities, including common or preferred stock, may result in dilution to the current shareholders’ ownership.

 

Risks Related to the Business of Kitara

 

The risk factors listed herein will apply to New Holdco after the transactions based on New Holdco’s continuation of the business of Kitara. References in this section to “we,” “us” and “our” refer to Kitara and its operating subsidiaries, Kitara Media, LLC, or “Kitara Media,” New York Publishing Group, Inc., or “NYPG,” and Heath Guru Media, Inc., or “Health Guru.”

 

If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and client needs, our solutions may become less competitive or obsolete.

 

The market for digital video advertising solutions is characterized by rapid technological change, evolving industry standards and frequent new product and service introductions. Our future success will depend on our ability to adapt and innovate. To attract new digital advertisers, digital publishers and video content providers and increase spending by our existing clients, we will need to expand and enhance our solutions to meet client needs, add functionality and address technological advancements. If we fail to develop new solutions that address our clients’ needs, or enhance and improve our solutions in a timely manner or conform to industry standards, we may not be able to achieve or maintain adequate market acceptance of our solutions, and our solutions may become less competitive or obsolete.

 

Our ability to grow is also subject to the risk of future technologies. If new technologies emerge that are able to deliver video advertising solutions at lower prices or more efficiently or effectively than our solutions, such technologies could adversely impact our ability to compete. Keeping pace with new and changing technology and evolving industry standards may require significant expenditures of financial and other resources. We cannot guarantee that such efforts will be successful.

 

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We operate in a highly competitive industry, and we may not be able to compete successfully.

 

The digital video advertising market is highly competitive, with many companies providing competing solutions. We compete with Hulu and Google (YouTube and DoubleClick) as well as advertising networks and exchanges (such as BrightRoll, Inc. and YuMe, Inc.), demand side advertiser platforms and ad networks. Many of our competitors are significantly larger than we are and have more capital to invest in their businesses. We also face competition from direct response advertisers who also seek to target brands. They, or other companies that offer competing solutions, may establish or strengthen cooperative relationships with their digital media property partners, advertisers or other parties, thereby limiting our ability to promote our solutions and generate revenue. Competitive pressures could require us to lower our prices or increase the prices we pay to publishers and content providers. Additionally, some large advertising agencies that represent our current advertising customers have their own relationships with digital media properties and can directly connect advertisers with digital media properties. Our business will suffer to the extent that our advertisers, publishers and content providers purchase and sell inventory directly from one another or through other companies that act as intermediaries between them. Other companies that offer analytics, mediation, exchange or other third party solutions have or may become intermediaries between our clients and thereby compete with us. Any of these developments would make it more difficult for us to sell our solutions and could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses or the loss of market share. Accordingly, we may not be able to compete successfully against our current and future competitors.

 

Our sales efforts with advertisers, publishers and video content providers require significant time and expense.

 

Attracting new advertisers, publishers and video content providers requires substantial time and expense, and we may not be successful in establishing new relationships or in maintaining or advancing our current relationships. For example, it may be difficult to identify, engage and market to potential advertisers who do not currently spend on digital video advertising or are unfamiliar with our current solutions. Furthermore, many of our advertising customers’ purchasing and design decisions typically require input from multiple internal constituencies, including those units historically responsible for TV and digital ad campaigns. As a result, we must identify those persons involved in the purchasing decision and devote a sufficient amount of time to presenting our solutions to each of those persons. With respect to our publishers and content providers, we seek to establish long-term relationships to ensure access to publisher sites and content for our advertisers. As a result, we invest significant time in cultivating relationships with our publishers and content providers to ensure they understand the potential benefits of monetization of their inventory with us rather than other parties. The relationship building process can take many months and may not result in us winning an opportunity with any given advertiser, agency, publisher or content provider. Moreover, even when opportunities are won, the contractual obligation may be short-term and terminable by the client upon short or no notice. For example, many of our advertising sources are ad exchanges that programmatically bid and buy inventory without obligation or commitment and can terminate or stop buying immediately. Therefore, we may invest significant resources into winning an opportunity only to result in a short-term commitment from our clients.

 

Our solutions and business model are relatively new and often require us to spend substantial time and effort educating potential advertisers, publishers and content providers about our solutions, including providing demonstrations. This process can be costly and time-consuming. If we are not successful in targeting, supporting and streamlining our sales processes, our ability to grow our business may be adversely affected.

 

The data we collect from consumers may decrease.

 

We participate in industry self-regulatory programs under which, in addition to other compliance obligations, we provide consumers with notice about our use of cookies and our collection and use of data in connection with the delivery of targeted advertising. In addition, consumers can currently opt out of the placement or use of our cookies for online targeted advertising purposes by either deleting or disabling cookies on their browsers, visiting websites that allow consumers to place an opt-out cookie on their browsers, which instructs advertisers and their service providers not to use certain data about the consumer’s online activity for the delivery of targeted advertising, or by downloading browser plug-ins and other tools that can be set to: (1) identify cookies and other tracking technologies used on websites; (2) prevent websites from placing third-party cookies and other tracking technologies on the consumer’s browser; or (3) block the delivery of online advertisements on websites and applications. If there is a material increase in the number of consumers who choose to opt out or are otherwise using browsers where they need to, and fail to, configure the browser to accept cookies (or similar tracking technologies), our ability to collect valuable and actionable data may be impaired, which may make our solutions less valuable and adversely affect our business.

 

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The data we collect from publishers and advertisers may decrease.

 

In order to effectively operate our video advertising campaigns, we collect data from advertisers, publishers, and other third parties. If we are not able to obtain sufficient rights to data from these third parties, we may not be able to utilize data in our solutions. Although our arrangements with advertisers and publishers generally permit us to collect non-personally identifiable and aggregate data from advertising campaigns, sometimes an advertiser or publisher declines to permit the use of this data. For example, publishers may not agree to permit us to place our data collection tags on their sites or agree to provide us with the data generated by interactions with the content on their sites. The inability to collect or use data from advertisers and publishers may limit the usefulness of the data that we do collect and use. Furthermore, advertisers may request that we discontinue using data obtained from their campaigns that have already been aggregated with other advertisers’ campaign data. It would be difficult, if not impossible, to comply with these requests, and complying with these kinds of requests could cause us to spend significant amounts of resources. Interruptions, failures or defects in our data collection, mining, analysis and storage systems, as well as privacy concerns and regulatory restrictions regarding the collection, use and processing of data, could also limit our ability to aggregate and analyze the data from our customers’ advertising campaigns. If that happens, we may not be able to optimize the placement of advertising for the benefit of our advertising customers, which could make our solutions less valuable, and, as a result, we may lose customers and our revenue may decline.

 

We rely on data, other technology, and intellectual property licensed from other parties, the failure or loss of which could increase our costs and delay or prevent the delivery of our solutions.

 

We utilize various types of data, other technology, and intellectual property licensed from unaffiliated third parties in order to provide certain elements of our solutions. Licensed technology, data, and intellectual property may not continue to be available on commercially reasonable terms, or at all. Any loss of the right to use any of these on commercially reasonable terms, or at all, could result in delays in producing or delivering our solutions until equivalent data, other technology, or intellectual property is identified and integrated, which delays could harm our business. In this situation we would be required to either redesign our solutions to function with technology, data or intellectual property available from other parties or to develop these components ourselves, which would result in increased costs. Furthermore, we might be forced to limit the features available in our current or future solutions. If we fail to maintain or renegotiate any of these technology or intellectual property licenses, we could face significant delays and diversion of resources in attempting to develop similar or replacement technology, or to license and integrate a functional equivalent of the technology or intellectual property. The occurrence of any of these events may have an adverse effect on our business, financial condition and operating results.

 

37

 

We currently generate the majority of our revenue from a concentrated base of customers.

 

We generate the majority of our revenue from a concentrated base of customers. Our largest customers accounted for approximately 43.4% (3 customers accounted for 18.0%, 14.7%, and 10.7% of this amount) and 47.4% (3 customers accounted for 25.8%, 11.4%, and 10.2% of this amount) of our revenues for the six months ended June 30, 2014 and 2013, respectively, and approximately 15.9% and 63.8% (3 customers accounted for 36.2%, 15.9%, and 11.6% of this amount) of the related accounts receivable as of June 30, 2014 and 2013, respectively. For the years ended December 31, 2013 and 2012, our largest three customers accounted for approximately 52.9% and 36.5%, respectively, of our revenues, and for approximately 49.4% and 15.3%, respectively, of the related accounts receivable. Such concentration exposes us to increased risk in the event of nonpayment or reduced use of our services from any one of these customers. Customer demand depends on a variety of factors including, but not limited to, our customers’ financial condition and general economic conditions. If any one of our largest customers is unable to pay for services provided, significantly reduces their use of our services or discontinues their relationship with us, our revenues and results of operations would be materially and adversely affected.

 

We have a few key vendors from whom we obtain necessary services to continue our business.

 

We have a few key vendors from whom we obtain necessary services to continue to efficiently and effectively operate our business. For example, our largest vendors accounted for approximately 63.5% (3 vendors accounted for 23.4%, 21% and 19.1% of this amount) and 35.8% (2 vendors accounted for 20.7% and 15.1% of this amount) of our cost of revenues for the six months ended June 30, 2014 and 2013, respectively, and approximately 29.5% (2 vendors accounted for 16.3% and 13.2%) and 25.9% (from one vendor) of the related accounts payable as of June 30, 2014 and 2013, respectively. Such concentration exposes us to increased risk in the event any one of these vendors becomes unable or unwilling to provide us with the services we need or significantly increases the cost of such services. In such event, we cannot guarantee that we will be able to find a replacement vendor to provide services on terms comparable to our current arrangements. If our vendor costs increase, we may be required pass the increased cost on to our clients, which may harm our competitive position. The inability to replace our key vendors or significant increases in cost for the services provided by our key vendors would adversely and materially affect our revenues and results of operations.

 

Kitara Media’s existing credit facility contains restrictive covenants that may limit our ability to respond to changes in market conditions or pursue business opportunities.

 

Kitara Media’s existing credit facility with Wells Fargo, National Association contains certain affirmative and negative covenants and financial covenants incumbent upon Kitara Media that are typical in such agreements. If the transactions are consummated, this credit facility will be repaid and replaced by the debt financing from Highbridge. If the transactions are not consummated, this credit facility will remain in place. Among the negative covenants are covenants restricting, without the consent of the lender, the incurrence of indebtedness and liens, restrictions on fundamental changes by Kitara Media such as mergers, acquisitions, consolidations, reorganizations and reclassifications, and restrictions on the disposal of assets, the making of Restricted Junior Payments, Changes of Control, Investments, transactions with Affiliates and the issuance of Stock (as such terms are defined in the credit agreement). Complying with these covenants may have a material adverse effect on our operations and financial condition.

 

If we are unable to comply with the restrictions and covenants in our existing credit facility, there could be a default under the terms of such agreements, which could result in an acceleration of repayment. Failure to maintain existing financing or to secure new financing could have a material adverse effect on our liquidity and financial position.

 

If the transactions are not consummated and our credit facility with Wells Fargo, National Association is not repaid and replaced, or we are unable to comply with the restrictions and covenants in our existing credit facility and other debt agreements, there could be a default under the terms of those agreements. In the event of a default under those agreements, lenders could terminate their commitments to lend or accelerate the loans and declare all amounts borrowed due and payable. If any of those events occur, our assets might not be sufficient to repay the indebtedness and we may be unable to find alternative financing. Even if we could obtain alternative financing, it might not be on terms that are favorable or acceptable to us. Additionally, we may not be able to amend our debt agreements or obtain needed waivers on satisfactory terms or without incurring substantial costs. Failure to maintain existing or secure new financing could have a material adverse effect on our liquidity and financial position.

 

38

 

We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2013 due to control deficiencies in several areas that are considered to be material weaknesses. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following material weaknesses in internal control over financial reporting as of June 30, 2014:

 

1.Our board of directors has not established adequate financial reporting monitoring activities to mitigate the risk of management override, specifically:

 

a majority of our board of directors is not independent;

 

we have not established a formal Audit Committee whose function would be to provide oversight specifically as it relates to scope of activities, monitoring of results, and sufficiency of accounting principle implementation.

 

2.We did not maintain sufficient segregation of duties to ensure the review process related to significant and non-routine transactions in the financial reporting process.

 

We have made efforts to improve our internal control and accounting policies and procedures. These efforts included hiring new accounting personnel. However, we may identify additional deficiencies including material weaknesses or fail to remediate the identified deficiencies in our internal controls. If material weaknesses or deficiencies in our internal controls exist and go undetected, our financial statements could contain material misstatements that, when discovered in the future, could cause us to fail to meet our future reporting obligations and cause the price of our common stock to decline.

 

We cannot assure you that we will not continue to have material weaknesses or significant deficiencies in our internal control over financial reporting. If we are unable to successfully remediate any material weakness or significant deficiency in our internal control over financial reporting, or identify any material weaknesses or significant deficiencies that may exist, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, and our stock price may decline materially as a result.

 

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Risks Related to the Business of Future Ads

 

The risk factors listed herein will apply to New Holdco after the transactions based on New Holdco’s continuation of the business of Future Ads. References in this section to “we,” “us” and “our” refer to Future Ads and its subsidiaries.

 

If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and advertiser needs, our solutions may become less competitive or obsolete.

 

The market for display, video, desktop application, mobile application and online advertising solutions is characterized by rapid technological change, evolving industry standards and frequent new product and service introductions. Our future success will depend on our ability to adapt and innovate. To attract new digital advertisers, application developers and other partners, and increase spending by our existing advertisers, we will need to expand and enhance our solutions to meet advertiser needs, add functionality and address technological advancements. If we fail to develop new solutions that address our advertisers’ needs, or enhance and improve our solutions in a timely manner or conform to industry standards, we may not be able to achieve or maintain adequate market acceptance of our solutions, and our solutions may become less competitive or obsolete.

 

Our ability to grow is also subject to the risk of future technologies. If new technologies emerge that are able to deliver advertising solutions at lower prices or more efficiently or effectively than our solutions, such technologies could adversely impact our ability to compete. Keeping pace with new and changing technology and evolving industry standards may require significant expenditures of financial and other resources. We cannot guarantee that such efforts will be successful.

 

We and our distribution partners rely on the ability to offer our audience downloadable applications which allows us and our partners to offer services and serve advertising to them. Should we or our distribution partners be unable in the future to profitably acquire new audiences due to an inability to offer downloadable applications via the Internet, our ability to generate revenues could be significantly negatively impacted.

 

Our ability to serve our advertisers and to generate revenues is dependent on our ability to provide the appropriate audiences for our advertisers’ campaigns. We acquire audiences in a variety of ways including offering free downloadable applications ourselves or via our distribution partners that audiences agree to install and which allows us to serve advertising to them. If our ability to acquire audiences through this value exchange is disrupted, our advertising business model could be impaired. Possible reasons for such disruption could include audiences not valuing the offered application, costs of marketing the software could be too high, the lifetime value of the acquired audiences does not cover the cost of acquiring the audiences, or ad blockers, anti-virus protection blockers or other applications might prevent our applications from being installed.

 

Should the dominant players in our industry (such as Microsoft and Google) modify their guidelines and policies to prevent or limit our ability to offer downloadable applications or to serve advertising to our audience, our ability to generate revenues would be severely negatively impacted and this would cause a material adverse effect on our financial results.

 

In an effort to protect their audiences from unwanted applications or unwanted behaviors while using their software and to control the computing experience, the dominant industry players who control access to audiences via their browsers and operating systems are regularly updating their policies and procedures to regulate the applications that may be installed on a computer. We cannot predict the changes that these players, such as Google or Microsoft, might implement. If they implement changes to their policies and procedures that limit our ability or application developers’ or other partners’ ability to distribute their applications online, we will have difficulties acquiring audiences at scale which are required to meet the demands of our advertisers. This could materially affect our financial results.

 

40

 

We operate in a highly competitive industry, and we may not be able to compete successfully.

 

The display, video, desktop application and online advertising solutions market is highly competitive, with many companies providing competing solutions. We compete with Google, RocketFuel, Tremor, IAC, Facebook and many other demand side advertiser platforms, supply side advertising platforms, ad networks, and desktop and mobile application networks. Many of our competitors are significantly larger than we are and have more capital to invest in their businesses. They, or other companies that offer competing solutions, may establish or strengthen cooperative relationships with their advertisers, thereby limiting our ability to promote our solutions and generate revenue. Competitive pressures could require us to lower our prices for our advertisers. Competition also exists in the acquisition of audiences from many of these same large scale competitors. As competition for audiences increases, the cost of acquiring audiences could rise. Any of these developments would make it more difficult for us to sell our solutions and could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses or the loss of market share. Accordingly, we may not be able to compete successfully against our current and future competitors.

 

Our sales efforts and relationships with advertisers, application developers and other partners require significant time and expense.

 

Attracting new advertisers, application developers and other partners requires substantial time and expense, and we may not be successful in establishing new relationships or in maintaining or advancing our current relationships. For example, it may be difficult to identify, engage and market to potential advertisers who do not currently spend on contextual, display or digital video advertising or are unfamiliar with our current solutions. Furthermore, many of our advertising customers’ purchasing and buying decisions typically require input from multiple internal constituencies. As a result, we must identify those persons involved in the purchasing decision and devote a sufficient amount of time to presenting our solutions to each of those persons. With respect to our application developers, we seek to establish long-term relationships to ensure access to ad inventory and audience reach for our advertisers. As a result, we invest significant time in cultivating relationships with our application developer to ensure they understand the potential benefits of monetization of their inventory with us rather than other parties. The relationship building process can take many months and may not result in us winning an opportunity with any given advertiser, application developer or other potential partner. Moreover, even when opportunities are won, the contractual obligation may be short-term and terminable by the other party upon short or no notice. For example, many of our advertising sources are direct advertisers and ad exchanges that programmatically bid and buy inventory without obligation or commitment and can terminate or stop buying immediately. Therefore, we may invest significant resources into winning an opportunity only to result in a short-term commitment from our clients.

 

Our solutions and business model are relatively new and often require us to spend substantial time and effort educating potential advertisers, application developers and other partners about our solutions, including providing demonstrations. This process can be costly and time-consuming. If we are not successful in targeting, supporting and streamlining our sales processes, our ability to grow our business may be adversely affected.

 

41

 

Any material reduction in spending by our key advertisers and/or our inability to retain such key advertisers could adversely impact our business and results of operations.

 

Our success requires us to sell advertising through our Trafficvance online advertising platform, to maintain and expand our relationships with our existing advertisers and to develop new relationships with other advertisers and ad agencies. These advertising sources generally do not include long-term obligations requiring them to purchase from us and are cancelable at any time or upon short notice and without a termination penalty. As a result, we have limited visibility as to our future advertising revenue streams from our advertisers, even if they have been long-standing advertisers. Our advertisers’ usage may decline, fluctuate or cease all together as a result of a number of factors, including, but not limited to:

 

the performance of their ad campaigns and their perception of the efficacy and efficiency of their advertising campaign utilizing our solutions;

 

changes in the economic conditions of advertisers, whether it is economic conditions specific to the advertiser or the advertiser’s particular industry or the economy in general;

 

Changes in the advertisers’ business models and marketing strategies that do not include us in their forward marketing plans;

 

our access to relevant inventory;

 

our ability to deliver ad campaigns in full;

 

their satisfaction with our solutions and our campaign support;

 

the ability of our optimization algorithms underlying our solutions to deliver better rates of return on ad spend dollars than competing solutions;

 

seasonal patterns in advertisers’ spending, which tend to be discretionary;

 

the pricing of our or competing solutions; and

 

reductions in spending levels or changes in advertisers’ strategies and budgets regarding spending levels for online advertising.

 

If a major advertiser decides to materially reduce its use of our services, it could do so on short or no notice. We cannot ensure that our advertisers will continue to use our services or that we will be able to replace in a timely or effective manner departing advertisers with new advertisers from whom we generate comparable revenue.

 

Seasonal fluctuations in digital advertising activity could adversely affect our cash flows.

 

Many advertisers devote a disproportionate amount of their advertising budgets to the fourth quarter of the calendar year to coincide with increased holiday purchasing. Accordingly, our revenue tends to be seasonal in nature with the fourth quarter of each calendar year historically representing the largest percentage of our total revenue for the year. Our operating cash flows could also fluctuate materially from period to period as a result of these seasonal fluctuations.

 

42

 

Our business depends on our ability to target and use data to deliver ads and to disclose data relating to the performance of our ads, and any limitation on these practices could significantly diminish the value of our solutions and cause us to lose customers and revenue.

 

Our ability to optimize the placement and targeting of advertisements for our advertisers and to grow our revenue depends on our ability to successfully deliver relevant ads and use data. Our ability to successfully target and leverage such data, in turn, depends on our ability to collect and utilize such data. When we deliver an ad to a computer connected to the Internet, we are able to collect information about the placement of the ad and the interaction of the user’s device with the ad, such as whether the user clicked on an ad. We are also able to collect certain information about our audience, such as their IP addresses. As we collect and aggregate this data provided by billions of ad impressions, we analyze it in order to optimize the placement and scheduling of ads across the advertising inventory available to us. Any interruptions, failures, or defects in our data collection, analysis, and storage systems could limit our ability to aggregate and analyze user data from our advertisers’ campaigns. If that happens, we may deliver irrelevant ads and may not be able to optimize the placement of advertising for the benefit of our advertisers, which could make our solutions less valuable, and, as a result, we may lose clients and our revenue may decline.

 

Our business practices with respect to data could give rise to liabilities, restrictions on our business or reputational harm as a result of evolving governmental regulation, legal requirements or industry standards relating to consumer privacy and data protection.

 

In the course of providing our solutions, we transmit information related to computers connected to the Internet, user activity and the ads and other content we place. Federal, state and international laws and regulations govern the collection, use, processing, retention, sharing and security of data that we collect across our solutions. The U.S. government, including the Federal Trade Commission and the Department of Commerce, has also announced that it is reviewing the need for greater regulation of the collection of consumer information, including regulation aimed at restricting some targeted advertising practices. The Federal Trade Commission has also adopted revisions to the Children’s Online Privacy Protection Act that expand liability for the collection of information by operators of websites and other electronic solutions that are directed to children.

 

We strive to comply with all applicable laws, regulations, policies and legal obligations relating to privacy and data collection, processing use and disclosure. However, the applicability of specific laws may be unclear in some cases and domestic and foreign government regulation and enforcement of data practices and data tracking technologies is expansive, not clearly defined and rapidly evolving. In addition, it is possible that these requirements may be interpreted and applied in a manner that is new or inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Complying with any new regulatory requirements could also force us to incur substantial costs or require us to change our business practices in a manner that could reduce our revenue or compromise our ability to effectively pursue our growth strategy. Any actual or perceived failure by us to comply with U.S. federal, state or international laws, including laws and regulations regulating privacy, data, security or consumer protection, or disclosure or unauthorized access by third parties to this information, could result in proceedings or actions (including class actions) against us by governmental entities, private parties or others. Any such proceedings or actions could hurt our reputation, result in significant expense to defend, distract our management, increase our costs of doing business, adversely affect the demand for our solutions and ultimately result in the imposition of monetary liability. We may also be contractually liable to indemnify and hold harmless our clients from the costs or consequences of litigation resulting from using our solutions or from the disclosure of confidential information, which could damage our reputation among our current and potential clients, require significant expenditures of capital and other resources and cause us to lose business and revenue.

 

43

 

If we fail to detect fraud or other actions that impact ad campaign performance, we could lose the confidence of advertisers or agencies, which would cause our business to suffer.

 

Our business relies on effectively and efficiently delivering advertising campaigns for advertisers. We may in the future be subject to fraudulent and malicious activities such as the use of bots, non-human traffic delivered by machines that are designed to simulate human users and artificially inflate user traffic. These activities could overstate the performance of any given ad campaign and could harm our reputation. If fraudulent or other malicious activity is perpetrated by others, and we fail to detect or prevent it, the affected advertisers may experience or perceive a reduced return on their investment and our reputation may be harmed. High levels of fraudulent or malicious activity could lead to dissatisfaction with our solutions, refusals to pay, refund demands or withdrawal of future business. If we fail to detect fraud or other actions that impact the performance of our ad campaigns, we could lose the confidence of our advertisers or agencies, which could cause our business to suffer.

 

Technological errors and system failures could significantly disrupt our operations and cause us to lose clients.

 

Our success depends on the continuing and uninterrupted performance of our solutions, which we utilize to place advertisements, monitor the performance of advertising campaigns, manage our inventory and respond to advertiser, application developer and other partner needs. Our revenue depends on our ability to target, as well as measure ad campaigns on a real-time basis. Factors that may adversely affect the performance of our solutions include:

 

Inability to accurately process data and extract meaningful insights and trends;

 

Faulty or out-of-date algorithms that fail to properly process; and

 

Technical or infrastructure problems causing advertisements not to function, display properly or be placed next to inappropriate context.

 

Sustained or repeated technological errors or system failures that interrupt our ability to deliver advertisements and provide access to our solutions, including technological failures affecting our ability to deliver advertising quickly could significantly reduce the attractiveness of our solutions and reduce our revenue. Any steps we take to increase the reliability and redundancy of our systems may be expensive and may not be successful in preventing technological errors and system failures. Any such technological errors or system failures could harm our ability to attract potential clients and retain and expand business with existing clients and our business, financial condition and operating results could be adversely affected.

 

Defects or errors in our solutions could harm our reputation, result in significant costs to us, impair our ability to deliver advertising campaigns and impair our ability to meet our obligations to our partners.

 

The technology underlying our solutions, including our proprietary technology and technology provided by third-parties, may contain material defects or errors that can adversely affect our ability to operate our business and cause significant harm to our reputation. This risk is compounded by the complexity of the technology underlying our solutions and the large amounts of data we utilize. Although we test technologies before incorporating them into our solutions, we cannot guarantee that all of the technologies that we incorporate will not contain errors, bugs or other defects. Errors, defects, disruptions in service or other performance problems in our solutions could result in the incomplete or inaccurate delivery of an ad campaign or other content, including serving an ad campaign in an incomplete or inaccurate manner. Any such failure, malfunction, or disruption in service could result in damage to our reputation, our clients withholding payment to us, advertisers, application developers or other partners making claims or initiating litigation against us, and our giving credits to our clients toward future services.

 

44

 

Security breaches, computer viruses and computer hacking attacks could harm our business and results of operations.

 

We collect, store and transmit advertising information relating to our audience, advertisers, application developers and other partners and we store information about our employees and the company (such as contracts and company confidential information). We take steps to protect the security, integrity and confidentiality of such information, but there is no guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this information despite our efforts. Security breaches, computer malware and computer hacking attacks have become more prevalent in our industry and may occur on our systems or those of our information technology vendors in the future. Security breaches, computer viruses or other harmful software code and computer hacking attacks could result in the unauthorized disclosure, misuse, or loss of information, legal claims and litigation, indemnity obligations, regulatory fines and penalties, contractual obligations and liabilities, and other liabilities. In addition, if our security measures or those of our vendors are breached or unauthorized access to data otherwise occurs, our solutions may be perceived as not being secure and advertisers, application developers and other partners may reduce the use of or stop using our solutions, a government entity may bring a claim for inadequate data protection and our own employees may bring claims against our company for breaches of confidentiality. Any of the foregoing could damage our reputation among our current and potential clients, require significant expenditures of capital and other resources and cause us to lose business and revenue.

 

In order to maintain our revenue and grow our business, we need to continuously acquire and reach new audiences and maintain audience engagement with our application products through advertising campaigns.

 

Our business depends on reaching audiences through relationships with third party application developers and distribution partners as well as through direct media buying. In all cases, our growth is dependent on our ability to reach and expand audiences. The market to generate audiences for applications is highly competitive, and we experience significant competition for audience engagement with our applications from other vendors who use application advertising business models. We generate the substantial majority of revenues associated with our audiences during the first year after an application is installed. In order to maintain our current revenues and grow our business, we need to continuously engage in marketing campaigns aimed at maintaining audience engagement with our applications and acquiring new audiences. If we fail to conduct such marketing campaigns or any of our marketing campaigns prove less successful than anticipated, either because we are not able to accurately project the number of completed installations of the applications or otherwise, we expect that our audience engagement would decline materially, which would have a material adverse effect on our operating results.

 

Our business and prospects would be harmed if new versions or upgrades of operating systems and Internet browsers adversely impact the process or platform by which audiences install our applications and audiences view our advertisements. The application installation process for our solutions is currently straightforward and includes detailed information about our products and services. In the future, operating systems, internet browsers, ad blockers, and security programs could introduce new features or limitations that would make it more difficult to install applications and may negatively impact the growth of our audience base, and adversely impact our business and prospects.

 

45

 

Our failure to protect our intellectual property rights could diminish the value of our services, weaken our competitive position and reduce our revenue.

 

We regard the protection of our intellectual property as critical to our success. We strive to protect our intellectual property rights by relying on contractual restrictions. We enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with third parties with whom we conduct business in order to limit access to, and disclosure and use of, our intellectual property and proprietary information. However, these contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation of our proprietary information or deter independent development of similar technologies by others. We may, in the future, seek to protect our intellectual property in new ways, such as by registering our trademarks and copyrights or applying for patents for technology we develop. Effective trade secret, copyright, trademark, domain name and patent protection is expensive to develop and maintain, both in terms of initial and ongoing registration requirements and the costs of defending our rights. Protecting our intellectual property through federal and state filings in the future may prove expensive and time-consuming.

 

We have licensed in the past, and may license in the future, some of our proprietary rights to third parties. These licensees may take unauthorized actions that diminish the value of our proprietary rights or harm our reputation.

 

Monitoring unauthorized use of our intellectual property is difficult and costly. Our efforts to protect our proprietary rights may not be adequate to prevent misappropriation of our intellectual property. Further, we may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Our competitors may also independently develop similar technology. The laws in the United States and elsewhere change rapidly, and any future changes could adversely affect us and our intellectual property rights. Our failure to meaningfully protect our intellectual property could result in competitors offering services that incorporate our most technologically advanced features, which could seriously reduce demand for our solutions. In addition, we may in the future need to initiate infringement claims or litigation. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which could harm our business, whether or not such litigation results in a determination that is unfavorable to us. In addition, litigation is inherently uncertain, and thus we may not be able to stop our competitors from infringing upon our intellectual property rights.

 

Our business may suffer if it is alleged or determined that our solutions or another aspect of our business infringes the intellectual property rights of others.

 

Companies in the online advertising industry are often required to defend against litigation claims that are based on allegations of infringement or other violations of intellectual property rights. Our success depends, in part, upon non-infringement of intellectual property rights owned by others and being able to resolve claims of intellectual property infringement or misappropriation without major financial expenditures or adverse consequences. In the future, we may face claims by third parties that we infringe upon or misappropriate their intellectual property rights, and we may be found to be infringing upon or to have misappropriated such rights. Such claims may be made by competitors or other parties. Regardless of whether claims that we are infringing patents or infringing or misappropriating other intellectual property rights have any merit, these claims are time-consuming and costly to evaluate and defend, and can impose a significant burden on management and employees. The outcome of any litigation is inherently uncertain, and we may receive unfavorable interim or preliminary rulings in the course of litigation. There can be no assurances that favorable final outcomes will be obtained in all cases. We may decide to settle lawsuits and disputes on terms that are unfavorable to us. Some of our competitors have substantially greater resources than we do and are able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. Claims that we are infringing patents or other intellectual property rights could:

 

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subject us to significant liabilities for monetary damages, which may be tripled in certain instances, and the attorneys’ fees of others;

 

prohibit us from developing, commercializing or continuing to provide some or all of our solutions unless we obtain licenses from, and pay royalties to, the holders of the patents or other intellectual property rights, which may not be available on commercially favorable terms, or at all;

 

subject us to indemnification obligations or obligations to refund fees to, and adversely affect our relationships with, our current or future advertisers, application developers and other partners;

 

result in injunctive relief against us, or otherwise result in delays or stoppages in providing all or certain aspects of our solutions;

 

cause advertisers, application developers and other partners to avoid working with us;

 

divert the attention and resources of management and technical personnel; and

 

require technology or branding changes to our solutions that would cause us to incur substantial cost and that we may be unable to execute effectively or at all.

 

Our business will suffer if we are unable to successfully integrate acquired companies into our business or otherwise manage the growth associated with multiple acquisitions.

 

Part of our overall growth strategy is to acquire businesses, personnel and technologies that are complementary to our existing business and expand our employee base and the breadth of our offerings. Our ability to grow through future acquisitions will depend on the availability of suitable acquisition and investment candidates at an acceptable cost, our ability to compete effectively to attract these candidates and the availability of financing to complete larger acquisitions. Future acquisitions or investments could result in potential dilutive issuances of equity securities, use of significant cash balances or incurrence of debt, contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could adversely affect our financial condition and results of operations. The benefits of an acquisition or investment may also take considerable time to develop, and we cannot be certain that any particular acquisition or investment will produce the intended benefits.

 

Integration of a new company’s operations, assets and personnel into ours will require significant attention from our management. The diversion of our management’s attention away from our business and any difficulties encountered in the integration process could harm our ability to manage our business. Future acquisitions will also expose us to potential risks, including risks associated with any acquired liabilities, the integration of new operations, technologies and personnel, unforeseen or hidden liabilities and unanticipated, information security vulnerabilities, the diversion of resources from our existing businesses, sites and technologies, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions, and potential loss of, or harm to, our relationships with employees, players, and other suppliers as a result of the integration of new businesses.

 

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We may need additional capital in the future to meet our financial obligations and to pursue our business objectives. Additional capital may not be available on favorable terms, or at all, which could compromise our ability to meet our financial obligations and grow our business.

 

We may need additional capital in the future to expand our marketing and sales and technology development efforts or to make acquisitions. Additional financing may not be available on favorable terms, if at all. If adequate funds are not available on acceptable terms, we may be unable to fund the expansion of our marketing and sales and technology development efforts or take advantage of acquisition or other opportunities, which could harm our business and results of operations.

 

Financing, if any, may be in the form of debt or additional sales of equity securities, including common or preferred stock. The incurrence of debt or the sale of preferred stock may result in the imposition of operational limitations and other covenants and payment obligations, any of which may be burdensome to us. The sale of equity securities, including common or preferred stock, may result in dilution to the current shareholders’ ownership.

 

We depend on third party Internet and telecommunication providers to operate our business. Temporary failure of these services, including catastrophic or technological interruptions, would reduce our revenues and damage our reputation, and securing alternate sources for these services could significantly increase our expenses. 

 

Each of our third party Internet and telecommunication providers may not continue to provide services to us without disruptions in services, at the current cost or at all. Moreover, as technology advances occur, we will need to upgrade our systems, infrastructure and technologies. Although there may be overlap between the companies that provide such services, any such disruption in services, even if temporary, may negatively impact our performance.

 

Our servers and communications systems could be damaged or interrupted by fire, flood, power loss, telecommunications failure, earthquakes, acts of war or terrorism, acts of God, computer viruses, physical or electronic break-ins and similar events or disruptions. Any of these events could cause deterioration in performance or interruption in these systems, delays, loss of critical data and lost revenues. Further, because our California headquarters and server location site are in seismically active areas, earthquakes present a particular serious risk of business disruption.

 

A loss of the services of our senior management and other key personnel could adversely affect the execution of our business strategy. 

 

We depend on the continued services of our senior management team. The loss of the services of these personnel could create a gap in management and could result in the loss of expertise necessary for us to execute our business strategy and thereby adversely affect our business.

 

Further, our ability to execute our business strategy also depends on our ability to continue to attract, retain and motivate qualified and skilled technical and creative personnel and skilled management, marketing and sales personnel. Competition for well-qualified employees in our industry is intense and our continued ability to compete effectively depends, in part, upon our ability to retain existing key employees and to attract new skilled employees as well. If we cannot attract and retain additional key employees or lose one or more of our current key employees, our ability to develop or market our products and attract or acquire new users could be adversely affected. Although we have established programs to attract new employees and provide incentives to retain existing employees, particularly senior management, we cannot be assured that we will be able to retain the services of senior management or other key employees, or that we will be able to attract new employees in the future who are capable of making significant contributions.

 

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Any significant decline in desktop PC computer audiences accessing the Internet could significantly diminish the value of our solutions and cause us to lose revenue since most of our revenue generating solutions are currently not usable on competing platforms.

 

We focus primarily on the market related to personal computers, or “PCs.” To the extent that there is an even more significant shift by the market from PCs to mobile or tablet devices, we could experience a substantial reduction in revenues. Recently, the number of individuals who access the Internet through devices other than PCs, such as mobile phones and tablets, has increased dramatically. Our services are not yet available on these alternative platforms and devices. If this trend accelerates, and if we fail to successfully develop a mobile offering, we may fail to capture a sufficient share of an increasingly important portion of the market for online services, and our services will become less relevant and may fail to attract advertisers and web traffic.

 

Additionally, mobile devices are more controlled by the mobile device manufacturers and the providers of their operating systems. To the extent that these hardware and software providers use their position to advantage their own offerings, our opportunities could be more limited.

 

Our results of operations and financial condition may be adversely impacted by worldwide economic conditions.

 

In the event that the United States and/or Europe experiences an economic downturn or the current economic climate worsens, this could reduce our advertisers’ ability to spend on internet advertising. A reduction in the purchasing of our products, use of our services and consumer internet spending may possibly have a greater negative impact in the future on our sales and revenue generation, margins and operating expenses, and consequently have a material adverse effect on our business, results of operations and financial condition.

 

Geo-political uncertainties and instabilities may have negative impacts on our ability to operate and/or grow.

 

As we expand our business globally, we depend on a stable geo-political environment in the regions in which we operate. Should there be instabilities in regions where we sell, wish to sell or have outsourced development operations, we may find it difficult to maintain or grow our business. As we expand our advertiser base to cover Asia, the Middle East, Africa and Latin America, geo-political instabilities could have an adverse impact on our business. Additionally, we outsource our technology development to an engineering firm located in Bosnia and Herzegovina. The region has a history of geopolitical unrest and should a period of instability ensue, our technology development capabilities could be jeopardized.

 

New laws and regulations applicable to Internet advertising, privacy and data collection and protection, and uncertainties regarding the application or interpretation of existing laws and regulations, could harm our business.

 

Our business is conducted through the internet and therefore, among other things, we are subject to the laws and regulations that apply to online businesses around the world. These laws and regulations are becoming more prevalent in the United States, Europe and elsewhere and may impede the growth of internet marketing; and consequently our services.  These regulations and laws may cover user privacy, data collection and protection, content, use of “cookies”, access changes, “net neutrality,” pricing, intellectual property, distribution, protection of minors, consumer protection and taxation.

 

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Many areas of the law affecting the internet remain largely unsettled, even in areas where there has been legislative action. This uncertainty can be compounded when services hosted in one jurisdiction are directed at users in another jurisdiction. Therefore, it is difficult to determine whether and how existing laws, such as those governing intellectual property, privacy and data collection and protection, libel, marketing, data security and taxation, apply to the Internet and our business.

 

Risks Related to New Holdco and New Holdco Securities

 

The majority of New Holdco’s common stock will be owned by current members of Future Ads, whose interests may not be aligned with the interests of Kitara stockholders.

 

Immediately after the consummation of the transactions, the former holders of Kitara common stock will own approximately 38.3% of the outstanding New Holdco common stock and the prior members of Future Ads will own the remaining approximately 61.7%. As a result of their stock ownership in New Holdco, the prior members of Future Ads will be able to control all matters requiring approval by New Holdco stockholders, including, but not limited to:

 

the election of directors;

 

mergers, consolidations or acquisitions, the sale of all or substantially all of New Holdco’s assets and other decisions affecting New Holdco’s capital structure;

 

the amendment of New Holdco’s certificate of incorporation and bylaws; and

 

New Holdco’s liquidation, winding up and dissolution.

 

The interests of the current members of Future Ads may not be aligned with the interests of the former Kitara stockholders in these matters. In addition, this concentration of stock ownership may have a material adverse effect on the trading price of New Holdco’s common stock because investors may perceive disadvantages in owning shares in a company with significant stockholders. Such persons’ stock ownership also may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.

 

Furthermore, under the stockholders’ agreement entered into between the current members of Future Ads and New Holdco, as long as the members own at least 50% of the outstanding New Holdco common stock, the members will have the right to designate a majority of the directors of the New Holdco board and, as long as the members own at least 20% of the outstanding New Holdco common stock, the members will have the right to designate at least 40% of the directors of the New Holdco board. As a result of their right to designate a majority of the directors, the members of Future Ads will have even greater influence over the management of New Holdco’s business.

 

New Holdco does not intend to pay cash dividends on its common stock in the foreseeable future.

 

Kitara has not paid any cash dividends on its common stock to date. New Holdco does not anticipate paying dividends in the foreseeable future, but expects to retain earnings to finance the growth of its business. Therefore, any return on investments will only occur if the market price of New Holdco common stock appreciates. In addition, the terms of the debt financing obtained in connection with the transactions likely will restrict New Holdco’s ability to pay dividends on its common stock.

 

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There has been no prior public market for New Holdco common stock.

 

Prior to the completion of the merger, no public market will have existed for the shares of New Holdco common stock that you will receive in the merger. Your shares of New Holdco common stock will be listed on the OTCBB. However, an active public market for New Holdco common stock may not develop or be sustained, which could affect your ability to sell, or depress the market price of, the New Holdco common stock. We are unable to predict whether an active trading market for New Holdco common stock will develop or will be sustained.

 

The public price and trading volume of New Holdco common stock may be volatile.

 

The price and volume of New Holdco common stock may be volatile and subject to fluctuations. Some of the factors that could cause fluctuations in the stock price or trading volume of New Holdco common stock include:

 

general market and economic conditions and market trends, including in the digital media advertising industry and the financial markets generally;

 

the political, economic and social situation in the United States, including privacy laws;

 

actual or expected variations in operating results;

 

variations in quarterly operating results;

 

announcements by New Holdco or New Holdco’s competitors of significant acquisitions, strategic partnerships, joint ventures, capital commitments, or other business developments;

 

adoption of new accounting standards affecting the industry in which New Holdco operates;

 

operations and stock performance of competitors;

 

litigation or governmental action involving or affecting New Holdco or its subsidiaries;

 

recruitment or departure of key personnel;

 

purchase or sales of blocks of New Holdco common stock; and

 

operating and stock performance of the companies that investors may consider to be comparable.

 

There can be no assurance that the price of New Holdco common stock will not fluctuate or decline significantly. The stock market in recent years has experienced considerable price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies and that could materially adversely affect the price of New Holdco common stock, regardless of New Holdco’s operating performance. The market prices of stock in technology and advertising companies have been especially volatile. You should also be aware that price volatility might be worse if the trading volume of shares of the common stock is low.

 

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New Holdco will have the ability to issue “blank check” preferred stock, which could affect the rights of holders of New Holdco common stock.

 

New Holdco’s certificate of incorporation allows the board of directors of New Holdco to issue 1,000,000 shares of preferred stock and to set the terms of such preferred stock. The terms of such preferred stock may materially adversely impact the dividend and liquidation rights of holders of New Holdco common stock.

 

The requirements of being a public company, including the requirements of the Sarbanes-Oxley Act of 2002, may strain the resources of New Holdco and its subsidiaries, increase their costs and distract their management, and New Holdco and its subsidiaries may be unable to comply with these requirements in a timely or cost-effective manner.

 

Neither New Holdco nor Future Ads has any history operating as a publicly-traded company. Following consummation of the merger, as a public company, New Holdco and its subsidiaries, including Future Ads, will need to comply with certain laws and regulations and public reporting requirements, including the reporting obligations of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” certain corporate governance provisions of the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act and other laws, regulations and rules of the SEC, all of which New Holdco and Future Ads are not required to comply with as private companies. Complying with these statutes, regulations and requirements will increase New Holdco’s and Future Ads’ general and administrative costs as a result of higher expenses associated with director and officer liability insurance, audit work, legal counsel, regulatory requirements and the establishment and maintenance of heightened corporate governance measures and management oversight. Compliance will occupy a significant portion of New Holdco’s board of directors’ and management’s time.

 

New Holdco and Future Ads will need to:

 

institute a more comprehensive compliance function;

 

design, establish, evaluate and maintain a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;

 

establish internal policies, such as those relating to disclosure controls and procedures and insider trading;

 

prepare and file periodic and annual reports; and

 

establish an investor relations function.

 

If New Holdco and its subsidiaries are unable to accomplish these objectives in a timely and effective fashion, their ability to comply with its public reporting requirements and other rules that apply to public companies could be impaired, and New Holdco may be subject to sanction or investigation by the SEC.

 

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After the merger, New Holdco’s failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could result in a restatement of its financial statements, cause investors to lose confidence in its financial statements and have a material adverse effect on New Holdco’s business and stock price.

 

Neither New Holdco nor Future Ads is currently required to evaluate its internal control over financial reporting in the manner that is currently required of certain public companies in the United States. As a public company New Holdco’s internal accounting controls, including those applicable to Future Ads business, will need to meet all standards applicable to companies with publicly traded securities. Effective internal controls are necessary for New Holdco to provide reliable financial reports, to help mitigate the risk of fraud and to operate successfully as a publicly traded company. As a public company, New Holdco will be required to document and test its internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board, including annual management assessments of the effectiveness of New Holdco’s internal control over financial reporting and, if New Holdco ceases to be a non-accelerated filer as defined under rules and regulations of the SEC, a report by New Holdco’s independent registered public accounting firm that addresses its internal control over financial reporting. The requirement for management’s report will apply starting with the annual report for the year ended December 31, 2015 and the requirement for a report by New Holdco’s independent registered public accounting firm will apply starting with the annual report for the first year ending on or after December 31, 2015 in which New Holdco has a public float of at least $75,000,000 as of the end of its second fiscal quarter.

 

As New Holdco prepares to comply with Section 404 of the Sarbanes-Oxley Act with respect to internal control over financial reporting, it may identify significant deficiencies or errors that it may not be able to remediate in time to meet its deadline for compliance. For example, Kitara has identified certain material weaknesses in its internal controls, as discussed above. Testing and maintaining internal control over financial reporting can divert New Holdco’s management’s attention from other matters that are important to its business. New Holdco may not be able to conclude on an ongoing basis that it has effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act or New Holdco’s independent registered public accounting firm may not be able or willing to issue a favorable assessment if New Holdco concludes that its internal control over financial reporting is ineffective. If either New Holdco is unable to conclude that it has effective internal control over financial reporting or New Holdco’s independent registered public accounting firm is unable to provide New Holdco with an unqualified report, investors could lose confidence in New Holdco’s reported financial information and New Holdco itself, which could result in a decline in the market price of New Holdco’s shares, and cause New Holdco to fail to meet its future reporting obligations, which in turn could impact its ability to raise additional financing if needed in the future.

 

Once New Holdco is a public company, if it fails to implement the requirements of Section 404 of the Sarbanes-Oxley Act with respect to internal control over financial reporting in a timely manner, it may also be subject to sanctions or investigation by regulatory authorities such as the SEC.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This proxy statement/prospectus and the documents that are incorporated into this proxy statement/prospectus by reference may contain or incorporate by reference statements that do not directly or exclusively relate to historical facts. We consider such statements to be “forward-looking statements.” You can typically identify forward-looking statements by the use of forward-looking words, such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “aim,” “seek,” “forecast” and other similar words. These include, but are not limited to, statements relating to the strategy of New Holdco, the synergies and the benefits that we expect to achieve in the transaction discussed herein, including future financial and operating results, the combined company’s plans, objectives, expectations and intentions, projections related to future financial information of Future Ads and Kitara and other statements that are not historical facts. Those statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside the control of New Holdco, Future Ads and Kitara, and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In addition to the risk factors described under “Risk Factors” beginning on page 23, those factors include:

 

New Holdco’s ability to execute its business strategy;

 

New Holdco’s, Kitara’s and Future Ads’ need and ability to raise additional capital to implement its business strategy and to close the merger and exchange;

 

certain risks and uncertainties inherent in digital media advertising;

 

the loss of senior management or key employees;

 

Kitara’s and Future Ads’ ability to obtain skilled personnel;

 

regulation to which Kitara and/or Future Ads is subject;

 

obtaining the stockholder approval required for the Kitara merger;

 

satisfying the conditions to the closing, in particular the minimum EBITDA conditions to the debt financing;

 

successfully integrating the Kitara and Future Ads businesses and avoiding problems which may result in the combined company not operating as effectively and efficiently as expected;

 

unexpected costs or unexpected liabilities;

 

the effects on the businesses of the companies resulting from uncertainty surrounding the merger;

 

adverse outcomes of pending or threatened litigation or government investigations;

 

the effects on the businesses of the companies of future regulatory or legislative actions;

 

conduct and changing circumstances related to third-party relationships on which Kitara and Future Ads rely;

 

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the volatile and unpredictable current stock market and credit market conditions;

 

market risks from fluctuations in interest rates;

 

adverse weather conditions, including droughts and hurricanes; and

 

other economic, business, and/or competitive factors.

 

The areas of risk and uncertainty described above should be considered in connection with any written or oral forward-looking statements that may be made after the date of this proxy statement/prospectus by Kitara or Future Ads or anyone acting for any or all of them.

 

Kitara and New Holdco also caution the reader that undue reliance should not be placed on any forward-looking statements, which speak only as of the date of this proxy statement/prospectus. Neither Kitara nor New Holdco undertakes any duty or responsibility to update any of these forward-looking statements to reflect events or circumstances after the date of this proxy statement/prospectus or to reflect actual outcomes.

 

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THE SPECIAL MEETING

 

Date, Time and Place of the Special Meeting

 

The Special Meeting is scheduled to be held on December [●], 2014 at 10:00 a.m., local time, at the offices of our general counsel, Graubard Miller, located at The Chrysler Building, 405 Lexington Avenue, 11th Floor, New York, New York 10174.

 

Purpose of the Special Meeting

 

At the Special Meeting, Kitara stockholders will be asked to consider and vote upon:

 

a proposal to adopt the merger agreement, a copy of which is attached hereto as Annex A, and approve the merger contemplated thereby;

 

proposals to approve the following six provisions in the New Holdco certificate of incorporation that will be in effect after the completion of the merger and that are not in the current Kitara amended and restated certificate of incorporation:

 

New Holdco is authorized to issue 500,000,000 shares of common stock;

 

Any director or the entire board of directors generally may be removed, with or without cause, by the affirmative vote of at least 66 2/3% of the voting power of the stock outstanding and entitled to vote thereon;

 

The affirmative vote of at least 66 2/3% of the voting power of the stock outstanding and entitled to vote thereon, generally shall be required to amend any provision of the New Holdco certificate of incorporation;

 

The affirmative vote of at least 66 2/3% of the voting power of the stock outstanding and entitled to vote thereon, generally shall be required for the stockholders of New Holdco to amend any provision of the bylaws of New Holdco;

 

New Holdco shall not be bound or governed by, or otherwise subject to, Section 203 of the Delaware General Corporation Law; and

 

Certain actions and proceedings with respect to New Holdco may be brought only in a court in the State of Delaware;

 

a proposal to approve the 2014 Plan, a copy of which is attached hereto as Annex C; and

 

a proposal to adjourn the Special Meeting, if necessary, to permit further solicitation of proxies, if there are not sufficient votes at the Special Meeting to adopt the merger agreement and approve the merger.

 

Record Date; Outstanding Shares Entitled to Vote

 

The board of directors of Kitara has fixed November [●], 2014, as the record date for the Special Meeting. If you were a Kitara stockholder at the close of business on the record date, you are entitled to vote your Kitara shares at the Special Meeting. As of the record date, there were [●] shares of Kitara common stock, par value $0.0001 per share, outstanding and entitled to vote at the Special Meeting.

 

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Ownership of Kitara Common Stock

 

If your shares of Kitara common stock are registered directly in your name with Kitara’s transfer agent, Continental Stock Transfer & Trust Company, you are considered, with respect to those shares of Kitara common stock, the “stockholder of record.” This proxy statement/prospectus and the enclosed proxy card have been sent directly to you by Kitara.

 

If your shares of Kitara common stock are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares of Kitara common stock held in “street name.” This proxy statement/prospectus has been forwarded to you by your broker, bank or nominee who is considered, with respect to those shares of Kitara common stock, the stockholder of record. As the beneficial owner of shares of Kitara common stock held in street name, you have the right to direct your broker, bank or nominee how to vote your shares of Kitara common stock by using the voting instruction card included in the mailing or by following their instructions for voting by telephone or the Internet.

 

Quorum

 

In order to transact business at the Special Meeting, a quorum of Kitara stockholders must be present. A quorum will exist if holders of a majority of the outstanding shares of Kitara common stock entitled to vote on a matter are present in person, or represented by proxy, at the Special Meeting. Accordingly, the presence at the Special Meeting, either in person or by proxy, of holders of at least [●] shares of Kitara common stock will be required to establish a quorum. If a quorum is not present, the Special Meeting may be adjourned, pending stockholder approval, to a later date.

 

Holders of shares of Kitara common stock present in person at the Special Meeting but not voting, and shares of Kitara common stock for which Kitara has received proxies indicating that their holders have abstained, will be counted as present at the Special Meeting for purposes of determining whether a quorum is established.

 

Vote Required

 

Under Delaware law, the affirmative vote of the holders of at least a majority of the outstanding shares of Kitara common stock is required to approve the merger agreement.

 

The affirmative vote of the holders of at least a majority of the outstanding shares of Kitara common stock who are present at the meeting, in person or by proxy, and entitled to vote on the applicable matter is required to approve:

  

the Charter Amendment Proposals;

 

the Equity Plan Proposal; and

 

the Adjournment Proposal.

 

Because approval of the Merger Proposal requires the affirmative vote of the majority of the outstanding shares of common stock of Kitara as of the record date, if you mark “abstain” or fail to instruct your bank, broker or other nominee on how to vote the shares of Kitara common stock you hold in street name on the proposed merger, it will have the same effect as a vote “AGAINST” the Merger Proposal.

 

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If you mark “abstain” with respect to the Charter Amendment Proposals, the Equity Plan Proposal or Adjournment Proposal, it will have the same effect as a vote “AGAINST” the proposal. If you fail to instruct your bank, broker or other nominee on how to vote the shares of Kitara common stock you hold in street name with respect to the Charter Amendment Proposals, the Equity Plan Proposal or Adjournment Proposal, your shares of Kitara common stock will not be treated as present at the Special Meeting and entitled to vote on that proposal, and as such, your failure to instruct your broker or nominee how to vote will not have any effect on the vote with respect to that proposal.

 

Recommendation of Kitara’s Board of Directors

 

The Merger Proposal:  Kitara’s board of directors unanimously determined that the merger agreement is advisable, fair and in the best interests of Kitara and its stockholders and unanimously approved the merger agreement. The Kitara board of directors recommends that the stockholders of Kitara vote “FOR” the Merger Proposal. Additional information on the recommendation of Kitara’s board of directors is set forth in “The Transactions — Kitara’s Reasons for the Transactions and Recommendation of Kitara’s Board of Directors” beginning on page 78.

 

Kitara stockholders should carefully read this proxy statement/prospectus in its entirety for additional information concerning the merger agreement and the proposed transaction. In addition, Kitara stockholders are directed to the merger agreement, as amended, which is attached as Annex A to this proxy statement/prospectus and is incorporated by reference as an exhibit to the registration statement of which this proxy statement/prospectus is a part.

 

The Charter Amendment Proposals: Kitara’s board of directors unanimously recommends that the stockholders of Kitara vote “FOR” each of the Charter Amendment Proposals.

 

The Equity Plan Proposal:  Kitara’s board of directors unanimously recommends that the stockholders of Kitara vote “FOR” the Equity Plan Proposal.

 

The Adjournment Proposal:  Kitara’s board of directors unanimously recommends that the stockholders of Kitara vote “FOR” the Adjournment Proposal.

 

Voting by Kitara’s Directors and Executive Officers

 

As of the record date, Kitara’s directors and executive officers and certain of their affiliates beneficially owned more than 50% of the total votes entitled to be cast at the Special Meeting. Accordingly, Kitara’s directors and executive officers and their affiliates may approve the Merger Proposal, the Charter Amendment Proposals, the Equity Plan Proposal and the Adjournment Proposal without the affirmative vote of any other Kitara stockholder. Under the voting agreement, Kitara’s directors and executive officers and their affiliates have agreed, among other things, to vote their shares of Kitara common stock in favor of the Merger Proposal and the Equity Plan Proposal. They have also agreed to vote in favor of any other matters necessary for consummation of the merger and any other transactions contemplated in the merger agreement, which would include the Charter Amendment Proposals and the Adjournment Proposal.

 

How to Vote

 

After reading and carefully considering the information contained in this proxy statement/prospectus, please vote promptly. In order to ensure your vote is recorded, please submit your proxy or voting instructions as instructed below as soon as possible, even if you plan to attend the Special Meeting.

 

Internet. You can vote over the Internet by following the instructions included with your proxy card. If you vote over the Internet, do not return your proxy card. The availability of Internet voting for beneficial owners holding Kitara shares in street name will depend on the voting process of your broker, bank or nominee. Please follow the voting instructions in the materials you receive from your broker, bank or nominee.

 

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Telephone. You can vote by telephone by following the instructions included with your proxy card. You will then be prompted to enter the control number printed on your proxy card and to follow subsequent instructions. Telephone voting is available 24 hours a day. If you vote by telephone, do not return your proxy card. The availability of telephone voting for beneficial owners holding Kitara shares in street name will depend on the voting process of your broker, bank or nominee. Please follow the voting instructions in the materials you receive from your broker, bank or nominee.

 

Mail. You can vote by mail by simply completing, signing, dating and mailing your proxy card or voting instruction card in the postage-paid envelope included with this proxy statement/prospectus.

 

In addition, all stockholders may vote in person at the special meeting. You may also be represented by another person at the meeting by executing a proper proxy designating that person as your proxy. If you are a beneficial owner of shares held in street name, you must obtain a legal proxy from your broker, bank or nominee and present it to the inspectors of election with your ballot when you vote at the meeting.

 

Attending the Special Meeting

 

All Kitara stockholders as of the record date may attend the Special Meeting. If you are a beneficial owner of Kitara shares held in street name, you must provide evidence of your ownership of Kitara shares, which you can obtain from your broker, banker or nominee.

 

Voting of Proxies

 

If you vote by Internet, telephone or by completing, signing, dating and mailing your proxy card or voting instruction card, your Kitara shares will be voted in accordance with your instructions. If you are a stockholder of record and you sign, date and return your proxy card but do not indicate how you want to vote or do not indicate that you wish to abstain, your Kitara shares will be voted “FOR” the Merger Proposal, “FOR” the Charter Amendment Proposals, “FOR” the Equity Plan Proposal and “FOR” the Adjournment Proposal.

 

Voting of Kitara Shares Held in Street Name

 

Kitara stockholders who hold shares of Kitara common stock in a stock brokerage account or through a bank, broker or other nominee (referred to in this proxy statement/prospectus as “street name” stockholders) who wish to vote at the Special Meeting should be provided a voting instruction card by the institution that holds their Kitara shares. If this has not occurred, contact the institution that holds your Kitara shares. A number of banks and brokerage firms participate in a program that also permits stockholders whose Kitara shares are held in “street name” to direct their vote by telephone or over the Internet. If your Kitara shares are held in an account at a bank or brokerage firm that participates in such a program, you may direct the vote of these Kitara shares by telephone or over the Internet by following the voting instructions enclosed with the proxy form from the bank or brokerage firm. The Internet and telephone proxy procedures are designed to authenticate stockholders’ identities, to allow stockholders to give their proxy voting instructions and to confirm that those instructions have been properly recorded. Votes directed by telephone or over the Internet through such a program must be received by 11:59 p.m. eastern time on December [●], 2014. Directing the voting of your Kitara shares will not affect your right to vote in person if you decide to attend the Special Meeting; however, you must first obtain a signed and properly executed legal proxy from your bank, broker or other nominee to vote your Kitara shares held in “street name” at the Special Meeting. Requesting a legal proxy prior to the deadline described above will automatically cancel any voting directions you have previously given by telephone or over the Internet with respect to your Kitara shares.

 

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Revoking your Proxy

 

If you are a stockholder of record you can revoke your vote at any time before your proxy is voted at the Special Meeting. You can do this in one of three ways:

 

you can send a signed notice of revocation to the Corporate Secretary of Kitara;

 

you can submit a revised proxy bearing a later date by Internet, telephone or mail as described above; or

 

you can attend the Special Meeting and vote in person, which will automatically cancel any proxy previously given, or you may revoke your proxy in person, though your attendance alone will not revoke any proxy that you have previously given.

 

If you choose either of the first two methods, you must submit your notice of revocation or your new proxy no later than the beginning of the Special Meeting. If you are a beneficial owner of Kitara shares held in street name, you may submit new voting instructions by contacting your broker, bank or nominee. You may also vote in person at the Special Meeting if you obtain a legal proxy from your broker, bank or nominee and present it to the inspectors of election with your ballot when you vote at the meeting.

 

Proxy Solicitations

 

Kitara is soliciting proxies for the Special Meeting from Kitara stockholders. Kitara will bear the cost of soliciting proxies from Kitara stockholders, including the expenses incurred in connection with the printing and mailing of this proxy statement/prospectus. In addition to this mailing, Kitara’s directors, officers and employees (who will not receive any additional compensation for such services) may solicit proxies by telephone or in-person meeting.

 

Kitara will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to the beneficial owners of Kitara common stock.

 

Other Business

 

Kitara’s board of directors is not aware of any other business to be acted upon at the Special Meeting.

 

Adjournments and Postponements

 

Adjournments or postponements may be made for the purpose of, among other things, soliciting additional proxies. Any adjournment may be made from time to time with the approval of a majority of the votes present in person at the Special Meeting or represented by proxy at the time of the vote, whether or not a quorum exists. Kitara is not required to notify stockholders of any adjournment if the time and place of the adjourned meeting are announced at the meeting at which the adjournment is taken, unless after the adjournment a new record date is fixed for the adjourned meeting.

 

In addition, at any time prior to convening the Special Meeting, the Special Meeting may be postponed without the approval of Kitara stockholders. If postponed, Kitara will publicly announce the new meeting date.

 

At any adjourned or postponed meeting, Kitara may transact any business that it might have transacted at the original meeting, provided that a quorum is present at such adjourned or postponed meeting. Proxies submitted by Kitara stockholders for use at the Special Meeting will be used at any adjournment or postponement of the meeting. References to the Special Meeting in this proxy statement/prospectus are to the Special Meeting, as the same may be adjourned or postponed.

 

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PROPOSAL NO. 1 — THE MERGER PROPOSAL

 

As discussed in this proxy statement/prospectus, Kitara is requesting that its stockholders adopt the merger agreement and approve the merger, which is part of a single integrated transaction with the exchange. Approval of this proposal is a condition to the completion of the merger and the exchange.

 

Kitara stockholders should read carefully this proxy statement/‌prospectus in its entirety for more detailed information concerning Kitara, Future Ads and the merger agreement, exchange agreement and the transactions contemplated thereby, including the sections entitled “The Transactions” beginning on page 76, “The Agreements — Description of the Merger Agreement” beginning on page 85 and “The Agreements — Description of the Exchange Agreement” beginning on page 86. The merger agreement and exchange agreement are attached as Annex A and Annex B, respectively, to this proxy statement/prospectus. You are urged to read carefully the entire merger agreement and the entire exchange agreement before voting on this proposal.

 

The vote on this Proposal No. 1 is a vote separate and apart from the vote on the other proposals. Accordingly, you may vote for Proposal No. 1 on the adoption of the merger agreement and approval of the merger and vote against any of the other proposals, and vice versa.

 

Vote Required for Approval

 

The merger agreement will be approved if the holders of at least a majority of the outstanding shares of Kitara common stock vote “FOR” this proposal.

 

Because this proposal requires the affirmative vote of the majority of the outstanding shares of common stock of Kitara as of the record date, if you mark “abstain” or fail to instruct your bank, broker or other nominee on how to vote the shares of Kitara common stock you hold in street name on the proposed merger, it will have the same effect as a vote “AGAINST” the merger.

 

Under the voting agreement, the supporting parties have agreed, among other things, to vote their shares of Kitara common stock in favor of the adoption of the merger agreement and approval of the merger. The supporting parties hold more than 50% of the shares of Kitara common stock outstanding. Accordingly, the supporting parties may adopt the merger agreement and approve the merger without the affirmative vote of any other Kitara stockholder.

 

Recommendation of the Kitara Board of Directors

 

THE KITARA BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THE KITARA STOCKHOLDERS VOTE “FOR” THE ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER. 

 

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PROPOSAL NOS. 2A TO 2F — THE CHARTER AMENDMENT PROPOSALS

 

Kitara and Future Ads agreed as part of the negotiations for the exchange agreement that the New Holdco certificate of incorporation would be in the form attached as Annex H to this proxy statement/‌prospectus. It is the position of the SEC that Kitara is required to submit to its stockholders for approval certain of the provisions of the New Holdco certificate of incorporation that differ materially from those set forth in the Kitara’s amended and restated certificate of incorporation and bylaws.

 

Kitara stockholders should read carefully this proxy statement/‌prospectus in its entirety for more detailed information concerning the New Holdco certificate of incorporation, including the sections entitled “—Proposal 2A — Increase in Authorized Shares,” “—Proposal 2B — Super-Majority Requirement for Removal of Directors,” “—Proposal 2C — Super-Majority Requirement for Amendments to Certificate of Incorporation,” “—Proposal 2D — Super-Majority Requirement for Amendments to Bylaws,” “—Proposal 2E — Opt Out of Section 203” and “—Proposal 2F — Exclusive Forum Provision” below. The New Holdco certificate of incorporation is attached as Annex H to this proxy statement/‌prospectus. You are urged to read carefully the entire New Holdco certificate of incorporation before voting on this proposal.

 

The Kitara board of directors believes that approval of each of the provisions of the New Holdco certificate of incorporation set forth below is in the best interests of Kitara’s shareholders for the reasons set forth below. Furthermore, the provisions were negotiated by Kitara and the other parties to the exchange agreement and are considered by the parties to be an integral part of the larger negotiated transaction approved and recommended by the Kitara board of directors.

 

Proposal 2A — Increase in Authorized Shares

 

Kitara is requesting that its stockholders approve the New Holdco certificate of incorporation to the extent it provides that New Holdco is authorized to issue 500,000,000 shares of common stock, which is 200,000,000 more shares than Kitara is authorized to issue under the Kitara amended and restated certificate of incorporation.

 

Upon closing of the transactions, New Holdco estimates that 250,097,333 shares of New Holdco common stock will be issued and outstanding. In addition, New Holdco estimates that 26,187,129 shares of common stock will be reserved for issuance under the 2014 Plan, 8,320,000 shares will be reserved for issuance under outstanding stock options and 6,363,636 will be reserved for issuance under outstanding warrants.

 

The authorization of additional shares of common stock will enable New Holdco to meet its obligations under the exchange agreement complete equity financing to fund the $10,000,000 of deferred consideration payable to the members of Future Ads and its obligations under its equity compensation plans and under its warrants, while retaining flexibility to respond to future business needs and opportunities. For example, the additional shares may be used for financing New Holdco’s business, for acquiring other businesses, for forming strategic partnerships and alliances, for granting equity compensation to our employees or for stock dividends and stock splits.

 

The New Holdco board of directors will be authorized to issue the additional shares of common stock, in its discretion, without further approval of the stockholders, and the New Holdco board of directors does not intend to seek stockholder approval prior to any issuance of the shares of common stock, unless stockholder approval is required by applicable law or securities exchange rules. Although New Holdco reviews from time to time various transactions that could result in the issuance of common stock, New Holdco has no current plan, agreement, commitment, understanding or arrangement to issue additional shares of its common stock, except for issuances described in the preceding paragraph.

 

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The issuance of additional shares of common stock will have a dilutive effect on earnings per share and on the equity and voting power of the then-existing holders of New Holdco capital stock, including the current Kitara stockholders. It may also adversely affect the market price of the common stock. However, if the issuance of additional shares of common stock allows New Holdco to pursue its business plan and grow its business, the market price of its common stock may increase.

 

While not intended as an anti-takeover provision, and while the threat of a takeover attempt will remain attenuated as long as ownership is concentrated with the members and New Holdco management and the stockholders’ agreement remains in effect, the additional shares of common stock ultimately could be used to oppose a hostile takeover attempt or to delay or prevent changes in control or management of the company. For example, without further stockholder approval, the New Holdco board of directors could strategically sell shares of common stock to purchasers who would oppose a takeover or favor the current board of directors. Although the size of the New Holdco authorized capital has been determined based on business and financial considerations and not by the threat of any hostile takeover attempt (nor is the board of directors currently aware of any such attempts directed at the company), approval of the proposal could facilitate future efforts by New Holdco to deter or prevent changes in control of the company, including transactions in which the stockholders might otherwise receive a premium for their shares over then current market prices.

 

Proposal 2B — Super-Majority Requirement for Removal of Directors

 

Kitara is requesting that its stockholders approve the New Holdco certificate of incorporation to the extent it provides that, except for such additional directors, if any, as are elected by the holders of any series of preferred stock as provided for or fixed by the terms of such preferred stock, and unless otherwise restricted by law, any director or the entire board of directors may be removed, with or without cause, by the affirmative vote of at least 66 2/3% of the voting power of the stock outstanding and entitled to vote thereon. The Kitara amended and restated certificate of incorporation does not contain a similar provision. As a result, any director of Kitara may currently be removed, with or without cause, by the affirmative vote of a majority of the shares of common stock entitled to vote an election of directors.

 

This super-majority requirement for the removal of directors will enable New Holdco to maintain continuity of management and also will help ensure the negotiated terms of the transactions relating to management of New Holdco are not circumvented. The Kitara board of directors believes that maintaining continuity of New Holdco management in accordance with the provisions of the transactions will permit more effective long-term strategic planning with respect to the businesses of Kitara and Future Ads and will promote the creation of long-term value for the current Kitara stockholders.

 

While the threat of a takeover attempt will remain attenuated as long as ownership is concentrated with the members and New Holdco management and the stockholders’ agreement remains in effect, the super-majority requirement for the removal of directors ultimately may delay or prevent changes in control or management of the company. For example, a takeover bidder who acquired a majority but less than 66 2/3% of the New Holdco common stock would not be able to immediately remove and replace the board of directors, but instead would have to wait until the next annual meeting. Approval of the proposal could in the future deter or prevent changes in control of the company, including transactions in which the stockholders might otherwise receive a premium for their shares over then current market prices.

 

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Proposal 2C — Super-Majority Requirement for Amendments to Certificate of Incorporation

 

Kitara is requesting that its stockholders approve the New Holdco certificate of incorporation to the extent it provides that, except as otherwise provided in the certificate of incorporation, and in addition to any requirements of law, the affirmative vote of at least 66 2/3% of the voting power of the stock outstanding and entitled to vote thereon, shall be required to amend any provision of the New Holdco certificate of incorporation. The Kitara amended and restated certificate of incorporation does not contain a similar provision. As a result, any amendment to the Kitara certificate of incorporation may currently be approved by the affirmative vote of a majority of the shares of common stock outstanding and entitled to vote thereon.

 

This super-majority requirement for the amendment of the certificate of incorporation will help ensure the negotiated terms of the New Holdco certificate of incorporation are not changed, deleted or circumvented, including the provision requiring a super-majority vote in order to remove directors of New Holdco.

 

While the threat of a takeover attempt will remain attenuated as long as ownership is concentrated with the members and New Holdco management and the stockholders’ agreement remains in effect, the super-majority requirement for the amendment of the certificate of incorporation, together with the super-majority requirement for the amendment of the bylaws, ultimately may delay or prevent changes in control or management of the company. For example, a takeover bidder who acquired a majority but less than 66 2/3% of the New Holdco common stock would not be able to remove provisions of the certificate of incorporation or bylaws that interfered with such stockholder’s ability to assert control over the company, including the provision related to the removal of directors. Approval of the proposal could in the future deter or prevent changes in control of the company, including transactions in which the stockholders might otherwise receive a premium for their shares over then current market prices.

 

Proposal 2D — Super-Majority Requirement for Amendments to Bylaws by the Stockholders of New Holdco

 

Kitara is requesting that its stockholders approve the New Holdco certificate of incorporation to the extent it provides that, except as otherwise provided in the certificate of incorporation and bylaws, and in addition to any requirements of law, the affirmative vote of at least 66 2/3% of the voting power of the stock outstanding and entitled to vote thereon, shall be required for the stockholders of New Holdco to amend any provision of the New Holdco bylaws. The Kitara amended and restated certificate of incorporation does not contain a similar provision. As a result, any amendment to the Kitara bylaws by the Kitara stockholders may currently be approved by the affirmative vote of a majority of the shares of common stock present in person or by proxy and entitled to vote thereon. The New Holdco board of directors is authorized to amend the bylaws without regard to the super-majority requirement.

 

The reasons for, and the potential adverse consequences of, the super-majority requirement for amendments to New Holdco’s bylaws by the stockholders of New Holdco are substantially the same as for the super-majority requirement for amendments to New Holdco’s certificate of incorporation.

 

Proposal 2E — Opt Out of Section 203

 

Kitara is requesting that its stockholders approve the New Holdco certificate of incorporation to the extent it provides that New Holdco shall not be bound or governed by, or otherwise subject to, Section 203 of the Delaware General Corporation Law. The Kitara amended and restated certificate of incorporation does not contain a similar provision.

 

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Section 203 generally provides that any person or entity who acquires 15% or more in voting power of a corporation's voting stock (thereby becoming an “interested stockholder”) may not engage in a wide range of transactions (referred to as “business combinations”) with the corporation for a period of three years following the date the person became an interested stockholder, subject to certain exceptions. The exceptions are (i) the board of directors of the corporation has approved, prior to that acquisition date, either the business combination or the transaction that resulted in the person becoming an interested stockholder, (ii) upon consummation of the transaction that resulted in the person becoming an interested stockholder, that person owns at least 85% in voting power of the corporation's voting stock outstanding at the time the transaction commenced (excluding certain shares), or (iii) the business combination is approved by the board of directors and authorized, at a shareholder meeting and not by written consent, by the affirmative vote of at least 66 2/3% in voting power of the outstanding voting stock not owned by the interested stockholder. Under Section 203 of the DGCL, a corporation can elect not to be subject to Section 203 if the corporation inserts a provision to that effect in its certificate of incorporation or if the stockholders of the corporation insert a provision to that effect in the bylaws of the corporation.

 

The provision opting out of Section 203 is an integral part of the transaction negotiated by Future Ads. If the Section 203 Proposal is adopted, it will increase the flexibility for the members of Future Ads to sell an interest of between 15% and 85% in voting power of their voting stock to a third party. If the opt out provision is approved and becomes effective, the acquirer would not be subject to the restrictions on business combinations set forth in Section 203. The members have advised the New Holdco board of directors that they have no present plan or intention of seeking to sell any of their shares of New Holdco common stock. Furthermore, in recommending the provision opting out from Section 203, the Kitara board of directors considered the fact that, as the members will be the controlling stockholders of New Holdco, the members will have the power to cause New Holdco to opt out of Section 203 on their own by consent or causing New Holdco to call a special meeting of shareholders for that purpose.

 

Proposal 2F — Exclusive Forum Provision

 

Kitara is requesting that its stockholders approve the New Holdco certificate of incorporation to the extent it provides that, unless New Holdco consents to an alternative forum, to the fullest extent permitted by law, the sole and exclusive forum for any stockholder to bring (a) any derivative action on behalf of New Holdco, (b) any action asserting a claim of breach of fiduciary duty owed by any director, officer or employee of New Holdco to New Holdco or its stockholders, (c) any action asserting a claim arising pursuant to any provision of the DGCL or the certificate of incorporation or bylaws, or (d) any action asserting a claim governed by the internal affairs doctrine shall be a state court located within the State of Delaware, in all cases subject to the court having personal jurisdiction over the indispensable parties named as defendants. The Kitara amended and restated certificate of incorporation does not contain a similar provision.

 

The exclusive forum provision is intended to assist New Holdco in avoiding multiple lawsuits in multiple jurisdictions on matters relating to the corporate law of Delaware. The provision will only regulate the forum where New Holdco stockholders may file claims relating to the specified intra-corporate disputes. The provision does not restrict the ability of New Holdco stockholders to bring such claims, nor the remedies available if such claims are ultimately successful.

 

The Kitara board of directors believes that New Holdco’s stockholders will benefit from having intra-corporate disputes litigated in the courts of the State of Delaware. The Delaware courts are widely regarded as the preeminent court for the determination of disputes involving a corporation’s internal affairs in terms of precedent, experience and focus. The court’s considerable expertise has led to the development of a substantial and influential body of case law interpreting Delaware’s corporate law. This provides New Holdco and its stockholders with more predictability regarding the outcome of intra-corporate disputes. In addition, the Delaware courts have developed streamlined procedures and processes that help provide relatively quick decisions for litigating parties. This accelerated schedule can limit the time, cost, and uncertainty of litigation for all parties. The selection of the Delaware Court of Chancery as the exclusive forum for intra-corporate disputes would reduce the risks that New Holdco could be forced to waste resources defending against duplicative suits and that the outcome of cases in multiple jurisdictions could be inconsistent, even though each forum purports to follow Delaware law.

 

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Vote Required for Approval of Each Charter Amendment Proposal

 

The Charter Amendment Proposals will not be presented at the Special Meeting unless Proposal No. 1, the Merger Proposal, is approved. The vote on each Charter Amendment Proposal is a vote separate and apart from the vote on the other proposals. Accordingly, you may vote for any Charter Amendment Proposal and vote against any of the other proposals, including any of the other Charter Amendment Proposals, and vice versa.

 

Each of the Charter Amendment Proposals will be approved if the holders of at least a majority of the outstanding shares of Kitara common stock who are present at the meeting, in person or by proxy, and entitled to vote on the proposal vote “FOR” each proposal.

 

If you mark “abstain” with respect to any of these proposals, it will have the same effect as a vote “AGAINST” such proposal. If you fail to instruct your bank, broker or other nominee on how to vote the shares of Kitara common stock you hold in street name with respect to any of these proposals, your shares of Kitara common stock will not be treated as present at the Special Meeting and entitled to vote on these proposals, and as such, your failure to instruct your bank, broker or nominee how to vote will not have any effect on the vote with respect to these proposals.

 

Under the voting agreement, the supporting parties have agreed, among other things, to approve any other matters necessary for consummation of the merger and any other transactions contemplated in the merger agreement, which would include the Charter Amendment Proposals. The supporting parties hold more than 50% of the shares of Kitara common stock outstanding. Accordingly, the supporting parties may approve the Charter Amendment Proposals without the affirmative vote of any other Kitara stockholder.

 

Recommendation of the Kitara Board of Directors

 

THE KITARA BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THE KITARA STOCKHOLDERS VOTE “FOR” EACH OF THE CHARTER AMENDMENT PROPOSALS.

 

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PROPOSAL NO. 3 — THE EQUITY PLAN PROPOSAL

 

Kitara is requesting that its stockholders approve the 2014 Plan. On October 9, 2014, the New Holdco board of directors and the sole stockholder of New Holdco adopted the 2014 Plan, subject to the approval of Kitara’s stockholders. If approved by the Kitara stockholders at the Special Meeting, the 2014 Plan will become effective on the consummation of the transactions.

 

Kitara stockholders should read carefully this proxy statement/‌prospectus in its entirety for more detailed information concerning the 2014 Plan, including the section entitled “—Summary of the 2014 Plan” below. The 2014 Plan is attached as Annex C to this proxy statement/‌prospectus. You are urged to read carefully the entire 2014 Plan before voting on this proposal.

 

This Proposal No. 3 will not be presented at the Special Meeting unless Proposal No. 1, the Merger Proposal, is approved. The vote on this Proposal No. 3 is a vote separate and apart from the vote on the other proposals. Accordingly, you may vote for Proposal No. 3 on the 2014 Plan and vote against any of the other proposals, and vice versa.

 

Background

 

Kitara currently sponsors the 2012 Plan and the 2013 Plan, together the “Existing Plans,” each of which provides for the award of stock options, restricted stock, stock appreciation rights and other stock-based awards. In addition, Kitara granted a stock option to purchase 750,000 shares of Kitara common stock to an affiliate of Jonathan Ledecky, which award was not made under either such plan. Each of the Existing Plans and the non-plan option will be assumed by New Holdco upon consummation of the merger and the non-plan option and all outstanding awards under the Existing Plans will survive. However, New Holdco will amend the Existing Plans so that no further awards may be issued under such plans after the closing. Assuming no further grants are made prior to the closing and no outstanding awards are forfeited or otherwise terminated prior to the closing, it is expected that at the time of the closing 8,320,000 shares will be reserved for issuance pursuant to the non-plan option and outstanding stock option awards under the Existing Plans. These stock options have a weighted average exercise price of $0.30 per share and weighted average remaining contractual term of 3.8 years.

 

All of the awards (including the non-plan option and the stock options under the Existing Plans) outstanding at June 30, 2014 were granted after the acquisitions of Kitara Media and NYPG on July 1, 2013. Kitara’s burn rate during the 12-month period from July 1, 2013 to June 30, 2014, which it defines as the total number of shares subject to awards granted during such period that were not subsequently forfeited, divided by the weighted average common shares outstanding during such period, was approximately 12.7%. However, there can be no assurance that New Holdco’s annual burn rate after the transactions will be substantially similar to Kitara’s burn rate during such 12-month period.

 

Subject to approval of the 2014 Plan by Kitara’s shareholders, a total of nine percent of the fully diluted outstanding shares of New Holdco common stock as of the closing (which is estimated to be approximately 290,968,097 shares) will be available for future awards under the 2014 Plan. In addition, New Holdco will have an aggregate of approximately 8,320,000 shares subject to the non-plan option and outstanding stock options under the Existing Plans as described above. Accordingly, immediately after the closing, a total of approximately 34,507,129 shares will be reserved for issuance under all of the equity compensation arrangements. This amount represents approximately 13.8% of the shares of New Holdco common stock estimated to be outstanding immediately after the transactions.

 

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Summary of the 2014 Plan

 

The following summary of the principal features of the 2014 Plan is qualified in its entirety by reference to the 2014 Plan itself set forth in Annex C.

 

Purpose

 

The purpose of the 2014 Plan is to enable New Holdco to offer its employees, officers, directors and consultants whose past, present and/or potential future contributions to New Holdco have been, are, or will be important to its success, an opportunity to acquire a proprietary interest in New Holdco. The various types of incentive awards that may be provided under the plan are intended to enable New Holdco to respond to changes in compensation practices, tax laws, accounting regulations and the size and diversity of its business.

 

Administration

 

The 2014 Plan is administered by the New Holdco board of directors or a committee of the New Holdco board of directors comprised of at least two directors. If administered by a committee, the committee will be comprised solely of “outside directors,” as defined in the regulations issued under Section 162(m) of the Code, and “non-employee” directors, as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended.  If no committee is designated, then all references in this description of the plan to “committee” shall mean the board. Subject to the provisions of the plan, the committee determines, among other things, the persons to whom from time to time awards may be granted, the specific type of awards to be granted, the number of shares subject to each award, share prices, any restrictions or limitations on the awards, and any vesting, exchange, surrender, cancellation, acceleration, termination, exercise or forfeiture provisions related to the awards.

 

Stock Subject to the Plan 

 

The board of directors has reserved nine percent of the fully diluted shares of New Holdco common stock to be outstanding as of the closing for issuance under the 2014 Plan.  Shares of stock subject to other awards that are forfeited or terminated will be available for future award grants under the 2014 Plan. If a holder pays the exercise price of a stock option by surrendering any previously owned shares of common stock or arranges to have the appropriate number of shares otherwise issuable upon exercise withheld to cover the withholding tax liability associated with the stock option exercise, the shares surrendered by the holder or withheld by the company will not be available for future award grants under the plan.

 

Under the plan, in the event of a change in the number of shares of New Holdco common stock as a result of a dividend on shares of common stock payable in shares of common stock, common stock forward split or reverse split or other extraordinary or unusual event that results in a change in the shares of common stock as a whole, the committee shall determine whether such change equitably requires an adjustment in the terms of any award in order to prevent dilution or enlargement of the benefits available under the plan or the aggregate number of shares reserved for issuance under the plan.

 

Eligibility

 

New Holdco may grant awards under the 2014 Plan to employees, officers, directors, and consultants who are deemed to have rendered, or to be able to render, significant services to New Holdco and who are deemed to have contributed, or to have the potential to contribute, to its success. An incentive stock option may be granted under the plan only to a person who, at the time of the grant, is an employee of ours. Based on the current number of employees and consultants of Kitara and Future Ads and on a seven member New Holdco board of directors, New Holdco estimates that 200 individuals will be eligible for awards under the 2014 Plan.

 

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Types of Awards

 

Options. The 2014 Plan provides both for “incentive” stock options as defined in Section 422 of the Code, and for options not qualifying as incentive options, both of which may be granted with any other stock based award under the plan. The committee determines the exercise price per share of common stock purchasable under an incentive or non-qualified stock option, which may not be less than 100% of the fair market value on the day of the grant or, if greater, the par value of a share of common stock. However, the exercise price of an incentive stock option granted to a person possessing more than 10% of the total combined voting power of all classes of New Holdco’s stock may not be less than 110% of the fair market value on the date of grant. The aggregate fair market value of all shares of common stock with respect to which incentive stock options are exercisable by a participant for the first time during any calendar year (under all of New Holdco’s plans), measured at the date of the grant, may not exceed $100,000.

 

No stock option shall have a term of more than 10 years (or five years in the case of an incentive stock option granted to a person who, at the time of the grant, owns common stock possessing more than 10% of the total combined voting power of all classes of New Holdco stock). An incentive stock option may only be exercised within ten years from the date of the grant, or within five years in the case of an incentive stock option granted to a person who, at the time of the grant, owns common stock possessing more than 10% of the total combined voting power of all classes of New Holdco stock.

 

Subject to any limitations or conditions the committee may impose, stock options may be exercised, in whole or in part, at any time during the term of the stock option by giving written notice of exercise to New Holdco specifying the number of shares of common stock to be purchased. The notice must be accompanied by payment in full of the purchase price, either in cash or, if provided in the agreement, in New Holdco securities or in combination of the two.

 

Generally, stock options granted under the plan may not be transferred other than by will or by the laws of descent and distribution and all stock options are exercisable, during the holder’s lifetime, only by the holder, or in the event of legal incapacity or incompetency, the holder’s guardian or legal representative. However, a holder, with the approval of the committee, may transfer a non-qualified stock option by gift to a family member of the holder, by domestic relations order to a family member of the holder or by transfer to an entity in which more than 50% of the voting interests are owned by family members of the holder or the holder, in exchange for an interest in that entity.

 

Generally, if the holder is an employee, no stock options granted under the plan may be exercised by the holder unless he or she is employed by New Holdco or a subsidiary of ours at the time of the exercise and has been so employed continuously from the time the stock options were granted. However, in the event the holder’s employment is terminated due to disability or normal retirement, the holder may still exercise his or her vested stock options for a period of 12 months, or such other greater or lesser period as the committee may determine, from the date of termination or until the expiration of the stated term of the stock option, whichever period is shorter.  Similarly, should a holder die while employed by New Holdco or a subsidiary, his or her legal representative or legatee under his or her will may exercise the decedent holder’s vested stock options for a period of 12 months from the date of his or her death, or such other greater or lesser period as the board or committee may determine, or until the expiration of the stated term of the stock option, whichever period is shorter.  If the holder’s employment is terminated for any reason other than death, disability or normal retirement, the stock option will automatically terminate, except that if the holder’s employment is terminated by New Holdco without cause, then the portion of any stock option that is vested on the date of termination may be exercised for the lesser of three months after termination of employment, or such other greater or lesser period as the committee may determine but not beyond the balance of the stock option’s term.

 

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Stock Appreciation Rights. Under the 2014 Plan, New Holdco may grant stock appreciation rights to participants who have been, or are being, granted stock options under the plan as a means of allowing the participants to exercise their stock options without the need to pay the exercise price in cash, or New Holdco may grant them alone and unrelated to an option. In conjunction with non-qualified stock options, stock appreciation rights may be granted either at or after the time of the grant of the non-qualified stock options. In conjunction with incentive stock options, stock appreciation rights may be granted only at the time of the grant of the incentive stock options. A stock appreciation right entitles the holder to receive a number of shares of common stock having a fair market value equal to the excess fair market value of one share of common stock over the exercise price of the related stock option, multiplied by the number of shares subject to the stock appreciation rights. The granting of a stock appreciation right in tandem with a stock option will not affect the number of shares of common stock available for awards under the plan. In such event, the number of shares available for awards under the plan will, however, be reduced by the number of shares of common stock acquirable upon exercise of the stock option to which the stock appreciation right relates.

 

Restricted Stock. Under the 2014 Plan, New Holdco may award shares of restricted stock either alone or in addition to other awards granted under the plan. The committee determines the persons to whom grants of restricted stock are made, the number of shares to be awarded, the price (if any) to be paid for the restricted stock by the person receiving the stock from New Holdco, the time or times within which awards of restricted stock may be subject to forfeiture, the vesting schedule and rights to acceleration thereof, and all other terms and conditions of the restricted stock awards.

 

The 2014 Plan requires that all shares of restricted stock awarded to the holder remain in New Holdco’s physical custody until the restrictions have terminated and all vesting requirements with respect to the restricted stock have been fulfilled. New Holdco will retain custody of all dividends and distributions made or declared with respect to the restricted stock during the restriction period. A breach of any restriction regarding the restricted stock will cause a forfeiture of the restricted stock and any retained dividends and distributions. Except for the foregoing restrictions, the holder will, even during the restriction period, have all of the rights of a shareholder, including the right to vote the shares.

 

Other Stock-Based Awards. Under the 2014 Plan, New Holdco may grant other stock-based awards, subject to limitations under applicable law that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of common stock, as deemed consistent with the purposes of the plan. These other stock-based awards may be in the form of purchase rights, shares of common stock awarded that are not subject to any restrictions or conditions, convertible or exchangeable debentures or other rights convertible into shares of common stock and awards valued by reference to the value of securities of, or the performance of, one of New Holdco’s subsidiaries. These other stock-based awards may include performance shares or options, whose award is tied to specific performance criteria. These other stock-based awards may be awarded either alone, in addition to, or in tandem with any other awards under the 2014 Plan or any of New Holdco’s other plans.

 

Accelerated Vesting and Exercisability. If any one person, or more than one person acting as a group, acquires the ownership of stock of the company that, together with the stock held by such person or group, constitutes more than 50% of the total fair market value or combined voting power of the stock of the company, and the company’s board of directors does not authorize or otherwise approve such acquisition, then the vesting periods of any and all stock options and other awards granted and outstanding under the 2014 Plan shall be accelerated and all such stock options and awards will immediately and entirely vest, and the respective holders thereof will have the immediate right to purchase and/or receive any and all common stock subject to such stock options and awards on the terms set forth in the plan and the respective agreements respecting such stock options and awards. An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the company acquires its stock in exchange for property is not treated as an acquisition of stock.

 

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The committee may, in the event of an acquisition by any one person, or more than one person acting as a group, together with acquisitions during the 12-month period ending on the date of the most recent acquisition by such person or persons, of assets from the company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the company immediately before such acquisition or acquisitions, or if any one person, or more than one person acting as a group, acquires the ownership of stock of the company that, together with the stock held by such person or group, constitutes more than 50% of the total fair market value or combined voting power of the stock of the company, which has been approved by the company’s board of directors, (i) accelerate the vesting of any and all stock options and other awards granted and outstanding under the 2014 Plan, or (ii) require a holder of any award granted under the plan to relinquish such award to the company upon the tender by the company to the holder of cash in an amount equal to the repurchase value of such award. For this purpose, gross fair market value means the value of the assets of the company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

 

Notwithstanding any provisions of the 2014 Plan or any award granted thereunder to the contrary, no acceleration shall occur with respect to any award to the extent such acceleration would cause the plan or an award granted thereunder to fail to comply with Section 409A of the Code.

 

Award Limitation. No participant may be granted awards for more than 4,000,000 shares under the plan in any calendar year.

 

Other Limitations. The committee may not modify or amend any outstanding option or stock appreciation right to reduce the exercise price of such option or stock appreciation right, as applicable, below the exercise price as of the date of grant of such option or stock appreciation right. In addition, no option or stock appreciation right with a lower exercise price may be granted in exchange for, or in connection with, the cancellation or surrender of an option or stock appreciation right or other award with a higher exercise price.

 

Withholding Taxes

 

When an award is first included in the gross income of the holder for federal income tax purposes, the holder will be required to make arrangements regarding the payment of all federal, state and local withholding tax requirements, including by settlement of such amount in shares of New Holdco common stock.  The obligations of the company under the 2014 Plan are contingent on such arrangements being made.

 

Term and Amendments

 

Unless terminated by the board, the 2014 Plan shall continue to remain effective until no further awards may be granted and all awards granted under the plan are no longer outstanding. Notwithstanding the foregoing, grants of incentive stock options may be made only until ten years from the effective date of the plan. The board may at any time, and from time to time, amend the plan or any award agreement, subject to certain limitations, provided that no amendment will be made that would impair the rights of a holder under any agreement entered into pursuant to the plan without the holder’s consent.

 

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Federal Income Tax Consequences

 

The following discussion of the federal income tax consequences of participation in the 2014 Plan is only a summary of the general rules applicable to the grant and exercise of stock options and other awards and does not give specific details or cover, among other things, state, local and foreign tax treatment of participation in the plan. The information contained in this section is based on present law and regulations, which are subject to being changed prospectively or retroactively.

 

Incentive Stock Options. Participants will recognize no taxable income upon the grant of an incentive stock option. The participant generally will realize no taxable income when the incentive stock option is exercised. The excess, if any, of the fair market value of the shares on the date of exercise of an incentive stock option over the exercise price will be treated as an item of adjustment for a participant’s taxable year in which the exercise occurs and may result in an alternative minimum tax liability for the participant. New Holdco will not qualify for any deduction in connection with the grant or exercise of incentive stock options. Upon a disposition of the shares after the later of two years from the date of grant or one year after the transfer of the shares to a participant, the participant will recognize the difference, if any, between the amount realized and the exercise price as long-term capital gain or long-term capital loss, as the case may be, if the shares are capital assets.

 

If common stock acquired upon the exercise of an incentive stock option is disposed of prior to the expiration of the holding periods described above, the participant will recognize ordinary compensation income in the taxable year of disposition in an amount equal to the excess, if any, of the fair market value of the shares on the date of exercise over the exercise price paid for the shares; and New Holdco will qualify for a deduction equal to any amount recognized, subject to the limitation that the compensation be reasonable.

 

Non-Qualified Stock Options. With respect to non-qualified stock options:

 

upon grant of the stock option, the participant will recognize no income provided that the exercise price was not less than the fair market value of New Holdco common stock on the date of grant;

 

upon exercise of the stock option, if the shares of common stock are not subject to a substantial risk of forfeiture, the participant will recognize ordinary compensation income in an amount equal to the excess, if any, of the fair market value of the shares on the date of exercise over the exercise price, and New Holdco will qualify for a deduction in the same amount, subject to the requirement that the compensation be reasonable; and

 

New Holdco will be required to comply with applicable federal income tax withholding requirements with respect to the amount of ordinary compensation income recognized by the participant.

 

On a disposition of the shares, the participant will recognize gain or loss equal to the difference between the amount realized and the sum of the exercise price and the ordinary compensation income recognized. The gain or loss will be treated as capital gain or loss if the shares are capital assets and as short-term or long-term capital gain or loss, depending upon the length of time that the participant held the shares.

 

If the shares acquired upon exercise of a non-qualified stock option are subject to a substantial risk of forfeiture, the participant will recognize ordinary income at the time when the substantial risk of forfeiture is removed, unless the participant timely files under Section 83(b) of the Code to elect to be taxed on the receipt of shares, and New Holdco will qualify for a corresponding deduction at that time. The amount of ordinary income will be equal to the excess of the fair market value of the shares at the time the income is recognized over the amount, if any, paid for the shares.

 

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Stock Appreciation Rights. Upon the grant of a stock appreciation right, the participant recognizes no taxable income and New Holdco receives no deduction. The participant recognizes ordinary income and New Holdco receives a deduction at the time of exercise equal to the cash and fair market value of common stock payable upon the exercise.

 

Restricted Stock. A participant who receives restricted stock will recognize no income on the grant of the restricted stock and New Holdco will not qualify for any deduction. At the time the restricted stock is no longer subject to a substantial risk of forfeiture, a participant will recognize ordinary compensation income in an amount equal to the excess, if any, of the fair market value of the restricted stock at the time the restriction lapses over the consideration paid for the restricted stock. The holding period to determine whether the participant has long-term or short-term capital gain or loss begins when the restriction period expires, and the tax basis for the shares will generally be the fair market value of the shares on this date.

 

A participant may elect under Section 83(b) of the Code, within 30 days of the transfer of the restricted stock, to recognize ordinary compensation income on the date of transfer in an amount equal to the excess, if any, of the fair market value on the date of transfer of the shares of restricted stock, as determined without regard to the restrictions, over the consideration paid for the restricted stock. If a participant makes an election under Section 83(b), the holding period will commence on the day after the date of transfer and the tax basis will equal the fair market value of shares, as determined without regard to the restrictions, on the date of transfer.

 

On a disposition of the shares, a participant will recognize gain or loss equal to the difference between the amount realized and the tax basis for the shares.

 

Whether or not the participant makes an election under Section 83(b), New Holdco generally will qualify for a deduction, subject to the reasonableness of compensation limitation, equal to the amount that is taxable as ordinary income to the participant, in the taxable year in which the income is included in the participant’s gross income. The income recognized by the participant will be subject to applicable withholding tax requirements.

 

Dividends paid on restricted stock that is subject to a substantial risk of forfeiture generally will be treated as compensation that is taxable as ordinary compensation income to the participant and will be deductible by New Holdco subject to the reasonableness limitation. If, however, the participant makes a Section 83(b) election, the dividends will be treated as dividends and taxable as ordinary income to the participant, but will not be deductible by New Holdco.

 

Other Stock-Based Awards. The federal income tax treatment of other stock-based awards will depend on the nature and restrictions applicable to the award.

 

Section 162(m) Limits. Section 162(m) of the Code places a limit of $1,000,000 on the amount of compensation that a publicly traded company may deduct in any one year with respect to each of its chief executive officer and four most highly paid executive officers. Certain performance-based compensation approved by shareholders is not subject to the deduction limit. The 2014 Plan has been designed such that, upon approval by the Kitara stockholders, stock options and stock appreciation rights awarded under the plan may constitute performance-based compensation not subject to Section 162(m) of the Code. One of the requirements for such treatment is that there must be a limit to the number of shares granted to any one individual under the plan. Accordingly, the plan provides that the maximum number of shares for which awards may be made to any employee in any calendar year is 4,000,000.  

 

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Certain Awards Deferring or Accelerating the Receipt of Compensation. Section 409A of the Code, enacted as part of the American Jobs Creation Act of 2004, imposes certain new requirements applicable to “nonqualified deferred compensation plans.” If a nonqualified deferred compensation plan subject to Section 409A fails to meet, or is not operated in accordance with, these new requirements, then all compensation deferred under the plan may become immediately taxable. Stock appreciation rights and deferred stock awards that may be granted under the 2014 Plan may constitute deferred compensation subject to the Section 409A requirements.  It is New Holdco’s intention that any award agreement governing awards subject to Section 409A will comply with these rules.

 

New Plan Benefits

 

The benefits that will be awarded or paid under the 2014 Plan are not currently determinable. Awards granted under the 2014 Plan are within the discretion of the New Holdco board of directors or a committee thereof, and neither the New Holdco board of directors nor a committee thereof has determined any future awards or who might receive them.

 

Vote Required for Approval

 

The 2014 Plan will be approved if the holders of at least a majority of the outstanding shares of Kitara common stock who are present at the meeting, in person or by proxy, and entitled to vote on this proposal, vote “FOR” this proposal.

 

If you mark “abstain” with respect to this proposal, it will have the same effect as a vote “AGAINST” the proposal. If you fail to instruct your broker or other nominee on how to vote the shares of Kitara common stock you hold in street name with respect to this proposal, your shares of Kitara common stock will not be treated as present at the Special Meeting and entitled to vote on this proposal, and as such, your failure to instruct your broker or nominee how to vote will not have any effect on the vote with respect to this proposal.

 

Under the voting agreement, the supporting parties have agreed, among other things, to vote their shares of Kitara common stock in favor of the 2014 Plan. The supporting parties hold more than 50% of the shares of outstanding Kitara common stock. Accordingly, the supporting parties may approve the 2014 Plan without the affirmative vote of any other Kitara stockholder.

 

Recommendation of the Kitara Board of Directors

 

THE KITARA BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THE KITARA STOCKHOLDERS VOTE “FOR” THE ADOPTION OF THE EQUITY PLAN PROPOSAL.

 

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PROPOSAL NO. 4 — THE ADJOURNMENT PROPOSAL

 

Kitara is requesting that its stockholders approve a proposal to adjourn the Special Meeting, if necessary, to permit further solicitation of proxies, if there are not sufficient votes at the Special Meeting to adopt the merger agreement and approve the merger.

 

In addition to an adjournment of the special meeting upon approval of an adjournment proposal, the board of directors of Kitara is empowered under Delaware law to postpone the meeting at any time prior to the meeting being called to order. In such event, Kitara will issue a press release and take such other steps as it believes are necessary and practical in the circumstances to inform its stockholders of the postponement.

 

If an adjournment proposal is presented to the meeting and is not approved by the stockholders, Kitara’s board of directors may not be able to adjourn the special meeting to a later date in the event, based on the tabulated votes, there are not sufficient votes at the time of the Special Meeting to approve the adoption of the merger agreement and the approval of the merger. In such event, the transactions with Future Ads would not be completed and Kitara would continue as a stand-alone public company.

 

This Proposal No. 4 will only be presented at the Special Meeting if Proposal No. 1, the Merger Proposal, is not approved. The vote on this Proposal No.4 is a vote separate and apart from the vote on the other proposals. Accordingly, you may vote for Proposal No. 4 on the adjournment of the meeting and vote against any of the other proposals, and vice versa.

 

Vote Required for Approval

 

The adjournment of the Special Meeting, if necessary, to permit the further solicitation of proxies, if there are not sufficient votes at the Special Meeting to adopt the merger agreement and approve the merger, will be approved if the holders of at least a majority of the outstanding shares of Kitara common stock who are present at the meeting, in person or by proxy, and entitled to vote on this proposal vote “FOR” this proposal.

 

If you mark “abstain” with respect to this proposal, it will have the same effect as a vote “AGAINST” the proposal. If you fail to instruct your broker or other nominee on how to vote the shares of Kitara common stock you hold in street name with respect to this proposal, your shares of Kitara common stock will not be treated as present at the Special Meeting and entitled to vote on this proposal, and as such, your failure to instruct your broker or nominee how to vote will not have any effect on the vote with respect to this proposal.

 

Under the voting agreement, the supporting parties have agreed, among other things, to approve any matters necessary for consummation of the merger and any other transactions contemplated in the merger agreement, which would include the Adjournment Proposal. The supporting parties hold more than 50% of the shares of Kitara common stock outstanding. Accordingly, the supporting parties may approve the Adjournment Proposal without the affirmative vote of any other Kitara stockholder.

 

Recommendation of the Kitara Board of Directors

 

THE KITARA BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE ADJOURNMENT OF THE SPECIAL MEETING, IF NECESSARY, TO PERMIT FURTHER SOLICITATION OF PROXIES, IF THERE ARE NOT SUFFICIENT VOTES AT THE SPECIAL MEETING TO ADOPT THE MERGER AGREEMENT AND APPROVE THE MERGER.

 

 

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THE TRANSACTIONS

 

The following is a description of certain material aspects of the transactions. While we believe that the following description covers the material terms of the transactions, the description may not contain all of the information that may be important to you. The discussion of the transactions in this proxy statement/prospectus is qualified in its entirety by reference to the merger agreement which is attached to the proxy statement/prospectus as Annex A, the exchange agreement which is attached to this proxy statement/prospectus as Annex B, and the other annexes to this proxy statement/prospectus, all of which are provided for the purpose of providing you with information regarding their terms and are incorporated by reference into this proxy statement/prospectus. We encourage you to read carefully this entire proxy statement/prospectus, including the merger agreement, the exchange agreement and the other annexes for a more complete understanding of the transactions.

 

General Description of the Transactions

 

On October 10, 2014, Kitara simultaneously entered into the merger agreement with New Holdco and Merger Sub and the exchange agreement with New Holdco, Future Ads and the members of Future Ads.

 

Pursuant to the merger agreement, Merger Sub will merge with and into Kitara, with Kitara surviving the merger as a wholly-owned subsidiary of New Holdco. In the merger, each outstanding share of Kitara common stock will be converted into one share of New Holdco common stock.

 

Immediately following the merger and as part of a single integrated transaction, pursuant to the exchange agreement, the members of Future Ads will exchange all of the outstanding limited liability company interests of Future Ads to New Holdco for (i) $80,000,000 in cash, (ii) shares of New Holdco common stock that represent 53% of the fully diluted shares of New Holdco common stock outstanding as of the closing, (iii) the right to receive performance-based “earn out” payments that would enable the members to receive up to an additional $40,000,000 in cash or stock consideration based on Future Ads reaching certain EBITDA levels during the 2015 to 2018 fiscal years, (iv) on or prior to June 30, 2016, $10,000,000 of deferred consideration in cash and/or shares of New Holdco common stock and (v) immediately after the payment of certain fees to Highbridge on or about the fourth anniversary of the closing, $6,000,000 in cash. The consideration payable to the members is subject to a post-closing adjustment based on the working capital and indebtedness of Future Ads and the working capital of Kitara.

 

Furthermore, after the closing, New Holdco will reimburse the members for all transaction expenses paid by Future Ads, its subsidiaries or the members on or before the closing, and will assume all of their unpaid transaction expenses as of such date. Future Ads estimates that the aggregate transaction expenses reimbursed or assumed by New Holdco will be approximately $1.25 million.

 

The merger and the exchange are conditioned on each other and neither will be consummated if the other cannot be consummated. Immediately following the closing, New Holdco will be the new publicly traded company and Kitara and Future Ads will be wholly-owned subsidiaries of New Holdco. Immediately following the closing, of the shares of New Holdco common stock to be outstanding, we expect that the former Kitara stockholders and certain of the former members of Future Ads will own 95,884,241 shares (or 38.3%) and 154,213,092 shares (or 61.7%), respectively. Additionally, we expect there to be an aggregate of 40,870,765 shares of New Holdco common stock reserved for issuance under stock options and warrants assumed by New Holdco and awards that may be granted under the 2014 Plan.

 

At the Special Meeting, the holders of Kitara common stock will be asked to vote upon a proposal to approve the merger agreement.

 

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Background of the Transactions

 

The board of directors and senior management team of Kitara Media and the managing member and senior management of Future Ads regularly review their respective company’s performance, future growth prospects and overall strategic direction and consider potential business opportunities to improve their respective businesses and enhance stockholder value. For each company, these reviews have included consideration of potential transactions with third parties that would further its strategic objectives, and the potential benefits and risks of those transactions in light of, among other things, the business environment facing the industries in which they operate and each company’s competitive position. In addition, from time to time, members of the senior management teams of each of Kitara Media and Future Ads meet with other companies within the industry in which they operate, including each other, to discuss industry developments, business opportunities and potential strategic transactions. Since 2007, Kitara Media and Future Ads have also had many commercial dealings with each other.

 

On April 12, 2014, Robert Regular, the Chief Executive Officer of Kitara, initiated several strategic discussions regarding a potential transaction with Jared Pobre, the Chief Executive Officer of Future Ads. Based on these initial discussions, the parties determined to engage in more detailed discussions concerning a potential transaction between the two companies.

 

On April 30, 2014, Mr. Regular and Jonathan Ledecky, Chairman of Kitara, met with Mr. Pobre in California to continue strategic discussions regarding a potential transaction

 

On May 1, 2014, Kitara and Future Ads entered into a confidentiality agreement and the parties commenced their due diligence review of each other.

 

On May 21, 2014, Mr. Regular sent a draft term sheet to Mr. Pobre regarding a potential transaction between the companies. On May 22, 2014, the parties, along with their respective legal counsel, had a conference call to discuss the draft term sheet that had been circulated and to discuss certain terms of the proposed transaction and the timing related thereto. On May 23, 2014, legal counsel for Future Ads circulated a revised term sheet addressing various changes that had been discussed at the prior conference call, including the need to structure the transaction in a more tax-efficient manner for the members of Future Ads. On May 28, 2014, the parties and their respective legal counsel held another conference call to further refine the structure of a proposed transaction between the parties. Following this call, a further revised term sheet was circulated. Between May 28, 2014 and June 16, 2014, the parties continued to negotiate the amount and form of consideration to be paid by Kitara to the members of Future Ads. On June 17, 2014, legal counsel to Future Ads circulated a further revised term sheet and the parties executed the same on such date.

 

Beginning on June 20, 2014, the management teams of Kitara and Future Ads initiated discussions with financial lenders, including Highbridge, to explore the opportunity and terms for funding the transaction.

 

On July 6, 2014, Highbridge delivered a draft term sheet to Kitara and Future Ads relating to their proposal for financing the transaction. On July 8, 2014, legal counsel for Future Ads circulated a revised draft of the term sheet. On July 15, 2014, Kitara and Future Ads received a revised term sheet from Highbridge and the parties executed such term sheet.

 

Commencing on July 23, 2014, the parties began circulating drafts of the various documents related to the transactions, including drafts of the merger agreement and exchange agreement and related exhibits. Over the next two months, the parties continued to negotiate the terms of such agreements and exhibits.

 

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While negotiations concerning the merger agreement and exchange agreement were ongoing, the management teams of Kitara and Future Ads continued negotiations with Highbridge on the terms and sourcing of the financing to be provided for the transactions.

 

On October 9, 2014 a telephonic meeting of the Kitara board of directors was convened. Present at the meeting were Messrs. Regular, Ledecky and Silberstein, as well as Sam Humphreys, another board member, representing a quorum of the board. Also present at the meeting by invitation were Jeffrey M. Gallant, Esq., of Graubard Miller, legal counsel to Kitara, and Richard Cooke of Marcum LLP, Kitara’s independent auditor. Prior to the meeting, copies of the most recent drafts of the significant transaction documents, in substantially final form, were delivered to the directors. Mr. Gallant was first asked to provide the board with a brief summary of the structure of the proposed transactions. Messrs. Regular and Silberstein then provided the other members of the board with a detailed overview of the strategic rationale of the proposed transaction as well as the strengths and weaknesses of Future Ads, as detailed below under the section “Kitara’s Reasons for the Transactions and Recommendation of Kitara’s Board of Directors.” After considerable review and discussion, the merger agreement and exchange agreement and related documents were unanimously approved, subject to final negotiations and modifications, and the board determined to recommend the approval of the merger agreement to Kitara’s stockholders.

 

The merger agreement and exchange agreement were signed on October 10, 2014. The debt commitment letter with Highbridge was also executed on such date. Prior to the market open on October 13, 2014, the parties issued a press release announcing the execution of the agreements and some of the salient terms of the transaction. On October 14, 2014, Kitara filed a Current Report on Form 8-K, which included the press release issued on October 13, 2014, the merger agreement and the exchange agreement as exhibits thereto.

 

Kitara’s Reasons for the Transactions and Recommendation of Kitara’s Board of Directors

 

The members of Kitara’s board who were present at the meeting called to approve the transactions unanimously approved the merger agreement and exchange agreement and all agreements and documents related thereto, and determined that the transactions contemplated by the merger agreement and exchange agreement and all agreements and documents related thereto were in the best interests of Kitara and its stockholders and recommended that the merger agreement be approved by the stockholders of Kitara. The two members that were not present at this meeting (Jeremy Zimmer and Ben Lewis) subsequently expressed their approval for the transaction to the other members of the board.

 

The board of directors considered various factors, discussed in more detail below, in making its determination and recommendation.

 

Strong Technology Platform. Future Ads’ Trafficvance advertising platform is a centralized, cloud-based, self-serve Demand and Supply side based Platform. It has scale, targeting and optimization capabilities that have proven successful for over 1,400 advertisers across display, text and video ads. This Platform can be used as the central system to aggregate various marketing platform technologies such as video advertising, data targeting, security filters, and many more. The Kitara board felt there were very few comparable platforms with this existing scale, flexibility and results in the market.

 

Diverse Advertiser Base. Future Ads’ advertiser base of over 1,400 advertisers is large when compared to other platforms in the online advertising industry. Additionally, the base is diverse without a large concentration of ads deployed for any one advertiser.

 

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Diverse Distribution Base. Future Ads’ platform supports the two core ways of reaching audiences: in-house audience creation and third party provider audience reach. By supporting both methods, Future Ads’ platform is not limited and has redundancy to reach mass audiences to grow.

 

Experienced Team, History and Culture. Future Ads has an experienced management team with proven leadership. The senior management team has collectively over 50 years of online advertising experience and has adapted and evolved to take advantage of industry trends and opportunities to rapidly grow the business. New Holdco will benefit from the strength and experience of this management and leadership team.

 

Kitara’s board of directors considered the following additional factors as generally supporting its determination and recommendation:

 

historical and current market prices of Kitara common stock;

 

Kitara’s need to diversify its operations and the low likelihood of Kitara diversifying through other acquisitions of any scale in light of Kitara’s limited available cash and its low share price;

 

the board’s view that soliciting or engaging in further discussion with other potential third party acquirers would have run the risk of losing the transaction with Future Ads;

 

the recommendation of Kitara’s management in favor of the proposed transactions;

 

the expectation that the merger will qualify as a nonrecognition transaction for U.S. federal income tax purposes and that the exchange by both Kitara stockholders of Kitara common stock and the members of their membership interests in Future Ads for New Holdco common stock generally will be tax-free to such securityholders;

 

certain terms of the transaction agreements, including a substantial portion of the consideration being contingent upon performance of Future Ads after the closing, and the Future Ads lockup agreements restricting the current members of Future Ads from selling shares in New Holdco for 12 months after closing.

 

Kitara’s board of directors also considered the following potentially negative factors, including the following:

 

New Holdco will have significant leverage as a result of the $96,000,000 in financing that will need to be obtained to satisfy New Holdco’s obligations under the exchange agreement and to fund the working capital of the combined company after the closing, along with any other indebtedness that New Holdco, Kitara and/or Future Ads may incur in the future;

 

mobile advertising currently is not available or supported on Future Ads’ platform and there is no assurance that it will be successfully added in the future;

 

Future Ads’ international advertiser demand is limited when compared to its significant international audience reach;

 

Future Ads relies heavily on performance based advertisers and has a small percentage of high value brand advertisers;

 

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the Kitara stockholders will own shares in New Holdco, a company in which the former members of Future Ads will (i) own approximately 61.7% of the outstanding shares, which will allow them to control the outcome of any matters presented to the New Holdco stockholders, and (ii) be able to designate a majority of the New Holdco board of directors pursuant to the stockholders’ agreement;

 

the risk that Kitara and Future Ads might not meet their respective production and financial projections;

 

the risk that the combination of Kitara and Future Ads might not result in the benefits mentioned above; and

 

the fact that New Holdco will have no recourse for post-closing indemnification in the event of inaccuracies in the representations and warranties of Future Ads contained in the exchange agreement.

 

Notwithstanding such potentially negative factors, Kitara’s board of directors believed that, overall, the potential benefits of the proposed transactions to Kitara and its stockholders outweighed the risks. Kitara’s board of directors realized, however, that there can be no assurance about future results, including results considered or expected as described in the factors listed above. This explanation of the reasoning of the Kitara board and all other information in this section are forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Regarding Forward-Looking Statements.”

 

In view of the variety of factors described above and the quality and amount of information considered, Kitara’s board of directors did not find it practicable to quantify or otherwise assign relative weights to, and did not make specific assessments of, the specific factors considered in reaching its determination. Individual members of Kitara’s board of directors may have given different weights to different factors.

 

Interests of Kitara Directors and Officers in the Transactions

 

Certain members of the Kitara board and executive officers of Kitara may be deemed to have interests in the merger and exchange that are in addition to, or different from, the interests of other Kitara common stockholders. The Kitara board was aware of these interests and considered them, among other matters, in approving the merger agreement and the merger and in making the recommendation that the Kitara common stockholders adopt the merger agreement and approve the merger. These interests are described in further detail below, and certain of them are quantified in the narrative below.

 

New Holdco Directors. It is expected that Kitara will designate Robert Regular, the Chief Executive Officer of Kitara and a member of the Kitara board of directors, Jonathan Ledecky and Sam Humphreys, each a member of the Kitara board of directors, for appointment as directors of New Holdco after the transactions. Neither of Messrs. Ledecky or Humphreys will serve as an officer or employee of New Holdco. As such, in the future each will receive any cash fees, stock options or stock awards that the New Holdco board of directors determines to pay to its non-executive directors.

 

New Holdco Officers. It is expected that Mr. Regular will serve as the Chief Executive Officer of New Holdco after the transactions. Mr. Regular will enter into an employment agreement with New Holdco on terms satisfactory to New Holdco and the members of Future Ads on or prior to the closing of the transactions. We expect that the employment agreement will have a term of 3 years and will provide for a mutually agreed upon compensation package and customary restrictive covenants relating to noncompetition and nonsolicitation.

 

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Separation Agreement. Joshua Silberstein has resigned as president of Kitara, to be effective as of December 31, 2014, and has entered into a separation agreement, dated as of October 14, 2014, with Kitara. Pursuant to the terms of his separation, among other things, (i) Mr. Silberstein’s option to purchase 2,500,000 shares of Kitara common stock will vest with respect to 250,000 shares only upon consummation of the transactions, which option will be assumed by New Holdco in connection with the merger, and (ii) in the event Mr. Silberstein obtains employment with a third party during the nine months after the effective date of his resignation, his monthly retainer as a consultant of approximately $30,000 will be reduced to approximately $15,000 for the remainder of such nine month period, except that no such reduction will apply if the transactions are consummated.

 

Interests of the Current Members, Managers and Executive Officers of Future Ads in the Transactions

 

The members, managers and executive officers of Future Ads have certain interests in the merger and exchange that are different from the interests of the Kitara common stockholders.

 

Exchange Consideration. Pursuant to the exchange agreement, the current members of Future Ads will receive (i) $80,000,000 in cash, (ii) shares of New Holdco common stock that represent 53% of the fully diluted shares of New Holdco common stock outstanding as of the closing, (iii) the right to receive performance-based “earn out” payments that would enable the members to receive up to an additional $40,000,000 in cash or stock consideration based on Future Ads reaching certain EBITDA levels during the 2015 to 2018 fiscal years, (iv) on or prior to June 30, 2016, $10,000,000 of deferred consideration in cash and/or shares of New Holdco common stock and (v) immediately after the payment of certain fees to Highbridge on or about the fourth anniversary of the closing, $6,000,000 in cash. The consideration payable to the members is subject to a post-closing adjustment.

 

Reimbursement of Expenses. After the closing, New Holdco will reimburse the members for all transaction expenses paid by Future Ads, its subsidiaries or the members on or before the closing, and will assume all of their unpaid transaction expenses as of such date. Future Ads estimates that the aggregate transaction expenses reimbursed or assumed by New Holdco will be approximately $1.25 million.

 

New Holdco Directors. It is expected that the members will designate Jared Pobre, the founder and Chief Executive Officer of Future Ads, Marv Tseu, the Chief Operating Officer of Future Ads, and two additional individuals who have not yet been determined for appointment as directors of New Holdco after the transactions.

 

New Holdco Officers. It is expected that, after the transactions, Mr. Pobre will serve as the Chairman of the Board of New Holdco, Mr. Tseu will serve as President of New Holdco and David Shapiro, the General Counsel and Executive Vice President, Business and Legal Affairs of Future Ads, will serve as General Counsel and Executive Vice President, Business and Legal Affairs of New Holdco. Messrs. Pobre, Tseu and Shapiro and certain other executives of Future Ads will enter into employment agreements with New Holdco on terms satisfactory to New Holdco and the members on or prior to the closing of the transactions. We expect that the employment agreements will have a term of 3 years and will provide for a mutually agreed upon compensation package and customary restrictive covenants relating to noncompetition and nonsolicitation.

 

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Accounting Treatment of the Transactions

 

The transactions will be treated by New Holdco as a reverse merger under the purchase method of accounting in accordance with accounting principles generally accepted in the United States. For accounting purposes, Future Ads will be considered to be acquiring Kitara in this transaction. Under the purchase method of accounting, the assets and liabilities of Kitara will be recorded at their respective fair values and added to those of Future Ads.

 

All unaudited pro forma financial information contained in this proxy statement/prospectus has been prepared using the purchase method to account for the transactions. The final allocation of the purchase price will be determined after the merger is completed and after completion of an analysis to determine the assigned fair values of Kitara’s tangible and identifiable intangible assets and liabilities. In addition, estimates related to restructuring and merger-related charges are subject to final decisions related to combining Kitara and Future Ads. Accordingly, the final purchase accounting adjustments may be materially different from the unaudited pro forma adjustments.

 

Trading of New Holdco Common Stock

 

New Holdco expects the shares of New Holdco common stock to be issued pursuant to the merger agreement and the exchange agreement will be quoted on the OTCBB. The New Holdco common stock is expected to be listed under the symbol “[●].”

 

Deregistration of Kitara Common Stock

 

Upon completion of the merger, Kitara common stock currently quoted on the OTCBB will cease to be quoted on the OTCBB and there will be no longer be a trading market for such stock. In addition, promptly following the closing, Kitara common stock will be deregistered under the Exchange Act and Kitara will no longer file periodic reports with the SEC.

 

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MATERIAL U.S. FEDERAL TAX CONSEQUENCES

 

The following discussion summarizes the material U.S. federal income tax consequences of the merger for U.S. Holders (as defined below) of Kitara common stock. This discussion applies only to shares of Kitara common stock owned as capital assets within the meaning of Section 1221 of the Code.

 

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of Kitara common stock that is (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States or any state thereof, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of the source of that income, or (iv) a trust if it is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust, or a trust that validly has elected under applicable Treasury regulations to be treated as a U.S. person for U.S. federal income tax purposes.

 

If an entity or arrangement treated as a partnership or other type of pass-through entity for U.S. federal income tax purpose holds Kitara common stock, the tax treatment of a partner or beneficial owner of such entity or arrangement generally will depend on the status of the partner or beneficial owner and the activities of the partnership or entity. Partners and beneficial owners in such entities or arrangements holding Kitara common stock should consult their own advisors as to the particular U.S. federal income tax consequences applicable to them.

 

This discussion is based upon the Code, applicable United States Treasury Regulations, Internal Revenue Service, or “IRS,” rulings and judicial decisions, all as in effect as of the date hereof. Subsequent developments in the tax laws of the United States, including changes in, or differing interpretations of the foregoing authorities, which may be applied retroactively, could have a material effect on the tax consequences described below. This is not a complete description of all the tax consequences of the merger and may not address U.S. federal income tax considerations applicable to Kitara stockholders subject to special treatment under U.S. federal income tax law. Stockholders subject to special treatment include, for example, financial institutions, dealers in securities, traders in securities who elect to apply a mark-to-market method of accounting, insurance companies, sovereign or international intergovernmental organizations, tax-exempt entities, entities or arrangements treated as partnerships and other pass-through entities for U.S. federal income tax purposes, and holders who hold Kitara common stock as part of a “hedge,” “straddle,” “conversion” or “constructive sale” transaction. In addition, this discussion does not address the tax consequences of these transactions under applicable U.S. federal estate, gift or alternative minimum tax laws, or any U.S. state, local or non-U.S. tax laws, or the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010.

 

THE U.S. FEDERAL INCOME TAX CONSEQUENCES DESCRIBED BELOW ARE NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE MERGER. HOLDERS OF SHARES OF KITARA COMMON STOCK ARE URGED TO CONSULT WITH THEIR TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE EFFECTS OF U.S. FEDERAL, STATE AND LOCAL, NON-U.S. AND OTHER TAX LAWS.

 

U.S. Federal Income Tax Consequences of the Merger for U.S. Holders of Kitara Common Stock

 

Kitara and New Holdco have received an opinion of their counsel that the merger and exchange will qualify as a transaction described in Section 351(a) of the Code. Kitara and New Holdco have not sought and will not seek any ruling from the IRS regarding any matters relating to the merger, and as a result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to the conclusions set forth below. In addition, if any of the representations or assumptions on which the opinion is based are inconsistent with the actual facts, the U.S. federal income tax consequences of the merger could be adversely affected. The remainder of this discussion assumes that the merger and the exchange will qualify as a transaction described in Section 351(a) of the Code.

 

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Based on the foregoing, the material U.S. federal income tax consequences of the merger for U.S. Holders of shares of Kitara common stock are as follows:

 

no gain or loss will be recognized by a U.S. Holder upon receipt of New Holdco common stock in the merger;

 

the aggregate basis of New Holdco common stock received in the merger by a U.S. Holder will equal a U.S. Holder’s aggregate tax basis in the shares of Kitara common stock surrendered in exchange therefor; and

 

the holding period of the New Holdco common stock received by a U.S. Holder will include the holding period of the Kitara common stock surrendered in exchange therefor.

 

Reporting Requirements

 

U.S. Holders of Kitara common stock that receive shares of New Holdco common stock as a result of the merger will be required to retain records pertaining to the merger and its shares of Kitara common stock. Any U.S. Holder who owns at least 5% (by vote or value) of the total outstanding shares of Kitara common stock after the merger will be required to file a statement with such holder’s U.S. federal income tax return for the year in which the merger takes place, setting forth certain facts relating to the merger, including the fair market value of and the aggregate tax basis in the shares of Kitara common stock surrendered in the merger.

 

The preceding discussion is not a complete analysis or discussion of all potential tax effects that may be important to you. Thus, you are strongly encouraged to consult your tax advisor as to the specific tax consequences resulting from the merger, including tax return reporting requirements, the applicability and effect of federal, state, local, and other tax laws and the effect of any proposed changes in the tax laws.

 

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THE AGREEMENTS

 

The following summary describes certain material provisions of the agreements entered into or to be entered into in connection with the transactions and is qualified in its entirety by reference to those agreements. This summary may not contain all of the information about the agreements that may be important to you. We encourage you to carefully read each of the agreements in its entirety for a more complete understanding of the transactions.

 

Description of the Merger Agreement

 

This following summary of the material terms of the merger agreement is qualified in its entirety by reference to the complete text of the merger agreement, which is attached as Annex A to this proxy statement/prospectus and is incorporated by reference herein. We urge you to read the full text of the merger agreement.

 

The Merger; Consideration

 

On October 10, 2014, Kitara entered into the merger agreement with New Holdco and Merger Sub. Pursuant to the merger agreement, Merger Sub will merge with and into Kitara, with Kitara surviving the merger as a wholly-owned subsidiary of New Holdco. At the effective time of the merger, each issued and outstanding share of Kitara common stock will be converted into one validly issued, fully paid and nonassessable share of common stock of New Holdco. Immediately following the closing of the merger and the exchange, New Holdco will be the new publicly traded company and Kitara and Future Ads will be wholly-owned subsidiaries of New Holdco.

 

Effective Time

 

The merger will be effective at the time a duly executed copy of a certificate of merger is filed in the office of the Secretary of State of the State of Delaware. The merger effectively is subject to all the conditions to the exchange, as described below in the section entitled “—Conditions to the Merger Agreement,” and will only be consummated if the transactions contemplated by the exchange agreement are also consummated.

 

Treatment of Kitara Stock Options and Warrants

 

At the effective time of the merger, New Holdco will assume and continue Kitara’s existing 2012 Plan and 2013 Plan and all outstanding stock options thereunder. The plans and options will apply to New Holdco and the shares of New Holdco common stock in the same manner as they previously applied to Kitara and the shares of Kitara common stock. However, New Holdco will amend the Existing Plans so that no further awards may be issued under such plans after the closing. In addition, New Holdco will assume the non-plan option to purchase 750,000 shares of Kitara common stock held by an affiliate of Jonathan Ledecky and will assume the outstanding five-year warrants to purchase Kitara common stock at a price of $0.825 per share, in each case in accordance with the terms of the respective securities.

 

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Exchange Procedures in the Merger

 

As soon as practicable after the completion of the merger, Continental Stock Transfer & Trust Company, New Holdco’s exchange agent and Kitara’s existing transfer agent, shall mail to each holder of record of Kitara common stock a form letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Kitara common stock shall pass, only upon delivery of the certificates for Kitara common stock to the exchange agent) and instructions for use in effecting the surrender of the certificates for Kitara common stock in exchange for certificates for New Holdco common stock. Upon proper surrender of each Kitara certificate for exchange and cancellation to the exchange agent, together with such properly completed letter of transmittal, duly executed, the holder of such Kitara certificate shall be entitled to receive in exchange therefor a New Holdco certificate representing one share of New Holdco common stock for each share formerly represented by the surrendered Kitara certificate. Failure to exchange Kitara certificates by a stockholder will not affect such stockholder’s interest in New Holdco, but such stockholder will not receive New Holdco certificates and will hold its interest in New Holdco in uncertificated form represented by entries on the books and records of New Holdco’s transfer agent. From and after the effective time of the merger and until exchanged, each Kitara certificate shall not represent shares of New Holdco common stock but instead, shall represent only the right to receive a New Holdco certificate representing the shares of New Holdco common stock into which the shares of Kitara common stock represented by such Kitara certificate were converted.

 

Conditions to the Merger Agreement

 

The merger agreement contains conditions to the consummation of the merger including:

 

the merger agreement shall have been adopted by the vote of the holders of a majority of the voting power of the issued and outstanding Kitara common stock in accordance with the DGCL;

 

effectiveness of the registration statement of which this proxy statement/prospectus is a part and the absence of a stop order with respect thereto; and

 

all of the conditions necessary to consummate the exchange agreement with Future Ads have been satisfied or will be satisfied upon consummation of the merger agreement.

 

Termination

 

The merger agreement may be terminated and the merger abandoned at any time prior to the effective time of the merger, whether before or after adoption of the merger agreement by the stockholders of Kitara, by action of the Kitara board of directors, if (a) the exchange agreement has been terminated in accordance with its terms or (b) subject to the consent of Future Ads, the Kitara board of directors determines that the consummation of the merger would not, for any reason, be advisable and in the best interests of Kitara and its stockholders.

 

Description of the Exchange Agreement

 

This following summary of the material terms of the exchange agreement is qualified in its entirety by reference to the complete text of the exchange agreement, which attached as Annex B to this proxy statement/prospectus and is incorporated by reference herein. We urge you to read the full text of the exchange agreement.

 

The Exchange; Consideration

 

Immediately following the merger and as part of a single integrated transaction, pursuant to the exchange agreement, the members of Future Ads will exchange all of the outstanding Future Ads limited liability company interests for (i) $80,000,000 in cash, (ii) shares of New Holdco common stock that represent 53% of the fully diluted shares of New Holdco common stock outstanding as of the closing, (iii) the right to receive performance-based “earn out” payments that would enable the members to receive up to an additional $40,000,000 in cash or stock consideration based on Future Ads reaching certain EBITDA levels during the 2015 to 2018 fiscal years, (iv) on or prior to June 30, 2016, $10,000,000 of deferred consideration in cash and/or shares of New Holdco common stock and (v) immediately after the payment of certain fees to Highbridge on or about the fourth anniversary of the closing, $6,000,000 in cash. The consideration payable to the members is subject to a post-closing adjustment, as described below.

 

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Earnout

 

The earnout payment for each calendar year will be equal to five times the excess of Future Ads’ Adjusted EBITDA over the target Adjusted EBITDA for such calendar year. The target Adjusted EBITDA for each year is:

 

Earnout Year  Target Adjusted EBITDA Amount 
December 31, 2015  $38,000,000 
December 31, 2016  $46,000,000 
December 31, 2017  $55,000,000 
December 31, 2018  $66,000,000 

 

The aggregate earnout payments will in no event exceed $40,000,000. Furthermore, the earnout payment with respect to any calendar year (other than the calendar year ended December 31, 2018) will in no event exceed $10,000,000, with any excess rolling into the next calendar year.

 

If New Holdco delivers an opinion of counsel to the members certifying that New Holdco is legally prevented from, or would be in violation of express covenants in any loan documents to which New Holdco is a party by (including with respect to the Highbridge debt financing), making all or a portion of any earnout payments, each member may elect to (x) receive the earnout payment (or the portion that cannot be paid) in shares of New Holdco common stock valued at the closing sale or bid price, as applicable, of the common stock on the date of the election (or on the immediately preceding day on which prices are reported, if not reported on the date of the election); (y) defer the earnout payment (or the portion that cannot be paid) until such time as it may be legally paid without violating any express covenants of any loan documents to which New Holdco is party, which deferred payment shall accrue interest at a rate of 7.5% per annum; or (z) accept the earnout payment (or the portion that cannot be paid) in another form of consideration (including notes).

 

“Adjusted EBITDA” is defined in the exchange agreement to mean the consolidated earnings of Future Ads before interest, taxes, depreciation, and amortization, adjusted to deduct out of the calculation (i) any consolidated expenses of New Holdco relating to being a public company pursuant to the U.S. securities laws and the applicable rules and regulations thereunder and being publicly listed that are allocable to Future Ads; (ii) any incremental expenses incurred by Future Ads as a result of it being a division of a combined public company as a result of the transactions contemplated hereby (which, by way of example and not in limitation of the foregoing, would include (A) the amount by which directors’ and officers’ insurance premiums allocated to Future Ads exceed the directors’ and officers’ insurance premiums paid by Future Ads prior to the consummation of the transactions contemplated by the exchange agreement, (B) any fees or expenses allocated to Future Ads related to registration, filing or notification obligations with the SEC, NASDAQ or other securities exchange, FINRA and any other regulatory authority in connection with being a public company and (C) any costs allocated to Future Ads associated with implementing new financial reporting systems and processes and documenting internal controls); and (iii) any costs incurred in connection with the consummation of the transactions contemplated hereby, including, without limitation, any costs associated with the service of the debt, including interest, incurred in connection with the consummation of the transactions contemplated by the exchange agreement.

 

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Subsequent Equity Financings

 

During the period commencing with the closing and ending on June 30, 2016 (or earlier on the date of the election to receive the deferred consideration in shares as described below), New Holdco and its affiliates shall use their reasonable best efforts to complete equity financings that will raise sufficient net proceeds to pay the $10,000,000 of deferred consideration to the members. If the New Holdco board of directors determines in good faith that the aggregate net proceeds raised was insufficient for New Holdco to pay the full deferred consideration in cash, then New Holdco will pay such maximum amount in cash as the New Holdco board of directors determines, and will pay the deficiency in shares of New Holdco common stock valued at the closing sale or bid price, as applicable, of the common stock on the day prior to the payment. If the deferred consideration has not been raised by December 31, 2015, then during the ten day period after such date, Jared Pobre, on behalf of the members, may elect to receive the deficiency in shares of New Holdco common stock valued at the closing sale or bid price, as applicable, of the common stock on the date of the election. The shares of New Holdco common stock issued as deferred consideration are sometimes referred to herein as the “deferred consideration shares.”

 

Post-Closing Adjustment

 

The consideration is subject to a post-closing adjustment equal to (i) the working capital of Future Ads, minus (ii) the lesser of zero and the Kitara working capital, minus (ii) the indebtedness of Future Ads, in each case calculated as of the closing. The adjustment amount, if positive, is payable by New Holdco to the members and, if negative, is payable by the members to New Holdco.

 

In calculating working capital in accordance with the exchange agreement, current assets include cash (including restricted cash and security deposits in the case of Future Ads, but excluding restricted cash in the case of Kitara), accounts receivable (without adjustment for doubtful accounts, in the case of Future Ads), the current portion of notes receivable and the current portion of any prepaid expenses. Current liabilities include accounts payable, accrued liabilities and certain specified liabilities, except that transaction expenses will not be considered current liabilities for either party and deferred rent will not be considered a current liability in the case of Future Ads. In calculating Future Ads indebtedness in accordance with the exchange agreement, indebtedness includes all indebtedness of, or guaranties by, Future Ads or its subsidiaries in respect of (i) borrowed money and (ii) any note, bond, mortgage, debenture or similar instrument, but excluding the long-term portion of deferred rent.

 

Closing

 

The consummation of the exchange will take place at the offices of Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, California 90071, at 10:00 a.m., local time on the third business day following the satisfaction or, to the extent permitted by applicable law, waiver of all conditions to the obligations of the parties (other than those conditions which relate to actions to be taken at the closing, but subject to the satisfaction or waiver of such conditions at the time of the closing), or at such other place or at such other time or on such other date as the members (acting jointly) and Kitara mutually may agree in writing. See “Conditions to the Transactions” beginning on page 94.

 

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Directors and Officers of New Holdco

 

Immediately following the closing, the New Holdco board of directors will consist of seven members. It is expected that the members will designate Jared Pobre, Marv Tseu and two additional individuals who have not yet been determined for appointment to the board and Kitara will designate Robert Regular, Jonathan J. Ledecky and Samuel Humphreys for appointment to the board. The board of directors of New Holdco will elect the officers of New Holdco in accordance with the bylaws of New Holdco. It is expected that, upon consummation of the transactions, Jared Pobre, the Chief Executive Officer of Future Ads, will serve as the Chairman of the Board of New Holdco, Robert Regular, the Chief Executive Officer of Kitara, will serve as the Chief Executive Officer of New Holdco, Marv Tseu, the Chief Operating Officer of Future Ads, will serve as the President of New Holdco, and David Shapiro, the General Counsel and Executive Vice President, Business and Legal Affairs of Future Ads, will serve as the General Counsel and Executive Vice President, Business and Legal Affairs of New Holdco. See “New Holdco Executive Officers and Directors” beginning on page 166.

 

Certain Representations and Warranties

 

The exchange agreement contains certain representations and warranties of Kitara and New Holdco, on the one hand, and the members and Future Ads, on the other hand. Some of the more significant of the mutual representations and warranties relate to:

 

valid existence, good standing and corporate authority to conduct business;

 

corporate authority to enter into the exchange agreement and other agreements contemplated by the exchange agreement, and to consummate the transactions contemplated by the exchange agreement;

 

capital stock or equity interests;

 

subsidiaries;

 

absence of violation of organizational documents of the party or its subsidiaries, certain agreements, applicable law or order, and possession of, and compliance with, necessary permits;

 

absence of conflict with or breach of the party’s organizational documents, certain contracts and law, resulting from the execution and delivery of the exchange agreement and the consummation of the transactions;

 

required governmental approvals;

 

financial statements;

 

litigation;

 

absence of changes or events that have had or would be reasonably expected to have a material adverse effect;

 

taxes and other tax matters;

 

certain employee benefits and labor matters;

 

compliance with environmental laws and certain other environmental matters;

 

intellectual property;

 

title to properties;

 

insurance;

 

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brokers’ and finders’ fees;

 

existence and validity of, and compliance with, material contracts; and

 

SEC filings and compliance.

 

The representations and warranties of the parties will not survive the closing, and thereafter no party will be under any liability whatsoever with respect to the representations and warranties other than in the case of fraud.

 

No Solicitation

 

During the period from the date of the exchange agreement through and including the earlier of the closing or the termination of the exchange agreement, Kitara and Future Ads will not approve, authorize, encourage, initiate, solicit, or engage in discussions or negotiations with, or provide any information to, any person other than the other parties to the exchange agreement and their respective affiliates or representatives concerning any alternate transaction, and will use commercially reasonable efforts to prevent an alternate transaction. Furthermore, none of New Holdco, Kitara or Future Ads or their respective boards of directors or managers will vote in favor of any purchase of any capital stock of New Holdco, Kitara or Future Ads or any of their subsidiaries, or any other alternate transaction, other than the transactions contemplated by the exchange agreement and merger agreement.

 

For the purposes of the exchange agreement, an “alternate transaction” means (a) any stock purchase, merger, consolidation, reorganization, change in organizational form, spin-off, split-off, recapitalization, sale of equity interests or other similar transaction involving a significant portion of the capital stock or membership interests of New Holdco, Kitara, Future Ads or any of their respective subsidiaries, (b) any sale of all or any significant portion of the assets of New Holdco, Kitara or Future Ads, (c) any other transaction in respect of New Holdco, Kitara or Future Ads which results directly or indirectly, in any person or group acquiring 50% or more of the capital stock or total assets of, or replacing a majority of the board of directors of, New Holdco, Kitara or Future Ads, or sale of any minority equity interest in New Holdco, Kitara or Future Ads, or (d) any other transaction or series of transactions which has substantially similar economic effects, in each such case, in which transaction the other party hereto does not participate.

 

Reimbursement of Expenses

 

If the transactions are not consummated, Kitara and Future Ads will each pay its own transaction costs, except that Kitara and Future Ads will each pay one half of the filing fees for the filing in connection with the HSR Act and Kitara and Future Ads will each pay one half of Highbridge’s reimbursable expenses. If the transactions are consummated, after the closing, New Holdco will reimburse the members for all transaction expenses paid by Future Ads, its subsidiaries or the members on or before the closing, and will assume all of their unpaid transaction expenses as of such date.

 

Kitara and Future Ads expect to pay transaction costs of approximately $2.7 million in the aggregate, of which approximately $1.625 million have been incurred as of the date of this proxy statement/prospectus. Future Ads estimates that the aggregate transaction expenses reimbursed or assumed by New Holdco will be approximately $1.25 million.

 

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Financing

 

Kitara and Future Ads will use their commercially reasonable efforts to do all things necessary, proper or advisable to arrange $96,000,000 of debt financing on the terms described in the debt commitment letter with Highbridge. In the event that any portion of the debt financing contemplated by the debt commitment letter becomes unavailable on substantially the terms and conditions contemplated in the letter, Kitara will notify Future Ads and use its commercially reasonable efforts to arrange alternative financing from alternative sources on financial terms no less favorable to Kitara, in the aggregate, and on other terms and conditions not materially less favorable, in the aggregate, than those in the debt commitment letter. See the section entitled “ – Debt Financing” below beginning on page 96 for a description of the proposed debt financing and the debt commitment letter.

 

2014 Plan

 

Pursuant to the exchange agreement, New Holdco and Kitara have created the 2014 Plan, which will provide for nine percent of the fully diluted outstanding shares of New Holdco common stock as of the closing to be reserved for issuance to directors, officers, employees, consultants and other service providers of New Holdco and its subsidiaries pursuant to the plan. See the section entitled “Proposal No. 3 – The Equity Plan Proposal” beginning on page 67 for a description of the 2014 Plan.

 

Director and Officer Indemnification and Insurance

 

New Holdco shall and shall cause Future Ads, Kitara and their respective subsidiaries to indemnify, defend and hold harmless each person who is now, or has been at any time prior to the date hereof or who becomes prior to the closing, an officer, manager or director of Kitara, Future Ads or any of their respective subsidiaries against any and all losses, damages, liabilities, deficiencies, claims, interest, awards, judgments, penalties, costs and expenses arising out of or relating to any threatened or actual action based in whole or in part on or arising out of or relating in whole or in part to the fact that such person is or was a director or officer of Kitara, Future Ads or any of their respective subsidiaries whether pertaining to any matter existing or occurring at or prior to the closing and whether asserted or claimed prior to, or at or after, the closing.

 

On or prior to the closing, New Holdco shall obtain, or shall cause its Subsidiaries to obtain and maintain for a period of six years from the closing, officers’ and directors’ liability insurance covering officers, managers and directors of Kitara, Future Ads and any of their respective subsidiaries covering liability and acts or omissions occurring on or prior to the closing. Prior to or at the closing, Kitara shall provide Future Ads with reasonable evidence of the obtainment of such insurance coverage.

 

Conduct of Businesses Prior to the Closing

 

Prior to the closing of the transactions, except as expressly permitted by the exchange agreement or unless otherwise consented to in writing by the other party (such consent not to be unreasonably withheld, delayed or conditioned), each of Future Ads and Kitara has agreed to conduct their operations in the ordinary course and to use reasonable best efforts to preserve intact their respective business organizations and goodwill, keep available the services of their respective officers and employees and maintain satisfactory relationships with those persons having business relationships with them. Future Ads and Kitara have also agreed to cause each of their respective subsidiaries to do the same.

 

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Unless otherwise permitted under the exchange agreement, or to the extent the other party shall otherwise consent in writing, each of Future Ads and Kitara has generally agreed it will not:

 

amend its certificate of formation or limited liability company agreement except in certain specified respects (in the case of Future Ads) or its certificate of incorporation or bylaws (in the case of Kitara);

 

issue or sell (x) any membership interests or other equity interests of Future Ads or any of its subsidiaries (in the case of Future Ads) or capital stock of Kitara or any of its subsidiaries (in the case of Kitara), (y) any options, warrants, convertible securities or other rights of any kind to acquire any such shares or equity interests or (z) or phantom stock or similar equity-based payment option;

 

except, in the case of Future Ads, for cash distributions to the members, declare, set aside, make or pay dividends or other distributions (whether in cash, membership interests (in the case of Future Ads) or stock (in the case of Kitara), property or otherwise) with respect to any of its membership interests or other equity interests (in the case of Future Ads) or stock (in the case of Kitara), except for dividends, distributions or other payments by any direct or indirect wholly-owned subsidiary of Future Ads or Kitara to Future Ads or Kitara, respectively, or any other wholly-owned subsidiary of Future Ads or Kitara, respectively;

 

reclassify, combine, split, subdivide or redeem, or purchase or otherwise acquire, directly or indirectly, any of its membership interests or other equity interests (in the case of Future Ads) or capital stock (in the case of Kitara), or make any other change with respect to its capital structure;

 

acquire any corporation, partnership, limited liability company, other business organization or division thereof or any material amount of assets other than in the ordinary course of business, or enter into any contract, letter of intent or similar arrangement (whether or not enforceable) with respect to the foregoing;

 

except, in the case of Kitara, for the merger, adopt a plan of complete or partial liquidation, dissolution, merger, consolidation or recapitalization of such party or any of its subsidiaries, or otherwise alter such party’s or any of its subsidiary’s corporate structure;

 

sell, lease, assign, pledge, exclusively license, encumber or otherwise dispose of, or agree to sell, lease, assign, pledge, exclusively license, encumber or otherwise dispose of, any of its assets, rights or properties (including indebtedness of others held by Future Ads or any of its subsidiaries, in the case of Future Ads) other than (i) in the case of Future Ads, in the ordinary course of business consistent with past practice, or (ii) in the case of Kitara, (a) sales of inventory in the ordinary course of business consistent with past practice and (b) leases or licenses entered into in the ordinary course of business consistent with past practice;

 

incur any indebtedness for borrowed money or issue any debt securities, or assume, guarantee or endorse, or otherwise become responsible for, the obligations of any Person, or make any loans or advances, except in the ordinary course of business consistent with past practice;

 

except, in the case of Future Ads, in the ordinary course of business consistent with past practice, amend, waive, modify or consent to the termination of any material contract of such party, or amend, waive, modify or consent to the termination of such party’s or any of its subsidiaries’ rights thereunder;

 

enter into any contract, agreement or arrangement that would be a material contract of such party, other than any such contracts, agreements or arrangements entered into in the ordinary course of business (including contracts, agreements or arrangements with customers, vendors or clients);

 

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authorize, or make any commitment with respect to, any capital expenditures that are, in the aggregate, in excess of $500,000, for such party and its subsidiaries taken as a whole;

 

enter into any lease of real or personal property or any renewals thereof involving a term of more than one year or rental obligation exceeding $50,000 per year (in the case of Future Ads) or $25,000 per year (in the case of Kitara) in any single case; provided, that in no event shall such party or any of its subsidiaries fail to exercise any rights of renewal with respect to any material leased real property that by its terms would otherwise expire;

 

pay, discharge or satisfy any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice, of liabilities reflected or reserved against on such party’s balance sheet or subsequently incurred in the ordinary course of business consistent with past practice;

 

except, in the case of Future Ads, for cash payments made to employees as bonuses or other remuneration prior to closing, grant or announce any increase in the salaries, bonuses or other benefits payable by such party or any of its subsidiaries to any of their employees, other than (i) as required by law, (ii) required pursuant to any plans, programs or agreements existing on the date hereof or (iii) other ordinary increases consistent with the past practices of such party or such subsidiary not exceeding $20,000 per annum for any individual or $100,000 in the aggregate;

 

(i) other than as required by law, in the case of Kitara, and (ii) other than, (a) as required by law, (b) in the ordinary course of business consistent with past practice or (c) cash payments made to employees as bonuses or other remuneration prior to closing, in the case of Future Ads, establish, adopt, enter into, amend or terminate any employee benefit plan, contract or arrangement of such party or any collective bargaining, thrift, compensation or other plan, agreement, trust, fund, policy or arrangement for the benefit of any directors, officers or employees;

 

plan, announce, implement or effect any reduction in force, lay-off, early retirement program, severance program or other program or effort concerning the termination of employment of employees of such party or any of its subsidiaries (other than, in the case of Future Ads, routine employee terminations in the ordinary course of business and, in the case of Kitara, routine employee terminations for cause);

 

except as required by Law, make any material tax election (other than in the ordinary course of preparing returns in a manner consistent with prior practices), revoke or modify any material tax election, file any amended Return or a claim for a refund of taxes, settle or compromise any material tax liability or file any return other than on a basis consistent with past practice;

 

make any change in any method of accounting or accounting practice or policy, except as required by applicable Law or GAAP; or

 

announce an intention, enter into any formal or informal agreement, or otherwise make a commitment to do any of the foregoing.

 

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Conditions to the Transactions

 

The consummation of the exchange agreement depends on a number of conditions being satisfied or waived. These conditions include:

 

no governmental authority having enacted, issued, promulgated, enforced or entered any law or order (whether temporary, preliminary or permanent) that is then in effect and that enjoins, restrains, makes illegal or otherwise prohibits the consummation of the exchange;

 

the waiting period under the HSR Act having expired or been terminated;

 

the merger having been completed or all of the conditions necessary for such completion having been satisfied and the merger being consummated contemporaneously with the exchange;

 

this proxy statement/prospectus and the registration statement of which it forms a part having been cleared and declared effective, respectively, by the SEC; and

 

the debt financing having been consummated.

 

Kitara’s and New Holdco’s obligation and the obligation of the members of Future Ads to consummate the exchange are subject to certain additional customary conditions, including (i) the material accuracy of representations and warranties of the other party (without giving effect to any limitation or qualification as to “materiality” or “material adverse effect”), except where such inaccuracy would not individually or in the aggregate, reasonably be expected to have a material adverse effect, and (ii) performance by the other party of its covenants in all material respects. The obligation of the members of Future Ads to consummate the exchange is further subject to:

 

the members having received executed counterparts of the stockholders agreement, the registration rights agreement, the Kitara lockup agreements and the employment agreements; and

 

no material adverse effect having occurred with respect to Kitara.

 

Kitara’s and New Holdco’s obligation to consummate the exchange is further subject to Kitara having received executed counterparts of the Future Ads lockup agreements and no material adverse effect having occurred with respect to Future Ads.

 

A “material adverse effect” is, with respect to a party, any event, circumstance, development, state of facts, occurrence, change or effect that has had or would reasonably be expected to have a material adverse effect on the business, financial condition or results of operations of such party and its subsidiaries, taken as a whole. However, a material adverse effect will not include any event, circumstance, development, state of facts, occurrence, change or effect arising out of, attributable to, or resulting from, alone or in combination:

 

changes in global, national or regional political conditions (including any outbreak or escalation of hostilities or acts of war, terrorism or national or international crisis or emergency) or in general economic, business, regulatory, political or market conditions or in national or global financial markets, or

 

natural disasters or calamities or acts of God,

 

changes in any applicable Laws or applicable accounting regulations or principles or interpretations thereof, or

 

general changes or developments in any of the industries in which such party or its Subsidiaries operate,

 

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unless the impact of the event, circumstance, development, state of facts, occurrence, change or effect with respect to any of the foregoing is disproportionately adverse to such party and its subsidiaries, taken as a whole. A material adverse effect also will not include any event, circumstance, development, state of facts, occurrence, change or effect arising out of, attributable to, or resulting from, alone or in combination:

 

the negotiation, execution, announcement, performance, consummation or pendency of this Agreement and the transactions contemplated hereby,

 

any failure in and of itself (as distinguished from any change or event giving rise or contributing to such failure) by such party and its Subsidiaries to meet any internal projections or forecasts, or

 

or any decrease in the market price of the New Holdco common stock, in and of itself.

 

Termination

 

The exchange agreement provides for certain termination rights for Kitara and the members, including the following:

 

by mutual written consent of Kitara and the members, acting jointly;

 

by Kitara or the members, acting jointly, if the other party breaches or fails to perform in any respect any of their representations, warranties or covenants and such breach or failure (i) would cause the closing conditions not to bet met, (ii) is not or cannot be cured within 15 days of notice and (iii) has not been waived by Kitara or the members, acting jointly;

 

by Kitara or the members, acting jointly, if the conditions to such party’s obligation to close the exchange cannot be fulfilled prior to January 31, 2015, if the exchange has not closed by such date, unless such condition cannot be satisfied or the closing has not occurred because of the failure by the party requesting termination to fulfill its obligations under the exchange agreement;

 

by Kitara or the members, acting jointly, if a governmental authority has issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by the exchange agreement and such order, decree or ruling has become final and nonappealable; or

 

by Kitara or the members, if the debt financing has not been consummated by January 31, 2015, unless, in Kitara’s case, Kitara has not complied with its covenants relating to the debt financing.

 

Amendment and Waiver

 

The exchange agreement may not be amended, modified or supplemented in any manner, whether by course of conduct or otherwise, except by an instrument in writing specifically designated as an amendment thereto, signed on behalf of each of the parties in interest at the time of the amendment.

 

No failure or delay of any party in exercising any right or remedy under the exchange agreement shall operate as a waiver thereof. Any agreement on the part of any party to any such waiver shall be valid only if set forth in a written instrument executed and delivered by such party or a duly authorized officer on behalf of such party, as applicable.

 

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Debt Financing

 

Pursuant to the debt commitment letter, Highbridge has committed, subject to certain conditions detailed below, to provide $96,000,000 in senior secured debt financing to New Holdco and certain of its subsidiaries (including Kitara and Future Ads), consisting of an $81,000,000 term facility and a $15,000,000 revolving facility (no more than $7,500,000 of which will be funded at closing). If closed, the debt will accrue interest at three month LIBOR (but no less than 1% and no more than 3%) plus 6% in the case of the revolving facility and 9% in the case of the term facility. Interest will be payable quarterly and the term facility will have a scheduled amortization of $7,000,000 per annum (payable quarterly). The maturity date for the debt will be four years after the closing. In addition, on or about the fourth anniversary of the closing, New Holdco will pay a fee of $12,500,000 to Highbridge in cash or, if sufficient funds are not available, New Holdco common stock.

 

Proceeds will be used to facilitate the merger and the exchange and specifically to: (i) pay the cash consideration to the members of Future Ads, (ii) refinance certain existing indebtedness of Kitara and its subsidiaries, (iii) pay fees and expenses related to the transactions (including the financing for the transactions) and (iv) fund the ongoing working capital requirements of New Holdco and its subsidiaries.

 

The debt financing is fully committed and is subject only to the execution of definitive documents and satisfaction of certain closing conditions, including, among others, Kitara and Future Ads having combined consolidated adjusted EBITDA of at least $26,000,000 for the trailing 12 months prior to closing and Future Ads having consolidated adjusted EBITDA of at least $31,500,000 for the trailing 12 months prior to closing.

 

Subject to change to the satisfaction of Highbridge and Kitara, consolidated adjusted EBITDA will mean consolidated net income, (a) plus, to the extent deducted from consolidated net income, (i) any provision for income or similar taxes, (ii) net interest expense, (iii) any depreciation or amortization expenses, (iv) any aggregate non-cash loss and certain cash losses to be agreed from the disposition of assets outside the ordinary course of business, subject to thresholds and exceptions to be agreed, (v) fees and expenses of the transactions, certain previous acquisitions and the loan documents, subject to thresholds and exceptions to be agreed, (vi) any non-cash item reducing consolidated net income, subject to certain exceptions, (vii) fees paid in cash to Highbridge and other lenders, (viii) losses from extraordinary items, (ix) fees, expenses and other costs related to the incurrence of permitted indebtedness, (x) any loss from unusual or non-recurring items, subject to thresholds and exceptions to be agreed, (b) minus, to the extent included in consolidated net income, (i) any income tax credits, (ii) any gains from extraordinary items, (iii) any aggregate net gain from the disposition of assets outside the ordinary course of business, and (iv) any non-cash item (and certain cash items to be agreed) increasing income.

 

Ancillary Agreements

 

Voting Agreement

 

This following summary of the material terms of the voting agreement is qualified in its entirety by reference to the complete text of the voting agreement, which is Annex D to this proxy statement/prospectus and is incorporated by reference herein. We urge you to read the full text of the voting agreement.

 

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In connection with the exchange agreement, Future Ads entered into a voting agreement with the supporting parties, who hold a majority of the shares of outstanding Kitara common stock. Under the voting agreement, the supporting parties have agreed, among other things, to vote their shares of Kitara common stock (including any shares acquired after the date of the agreement) in favor of the adoption of the merger agreement and approval of the merger, and any other matters necessary for consummation of the merger or the exchange and any other transactions contemplated in the merger agreement or the exchange agreement, and in favor of the approval of the 2014 plan. The supporting parties granted an irrevocable proxy to Future Ads and its executive officers to vote their shares in accordance with the requirements of the voting agreement. The voting agreement (including the grant of the irrevocable proxy) terminates upon the earlier of the closing, the termination of the exchange agreement in accordance with its terms and written notice by Future Ads to the supporting parties.

 

Lockup Agreements

 

This following summary of the material terms of the lockup agreements is qualified in its entirety by reference to the complete text of the lockup agreements, which is Annex E to this proxy statement/prospectus and is incorporated by reference herein. We urge you to read the full text of the lockup agreements.

 

Pursuant to the exchange agreement, New Holdco has entered into the Future Ads lockup agreement with certain of the members of Future Ads who are receiving shares of New Holdco common stock in the exchange and the Kitara lockup agreement with certain of the Kitara stockholders, including Kitara’s directors and officers and certain affiliates of Kitara and its directors and officers. Additional stockholders of Kitara may enter into lockup agreements with New Holdco prior to the closing. Pursuant to the lockup agreements, each such party will agree, subject to certain limited exceptions, not to transfer any New Holdco common stock, or any securities convertible into or exchangeable or exercisable for New Holdco common stock, whether then-owned or thereafter acquired (other than, in the case of the Future Ads lockup agreements, the deferred consideration shares), at any time during the period ending 12 months after the closing, without the written consent of the New Holdco board of directors.

 

Notwithstanding the foregoing limitations, the lockup agreement will not prevent any transfer of any or all of the securities covered thereby, either during a signatory’s lifetime or on the signatory’s death, by gift, will or intestate succession, or by judicial decree, to the signatory’s family members or to trusts, family limited partnerships and similar entities primarily for the benefit of the signatory or the signatory’s family members. In such event, it will be a condition to the transfer that the transferee execute an agreement stating that the transferee is receiving and holding the securities subject to the provisions of the lockup agreement. In addition, the foregoing restrictions shall not apply to the exercise, vesting or conversion of awards granted pursuant to New Holdco’s equity incentive plans.

 

Furthermore, in certain situations, if the securities subject to the lockup agreements are registered with the SEC, the signatory may transfer the securities without the prior written consent of the New Holdco board of directors. Because the members are entering into the registration rights agreement and certain of the Kitara stockholders subject to the lockup agreements have existing registration rights, the effective lockup period may be substantially shorter than 12 months.

 

Registration Rights Agreement

 

This following summary of the material terms of the registration rights agreement is qualified in its entirety by reference to the complete text of the registration rights agreement, which is attached as Annex F to this proxy statement/prospectus and is incorporated by reference herein. We urge you to read the full text of the registration rights agreement.

 

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At the closing, New Holdco will enter into a registration rights agreement with respect to the shares of New Holdco common stock issued in the exchange, or the “exchange shares.” Pursuant to the registration rights agreement, subject to compliance with the lockup agreements, the holders of the exchange shares will have the right to demand that New Holdco file a registration statement on Form S-1 or any successor form thereto covering 15% or greater of the then-outstanding exchange shares. Furthermore, at any time when New Holdco is eligible to use Form S-3 or any successor form thereto, the holders of the exchange shares will have the right to demand that New Holdco file a registration statement on Form S-3 or any successor form thereto covering 5% or greater of the then-outstanding exchange shares. New Holdco will not be obligated to effect more than two such “demand” registrations on Form S-1, but there is no limit to the number of “demand” registrations that may be effected on Form S-3. The holders of the exchange shares also will have certain “piggyback” registration rights, in the event New Holdco proposes or is required to register any of its equity securities on Form S-1 or Form S-3, whether or not for its own account. The “demand” and “piggyback” registration rights are subject to certain customary conditions and limitations.

 

Stockholders’ Agreement

 

This following summary of the material terms of the stockholders’ agreement is qualified in its entirety by reference to the complete text of the stockholders’ agreement which is attached as Annex G to this proxy statement/prospectus and is incorporated by reference herein. We urge you to read the full text of the stockholders’ agreement.

 

At the closing, New Holdco will enter into a stockholders’ agreement with the members of Future Ads who are receiving shares of New Holdco common stock in the exchange. The members will own 154,213,092 shares of New Holdco common stock upon the consummation of the exchange, representing approximately 61.7% of the outstanding New Holdco common stock after the transactions. Pursuant to the stockholders’ agreement, effective as of the closing and until the first annual meeting of New Holdco after closing, the New Holdco board of directors shall be comprised of up to nine directors, of whom a majority shall be appointees of the members. Commencing with the first annual meeting after the closing, the members will have the right to designate for election at each annual or special meeting no fewer than (i) as long as the members and their permitted transferees own at least 50% of New Holdco’s outstanding common stock, a number of directors equal to 50% of the number of directors then authorized (rounded down) plus one, and (ii) as long as the members and their permitted transferees own less than 50% but at least 20% of New Holdco’s outstanding common stock, a number of directors equal to 40% of the number of directors then authorized (rounded up). Subject to the requirements of applicable law and any primary exchange on which New Holdco common stock is listed, for so long as the members have the right to appoint or designate directors, New Holdco will cause a majority of the directors comprising any significant committees of the board (including the executive, audit and compensation committees) to be directors appointed or designated by the members. Notwithstanding that the board may be comprised of up to nine directors, New Holdco will cause the board to consist of no more than seven directors, unless it has received the written consent of at least two of the directors appointed or nominated by the members, or the “required directors.”

 

Without the written consent of the required directors, New Holdco also will not, and will not contract or arrange to, among other things, take any of the following actions:

 

any increase or decrease the size of the board or any committees of the board of New Holdco or any of its subsidiaries;

 

any redemption, acquisition or repurchase of any equity securities, subject to certain exceptions;

 

any payment or declaration of any dividend or other distribution on any equity securities of New Holdco, unless such payment, declaration or distribution is pro rata to all stockholders of New Holdco;

 

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the creation of any non-wholly-owned subsidiaries, or the disposition of any subsidiaries securities to a person other than New Holdco or one of its subsidiaries;

 

any transaction by New Holdco or any of its subsidiaries with or involving any related party of New Holdco or of any stockholder that beneficially owns 5% of the voting power of New Holdco, unless such transaction meets certain requirements;

 

any amendment, repeal or alteration of the certificate of incorporation or bylaws of New Holdco;

 

any acquisition by New Holdco or its subsidiaries of the securities or assets of another person, or the acquiring by any other manner of any business, properties, assets or entities, in one or a series of transactions, and any disposition of the assets of New Holdco or any subsidiary or equity interests of any subsidiary;

 

any proposed transaction or series of related transactions involving a change of control (as defined in the stockholders’ agreement); or

 

any plan of liquidation, dissolution or winding-up of New Holdco and any voluntary bankruptcy or similar filing by New Holdco and any of its subsidiaries.

 

At such time as the members and their affiliates and permitted transferees cease to collectively beneficially own at least 20% of the outstanding New Holdco common stock, the members shall cease to have the any rights under the stockholders’ agreement, subject to certain limited exceptions.

 

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PRO FORMA FINANCIAL INFORMATION

 

KITARA HOLDCO CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

Introduction

 

Kitara is providing the following unaudited pro forma condensed combined financial information to aid you in your analysis of the financial aspects of the transactions.

 

The following unaudited pro forma condensed combined balance sheet combines the unaudited historical balance sheet of Kitara as of June 30, 2014 with the unaudited consolidated historical statement of financial position of Future Ads as of June 30, 2014, giving effect to the transactions as if they had been consummated as of June 30, 2014.

 

The following unaudited pro forma condensed combined statement of operations combines the pro forma condensed combined statement of operations of Kitara prior to the transactions for the year ended December 31, 2013 with the audited historical statement of operations and comprehensive income of Future Ads for the year ended December 31, 2013, giving effect to the transactions as if they had occurred on January 1, 2013. The unaudited pro forma condensed combined statement of operations of Kitara prior to the transactions for the year ended December 31, 2013, give effect to the December 3, 2013 acquisition by Kitara of Health Guru (as explained below), or the “Health Guru acquisition,” and the July 1, 2013acquisition by Kitara (at the time known as Ascend Acquisition Corp.) of Kitara Media and NYPG to form what represented Kitara’s business immediately prior to the Health Guru acquisition (as explained below), or the “Kitara/NYPG acquisition,” all as if the transactions, the Health Guru acquisition and the Kitara/NYPG acquisition had occurred on January 1, 2013. We sometimes refer to Kitara for time periods prior to the acquisition of Kitara Media and NYPG as “Ascend.”

 

The following unaudited pro forma condensed combined statement of operations combines the unaudited condensed combined historical statement of operations of Kitara for the six months ended June 30, 2014 with the unaudited condensed combined historical statement of operations and comprehensive income of Future Ads for the six months ended June 30, 2014, giving effect to the transactions as if they had occurred on January 1, 2014.

 

The historical financial information has been adjusted to give effect to the expected events that are related and/or directly attributable to the transactions, are factually supportable and are expected to have a continuing impact on the combined results. The adjustments presented on the unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the transactions.

 

The historical financial statements of Kitara and Future Ads have been prepared in accordance with GAAP. The unaudited pro forma condensed combined financial statements included herein are prepared in accordance with US GAAP.

 

The historical financial information of Kitara was derived from the unaudited financial statements of Kitara as of and for the six months ended June 30, 2014 and the audited financial statements of Kitara for the year ended December 31, 2013, included elsewhere in this proxy statement/prospectus. The historical financial information of Future Ads was derived from the unaudited financial statements of Future Ads as of and for the six months ended June 30, 2014 and the audited financial statements of Future Ads for the year ended December 31, 2013, included elsewhere in this proxy statement/prospectus. This information should be read together with Kitara’s and Future Ads’ financial statements and related notes, “Kitara’s Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Future Ads’ Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included elsewhere in this proxy statement/prospectus.

 

The unaudited pro forma condensed combined financial information is for illustrative purposes only. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma condensed combined financial information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience.

 

Reverse Merger and Reorganization with Future Ads

 

On October 10, 2014, Kitara entered into (i) the exchange agreement by and among Kitara, New Holdco, Future Ads and the members of Future Ads, and (ii) the merger agreement, by and among Kitara, New Holdco, and Merger Sub.

 

Following the consummation of the transactions, (i) New Holdco will become a new publicly traded company, (ii) Kitara and Future Ads will become wholly-owned subsidiaries of New Holdco and (iii) the former members of Future Ads will own approximately 53% of the fully-diluted common stock of New Holdco.

 

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Pursuant to the exchange agreement, the members will exchange 100% of the issued and outstanding equity interests of Future Ads to New Holdco for (i) such number of shares of New Holdco common stock that represents 53% of the fully diluted shares of New Holdco common stock outstanding as of the closing; (ii) $80 million in cash; (iii) the right to receive performance-based EBITDA “earn out” payments that would enable the members to receive up to an additional $40 million in cash or stock consideration during the 2015 to 2018 fiscal years; (iv) on or prior to June 30, 2016, $10 million in cash and/or shares of New Holdco common stock; and (v) immediately after the payment of certain fees to Highbridge on or about the fourth anniversary of the closing, $6 million in cash. The exchange will only be consummated if the merger is also consummated. In addition, consummation of the exchange is subject to other customary closing conditions, including the receipt of all requisite antitrust approvals and the absence of any government order or other legal restraint prohibiting the exchange.

 

Pursuant to the merger agreement, Kitara will merge with and into Merger Sub, with Kitara surviving the merger as a wholly owned subsidiary of New Holdco. In the merger, each outstanding share of Kitara common stock will be converted into one share of New Holdco common stock. The merger will only be consummated if the exchange is also consummated. The merger agreement requires that the merger be approved by the holders of at least a majority of the voting power of the outstanding Kitara common stock. In addition, consummation of the merger is subject to other customary closing conditions, including that the registration statement of which this proxy statement/prospectus forms a part shall have been declared effective by the SEC and no stop order is in effect with respect thereto.

 

The transactions will be financed by Highbridge. Highbridge has committed, subject to certain conditions, to provide $96 million in senior secured debt financing to New Holdco and certain of its subsidiaries (including Kitara and Future Ads), consisting of an $81 million term facility and a $15 million revolving facility (no more than $7.5 million of which will be funded at closing). If closed, the debt will accrue interest at three month LIBOR (but no less than 1% and no more than 3%) plus 6% in the case of the revolving facility and 9% in the case of the term facility. Interest will be payable quarterly and the term facility will have a scheduled amortization of $7 million per annum (payable quarterly). The maturity date for the debt is four years after the closing. 

Proceeds will be used to facilitate the merger and exchange and specifically to: (i) pay the cash consideration to the members, (ii) refinance certain existing indebtedness of Kitara and its subsidiaries, (iii) pay fees and expenses related to the Transactions (including the financing for the transactions) and (iv) fund the ongoing working capital requirements of New Holdco and its subsidiaries.

  

The debt financing is fully committed and is subject only to the execution of definitive documents and satisfaction of certain closing conditions, including, among others, Kitara and Future Ads having combined consolidated adjusted EBITDA (as defined in the debt commitment letter and described in the section entitled “The Agreements — Debt Financing”) of at least $26 million for the trailing 12 months prior to closing and Future Ads having consolidated adjusted EBITDA of at least $31.5 million for the trailing 12 months prior to closing.

 

The transactions were accounted for as a reverse merger in accordance with GAAP. Under this method of accounting, Kitara was treated as the “acquired” company for financial reporting purposes. This determination was primarily based on the former holders of Future Ads having a controlling interest in terms of the voting power of the combined entity and control of the board of directors of the combined company and the size of Future Ads being significantly larger than Kitara. In accordance with guidance applicable to these circumstances, the merger and exchange were considered to be a capital transaction in substance. Accordingly, for accounting purposes, the transactions were treated as the equivalent of Future Ads issuing stock for the net assets of Kitara, accompanied by a recapitalization. The net assets of Kitara will be stated at fair value. Operations prior to the transactions in historical financial statements will be those of Future Ads.

 

Health Guru Acquisition

 

On December 3, 2013, Kitara, a Delaware corporation, entered into a Merger Agreement and Plan of Organization (the “HG Merger Agreement”) by and among Kitara, Kitara Media Sub, Inc. (“HG Merger Sub”), Health Guru, a Delaware corporation, and certain securityholders of Health Guru, which securityholders held a majority of the outstanding shares of capital stock of Health Guru and simultaneously consummated the transactions contemplated thereby (the “Health Guru Closing”).

 

Health Guru is a provider of health information videos on the internet, offering a library of over 3,500 health videos and 600 health-video applications on topics including mental health, pregnancy, diet and fitness, and a variety of medical conditions. By leveraging its content development model and proprietary technology, Health Guru seeks to make its health videos more engaging for its users, more effective for its advertisers and more profitable for its in-network publishers.

 

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At the Health Guru Closing, pursuant to the HG Merger Agreement, HG Merger Sub was merged with and into Health Guru, with Health Guru surviving as a wholly owned subsidiary of Kitara (the “Health Guru Merger”). All of the shares of capital stock and certain debt of Health Guru outstanding immediately prior to the Health Guru Merger were automatically canceled and converted into the right for such holders to receive an aggregate of 18,000,000 shares of Kitara common stock.  Simultaneously, all of Health Guru’s stock options and warrants to purchase common stock which were outstanding prior to the Health Guru Merger were cancelled. As a result of the Health Guru Merger, the former holders of the capital stock of Health Guru own approximately 22% of the outstanding shares of Kitara common stock.

 

Simultaneously with the Closing, Kitara sold an aggregate of 4,000,000 shares of Kitara common stock in a private placement to accredited investors for $0.50 per share, in cash, for an aggregate of $2,000,000 in gross proceeds.

 

July 1, 2013 Acquisition of Kitara Media and NYPG

 

On June 12, 2013, Ascend entered into the Merger Agreement and Plan of Organization, as amended on July 1, 2013 (“K/N Merger Agreement”), by and among Ascend, Ascend Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of Ascend (“Kitara Merger Sub LLC ”), Ascend Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Ascend (“NYPG Merger Sub Inc. ”), Kitara Media, NYPG and those certain security holders of Kitara Media and NYPG executing the “Signing Holder Signature Page” thereto, which security holders held all of the outstanding membership interests of Kitara Media (the “Kitara Signing Holder”) and all of the outstanding shares of common stock of NYPG (the “NYPG Signing Holder” and together with the Kitara Signing Holder, the “K/N Signing Holders”).

 

Upon consummation of the transactions contemplated by the K/N Merger Agreement, (i) Kitara Merger Sub merged into Kitara Media, with Kitara Media surviving the merger and becoming a wholly-owned subsidiary of Ascend (“Kitara Media Merger”) and (ii) NYPG Merger Sub merged into NYPG, with NYPG surviving the merger and becoming a wholly-owned subsidiary of Ascend (“NYPG Merger”, together with the Kitara Media Merger, the “K/N Mergers”).

 

On July 1, 2013, the parties closed the transactions under the K/N Merger Agreement. At the close of the K/N Mergers, (i) the Kitara Signing Holder, holder of all of the outstanding membership units of Kitara Media, received an aggregate of 20,000,000 shares of Ascend common stock and (ii) the NYPG Signing Holder, holder of all outstanding and issued shares of NYPG common stock, received (a) an aggregate of 10,000,000 shares of Ascend common stock and (b) two promissory notes (collectively, the "K/N Closing Notes"), one in the amount of $100,000 being due and payable on January 1, 2014 and one in the amount of $200,000 being due and payable on January 1, 2023 to replace the existing advances from stockholder of NYPG. Each of the K/N Closing Notes accrues interest at a rate of 1% per annum, which will be due at the time the K/N Closing Notes become due and payable. Also on July 1, 2013, as a condition to closing the K/N Merger Agreement, certain stockholders of Kitara contributed an aggregate of 25,813,075 shares of Ascend common stock to Ascend for cancellation without the payment of any additional consideration. In addition Ascend repurchased 381,950 shares from a stockholder as a result of the K/N Mergers.

 

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KITARA HOLDCO CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of June 30, 2014

 

   Kitara Media   Future Ads   Pro Forma Adjustments   Pro Forma As 
 

Corp.

   LLC   Debit   Note   Credit   Note   Adjusted 
   Note A   Note B                     
ASSETS                            
                             
Current assets:                            
Cash and cash equivalents  $4,322,000   $2,529,929   $81,000,000    1   $735,000    3   $11,215,869 
              7,500,000    2    80,000,000    6      
              -         2,416,000    7      
              -         985,060    10      
Accounts and notes receivable, net   4,857,000    5,267,668    -         -         10,124,668 
Prepaid expenses and other current assets   224,000    280,764    -         -         504,764 
Total current assets   9,403,000    8,078,361    88,500,000         84,136,060         21,845,301 
                                    
Property and equipment, net   1,162,000    2,163,415    -         -         3,325,415 
Restricted cash   192,000    -    -         -         192,000 
Deferred financing costs   61,000    -    -         61,000    9    - 
Intangible assets   2,013,000    -    -         -         2,013,000 
Goodwill   11,816,000    -    13,124,221    9    -         24,940,221 
Other assets   -    56,039    -         -         56,039 
Total assets  $24,647,000   $10,297,815   $101,624,221        $84,197,060        $52,371,976 
                                    
LIABILITIES AND STOCKHOLDERS' EQUITY                                   
                                    
Current liabilities:                                   
Accounts payable and accrued liabilities  $3,314,000   $5,018,893   $-        $-        $8,332,893 
Accrued compensation   337,000    -    -         -         337,000 
Note payable stockholder, current   100,000    -    -         -         100,000 
Short term debt   1,373,000    17,302    735,000    3    -         655,302 
Advertiser deposits   -    2,294,643    -         -         2,294,643 
Due to members/shareholders    -    590,218    590,218    10    -         - 
Loan payable - Highbridge   -    -    -         81,000,000    1    81,000,000 
Revolving loan facility   -    -    -         7,500,000    2    7,500,000 
Total current liabilities   5,124,000    7,921,056    1,325,218         88,500,000         100,219,838 
                                    
Deferred rent   3,000    529,856    -         -         532,856 
Deferred tax liability   272,000    -    -         -         272,000 
Other liabilities   224,000    -    -         -         224,000 
Obligations to Transferors   -    -    -         16,000,000    11    16,000,000 
Note payable stockholder, non-current   200,000    -    -         -         200,000 
Total long-term liabilities   699,000    529,856    -         16,000,000         17,228,856 
                                    
Total liabilities   5,823,000    8,450,912    1,325,218         104,500,000         117,448,694 
                                    
Stockholders' equity:                                   
Preferred stock   -    -    -         -         - 
Common stock   10,000    -    -         12,610    8    22,610