S-4/A 1 s116694_s4a.htm S-4/A

  

As filed with the Securities and Exchange Commission on March 15, 2019

Registration No. 333-228857

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1

TO

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

CONVERSIONPOINT HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)

Delaware 7372 83-2687415

(State or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification No.) 

840 Newport Center Drive, Suite 450 

Newport Beach, California 92660

(888) 706-6764

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

Robert Tallack

President and Chief Executive Officer

ConversionPoint Holdings, Inc.

840 Newport Center Drive, Suite 450

Newport Beach, California 92660

(888) 706-6764

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

Copies of all correspondence to:

 

Larry A. Cerutti, Esq.

Bardia Moayedi, Esq.

Troutman Sanders LLP

5 Park Plaza, 14th Floor

Irvine, California 92614

(949) 622-2700 / (949) 622-2739 (fax)

Richard K. Howe

President and Chief Executive Officer

Inuvo, Inc.

500 President Clinton Avenue, Suite 300
Little Rock, Arkansas 72201
(501) 205-8508

Jeremy Siegfried, Esq.

Matthew P. Navarre, Esq.

Porter Wright Morris & Arthur LLP

41 South High Street, Suite 2900

Columbus, Ohio 43215

(614) 227-2181 / (614) 227-2100 (fax)

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effectiveness of this registration statement and the satisfaction or waiver of all other conditions under the merger agreement described herein.

 

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, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   Accelerated filer 
Non-accelerated filer   (Do not check if a smaller reporting company) Smaller reporting company   
  Emerging growth company   

 

If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.

 

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

 

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

 

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

 

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 the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.  

 

 

 

 

 

 

The information in this preliminary joint proxy statement/prospectus is not complete and may be changed. ConversionPoint Holdings may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This joint proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer, solicitation or sale is not permitted.

 

PRELIMINARY PROSPECTUS

 

Subject to completion, dated March 15, 2019

 

 

TO THE STOCKHOLDERS OF CONVERSIONPOINT TECHNOLOGIES INC. AND INUVO, INC. 

MERGERS PROPOSED—YOUR VOTE IS VERY IMPORTANT

 

[●], 2019

 

Dear Stockholders:

 

ConversionPoint Technologies Inc., referred to as ConversionPoint, and Inuvo, Inc., referred to as Inuvo, have entered into an Agreement and Plan of Merger, dated as of November 2, 2018 (as it may be amended from time to time), referred to as the merger agreement. The merger agreement provides for a proposed business combination transaction between ConversionPoint and Inuvo.

 

Subject to the terms and conditions of the merger agreement, ConversionPoint and Inuvo will be combined under a new holding company currently named ConversionPoint Holdings, Inc., referred to as New Parent. The combination will bring together two e-commerce companies with complementary products and services and valuable intellectual property assets. Robert Tallack will serve as President and Chief Executive Officer and Richard K. Howe will serve as the non-executive Chairman of the Board of the combined organization. New Parent will be renamed ConversionPoint Technologies Inc. following completion of the combination.

 

The combination will be effected by two mergers, between subsidiaries of New Parent, on the one hand, and each of ConversionPoint and Inuvo, on the other hand. Upon completion of the merger between ConversionPoint and a subsidiary of New Parent, each share of ConversionPoint common stock will be converted into the right to receive 0.97314 of a share of common stock of New Parent (calculated as of March 8, 2019 and subject to downward adjustment based on the number of shares of ConversionPoint common stock outstanding at the closing of the mergers), which we refer to as the ConversionPoint exchange ratio. We refer to the consideration that each share of ConversionPoint common stock will be converted into, as the ConversionPoint merger consideration. Upon completion of the merger between Inuvo and a subsidiary of New Parent, each share of Inuvo common stock will be converted into the right to receive $0.45 in cash and 0.18877 of a share of common stock of New Parent (subject to downward adjustment based on the number of shares of Inuvo common stock outstanding at the closing of the mergers), which we refer to as the Inuvo exchange ratio. We refer to the consideration that each share of Inuvo common stock will be converted into, as the Inuvo merger consideration. We anticipate that ConversionPoint stockholders will own approximately 70.76%, and Inuvo stockholders will own approximately 29.24%, of the shares of New Parent common stock issued and outstanding immediately after consummation of the mergers and prior to the issuance of any stock in connection with a financing that is a condition to closing of the mergers.

 

The value of the shares of New Parent common stock issued in connection with the mergers will depend on the price per share of New Parent common stock at the time the mergers are completed. That price will not be known at the time of the special meetings of the ConversionPoint and Inuvo stockholders due to the contemplated underwritten public offering of New Parent common stock which we anticipate to occur after the time of the special meetings and at the time of the closing of the mergers, which we refer to as the New Parent public offering, in order for New Parent to satisfy the material condition contained in the merger agreement that New Parent receive at least $36 million in gross proceeds from the issuance and sale of its equity, debt and/or equity-linked securities on terms reasonably agreeable to ConversionPoint and Inuvo in good faith, which we refer to as the financing condition. See “Questions and Answers About the Mergers and the Special Meetings—What conditions must be satisfied to complete the mergers?” and “How will the financing condition be satisfied?” in this joint proxy statement/prospectus for a discussion of the financing condition and the New Parent public offering.

 

 

 

 

The size of New Parent’s board of directors, which we refer to as the New Parent board, will be set at seven with Robert Tallack and Raghunath “Raghu” Kilambi being appointed by ConversionPoint, Richard K. Howe and Gordon Cameron being appointed by Inuvo, and three individuals being appointed by New Parent, on or after the closing date. As of the date of this joint proxy statement/prospectus, no determination has been made as to the identity of the three directors who will be appointed by the New Parent board on or after the date of closing.

 

Completion of the mergers requires, among other things, the separate adoption and approval of the merger agreement by both ConversionPoint stockholders and Inuvo stockholders. To obtain these required adoptions, and approvals, ConversionPoint and Inuvo will hold special meetings of their respective stockholders on [●], 2019. At the special meeting of ConversionPoint stockholders, ConversionPoint stockholders will be asked to consider and vote on (1) a proposal to adopt the merger agreement, referred to as the ConversionPoint merger proposal, and (2) a proposal to adjourn the ConversionPoint special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the ConversionPoint merger proposal, referred to as the ConversionPoint adjournment proposal. At the special meeting of Inuvo stockholders, Inuvo stockholders will be asked to consider and vote on (1) a proposal to adopt and approve the merger agreement, referred to as the Inuvo merger proposal, (2) a proposal to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to the named executive officers of Inuvo, (3) a proposal to approve and adopt a certificate of amendment to Inuvo’s articles of incorporation to increase the number of authorized shares of Inuvo common stock from 40,000,000 shares to 60,000,000 shares, referred to as the Inuvo articles amendment proposal, and (4) a proposal to adjourn the Inuvo special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the Inuvo merger proposal and the Inuvo articles amendment proposal, referred to as the Inuvo adjournment proposal.

 

CONVERSIONPOINT’S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE CONVERSIONPOINT MERGER PROPOSAL AND “FOR” THE CONVERSIONPOINT ADJOURNMENT PROPOSAL

 

INUVO’S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE INUVO MERGER PROPOSAL, “FOR” APPROVAL OF THE MERGER-RELATED COMPENSATION PROPOSAL, “FOR” THE INUVO ARTICLES AMENDMENT PROPOSAL AND “FOR” THE INUVO ADJOURNMENT PROPOSAL

 

Information about the special meetings, the mergers and the other business to be considered by ConversionPoint stockholders and Inuvo stockholders is contained in this joint proxy statement/prospectus and the documents incorporated by reference in this joint proxy statement/prospectus, which we urge you to read carefully. The obligations of ConversionPoint and Inuvo to complete the mergers are subject to the satisfaction or waiver of several conditions set forth in the merger agreement including, among others, the financing condition. ConversionPoint and Inuvo encourage you to read this entire joint proxy statement/prospectus carefully before voting, including the section entitled “Risk Factors” beginning on page 29 of this joint proxy statement/prospectus.

 

Your vote is very important, regardless of the number of shares of Inuvo common stock or ConversionPoint common stock that you own. Whether or not you plan to attend the special meeting of ConversionPoint stockholders or the special meeting of Inuvo stockholders, as applicable, please mark, sign, date and return all proxy cards that you receive in the postage-paid envelope provided, or complete your proxy by following the instructions supplied on the proxy card for voting by telephone or via the Internet, so that your shares may be represented and voted at the ConversionPoint or Inuvo special meeting, as applicable. Your failure to vote with respect to the ConversionPoint merger proposal or Inuvo merger proposal will have the same effect as voting against such proposal. If you hold your shares in “street name,” you should instruct your broker how to vote your shares in accordance with your voting instruction form. 

 

 

 

 

We hope to see you at the special meetings and look forward to the successful completion of the mergers and the other transactions.

 

/s/ Robert Tallack   /s/ Richard K. Howe
Robert Tallack   Richard K. Howe
President and Chief Executive Officer   Chief Executive Officer
ConversionPoint Technologies Inc.   Inuvo, Inc.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the securities to be issued in connection with the mergers or determined if the accompanying joint proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

 

The accompanying joint proxy statement/prospectus is dated [●], 2019, and is first being mailed or otherwise delivered to stockholders of ConversionPoint and stockholders of Inuvo on or about [●], 2019.

 

 

 

 

ConversionPoint Technologies Inc.
840 Newport Center Drive, Suite 450
Newport Beach, CA 92660
(888) 706-6764

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD [●], 2019

 

To the Stockholders of ConversionPoint Technologies Inc.:

 

A special meeting of all stockholders of ConversionPoint Technologies Inc. will be held at 840 Newport Center Drive, Suite 450, Newport Beach, California, 92660 on [●], 2019 at [●] a.m., local time, for the following purposes:

 

  1. To adopt and approve the Agreement and Plan of Merger, dated as of November 2, 2018 (as it may be amended from time to time, the “merger agreement”), by and among, ConversionPoint Technologies Inc. (“ConversionPoint”), ConversionPoint Holdings, Inc. (“New Parent”), Inuvo, Inc. (“Inuvo”), CPT Merger Sub, Inc. (“ConversionPoint Merger Sub”), and CPT Cigar Merger Sub, Inc. (“Inuvo Merger Sub”).

 

  2. To adjourn the special meeting if necessary or advisable to permit further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to adopt the merger agreement.

 

  3. To transact such other business as may properly come before the special meeting or any adjournment or postponement thereof.

 

If you held shares of ConversionPoint common stock at the close of business on [●], 2019, you are entitled to notice of and to vote at the special meeting and any adjournments or postponements thereof. If a new record date is set, you will be entitled to vote at the special meeting if you held shares in ConversionPoint as of such record date.

 

The ConversionPoint board has unanimously approved the merger agreement, has determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of ConversionPoint and its stockholders, and unanimously recommends that ConversionPoint stockholders vote “FOR” the ConversionPoint merger proposal and “FOR” the ConversionPoint adjournment proposal.

 

Your vote is very important. If you do not submit your proxy by telephone, the Internet, or return your signed proxy card(s) by mail or vote in person at your special meeting, it will be more difficult for ConversionPoint to obtain the necessary quorum to hold its special meeting.

 

Whether or not you plan to attend the special meeting in person, please complete, sign, date and return the enclosed proxy in the accompanying self-addressed postage pre-paid envelope or complete your proxy by following the instructions supplied on the proxy card for voting by telephone or via the Internet as soon as possible. If you attend the special meeting, you may withdraw your proxy and vote in person.

 

  By Order of the Board of Directors,
   
  /s/ Robert Tallack
Newport Beach, CA Robert Tallack
[●], 2019 President and Chief Executive Officer

 

PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND INSTRUCTIONS FOR VOTING ON THE ENCLOSED PROXY CARD. IF YOU HAVE QUESTIONS ABOUT THE PROPOSALS OR ABOUT VOTING YOUR SHARES, PLEASE CONTACT CONVERSIONPOINT’S GENERAL COUNSEL, JEFFREY MARKS VIA EMAIL AT JEFF@CONVERSIONPOINT.COM.

 

 

 

 

Inuvo, Inc.
500 President Clinton Avenue, Suite 300
Little Rock, Arkansas 72201
(501) 205-8508

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [●], 2019

 

To the Stockholders of Inuvo, Inc.:

 

A special meeting of all stockholders of Inuvo, Inc. will be held at 500 President Clinton Avenue, Suite 300, Little Rock, Arkansas 72201 on [●], 2019 at [●], local time, for the following purposes:

 

  1. To adopt and approve the Agreement and Plan of Merger, dated as of November 2, 2018 (as it may be amended from time to time, the “merger agreement”), by and among, ConversionPoint Technologies Inc. (“ConversionPoint”), ConversionPoint Holdings, Inc. (“New Parent”), Inuvo, Inc. (“Inuvo”), CPT Merger Sub, Inc. (“ConversionPoint Merger Sub”), and CPT Cigar Merger Sub, Inc. (“Inuvo Merger Sub”).

 

  2. To approve, on a non-binding advisory basis, the compensation that may be paid or become payable to the named executive officers of Inuvo that is based on or otherwise relates to the completion of the Inuvo merger (the “Inuvo merger-related compensation proposal”).

 

  3. To adopt a certificate of amendment to Inuvo’s articles of incorporation (the “articles amendment”) to increase the number of authorized shares of Inuvo common stock from 40,000,000 shares to 60,000,000 shares (the “Inuvo articles amendment proposal”).
     
  4. To adjourn the special meeting if necessary or advisable to permit further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to adopt and approve the merger agreement or the articles amendment (the “Inuvo adjournment proposal”).

 

  5. To transact such other business as may properly come before the special meeting or any adjournment or postponement thereof.

 

If you held shares of Inuvo common stock at the close of business on [●], 2019, you are entitled to notice of and to vote at the special meeting and any adjournments or postponements thereof. If a new record date is set, you will be entitled to vote at the special meeting if you held shares in Inuvo as of such record date.

 

The Inuvo board has unanimously approved the merger agreement and the articles amendment, has determined that the merger agreement, the articles amendment and the transactions contemplated thereby, including the merger, are advisable and in the best interests of Inuvo and its stockholders, and unanimously recommends that Inuvo stockholders vote “FOR” the Inuvo merger proposal, “FOR” the Inuvo merger-related compensation proposal “FOR” the Inuvo articles amendment proposal and “FOR” the Inuvo adjournment proposal.

 

Your vote is very important. If you do not submit your proxy by telephone, the Internet, or return your signed proxy card(s) by mail or vote in person at your special meeting, it will be more difficult for Inuvo to obtain the necessary quorum to hold its special meeting.

  

 

 

 

Whether or not you plan to attend the special meeting in person, please complete, sign, date and return the enclosed proxy in the accompanying self-addressed postage pre-paid envelope or complete your proxy by following the instructions supplied on the proxy card for voting by telephone or via the Internet (or, if your shares are held in “street name” by a broker, nominee, fiduciary or other custodian, follow the directions given by the broker, nominee, fiduciary or other custodian regarding how to instruct it to vote your shares) as soon as possible. If you attend the special meeting, you may withdraw your proxy and vote in person.

 

  By Order of the Board of Directors,
   
  /s/ Richard K. Howe
Little Rock, Arkansas Richard K. Howe
[●], 2019 Chief Executive Officer

 

PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND INSTRUCTIONS FOR VOTING ON THE ENCLOSED PROXY CARD. IF YOU HAVE QUESTIONS ABOUT THE PROPOSALS OR ABOUT VOTING YOUR SHARES, PLEASE CALL INUVO’S CHIEF FINANCIAL OFFICER, WALLACE D. RUIZ AT (501) 205-8397 OR VIA EMAIL AT WALLACE.RUIZ@INUVO.COM.

 

 

 

 

ADDITIONAL INFORMATION

 

This joint proxy statement/prospectus incorporates important business and financial information about Inuvo that is not included in or being delivered with this joint proxy statement/prospectus. The incorporated information that is not included in or being delivered with this joint proxy statement/prospectus is available to you without charge upon your written or oral request. You can obtain any document that is incorporated by reference in this joint proxy statement/prospectus, excluding all exhibits that have not been specifically incorporated by reference, on the investor relations page of Inuvo’s website at www.inuvo.com or by requesting it in writing or by telephone from Inuvo at the following address or telephone number:

 

Inuvo, Inc.
500 President Clinton Avenue, Suite 300
Little Rock, Arkansas 72201
(501) 205-8508
Attn.: Corporate Secretary
Website: www.inuvo.com

 

If you would like to request any documents, please do so by [●], 2019 in order to receive them before the Inuvo special meeting. See “Where You Can Find More Information.”

 

You should rely only on the information contained in, or incorporated by reference into, this document. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this document. This document is dated [●], 2019, and you should assume that the information in this document is accurate only as of such date. You should assume that the information incorporated by reference into this document is accurate as of the date of such document. Neither the mailing of this document to ConversionPoint and Inuvo stockholders nor the issuance by New Parent of shares of New Parent common stock in connection with the merger will create any implication to the contrary.

 

This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Except where the context otherwise indicates, information contained in this document regarding Inuvo has been provided by Inuvo and information contained in this document regarding ConversionPoint has been provided by ConversionPoint.

 

 

 

 

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE MERGERS AND THE SPECIAL MEETINGS 1
SUMMARY 14
Information about the Companies Involved in the Mergers 14
The Mergers 15
The CPT Bridge Note 15
Merger Consideration Received by ConversionPoint Stockholders 16
Merger Consideration Received by Inuvo Stockholders 16
Total New Parent Common Stock to be Issued 16
Comparative Per Share Market Price and Dividend Information 16
Treatment of ConversionPoint Stock Options and Warrants 17
Treatment of ConversionPoint Restricted Stock Units 17
Treatment of Inuvo Stock Options 17
Treatment of Inuvo Restricted Stock Units 17
Directors and Executive Officers of New Parent Following the Mergers 18
Recommendation of the ConversionPoint Board 18
Recommendation of the Inuvo Board 18
Opinion of Canaccord Genuity LLC 18
Interests of Certain ConversionPoint and Inuvo Directors and Executive Officers in the Mergers 19
Material United States Federal Income Tax Consequences of the Mergers 19
Accounting Treatment of the Mergers 19
Conditions to Completion of the Mergers 20
Financing Condition 20
Delisting and deregistration of Inuvo Common Stock and Registration of New Parent Common Stock 21
No Solicitation of Other Offers 21
Termination 21
Termination Fees and Expenses 21
Support Agreements 22
Shares Beneficially Owned by Directors and Executive Officers of ConversionPoint and Inuvo 22
Appraisal Rights 23
Comparison of the Rights of ConversionPoint and Inuvo Stockholders 23
Risk Factors 23
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CONVERSIONPOINT 24
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF INUVO 25
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION 26
EQUIVALENT AND COMPARATIVE PER SHARE INFORMATION 27
RISK FACTORS 29
Risks Related to the Mergers 29
Risks Related to ConversionPoint’s Business 34
Risks Related to Inuvo’s Business 45
Risks Related to the Combined Company if the Mergers are Completed 50
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 62
DESCRIPTION OF CONVERSIONPOINT 63
Company Overview 63
Industry Background 63
Key Challenges Facing Retailers and Brands Selling Online 64
ConversionPoint’s Solutions 65
ConversionPoint’s Technology Products 66
ConversionPoint’s E-Commerce Product Sales 67
Customers 68

 

 

 

 

TABLE OF CONTENTS

(continued)

 

Key Relationships 68
ConversionPoint’s Competitive Strengths 68
ConversionPoint’s Growth Strategy 69
ConversionPoint’s Technology Platform 69
Competition 70
Research and Development 70
Intellectual Property 70
Government Regulation 71
Employees 72
Facilities 72
Legal Proceedings 73
Management’s Discussion and Analysis of Financial Condition and Results of Operations 74
Management 80
Executive Compensation 83
Certain Relationships and Related Party Transactions. 88
Security Ownership of Certain Beneficial Owners and Management 91
DESCRIPTION OF INUVO 93
Company Overview 93
Products and Services 93
Key Relationships 93
Strategy 94
Sales and Marketing 94
Competition 95
Technology Platforms 95
Intellectual Property Rights 95
Employees 95
Seasonality 95
History 96
Legal Proceedings 96
More Information 97
Management’s Discussion and Analysis of Financial Condition and Results of Operations 97
Market Prices of and Dividends on Inuvo Common Stock 102
Management 103
Executive Compensation 118
Certain Relationships and Related Party Transactions 114
Director Independence 115
Security Ownership of Certain Beneficial Owners and Management 115
DESCRIPTION OF NEW PARENT 117
Business Overview 117
New Parent 2018 Plan 117
ConversionPoint Merger Sub 123
Inuvo Merger Sub 123
INFORMATION ABOUT THE CONVERSIONPOINT SPECIAL MEETING AND VOTE 124
Date, Time and Place of the Special Meeting 124
Purpose of the ConversionPoint Special Meeting 124
Recommendation of the ConversionPoint Board 124
Record Date; Shares Entitled to Vote 124
Quorum and Voting Rights 125
Required Vote 125
Abstentions: Non-Voting 125
Appraisal Rights 125
Shares Beneficially Owned by ConversionPoint Directors and Executive Officers 126
Voting of Shares; Proxies 126

 

ii

 

 

TABLE OF CONTENTS

(continued)

 

Revocability of Proxies and Changes to a ConversionPoint Stockholder’s Vote 126
Solicitation of Proxies 127
Other Business; Adjournments 127
Attending the Meeting 127
CONVERSIONPOINT PROPOSAL 1 — ADOPTION AND APPROVAL OF THE MERGER AGREEMENT 128
CONVERSIONPOINT PROPOSAL 2 — ADJOURNMENT OF THE SPECIAL MEETING 129
INFORMATION ABOUT THE INUVO SPECIAL MEETING AND VOTE 130
Date, Time and Place of the Special Meeting 130
Purpose of the Inuvo Special Meeting 130
Recommendation of the Inuvo Board 130
Record Date; Shares Entitled to Vote 131
Quorum and Voting Rights 131
Required Vote 131
Broker Non-Votes 132
Abstentions; Non-Voting 132
Appraisal Rights 132
Shares Beneficially Owned by Inuvo Directors and Executive Officers 132
Voting of Shares; Proxies 133
Revocability of Proxies and Changes to an Inuvo Stockholder’s Vote 133
Solicitation of Proxies 134
Other Business; Adjournments 134
Attending the Meeting 134
INUVO PROPOSAL 1 — ADOPTION AND APPROVAL OF THE MERGER AGREEMENT 135
INUVO PROPOSAL 2 — NON-BINDING ADVISORY VOTE ON MERGER-RELATED COMPENSATION 136
INUVO PROPOSAL 3 — ADOPTION OF THE CERTIFICATE OF AMENDMENT TO THE INUVO AMENDED ARTICLES OF INCORPORATION 137
Reasons for the Proposed Increase in Number of Authorized Shares of Common Stock 138
INUVO PROPOSAL 4 — ADJOURNMENT OF THE SPECIAL MEETING 139
THE MERGERS 140
General 140
Background of the Mergers 140
Recommendation of the ConversionPoint Board and its Reasons for the ConversionPoint Merger 152
Recommendation of the Inuvo Board and its Reasons for the Inuvo Merger 152
Opinion of Financial Advisor to the Inuvo Board 154
Certain Financial Forecasts 161
Interests of Officers and Directors in the Mergers 165
Merger-Related Compensation 168
Accounting Treatment 169
Appraisal Rights 169
Restrictions on Sales of Shares by Certain Affiliates 169
THE MERGER AGREEMENT AND RELATED AGREEMENTS 171
Structure of the Mergers 171
Closing 172
Effective Times 172
Merger Consideration Received by ConversionPoint Stockholders 172
Merger Consideration Received by Inuvo Stockholders 173
Treatment of ConversionPoint Stock Options and Other Stock-Based Awards 173
Treatment of ConversionPoint Warrants 174
Treatment of Inuvo Stock Options and Other Stock-Based Awards 174
Conversion of Shares; Exchange of Certificates; No Fractional Shares 175

 

iii

 

 

TABLE OF CONTENTS

(continued)

 

Appraisal Rights 176
Reasonable Best Efforts; Other Agreements 177
Representations and Warranties 177
Covenants and Agreements 180
Termination 190
Termination Fee and Expenses 192
Support Agreements 192
Directors and Executive Officers of New Parent and New Parent Subsidiaries 193
Amendment No. 1 to Merger Agreement 193
The CPT Bridge Note 194
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES 195
Tax Consequences of the Mergers Generally 196
Tax Consequences to Holders of ConversionPoint Common Stock 196
Tax Consequences to Holders of Inuvo Common Stock 197
Cash In Lieu of Fractional Shares 198
Backup Withholding and Information Reporting 198
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 199
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET 200
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS 201
DESCRIPTION OF NEW PARENT CAPITAL STOCK 207
Authorized Capital Stock 207
Common Stock 207
Transfer Agent and Registrar 207
Preferred Stock 207
Anti-Takeover Effects of Delaware Law and New Parent’s Certificate of Incorporation and Bylaws 208
COMPARISON OF STOCKHOLDER RIGHTS 211
APPRAISAL RIGHTS 223
LEGAL MATTERS 227
EXPERTS 227
FUTURE STOCKHOLDER PROPOSALS 228
ConversionPoint 228
Inuvo 228
WHERE YOU CAN FIND MORE INFORMATION 229
   
INDEX TO FINANCIAL STATEMENTS F-1
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS II-1

  

Annex A Agreement and Plan of Merger, dated as of November 2, 2018, by and among ConversionPoint Technologies Inc., Inuvo, Inc., ConversionPoint Holdings, Inc., CPT Merger Sub, Inc. and CPT Cigar Merger Sub, Inc., as amended by Amendment No. 1 to Agreement and Plan of Merger, dated March 1, 2019
   
Annex B Amended and Restated Certificate of Incorporation of ConversionPoint Holdings, Inc.
   
Annex C Bylaws of ConversionPoint Holdings, Inc.
   
Annex D Form of ConversionPoint Support Agreement

 

iv

 

 

TABLE OF CONTENTS

(continued)

 

Annex E Form of Inuvo Support Agreement
   
Annex F Opinion of Canaccord Genuity LLC
   
Annex G Section 262 of the General Corporation Law of the State of Delaware
   
Annex H Amended Certificate of Incorporation of ConversionPoint Technologies Inc.
   
Annex I Bylaws of ConversionPoint Technologies Inc.
   
Annex J-1 Amended Articles of Incorporation of Inuvo, Inc.
   

Annex J-2

Proposed Certificate of Amendment to Articles of Incorporation of Inuvo, Inc.

   
Annex K Amended and Restated Bylaws of Inuvo, Inc.

 

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QUESTIONS AND ANSWERS ABOUT THE MERGERS AND THE SPECIAL MEETINGS

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the mergers and the special meetings. These questions and answers may not address all questions that may be important to you as a stockholder of ConversionPoint or Inuvo. To better understand these matters, and for a description of the legal terms governing the mergers, you should carefully read this entire joint proxy statement/prospectus, including the annexes, as well as the documents that have been incorporated by reference in this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 229. All references in this joint proxy statement/prospectus to “ConversionPoint” refer to ConversionPoint Technologies Inc., a Delaware corporation. All references in this joint proxy statement/prospectus to “Inuvo” refer to Inuvo, Inc., a Nevada corporation. All references in this joint proxy statement/prospectus to “New Parent” refer to ConversionPoint Holdings, Inc., a Delaware corporation and a direct wholly-owned subsidiary of ConversionPoint, which will be renamed “ConversionPoint Technologies Inc.” following consummation of the mergers. All references in this joint proxy statement/prospectus to “ConversionPoint Merger Sub” refer to CPT Merger Sub, Inc., a Delaware corporation and a direct wholly-owned subsidiary of New Parent. All references in this joint proxy statement/prospectus to “Inuvo Merger Sub” refer to CPT Cigar Merger Sub, Inc., a Nevada corporation and a direct wholly-owned subsidiary of New Parent. All references in this joint proxy statement/prospectus to the “Merger Subs” refer to the ConversionPoint Merger Sub and the Inuvo Merger Sub, collectively. Unless otherwise indicated or as the context requires, all references in this joint proxy statement/prospectus to “we” refer to ConversionPoint and Inuvo. All references in this joint proxy statement/prospectus to the “merger agreement” refer to the Agreement and Plan of Merger, dated as of November 2, 2018 (as it may be amended from time to time), by and among ConversionPoint, Inuvo, New Parent, ConversionPoint Merger Sub and Inuvo Merger Sub, a copy of which, including each amendment thereto through the date hereof, is attached as Annex A to this joint proxy statement/prospectus.

 

About the Mergers

 

Q:     Why am I receiving this joint proxy statement/prospectus?

 

A:     ConversionPoint and Inuvo have entered into the merger agreement which provides for the combination of ConversionPoint and Inuvo under ConversionPoint Holdings, Inc., a new holding company which we refer to as, New Parent. Pursuant to the merger agreement, ConversionPoint Merger Sub will be merged with and into ConversionPoint with ConversionPoint as the surviving company, and Inuvo Merger Sub will be merged with and into Inuvo with Inuvo as the surviving company. As a result, ConversionPoint and Inuvo will each become wholly-owned subsidiaries of New Parent. As a result of the transactions contemplated by the merger agreement, former ConversionPoint and Inuvo stockholders will own stock in New Parent. The approval for listing of New Parent’s stock on The NASDAQ Capital Market, which we refer to as NASDAQ, subject to official notice of issuance, and on the Toronto Stock Exchange, which we refer to as the TSX, subject to standard listing conditions, are, among others, conditions to the obligations of Inuvo and ConversionPoint to consummate the mergers. We refer to these mergers as the ConversionPoint merger and the Inuvo merger, respectively, and together as the mergers. We refer to the date upon which the mergers are consummated as the closing date.

 

ConversionPoint is holding a special meeting of stockholders, which we refer to as the ConversionPoint special meeting, in order to obtain the stockholder approval necessary to adopt the merger agreement. We refer to this approval as the ConversionPoint stockholder approval. ConversionPoint stockholders will also be asked to approve the adjournment of the ConversionPoint special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to obtain the ConversionPoint stockholder approval.

 

Inuvo is holding a special meeting of stockholders, which we refer to as the Inuvo special meeting, in order to obtain the stockholder approval necessary to adopt and approve the merger agreement, which we refer to as the Inuvo stockholder approval. Inuvo stockholders will also be asked to approve (i) a proposal to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to the named executive officers of Inuvo that is based on or otherwise relates to the completion of the mergers, which we sometimes refer to as the merger-related compensation, (ii) a proposal to adopt a certificate of amendment to Inuvo’s articles of incorporation to increase the number of authorized shares of Inuvo common stock from 40,000,000 shares to 60,000,000 shares, which we sometimes refer to as the Inuvo articles amendment proposal, and (iii) the adjournment of the Inuvo special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to obtain the Inuvo stockholder approval and adoption of the Inuvo articles amendment proposal. The proposed certificate of amendment is attached hereto as Annex J-2, which we sometimes refer to as the Inuvo articles amendment.

 

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We will be unable to complete the mergers unless both the ConversionPoint stockholder approval and the Inuvo stockholder approval are obtained at the respective special meetings and the other conditions to the mergers have been met. See “What conditions must be satisfied to complete the mergers” below for a discussion of the material conditions including the condition that New Parent receives at least $36 million in gross proceeds from the issuance and sale of its equity, debt and/or equity-linked securities on terms reasonably agreeable to ConversionPoint and Inuvo in good faith, which we refer to as the financing condition. New Parent intends to satisfy the financing condition through an underwritten public offering of New Parent common stock.

 

Q:     How will the financing condition be satisfied?

 

A:     In order to secure the necessary funds to satisfy the financing condition, New Parent intends to undertake an underwritten public offering of its common stock that will close at or prior to the closing of the mergers, referred to as the New Parent public offering, and as a condition to the consummation of the mergers, New Parent must receive at least $36 million in gross proceeds from the New Parent public offering. This joint proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of New Parent common stock in any state in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

 

Although New Parent intends to conduct the New Parent public offering to satisfy the financing conditions, under the terms of the merger agreement, New Parent (either directly or indirectly through ConversionPoint) may also satisfy the financing condition through the private issuances of debt, equity or equity-linked securities. Thus, if New Parent does not consummate the New Parent public offering, the financing condition to the mergers could be satisfied by New Parent and/or ConversionPoint through the private issuance of debt, equity or equity-linked securities.

 

Q:     Why are ConversionPoint and Inuvo conducting the mergers?

 

A:     The board of directors of ConversionPoint, which we refer to as the ConversionPoint board, consulted with ConversionPoint’s management and legal and financial advisors to approve the merger agreement and the transactions contemplated thereby, and determined that the terms of the ConversionPoint merger and the other transactions contemplated by the merger agreement are fair to, and in the best interests of, ConversionPoint and its stockholders. The ConversionPoint board believes that the strategic nature of the transaction is in the best interests of both ConversionPoint and Inuvo and their respective stockholders. The mergers will combine ConversionPoint’s and Inuvo’s respective businesses to create a new company that will sell marketing, data and e-commerce optimization technologies in a single platform serving e-commerce clients. Among other things, the combined company would have a strong balance sheet and the ability to invest in and improve new technology, services and products for customers. In reaching its conclusion, the ConversionPoint board considered a variety of factors, including financial and operating information relating to the two companies. To review the reasons for the mergers considered by ConversionPoint in greater detail, see “The Mergers—Recommendation of the ConversionPoint Board and its Reasons for the ConversionPoint Merger” beginning on page 152.

 

The board of directors of Inuvo, which we refer to as the Inuvo board, has consulted with Inuvo’s management and legal and financial advisors and periodically reviewed and considered various strategic opportunities available to Inuvo, including whether the continued execution of Inuvo’s strategy as a stand-alone company, or the possible sale of Inuvo to or a combination of Inuvo with a third party offered the best avenue to maximize stockholder value. The Inuvo board concluded that the consummation of the Inuvo merger would maximize value to Inuvo’s stockholders by providing the opportunity to participate in the growth and opportunities of the combined company and to receive cash for a portion of the value of the stockholders’ shares. The Inuvo board believes that the consummation of the mergers and the transactions contemplated by the merger agreement will allow the combined company to achieve strategic and financial benefits, including cost savings and operating synergies, which are expected to create value for the combined company’s stockholders. In reaching its conclusion, the Inuvo board considered a variety of factors, including financial and operating information relating to the two companies. To review Inuvo’s reasons for the Inuvo merger, please see “The Mergers—Recommendation of the Inuvo Board and its Reasons for the Inuvo Merger” beginning on page 152.

 

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Q:     What are the positive and negative factors that each of the ConversionPoint board and the Inuvo board considered in connection with the mergers?

 

A:     The ConversionPoint board and the Inuvo board considered a variety of factors, both positive and negative, in connection with the mergers. The reasons in favor of the mergers considered by the ConversionPoint board included, but are not limited to, the fact that the combination of ConversionPoint’s and Inuvo’s respective businesses are expected to create combined annual cost synergies; the fact that ConversionPoint stockholders would have the opportunity to participate in the future performance of the combined company based on their majority ownership of New Parent common stock upon completion of the mergers; and the fact that the combined company would have a strong balance sheet and the ability to add new technology, services and products for customers. The potentially negative factors associated with the mergers considered by the ConversionPoint board include, but are not limited to, the dilution associated with the shares that New Parent is required to issue to satisfy the financing condition; the risk that the mergers might not be consummated in a timely manner; the risk that certain key employees of ConversionPoint or Inuvo might not choose to remain with the combined company; the potential challenges and difficulties relating to integrating the operations of ConversionPoint and Inuvo; and the potential $2,800,000 termination fee that ConversionPoint will be required to pay to Inuvo in certain circumstances if the merger agreement is terminated. To review the potentially positive and negative factors considered by the ConversionPoint board in greater detail, see “The Mergers—Recommendation of the ConversionPoint Board; and its Reasons for the ConversionPoint Merger” beginning on page 152.

 

The Inuvo board considered a number of positive factors, including the facts that the Inuvo merger is expected to result in a company with a stronger balance sheet; that the proposed cash consideration portion alone of the Inuvo merger consideration represented a premium over the market price at which Inuvo’s common stock traded prior to entering into the merger agreement; that by including both cash and stock, the Inuvo stockholders might participate in the future of the combined, publicly traded company; that the combination of technologies from both parties represents an alignment with a market-based consolidation of marketing, data and e-commerce optimization technologies; that certain Inuvo technologies could be immediately sold to certain ConversionPoint clients; that the marketplace that the combined company will operate in possesses significant competitive barriers to entry; and that the combined company would have scale sufficient to attract capital market interest. The Inuvo board also considered a number of negative factors, including the facts that the transaction is not all cash, ConversionPoint is a privately held company without a valuation set by public trading of its common stock, the unknown value of the portion of the consideration to Inuvo’s stockholders to be paid in New Parent common stock and the potential $2,800,000 termination fee that Inuvo will be required to pay to ConversionPoint in certain circumstances if the transactions are terminated. To review the full list of factors, positive and negative, that the Inuvo board considered in connection with the Inuvo merger, see “The Mergers—Recommendation of the Inuvo Board; and its Reasons for the Inuvo Merger” beginning on page 152.

 

Q:     What will Inuvo stockholders receive in the Inuvo merger?

 

A:     In the Inuvo merger, each share of Inuvo common stock, par value $0.001 per share, which we refer to as Inuvo common stock will be converted into the right to receive $0.45 in cash and 0.18877 of a share of validly issued, fully-paid and non-assessable common stock, par value $0.0001 per share, of New Parent, which we refer to as New Parent common stock (subject to downward adjustment based on the number of shares of Inuvo common stock outstanding at the closing of the mergers). We refer to the consideration that each share of Inuvo common stock will be converted into as the Inuvo merger consideration. Shares held by Inuvo as treasury stock or that are owned by Inuvo, Inuvo Merger Sub or any other wholly-owned subsidiary of Inuvo, which we refer to as the Inuvo excluded shares, will not be converted into the Inuvo merger consideration and will be canceled. For a discussion of how the amount of the stock portion of the Inuvo merger consideration may be adjusted downward based on the number of shares of Inuvo common stock issued and outstanding on the closing date of the mergers, see “The Merger Agreement and Related Agreement—Merger Consideration Received by Inuvo Stockholders” beginning on page 173.

 

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Q:     What will ConversionPoint stockholders receive in the ConversionPoint merger?

 

A:     Upon completion of the ConversionPoint merger, each share of common stock of ConversionPoint, par value $0.0001 per share, which we refer to as ConversionPoint common stock, will be converted into 0.97314 of a share of New Parent common stock (calculated as of March 8, 2019 and subject to downward adjustment based on the number of shares of ConversionPoint common stock outstanding at the closing of the mergers), which we refer to as the ConversionPoint merger consideration. Shares held by ConversionPoint as treasury stock or that are owned by ConversionPoint, ConversionPoint Merger Sub or any other wholly-owned subsidiary of ConversionPoint, which we refer to as the ConversionPoint excluded shares, will not be converted into the ConversionPoint merger consideration and will be canceled. For a discussion of how the ConversionPoint merger consideration may be adjusted downward based on the number of shares of ConversionPoint common stock issued and outstanding on the closing date of the mergers, see “The Merger Agreement and Related Agreement—Merger Consideration Received by ConversionPoint Stockholders” beginning on page 172.

 

Q:     What was the effect of the amendment to the merger agreement?

 

A:     On March 1, 2019, ConversionPoint, Inuvo, New Parent, Inuvo Merger Sub, and CPT Merger Sub entered into Amendment No. 1 to Agreement and Plan of Merger, which we sometimes refer to herein as the first merger amendment, to, among other things, (i) extend the outside dates for financing and completion of the mergers, (ii) to permit the issuance by Inuvo of an aggregate of $1,440,000 principal of Original Issue Discount Unsecured Subordinated Convertible Notes by September 1, 2020, which we refer to as the Inuvo convertible notes, (iii) to permit the Inuvo exchange ratio to adjust downward upon the issuance of additional shares of Inuvo common stock, including in connection with the conversion of the Inuvo convertible notes, and (iv) to permit an increase in Inuvo’s authorized shares. The first merger amendment is more fully described at “The Merger Agreement and Related Agreements—Amendment No. 1 to the Agreement and Plan of Merger” beginning on page 193.

 

Q:     Should I send in my stock certificates now for the exchange?

 

A:     ConversionPoint Stockholders: Because all shares of ConversionPoint common stock have been issued in book entry form, ConversionPoint stockholders do not have any certificates to exchange. As of the effective time of the ConversionPoint merger, holders of ConversionPoint common stock will receive from New Parent’s exchange agent, a letter of transmittal and information on how to obtain the ConversionPoint consideration.

 

Inuvo Stockholders: No. Inuvo stockholders should keep any stock certificates they hold at this time. After the mergers are completed, Inuvo stockholders holding Inuvo stock certificates will receive a letter of transmittal and instructions on how to obtain the Inuvo merger consideration from New Parent’s exchange agent.

 

Q:     What equity stake will former ConversionPoint stockholders and Inuvo stockholders hold in New Parent?

 

A:     Upon completion of the mergers, it is anticipated that ConversionPoint stockholders, on the one hand, and Inuvo stockholders, on the other hand, will hold approximately 70.76% and 29.24%, respectively, of the shares of common stock of New Parent issued and outstanding immediately after the consummation of the mergers (on a fully diluted basis, including dilution from the exercise of outstanding stock options and warrants prior to the consummation of the mergers, and restricted stock units, based on the treasury method) and prior to the issuance by New Parent of any equity securities in connection with the New Parent public offering or in connection with a private offering of equity and/or equity-linked securities to satisfy the financing condition.

 

Since we do not know the value of the shares of New Parent common stock or the amount of shares of New Parent common stock that may be issued in connection with the New Parent public offering or the value or amount of New Parent or ConversionPoint common stock and/or equity-linked securities that may be issued privately to satisfy the financing condition should New Parent not proceed with the New Parent public offering, we will not know the exact percentage of equity former Inuvo stockholders or ConversionPoint stockholders will hold in New Parent until after the closing of the New Parent public offering and/or private offering.

 

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Q:     How do I calculate the value of the ConversionPoint merger consideration?

 

A:     New Parent will issue 0.97314 of a share of New Parent common stock (calculated as of March 8, 2019 and subject to downward adjustment based on the number of shares of ConversionPoint common stock outstanding at the closing of the mergers) in exchange for each share of ConversionPoint common stock. The value of the ConversionPoint merger consideration that ConversionPoint stockholders will receive in the ConversionPoint merger for each share of ConversionPoint common stock will depend on the price per share of New Parent’s common stock on NASDAQ at the time the ConversionPoint merger is completed.

 

Q:     How do I calculate the value of the Inuvo merger consideration?

 

A:     New Parent will issue $0.45 in cash and 0.18877 of a share of New Parent common stock (subject to downward adjustment based on the number of shares of Inuvo common stock outstanding at the closing of the mergers) in exchange for each share of Inuvo common stock. The value of the Inuvo merger consideration that Inuvo stockholders will receive in the Inuvo merger for each share of Inuvo common stock will depend, in part, on the price per share of New Parent’s common stock on NASDAQ at the time the Inuvo merger is completed.

 

Q:     What are the material risks associated with the mergers?

 

A:     There are certain material risks associated with the mergers which you should carefully consider in deciding whether to vote for adoption and approval of the merger agreement. These material risks include the fact that the implied value to Inuvo stockholders of the Inuvo merger consideration and the implied value to ConversionPoint stockholders of the ConversionPoint merger consideration will not be known until the closing of the mergers that will occur after the special meetings. For a more complete summary of the material risks associated with the mergers, see “Risk Factors” beginning on page 29.

 

Q:     What will be the composition of New Parent’s Board of Directors after the mergers?

 

A:     After the mergers, the size of New Parent’s board of directors, which we refer to as the New Parent board, will initially be set at no less than five and no more than seven with Robert Tallack and Raghu Kilambi being appointed by ConversionPoint, Richard K. Howe and Gordon Cameron being appointed by Inuvo, and three individuals being appointed by New Parent after the closing date. As of the date of this joint proxy statement/prospectus, no determination has been made as to the identity of the three directors who will be appointed by the New Parent board after the date of closing.

 

Q:     What conditions must be satisfied to complete the mergers?

 

A:     ConversionPoint and Inuvo are not required to complete the mergers unless a number of conditions are satisfied or waived. These conditions include, among others: (i) receipt of both the ConversionPoint stockholder approval and Inuvo stockholder approval; (ii) that the shares of New Parent common stock have been approved for listing on NASDAQ, subject to official notice of issuance, and the TSX, subject to standard listing conditions; (iii) absence of any injunctions, orders or laws that would prohibit, restrain or make illegal the mergers; (iv) effectiveness of the registration statement on Form S-4, of which this joint proxy statement/prospectus forms a part, and the absence of any stop order or proceedings for that purpose; (v) New Parent, having met the financing condition at or prior to the closing of the mergers; and (vi) that ConversionPoint shall not have received demands for appraisal rights from holders of ConversionPoint common stock representing more than 10% of the issued and outstanding shares of ConversionPoint common stock.

 

For a more complete summary of the conditions that must be satisfied or waived prior to completion of the mergers, see “The Merger Agreement and Related Agreements—Covenants and Agreements—Conditions to Completion of the Mergers” beginning on page 189.

 

Q:     Why am I being asked to cast a non-binding advisory vote on the proposal approving the merger-related compensation, sometimes referred to as the merger-related compensation proposal?

 

A:     The Securities and Exchange Commission requires Inuvo to seek a non-binding advisory vote on the merger-related compensation proposal. The merger-related compensation consists of certain golden parachute payments to be received after closing by certain of Inuvo’s executive officers pursuant to Separation Agreements, which will be entered into by New Parent and such executive officers as a condition of closing of the mergers. If the mergers are completed, New Parent will be contractually obligated to make these payments to these executive officers under certain circumstances. Mr. Richard Howe will receive aggregate consideration in an amount equal to $1,251,457, Mr. Wallace Ruiz will receive aggregate consideration in an amount equal to $607,706, and Mr. Trey Barrett will receive aggregate consideration in an amount equal to $254,000. The executive officers will receive a mix of cash and equity consideration. For further discussion of the merger-related compensation, see “The Mergers—Merger-Related Compensation” beginning on page 168 for further information.

 

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Q:     What will happen if the Inuvo shareholders do not approve the merger-related compensation proposal at the special meeting?

 

A:     Approval of the merger-related compensation proposal is not a condition to completion of the mergers. The vote with respect to the merger-related compensation proposal is an advisory vote and will not be binding on Inuvo (or New Parent or ConversionPoint following the mergers). Accordingly, as such compensation is contractual, such compensation will become payable if the mergers are completed regardless of the outcome of the advisory vote.

 

 Q:    Why is Inuvo proposing adoption of the Inuvo articles amendment?

 

A:    Inuvo is proposing adoption of the Inuvo articles amendment to increase the number of authorized shares of Inuvo common stock from 40,000,000 shares to 60,000,000 shares. Because Inuvo is a Nevada corporation, it is subject to the Nevada Revised Statutes, which we refer to as the NRS. In order to amend Inuvo’s articles of incorporation, the NRS effectively requires that such amendment be approved by stockholders representing a majority of the outstanding shares of Inuvo.

 

As a condition to the closing of the issuance of the Inuvo convertible notes, and in connection with the first merger amendment, the Inuvo board was required by the purchasers of the notes and CPT Investments to recommend the adoption and approval of the Inuvo articles amendment to the Inuvo stockholders. For further discussion of the Inuvo articles amendment, see “Proposal 3—Adoption of the Certificate of Amendment to the Inuvo Amended Articles of Incorporation” beginning on page 137.

 

Q:     What are the consequences to ConversionPoint and Inuvo if the merger agreement is terminated?

 

A:     The merger agreement may be terminated and the mergers may be abandoned at any time prior to the completion of the mergers (including after stockholder approval) by mutual written consent of ConversionPoint and Inuvo. The merger agreement may also be terminated by either ConversionPoint or Inuvo under certain conditions as described in greater detail in “The Merger Agreement and Related Agreements—Termination” beginning on page 190. If the merger agreement is terminated, a termination fee may be payable. To review the consequences if the merger agreement is terminated in greater detail, see “The Merger Agreement and Related Agreements—Termination Fee and Expenses” beginning on page 192.

 

If the mergers are not completed for any reason, ConversionPoint stockholders will not receive the ConversionPoint merger consideration and Inuvo stockholders will not receive the Inuvo merger consideration. Instead, ConversionPoint will remain a private company and Inuvo will remain an independent public company and its common stock will continue to be listed and traded on the NYSE American.

 

Q:     What constitutes a quorum?

 

A:     ConversionPoint Special Meeting: Holders of a majority in voting power of the ConversionPoint common stock issued and outstanding and entitled to vote at the ConversionPoint special meeting, present in person or represented by proxy, constitutes a quorum. In the absence of a quorum, stockholders holding a majority of the shares of ConversionPoint common stock, present in person or represented by proxy, will have the power to adjourn the special meeting. As of the record date for the ConversionPoint special meeting, [●] shares of ConversionPoint common stock would be required to achieve a quorum. Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the number of shares of ConversionPoint common stock considered to be present at the meeting.

 

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Inuvo Special Meeting: Holders of a majority of the outstanding shares of Inuvo common stock entitled to vote at the Inuvo special meeting, present in person or represented by proxy, constitutes a quorum. In the absence of a quorum, the chairman of the meeting or stockholders holding a majority of the shares of Inuvo common stock, present in person or represented by proxy, will have the power to adjourn the special meeting. As of the record date for the Inuvo special meeting, [●] shares of Inuvo common stock would be required to achieve a quorum. Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the number of shares of Inuvo common stock considered to be present at the meeting.

 

Q:     What vote is required to approve each ConversionPoint proposal?

 

A:     Proposal to Adopt the Merger Agreement by ConversionPoint Stockholders: Adopting the merger agreement requires the affirmative vote of holders of a majority of the shares of ConversionPoint common stock outstanding and entitled to vote. Accordingly, a ConversionPoint stockholder’s failure to submit a proxy card or to vote in person at the special meeting or an abstention from voting, will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

 

Proposal to Adjourn the ConversionPoint Special Meeting by ConversionPoint Stockholders: At the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement requires the affirmative vote of holders of a majority of the shares of ConversionPoint common stock present, in person or represented by proxy, at the special meeting and entitled to vote on the adjournment proposal, regardless of whether a quorum is present. Accordingly, abstentions will have the same effect as a vote “AGAINST” the proposal to adjourn the special meeting, while shares not in attendance at the special meeting will have no effect on the outcome of any vote to adjourn the special meeting.

 

Q:     What vote is required to approve each Inuvo proposal?

 

A:     Proposal to Adopt the Merger Agreement by Inuvo Stockholders: Adopting the merger agreement requires the affirmative vote of holders of a majority of the shares of Inuvo common stock outstanding and entitled to vote. Accordingly, a Inuvo stockholder’s failure to submit a proxy card or to vote in person at the special meeting, an abstention from voting, or the failure of a Inuvo stockholder who holds his or her shares in “street name” through a broker or other nominee to give voting instructions to such broker or other nominee, which we refer to as a broker non-vote, will have the same effect as a vote “AGAINST” the proposal to adopt and approve the merger agreement.

 

Merger-Related Compensation Proposal: Approving the advisory merger-related compensation proposal requires the affirmative vote of holders of a majority of the shares of Inuvo common stock present, in person or represented by proxy, at the special meeting and entitled to vote on the merger-related compensation proposal. Accordingly, abstentions will have the same effect as a vote “AGAINST” the merger-related compensation proposal, while broker non-votes and shares not in attendance at the special meeting will have no effect on the outcome of such vote. Approval of the advisory merger-related compensation proposal is not a condition to completion of the mergers. The vote is an advisory (non-binding) vote. If the mergers are completed, Inuvo may pay the specified compensation to its named executive officers in connection with the mergers even if Inuvo stockholders fail to approve the advisory merger-related compensation proposal.

 

Inuvo Articles Amendment Proposal: Approving and adopting the Inuvo articles amendment proposal requires the affirmative vote of holders of a majority of the shares of Inuvo common stock outstanding and entitled to vote. Accordingly, an Inuvo stockholder’s failure to submit a proxy card or to vote in person at the special meeting, an abstention from voting, or a broker non-vote, will have the same effect as a vote “AGAINST” the proposal to approve and adopt the Inuvo articles amendment.

 

Proposal to Adjourn the Inuvo Special Meeting by Inuvo Stockholders: Approving the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt and approve the merger agreement or the Inuvo articles amendment requires the affirmative vote of holders of a majority of the shares of Inuvo common stock present, in person or represented by proxy, at the special meeting and entitled to vote on the adjournment proposal. Accordingly, abstentions will have the same effect as a vote “AGAINST” the proposal to adjourn the special meeting, while broker non-votes and shares not in attendance at the special meeting will have no effect on the outcome of any vote to adjourn the special meeting.

 

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Q:     What are the recommendations of the ConversionPoint board of directors?

 

A:     The ConversionPoint board has (i) approved the merger agreement and the consummation of the transactions contemplated by the merger agreement upon the terms and subject to the conditions set forth in the merger agreement, (ii) determined that the terms of the ConversionPoint merger and the other transactions contemplated by the merger agreement are fair to, and in the best interests of, ConversionPoint and its stockholders, (iii) directed that the merger agreement be submitted to ConversionPoint stockholders for adoption, (iv) recommended that ConversionPoint stockholders adopt the merger agreement and (v) declared that the merger agreement is advisable.

 

The ConversionPoint board recommends that ConversionPoint stockholders vote:

 

“FOR” the proposal to adopt the merger agreement; and

 

“FOR” the proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement.

 

See “The Mergers—Recommendation of the ConversionPoint Board and its Reasons for the ConversionPoint Merger” beginning on page 152.

 

Q:     What are the recommendations of the Inuvo board of directors?

 

A:     The Inuvo board has (i) approved the merger agreement and consummation of the transactions contemplated by the merger agreement upon the terms and subject to the conditions set forth in the merger agreement, (ii) determined that the terms of the merger agreement, the Inuvo merger and the other transactions contemplated by the merger agreement are fair to, and in the best interests of, Inuvo and its stockholders, (iii) directed that the merger agreement be submitted to Inuvo stockholders for adoption and approval at the Inuvo special meeting, (iv) recommended that Inuvo’s stockholders adopt and approve the merger agreement and (v) declared that the merger agreement is advisable.

 

Additionally, the Inuvo board has (i) determined that the terms of the Inuvo articles amendment is in the best interests of Inuvo and its stockholders, (ii) approved the Inuvo articles amendment, (iii) directed that the Inuvo articles amendment be submitted to Inuvo stockholders for adoption and approval at the Inuvo special meeting, and (iv) recommended that Inuvo’s stockholders adopt and approve the Inuvo articles amendment.

 

The Inuvo board recommends that Inuvo stockholders vote:

 

“FOR” the proposal to adopt and approve the merger agreement;

 

“FOR” the proposal to approve, on a non-binding advisory basis, the merger-related compensation;

 

“FOR” the proposal to adopt and approve the Inuvo articles amendment; and

 

“FOR” the proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt and approve the merger agreement or the Inuvo articles amendment.

 

See “The Mergers—Recommendation of the Inuvo Board and its Reasons for the Inuvo Merger” beginning on page 152.

 

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Q:     When do you expect the mergers to be completed?

 

A:     ConversionPoint and Inuvo are working to complete the mergers as quickly as possible, and we anticipate that they will be completed in the second quarter of 2019. However, the mergers are subject to conditions which are described in more detail in this joint proxy statement/prospectus, and it is possible that factors outside the control of both companies could result in the mergers being completed at a later time, or not at all.

 

Q:     What are my U.S. federal income tax consequences as a result of the mergers?

 

A:     For United States federal income tax purposes, it is intended that the ConversionPoint merger, the Inuvo merger, and, to the extent New Parent satisfies the financing condition through the issuance of New Parent equity securities, which we refer to as an equity financing, taken together, will qualify as an “exchange” described in Section 351(a) of the Internal Revenue Code of 1986, as amended, which we refer to as the Code. It is a condition to ConversionPoint’s obligation to complete the ConversionPoint merger that ConversionPoint receive an opinion of its counsel, Troutman Sanders LLP, which we refer to as Troutman Sanders, to the effect that the ConversionPoint merger, the Inuvo merger, and the equity financing, taken together, will qualify as an “exchange” described in Section 351(a) of the Code. It is a condition to Inuvo’s obligation to complete the Inuvo merger that Inuvo receive a written opinion of its counsel, Porter Wright Morris & Arthur LLP, which we refer to as Porter Wright, to the effect that the ConversionPoint merger, the Inuvo merger, and the equity financing, taken together, will qualify as an “exchange” described in Section 351(a) of the Code. If the ConversionPoint merger, the Inuvo merger, and the equity financing, taken together, qualify as an “exchange” within the meaning of Section 351(a) of the Code, then:

 

  U.S. holders (as defined in the section entitled “The Mergers—Material United States Federal Income Tax Consequences of the Mergers”) of ConversionPoint common stock will not recognize gain or loss for U.S. federal income tax purposes as a result of the exchange of ConversionPoint common stock for New Parent common stock, except with respect to cash received in lieu of fractional shares of New Parent common stock; and

 

  U.S. holders of Inuvo common stock generally will recognize gain, but not loss, on the exchange of Inuvo common stock for a combination of New Parent common stock and cash equal to the lesser of:

 

  (1) the excess, if any, of (i) the sum of the fair market value of New Parent common stock received in the Inuvo merger and the amount of cash received in the Inuvo merger over (ii) such U.S. holder’s tax basis in the Inuvo common stock surrendered in the Inuvo merger, and

 

  (2) the amount of cash received by such stockholder in the Inuvo merger.

 

Tax matters can be complicated, and the tax consequences of the transactions to a particular stockholder will depend on such stockholder’s particular facts and circumstances. You are strongly urged to consult with a tax advisor to determine the U.S. federal, state or local or foreign income or other tax consequences of the mergers to you. See “The Mergers—Material United States Federal Income Tax Consequences of the Mergers” on page 195.

 

Q:     Are ConversionPoint stockholders entitled to appraisal rights?

 

A:     Pursuant to Section 262, which we refer to as Section 262, of the General Corporation Law of the State of Delaware, which we refer to as the DGCL, holders of shares of ConversionPoint common stock that meet certain requirements will have the right to obtain payment in cash for the fair value of their shares of ConversionPoint common stock, as determined by the Delaware Court of Chancery, rather than the ConversionPoint merger consideration. Appraisal rights are only available to ConversionPoint stockholders who do not vote in favor of adopting the merger agreement and a vote in favor of adopting the merger agreement will constitute a waiver of the stockholders’ appraisal rights. To exercise appraisal rights, ConversionPoint stockholders must strictly follow the procedures prescribed by Section 262. These procedures are summarized under the section entitled “The Mergers—Appraisal Rights” beginning on page 169. In addition, the text of Section 262 is included as Annex G to this joint proxy statement/prospectus.

 

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Q:     Are Inuvo stockholders entitled to appraisal rights?

 

A:     No. Under the NRS, appraisal rights shall not apply and holders of shares of Inuvo common stock will not have the right to obtain payment in cash for the fair value of their shares of Inuvo common stock.

 

Q:     If the mergers are completed, when can I expect to receive the New Parent common stock for my shares of ConversionPoint common stock?

 

A:     Each holder of record of one or more shares of ConversionPoint common stock whose shares will be converted into the right to receive the ConversionPoint merger consideration will automatically, upon the effective time of the ConversionPoint merger, be entitled to receive, and New Parent will cause the exchange agent to deliver to such holder as promptly as practicable after the effective time, the New Parent common stock to which such holder is entitled under the merger agreement. Because ConversionPoint has not issued any stock certificates, none of ConversionPoint’s stockholders will be required to deliver a certificate or an executed letter of transmittal to the exchange agent in order to receive the ConversionPoint merger consideration.

 

Q:     If the mergers are completed, when can I expect to receive the Inuvo merger consideration for my shares of Inuvo common stock?

 

A:     Certificated Shares: As soon as reasonably practicable after the effective time of the mergers, New Parent will cause an exchange agent to mail to each holder of certificated shares of Inuvo common stock a form of letter of transmittal and instructions for use in effecting the exchange of Inuvo common stock for the Inuvo merger consideration. After receiving the proper documentation from a holder of Inuvo common stock, the exchange agent will deliver to such holder the cash and New Parent common stock to which such holder is entitled under the merger agreement. More information on the documentation a holder of Inuvo common stock is required to deliver to the exchange agent may be found under the section entitled “The Merger Agreement and Related Agreements—Conversion of Shares; Exchange of Certificates; No Fractional Shares” beginning on page 175.

 

Book Entry Shares: Each holder of record of one or more book entry shares of Inuvo common stock whose shares will be converted into the right to receive the Inuvo merger consideration will automatically, upon the effective time of the mergers, be entitled to receive, and New Parent will cause the exchange agent to deliver to such holder as promptly as practicable after the effective time, the cash and New Parent common stock to which such holder is entitled under the merger agreement. Holders of book entry shares will not be required to deliver a certificate or an executed letter of transmittal to the exchange agent in order to receive the Inuvo merger consideration.

 

Q:     What happens if I sell my shares of ConversionPoint common stock or Inuvo common stock after the record date but before the applicable special meeting?

 

A:     The record dates for the ConversionPoint special meeting, which we refer to as the ConversionPoint record date and for the Inuvo special meeting, which we refer to as the Inuvo record date, are earlier than the date of the special meetings and the date that the mergers are expected to be completed. If you transfer your shares after the applicable record date, but before the applicable special meeting, unless you grant the transferee a proxy, you will retain your right to vote at such special meeting, but will have transferred the right to receive the ConversionPoint merger consideration or the Inuvo merger consideration, as applicable, in the mergers. In order to receive the ConversionPoint merger consideration or the Inuvo merger consideration, as applicable, you must hold your shares through completion of the mergers.

 

Q:     What happens if I sell my shares of ConversionPoint common stock or Inuvo common stock after the applicable special meeting, but before the applicable effective time of the mergers?

 

A:     If you transfer your shares after the applicable special meeting, but before the effective time of the mergers, you will have transferred the right to receive ConversionPoint merger consideration or Inuvo merger consideration, as applicable, in the mergers. In order to receive the ConversionPoint merger consideration or the Inuvo merger consideration, you must hold your shares of ConversionPoint or Inuvo, as applicable, through completion of the mergers (i.e., through the effective times of the mergers).

 

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About the Special Meetings

 

Q:     When and where will the ConversionPoint and Inuvo special meetings be held?

 

A:     ConversionPoint: The ConversionPoint special meeting will be held at the principal executive offices of ConversionPoint, 840 Newport Center Drive, Suite 450, Newport Beach, California 92660, on [●], 2019 at [●] a.m., local time, unless the special meeting is adjourned or postponed.

 

Inuvo: The Inuvo special meeting will be held at 500 President Clinton Avenue, Suite 300, Little Rock, Arkansas 72201, on [●], 2019 at [●] local time, unless the special meeting is adjourned or postponed.

 

Q:     Who is entitled to vote at the ConversionPoint and Inuvo special meetings?

 

A:     ConversionPoint Special Meeting: ConversionPoint has fixed [●], 2019 as the ConversionPoint record date. If you were a ConversionPoint stockholder at the close of business on the ConversionPoint record date, you are entitled to vote on matters that come before the ConversionPoint special meeting. However, a ConversionPoint stockholder may only vote his or her shares if he or she is present in person or is represented by proxy at the ConversionPoint special meeting.

 

Inuvo Special Meeting: Inuvo has fixed [●], 2019 as the Inuvo record date. If you were an Inuvo stockholder at the close of business on the Inuvo record date, you are entitled to vote on matters that come before the Inuvo special meeting. However, an Inuvo stockholder may only vote his or her shares if he or she is present in person or is represented by proxy at the Inuvo special meeting.

 

Q:     How many votes do I have?

 

A:     ConversionPoint: ConversionPoint stockholders are entitled to one vote at the ConversionPoint special meeting for each share of ConversionPoint common stock held of record as of the ConversionPoint record date. As of the close of business on the ConversionPoint record date, there were [●] outstanding shares of ConversionPoint common stock.

 

Inuvo: Inuvo stockholders are entitled to one vote at the Inuvo special meeting for each share of Inuvo common stock held of record as of the Inuvo record date. As of the close of business on the Inuvo record date, there were [●] outstanding shares of Inuvo common stock.

 

Q:     What if I hold shares in both ConversionPoint and Inuvo?

 

A:     If you are a stockholder of both ConversionPoint and Inuvo, you will receive two separate packages of proxy materials. A vote as an Inuvo stockholder for the proposal to adopt and approve the merger agreement will not constitute a vote as a ConversionPoint stockholder for the proposal to adopt the merger agreement, or vice versa.

 

THEREFORE, PLEASE MARK, SIGN, DATE AND RETURN ALL PROXY CARDS THAT YOU RECEIVE, WHETHER FROM CONVERSIONPOINT OR INUVO, OR SUBMIT A PROXY AS BOTH A CONVERSIONPOINT AND INUVO STOCKHOLDER OVER THE INTERNET OR BY TELEPHONE.

 

Q:     My shares of Inuvo common stock are held in “street name” by my broker. Will my broker automatically vote my shares for me?

 

A:     No. If your shares of Inuvo common stock are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial holder” of the shares held for you in what is known as “street name.” If this is the case, this joint proxy statement/prospectus has been forwarded to you by your brokerage firm, bank or other nominee, or its agent. As the beneficial holder, you have the right to direct your broker, bank or other nominee as to how to vote your shares. If you do not provide voting instructions to your broker on a particular proposal on which your broker does not have discretionary authority to vote, your shares will not be voted on that proposal. This is called a “broker non-vote.”

 

We believe that (i) under the NRS, broker non-votes will be counted for purposes of determining the presence or absence of a quorum at the Inuvo special meeting and (ii) under the rules that govern brokers who have record ownership of shares that are held in street name for their clients, brokers do not have discretionary authority to vote on any of the Inuvo proposals. To the extent that there are any broker non-votes, a broker non-vote will have the same effect as a vote “AGAINST” the proposal to adopt and approve the merger agreement but will have no effect on the other proposals.

 

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Q:     What do I need to do now?

 

A:     Read and consider the information contained in this joint proxy statement/prospectus carefully, and then please vote your shares as soon as possible so that your shares may be represented at your company’s special meeting.

 

Q:     How do I vote?

 

A:     You can vote in person by completing a ballot at the special meeting, or you can vote by proxy before the special meeting. Even if you plan to attend your company’s special meeting, we encourage you to vote your shares by proxy as soon as possible. After carefully reading and considering the information contained in this joint proxy statement/prospectus, please submit your proxy by telephone or over the Internet in accordance with the instructions set forth on the enclosed proxy card, or mark, sign and date the proxy card, and return it in the enclosed postage-paid envelope as soon as possible so that your shares may be voted at your company’s special meeting. For detailed information, see “Information About the ConversionPoint Special Meeting and Vote—Voting of Shares; Proxies” beginning on page 126 and “Information About the Inuvo Special Meeting and Vote—Voting of Shares; Proxies” beginning on page 133. YOUR VOTE IS VERY IMPORTANT.

 

Q:     Can I change my vote after I have submitted a proxy by telephone or over the Internet or submitted my completed proxy card?

 

A:     Yes. You can change your vote by revoking your proxy at any time before it is voted at the ConversionPoint or Inuvo special meeting, as applicable. You can do this in one of four ways: (1) submit a proxy again by telephone or over the Internet prior to midnight on the night before the special meeting; (2) sign another proxy card with a later date and return it prior to midnight on the night before the special meeting; (3) attend the applicable special meeting and complete a ballot; or (4) send a written notice of revocation to the secretary of ConversionPoint or Inuvo, as applicable, so that it is received prior to midnight on the night before the special meeting.

 

If you have instructed a broker to vote your shares, you must follow directions received from your broker to change your vote.

 

Q:     What should stockholders do if they receive more than one set of voting materials for a special meeting?

 

A:     You may receive more than one set of voting materials for a special meeting, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. Please complete, sign, date and return each proxy card and voting instruction card that you receive. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card.

 

Q:     Who should I call if I have questions about the proxy materials or voting procedures?

 

A:     If you have questions about the mergers, or if you need assistance in submitting your proxy or voting your shares or need additional copies of this joint proxy statement/prospectus or the enclosed proxy card, you should contact the proxy solicitation agent for the company in which you hold shares.

 

If you are a ConversionPoint stockholder, you should contact Jeffrey Marks, General Counsel, by mail at 840 Newport Center Drive, Suite 450, Newport Beach, California 92660, or by email at jeff@conversionpoint.com.

 

If you are an Inuvo stockholder, you should contact Georgeson LLC, the proxy solicitation agent for Inuvo, by telephone at (800) 509-1312 (toll free) or by email at Inuvo@georgeson.com.

 

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If your shares are held in a stock brokerage account or by a bank or other nominee, you should contact your broker, bank or other nominee for additional information.

 

Q:     Will any fractional shares be issued in connection with the mergers?

 

A:     No fractional shares of New Parent common stock will be issued. Holders of ConversionPoint common stock and Inuvo common stock to whom fractional shares would have otherwise been issued will be entitled to receive, subject to applicable withholding, a cash payment equal to the same fraction of the market value of a full share of New Parent common stock, computed on the basis of the mean of the high and low sales price of one share of New Parent common stock, as reported on NASDAQ on the first full day on which the New Parent common stock is traded on NASDAQ after the effective time of the mergers.

 

Q:     Are there any ConversionPoint or Inuvo stockholders already committed to vote in favor of the merger-related proposals? 

 

A:     Yes. ConversionPoint, New Parent, Inuvo, and the Merger Subs have entered into support agreements dated as of November 1 and 2, 2018 (as they may be amended from time to time), referred to collectively as the support agreements, with certain stockholders of ConversionPoint and Inuvo pursuant to which each such stockholder has agreed to vote the number of shares of ConversionPoint common stock or Inuvo common stock, as the case may be, beneficially owned by them as of the record date in favor of the adoption of the merger agreement and, with respect to the stockholders of Inuvo, against any alternative transaction with respect to Inuvo.

 

The following stockholders of ConversionPoint have entered into support agreements: (i) Andre Peschong, (ii) Jack Thomsen, (iii) Christopher Jahnke, (iv) Haig Newton, (v) Hybrid Theory Capital Ltd., (vi) Jeffrey Marks, (vii) Peter Nguyen, (viii) Raghu Kilambi and (ix) Stephen Blazick. The ConversionPoint stockholders that have entered into the support agreements collectively own approximately, 58% of the outstanding shares of ConversionPoint as of March 8, 2019.

 

The following stockholders of Inuvo entered into support agreements: (i) G. Kent Burnett, (ii) Don “Trey” Barrett III, (iii) Gordon J. Cameron, (iv) Richard K. Howe, (v) Charles D. Morgan, (vi) John B. Pisaris, (vii) Wallace D. Ruiz, and (viii) Patrick Terrell. The Inuvo stockholders that have entered into support agreements collectively own approximately, 14.9% of the outstanding shares of Inuvo common stock as of March 12, 2019.

 

For more information, please see copies of the forms of support agreements attached as Annex D and Annex E to this joint proxy statement/prospectus and the section titled “The Merger Agreement and Related Agreements—Support Agreements” beginning on page 192 of this joint proxy statement/prospectus.

 

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SUMMARY

 

This summary highlights selected information contained in this joint proxy statement/prospectus and does not contain all the information that may be important to you. ConversionPoint and Inuvo urge you to read carefully this joint proxy statement/prospectus in its entirety, including the annexes. Unless stated otherwise, all references in this joint proxy statement/prospectus to ConversionPoint refer to ConversionPoint Technologies Inc., a Delaware corporation, all references to Inuvo refer to Inuvo, Inc., a Nevada corporation, all references to ConversionPoint Merger Sub refer to CPT Merger Sub, Inc., a Delaware corporation, all references to Inuvo Merger Sub refer to CPT Cigar Merger Sub, Inc., a Nevada corporation, all references to New Parent refer to ConversionPoint Holdings, Inc., a Delaware corporation, and all references to the merger agreement refer to the Agreement and Plan of Merger, dated as of November 2, 2018 (as it may be amended from time to time), by and among ConversionPoint, New Parent, Inuvo, ConversionPoint Merger Sub, and Inuvo Merger Sub, a copy of which, including each amendment thereto through the date hereof, is attached as Annex A to this joint proxy statement/prospectus and is incorporated by reference into this joint proxy statement/prospectus. See “Where you Can Find More Information” beginning on page 229.

 

Information about the Companies Involved in the Mergers

 

ConversionPoint

 

ConversionPoint, through its wholly-owned subsidiaries, helps e-commerce companies and brands target, convert, manage and re-engage their customers using sophisticated online tracking and data analytics. ConversionPoint’s suite of technologies manages and optimizes multiple aspects of e-commerce including: rich media content creation, product information management and syndication, audience targeting, conversion optimization, remarketing, logistics and customer management. ConversionPoint both delivers its technologies to its customers through software-as-a-service, or SaaS, and uses its technologies to provide managed digital marketing and e-commerce technology services to brands and advertisers, which we refer to as managed services. ConversionPoint also uses its own technologies to sell various products directly to consumers, which we refer to as e-commerce product sales. ConversionPoint’s vision is to simplify the entire e-commerce experience by integrating its technologies and offering a broad range of e-commerce solutions on a single, easy-to-use platform. ConversionPoint’s principal executive offices are located at 840 Newport Center Drive, Suite 450, Newport Beach, California 92660. ConversionPoint’s phone number is (888) 706-6764 and its website is www.conversionpoint.com.

 

For additional information about ConversionPoint and its subsidiaries, see “Description of ConversionPoint” beginning on page 63.

 

Inuvo

 

Inuvo develops data, analytics and artificial intelligence technology that empowers its clients to execute their business-to-business and business-to-consumer strategies. These capabilities allow Inuvo’s clients to engage with customers and prospects in a manner that drives closer collaboration through knowledge. These unique and patented technologies have been used to serve numerous world-renowned customers in industries that have included retail, automotive, insurance, health care, technology, telecommunications and finance. Inuvo’s principal executive offices are located at 500 President Clinton Avenue, Suite 300, Little Rock, Arkansas 72201. Inuvo’s phone number is (501) 205-8508 and its website is www.inuvo.com.

 

For additional information about Inuvo and its subsidiaries, see “Description of Inuvo” beginning on page 93.

 

 

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ConversionPoint Holdings, Inc.

 

New Parent is a Delaware corporation and a direct wholly-owned subsidiary of ConversionPoint. New Parent was organized on November 1, 2018 solely for the purpose of effecting the mergers and, following consummation of the mergers, New Parent intends to change its name to “ConversionPoint Technologies Inc.” Pursuant to the merger agreement, ConversionPoint Merger Sub will be merged with and into ConversionPoint, and Inuvo Merger Sub will be merged with and into Inuvo. As a result, Inuvo and ConversionPoint will each become wholly-owned subsidiaries of New Parent. As a result of the transactions contemplated by the merger agreement, New Parent will become a publicly traded corporation, and former ConversionPoint and Inuvo stockholders will own stock in New Parent. New Parent has not carried on any activities other than in connection with the mergers and the establishment of an equity incentive plan. New Parent’s principal executive offices are located at 840 Newport Center Drive, Suite 450, Newport Beach, California 92660. For additional information about New Parent, see “Description of New Parent” beginning on page 117.

 

ConversionPoint Merger Sub

 

ConversionPoint Merger Sub, a wholly-owned subsidiary of New Parent, is a Delaware corporation formed on November 1, 2018 for the sole purpose of effecting the ConversionPoint merger. Upon completion of the ConversionPoint merger, ConversionPoint Merger Sub will merge with and into ConversionPoint, with ConversionPoint surviving as a wholly-owned subsidiary of New Parent after the ConversionPoint merger. Upon completion of the ConversionPoint merger, ConversionPoint intends to change its name to “CPT, Inc.”

 

Inuvo Merger Sub

 

Inuvo Merger Sub, a wholly-owned subsidiary of New Parent, is a Nevada corporation formed on November 1, 2018 for the sole purpose of effecting the Inuvo merger. Upon completion of the Inuvo merger, Inuvo Merger Sub will merge with and into Inuvo, with Inuvo surviving as a wholly-owned subsidiary of New Parent after the Inuvo merger.

 

The Mergers

 

ConversionPoint and Inuvo have entered into the merger agreement providing for the combination of ConversionPoint and Inuvo under a new holding company we refer to as New Parent. As a result of the transactions contemplated by the merger agreement, former Inuvo stockholders and ConversionPoint stockholders will own stock in New Parent. It is a condition to the mergers that New Parent common stock be approved for listing on NASDAQ, subject to official notice of issuance, and the TSX, subject to standard listing conditions. Pursuant to the merger agreement, Inuvo Merger Sub will be merged with and into Inuvo, and ConversionPoint Merger Sub will be merged with and into ConversionPoint. As a result, Inuvo and ConversionPoint will each become wholly-owned subsidiaries of New Parent.

 

A copy of the merger agreement, including each amendment thereto through the date hereof, is attached as Annex A to this joint proxy statement/prospectus. ConversionPoint and Inuvo encourage you to read the entire merger agreement carefully because it is the principal document governing the merger. For more information on the merger agreement, see “The Merger Agreement and Related Agreements” beginning on page 171.

 

The mergers are expected to be completed during the second quarter of 2019, subject to the satisfaction or waiver of the closing conditions.

 

The CPT Bridge Note

 

On November 1, 2018, Inuvo and CPT Investments, LLC, an affiliate of ConversionPoint, entered into a securities purchase agreement, which we refer to as the CPT purchase agreement, pursuant to which CPT Investments agreed to loan up to $2,000,000 to Inuvo. Pursuant to the CPT purchase agreement, Inuvo issued and sold to CPT Investments a $1,000,000 principal amount, senior unsecured subordinated convertible promissory note that accrues interest at a rate of 10% per annum and is due and payable on or before the earlier of November 1, 2021 and the closing of the mergers, which we refer to as the CPT bridge note. CPT Investments is owned by (1) Bridgewater Capital Corporation, which is controlled by Mr. Peschong, ConversionPoint’s Chief Strategy Officer and a director and Mr. Thomsen, ConversionPoint’s Treasurer, (2) Mr. Marks, ConversionPoint’s General Counsel, and (3) Mr. Kilambi, ConversionPoint’s Vice Chair, Chief Financial Officer and a director. The Inuvo board approved the CPT bridge note at the same board meeting that the Inuvo board approved the merger agreement, and the CPT bridge note was part of the total mix of information that the Inuvo board considered when determining whether to approve the merger agreement.

 

 

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Merger Consideration Received by ConversionPoint Stockholders

 

At the effective time of the mergers, each outstanding share of ConversionPoint common stock, other than ConversionPoint excluded shares, will be converted into 0.97314 of a share of New Parent common stock (calculated as of March 8, 2019 and subject to downward adjustment based on the number of shares of ConversionPoint common stock outstanding at the closing of the mergers). ConversionPoint stockholders will not receive any fractional shares of New Parent common stock pursuant to the ConversionPoint merger. Instead of receiving any fractional shares, after aggregating all fractional New Parent common stock shares that otherwise would be received by such ConversionPoint stockholder as ConversionPoint merger consideration, each holder of ConversionPoint common stock will be paid an amount in cash, without interest, equal to the same fraction of the market value of a full share of New Parent common stock, computed on the basis of the mean of the high and low sales price of one share of New Parent common stock, as reported on NASDAQ on the first full day on which the New Parent common stock is traded on NASDAQ after the effective time of the mergers. A description of the New Parent common stock to be issued in connection with the ConversionPoint merger is set forth in the section entitled “Description of New Parent Capital Stock” beginning on page 207.

 

Merger Consideration Received by Inuvo Stockholders

 

At the effective time of the mergers, each outstanding share of Inuvo common stock, other than Inuvo excluded shares, will be converted into, subject to the right to receive $0.45 per share in cash, without interest, and 0.18877 of a share of New Parent common stock (subject to downward adjustment based on the number of shares of Inuvo common stock outstanding at the closing of the mergers). Inuvo stockholders will not receive any fractional shares of New Parent common stock pursuant to the Inuvo merger. Instead of receiving any fractional shares, after aggregating all fractional New Parent common stock shares that otherwise would be received by such Inuvo stockholder as Inuvo merger consideration, each holder of Inuvo common stock will be paid an amount in cash, without interest, equal to the same fraction of the market value of a full share of New Parent common stock, computed on the basis of the mean of the high and low sales price of one share of New Parent common stock, as reported on NASDAQ on the first full day on which the New Parent common stock is traded on NASDAQ after the effective time of the mergers. A description of the New Parent common stock to be issued in connection with the Inuvo merger is set forth under the section entitled “Description of New Parent Capital Stock” beginning on page 207.

 

Total New Parent Common Stock to be Issued

 

It is expected that a maximum of approximately 24,586,144 shares of New Parent common stock will be issued at the closing of the mergers (calculated on a fully-diluted basis and assuming no exercise of any outstanding ConversionPoint options and warrants and Inuvo options), prior to the issuance of any shares of common stock to meet the financing condition of the merger agreement.

 

Comparative Per Share Market Price and Dividend Information

 

There is no public market for ConversionPoint common stock. Inuvo common stock is listed on the NYSE American under the symbol “INUV.” The following table shows the closing prices of Inuvo common stock as reported on November 2, 2018, the last trading day before the merger agreement was publicly announced and on [●], 2019, the latest practicable date prior to the date of this joint proxy statement/prospectus.

 

    Inuvo
Common
Stock
 
November 2, 2018   $ 0.41  
[●], 2019   $ [●]  

 

The market prices of Inuvo common stock will fluctuate prior to the consummation of the mergers. You should obtain current market quotations for the shares.

 

 

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Neither ConversionPoint nor Inuvo currently pays a quarterly dividend on its common stock. Under the terms of the merger agreement, during the period before the effective times of the mergers, ConversionPoint is prohibited from paying any dividends on its common stock and Inuvo is prohibited from paying any dividends on its common stock, unless ConversionPoint or Inuvo has received written consent from the other party.

 

For a detailed description of equivalent and comparative per share information see, “Equivalent and Comparative Per Share Information” beginning on page 27.

 

Treatment of ConversionPoint Stock Options and Warrants

 

New Parent will assume outstanding options and warrants to purchase shares of ConversionPoint common stock in the ConversionPoint merger. Each outstanding option and warrant to acquire ConversionPoint common stock will be converted automatically at the effective time of the merger into an option or warrant to acquire New Parent common stock, and will be governed by the terms of the ConversionPoint Holdings, Inc. 2018 Omnibus Incentive Plan, which we refer to as the New Parent 2018 Plan, except that the number of shares of ConversionPoint common stock for which each option or warrant is exercisable and the exercise price of each option or warrant will be adjusted based on the ConversionPoint exchange ratio in the ConversionPoint merger. For a more complete discussion of the treatment of ConversionPoint options and other stock-based awards, see “The Merger Agreement and Related Agreements—Treatment of ConversionPoint Stock Options and Other Stock-Based Awards” beginning on page 173 and “The Merger Agreement and Related Agreements—Treatment of ConversionPoint Warrants” beginning on page 174. For a discussion of the New Parent 2018 Plan, see “Description of New Parent” beginning on page 117.

 

Treatment of ConversionPoint Restricted Stock Units

 

To the extent ConversionPoint’s restricted stock units have not been terminated in accordance with their terms, the ConversionPoint board intends to accelerate the vesting of the restricted stock units at the effective time of the ConversionPoint merger, provided that the recipient of a restricted stock unit continues to be employed at the effective time of the ConversionPoint merger. All 928,893 ConversionPoint restricted stock units will vest in full and all such 928,893 shares of ConversionPoint common stock issued in connection with such vesting will be considered outstanding shares for all purposes of the merger agreement including the right to receive the ConversionPoint merger consideration which will be equal to 0.97314 of a share of New Parent common stock (calculated as of March 8, 2019 and subject to downward adjustment based on the number of shares of ConversionPoint common stock outstanding at the closing of the mergers) for each share of ConversionPoint common stock (i.e., 0.97314 of a share of New Parent common stock will be issued upon vesting of the ConversionPoint restricted stock units at the 0.97314 exchange ratio). For a more complete discussion of the treatment of ConversionPoint restricted stock units, see “The Merger Agreement and Related Agreements—Treatment of ConversionPoint Stock Options and Other Stock-Based Awards” beginning on page 173 and “Description of New Parent— New Parent 2018 Plan” beginning on page 117.

 

Treatment of Inuvo Stock Options

 

New Parent will assume outstanding options to purchase shares of Inuvo common stock in the Inuvo merger. Each outstanding option to acquire Inuvo common stock will be converted automatically at the effective time of the merger into an option to acquire New Parent common stock, and will be governed by the terms of New Parent’s 2018 Omnibus Incentive Plan, except that the number of shares of Inuvo common stock for which each option is exercisable will be adjusted to receive 0.2370 of a share of New Parent common stock (subject to downward adjustment based on the number of shares of Inuvo common stock outstanding at the closing of the mergers) for each one share of Inuvo common stock issuable upon exercise of such option and the exercise price will be adjusted based on such option exchange ratio. For a more complete discussion of the treatment of Inuvo options and other stock-based awards, see “The Merger Agreement and Related Agreements—Treatment of Inuvo Stock Options and Other Stock-Based Awards” beginning on page 174. 

 

 Treatment of Inuvo Restricted Stock Units

 

To the extent Inuvo’s restricted stock units have not been terminated in accordance with their terms, at the effective time of the mergers, all 1,620,429 Inuvo restricted stock units will vest in full and all such 1,620,429 shares of Inuvo common stock issued in connection with such vesting will be considered outstanding shares for all purposes of the merger agreement including the right to receive the Inuvo merger consideration which will be comprised of $0.45 in cash and 0.18877 of a share of New Parent common stock (subject to downward adjustment based on the number of shares of Inuvo common stock outstanding at the closing of the mergers) for each share of Inuvo common stock (i.e., 0.18877 of a share of New Parent common stock will be issued upon vesting of the Inuvo restricted stock units at the 0.18877 exchange ratio). For a more complete discussion of the treatment of Inuvo restricted stock units, see “The Merger Agreement and Related Agreements—Treatment of Inuvo Stock Options and Other Stock-Based Awards” beginning on page 174.

 

 

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Directors and Executive Officers of New Parent Following the Mergers

 

As of the effective time of the mergers, the board of directors of New Parent will be comprised of Robert Tallack, Raghu Kilambi, Richard K. Howe and Gordon Cameron, with three vacancies, and the executive officers of New Parent will be comprised of Robert Tallack as Chief Executive Officer and Raghu Kilambi as Vice Chairman and Chief Financial Officer. See “The Merger Agreement and Related Agreements—Directors and Executive Officers of New Parent and New Parent Subsidiaries” beginning on page 193 for additional information on the composition of board of directors and executive officers of New Parent.

 

Recommendation of the ConversionPoint Board

 

After careful consideration, the board of directors of ConversionPoint, which we refer to as the ConversionPoint board, unanimously recommends that holders of ConversionPoint common stock vote “FOR” the adoption of the merger agreement and approval of the merger, and vote “FOR” the adjournment of the special meeting if necessary or advisable to permit further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to adopt the merger agreement and approve the ConversionPoint merger.

 

For a more complete description of ConversionPoint’s reasons for the ConversionPoint merger and the recommendations of the ConversionPoint board, see “The Mergers—Recommendation of the ConversionPoint Board and its Reasons for the ConversionPoint Merger” beginning on page 152.

 

Recommendation of the Inuvo Board

 

After careful consideration, the board of directors of Inuvo, which we refer to as the Inuvo board, unanimously recommends that holders of Inuvo common stock vote “FOR” the adoption and approval of the merger agreement and approval of the merger, “FOR” the merger-related compensation proposal, “FOR” the Inuvo articles amendment proposal and vote “FOR” the adjournment of the special meeting if necessary or advisable to permit further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to adopt and approve the merger agreement and approve the Inuvo merger or to adopt and approve the Inuvo articles amendment proposal.

 

For a more complete description of Inuvo’s reasons for the merger and the recommendation of the Inuvo board, see “The Mergers—Recommendation of the Inuvo Board and its Reasons for the Inuvo Merger” beginning on page 152.

 

Opinion of Canaccord Genuity LLC

 

 In connection with the transaction, the Inuvo board received a written opinion from Canaccord Genuity LLC, which we refer to as Canaccord, as to the fairness, from a financial point of view and as of the date of its opinion, of the Inuvo merger consideration to be paid to the holders of Inuvo common stock (other than ConversionPoint, New Parent and ConversionPoint Merger Sub and their respective affiliates). The full text of Canaccord’s written opinion, dated November 1, 2018, is attached to this joint proxy statement/prospectus as Annex F. Holders of Inuvo common stock are encouraged to read this opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the review undertaken. Canaccord’s opinion was provided to the Inuvo board in connection with its evaluation of the Inuvo merger consideration in the transaction from a financial perspective, does not address the merits of the underlying decision by Inuvo to engage in the transaction or the relative merits of any alternatives discussed by the Inuvo board, does not constitute an opinion with respect to Inuvo’s underlying business decision to effect the transaction, any legal, tax, regulatory or accounting issues concerning the transaction, or any terms of the transaction (other than the Inuvo merger consideration) and does not constitute advice or a recommendation to any holder of Inuvo common stock as to how such stockholder should vote with respect to the mergers or any other aspect of the transaction or how such stockholders should otherwise act on any matter relating to the transaction.

 

 

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For a more complete description of Canaccord’s opinion, see “The Mergers—Opinion of Financial Advisor to the Inuvo Board” beginning on page 154. See also Annex F to this joint proxy statement/prospectus.

 

Interests of Certain ConversionPoint and Inuvo Directors and Executive Officers in the Mergers

 

You should be aware that some ConversionPoint and Inuvo directors and executive officers may have interests in the mergers that may be different from, or in addition to, the interests of stockholders of ConversionPoint and Inuvo. For a discussion of interests of certain ConversionPoint and Inuvo directors and executive officers in the mergers, see “The Mergers—Interests of Officers and Directors in the Mergers” beginning on page 165.

 

Material United States Federal Income Tax Consequences of the Mergers

 

For United States federal income tax purposes, it is intended that the ConversionPoint merger, the Inuvo merger, and the equity financing, taken together, will qualify as an “exchange” described in Section 351(a) of the Code. It is a condition to ConversionPoint’s obligation to complete the ConversionPoint merger that ConversionPoint receive an opinion of its counsel, Troutman Sanders, to the effect that the ConversionPoint merger, the Inuvo merger, and the equity financing, taken together, will qualify as an “exchange” described in Section 351(a) of the Code. It is a condition to Inuvo’s obligation to complete the Inuvo merger that Inuvo receive a written opinion of its counsel, Porter Wright, to the effect that the ConversionPoint merger, the Inuvo merger, and the equity financing, taken together, will qualify as an “exchange” described in Section 351(a) of the Code. If the ConversionPoint merger, the Inuvo merger, and the equity financing, taken together, qualify as an “exchange” within the meaning of Section 351(a) of the Code, then:

 

  U.S. holders (as defined in the section entitled “The Mergers—Material United States Federal Income Tax Consequences of the Mergers”) of ConversionPoint common stock will not recognize gain or loss for U.S. federal income tax purposes as a result of the exchange of ConversionPoint common stock for New Parent common stock, except with respect to cash received in lieu of fractional shares of New Parent common stock; and

 

  U.S. holders of Inuvo common stock generally will recognize gain, but not loss, on the exchange of Inuvo common stock for a combination of New Parent common stock and cash equal to the lesser of:

 

  (1) the excess, if any, of (i) the sum of the fair market value of New Parent common stock received in the Inuvo merger and the amount of cash received in the Inuvo merger over (ii) such U.S. holder’s tax basis in the Inuvo common stock surrendered in the Inuvo merger, and

 

  (2) the amount of cash received by such stockholder in the Inuvo merger.

 

Tax matters can be complicated, and the tax consequences of the transactions to a particular holder will depend on such holder’s particular facts and circumstances. You are strongly urged to consult with a tax advisor to determine the U.S. federal, state or local or foreign income or other tax consequences of the mergers to you. For a more complete description of the material United States federal income tax consequences of the mergers, see “Material United States Federal Income Tax Consequences” beginning on page 175.

 

Accounting Treatment of the Mergers

 

The business combination will be accounted for as an acquisition by ConversionPoint of Inuvo, as that term is used under United States generally accepted accounting principles, for accounting and financial reporting purposes. In identifying ConversionPoint as the acquiring entity, the companies took into account the relative outstanding share ownership, the composition of the governing body of the combined entity and the designation of certain senior management positions. As a result, the historical financial statements of ConversionPoint will become the historical financial statements of New Parent. The assets acquired (including identifiable intangible assets) and liabilities assumed (including executory contracts and other commitments) of Inuvo will be recorded at their respective fair values at the acquisition date and be added to those of ConversionPoint. Any excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. In the rare event there is any excess of the fair value of the assets acquired and liabilities assumed over the purchase price, such excess will be recognized as a gain in earnings on the acquisition date by New Parent. Financial statements of New Parent issued after the mergers will reflect such fair values and will not be restated retroactively to reflect the historical financial position or results of operations of Inuvo. The results of operations of Inuvo will be included in the results of operations of New Parent beginning on the effective date of the mergers. See “Selected Unaudited Pro Forma Combined Condensed Financial Information” beginning on page 26 for more information.

 

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Conditions to Completion of the Mergers

 

ConversionPoint and Inuvo expect to complete the mergers after all the conditions to the mergers in the merger agreement are satisfied or waived, including after the receipt of stockholder approvals at their respective stockholder meetings. In addition to obtaining such stockholder approvals, each of the other closing conditions set forth in the merger agreement must be satisfied. ConversionPoint and Inuvo currently expect to complete the mergers during the second quarter of 2019. However, it is possible that factors outside of either company’s control could cause the mergers to be completed at a later time or not at all.

 

Additionally, it is a covenant under the merger agreement that New Parent shall cause all outstanding indebtedness incurred by Inuvo and certain of its subsidiaries under the Amended and Restated Business Finance Agreement, dated as of October 11, 2018, by and among Western Alliance Bank (f/k/a Bridge Bank, N.A.), as amended, supplemented, or otherwise supplemented from time to time, to be paid in full. As of March 12, 2019, the amount outstanding under the loan is $4.88 million.

 

The merger agreement provides that certain of these conditions may be waived, in whole or in part, by ConversionPoint or Inuvo, to the extent legally allowed. Neither ConversionPoint nor Inuvo currently expects to waive any material condition to the completion of the mergers. If either ConversionPoint or Inuvo determines to waive any condition to the mergers that would result in a material and adverse change in the terms of the mergers to ConversionPoint or Inuvo stockholders (including any change in the tax consequences of the transaction to Inuvo stockholders), proxies would be resolicited from the ConversionPoint or Inuvo stockholders, as applicable.

 

Financing Condition

 

One of the conditions to closing the mergers is that New Parent receives at least $36 million in gross proceeds from the issuance and sale of its equity, debt and/or equity-linked securities on terms mutually reasonably agreeable to Inuvo and ConversionPoint in good faith.  ConversionPoint, New Parent and the Merger Subs shall cause the financing to occur as promptly as practicable and in no event later than July 12, 2019, which date may be extended by thirty (30) day increments with the consent of Inuvo, which consent may be withheld in the sole discretion of Inuvo. If the financing does not occur by July 12, 2019, subject to Inuvo’s right to extend such time period, ConversionPoint shall be in material breach of the merger agreement. New Parent intends to satisfy the financing condition through an underwritten public offering of New Parent common stock.

 

Although New Parent intends to conduct the New Parent public offering to satisfy the financing condition, under the terms of the merger agreement, New Parent (either directly or indirectly through ConversionPoint) may also satisfy the financing condition through the private issuances of debt, equity or equity-linked securities. Thus, if New Parent does not consummate the New Parent public offering, the financing condition to the mergers could be satisfied by New Parent and/or ConversionPoint through the private issuance of debt, equity or equity-linked securities.

 

For a more complete discussion of the conditions to the mergers, see “The Merger Agreement and Related Agreements—Covenants and Agreements—Conditions to Completion of the Merger” beginning on page 189.

 

 

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Delisting and deregistration of Inuvo Common Stock and Registration of New Parent Common Stock

 

If the mergers are completed, (i) the Inuvo common stock will be delisted from the NYSE American and its registration under the Exchange Act will be terminated by the filing of a Form 15, and (ii) the New Parent common stock will trade on NASDAQ and the TSX and will be registered under the Exchange Act upon filing of a Form 8-A.

 

No Solicitation of Other Offers

 

The merger agreement contains certain restrictions on the ability of Inuvo to solicit or engage in discussions or negotiations with a third party with respect to a proposal to acquire Inuvo’s equity or assets. Notwithstanding these restrictions, the merger agreement provides that under specified circumstances, if Inuvo receives an unsolicited bona fide proposal from a third party to acquire a significant interest in it that the Inuvo board determines in good faith is reasonably likely to lead to a proposal that is superior to the terms and conditions of the merger agreement, Inuvo may furnish nonpublic information to that third party and engage in negotiations regarding an acquisition proposal with that third party.

 

For a discussion of the prohibition on solicitation of acquisition proposals from third parties, see “The Merger Agreement and Related Agreements—Covenants and Agreements—No Solicitation; Change in Recommendation” beginning on page 185.

 

Termination

 

ConversionPoint and Inuvo may mutually agree at any time prior to the completion of the mergers (including after stockholder approval) to terminate the merger agreement and abandon the mergers. In addition, the merger agreement may be terminated by either ConversionPoint or Inuvo under certain circumstances or upon the occurrence of certain events.

 

For a discussion of termination provisions of the merger agreement, see “The Merger Agreement and Related Agreements—Termination” beginning on page 190.

 

Termination Fees and Expenses

 

Inuvo is required to pay a termination fee of $2,800,000 to ConversionPoint in the event (A) the merger agreement is terminated by Inuvo in connection with the entry into an agreement for a superior proposal or (B) the merger agreement is terminated by ConversionPoint if, prior to the time that the Inuvo stockholder vote approving the merger has been obtained, (i) Inuvo’s board of directors makes a change in recommendation in favor of the merger with ConversionPoint, (ii) Inuvo’s board of directors approves or recommends to its stockholders a takeover proposal from someone other than ConversionPoint, (iii) a tender offer or exchange offer for shares of Inuvo’s common stock that constitutes a takeover proposal is commenced by someone other than ConversionPoint and the Inuvo board recommends that holders of Inuvo common stock tender their shares in such tender offer or exchange offer or the Inuvo board fails to recommend that holders of Inuvo common stock reject such tender offer or exchange offer, or (iv) there has been a material breach by Inuvo of its obligations under the merger agreement to call a special meeting of the Inuvo stockholders for the purpose of adopting the merger agreement and recommending that all Inuvo stockholders vote to approve the merger or the non-solicitation provisions of the merger agreement.

 

ConversionPoint is required to pay a termination fee of $2,800,000 to Inuvo in the event the merger agreement is terminated by Inuvo as a result of (i)  the failure to satisfy the financing condition by July 12, 2019, among other conditions related to the failure of the financing condition, or (ii) ConversionPoint’s or New Parent’s failure to close the mergers within three days of Inuvo having satisfied all of Inuvo’s conditions to closing.

 

See “The Merger Agreement and Related Agreements—Termination Fee and Expenses” beginning on pages 192.

 

 

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Support Agreements

 

As an inducement for ConversionPoint and Inuvo to enter into the merger agreement, on November 1 and 2, 2018, several Inuvo stockholders and ConversionPoint stockholders entered into support agreements with Inuvo, ConversionPoint, New Parent and the Merger Subs pursuant to which, among other things, each of these stockholders agreed, solely in its capacity as a stockholder, to vote all securities of Inuvo or ConversionPoint, as the case may be, (i) in favor of the merger and the adoption of the merger agreement, (ii) in favor of any proposal to adjourn or postpone the applicable stockholders’ meeting to a later date if there are not sufficient votes to adopt the merger agreement and/or if there are not sufficient shares present in person or by proxy at the applicable stockholders’ meeting to constitute a quorum, (iii) in favor of any other matter necessary to consummate the transactions contemplated by the merger agreement, and, in the case of Inuvo stockholders only, and (iv) against the following actions: (1) any merger, tender offer, exchange offer, sale of all or substantially all assets, recapitalization, reorganization, consolidation, share exchange, business combination, liquidation, dissolution or similar transaction or series of transactions involving Inuvo, any of its subsidiaries and any other person (including any takeover proposal), other than the mergers and (2) any other action or agreement that would reasonably be expected to impede, frustrate, interfere with, delay, postpone or adversely affect the mergers or any other transaction contemplated by the merger agreement, including the consummation thereof. In addition, the ConversionPoint stockholders agreed to waive their appraisal rights under Section 262 of the DGCL.

 

The following stockholders of ConversionPoint entered into support agreements with respect to the following number of shares of ConversionPoint common stock beneficially owned by such stockholders: (i) Andre Peschong (470,282), (ii) Jack Thomsen (470,282), (iii) Christopher Jahnke (1,378,750), (iv) Haig Newton (1,378,750), (v) Hybrid Theory Capital Ltd. (1,182,274), (vi) Jeffrey Marks (197,667), (vii) Peter Nguyen (1,575,315), (viii) Raghu Kilambi (519,667) and (ix) Stephen Blazick (1,448,526). The ConversionPoint stockholders that have entered into the support agreements collectively own approximately, 58% of the outstanding shares of ConversionPoint as of March 8, 2019.

 

The following stockholders of Inuvo entered into support agreements with respect to the following number of shares of Inuvo common stock beneficially owned by such stockholders as of the effective date of the support agreements: (i) G. Kent Burnett (134,724), (ii) Don “Trey” Barrett III (319,290), (iii) Gordon J. Cameron (75,244), (iv) Richard K. Howe (974,808), (v) Charles D. Morgan (2,022,239), (vi) John B. Pisaris (320,825), (vii) Wallace D. Ruiz (330,483), and (viii) Patrick Terrell (645,733). The Inuvo stockholders that have entered into the support agreements collectively own approximately, 14.9% of the outstanding shares of Inuvo common stock as of March 12, 2019.

 

Nothing in the support agreements limits or restricts any of the stockholders who are party to the agreements or any of their affiliates from acting in its capacity as an officer, director or employee of ConversionPoint or Inuvo, as the case may be.

 

Copies of forms of the support agreements are attached to this joint proxy statement/prospectus as Annex D and Annex E. See “The Merger Agreement and Related Agreements—Support Agreements” beginning on page 192.

 

Shares Beneficially Owned by Directors and Executive Officers of ConversionPoint and Inuvo

 

ConversionPoint’s directors and executive officers beneficially owned [●] shares of ConversionPoint common stock on [●], 2019, the record date for the special meeting. These shares represent in total [●]% of the total voting power of ConversionPoint’s voting securities outstanding and entitled to vote as of the record date. ConversionPoint currently expects that ConversionPoint’s directors and executive officers will vote their shares “FOR” all the proposals to be voted on at the special meeting, although none of them, other than those directors and executive officers who have executed the support agreements discussed above, has entered into any agreements obligating them to do so.

 

Inuvo’s directors and executive officers beneficially owned [●] shares of Inuvo common stock on [●], 2019, the record date for the special meeting. These shares represent in total [●]% of the total voting power of Inuvo’s voting securities outstanding and entitled to vote as of the record date. Inuvo currently expects that Inuvo’s directors and executive officers will vote their shares “FOR” all the proposals to be voted on at the special meeting, although none of them, other than those directors and executive officers who have executed the support agreements discussed above, has entered into any agreements obligating them to do so.

 

 

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Appraisal Rights

 

Under Delaware law, ConversionPoint stockholders of record have appraisal rights under the DGCL in connection with the ConversionPoint merger. Under Nevada law, Inuvo stockholders are not entitled to appraisal rights in connection with the issuance of shares of New Parent common stock as contemplated by the merger agreement. For further discussion of appraisal rights, see “The Mergers—Appraisal Rights” beginning on page 169.

 

Comparison of the Rights of ConversionPoint and Inuvo Stockholders

 

The rights of ConversionPoint stockholders and Inuvo stockholders after the mergers will be governed by New Parent’s certificate of incorporation and bylaws and the laws of the State of Delaware. Those rights differ from the rights of ConversionPoint stockholders under ConversionPoint’s certificate of incorporation and bylaws and of Inuvo stockholders under Inuvo’s articles of incorporation and bylaws. See “Comparison of Stockholder Rights” beginning on page 211.

 

Implications of Being an Emerging Growth Company

 

New Parent is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. New Parent will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of the mergers, (b) in which New Parent has total annual gross revenue of at least $1.07 billion, or (c) in which New Parent is deemed to be a large accelerated filer, which means the market value of shares of New Parent common stock that are held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which New Parent has issued more than $1.0 billion in non-convertible debt during the prior three-year period. References in this joint proxy statement/prospectus to “emerging growth company” shall have the meaning associated with it in the JOBS Act.

 

As an emerging growth company, New Parent may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

 

  · only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

 

  · reduced disclosure about New Parent’s executive compensation arrangements;

 

  · no requirement that New Parent hold non-binding advisory votes on executive compensation or golden parachute arrangements; and

 

  · exemption from the auditor attestation requirement in the assessment of New Parent’s internal control over financial reporting.

 

New Parent has elected to adopt certain reduced disclosure requirements for purposes of this joint proxy statement/prospectus. In addition, for so long as New Parent qualifies as an emerging growth company, New Parent expects to take advantage of certain of the reduced reporting and other requirements of the JOBS Act with respect to the periodic reports New Parent will file with the Securities and Exchange Commission and proxy statements that New Parent will use to solicit proxies from its stockholders. As a result, the information contained in this proxy statement/prospectus and in New Parent’s future periodic reports and proxy statements may be different than the information provided by other public companies.

 

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. New Parent has elected to avail itself of this exemption from new or revised accounting standards.

 

For certain risks related to New Parent’s status as an emerging growth company, see the section titled “Risk Factors—Risks Related to the Combined Company if the Mergers are Completed —New Parent is an “emerging growth company,” and New Parent cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make shares of New Parent common stock less attractive to investors.” 

 

Risk Factors

 

THE PROPOSED REORGANIZATION OF CONVERSIONPOINT AND INUVO IS A COMPLEX TRANSACTION AND INVOLVES SIGNIFICANT RISKS. STOCKHOLDERS OF CONVERSIONPOINT AND INUVO ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE MATTERS REFERENCED TO UNDER “RISK FACTORS” BEGINNING ON PAGE 29.

 

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CONVERSIONPOINT

 

The selected historical consolidated financial data of ConversionPoint for the years ended December 31, 2018 and 2017 and for the period from May 20 (Inception) through December 31, 2016 have been derived from ConversionPoint’s audited consolidated financial statements and related notes, included herein beginning at page F-3. The information set forth below is only a summary and is not necessarily indicative of the results of future operations of ConversionPoint or the combined company, and you should read the following information together with ConversionPoint’s audited consolidated financial statements, the related notes and the section entitled “Description of ConversionPoint—Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 68.

 

    As of and for the Years Ended
December 31, 2018 and 2017 and for
the period from May 20 (Inception)
Through December 31, 2016
 
    2018     2017     2016  
Consolidated Statements of Operations Data:                        
Net revenues   $ 39,780,941     $ 49,920,621     $ 8,819,927  
Cost of revenues   $ 29,898,887     $ 37,776,678     $ 7,949,212  
Gross profit   $ 9,882,054     $ 12,143,943     $ 870,715  
Operating expenses   $ 36,124,174     $ 11,353,088     $ 2,286,736  
Interest expense, net   $ 7,306,092     $ 829,169     $ 109,576  
Income tax expense (benefit)   $ (308,719 )   $ (434,974   $ -  
Net (loss) income available to common stock holders   $ (33,239,493 )   $ 396,660     $ (1,525,597 )
Net (loss) income per share Basic and Diluted   $ (2.43 )   $ 0.04     $ (0.21 )
Shares used in per share calculation                        
Basic and Diluted     13,676,220       9,670,302       7,367,500  
                         
Consolidated Balance Sheet Data:                        
Cash and cash equivalents   $ 2,282,526     $ 4,695,803     $ 644,930  
Total assets   $ 48,961,064     $ 55,435,947     $ 1,756,058  
Long-term debt (current and non-current)   $ 5,767,996     $ 11,221,123     $ 1,615,000  
Total liabilities   $ 12,951,634     $ 17,577,717     $ 3,281,655  
Total stockholders’ equity   $ 36,009,430     $ 37,858,230     $ (1,525,597 )

 

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF INUVO

 

The selected historical consolidated financial data of Inuvo for each of the years ended December 31, 2018 and 2017, and as of December 31, 2018 and 2017 have been derived from Inuvo’s audited consolidated financial statements and related notes included herein beginning on page F-87. The selected historical consolidated financial data for the years ended December 31, 2016, 2015, and 2014 and as of December 31, 2016, 2015 and 2014 have been derived from Inuvo’s audited consolidated financial statements and related notes, which have not been incorporated by reference in this joint proxy statement/prospectus. The information set forth below is only a summary and is not necessarily indicative of the results of future operations of Inuvo or the combined company, and you should read the following information together with Inuvo’s audited consolidated financial statements, the related notes and the section entitled “Description of Inuvo—Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 91.

 

    As of and for the Years Ended December 31,  
    2018     2017     2016     2015     2014  
Consolidated Statements of Operations Data:                              
Net revenues   $ 73,330,642     $ 79,554,493     $ 71,530,102     $ 70,438,116     $ 49,599,486  
Cost of revenues.   $ 29,921,482     $ 36,669,543     $ 21,364,795     $ 23,721,996     $ 20,424,561  
Gross profit   $ 43,409,160     $ 42,884,950     $ 50,165,307     $ 46,716,120     $ 29,174,925  
Operating expenses   $ 48,879,540     $ 47,121,424     $ 51,022,473     $ 44,569,147     $ 26,677,916  
Interest expense, net   $ 420,452     $ 318,193     $ 99,965     $ 141,311     $ 351,225  
Net (loss) income from discontinued operations   $     $ (1,109 )   $ 155,287     $ 33,969     $ (40,670 )
Income (loss) available to common stock holders   $ (5,890,832 )   $ (3,057,700 )   $ (772,584 )   $ 2,339,774     $ 2,105,114  
Net income (loss) from continuing operations per share Basic   $ (0.19 )   $ (0.11 )   $ (0.04 )   $ 0.10     $ 0.09  
Net income (loss) from discontinued operations per share Basic   $     $     $ 0.01     $     $  
Net income (loss) per share Basic   $ (0.19 )   $ (0.11 )   $ (0.03 )   $ 0.10     $ 0.09  
Shares used in per share calculation                                        
Basic     31,019,623       28,155,320       24,660,995       24,249,852       23,527,872  
Diluted     31,019,623       28,155,320       24,660,995       24,539,555       24,145.823  
                                         
Consolidated Balance Sheet Data:                                        
Cash and cash equivalents   $ 228,956     $ 4,084,686     $ 3,946,804     $ 4,257,204     $ 3,714.525  
Total assets   $ 28,665,882     $ 38,247,836     $ 27,561,139     $ 28,732,526     $ 25,606,677  
Long term debt (current and noncurrent)   $ 3,109,853     $ 4,900,000     $     $     $ 3,626,609  
Total liabilities   $ 17,632,067     $ 24,160,494     $ 16,035.347     $ 17,772,082     $ 17,332,942  
Total stockholders’ equity   $ 11,033,815     $ 14,087,342     $ 11,525,792     $ 10,960,444     $ 8,273,735  

 

 

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SELECTED UNAUDITED PRO FORMA
COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION

 

The following selected unaudited pro forma combined condensed consolidated financial information has been prepared to illustrate the effect of the mergers. The unaudited pro forma combined condensed balance sheet information gives effect to the mergers as if it occurred on December 31, 2018. The unaudited pro forma combined condensed statements of operations information for the year ended December 31, 2018 gives effect to the mergers as if it occurred on January 1, 2018.

 

This unaudited pro forma combined condensed consolidated financial information is for informational purposes only. It does not purport to indicate the results that would actually have been obtained had the mergers been completed on the assumed date or for the periods presented. A final determination of the fair value of Inuvo’s assets and liabilities will be based on the actual net tangible and intangible assets and liabilities that exist as of the date of closing of the mergers and, therefore, cannot be made prior to that date. Additionally, the value of the portion of the merger consideration to be paid in shares of ConversionPoint common stock will be determined based on the trading price of New Parent’s common stock at the time of the closing of the mergers.

 

This unaudited pro forma combined condensed consolidated financial information should not be considered predictive of results that may be realized in the future. For a discussion of the factors the ConversionPoint board considered in evaluating Inuvo’s historical financial information, see “The Mergers—Recommendation of the ConversionPoint Board and its Reasons for the ConversionPoint Merger” beginning on page 152. For a discussion of the factors the Inuvo board considered in evaluating ConversionPoint’s historical financial information, see “The Mergers—Recommendation of the Inuvo Board and its Reason for the Inuvo Merger,” beginning on page 152.

 

    Year Ended
December 31, 2018
   
Pro Forma Statements of Operations Information          
Revenue   $ 113,111,583    
Operating loss     (43,318,832 )  
Net loss     (49,117,926 )  
Net loss per share - Basic and diluted   $ (2.23 )  

 

    December 31, 2018    
Pro Forma Balance Sheet Information          
Total current assets   $ 26,234,359    
Property and equipment, net     2,725,942    
Total assets     152,220,656    
Total liabilities     22,390,518    
Total stockholders equity   $ 129,830,138    

 

 

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EQUIVALENT AND COMPARATIVE PER SHARE INFORMATION

 

Inuvo. Inuvo common stock is traded on the NYSE American under the symbol “INUV.” The table below lists the high and low quarterly sales prices for the Inuvo common stock as reported in published financial sources for each fiscal quarter during the periods presented below.

 

    High     Low  
Year Ending December 31, 2019:                
First Quarter, as of March 13, 2019   $ 1.40     $ 1.05  
Year Ended December 31, 2018:                
First Quarter   $ 1.05     $ 0.78  
Second Quarter   $ 1.03     $ 0.68  
Third Quarter   $ 0.78     $ 0.57  
Fourth Quarter   $ 1.55     $ 0.36  
Year Ended December 31, 2017:                
First Quarter   $ 1.74     $ 1.21  
Second Quarter   $ 1.39     $ 0.96  
Third Quarter   $ 1.24     $ 0.88  
Fourth Quarter   $ 1.12     $ 0.70  

 

On November 2, 2018, the last full trading day before the joint public announcement by ConversionPoint and Inuvo of the signing of the merger agreement, the closing sale price per share of Inuvo common stock as reported by the NYSE American was $0.41. On [●], 2019, the closing sale price per share of Inuvo common stock as reported by the NYSE American was $[●].

 

Inuvo has not declared or paid any cash dividends on its common stock during the last five completed fiscal years or during the current fiscal year to date. Inuvo currently intends to retain future earnings, if any, to fund the development and growth of its businesses and, therefore, does not anticipate paying any cash dividends in the foreseeable future. Any future decision concerning the payment of dividends on common stock of New Parent will depend upon the results of operations, financial condition and capital expenditure plans of New Parent, as well as such other factors as the New Parent board, in its sole discretion, may consider relevant.

 

The number of Inuvo stockholders of record, as of February 28, 2019 is approximately 407.

 

ConversionPoint. There is no public market for ConversionPoint common stock.

 

ConversionPoint has never declared or paid any cash dividends on its common stock. ConversionPoint currently intends to retain all of its earnings, if any, for the future operation and expansion of its business and does not contemplate distributing any dividends to stockholders. Any future decision concerning the payment of dividends on the common stock of ConversionPoint will depend upon the results of operations, financial condition and capital expenditure plans of New Parent, as well as such other factors as the New Parent board, in its sole discretion, may consider relevant.

 

 

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New Parent. There is not yet a public market for New Parent common stock. However, following the mergers, it is intended that New Parent common stock will trade on NASDAQ and the TSX, and Inuvo common stock will no longer trade on the NYSE American and will represent only the right to receive the Inuvo merger consideration under the merger agreement.

 

New Parent has applied with NASDAQ to be traded on The NASDAQ Capital Market under the symbol “CPTI” and intends to apply with the TSX to be traded on the TSX under the symbol “CPTI.”

 

New Parent currently intends to retain all of its earnings, if any, for the future operation and expansion of its business and does not contemplate distributing any dividends to stockholders. Any future decision concerning the payment of dividends on the common stock of New Parent will depend upon the results of operations, financial condition and capital expenditure plans of New Parent, as well as such other factors as the New Parent board, in its sole discretion, may consider relevant.

 

 

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RISK FACTORS

 

In addition to the other information included or incorporated by reference in this joint proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 62, you should carefully consider the following risks associated with the mergers, the businesses of ConversionPoint and Inuvo and New Parent if the mergers are completed before deciding how to vote. You should also read and consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference in this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 229. 

 

Risks Related to the Mergers

 

Because the market price of New Parent common stock is uncertain and will fluctuate, ConversionPoint stockholders cannot be sure of the market value of the New Parent common stock that they will receive in the mergers. 

 

Upon consummation of the mergers, each share of ConversionPoint common stock will be converted into the right to receive 0.97314 of a share of New Parent common stock (calculated as of March 8, 2019 and subject to downward adjustment based on the number of shares of ConversionPoint common stock outstanding at the closing of the mergers), and each share of Inuvo common stock will be converted into the right to receive 0.18877 of a share of New Parent common stock (subject to downward adjustment based on the number of shares of Inuvo common stock outstanding at the closing of the mergers) and $0.45 in cash. Since we will not know the value of the shares of New Parent common stock that will be issued in connection with the New Parent public offering until the closing of the mergers, we do not know the exact value of shares of New Parent common stock that ConversionPoint and Inuvo stockholders will receive in the mergers.

 

The market price of Inuvo common stock will continue to fluctuate until the completion of the mergers. For example, during the fourth quarter of 2018, the closing sales price of Inuvo common stock ranged from a low of $0.40 to a high of $1.36, as reported on the NYSE American. The merger agreement does not provide for any price-based termination right for either party. Accordingly, the market value of the shares of New Parent common stock that New Parent issues and ConversionPoint stockholders and Inuvo shareholders will be entitled to receive when the parties complete the mergers will depend on the market value of shares of New Parent common stock at the time that the parties complete the mergers and could vary significantly from the value of ConversionPoint common stock or the market price of Inuvo common stock on the date of this joint proxy statement/prospectus or the date of the ConversionPoint or Inuvo special meetings. 

 

The announcement and pendency of the mergers could have an adverse effect on the value of ConversionPoint’s stock and the market price of Inuvo’s common stock, as well as New Parent’s business, financial condition, results of operations or business prospects. 

 

While neither ConversionPoint nor Inuvo is aware of any significant adverse effects to date, the announcement and pendency of the mergers could disrupt ConversionPoint’s and/or Inuvo’s businesses in the following ways, among others:   

 

  customers and other third-party business partners of ConversionPoint or Inuvo may seek to terminate and/or renegotiate their relationships with ConversionPoint or Inuvo as a result of the mergers, whether pursuant to the terms of their existing agreements with ConversionPoint or Inuvo or otherwise;
     
  the attention of ConversionPoint and/or Inuvo management may be directed toward the completion of the mergers and related matters and may be diverted from the day-to-day business operations of their respective companies, including from other opportunities that might otherwise be beneficial to ConversionPoint or Inuvo; and
     
  current and prospective employees may experience uncertainty regarding their future roles with the combined company, which might adversely affect ConversionPoint’s and/or Inuvo’s ability to retain, recruit and motivate key personnel.

 

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Should they occur, any of these matters could adversely affect the value of ConversionPoint’s shares, the market price of Inuvo’s common stock, or harm the financial condition, results of operations or business prospects of, ConversionPoint, Inuvo and New Parent.

 

The market price of New Parent common stock after the mergers may be affected by factors different from those currently affecting the value of ConversionPoint common stock or the market price of Inuvo common stock. 

 

Upon completion of the mergers, holders of ConversionPoint common stock and Inuvo common stock will become holders of New Parent common stock. The results of operations of New Parent and the market price of New Parent common stock after the completion of the mergers may be affected by factors different from those currently affecting the independent results of operations of ConversionPoint or Inuvo. For a discussion of the businesses of ConversionPoint and Inuvo and of certain factors to consider in connection with those businesses, see the risk factors included in this joint proxy statement/prospectus under the section entitled “Risk Factors—Risks Related to ConversionPoint’s Business” beginning on page 34, “Risk Factors—Risks Related to Inuvo’s Business” beginning on page 45, “Risk Factors—Risks Related to the Combined Company if the Mergers Are Completed,” the description of ConversionPoint’s business under the section entitled “Description of ConversionPoint” beginning on page 63, and the description of Inuvo’s business under the section entitled “Description of Inuvo” beginning on page 93.

 

ConversionPoint and Inuvo will be subject to business uncertainties and contractual restrictions while the mergers are pending.

 

Uncertainty about the effect of the mergers on employees and customers may have an adverse effect on ConversionPoint and/or Inuvo and consequently on the combined company. These uncertainties may impair ConversionPoint’s or Inuvo’s ability to retain and motivate key personnel and could cause customers and others that conduct business with ConversionPoint or Inuvo to defer entering into contracts with ConversionPoint or Inuvo or making other decisions concerning ConversionPoint or Inuvo, or seek to change existing business relationships with ConversionPoint or Inuvo. Certain of Inuvo’s customer contracts contain change of control restrictions that may give rise to a right of termination or cancellation in connection with the mergers. In addition, if key employees depart because of uncertainty about their future roles and the potential complexities of the mergers, Inuvo’s and ConversionPoint’s businesses could be harmed. In addition, the merger agreement restricts ConversionPoint and Inuvo from making certain acquisitions and taking other specified actions until the mergers occur without the consent of the other party. These restrictions may prevent ConversionPoint and Inuvo from pursuing attractive business opportunities that may arise prior to the completion of the mergers. See the section entitled “The Merger Agreement and the Related Agreements—Covenants and Agreements” beginning on page 180 for a description of the restrictive covenants applicable to ConversionPoint and Inuvo.

 

The merger agreement limits Inuvo’s ability to pursue alternatives to the mergers.

 

Inuvo has agreed that it will not solicit, initiate, knowingly encourage or take any other action designed to facilitate inquiries or the making of any proposals which may reasonably be expected to lead to any takeover proposal, engage in discussions or negotiations regarding takeover proposals, provide any confidential information or data in relation to a takeover proposal, approve or recommend (or propose publicly to do the same) any takeover proposal or any letter of intent, merger agreement or similar agreement related to any takeover proposal, subject to limited exceptions, including Inuvo’s right to take certain actions if it receives an unsolicited takeover proposal that constitutes a superior proposal or is reasonably expected to lead to a superior proposal, and the Inuvo board determines in good faith, after consultation with its outside legal counsel, that a failure to take action with respect to such takeover proposal would be inconsistent with its fiduciary duties. Inuvo has also agreed that the Inuvo board will not change its recommendation to its stockholders or approve any alternative agreement, subject to limited exceptions, including that, at any time prior to the applicable stockholder approval, the Inuvo board may make a change in recommendation in response to a superior proposal, if the Inuvo board concludes that a failure to change its recommendation would be inconsistent with the exercise of its fiduciary duties to its stockholders under applicable laws and, if requested by the other party, its representatives shall have negotiated in good faith with the other party for five business days regarding any revisions to the terms of the transactions contemplated by the merger agreement proposed by the other party in response to such superior proposal. The merger agreement also requires each party to call, give notice of and hold a meeting of its stockholders for the purposes of obtaining the applicable stockholder approval. This special meeting requirement does not apply to a party in the event that the merger agreement is terminated in accordance with its terms. See “The Merger Agreement and Related Agreements—Termination.” In addition, under specified circumstances, ConversionPoint or Inuvo may be required to pay a termination fee of $2,800,000 to the other party if certain termination rights are triggered. See the section entitled “The Merger Agreement and Related Agreements—Termination Fee and Expenses” beginning on page 192 for a description of the circumstances under which such termination fees are payable. These provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of Inuvo from considering or proposing an acquisition, or might result in a potential competing acquiror proposing to pay a lower price per share to acquire Inuvo than it might otherwise have been willing to pay.

 

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Litigation related to the mergers is filed against Inuvo and the Inuvo board and/or ConversionPoint and the ConversionPoint board that could prevent or delay the completion of the mergers and/or result in the payment of damages following the completion of the mergers.

 

On December 19, 2018 and December 20, 2018, respectively, Peter D’Arcy and Morris Akerman, both of whom claim to be stockholders of Inuvo, filed separate putative class action lawsuits, captioned D’Arcy v. Inuvo, Inc. et al., No. 1:18-cv-02023-UNA, in the United States District Court for the District of Delaware; and Akerman v. Inuvo, Inc. et al., No. 2:18-cv-02407, in the United States District Court for the District of Nevada. The two lawsuits each named Inuvo and the members of Inuvo’s board of directors as defendants. The D’Arcy action also names ConversionPoint Technologies and various entities created to effect the merger as defendants. The complaints filed in the lawsuits assert claims under Section 14(a) and Section 20(a) of the Exchange Act challenging the adequacy of the disclosures relating to the merger transactions made in a joint consent solicitation statement/prospectus.

 

On December 21, 2018, Domenic Spagnolo, another purported stockholder of Inuvo, filed a substantially similar lawsuit, captioned Spagnolo v. Inuvo, Inc. et al., No. 1:18-cv-12099, in the United States District Court for the Southern District of New York. This lawsuit also challenges the adequacy of disclosure under the same sections of the Exchange Act against Inuvo and its directors.

 

Each of the foregoing lawsuits seek, among other relief, an injunction preventing the parties from consummating the merger transactions, damages in the event the merger transactions are consummated, and an award of attorneys’ fees.  Inuvo and ConversionPoint believe the claims asserted in the lawsuits are without merit.  Inuvo intends to vigorously contest the lawsuits. On February 4, 2019, Inuvo filed a motion to dismiss, or in the alternative stay, the Akerman and Spagnolo actions pending the resolution of the first-filed D’Arcy case.  Then, on March 4, 2019, Inuvo filed a second motion to dismiss the Spagnolo action based on a failure to state a claim under the law. In the Akerman action, no hearings have been scheduled.  In the Spagnolo action, the court issued an order giving Plaintiff Spagnolo an opportunity to amend his complaint in response to the second motion to dismiss, or alternatively, serve his opposition to the motion to dismiss by March 25, 2019.  If Plaintiff Spagnolo files an amended complaint, Inuvo will have three weeks to respond.  Further, Plaintiff Spagnolo filed a preliminary injunction, seeking to enjoin a shareholder vote on the merger.  Per court order, Inuvo responded to the preliminary injunction on March 1, 2019.  Plaintiff Spagnolo was ordered to reply by March 8, 2019.

 

On January 4, 2019 and January 8, 2019, respectively, two more purported stockholders of Inuvo, Adam Franchi and Les Thomas, commenced substantially similar putative class action lawsuits, captioned Franchi v. Inuvo, Inc. et al., No. A-19-787021-C and Thomas v. Inuvo, Inc. et al., No. T19-57, in the District Court of the State of Nevada in the County of Clark. These complaints also name Inuvo and the members of Inuvo’s board of directors as defendants. The Franchi action also names ConversionPoint Technologies and various entities created to effect the merger as defendants. Both complaints assert breach of fiduciary duties claims arising from the adequacy of the disclosures relating to the merger transactions made in a joint consent solicitation statement/prospectus, and both complaints seek an injunction preventing the parties from consummating the merger transactions, damages in the event the merger transactions are consummated, and an award of attorneys’ fees.

 

Inuvo and ConversionPoint believe the claims asserted in the Franchi and Thomas lawsuits are similarly without merit. Each of ConversionPoint and Inuvo intend to vigorously defend these lawsuits. On January 25, 2018, the Thomas plaintiff filed a preliminary injunction seeking to enjoin the merger. A hearing on the preliminary injunction is scheduled for March 18, 2019. The Franchi and Thomas complaints seek, among other relief, an injunction preventing the parties from consummating the merger transactions, damages in the event the merger transactions are consummated, and an award of attorneys’ fees. Inuvo and ConversionPoint believe the claims asserted in the lawsuits are without merit. On February 5 and 14, 2019, Inuvo filed motions to dismiss, or in the alternative to stay, the Franchi and Thomas actions, respectively, pending the resolution of the first-filed D’Arcy action. A hearing on the Franchi motion is yet to be scheduled. A hearing on the Thomas motion is scheduled for April 1, 2019.

 

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Because certain directors and executive officers of ConversionPoint and Inuvo, as the case may be, are parties to agreements or are participants in other arrangements that give them interests that may be different from, or in addition to, your interests as a stockholder of ConversionPoint or Inuvo, these persons may have conflicts of interest in recommending that ConversionPoint and Inuvo stockholders vote to adopt the merger agreement and approve the mergers. 

 

The directors and executive officers of ConversionPoint and Inuvo, as the case may be, are parties to certain agreements or are participants in other arrangements that give them interests that may be different from, or in addition to, your interests as a stockholder of ConversionPoint or Inuvo. This difference of interests stems from employment agreements covering certain executive officers under which such officers are entitled to severance payments, change of control payments and other benefits related to their employment resulting from the mergers. In addition, New Parent has an obligation under the merger agreement to indemnify ConversionPoint’s and Inuvo’s directors and executive officers for acts or omission occurring prior to the effective time of the merger. The merger agreement also provides that New Parent will purchase “tail” officers’ and directors’ liability insurance policies. The interests of the directors and executive officers of ConversionPoint and Inuvo in the mergers that are different than those of the ConversionPoint and Inuvo stockholders are described under “The Mergers—Interests of Officers and Directors in the Mergers” beginning on page 165.   

 

The shares of New Parent common stock to be received by ConversionPoint and Inuvo stockholders as a result of the mergers will have different rights from shares of ConversionPoint common stock and Inuvo common stock.

 

Following completion of the mergers, ConversionPoint stockholders and Inuvo stockholders will no longer be stockholders of ConversionPoint and Inuvo, but will instead be stockholders of New Parent. There will be important differences between your current rights as a ConversionPoint stockholder or Inuvo stockholder and your rights as a New Parent stockholder. See “Comparison of Stockholder Rights” beginning on page 211 for a discussion of the different rights associated with ConversionPoint common stock, Inuvo common stock and New Parent common stock.

 

Both ConversionPoint stockholders and Inuvo stockholders will have a reduced ownership and voting interest after the mergers and will exercise less influence over management.

 

After the completion of the mergers, the ConversionPoint stockholders and Inuvo stockholders, as a group, will own a smaller percentage of New Parent than they currently own of ConversionPoint and Inuvo, respectively. Upon completion of the mergers, it is anticipated that ConversionPoint stockholders, on the one hand, and Inuvo stockholders, on the other hand, will hold approximately 70.76% and 29.24%, respectively, of the shares of common stock of New Parent issued and outstanding immediately after the consummation of the mergers (on a fully diluted basis, including dilution from stock options (including options to purchase up to 1,300,000 shares of New Parent common stock to be issued by New Parent to certain employees of Inuvo at the closing of the mergers),warrants and restricted stock units, based on the treasury method), and before the issuance of any equity or equity-based securities of New Parent to satisfy the financing condition contained in the merger agreement.

 

Failure to complete the mergers could negatively impact the value of ConversionPoint common stock, the market price of Inuvo common stock and/or the businesses and financial results of ConversionPoint and Inuvo.

 

If the mergers are not completed, the ongoing businesses of ConversionPoint and Inuvo may be adversely affected and ConversionPoint and Inuvo will be subject to several risks and consequences, including the following:

 

  ConversionPoint may be required, under certain circumstances, to pay Inuvo a termination fee of $2,800,000;

 

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  Inuvo may be required, under certain circumstances, to pay ConversionPoint a termination fee of $2,800,000;
     
  ConversionPoint and Inuvo will be required to pay their own costs relating to the mergers, whether or not the mergers are completed, such as significant fees and expenses relating to legal, accounting, financial advisor, and printing fees;
     
  under the merger agreement, each of ConversionPoint and Inuvo is subject to certain restrictions on the conduct of its business prior to completing the mergers which may adversely affect its ability to execute certain of its business strategies;

   

  the conversion of a certain Convertible Promissory Note, in the principal amount of $1,000,000, executed by Inuvo in favor of CPT Investments, LLC, at a rate of $0.35 per share of Inuvo common stock in the event that the merger agreement is terminated could negatively affect the market price of Inuvo common stock; and
     
  matters relating to the mergers may require substantial commitments of time and resources by ConversionPoint and Inuvo management, which could otherwise have been devoted to other opportunities that may have been beneficial to ConversionPoint and Inuvo as independent companies, as the case may be.

 

In addition, if the mergers are not completed, ConversionPoint and/or Inuvo may experience negative reactions from the financial markets and from their respective customers and employees. ConversionPoint and Inuvo also could be subject to litigation related to a failure to complete the mergers or to enforce their respective obligations under the merger agreement. If the mergers are not consummated, ConversionPoint and Inuvo cannot assure their respective stockholders that the risks described above, will not materially adversely affect the value of ConversionPoint common stock, the market price of Inuvo common stock and/or the business and financial results of ConversionPoint or Inuvo.

 

ConversionPoint, Inuvo and New Parent will incur significant transaction and merger-related transition costs in connection with the mergers.

 

ConversionPoint and Inuvo expect that they, and New Parent, will incur significant, non-recurring costs in connection with consummating the mergers and integrating the operations of the two companies. ConversionPoint and Inuvo may incur additional costs to maintain employee morale and to retain key employees. ConversionPoint and Inuvo will also incur significant fees and expenses relating to legal, accounting and other transaction fees and other costs associated with the mergers. Some of these costs are payable regardless of whether the mergers are completed. Moreover, under specified circumstances, ConversionPoint or Inuvo may be required to pay a termination fee of $2,800,000 if the mergers are not consummated. See “The Merger Agreement and Related Agreements—Termination Fee and Expenses” beginning on page 192.

 

The fairness opinion received by the Inuvo board from Canaccord does not reflect changes in circumstances subsequent to the date of the fairness opinion.

 

Canaccord delivered to the Inuvo board its fairness opinion dated November 1, 2018. The opinion does not speak as of the time the Inuvo merger will be completed or any date other than the date of such opinion. The opinion does not reflect changes that may occur or may have occurred after the date of the opinion, including changes to the merger agreement, changes to the operations and prospects of Inuvo or ConversionPoint, changes in general market and economic conditions or regulatory or other factors including. Any such changes may materially alter or affect the relative values of Inuvo and ConversionPoint.

 

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New Parent has applied for listing of New Parent common stock issued in connection with the mergers on NASDAQ and intends to apply for listing of New Parent common stock on the TSX. There is no guarantee that New Parent common stock will be listed on either or both NASDAQ or the TSX.

 

New Parent has applied to have shares of New Parent common stock issued in connection with the mergers listed for trading on NASDAQ and intends to apply for listing of New Parent common stock on the TSX. On the date of this joint proxy statement/prospectus, New Parent believes that it will satisfy the listing requirements and expects that New Parent common stock it plans to issue in connection with the mergers will be listed on NASDAQ and the TSX. These listings, which are conditions to the closing of the mergers, however, are not guaranteed. Even if such listings are approved, there can be no assurance any broker will be interested in trading New Parent’s common stock issued in connection with the mergers. Therefore, it may be difficult to sell any shares of New Parent common stock you receive in connection with the mergers if you desire or need to sell them. No person will be obligated to make a market in New Parent common stock, and even after making a market, any such person can discontinue market making at any time without notice. New Parent cannot provide any assurance that an active and liquid trading market in New Parent common stock will develop or, if developed, that the market will continue.

 

Risks Related to ConversionPoint’s Business

 

ConversionPoint experienced a significant loss in 2018 as compared to 2017, a decline in revenues in 2018 from 2017 and may not achieve or sustain profitability in the future.

 

ConversionPoint reported a net loss of approximately $33.2 million in 2018 as compared to net income of approximately $400,000 in 2017 and its net revenues in 2018 declined approximately $10.2 million from approximately $50.0 million in 2017 to approximately $39.8 million in 2018. As of December 31, 2018, ConversionPoint had an accumulated deficit of approximately $34.4 million. ConversionPoint expects net losses to decrease during 2019, as it focuses on growing its higher margin managed services and SaaS revenues. These efforts may prove more expensive than ConversionPoint currently anticipates, and it may not succeed in increasing its revenue sufficiently, or at all, to achieve and sustain profitability. Growth of ConversionPoint’s revenue may slow or revenue may decline for a number of possible reasons, including a decrease in its ability to attract and retain customers, increasing competition, decreasing growth of its overall market, and an inability to timely and cost-effectively introduce new products and services that are favorably received by customers. If ConversionPoint is unable to meet these risks and challenges as it encounters them, its business and operating results may be adversely affected, and even if it were able to achieve profitability, ConversionPoint may not be able to sustain or increase such profitability.

 

ConversionPoint has substantial debt.

 

ConversionPoint and its subsidiaries are parties to a Loan and Security Agreement with Montage Capital II, L.P., and Partners for Capital Growth IV, L.P. As of March 1, 2019, $2,438,664, in principal and interest was outstanding under the loan and which is due and payable upon the earlier of the closing of New Parent initial public offering and May 31, 2020. In addition, as of March 1, 2019, (i) ConversionPoint had an outstanding convertible promissory note with $143,425 in principal and interest outstanding and an outstanding non-interest bearing promissory note in the amount of $225,000, both of which are due and payable on April 30, 2019, (ii) ConversionPoint had outstanding unsecured subordinated promissory notes issued to certain directors having an aggregate outstanding balance of principal and interest in the amount of $253,334 due and payable with 30 days after ConversionPoint repays the Montage Capital loan, (iii) SellPoints, a wholly-owned subsidiary of ConversionPoint, had outstanding unsecured subordinated promissory notes, under which an aggregate of $3,110,935 in principal and accrued interest is outstanding, which are due and payable on May 31, 2019, however, the notes are subject to automatic 90-day extensions; and (iv) SellPoints had $68,491, outstanding under a revenue royalty agreement. A default under any loan agreement note or the revenue royalty agreement could result in a charging order, or in the case of its secured lenders, a foreclosure on all of ConversionPoint’s assets, which, in either case, would have a material adverse effect on its business, results of operations or financial condition.

 

 ConversionPoint’s management has concluded that factors raise substantial doubt about its ability to continue as a going concern and its independent registered public accounting firm has included an explanatory paragraph relating to ConversionPoint’s ability to continue as a going concern in its report on ConversionPoint’s audited consolidated financial statements included in this proxy statement/prospectus.

 

The report of ConversionPoint’s independent registered public accounting firm for the year ended December 31, 2018 included herein contains an explanatory paragraph indicating that there is substantial doubt as to ConversionPoint’s ability to continue as a going concern as a result of the significant loss from operations in 2018, negative operating cash flows and a significant accumulated deficit. This report is dated March 15, 2019 and does not take into account any proceeds New Parent will receive in the proposed public offering of New Parent common stock. ConversionPoint’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which contemplate that ConversionPoint will continue to operate as a going concern. ConversionPoint’s financial statements do not contain any adjustments that might result if it were unable to continue as a going concern. ConversionPoint’s ability to continue as a going concern will be determined by its and New Parent’s ability to complete the proposed public offering. If ConversionPoint is unable to obtain adequate funding from the proposed public offering of New Parent common stock or in the future, or if ConversionPoint is unable to grow its revenue to achieve and sustain profitability, ConversionPoint may not be able to continue as a going concern.

 

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If an event of default is declared under ConversionPoint’s secured loan agreement, ConversionPoint could lose possession of its assets, which would have a material adverse effect on its business.

 

ConversionPoint’s loan with Montage and Partners for Growth, is secured by all of ConversionPoint’s assets. The loan includes certain debt covenants which require ConversionPoint to maintain a minimum cash reserve and minimum EBITDA. As of September 31, 2018, ConversionPoint had certain technical defaults and an anticipated financial covenant default under the loan agreement, and on November 1, 2018, entered into an amendment pursuant to which the lenders agreed to forbear from exercising remedies arising out of the existing defaults and the anticipated default until the earlier to occur of (i) ConversionPoint’s timely compliance with certain non-financial covenants under the loan agreement, upon which time the existing defaults and anticipated default shall automatically be waived, (ii) the occurrence of another event of default, or (iii) February 15, 2019. The lenders also agreed to decrease certain minimum cash covenants and eliminate certain revenue and EBITDA covenants until February 15, 2019. As of February 15, 2019, ConversionPoint remained in breach of the financial covenants under the loan agreement, however, on March 13, 2019, the lenders agreed to forbear from exercising remedies arising from such defaults, and that such forbearance shall be converted into a waiver of such defaults, provided that ConversionPoint raises a minimum of $5,000,000 on or before May 31, 2019. If $5,000,000 is not raised by May 31, 2019, through New Parent’s initial public offering, or otherwise by ConversionPoint, then on June 1, 2019, and on the first day of each month thereafter, until such time as such financing milestone is satisfied, ConversionPoint shall be required to pay the lenders a cash fee, equal to 5% of the aggregate advances outstanding under the loan agreement as of such date. If ConversionPoint defaults on the loan, or is unable to repay the debt upon any default, the lenders could take control of ConversionPoint’s bank accounts, and/or seek to foreclose on ConversionPoint’s assets in an effort to seek repayment under the loan. If successful, ConversionPoint would be unable to conduct its business as it is presently conducted and its ability to generate revenues and fund its ongoing operations would be materially adversely affected.

 

ConversionPoint operates in a rapidly developing and changing industry, which makes it difficult to evaluate its current business and future prospects.

 

ConversionPoint has encountered and will continue to encounter risks and difficulties frequently experienced by companies in rapidly developing and changing industries, including challenges in hiring and retaining qualified employees, determining appropriate investments of its limited resources, market acceptance of its existing and future solutions, effectively integrating acquired software platforms, competition from established companies with greater financial and technical resources, acquiring and retaining customers, making improvements to its existing solutions and developing new solutions. ConversionPoint’s current operations infrastructure may require changes for ConversionPoint to achieve profitability and scale its operations efficiently. If ConversionPoint fails to implement these changes in a timely manner or is unable to implement them due to factors beyond its control, its business may suffer, its revenue may decline, and it may not be able to achieve further growth or profitability. It cannot be assured that ConversionPoint will be successful in addressing these and other challenges it may face in the future.   

 

If the market for ConversionPoint’s solutions slows or declines, its business, growth prospects, and financial condition would be adversely affected.

 

The future growth of digital marketing and e-commerce could be constrained by the level of acceptance and expansion of digital marketing and e-commerce SaaS solutions and managed services.  Even if these services become widely adopted, brands, product companies, advertisers and agencies may not make significant investments in such solutions.  It is difficult to predict customer adoption rates, customer demand for ConversionPoint’s technologies, the future growth rate and size of the digital marketing solutions or the entry of competitive solutions. The continued expansion of the market for digital marketing solutions depends on a number of factors, including the continued growth of e-commerce, the online advertising market, and social and mobile advertising, and the cost, performance and perceived value associated with online marketing solutions, as well as ConversionPoint’s ability to address security and privacy concerns and comply with applicable legal requirements which are continually evolving.

 

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ConversionPoint expects to derive, in the future, a substantial portion of its revenue from the sale of its solutions delivered under a SaaS model. As a result, widespread use and acceptance of this business model is critical to its future growth and success. Under the more traditional license model for software procurement, users of software typically run the applications in-house on their own hardware. Because many companies are generally predisposed to maintaining control of their information technology systems and infrastructure, there may be resistance to the concept of accessing software functionality as a service provided by a third party. In addition, the market for SaaS solutions is still evolving, and existing and new market participants may introduce new types of solutions and different approaches to enable organizations to address their needs. If the market for SaaS solutions fails to grow or grows slower than ConversionPoint currently anticipates, demand for its solutions and its revenue, gross margin and other operating results could be negatively impacted.

 

ConversionPoint’s growth depends in part on the success of its strategic relationships with third parties.

 

ConversionPoint anticipates that it will continue to depend on its relationships with various third parties, including online retailers, ad networks, affiliate marketing companies, fulfillment companies, credit card processors, and technology and content providers, in order to grow its business. Identifying, negotiating and documenting relationships with these third parties may require significant time and resources as does integrating their content and technology with ConversionPoint’s solutions. If the third-party content or technology integrated with ConversionPoint’s solutions is not well received by its customers, ConversionPoint’s brand and reputation could be negatively affected. ConversionPoint’s agreements with third-party business partners such as Walmart and Costco, are typically non-exclusive and do not prohibit them from working with ConversionPoint’s competitors or from offering competing services. If and to the extent that any of these third parties compete with ConversionPoint or cease to do business with ConversionPoint, it could hurt ConversionPoint’s growth prospects.   

 

If ConversionPoint does not retain its senior management team and key employees, or if it fails to attract and retain additional highly skilled sales talent, ConversionPoint may not be able to sustain its growth or achieve its business objectives.

 

ConversionPoint’s future success is substantially dependent on the continued service of its senior management team including, among others, Robert Tallack, President and Chief Executive Officer and Raghu Kilambi, Vice Chair and Chief Financial Officer. ConversionPoint’s future success also depends on its ability to continue to attract, retain, integrate and motivate highly skilled technical, sales and administrative employees. Competition for these employees in ConversionPoint’s industry is intense. As a result, ConversionPoint may be unable to attract or retain management executives and other key personnel that are critical to ConversionPoint’s success, resulting in harm to ConversionPoint’s key client relationships, loss of key information, expertise or know-how and unanticipated recruitment and training costs. The loss of the services of ConversionPoint’s senior management or other key employees could make it more difficult to successfully operate ConversionPoint’s business and pursue its business goals.

 

ConversionPoint may not realize all of the anticipated benefits of its acquisitions, or these benefits may take longer to realize than expected.

 

ConversionPoint completed its acquisitions of Branded Response and Push Holdings in April 2017, and of SellPoints in December 2017. Even if ConversionPoint is successful in integrating these acquisitions and their related technologies into ConversionPoint’s existing operations, and into an end-to-end e-commerce platform, ConversionPoint may not derive the benefits, such as administrative or operational synergy or anticipated earnings increases, that were expected from such acquisitions, which may result in the commitment of capital resources without the expected returns on the capital.

 

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ConversionPoint stores personally identifiable information of its customers and consumers which is subject to vast regulation.

 

ConversionPoint stores personally identifiable information such as credit card information, addresses, phone numbers and other confidential information of its customers and consumers who purchase products and services from it to enable payment for such products and services and for shipping such products. ConversionPoint also captures and stores non-personally identifiable information from consumers and customers such as IP addresses, online behavioral information and geographic information through ConversionPoint’s web analytics tracking solutions, that enable ConversionPoint to display digital advertisements to targeted population segments, as well as collect, manage and store data regarding the measurement and valuation of their digital advertising and marketing campaigns. As such, ConversionPoint is subject to federal, state, provincial and foreign laws regarding privacy and protection of data. Some jurisdictions have enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal data and ConversionPoint’s agreements with certain merchants require ConversionPoint to notify them in the event of a security incident. Evolving regulations regarding personal data and personal information, in the European Union and elsewhere, including, but not limited to, the General Data Protection Regulation, which we refer to as GDPR, and the California Consumer Privacy Act of 2018, especially relating to classification of IP addresses, machine identification, location data and other information, may limit or inhibit ConversionPoint’s ability to operate or expand its business. Such laws and regulations require or may require ConversionPoint or its customers to implement privacy and security policies, permit consumers to access, correct or delete personal information stored or maintained by ConversionPoint or its customers, inform individuals of security incidents that affect their personal information, and, in some cases, obtain consent to use personal information for specified purposes. Other proposed legislation could, if enacted, impose additional requirements and prohibit the use of specific technologies, such as those that track individuals’ activities on web pages or record when individuals click on a link contained in an email message. Such laws and regulations could restrict ConversionPoint’s ability and its customers’ ability to collect and use web browsing data and personal information, which may reduce ConversionPoint’s customers’ demand for its solutions.

 

Changing industry standards and industry self-regulation regarding the collection, use and disclosure of data may have similar effects. Existing and future privacy and data protection laws and increasing sensitivity of consumers to unauthorized disclosures and use of personal information may also negatively affect the public’s perception of ConversionPoint’s sales and marketing practices. If ConversionPoint’s solutions are perceived to cause, or are otherwise unfavorably associated with, invasions of privacy, whether or not illegal, ConversionPoint or its customers may be subject to public criticism.

 

Any failure on ConversionPoint’s part to comply with applicable privacy and data protection laws, regulations, policies and standards or any inability to adequately address privacy concerns associated with ConversionPoint’s solutions, even if unfounded, could subject ConversionPoint to liability, damage ConversionPoint’s reputation, impair its sales and harm its business. Furthermore, the costs of compliance with, and other burdens imposed by, such laws, regulations, policies and standards may result in a decrease in ConversionPoint’s profitability and/or limit adoption of and demand for its solutions.

 

Domestic and foreign government regulation and enforcement of data tracking technologies is expansive, not clearly defined and rapidly evolving. Such regulation could directly restrict portions of ConversionPoint’s business or indirectly affect its business by constraining its customers’ use of ConversionPoint’s platform.

 

ConversionPoint’s services, through the use of cookies and tracking pixel technologies, enable ConversionPoint and its customers to track consumer online behavior and display digital advertisements to targeted population segments at opportune times. Federal, state, municipal and/or foreign governments and agencies have adopted and could in the future adopt, modify, apply or enforce laws, policies, and regulations covering technologies such as cookies and tracking pixels, that are used to collect, store and/or process data. The uncertainty and inconsistency among these laws, coupled with a lack of guidance as to how these laws will be applied to current and emerging Internet and mobile technologies, creates a risk that regulators, lawmakers or other third parties, may assert claims, pursue investigations or audits, or engage in civil or criminal enforcement. These actions could limit the market for ConversionPoint’s services or impose burdensome requirements on its services and/or customers’ use of its services, thereby rendering ConversionPoint’s business unprofitable.

 

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This area of the law is currently under intense government scrutiny and many governments, including the U.S. government, are considering a variety of proposed regulations that would restrict or impact the conditions under which data obtained from or through the activities of visitors could be collected, processed or stored. ConversionPoint may have to develop alternative systems to collect, store and manage user data if users block cookies, tracking pixels or regulations introduce barriers to collecting cookie data or using tracking pixels. In addition, third parties may develop technology or policies to track consumer online behavior, including through next-generation web browsers or other means, which could subsequently prevent ConversionPoint from directly importing data to ConversionPoint’s systems. ConversionPoint may not be able to develop adequate alternatives to cookie data and pixel data collection, which could negatively impact ConversionPoint’s revenue and operating results.

 

Cybersecurity incidents could harm ConversionPoint’s business and negatively impact its financial results.

 

ConversionPoint stores personally identifiable information, credit card information and other confidential information of its customers and consumers. ConversionPoint may experience successful attempts by third parties to obtain unauthorized access to such personally identifiable information. This information could also be otherwise exposed through human error or malfeasance. The unauthorized access or compromise of this personally identifiable information could have an adverse effect on ConversionPoint’s business, financial condition and results of operations. 

 

Cybersecurity incidents could endanger the confidentiality, integrity and availability of ConversionPoint’s information resources and the information it collects, uses, stores and discloses. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to ConversionPoint’s information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. ConversionPoint believes that it takes reasonable steps to protect the security, integrity and confidentiality of the information ConversionPoint collects, uses, stores, and discloses, and is continuously taking steps to strengthen its security protocols and infrastructure, but there is no guarantee that inadvertent or unauthorized data access will not occur despite its efforts. For example, ConversionPoint could be negatively impacted by software bugs or other technical malfunctions, as well as employee error or malfeasance. Any unauthorized access or use of information, virus or similar breach or disruption to ConversionPoint’s, its customers’, or its partners’ systems could result in disrupted operations, loss of information, damage to ConversionPoint’s reputation and customer relationships, early termination of ConversionPoint’s contracts and other business losses, indemnification of its customers, liability for stolen assets or information, increased cybersecurity protection and insurance costs, financial penalties, litigation, regulatory investigations, and other significant liabilities, any of which could materially harm ConversionPoint’s business. 

 

If ConversionPoint cannot efficiently implement its solutions for customers, ConversionPoint may lose customers.

 

ConversionPoint’s customers have a variety of different data formats, enterprise applications and infrastructure and ConversionPoint’s platform must support its customers’ data formats and integrate with complex enterprise applications and infrastructures. If ConversionPoint’s platform does not support a customer’s required data format or appropriately integrate with a customer’s applications and infrastructure, then ConversionPoint may choose to configure its platform to do so, which would increase ConversionPoint’s expenses. Additionally, ConversionPoint does not control its customers’ implementation schedules. As a result, as ConversionPoint has experienced in the past, if ConversionPoint’s customers do not allocate internal resources necessary to meet their implementation responsibilities or if ConversionPoint faces unanticipated implementation difficulties, the implementation may be delayed. If the customer implementation process is not executed successfully or if execution is delayed, ConversionPoint could incur significant costs, customers could become dissatisfied and decide not to increase usage of ConversionPoint’s platform, not to use ConversionPoint’s platform beyond an initial period prior to their term commitment and revenue recognition could be delayed. In addition, competitors with more efficient operating models that have lower implementation costs, could penetrate ConversionPoint’s customer relationships.

 

Additionally, large customers may request or require specific features or functions unique to their particular business processes, which increase ConversionPoint’s upfront investment in sales and deployment efforts and the revenues resulting from the customers under ConversionPoint’s typical contract term may not cover ConversionPoint’s upfront investments. If prospective large customers require specific features or functions that ConversionPoint does not offer, then the market for ConversionPoint’s solutions will be more limited and ConversionPoint’s business could suffer. If ConversionPoint is unable to address the needs of these customers in a timely fashion or further develop and enhance ConversionPoint’s solutions, these customers may not renew their subscriptions, seek to terminate their relationship with ConversionPoint, renew on less favorable terms, or reduce their marketing spend on ConversionPoint’s platform. If any of these were to occur, ConversionPoint’s revenues may decline and its operating results could be adversely affected.

 

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If ConversionPoint fails to manage and increase the capacity of its hosted infrastructure, ConversionPoint’s customers may be unable to use ConversionPoint’s platform, which could harm ConversionPoint’s reputation and demand for its solutions.

 

ConversionPoint has experienced significant growth in the number of users, transactions and data that ConversionPoint’s hosting infrastructure supports. ConversionPoint seeks to maintain sufficient excess capacity in its third party hosted infrastructure to be sufficiently flexible and scalable to meet the needs of all of its customers. However, the provision of new hosting infrastructure requires significant lead time. If ConversionPoint does not accurately predict its infrastructure capacity requirements, its customers could experience service outages that may subject ConversionPoint to financial penalties or other liabilities, result in customer losses, harm ConversionPoint’s reputation and adversely affect its ability to grow its revenue.

 

Mobile and other devices are increasingly being used to conduct e-commerce, and if ConversionPoint’s solutions do not operate as effectively, when accessed through these devices, or in different formats and resolutions, ConversionPoint’s customers may not be satisfied with ConversionPoint’s services, which could harm ConversionPoint’s business. 

 

Effective functionality on mobile and other devices, and across multiple platforms and using different resolutions, is integral to ConversionPoint’s long-term development and growth strategy. In the event that ConversionPoint’s customers have difficulty accessing and using ConversionPoint’s platform on mobile and other devices, ConversionPoint’s business and operating results could be adversely affected.  In addition, ConversionPoint is taking steps to comply with the Twenty-First Century Communications and Video Accessibility Act and similar accessibilities laws that require making the internet fully accessible to people with disabilities.

 

ConversionPoint must develop and introduce enhancements and new features that achieve market acceptance or that keep pace with technological developments to remain competitive in the evolving online marketing industry.

 

ConversionPoint operates in a dynamic market characterized by rapidly changing technologies and industry and legal standards. The introduction of new digital marketing solutions by ConversionPoint’s competitors, the market acceptance of solutions based on new or alternative technologies, or the emergence of new industry standards could render ConversionPoint’s platforms obsolete. ConversionPoint’s ability to compete successfully, attract new customers and increase revenues from existing customers depends in large part on its ability to enhance and improve its existing digital marketing solutions and to continually introduce or acquire new features that are in demand by the markets ConversionPoint serves. ConversionPoint is in the process of a significant upgrade to its software platform infrastructure, and the success of this project or any other enhancement or new solution depends on several factors, including, timely completion, adequate quality testing, and appropriate introduction and market acceptance. Any new platform or feature that ConversionPoint develops or acquires may not be introduced in a timely manner, may contain defects, may be costlier to complete than ConversionPoint anticipates or may not achieve the broad market acceptance necessary to generate significant revenues. If ConversionPoint is unable to complete the upgrade to its software platform infrastructure and integrate its various service offerings effectively or in a timely manner, or to anticipate or timely and successfully develop or acquire new offerings or features or enhance ConversionPoint’s existing platform to meet customer requirements, ConversionPoint’s business and operating results will be adversely affected.

 

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ConversionPoint’s business and prospects would be harmed if changes to technologies used in its platform or new versions or upgrades of operating systems and internet browsers adversely impact the process by which merchants, brands and consumers interface with ConversionPoint’s platform.

 

In the future, providers of internet browsers could introduce new features that would make it difficult for ConversionPoint to provide certain of its services such as retargeter, or for ConversionPoint’s customers to use ConversionPoint’s platform. In addition, internet browsers for desktop or mobile devices could introduce new features, change existing browser specifications such that they would be incompatible with ConversionPoint’s platform, or prevent customers from accessing ConversionPoint’s platform. In addition, the growing use of ad blockers in internet browsers could impact ConversionPoint’s ability to serve ads. Any changes to technologies used in ConversionPoint’s platform, to existing features that ConversionPoint relies on, or to operating systems or internet browsers that make it difficult for customers to access or use ConversionPoint’s platform, may make it more difficult for ConversionPoint to maintain or increase its revenues and could adversely impact its business and prospects.

 

ConversionPoint derives a portion of its revenue from monthly subscription agreements, and intends to increase the proportion of its revenue which is generated through monthly subscription agreements.

 

ConversionPoint derives a portion of its revenue from subscription agreements and intends to increase the portion of its revenue which is generated through subscription agreements. Subscription agreements are typically month-to-month or one year in length, and often terminable on 30 days’ notice. As a result, a portion of the revenue ConversionPoint reports in each quarter is generated from customer agreements entered into during previous periods. Consequently, a decline in new or renewed subscriptions in any one quarter may not be reflected in ConversionPoint’s financial performance in that quarter but might negatively affect ConversionPoint’s revenue in future quarters. Accordingly, the effect of significant declines in sales and market acceptance of ConversionPoint’s solutions may not be reflected in ConversionPoint’s short-term results of operations.

 

ConversionPoint derives some of its revenue from usage-based pricing models, which makes it difficult to forecast revenues from its current customers and future prospects.

 

Some of ConversionPoint’s services are offered on a usage-based pricing model in which ConversionPoint’s fees are calculated based on the customer’s use of aspects of ConversionPoint’s services. This pricing model makes it difficult to accurately forecast revenues because ConversionPoint’s customers’ activities on ConversionPoint’s platform may vary from month to month based on the variety of industries in which ConversionPoint’s advertisers operate, the seasonality of those industries and fluctuations in ConversionPoint’s customers’ marketing budgets or other factors. If ConversionPoint incorrectly forecasts revenues for these customers and the amount of revenue is less than projections ConversionPoint provides to investors, the price of ConversionPoint’s common stock could decline substantially. Additionally, if ConversionPoint overestimates usage, ConversionPoint may incur additional expenses in adding infrastructure, without a commensurate increase in revenues, which would harm ConversionPoint’s gross margins and other operating results.

 

If ConversionPoint fails to maintain a consistently high level of customer service, its brand, business and financial results may be harmed. 

 

ConversionPoint believes its focus on customer service and support is critical to onboarding new customers, retaining existing customers and growing ConversionPoint’s business. If ConversionPoint is unable to maintain a consistently high level of customer service and technical support, ConversionPoint may lose existing customers. In addition, ConversionPoint’s ability to attract new customers is highly dependent on ConversionPoint’s reputation and on positive recommendations from its existing customers. Any failure to maintain a consistently high level of customer service, or a market perception that ConversionPoint does not maintain high-quality customer service, could adversely affect its reputation and the number of positive customer referrals that ConversionPoint receives.

 

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ConversionPoint obtains certain products it sells from third parties.

 

ConversionPoint derives a portion of its revenue from direct online product sales, and sources certain products it sells from third-parties and relies on them to meet its sales needs. ConversionPoint plans to continue to rely upon such third parties to supply products it sells. If these suppliers fail to maintain high manufacturing standards and processes, it could harm ConversionPoint’s business. In the event of a natural disaster or business failure, including due to bankruptcy of a supplier, ConversionPoint may not be able to secure replacement products on a timely or cost-effective basis, which could result in delays, additional costs and reduced revenues. In addition, price increases from a supplier would directly affect ConversionPoint’s profitability if it is not able to pass price increases on to customers.

 

 As a direct-to-consumer marketer, ConversionPoint is subject to vast regulation. If ConversionPoint is required to pay damages or expenses in connection with legal claims, ConversionPoint’s business, financial condition and results of operations may be harmed.

 

Historically, a substantial portion of ConversionPoint’s revenue has been derived from negative option marketing, in which consumers sign up to receive a free trial product and to be billed monthly for continued delivery of such product until such consumer affirmatively cancels his or her subscription. Such products typically include monthly subscriptions for health and wellness e-books, and health and beauty products such as facial creams and nutritional supplements. During 2017 and 2018, ConversionPoint generated net revenues of $35,912,210, and $12,266,634, respectively, through such trial offer sales, which represented, 71.9% and 30.8%, respectively, of ConversionPoint’s net revenues. Although ConversionPoint continues, and contemplates continuing, to engage in e-commerce product sales through negative option marketing, since the second quarter of 2018, ConversionPoint has shifted its focus from e-commerce product sales to growing its managed services and SaaS businesses. As a direct-to-consumer marketer, ConversionPoint is subject to various federal, state and foreign laws and regulations such as the Restore Online Shoppers Confidence Act, which we refer to as ROSCA, and the Dot Com Disclosure Guidance published by the United States Federal Trade Commission, which requires certain disclosures to prevent unfair, deceptive or misleading online advertisements. ConversionPoint’s failure to comply with these regulations could, among other things, result in consumer lawsuits, federal investigations, or State Attorney General actions or inquiries. Such claims or inquiries, regardless of their merit, could divert management time and attention away from ConversionPoint’s business, result in significant costs to investigate and defend, harm ConversionPoint’s reputation and result in the cessation of certain portions of ConversionPoint’s business. If ConversionPoint or its subsidiaries become subject to these or similar types of claims or investigations, and are not successful in their defense, ConversionPoint or its subsidiaries may be forced to pay damages, some of which may be substantial, or to cease parts of their business.

 

ConversionPoint could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs its clients would have to pay for its offering and adversely affect its operating results.

 

In general, in connection with e-commerce product sales, ConversionPoint has not historically collected state or local sales, use or other similar taxes in any jurisdictions in which ConversionPoint does not have a tax nexus, in reliance on court decisions or applicable exemptions that restrict or preclude the imposition of obligations to collect such taxes with respect to online sales of products. In addition, ConversionPoint has not historically collected state or local sales, use or other similar taxes in certain jurisdictions in which ConversionPoint does have a physical presence, in reliance on applicable exemptions. On June 21, 2018, the U.S. Supreme Court decided, in South Dakota v. Wayfair, Inc., that state and local jurisdictions may, at least in certain circumstances, enforce a sales and use tax collection obligation on remote vendors that have no physical presence in such jurisdiction. A number of states have already begun, or have positioned themselves to begin, requiring sales and use tax collection by remote vendors and/or by online marketplaces. The details and effective dates of these collection requirements vary from state to state. It is possible that one or more jurisdictions may assert that ConversionPoint has liability for periods for which ConversionPoint has not collected sales, use or other similar taxes, and if such an assertion or assertions were successful it could result in substantial tax liabilities, including for past sales taxes and penalties and interest, which could materially adversely affect ConversionPoint’s business, financial condition and operating results.

 

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ConversionPoint or its subsidiaries may be exposed to material product liability claims, which could increase their costs and adversely affect ConversionPoint’s reputation and business.

 

As a marketer and distributor of products designed for human consumption or use, ConversionPoint or its subsidiaries could be subject to product liability claims if the use of products they market or distribute, is alleged to have resulted in injury or undesired results. Products marketed include vitamins that are classified as dietary supplements and skin care products, and in most cases are not subject to pre-market regulatory approval in the United States. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur.

 

ConversionPoint has not had any product liability claims filed against it or its subsidiaries, but in the future ConversionPoint or its subsidiaries may be subject to various product liability claims, including, due to product tampering by unauthorized third parties, product contamination, and claims that products had inadequate instructions for use, or inadequate warnings concerning possible side effects and interactions with other substances. The cost of defense can be substantially higher than the cost of settlement even when claims are without merit. The high cost to defend or settle product liability claims could have a material adverse effect on ConversionPoint’s business and operating results and ConversionPoint’s insurance, if any, may not be adequate.

 

ConversionPoint’s business is exposed to a multitude of risks based on its acceptance of credit cards and reliance on third party credit card processors.

 

ConversionPoint’s customers typically pay for their orders with debit cards or credit cards, and ConversionPoint depends on third party credit card processing in connection with online product sales. There are many risks related to ConversionPoint’s acceptance of credit cards, the collection and storage of credit card data, and ConversionPoint’s dependence on third party credit card processors to process payments.

 

ConversionPoint’s failure to limit fraudulent transactions conducted on its websites or through its platform, such as through use of stolen credit card numbers, could subject ConversionPoint to liability and adversely impact its reputation. Under credit card association rules, penalties may be imposed at the discretion of the association for inadequate fraud protection. Any such potential penalties would be imposed on ConversionPoint’s credit card processor by the association. Under ConversionPoint’s contracts with ConversionPoint’s payment processors, ConversionPoint is required to reimburse them for such penalties. ConversionPoint faces the risk that it may fail to maintain an adequate level of fraud protection and that one or more credit card associations or other processors may, at any time, assess penalties against ConversionPoint or terminate ConversionPoint’s ability to accept credit card payments or other form of online payments from customers, which would have a material adverse effect on ConversionPoint’s business, financial condition and operating results. Although ConversionPoint does not believe there has been a compromise of customer information, it is possible that either ConversionPoint or its subsidiaries may not be in full compliance with these standards. Accordingly, ConversionPoint could be fined, which could impact its financial condition, or certain of ConversionPoint’s products could be suspended, which would cause ConversionPoint to be unable to process payments using credit cards. If ConversionPoint is unable to accept credit card payments, ConversionPoint’s business, financial condition and operating results may be adversely affected.

 

In addition, most of ConversionPoint’s e-commerce product sale transactions are deemed high risk, and there often exists a shortage of merchant processors able or willing to process such online transactions. Relevant factors typically used in determining whether a credit card transaction is high risk, include, the nature of the industry (health and wellness products are considered high risk), high monthly sales volumes or individual transactions, the acceptance of recurring payments, the sale of subscription-based products and card not present (CNP) transactions (i.e., transactions made where the cardholder does not physically present the credit card for a merchant’s visual examination, which is the case in all online credit card transactions). Almost all of ConversionPoint’s product sales, which constituted 83.4% and 51.0% of ConversionPoint’s net revenues in 2017 and 2018, respectively, are deemed “high” risk because they either involve health and wellness products, a high number of individual monthly transactions, recurring payments, and/or CNP transactions.

 

In the past, ConversionPoint has had to decrease the volume of sales as a result of the shortage of available merchant processing. The future shortage of merchant processing available to process payments for ConversionPoint’s e-commerce product sales and the sales of ConversionPoint’s customers’ products, could result a decrease in the volume of products ConversionPoint or its managed service customers are able to sell and could have a material adverse effect on ConversionPoint’s revenue. Further, such credit card processors require ConversionPoint to maintain significant reserves (often up to 10% of the sale) to cover refunds, chargebacks and fraud, which results in delays of up to 6 months in receiving such revenue. If ConversionPoint’s refunds or chargebacks increase, ConversionPoint’s processors could require ConversionPoint to increase such reserves, increase fees or terminate their contracts with ConversionPoint, which would have an adverse effect on ConversionPoint’s financial condition.

 

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In addition, ConversionPoint could be liable if there is a breach of security with respect to the payment information it stores. Online commerce and communications depend on the secure transmission of confidential information over public networks. ConversionPoint relies on encryption and authentication technology to authenticate and secure the transmission of confidential information, including customer credit card numbers. However, ConversionPoint cannot ensure this technology will prevent breaches of the systems it uses to protect customer payment data.

 

In the future, ConversionPoint may explore accepting various forms of payment that may have higher fees and costs than ConversionPoint’s current payment methods. If ConversionPoint’s customers utilize alternative payment methods, ConversionPoint’s payment costs could increase and ConversionPoint’s operating results could be adversely impacted.

 

ConversionPoint operates in an industry with extensive intellectual property litigation. Claims of infringement against ConversionPoint may harm ConversionPoint’s business.

 

ConversionPoint’s success depends, in part, upon its non-infringement of intellectual property rights owned by others and being able to resolve claims of intellectual property infringement without major financial expenditures or adverse consequences. The internet-related software field generally is characterized by extensive intellectual property litigation. Although ConversionPoint’s industry is rapidly evolving, many companies that own, or claim to own, intellectual property have aggressively asserted their rights. From time to time, ConversionPoint may be subject to legal proceedings and claims relating to the intellectual property rights of others, including, but not limited to, patents and trademarks, and ConversionPoint expects that third parties will assert intellectual property claims against ConversionPoint, particularly as ConversionPoint expands the complexity and scope of its business. In addition, many of ConversionPoint’s subscription agreements require ConversionPoint to indemnify its customers against claims that its solutions infringe the intellectual property rights of third parties.

 

Future litigation may be necessary to defend ConversionPoint or its customers by determining the scope, enforceability and validity of third-party proprietary rights or to establish ConversionPoint’s proprietary rights. Some of ConversionPoint’s competitors have substantially greater resources than ConversionPoint does and are able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than ConversionPoint could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target ConversionPoint. Regardless of whether claims that ConversionPoint is infringing patents or other intellectual property rights have any merit, these claims are time-consuming and costly to evaluate and defend and could, harm ConversionPoint’s reputation, adversely affect its relationship with customers and partners, cause delays or stoppages in its services, divert management’s attention and resources, require changes to its software that would cause it to incur substantial costs and/or subject it to significant liability.

 

In addition to liability for monetary damages against ConversionPoint, which may be tripled and may include attorneys’ fees, or, in some circumstances, damages against ConversionPoint’s customers, ConversionPoint may be prohibited from developing, commercializing or continuing to provide some or all of ConversionPoint’s software solutions unless ConversionPoint obtains 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.

 

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Activities of ConversionPoint’s customers and affiliates or the content of their marketing messages, could damage ConversionPoint’s brand, subject it to liability and harm its business and financial results.

 

ConversionPoint’s terms of service prohibit ConversionPoint’s customers and affiliates from using ConversionPoint’s platform to engage in illegal activities, including, fraudulent marketing activities, and its employment and marketing policies prohibit its employees from engaging in fraudulent marketing activities. Customers, affiliate marketers or employees may nonetheless engage in prohibited or illegal activities in violation of applicable laws, which could subject ConversionPoint to liability. For example, from time to time, certain of ConversionPoint’s affiliate marketing companies use content that infringes on the rights of others, including, but not limited to, unauthorized celebrity endorsements, that have resulted in the receipt of cease and desist letters and claims for damages. In addition, there have been limited instances in which ConversionPoint’s employees have used infringing content in certain marketing materials, that have resulted in the receipt of cease and desist letters and claims for damages. ConversionPoint’s brand may be negatively impacted by the actions of customers, affiliates or employees, that are deemed to be hostile, offensive, inappropriate or illegal. Although ConversionPoint attempts to monitor the appropriateness of the content of its customers, affiliates and employees, ConversionPoint does not have control over their activities. The safeguards ConversionPoint has in place may not be sufficient for ConversionPoint to avoid liability or avoid harm to ConversionPoint’s brand, especially if such hostile, offensive, inappropriate or illegal use is high profile, which could adversely affect its business and financial results.

 

ConversionPoint’s failure to protect its intellectual property rights could diminish the value of its services, weaken its competitive position and reduce its revenue.

 

ConversionPoint regards the protection of its intellectual property, which includes trade secrets, copyrights, trademarks and domain names, as critical to ConversionPoint’s success. ConversionPoint strives to protect its intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. ConversionPoint enters into confidentiality and invention assignment agreements with its employees and contractors, and confidentiality agreements with parties with whom it conducts business in order to limit access to, and disclosure and use of, its proprietary information. However, these contractual arrangements and the other steps ConversionPoint has taken to protect ConversionPoint’s intellectual property may not prevent the misappropriation of ConversionPoint’s proprietary information or deter independent development of similar technologies by others.

 

ConversionPoint has four provisional patent applications and is investigating seeking patent protection for other aspects of ConversionPoint’s technologies, but there can be no assurance that ConversionPoint will file for any additional patent protection, or any patents will ultimately be issued, or that, if issued, they will not be challenged. ConversionPoint has registered domain names, trademarks and service marks in the United States and may also pursue additional registrations both in and outside the United States. 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 ConversionPoint’s rights. ConversionPoint may be required to protect its intellectual property in an increasing number of jurisdictions, a process that is expensive and may not be successful or which ConversionPoint may not pursue in every location.

 

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

 

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ConversionPoint’s use of “open source” software could negatively affect its ability to sell its solutions and could subject ConversionPoint to litigation.

 

A portion of ConversionPoint’s technology platform and solutions incorporate so-called “open source” software, and ConversionPoint may incorporate additional open source software in the future. Open source software is generally licensed by its authors or other third parties under open source licenses. If ConversionPoint fails to comply with these licenses, it may be subject to specified conditions, including requirements that ConversionPoint offer its solutions that incorporate the open source software for no cost, that ConversionPoint make available source code for modifications or derivative works it creates based upon, incorporating or using the open source software and that ConversionPoint license such modifications or derivative works under the terms of the particular open source license. If an author or other third party that distributes open source software that ConversionPoint uses were to allege that ConversionPoint has not complied with the conditions of one or more of these licenses, ConversionPoint could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, including being enjoined from the sale of ConversionPoint’s solutions that contain the open source software. ConversionPoint could be subject to suits by parties claiming ownership of what ConversionPoint believes to be open source software. Litigation could be costly for ConversionPoint to defend, have a negative effect on ConversionPoint’s operating results and financial condition and require ConversionPoint to devote additional research and development resources to change ConversionPoint’s solutions.

 

Risks Related to Inuvo’s Business

 

Inuvo has a history of losses, and its revenues declined in 2018 from 2017 and Inuvo cannot anticipate with any degree of certainty what its revenues will be in future periods. Inuvo’s working capital deficit has increased substantially at December 31, 2018 as compared to December 31, 2017.

 

Inuvo reported a net loss of approximately $5.9 million in 2018 as compared to a net loss of approximately $3.1 million in 2017. At December 31, 2018, Inuvo had a cash balance of approximately $229,000 and a working capital deficit of approximately $6.9 million as compared to a cash balance of approximately $4.1 million and a working capital deficit of approximately $6.2 million at December 31, 2017. As described elsewhere in this joint proxy statement/prospectus, Inuvo’s industry is currently in a consolidation phase and Inuvo’s strategic decisions to discontinue certain non-strategic technologies in response to Inuvo’s changing industry involved the short-term loss of revenue and margin in anticipation of future growth and margins starting in 2019. Inuvo estimates that the revenue loss associated with this decision was $7.2 million in 2018. In addition, Inuvo is incurring certain additional costs associated with the mergers which also adversely impacts Inuvo’s working capital. Since Inuvo’s credit facility is dependent upon receivables, and Inuvo does not know when, if ever, that Inuvo’s revenues will return to historic levels or if Inuvo will be able to replace those lost revenues with revenues from other sources, the combination of lower credit availability and recent negative cash flows generated from operating activities introduces potential risk of operation without interruption.

 

Inuvo relies on three customers for a significant portion of its revenues.

 

Inuvo is reliant upon Yahoo!, Google, and Microsoft Online for most of its revenue. During 2018, they accounted for 71.8% , 10.1% and 5.5% of its revenues, respectively. In 2017, Yahoo!, Google, and OpenX accounted for 66.7%, 10.4% and 9.4% of Inuvo’s revenues. The amount of revenue Inuvo receives from these customers is dependent on a number of factors outside of Inuvo’s control, including the amount they charge for advertisements, the depth of advertisements available from them, and their ability to display relevant ads in response to end-user queries. Inuvo’s revenue in the third quarter 2018 was 17.3% lower than the same quarter of 2017 due to demand and pricing changes by Inuvo’s largest customer, Yahoo!. The result was approximately a 40% decrease in RPCs. Inuvo has not seen an appreciable change in remote procedure calls, or RPCs, and Inuvo does not know whether RPCs will return to their former levels.

 

Inuvo would likely experience a significant decline in revenue and Inuvo’s business operations could be significantly harmed if (i) these customers do not approve Inuvo’s new websites, publishers and / or applications, (ii) if Inuvo or its publishers violate their guidelines or they change their guidelines, or (iii) if Inuvo’s contracts with these customers are terminated or expire without being renewed. In addition, if any of these preceding circumstances were to occur, Inuvo may not be able to find a suitable alternate paid search results provider or otherwise replace the lost revenues. Inuvo’s contracts with each of these customers contain broad termination provisions and Inuvo’s Yahoo! contract expires in November 2020, Inuvo’s Google contract expires in February 2021 and Inuvo’s Microsoft Online contract expires in February 2020. The loss of any of these customers or a material change in the revenue or gross profit they generate would have a material adverse impact on Inuvo’s business, results of operations and financial condition in future periods.

 

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Failure to comply with the covenants and restrictions in Inuvo’s credit facility could impact Inuvo’s ability to access capital as needed.

 

Inuvo has a credit facility with Western Alliance Bank. The facility expired in September 2018 and was extended to October 2018. Inuvo signed a new facility agreement with Western Alliance Bank on October 11, 2018. The new agreement may be terminated by either party at any time and has a sub-limit provision that expires on April 30, 2019. While Inuvo believes it will be able to renew with substantially similar terms and conditions, there are no assurances that Inuvo will be able to renew. In that event, Inuvo’s liquidity in future periods would be materially adversely impacted. The credit facility contains a number of requirements, among other things:

 

  payment of fees to the lender associated with the credit facility;
     
  maintenance of Inuvo’s corporate existence in good standing;
     
  granting the lender a security interest in Inuvo’s assets;
     
  providing financial information to the lender; and
     
  refrain from any transfer of any of Inuvo’s business or property, subject to customary exceptions.

 

A breach in Inuvo’s covenants could result in a default under the credit facility, and in such event Western Alliance Bank could elect to declare all borrowings outstanding, if any, to be due and payable. If this occurs and Inuvo has outstanding obligations and is not able to repay, Western Alliance Bank could require Inuvo to apply all of its available cash to repay the debt amounts and could then proceed against the underlying collateral. Should this occur, Inuvo cannot assure you that its assets would be sufficient to repay its debt in full, Inuvo would be able to borrow sufficient funds to refinance the debt, or that Inuvo would be able to obtain a waiver to cure any such default. In such an event, Inuvo’s ability to conduct its business as it is currently conducted would be in jeopardy.

 

Failure to comply with the covenants and restrictions in Inuvo’s grant agreement with the State of Arkansas could result in the repayment of a portion of the grant, which Inuvo may not be able to repay or finance on favorable terms.

 

In January 2013, Inuvo entered into an agreement with the State of Arkansas whereby Inuvo was granted $1,750,000 for the relocation of Inuvo to Arkansas and for the purchase of equipment. The grant was contingent upon Inuvo having at least 50 full-time equivalent permanent positions within four years, maintaining at least 50 full-time equivalent permanent positions for the following six years and paying those positions an average total compensation of $90,000 per year.

 

If Inuvo fails to meet the requirements of the grant after the initial four-year period, it may be required to repay a portion of the grant, up to but not to exceed the full amount of the grant. As of December 31, 2018, Inuvo had 39 full-time employees located in Arkansas. Failure to meet the requirements of the grant after the initial four-year period, may require Inuvo to repay a portion of the grant, up to but not to exceed the full amount of the grant. At December 31, 2018, Inuvo accrued a contingent liability of $55,000 for the lower than required employment. Should the lower than required employment continue, Inuvo cannot assure you that its assets would be sufficient to repay its grant in full, Inuvo would be able to borrow sufficient funds to refinance the grant, or that Inuvo would be able to obtain a waiver to cure any such default. In such an event, Inuvo’s ability to conduct its business as it is currently conducted would be in jeopardy.

 

Inuvo’s business is seasonal and its financial results and cash availability may vary significantly from period to period.

 

Historically, the last half of the year has stronger demand and therefore greater revenue than the first half of the year. Inuvo experiences lower RPCs due to a decline in demand for inventory on website and app space and the recalibrating of advertiser’s marketing budgets after the holiday selling season. If Inuvo is not able to appropriately adjust to seasonal or other factors, it could have a material adverse effect on its financial results. A material percentage of Inuvo’s operating expense is fixed and does not vary significantly with revenue. When revenue is seasonally lower cash availability is constrained. The bank credit facility and cash generated by operations may be insufficient to continue normal operations. Inuvo may elect to sell securities to the public or to selected investors, or borrow under the current or any replacement line of credit or other debt instruments which may cause dilution.

 

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Inuvo depends on relationships with and the success of its supply partners. 

 

Inuvo’s supply partners are very important to its success. Inuvo must recruit and maintain partners who are able to drive traffic successfully to their websites and mobile applications, resulting in clicks on advertisements Inuvo has delivered. These partners may experience difficulty in attracting and maintaining users for a number of reasons, including competition, rapidly changing markets and technology, industry consolidation and changing consumer preferences. Further, Inuvo may not be able to further develop and maintain relationships with distribution partners. They may be able to make their own deals directly with advertisers, may view Inuvo as a competitor or may find Inuvo’s competitors’ offerings more desirable. Any of these potential events could have a material adverse effect on Inuvo’s business, financial position and results of operations.

 

The success of Inuvo’s owned sites depend on Inuvo’s ability to acquire traffic in a profitable manner. 

 

Inuvo’s ALOT-branded websites depend on Inuvo’s ability to attract traffic in a profitable manner. Inuvo uses a predictive model to calculate the rate of return for marketing campaigns, which includes estimates and assumptions. If these estimates and assumptions are not accurate, Inuvo may not be able to effectively manage its marketing decisions and could acquire traffic in an unprofitable manner. In addition, Inuvo may not be able to maintain and grow its traffic for a number of reasons, including, but not limited to, acceptance of its websites by consumers, the availability of advertising to promote its websites, competition, and sufficiency of capital to purchase advertising. Inuvo advertises on search engine websites to drive traffic to its owned and operated websites. Inuvo’s keyword advertising is done primarily with Google and Facebook, but also with Yahoo! and Bing. If Inuvo is unable to maintain and grow traffic to its sites in a profitable manner, it could have a material adverse effect on Inuvo’s business, financial condition, and results of operations.

 

Inuvo’s business must keep pace with rapid technological change to remain competitive. 

 

Inuvo’s business operates in a market characterized by rapidly changing technology, evolving industry standards, frequent new product and service announcements, enhancements, and changing customer demands. Inuvo must adapt to rapidly changing technologies and industry standards and continually improve the speed, performance, features, ease of use and reliability of Inuvo’s services. This includes making Inuvo’s products and services compatible and maintaining compatibility with multiple operating systems, desktop and mobile devices, and evolving network infrastructure. If Inuvo fails to do this, its results of operations and financial position could be adversely affected.

 

Inuvo’s services may be interrupted if Inuvo experiences problems with its network infrastructure.

 

The performance of Inuvo’s network infrastructure is critical to its business and reputation. Because Inuvo’s services are delivered solely through the internet, Inuvo’s network infrastructure could be disrupted by a number of factors, including, but not limited to:

 

  unexpected increases in usage of Inuvo’s services;
     
  computer viruses and other security issues;
     
  interruption or other loss of connectivity provided by third-party internet service providers;
     
  natural disasters or other catastrophic events; and
     
  server failures or other hardware problems.

 

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While Inuvo has data centers in multiple, geographically dispersed locations and active back-up and disaster recovery plans, Inuvo cannot assure you that serious interruptions will not occur in the future. If Inuvo’s services were to be interrupted, it could cause loss of users, customers and business partners, which could have a material adverse effect on Inuvo’s results of operations and financial position.

 

Inuvo depends on key personnel, the loss of whom could harm Inuvo’s business. 

 

Inuvo’s success depends in part on the retention of personnel critical to its business operations. Loss of key personnel may result in disruption of operations, loss of key business relationships or expertise, additional recruiting and training costs, and diminished anticipated benefits of acquisitions. Inuvo’s future success is substantially dependent on the continued service of its key senior management. Inuvo has experienced difficulty from time to time in attracting or retaining the personnel necessary to support the growth of its business, and Inuvo may experience similar difficulties in the future.

 

Regulatory and legal uncertainties could harm Inuvo’s business. 

 

While there are currently relatively few laws or regulations directly applicable to internet-based commerce or commercial search activity, there is increasing awareness of such activity and interest from state and federal lawmakers in regulating these services. New regulation of activities in which Inuvo is involved or the extension of existing laws and regulations to internet-based services could have a material adverse effect on Inuvo’s business, results of operations and financial position.

 

Failure to comply with federal, state and international privacy and data security laws and regulations, or the expansion of current or the enactment of new privacy and data security laws or regulations, could adversely affect Inuvo’s business. 

 

A variety of federal, state and international laws and regulations govern the collection, use, retention, sharing and security of consumer data. In addition, various federal, state and foreign legislative and regulatory bodies may expand current or enact new laws regarding privacy matters. For example, recently there have been Congressional hearings and increased attention to the capture and use of location-based information relating to users of smartphones and other mobile devices, and internationally the European Union’s new GDPR went into effect in May 2018. Inuvo has posted privacy policies and practices concerning the collection, use and disclosure of subscriber data on Inuvo’s websites and applications. The existing and soon to be enacted privacy and data security related laws and regulations are evolving and subject to potentially differing interpretations. Several internet companies have incurred penalties for failing to abide by the representations made in their privacy policies and practices. In addition, several states have adopted legislation that requires businesses to implement and maintain reasonable security procedures and practices to protect sensitive personal information and to provide notice to consumers in the event of a security breach. Any failure, or perceived failure, by Inuvo to comply with its posted privacy policies or with any data-related consent orders, FTC requirements or orders or other federal, state or international privacy or consumer protection-related laws, including the GDPR, regulations or industry self-regulatory principles could result in claims, proceedings or actions against Inuvo by governmental entities or others or other liabilities, which could adversely affect Inuvo’s business.

 

Inuvo may face third party intellectual property infringement claims that could be costly to defend and result in the loss of significant rights. 

 

From time to time third parties have asserted infringement claims against Inuvo, including copyright, trademark and patent infringement, among other things. While Inuvo believes that it has defenses to these types of claims under appropriate trademark laws, Inuvo may not prevail in its defenses to any intellectual property infringement claims. In addition, Inuvo may not be adequately insured for any judgments awarded in connection with any litigation. Any such claims and resulting litigation could subject Inuvo to significant liability for damages or result in the invalidation of Inuvo’s proprietary rights, which would have a material adverse effect on its business, financial condition, and results of operations. Even if Inuvo were to prevail, these claims could be time-consuming, expensive to defend, and could result in the diversion of management’s time and attention.

 

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Inuvo is subject to risks from publishers who could fabricate clicks either manually or technologically. 

 

Inuvo’s business involves the establishment of relationships with website owners and publishers. In exchange for their consumer traffic, Inuvo provides an advertising placement service and shares a portion of the revenue it collects with that website publisher. Although Inuvo has click fraud detection software in place, Inuvo cannot guarantee that it will identify all fraudulent clicks or be able to recover funds distributed for fabricated clicks. This risk could materially impact Inuvo’s ability to borrow, its cash flow and the stability of its business.

 

A downturn or uncertainty in global economic conditions may have a significant negative effect on Inuvo’s access to credit and its ability to raise capital and may impact its business, operating results or financial condition. 

 

A future downturn or uncertainty in global economic conditions, may result in significant reductions in, and heightened credit quality standards for, available capital and liquidity from banks and other providers of credit and substantial reductions and/or fluctuations in equity and currency values worldwide, which may make it difficult for Inuvo to raise additional capital or obtain additional credit, when needed, on acceptable terms or at all. Moreover, deteriorated economic conditions, or the threat of a prolonged recessionary period, may cause disruptions and volatility in global financial markets, increased rates of default and bankruptcy and have a negative impact on the levels of consumer spending. These macroeconomic developments could negatively affect Inuvo’s business, operating results or financial condition in a number of ways. For example, current or potential customers, such as advertisers, may delay or decrease spending with Inuvo or may not pay Inuvo or may delay paying Inuvo for previously performed services. In addition, if consumer spending decreases, this may result in fewer clicks on Inuvo’s advertisers’ ads displayed on Inuvo’s or its partner websites.

 

Inuvo’s quarterly operating results can be difficult to predict and can fluctuate substantially, which could result in volatility in the price of its common stock.

 

Inuvo’s quarterly revenues and other operating results have varied in the past and are likely to continue to vary significantly from quarter to quarter. Inuvo’s agreements with distribution partners and key customers do not require minimum levels of usage or payments, and its revenues therefore fluctuate based on the actual usage of its service each quarter by existing and new distribution partners. Quarterly fluctuations in Inuvo’s operating results also might be due to numerous other factors, including:

 

  its ability to attract new distribution partners, including the length of its sales cycles, or to sell increased usage of its service to existing distribution partners;
     
  technical difficulties or interruptions in its services;
     
  changes in privacy protection and other governmental regulations applicable to its industry;
     
  changes in its pricing policies or the pricing policies of its competitors;
     
  the financial condition and business success of its distribution partners;
     
  purchasing and budgeting cycles of its distribution partners;
     
  acquisitions of businesses and products by Inuvo or its competitors;
     
  competition, including entry into the market by new competitors or new offerings by existing competitors;
     
  discounts offered to advertisers by upstream advertising networks;
     
  its history of litigation;

 

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  its ability to hire, train and retain sufficient sales, client management and other personnel;
     
  timing of development, introduction and market acceptance of new services or service enhancements by Inuvo or its competitors;
     
  concentration of marketing expenses for activities such as trade shows and advertising campaigns;
     
  expenses related to any new or expanded data centers; and
     
  general economic and financial market conditions.

 

Inuvo has historically had difficulties meeting the financial covenants set forth in its credit agreement.

 

During the third quarter of 2018, Inuvo failed to comply with the minimum revenue and adjusted EBITDA requirement. Inuvo’s lender has given it waivers in the past, including in connection with its failure to meet the covenants during the third quarter of 2018, and reset Inuvo’s financial covenants several times. A breach in its covenants could result in a default under the credit facility, and in such event Western Alliance Bank could elect to declare all borrowings outstanding, if any, to be due and payable. If this occurs and Inuvo has outstanding obligations and are not able to repay, Western Alliance Bank could require Inuvo to apply all of its available cash to repay the debt amounts and could then proceed against the underlying collateral. Should this occur, Inuvo cannot assure you that its assets would be sufficient to repay its debt in full, Inuvo would be able to borrow sufficient funds to refinance the debt, or that Inuvo would be able to obtain a waiver to cure any such default. In such an event, Inuvo’s ability to conduct its business as it is currently conducted would be in jeopardy.

 

Significant dilution will occur if outstanding convertible securities options are exercised or restricted stock unit grants vest.

 

As of December 31, 2018, Inuvo had stock options outstanding to purchase a total of 264,246 shares with exercise prices ranging from $0.56 to $3.70 per share, with a weighted average exercise price of $2.84. Inuvo also had 1,571,864 restricted stock units outstanding. If outstanding stock options are exercised or restricted stock units vest, dilution will occur to Inuvo’s stockholders, which may be significant. In addition, in relation to the CPT bridge note, under certain circumstances, CPT Investments, LLC has the right to convert its debt to Inuvo stock.

 

Risks Related to the Combined Company if the Mergers are Completed

 

Failure to successfully combine the businesses of ConversionPoint and Inuvo, or to achieve integration in the expected time frame, may adversely affect New Parent’s future results.

 

The success of the mergers will depend, in part, on New Parent’s ability to realize the anticipated benefits from combining the businesses of ConversionPoint and Inuvo as further described in the section titled “The Mergers—Recommendation of the ConversionPoint Board and its Reasons for the ConversionPoint Merger” beginning on page 152 and “The Mergers—Recommendation of the Inuvo Board and its Reasons for the Inuvo Merger” beginning on page 152. To realize these anticipated benefits, including the cost synergies being forecast, the businesses of ConversionPoint and Inuvo must be successfully integrated. Historically, ConversionPoint and Inuvo have been independent companies, and they will continue to be operated as such until the completion of the mergers. Management of New Parent may face significant challenges in consolidating the functions of Inuvo and ConversionPoint, integrating the technologies, organizations, procedures, policies and operations, as well as addressing the different business cultures of the two companies, and retaining key personnel. If the combined company is not successfully integrated or such integration is delayed, the anticipated benefits of the mergers may not be realized fully or at all, or may take longer to realize than expected. The integration may also be complex and time consuming, and require substantial resources and effort. The integration process and other disruptions resulting from the mergers may also disrupt each company’s ongoing businesses and/or adversely affect their relationships with employees, customers, regulators and others with whom they have business or other dealings.

 

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The combined company’s future results will suffer if the combined company does not effectively manage its expanded operations following the mergers.

 

Following the mergers, the size of the combined company’s business will be significantly larger than the current businesses of Inuvo and ConversionPoint. New Parent’s future success depends, in part, upon its ability to manage this expanded business, which will pose substantial challenges for the combined company’s management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. Neither Inuvo nor ConversionPoint can assure you that the combined company will be successful or that the combined company will realize the expected operating efficiencies, annual net operating synergies, revenue enhancements and other benefits currently anticipated to result from the merger.

 

Failure to adequately manage New Parent’s growth could impair its ability to deliver high-quality solutions to its customers, hurt its reputation and compromise its ability to become profitable.

 

New Parent expects to experience significant growth in its business. If New Parent does not effectively manage its growth, the quality of service of its solutions may suffer, which could negatively affect its reputation, demand for its solutions or compromise its ability to become profitable. New Parent’s growth is expected to place a significant strain on its managerial, operational and financial resources and its infrastructure. New Parent’s future success will depend, in part, upon the ability of its senior management to manage growth effectively. This will require New Parent to, among other things, hire additional personnel, implement additional management information systems and maintain close coordination among its engineering, operations, legal, finance, sales and marketing and client service and support organizations.

 

The loss of key personnel could have a material adverse effect on the combined company’s business, financial condition or results of operations.

 

The success of the mergers will depend in part on the combined company’s ability to retain key employees who continue employment with the combined company after the merger is completed. In addition, certain key executives of Inuvo, including Richard Howe, its CEO, intend to cease an operational role with the combined company within six months following the consummation of the merger. It is possible that other key employees might decide not to remain with the combined company after the merger is completed. The loss of the day-to-day involvement of these executives could have a material adverse effect on the combined company, and if other key employees terminate their employment, the combined company’s business activities might be adversely affected, management’s attention might be diverted from integrating ConversionPoint’s and Inuvo’s operations to recruiting suitable replacements and the combined company’s business, financial condition or results of operations could be adversely affected. In addition, the combined company might not be able to locate suitable replacements for any such key employees who leave the combined company or offer employment to potential replacements on reasonable terms.

 

Most of the senior management team of New Parent will have limited experience managing a publicly traded company, and regulatory compliance may divert their attention from the day-to-day management of New Parent’s business. 

 

Most of the individuals who will constitute New Parent’s senior management team have limited experience managing a publicly-traded company and limited experience complying with the increasingly complex laws pertaining to public companies. The senior management team may not successfully or efficiently manage the transition to a public company that is subject to significant regulatory oversight and reporting obligations under United States securities laws. In particular, these new obligations will require substantial attention from the management and could divert their attention away from the day-to-day management of New Parent’s business.

 

The success of the combined company will depend on relationships with third parties and pre-existing customers of ConversionPoint and Inuvo, which relationships may be affected by customer preferences or public attitudes about the merger. Any adverse changes in these relationships could adversely affect the combined company’s business, financial condition or results of operations. 

 

The combined company’s success will be dependent on the ability to maintain and renew business relationships, including relationships with pre-existing customers and partners of both ConversionPoint and Inuvo, and to establish new business relationships. There can be no assurance that the business of the combined company will be able to maintain pre-existing customer contracts, partnership relationships and other business relationships, or enter into or maintain new customer contracts and other partnership and business relationships, on acceptable terms, if at all. The failure to maintain important business relationships could have a material adverse effect on the business, financial condition or results of operations of the combined company.

 

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The combined company will incur significant transaction and merger-related costs in connection with the mergers. 

 

ConversionPoint and Inuvo expect to incur significant costs associated with completing the mergers and combining the operations of the two companies. Although the exact amount of these costs is not yet known, ConversionPoint and Inuvo estimate that these costs will be significant. In addition, there may be unanticipated costs associated with the integration. Although ConversionPoint and Inuvo expect that the elimination of duplicative costs and other efficiencies may offset incremental transaction and merger-related costs over time, these benefits may not be achieved in the near term or at all.

 

The combined company will record goodwill that could become impaired and adversely affect the combined company’s operating results. 

 

The mergers will be accounted for as an acquisition of Inuvo by ConversionPoint, in accordance with accounting principles generally accepted in the United States. Under the acquisition method of accounting, the assets and liabilities of ConversionPoint and Inuvo will be recorded, as of completion, at their respective fair values and added to those of ConversionPoint and Inuvo, respectively. The reported financial condition and results of operations of New Parent issued after completion of the mergers will reflect ConversionPoint and Inuvo balances and results after completion of the mergers, but will not be restated retroactively to reflect the historical financial position or results of operations of ConversionPoint and Inuvo for periods prior to the mergers. Following completion of the mergers, the earnings of the combined company will reflect acquisition accounting adjustments. See “Unaudited Pro Forma Combined Condensed Financial Statements” beginning on page 199.

 

Under the acquisition method of accounting, the total purchase price will be allocated to the tangible assets and liabilities and identifiable intangible assets acquired in the mergers based on their fair values as of the date of completion of the mergers. The excess of the purchase price over those fair values will be recorded as goodwill. Inuvo and ConversionPoint expect that the mergers will result in the creation of goodwill based upon the application of the acquisition method of accounting. To the extent the value of goodwill or intangibles becomes impaired, the combined company may be required to incur material charges relating to such impairment. Such a potential impairment charge could have a material impact on the combined company’s operating results.

 

New Parent’s ability to utilize net operating loss carryforwards and certain other tax attributes may be limited. 

 

Federal and state income tax laws impose restrictions on the utilization of net operating losses, which we refer to as NOL, and tax credit carryforwards in the event that an “ownership change” occurs for tax purposes, as defined by Section 382 of the Code. In general, an ownership change occurs when stockholders owning 5% or more of a “loss corporation” (a corporation entitled to use NOL or other loss carryovers) have increased their ownership of stock in such corporation by more than 50 percentage points during any three-year period. The annual base limitation under Section 382 of the Code is calculated by multiplying the loss corporation’s value at the time of the ownership change by the greater of the long-term tax-exempt rate determined by the IRS in the month of the ownership change or the two preceding months.

 

As of December 31, 2018, ConversionPoint and Inuvo had $25 million and $89 million, respectively, of federal NOLs that are currently limited in their annual use. As a result of the mergers, it is possible that either or both ConversionPoint and Inuvo will be deemed to have undergone an “ownership change” for purposes of Section 382 of the Code. Accordingly, the combined company’s ability to utilize ConversionPoint’s and/or Inuvo’s NOL carryforwards may be substantially limited. These limitations could in turn result in increased future tax payments for the combined company, which could have a material adverse effect on the business, financial condition or results of operations of the combined company. 

 

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The combined company’s indebtedness following the merger will be significant. It may be difficult for the combined company to pay or refinance its debts and the combined company may need to divert its cash flow from operations to debt service payments. Such indebtedness could limit the combined company’s ability to pursue other strategic opportunities and increase its vulnerability to adverse economic and industry conditions.

 

In connection with the mergers, the combined company will be responsible for ConversionPoint and Inuvo’s outstanding debt. Inuvo’s total indebtedness as of March 12, 2019, was approximately $7.61 million, including $4.88 million due under a loan agreement with Western Alliance Bank, $1.03 million under the CPT bridge note, $1.44 million due under the Inuvo convertible notes, and $258,000 under the four notes related to the four loans from directors of Inuvo of $62,500 each, for an aggregate of $250,000, to cover certain costs associated with the pending mergers, and ConversionPoint’s indebtedness as of March 1, 2019, was approximately $6,239,899 million. The combined company’s debt service obligations with respect to this increased indebtedness could have an adverse impact on its earnings and cash flows, which after the mergers would include the earnings and cash flows of ConversionPoint, for as long as the indebtedness is outstanding.  It is a covenant under the merger agreement that all indebtedness under the Western Alliance Bank loan agreement will be paid off at or prior to closing. In addition, pursuant to their terms, the CPT bridge note and ConversionPoint’s loan with Montage and Partners for Growth, will be paid off at closing, and the Inuvo convertible notes will either be paid off at closing or will be converted into shares of Inuvo common stock immediately prior to closing.

 

The combined company’s increased indebtedness could also have important consequences to holders of New Parent common stock. For example, it could:

 

  make it more difficult for the combined company to pay or refinance its debts as they become due during adverse economic and industry conditions because any decrease in revenues could cause the combined company to not have sufficient cash flows from operations to make its scheduled debt payments;
     
  limit the combined company’s flexibility to pursue other strategic opportunities or react to changes in its business and the industry in which it operates and, consequently, place the combined company at a competitive disadvantage to its competitors with less debt; or
     
  require a substantial portion of the combined company’s cash flows from operations to be used for debt service payments, thereby reducing the availability of its cash flow to fund working capital, capital expenditures, acquisitions, dividend payments and other general corporate purposes.

 

Based upon current levels of operations, management of ConversionPoint and Inuvo expect the combined company to be able to generate sufficient cash on a consolidated basis to make all of the principal and interest payments when such payments are due under its existing credit facilities, indentures and other instruments governing their outstanding indebtedness, and the indebtedness of ConversionPoint and Inuvo that may remain outstanding after the merger, but there can be no assurance that the combined company will be able to repay or refinance such borrowings and obligations.

 

The mergers may not be accretive, and may be dilutive, to ConversionPoint’s and Inuvo’s earnings per share, which may negatively affect the market price of New Parent common stock.

 

Although the mergers are expected to be accretive to earnings per share, the mergers may not be accretive, and may be dilutive, to ConversionPoint’s and Inuvo’s earnings per share. The expectation that the mergers will be accretive is based on preliminary estimates that may materially change. In addition, future events and conditions could decrease or delay any accretion, result in dilution or cause greater dilution than may be expected, including:

 

  adverse changes in market conditions;
     
  the market for e-commerce marketing solutions;
     
  operating results;
     
  competitive conditions;
     
  laws and regulations affecting e-commerce and online marketing

 

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  inability to effectively integrate ConversionPoint’s and Inuvo’s operations and technology solutions;
     
  capital expenditure obligations; and
     
  general economic conditions.

 

Any dilution of, or decrease or delay of any accretion to, ConversionPoint’s or Inuvo’s earnings per share could cause the price of New Parent’s common stock to decline.

 

Business issues currently faced by one company may be imputed to the operations of the other company or the combined company. 

 

To the extent that either ConversionPoint or Inuvo currently has or is perceived by customers to have operational challenges, those challenges may raise concerns by existing customers of the other company following the merger which may limit or impede New Parent’s future ability to maintain relationships with those customers.

 

The certificate of incorporation of New Parent provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between New Parent and its stockholders, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with New Parent or its directors, officers or employees.

 

The certificate of incorporation of New Parent provides that unless New Parent consents in writing to the selection of an alternative forum, the State of Delaware is the sole and exclusive forum for: (a) any derivative action or proceeding brought on behalf of New Parent; (b) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of New Parent to New Parent or its stockholders; (c) any action or proceeding asserting a claim arising pursuant to any provision of the General Corporation Law of Delaware, certificate of incorporation or bylaws of New Parent; or (d) any action or proceeding asserting a claim governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with New Parent or its directors, officers or other employees, which may discourage such lawsuits against New Parent and its directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in the certificate of incorporation to be inapplicable or unenforceable in an action, New Parent may incur additional costs associated with resolving such action in other jurisdictions, which could harm its business, results of operations, and financial condition.

 

The unaudited pro forma combined condensed financial information included in this document may not be indicative of what New Parent’s actual financial position or results of operations would have been.

 

The unaudited pro forma combined condensed financial information in this joint proxy statement/prospectus is presented for illustrative purposes only and is not necessarily indicative of what New Parent’s actual financial position or results of operations would have been had the mergers been completed on the dates indicated. The unaudited pro forma combined condensed financial information reflects adjustments, which are based upon preliminary estimates, to allocate the purchase price to the assets acquired and liabilities assumed of Inuvo based on their fair value. The purchase price allocation reflected in this document is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets acquired and liabilities assumed of Inuvo as of the date of the completion of the mergers. In addition, subsequent to the closing date, there may be refinements to the purchase price allocation as additional information becomes available. Accordingly, the final purchase price allocation may differ materially from the pro forma adjustments reflected in this document. See “Selected Unaudited Pro Forma Combined Condensed Financial Information,” beginning on page 26 and “Unaudited Pro Forma Combined Condensed Financial Statements,” beginning on page 199, for more information.

 

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ConversionPoint, Inuvo and, after the mergers, the combined company, must continue to retain, motivate and recruit executives and other key employees, which may be difficult in light of uncertainty regarding the mergers, and failure to do so could negatively affect the combined company.

 

For the mergers to be successful, during the period before the mergers are completed, both ConversionPoint and Inuvo must continue to recruit, retain and motivate executives and other key employees. Moreover, the combined company must be successful at retaining and motivating key employees following the completion of the mergers. Experienced employees in the industries in which ConversionPoint and Inuvo operate are in high demand and competition for their talents can be intense. Employees of both ConversionPoint and Inuvo, and potential recruits to the companies, may experience uncertainty about their future role with the combined company until, or even after, strategies with regard to the combined company are announced or executed. The potential distractions of the mergers may adversely affect the ability of ConversionPoint, Inuvo or, following completion of the mergers, the combined company, to retain, motivate and recruit executives and other key employees and keep them focused on applicable strategies and goals. A failure by ConversionPoint, Inuvo or, following the completion of the mergers, the combined company, to attract, retain and motivate executives and other key employees during the period prior to or after the completion of the mergers could have a negative impact on the business of ConversionPoint, Inuvo or the combined company.

  

The price of shares of New Parent common stock is likely to be volatile, and you could lose all or part of your investment.

 

The trading price of shares of New Parent common stock is likely to be volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond New Parent’s control, including limited trading volume. In addition to the factors discussed in the “Risk Factors” section and elsewhere in this proxy statement/prospectus, these factors include, without limitation:

 

  · competition from existing technologies and products or new technologies and products that may emerge;

 

  · the loss of significant customers;

 

  · actual or anticipated variations in New Parent’s quarterly operating results;

 

  · failure to meet the estimates and projections of the investment community or that New Parent may otherwise provide to the public;

 

  · New Parent’s cash position;

 

  · announcement or expectation of additional financing efforts;

 

  · issuances of debt or equity securities;

 

  · New Parent’s inability to successfully enter new markets or develop additional products;

 

  · actual or anticipated fluctuations in New Parent’s competitors’ operating results or changes in their respective growth rates;

 

  · sales of New Parent’s shares of common stock by New Parent, or New Parent’s stockholders in the future;

 

  · trading volume of New Parent’s shares of common stock on NASDAQ and/or the TSX;

 

  · market conditions in New Parent’s industry;

 

  · overall performance of the equity markets and general political and economic conditions;

 

  · introduction of new products or services by New Parent or New Parent’s competitors;

 

  · additions or departures of key management, scientific or other personnel;

 

  · publication of research reports about New Parent or New Parent’s industry or positive or negative recommendations or withdrawal of research coverage by securities or industry analysts;

 

  · changes in the market valuation of similar companies;

 

  · disputes or other developments related to intellectual property and other proprietary rights;

 

  · changes in accounting practices;

  

  · significant lawsuits, including stockholder litigation; and

 

  · other events or factors, many of which are beyond New Parent’s control.

 

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Furthermore, the public equity markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of New Parent’s shares of common stock.

 

If securities or industry analysts do not publish research or reports, or publish inaccurate or unfavorable research or reports about New Parent’s business, New Parent’s share price and trading volume could decline.

 

The trading market for New Parent’s common stock will depend, in part, on the research and reports that securities or industry analysts publish about New Parent or New Parent’s business. New Parent does not have any control over these analysts. If no securities or industry analysts commence coverage of New Parent’s common stock, the trading price for New Parent’s common stock may be negatively impacted. If New Parent obtain securities or industry analyst coverage and if one or more of the analysts who covers New Parent downgrades New Parent’s common stock, changes their opinion of New Parent’s shares or publishes inaccurate or unfavorable research about New Parent’s business, New Parent’s share price would likely decline. If one or more of these analysts ceases coverage of New Parent or fails to publish reports on New Parent regularly, demand for New Parent’s common stock could decrease and New Parent could lose visibility in the financial markets, which could cause New Parent’s share price and trading volume to decline.

 

New Parent is not subject to the provisions of Section 203 of the Delaware General Corporation Law.

 

New Parent elected in New Parent’s certificate of incorporation to not be subject to the provisions of Section 203 of the Delaware General Corporation Law, or Section 203. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns (or, in certain cases, within three years prior, did own) 15% or more of the corporation’s voting stock. This may make New Parent more vulnerable to takeovers that are completed without the approval of the New Parent board and/or without giving New Parent the ability to prohibit or delay such takeovers as effectively.

 

Some provisions of New Parent’s charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of New Parent by others, even if an acquisition would be beneficial to New Parent’s stockholders, and may prevent attempts by New Parent’s stockholders to replace or remove New Parent’s current management.

 

Provisions in New Parent’s certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire New Parent or increase the cost of acquiring New Parent, even if doing so would benefit New Parent’s stockholders. These provisions include:

 

  · a requirement that special meetings of stockholders be called only by the board of directors, the president or the chief executive officer;

 

  · advance notice requirements for stockholder proposals and nominations for election to New Parent’s board of directors; and

 

  · the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval and which preferred stock may include rights superior to the rights of the holders of common stock.

 

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These anti-takeover provisions and other provisions in New Parent’s certificate of incorporation and bylaws could make it more difficult for stockholders or potential acquirers to obtain control of the New Parent board or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving New Parent. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause New Parent to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in New Parent’s board of directors could cause the market price of New Parent common stock to decline.

 

New Parent’s certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by New Parent’s stockholders, which could limit New Parent’s stockholders’ ability to obtain a favorable judicial forum for disputes with New Parent or New Parent’s directors, officers or other employees.

 

New Parent’s certificate of incorporation provides that, unless New Parent consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on New Parent’s behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of New Parent’s directors, officers or other employees to New Parent or New Parent’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, New Parent’s certificate of incorporation or New Parent’s bylaws, or (iv) any action asserting a claim against New Parent governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of New Parent’s capital stock shall be deemed to have notice of and consented to the provisions of certificate of incorporation described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with New Parent or New Parent’s directors, officers or other employees, which may discourage such lawsuits against New Parent and New Parent’s directors, officers and other employees. Alternatively, if a court were to find these provisions of New Parent’s certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, New Parent may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect New Parent’s business, financial condition or results of operations.

 

New Parent is an “emerging growth company,” and New Parent cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make New Parent common stock less attractive to investors.

 

New Parent is an “emerging growth company,” as defined in the JOBS Act. For as long as New Parent continues to be an emerging growth company, New Parent may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in this proxy statement/prospectus, New Parent’s periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. New Parent could be an emerging growth company for up to five years, although circumstances could cause New Parent to lose that status earlier, including if the market value of New Parent common stock held by non-affiliates exceeds $700 million as of any June 30 before that time or if New Parent has total annual gross revenue of $1.07 billion or more during any fiscal year before that time, in which cases New Parent would no longer be an emerging growth company as of the following December 31, or if New Parent issues more than $1.0 billion in non-convertible debt during any three-year period before that time, in which case New Parent would no longer be an emerging growth company immediately. New Parent cannot predict if investors will find New Parent’s shares of common stock less attractive because New Parent may rely on these exemptions. If some investors find New Parent common stock less attractive as a result, there may be a less active trading market for New Parent common stock and New Parent’s share price may be more volatile.

 

Under the JOBS Act, emerging growth companies also can delay adopting new or revised accounting standards until such time as those standards apply to private companies. New Parent has elected to avail itself of this exemption from new or revised accounting standards.

 

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If New Parent fails to maintain an effective system of internal control over financial reporting, New Parent may not be able to accurately report New Parent’s financial results or prevent fraud. As a result, stockholders could lose confidence in New Parent’s financial and other public reporting, which would harm New Parent’s business and the trading price of New Parent common stock.

 

Effective internal controls over financial reporting are necessary for New Parent to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause New Parent to fail to meet New Parent’s reporting obligations. In addition, any testing by New Parent conducted in connection with Section 404 of the Sarbanes-Oxley Act, or any subsequent testing by New Parent’s independent registered public accounting firm, may reveal deficiencies in New Parent’s internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to New Parent’s financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in New Parent’s reported financial information, which could have a negative effect on the trading price of New Parent.

 

New Parent will be required to disclose changes made in New Parent’s internal controls and procedures on a quarterly basis and New Parent’s management will be required to assess the effectiveness of these controls annually. However, for as long as New Parent are an “emerging growth company” under the JOBS Act, New Parent’s independent registered public accounting firm will not be required to attest to the effectiveness of New Parent’s internal controls over financial reporting pursuant to Section 404. New Parent could be an “emerging growth company” for up to five years. An independent assessment of the effectiveness of New Parent’s internal controls could detect problems that New Parent’s management’s assessment might not. Undetected material weaknesses in New Parent’s internal controls could lead to financial statement restatements and require New Parent to incur the expense of remediation.

  

New Parent may have difficulty operating as a publicly traded company.

 

As a publicly traded company, New Parent believes that New Parent’s business will benefit from, among other things, providing direct access to equity capital and a tailored capital structure, allowing New Parent to better focus New Parent’s financial and operational resources on New Parent’s specific business, allowing New Parent’s management to design and implement corporate strategies and policies that are based primarily on the business characteristics and strategic decisions of New Parent’s business, allowing us to more effectively respond to industry dynamics and allowing the creation of effective incentives for New Parent’s management and employees that are more closely tied to New Parent’s business performance. However, New Parent may not be able to achieve some or all of the benefits that New Parent believes New Parent can achieve as an independent company in the time New Parent currently expects, if at all. Additionally, new appointees to the New Parent’s board will have limited familiarity with New Parent’s offerings, business and strategy, and it may take time for such appointees to become conversant in New Parent’s business. Implementing these changes may take longer than New Parent expects, result in the incurrence of additional costs or divert management’s attention, which could adversely affect New Parent’s business.

 

New Parent will incur significant costs as a result of operating as a public company and New Parent’s management expects to devote substantial time to public company compliance programs.

 

As a public company, New Parent will incur significant legal, accounting and other expenses due to New Parent’s compliance with regulations and disclosure obligations applicable to New Parent, including compliance with the Sarbanes-Oxley Act as well as rules implemented by the SEC, NASDAQ and the TSX. The SEC and other regulators have continued to adopt new rules and regulations and make additional changes to existing regulations that require New Parent’s compliance. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that have required the SEC to adopt additional rules and regulations in these areas. Stockholder activism, the current political environment, and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact, in ways New Parent cannot currently anticipate, the manner in which New Parent operates New Parent’s business. New Parent’s management and other personnel will devote a substantial amount of time to these compliance programs and monitoring of public company reporting obligations and, as a result of the new corporate governance and executive compensation related rules, regulations, and guidelines prompted by the Dodd-Frank Act and further regulations and disclosure obligations expected in the future, New Parent will likely need to devote additional time and costs to comply with such compliance programs and rules. These rules and regulations will cause New Parent to incur significant legal and financial compliance costs and will make some activities more time-consuming and costly.

 

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To comply with the requirements of being a public company, New Parent may need to undertake various activities, including implementing new internal controls and procedures and hiring new accounting or internal audit staff. The Sarbanes-Oxley Act requires that New Parent maintain effective disclosure controls and procedures and internal control over financial reporting. New Parent is continuing to develop and refine New Parent’s disclosure controls and other procedures that are designed to ensure that information required to be disclosed by New Parent in the reports that New Parent files with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Securities Exchange Act of 1934, or the Exchange Act, is accumulated and communicated to New Parent’s principal executive and financial officers.

  

Any failure to develop or maintain effective controls could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of New Parent’s internal control over financial reporting which New Parent may be required to include in New Parent’s periodic reports New Parent will file with the SEC under Section 404 of the Sarbanes-Oxley Act, harm New Parent’s operating results, cause New Parent to fail to meet New Parent’s reporting obligations, or result in a restatement of New Parent’s prior period financial statements. In the event that New Parent is not able to demonstrate compliance with the Sarbanes-Oxley Act, that New Parent’s internal control over financial reporting is perceived as inadequate or that New Parent are unable to produce timely or accurate financial statements, investors may lose confidence in New Parent’s operating results and the price of New Parent common stock could decline. In addition, if New Parent is unable to continue to meet these requirements, New Parent may not be able to remain listed on NASDAQ.

 

New Parent is not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act, and are therefore not yet required to make a formal assessment of the effectiveness of New Parent’s internal control over financial reporting for that purpose. Upon becoming a public company, New Parent will be required to comply with certain of these rules, which will require management to certify financial and other information in New Parent’s quarterly and annual reports and provide an annual management report on the effectiveness of New Parent’s internal control over financial reporting commencing with New Parent’s second annual report. This assessment will need to include the disclosure of any material weaknesses in New Parent’s internal control over financial reporting identified by New Parent’s management or New Parent’s independent registered public accounting firm. New Parent is just beginning the costly and challenging process of compiling the system and processing documentation needed to comply with such requirements. New Parent may not be able to complete New Parent’s evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if New Parent identify one or more material weaknesses in New Parent’s internal control over financial reporting, New Parent will be unable to assert that New Parent’s internal control over financial reporting is effective.

 

Raising additional capital, including through future sales and issuances of New Parent common stock, or warrants or the exercise of rights to purchase common stock pursuant to New Parent’s equity incentive plan could result in additional dilution of the percentage ownership of New Parent’s stockholders, could cause New Parent’s share price to fall and could restrict New Parent’s operations.

 

New Parent expects that significant additional capital will be needed in the future to continue New Parent’s planned operations, including any potential acquisitions, hiring new personnel, and continuing activities as an operating public company. To the extent New Parent seeks additional capital through a combination of public and private equity offerings and debt financings, New Parent’s stockholders may experience substantial dilution. To the extent that New Parent raises additional capital through the sale of equity or convertible debt securities, the ownership interest of New Parent’s existing stockholders may be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of New Parent’s stockholders. Debt and receivables financings may be coupled with an equity component, such as warrants to purchase shares of New Parent common stock, which could also result in dilution of New Parent’s existing stockholders’ ownership. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on New Parent’s ability to incur additional debt and other operating restrictions that could adversely impact New Parent’s ability to conduct New Parent’s business. A failure to obtain adequate funds may cause New Parent to curtail certain operational activities, including sales and marketing, in order to reduce costs and sustain the business, and would have a material adverse effect on New Parent’s business and financial condition.

 

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Under New Parent’s 2018 Plan, New Parent may grant equity awards covering up to 4,500,000 shares of New Parent’s common stock. As of the date of this offering, New Parent have not granted any options to purchase shares of common stock under the 2018 Plan. Upon completion of the mergers, New Parent plans to issue options to purchase an aggregate of 1,300,000 shares of New Parent common stock that will be granted at the closing of the mergers. New Parent plans to register the number of shares available for issuance under New Parent’s 2018 Plan. Sales of shares issued upon exercise of options or granted under New Parent’s 2018 Plan may result in material dilution to New Parent’s existing stockholders, which could cause New Parent’s share price to fall.

 

New Parent’s issuance of shares of preferred stock could adversely affect the market value of New Parent’s common stock, dilute the voting power of common stockholders and delay or prevent a change of control.

 

Upon the completion of the mergers, the New Parent board will have the authority to cause New Parent to issue, without any further vote or action by the stockholders, up to 10,000,000 shares of preferred stock in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series.

 

The issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for New Parent common stock by making an investment in the common stock less attractive. For example, investors in the common stock may not wish to purchase common stock at a price above the conversion price of a series of convertible preferred stock because the holders of the preferred stock would effectively be entitled to purchase common stock at the lower conversion price causing economic dilution to the holders of common stock.

 

Further, the issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of New Parent’s other classes of voting stock either by diluting the voting power of New Parent’s other classes of voting stock if they vote together as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote even if the action were approved by the holders of New Parent’s other classes of voting stock. The issuance of shares of preferred stock may also have the effect of delaying, deferring or preventing a change in control of New Parent without further action by the stockholders, even where stockholders are offered a premium for their shares.

 

Claims for indemnification by New Parent’s directors and officers may reduce New Parent’s available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

 

New Parent’s certificate of incorporation and bylaws provide that New Parent will indemnify New Parent’s directors and officers, in each case to the fullest extent permitted by Delaware law. In addition, as permitted by Section 145 of the Delaware General Corporation Law, New Parent’s bylaws and New Parent’s indemnification agreements that New Parent plan to enter into with New Parent’s directors and officers provide that:

 

  · New Parent will indemnify New Parent’s directors and officers for serving us in those capacities or for serving other business enterprises at New Parent’s request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

 

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  · New Parent may, in New Parent’s discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.

 

  · New Parent is required to advance expenses, as incurred, to New Parent’s directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

 

  · New Parent will not be obligated pursuant to New Parent’s bylaws to indemnify a person with respect to proceedings initiated by that person against New Parent or New Parent’s other indemnitees, except with respect to proceedings authorized by the New Parent board or brought to enforce a right to indemnification.

 

  · The rights conferred in New Parent’s bylaws are not exclusive, and New Parent is authorized to enter into indemnification agreements with New Parent’s directors, officers, employees and agents and to obtain insurance to indemnify such persons.

 

  · New Parent may not retroactively amend New Parent’s bylaw provisions to reduce New Parent’s indemnification obligations to directors, officers, employees and agents.

 

In addition, under the merger agreement, New Parent has agreed, following the effective times of the mergers, to indemnify and exculpate (and advance expenses to), each present and former director and officer of ConversionPoint and its subsidiaries and Inuvo and its subsidiaries, together with their respective executors, heirs and administrators, against all losses, claims, damages, expenses (including reasonable attorneys’ fees and including any attorneys’ fees or other fees incurred to enforce New Parent’s indemnification obligation), or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or prior to the effective times of the mergers. New Parent has also agreed to continue all rights to exculpation or indemnification provided for in the organizational documents of ConversionPoint and Inuvo in favor of the current or former directors or officers of ConversionPoint and Inuvo, as applicable. Further, New Parent has agreed, subject to certain limitations, to cause the surviving corporations in the ConversionPoint merger and Inuvo merger to maintain, for six years after the effective times of the mergers, directors’ and officers’ liability insurance in an amount and scope reasonably acceptable to ConversionPoint and Inuvo, as applicable.

 

To the extent that a claim for indemnification is brought by any of New Parent’s directors or officers, it would reduce the amount of funds available for use in New Parent’s business.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

The statements in this joint proxy statement/prospectus and the documents incorporated by reference herein that are not historical statements, including statements regarding the expected timetable for completing the mergers, benefits and synergies of the mergers, future opportunities for the combined company and products, future financial performance and any other statements regarding ConversionPoint’s and Inuvo’s future expectations, beliefs, plans, objectives, financial conditions, assumptions or future events or performance that are not historical facts, are forward-looking statements within the meaning of the federal securities laws. These statements are subject to numerous risks and uncertainties, many of which are beyond the companies’ control, which could cause actual results to differ materially from the results expressed or implied by the statements. These risks and uncertainties include, but are not limited to: failure to obtain the required votes of ConversionPoint’s or Inuvo’s stockholders; the timing to consummate the mergers; the risk that conditions to closing of the mergers may not be satisfied or the closing of the mergers may otherwise not occur; the diversion of management time from operations to transaction-related issues; the ultimate timing, outcome and results of integrating the operations and technology solutions of ConversionPoint and Inuvo; the effects of the business combination of ConversionPoint and Inuvo, including New Parent’s future financial condition, results of operations, strategy and plans; expected synergies and other benefits from the mergers and the ability of New Parent to realize such synergies and other benefits; the possibility that ConversionPoint and Inuvo may not be able to maintain relationships with their employees, partners, suppliers or customers as a result of the uncertainty surrounding the mergers; results of litigation, settlements and investigations; actions by third parties, including governmental agencies; consequences of audits and investigations by government agencies and legislative bodies and related publicity and potential adverse proceedings by such agencies; courts adjudicating ongoing litigation related to the mergers may disagree with Inuvo’s and ConversionPoint’s position that the ongoing lawsuits are without merit and may make decisions or rulings that impact, delay or prevent the closing of the mergers; protection of intellectual property rights and against cyber-attacks; compliance with laws related to income taxes and assumptions regarding the generation of future taxable income; structural changes in the e-commerce industry and maintaining a highly skilled workforce.

 

Any forward-looking statements should be considered in light of such important factors. ConversionPoint and Inuvo undertake no obligation to revise or update publicly any forward-looking statements for any reason. Readers are cautioned not to place undue reliance on any forward-looking statement, which speaks only as of the date on which such statement is made or in the case of Inuvo documents incorporated by reference, as of the date of the document incorporated by reference.

 

All subsequent written and oral forward-looking statements concerning the mergers or other matters addressed in this joint proxy statement/prospectus and attributable to ConversionPoint, Inuvo, New Parent or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this joint proxy statement/prospectus.

 

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DESCRIPTION OF CONVERSIONPOINT

 

Company Overview

 

ConversionPoint, through its wholly-owned subsidiaries, helps e-commerce companies and brands target, convert, manage and re-engage their customers using sophisticated online tracking and data analytics. ConversionPoint’s suite of technologies manages and optimizes multiple aspects of e-commerce including: rich media content creation and syndication, audience targeting, conversion optimization, remarketing, logistics and customer management. ConversionPoint both delivers its technologies to its customers through software-as-a-service, which we refer to as SaaS, and uses its technologies to provide managed digital marketing and e-commerce technology services to brands and advertisers, which we refer to as managed services. ConversionPoint also uses its own technologies to sell various products directly to consumers, which we refer to as e-commerce product sales. ConversionPoint’s vision is to simplify the entire e-commerce experience by integrating its technologies and offering a broad range of e-commerce solutions on a single, easy-to-use platform.

 

ConversionPoint was formed as a Delaware corporation on November 2, 2016, by the founders of Branded Response Inc., a California corporation, which was formed in May 2016. Branded Response began as an e-commerce seller of health, wellness and beauty products. Branded Response’s management team had significant prior successes in creating direct-to-consumer e-commerce product campaigns. As Branded Response’s sales began to grow, its management began evaluating e-commerce technologies to become more efficient and cost effective at acquiring customers and maximizing customer life-time value with respect to the sale of its own products. Branded Response began collaborating with Push Interactive, LLC, a direct-to-consumer marketing company based in Minneapolis, Minnesota, formed in May 2010, which had developed a suite of online marketing technologies to increase the efficiency of their own product sales. Push and Branded Response realized that the e-commerce market lacked an end-to-end solution to manage the entire e-commerce marketing, sales, customer service and logistics process. In April 2017, ConversionPoint acquired both Push and Branded Response, with the vision of using Push’s technology platform as the foundation to develop both organically and through strategic acquisition, a unified e-commerce solution to (a) more efficiently manage the companies’ own internal e-commerce product campaigns, (b) manage campaigns for third parties, on a managed services basis, and (c) license to third parties on a self-serve SaaS subscription basis. In 2017, ConversionPoint began generating managed service revenues.

 

In December 2017, ConversionPoint acquired SellPoints, Inc., a venture-backed Delaware corporation, formed in May 2000, which had developed a suite of software solutions enabling brands to create and syndicate rich media content to a network of online retailers, track online consumer behavior, retarget consumers based on their online behavior, and deliver robust data analytics and reporting. ConversionPoint believed that SellPoints’ technologies and large brand customers and partners, would add significant capabilities to the end-to-end e-commerce platform ConversionPoint was creating.

 

Industry Background

 

Growing e-commerce market

 

The U.S. e-commerce market is evolving and continues to be a high growth market as retailers and brands increase their online sales. According to an article published by e-Marketer.com on September 17, 2018, in the U.S. alone, over $525 billion in e-commerce product sales will be consummated in 2018, with Amazon.com controlling approximately 50% of the U.S. market.

 

ConversionPoint believes that Amazon.com has developed its leading market position, in part, due to its technology foundation across the entire consumer online retail lifecycle which enables Amazon to leverage customer shopping data as predictors of future purchase behavior. While Amazon.com dominates the online retail market in the U.S. and has positioned itself as strategically aligned with small and medium sized retailers, ConversionPoint believes Amazon.com’s dominance is making it increasingly difficult for non-Amazon online sellers to access shoppers. ConversionPoint believes this leaves retailers in a difficult situation with Amazon.com, because although retailers can reach large audiences through Amazon.com, participation in the Amazon.com marketplace comes with large fees and minimal access to customer data.

 

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ConversionPoint believes this creates an increasingly large market opportunity for data driven e-commerce solutions to assist brands and retailers selling through non-Amazon.com channels. E-commerce platforms such as Shopify and Big Commerce, as well as leading retailers such as Walmart and Office Depot, continue to drive innovation through disparate technologies to lower customer acquisition costs while increasing the yield on e-commerce media spend.

 

Increasing complexity of e-commerce

 

ConversionPoint believes that several significant trends have contributed to an increasing complexity and fragmentation of digital marketing and sales, including:

 

  Multiple digital marketing channels. There are numerous digital marketing channels including, among others, search, display, video, native, email, text and social advertising which are available to retailers, advertisers and brands as a conduit to the consumers who purchase their products. These channels are fragmented, each with their own platforms that often lack of integration which, in turn, limits their ability to holistically serve consumers.
     
  Third-party marketplaces.   Third-party marketplaces, such as Amazon.com, Etsy.com and eBay, aggregate multiple sellers of similar products, thus creating control over marketplaces for themselves while offering little technical differentiation for consumer acquisition between sellers.
     
  Increased use of mobile devices for e-commerce.  The rapid adoption of mobile internet-enabled devices, such as smartphones and tablets, has resulted in an increase in mobile commerce, which is transforming the way consumers shop and make purchase decisions.
     
  Growth of additional online consumer touch points.   As consumers have moved more of their shopping online, search engines, social networks, content rich advertorials, and brand websites, have emerged as key influencers and important points of product research for consumers making purchase decisions.
     
  Consolidation of customer relationship management and marketing / advertising. A convergence of business-to-business and business-to-consumer customer data, actionable on a single platform, is a necessary requirement to delivering on the promise of consumer engagement. The implication of this belief inevitably leads to a consolidation of technologies from first contact through fulfillment with the consumer.

 

Key Challenges Facing Retailers and Brands Selling Online

 

As online shopping increases, ConversionPoint believes it is becoming critical for brands, advertisers and retailers to leverage data and technology for reach, efficiency and return on e-commerce investment. According to AdMaster’s 2018 Digital Marketing Trends report, advertisers and brands are allocating larger portions of their advertising budgets to digital marketing and are seeking a more efficient and measurable way to reach their target audience. ConversionPoint believes its solutions address the challenges the industry faces today, which include:

 

  In-house solutions are costly and slow to innovate.   Retailers and brands that rely on in-house capabilities may have to invest in and maintain significant technological infrastructure, human resources and industry relationships, which requires significant capital and long periods of time to set up. This presents a challenge for many small to medium-sized businesses ranging from $2 million to $150 million in revenue, which we refer to as SMBs.
     
  Fragmented solutions. ConversionPoint’s competitors offer a single-point solution, rather than a suite of e-commerce technologies for content creation, content management, customer acquisition, customer relationship management, data analytics, fulfillment, delivery and remarketing. Point solutions do not address the needs of retailers and brands seeking an integrated solution to manage multiple aspects of online marketing. Furthermore, ConversionPoint believes retailers or brands stitching multiple point solutions together generally results in technology and data integrity challenges.

 

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  Lack of visibility.   To measure success and maximize return on investment, advertisers need to access, correlate and analyze large amounts of data across multiple technology platforms in real-time. The lack of access to, and integration of customer data between, multiple technology platforms makes it difficult for brands and retailers to gain accurate insights into consumer behavior necessary to adapt their e-commerce strategies to improve return on e-commerce investment.
     
  Inefficient content management. Without a rich media content syndication platform integrated with major retailers, brands selling products through multiple online retailers must upload and update rich media product content on multiple online retailer websites, which is inefficient and may require significant human capital.

 

ConversionPoint’s Solutions

 

ConversionPoint’s technologies optimize many aspects of the e-commerce ecosystem.

 

Ultimately, through its SaaS and managed service offerings, ConversionPoint’s technology platforms allow brands to generate and manage online sales on a more cost-effective basis. For example, ConversionPoint provides manufacturer brands with tools to create and syndicate rich media product content across ConversionPoint’s network of online retailers. Additionally, manufacturer brands, leveraging ConversionPoint’s technologies, can retarget shoppers, launch CRM acquisition programs, optimize acquisition media spend, improve add-to-cart rates, and manage shipping logistics and fulfillment.

 

ConversionPoint is in the process of unifying its current technology solutions into an integrated platform to provide manufacturer brands and retailers with an end-to-end SaaS offering.

 

ConversionPoint believes its solutions offer the following benefits:

 

  End-to-end technology solution.  ConversionPoint provides technology solutions for managing most aspects of the e-commerce process, including, digital ad buying with real-time optimization, online retailer marketing, customer relationship management, remarketing and logistics.
     
  Reduced integration costs, time to market and dependence on in-house resources.   Customers can more efficiently market their products through existing and new online channels without the costs related to installing and maintaining their own hardware and software infrastructure, while minimizing in-house head count. ConversionPoint manages or hosts its solutions on behalf of its customers, thereby reducing the customer’s cost and dependency on dedicated IT staff, offsite hosting and on-premises systems.
     
  Unified content creation and product information management.  ConversionPoint’s multi-channel rich media content creation and syndication platform provides customers with one interface to create, syndicate and manage interactive content experiences across ConversionPoint’s network of online retailers.
     
  Highly relevant, targeted ads. Through ConversionPoint’s sophisticated consumer online behavioral tracking technology, ConversionPoint delivers highly relevant and targeted digital ads at opportune times.
     
  Media optimization.  ConversionPoint’s real-time multivariate testing technology optimizes to the highest converting advertising yield to maximize return on investment for manufacturer brands.
     
  Extension of lifetime customer value. Brands can use ConversionPoint’s technology to control and optimize the offering of additional items for purchase upon checkout, and offer customized membership programs, both of which can increase the lifetime value of customers.

 

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  Robust data and analytics reporting.  ConversionPoint captures meaningful consumer behavioral data, which it uses to continually optimize the performance of its solutions. The scale and breadth of this data is continually growing as more interactive content experiences are published and consumers interact with these experiences. Through ConversionPoint’s robust data and analytics reporting, ConversionPoint provides brands and advertisers with valuable insights into the performance of digital marketing campaigns, including campaign delivery data (such as impressions, views and clicks), performance data (such as cost-per-click, earnings per-click, conversion rates and cost per acquisition), and anonymous buyer data (such as geography, device type and referral source). These reports provide ConversionPoint brands and advertisers with actionable insights that allow them to evaluate and improve the efficiency of their e-commerce campaigns.

   

ConversionPoint’s Technology Products

 

ConversionPoint offers a suite of solutions applicable to the pre-sale, sale and post-sale moments of the online shopper journey.

 

Pre-Sale: ConversionPoint’s suite of media buying and online sales and marketing management tools allow ConversionPoint and its advertisers and brands to target consumers based on their online behavior, and engage in and optimize media buying and campaign management in real time. ConversionPoint’s multi-variate testing technology helps manufacturer brands increase the yield of their digital marketing spend.

 

ConversionPoint’s pre-sale products include:

 

  Digital media optimization: ConversionPoint’s digital media optimization platform creates customized landing pages and engages in real-time testing to determine the highest converting ads and landing pages, together with the best multi-variate online placement to maximize return on investment.
     
  Retargeting: ConversionPoint’s retargeting platform uses algorithmic audience segmentation and aggregates anonymous consumer data related to the timing and nature of their interaction with product content to construct high-value audience segments for display advertising campaigns. The technology associates these segments with relevant ad units, enabling the delivery of impactful ads to consumers at the most opportune times.

 

Sale: ConversionPoint’s online sales solutions enable manufacturer brands to create and syndicate rich media content to ConversionPoint’s network of online retailers and improve the buying experience across online retailers. ConversionPoint’s data analytics and reporting capabilities provide engagement insights that can be used to optimize marketing efforts.

 

  Interactive content builder: ConversionPoint’s interactive content building platform is a programmatic, user-friendly platform that enables brands to construct highly engaging product experiences, including, videos, images, 360 degree animated views, documents, and comparison charts. Content can be custom designed to appear native to the target website and delivered inline, overlaid on top of existing elements, or as a call to action or button.
     
  Content syndicator: ConversionPoint’s content syndication platform allows brands to organize and publish the rich media experiences, constructed using the interactive content builder, to retailer websites within ConversionPoint’s retailer network.
     
  Reporting dashboard: Anonymous data collected from consumer interactions with brand content is curated into a suite of customizable reports and dashboards providing brands and advertisers with valuable marketing and data analytics, enabling them to leverage engagement insights to optimize their digital marketing efforts.
     
  Retargeting: ConversionPoint’s retargeting technology tracks various shopping behaviors, builds audience segments according to those behaviors and can then deliver more effective advertising to those segments at opportune times.

 

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  Secure payments processing platform: By integrating with major payment gateways, ConversionPoint’s technologies provide high level data security, fraud protection and dispute resolution.

 

Post-Sale: ConversionPoint’s post-sale solutions manage shipping and fulfillment, customer communications, upsells and remarketing. ConversionPoint’s post-sale solutions include:

 

  Shipping management platform: ConversionPoint’s shipping and logistics solutions manage, among other things, product shipments and can deliver shipping notifications to consumers, on brand.
     
  Customer communications: ConversionPoint’s platform provides brands and advertisers with multiple post-sale customer touchpoints, including, on brand order confirmations and reorder reminder triggers. ConversionPoint’s platform also includes email and SMS capabilities that allows brands to communicate with consumers following a sale.
     
  Remarketing: ConversionPoint’s retargeting technology tracks consumer post-sale behavior and can re-engage prior customers with relevant offers.
     
  Recurring membership programs: Through ConversionPoint’s platforms, brands can create customized membership programs to keep consumers engaged and increase lifetime customer value.
     
  Dashboard and reporting: ConversionPoint unifies sales data from various e-commerce storefronts, providing a dashboard of marketing expenses and sales, for profit and loss performance reporting.

 

ConversionPoint’s E-Commerce Product Sales

 

Through ConversionPoint’s subsidiaries, Branded Response and Push, ConversionPoint sells a multitude of products directly to consumers, including health and wellness products (e.g., facial creams, nutritional supplements and anti-snoring devices), eBooks and various other consumer products. During 2017 and 2018, ConversionPoint generated $41,651,146 and $20,287,005, respectively, in e-commerce product net revenues, which constituted, 83.4% and 51.0%, respectively, of ConversionPoint’s net revenues during those periods.

 

E-commerce products are sold through trial offers, in which consumers sign up to receive a free trial product and to be billed monthly for continued delivery of these products until the consumer affirmatively cancels his or her subscription, and non-trial offers, in which consumers make one-time purchases of products. In 2017 and 2018, trial offer sales constituted 86.2% and 60.5%, respectively, of ConversionPoint’s e-commerce product net revenues and non-trial sales constituted the balance.

 

Sales and Marketing

 

Push and Branded Response market products directly to consumers online and through various online third-party marketing companies, that send traffic to landing pages for the products on a cost-per-acquisition, or CPA, basis where the marketing company is paid a flat fee for each product sold, or on a cost-per-click, or CPC, basis where ConversionPoint pays a set fee each time a consumer clicks on an advertisement, regardless of whether the consumer purchases a product. CPA and CPC rates generally depend upon the price at which the product is sold and are negotiated separately with each marketing company.

 

Products are marketed online, primarily through email marketing, native advertising (material in an online publication which resembles the publication’s editorial content but is paid for by an advertiser and intended to promote the advertiser’s product), and display advertisements (such as online banner ads). Customers pay for products online using credit cards.

 

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Suppliers, Shipping and Fulfillment

 

Branded Response purchases finished products from various U.S.-based third-party fulfillment houses that store and ship the products to customers. Push purchases finished products it sells from various manufacturers, and stores and ships products from its facility in Minneapolis, Minnesota.

 

Although Branded Response and Push generally have good relationships with the third-party fulfillment houses and manufacturers with which they work, they believe they could replace any of their current fulfillment houses or manufacturers without great difficulty or a significant increase to their cost of goods sold.

 

Customers

 

ConversionPoint serves customers across a wide range of industries and geographies. ConversionPoint’s technology product customers include both traditional and online retailers, and small and large brands, such as Canon USA, Intel, Brother, FujiFilm and Nikon. ConversionPoint’s e-commerce product sales are made primarily to individuals located in the United States.

 

Key Relationships

 

ConversionPoint has long-standing relationships with Walmart, Lowes, Costco and other major online retailers, which integrate ConversionPoint’s JavaScript tags on their online retail store web pages, allowing ConversionPoint’s brand customers to directly publish interactive experiences and product information to such retail websites.

 

ConversionPoint’s Competitive Strengths

 

ConversionPoint believes it has the following competitive strengths:

 

  Full suite of solutions.   ConversionPoint provides a full suite of solutions to create and publish product experiences, target, convert and re-engage consumers, and manage payments and logistics. ConversionPoint’s interactive content builder, content syndication, and digital media optimization platforms are currently available as SaaS solutions and through managed services. ConversionPoint’s retargeting and customer relationship management platforms are currently offered through managed services, however, both are actively being developed into SaaS solutions. ConversionPoint is unifying all of its current technology solutions into an integrated platform to provide brands a fully integrated self-serve SaaS offering.
     
  Unified content creation and product management.  ConversionPoint’s content builder and syndication technology provides customers with one interface to create interactive rich media product experiences, and publish such rich media content across ConversionPoint’s network of online retailers.
     
  Highly relevant and targeted ads. Through algorithmic audience segmentation technology, ConversionPoint delivers targeted ads to high value audiences at opportune times. These audiences can be segmented across a broad spectrum of behavioral and demographic attributes.
     
  Experienced management team.   ConversionPoint has a management team with deep operational experience in technology, software development, e-commerce, digital marketing, media buying, customer conversion and retail strategy.
     
  Cutting edge engineering. ConversionPoint engineering leverages modern technologies to solve complex problems using its proprietary development framework, including its full stack, continuous development ecosystem that enables it to accelerate new application and iterative development.
     
  Robust and flexible integration.  ConversionPoint’s platform is designed to enable its customers to easily integrate with business information systems, other service providers and ConversionPoint’s partners.

 

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  Deep data analytics. ConversionPoint gathers vast amounts of data related to consumer online behavior and curates such data into customizable reports and dashboards that provide valuable and actionable insights. These reports improve visibility into a seamless and connected consumer purchase journey, enabling brands and advertisers to measure and optimize their digital marketing spend while increasing their customer life time value.

 

ConversionPoint’s Growth Strategy

 

In the second quarter of 2018, ConversionPoint began shifting its focus away from e-commerce product sales, towards its long term growth strategy of further developing and expanding its managed services and SaaS businesses. The following are key elements of ConversionPoint’s growth strategy:

 

  Expand salesforce to acquire new customers and online advertisers.  ConversionPoint intends to increase its salesforce to expand its existing partnerships with leading online retailers and brands and to aggressively activate new online retail partnerships and new brand advertiser relationships.
     
  Development of end-to-end unified SaaS offering. ConversionPoint is actively unifying all of its technology platforms into one framework to provide a streamlined user experience for customers to leverage all of ConversionPoint’s applications through a SaaS model.
     
  Focus on SMBs. ConversionPoint believes that there is a significant opportunity for an end-to-end e-commerce technology solution for small and mid-size businesses, or SMBs, seeking to grow their online sales without dealing with the many challenges of integrating multiple point solutions. ConversionPoint intends to heavily market its platforms to SMBs.
     
  Maintain innovation. ConversionPoint continues to develop and introduce new features and improved functionality to its platforms. Key initiatives include development of easy to use self-serve platforms for SMBs, and continued development of AI-enhanced marketing technologies, including, but not limited to, technology for syndicating customized rich media content and product page layouts based on consumer profiles and behavior.
     
  Expand the number of retailers supported by ConversionPoint’s content syndication platform.  ConversionPoint’s network already includes a multitude of online retailers such as Walmart, Costco and Office Depot. ConversionPoint intends to expand its network of online retailers, which ConversionPoint believes will result in meaningful growth of both its manufacturer brand customer base and the sales they can process through ConversionPoint’s technology platforms.
     
  Opportunistically pursue strategic acquisitions.  ConversionPoint intends to opportunistically pursue acquisitions of complementary businesses and technologies that are consistent with its overall e-commerce technology growth strategy. ConversionPoint believes that a selective acquisition strategy will enable ConversionPoint to enhance its technology capabilities, gain new customers and accelerate its expansion into new markets.

 

ConversionPoint’s Technology Platform

 

ConversionPoint has developed its proprietary technology platform with a focus on delivering industry-leading breadth, scalability, reliability and flexibility. A portion of ConversionPoint’s platform is cloud-based and SaaS, with a single code base and multi-tenant software architecture. Because of this architecture, there is no need for customers to download, install or upgrade software.

 

ConversionPoint’s software has been developed using agile software development methodologies, which allow ConversionPoint to rapidly iterate by developing small, incremental changes that are continuously integrated into its code base.

 

ConversionPoint hosts its platform on secure third-party hosting platforms, using servers, networking systems and storage systems it leases from its hosting providers. ConversionPoint employs system security, including firewalls, load balancers, threat protection layers, encryption technology and antivirus software, and conducts regular system tests and vulnerability and intrusion assessments. In the event of failure, ConversionPoint has engineered its systems with backup and recovery capabilities designed to provide for business continuity.

 

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Competition

 

The overall market for e-commerce solutions is rapidly evolving, highly competitive, complex, fragmented with numerous single point solutions, and is subject to changing technology and shifting customer needs. ConversionPoint faces significant competition. To maintain and improve ConversionPoint’s competitive position, ConversionPoint must keep pace with the evolving needs of its customers and continue to develop and introduce new modules, features and services in a timely and efficient manner, and complete the development of its unified end-to-end e-commerce SaaS platform. 

 

ConversionPoint currently competes with established companies, such as Optimizely and Volume in the digital media optimization space, WebCollage in the rich content creation and product information syndication space, Limelight and Click Funnels in the sales conversion space, AdRoll and Criteo in the remarketing space, and Narvar and ShipStation in the shipping and logistics space.

 

ConversionPoint believes the principal competitive factors in its market include the following: 

 

  solution quality, breadth, flexibility and functionality; 
     
  level of customer satisfaction and the ability to respond to customer needs rapidly; 
     
  ability to innovate and develop new or improved products and modules; and
     
  brand awareness and reputation.

 

ConversionPoint believes that it competes favorably with respect to the factors described above, however, competitors continue to increase their suite of offerings across e-commerce channels to better compete. A number of competitors have greater name recognition and are better capitalized than ConversionPoint. ConversionPoint’s ability to remain competitive in its market segment depends upon its ability to innovate and to efficiently provide unique solutions to its demand and supply customers.

 

Research and Development

 

ConversionPoint’s research and development efforts are focused on the following:

 

  integrating and enhancing the architecture of its various technology platforms;
     
  creating additional functionality for its customers, including developing AI-enhanced marketing technologies;
     
  maintaining and extending its integration with the online channels it supports; and
     
  developing an integrated self-serve SaaS platform for SMBs.

 

Intellectual Property

 

ConversionPoint’s ability to protect its intellectual property, including its technology, will be an important factor in the success and continued growth of its business. ConversionPoint protects its intellectual property through trade secrets law, copyrights, trademarks and contracts. ConversionPoint has filed four provisional U.S. patent applications related to its content creation, syndication and online tracking technologies. Some of ConversionPoint’s technologies rely on third-party licensed intellectual property. ConversionPoint also protects details about its processes, products, and strategies as trade secrets, keeping confidential the information that it believes provides it with a competitive advantage.

 

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In addition, ConversionPoint has established business procedures designed to maintain the confidentiality of its proprietary information, including the use of confidentiality agreements and assignment-of-inventions agreements with employees, independent contractors, consultants and companies with which ConversionPoint conducts business.

 

Government Regulation

 

The legal environment of the Internet is evolving rapidly in the United States and elsewhere. The manner in which existing laws and regulations will be applied to the internet in general, and how they will relate to ConversionPoint’s business in particular, both in the United States and internationally, are often unclear. For example, ConversionPoint often cannot be certain how existing laws will apply in the e-commerce and online context, including with respect to such topics as privacy, pricing, credit card fraud, advertising, taxation, content regulation, quality of products and services and intellectual property ownership and infringement. Furthermore, it is not clear how existing laws governing issues such as sales and other taxes and personal privacy will apply to the internet, as many of these laws were adopted prior to the advent of the internet and do not contemplate or address the unique issues raised by the internet or e-commerce. It is also unclear how the laws that do reference the internet will be interpreted by courts, which may impact their applicability and scope. Compliance may be costly and may require ConversionPoint to modify its business practices and product offerings. In addition, it is possible that governments of one or more countries may seek to censor content available on ConversionPoint’s or its customer’s websites or may even attempt to completely block access to those websites. Noncompliance or perceived noncompliance could also subject ConversionPoint to significant penalties and negative publicity. Accordingly, adverse legal or regulatory developments could substantially harm ConversionPoint’s business.

 

Customers load product information and other content onto ConversionPoint’s platform, generally without any control or oversight by ConversionPoint, at which point ConversionPoint may legally be considered to be the distributor of that content. This presents legal challenges to ConversionPoint’s business and operations, such as rights of privacy or intellectual property rights related to the content loaded onto ConversionPoint’s platform. Both in the United States and internationally, ConversionPoint must monitor and comply with a host of legal concerns regarding the content loaded onto its platform. The scope of ConversionPoint’s liability for third-party content loaded onto its platform for delivery to various online e-commerce channels may vary from jurisdiction to jurisdiction and may vary depending on the type of claim, such as privacy, infringement or defamation claims. ConversionPoint’s ability to employ processes to quickly remove infringing or offending content from its platform, for example, is an important tool in protecting ConversionPoint from exposure for the potentially infringing activities of its customers. ConversionPoint also incorporates protections in customer contracts that allows ConversionPoint to take steps, if needed, to limit its risk regarding much of the content loaded onto, and collected by, ConversionPoint’s platform and solutions.

 

Numerous laws and regulatory schemes have been adopted at the national and state level in the United States and internationally that have a direct impact on ConversionPoint’s business and operations. These laws include, but are not limited to, the following:

 

Copyright and trademark.    The Copyright Act of 1976 and the statutes and regulations associated with copyrights and trademarks and enforced by the United States Patent and Trademark Office are intended to protect the rights of third parties from infringement. Using certain of ConversionPoint’s services, customers can upload any content they desire for use with ConversionPoint’s solutions. ConversionPoint maintains an active copyright and trademark infringement policy and responds to take-down requests by third-party intellectual property right owners that might result from content posted by ConversionPoint’s customers using ConversionPoint’s solutions. As ConversionPoint’s business expands to other countries, ConversionPoint must also respond to regional and country-specific intellectual property considerations, including take-down and cease and desist notices in foreign languages, and ConversionPoint must build infrastructure to support these processes. The Digital Millennium Copyright Act, or DMCA, also applies to ConversionPoint’s business. This statute provides relief for claims of circumvention of copyright-protected technologies but includes a safe harbor that is intended to reduce the liability of online service providers for listing or linking to third-party websites that include materials that infringe copyrights or other rights of others.

 

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Data privacy and security.    Data privacy and security with respect to the collection of personally identifiable information continues to be a focus of worldwide legislation and compliance review. Examples include statutes adopted by the State of California that require online services to report breaches of the security of personal data, and to report to California customers when their personal data might be disclosed to direct marketers. In the European Union, where U.S. companies must meet specified privacy and security standards, the Data Protection Directive requires comprehensive information privacy and security protections for consumers with respect to information collected about them. Compliance requirements include disclosures, consents, transfer restrictions, notice and access provisions for which ConversionPoint may in the future need to build further infrastructure to support. ConversionPoint attempts to adhere to the Data Protection Directive’s Safe Harbor Privacy Principles and comply with the U.S.-E.U. Safe Harbor Framework as agreed to and set forth by the U.S. Department of Commerce and the European Union concerning U.S. companies doing business in Europe and collecting personal information from European citizens. Under the Safe Harbor Framework, ConversionPoint posts on its website, privacy policies and practices concerning the use and disclosure of user data. Any failure by ConversionPoint to comply with its posted privacy policies, the Safe Harbor Framework, U.S. Federal Trade Commission, or FTC, requirements or other privacy-related laws and regulations could result in proceedings by governmental or regulatory bodies that could potentially harm its business, results of operations and financial condition.

 

In this regard, there are a large number of legislative proposals before the U.S. Congress and various state legislative bodies regarding privacy issues that could affect ConversionPoint’s business. It is not possible to predict whether or when such legislation may be adopted, and certain proposals, if adopted, could harm ConversionPoint’s business through a decrease in customers and revenue. These decreases could be caused by, among other possible provisions, the required use of disclaimers or other requirements before prospective buyers can interact with ConversionPoint’s customers. ConversionPoint uses tracking technology to track purchases and consumer online behavior to enable ConversionPoint to serve relevant ads to consumers based on their online behavior. Laws prohibiting or inhibiting such tracking could make it difficult to effectively provide certain of ConversionPoint’s services. The interpretation and implementation of processes to comply with cookie laws continues to evolve, and ConversionPoint cannot predict how any new laws will apply to ConversionPoint or its business.

 

Credit card protections.  ConversionPoint collects credit card data in processing the fees paid to ConversionPoint by its customers, as well as consumer credit card information when ConversionPoint’s customers use some of its solutions. Several major credit card companies have formed the Payment Card Industry Council, or PCI Council, in order to establish and implement security standards for companies that transmit, store or process credit card data. The PCI Council has created the Payment Card Industry Data Security Standard, or PCI DSS. Although the PCI DSS is not law, merchants using PCI Council members to process transactions are required to comply with the PCI DSS, with associated fines and penalties for non-compliance. Elements of the PCI DSS have begun to emerge as law in some states, however, and ConversionPoint expects the trend to continue as to further laws and restrictions in collecting and using credit card information.

 

Employees

 

As of March 1, 2019, ConversionPoint had 85 full-time employees, none of which are covered by a collective bargaining agreement.

 

Facilities

 

ConversionPoint’s corporate headquarters are located in Newport Beach, California, where it leases 9,209 square feet of office space. The lease has a term of five years, and expires in July 2023. It also conducts operations from 26,558 square feet of office and warehouse space in Minneapolis, Minnesota, which consists of three interconnected buildings, pursuant to a lease that has a term of 60 months and expires in December 2021. It also operates from 15,096 square feet of office space in Emeryville, California pursuant to a lease that expires in May 2021.

 

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Legal Proceedings

 

From time to time, ConversionPoint is subject to legal proceedings, claims and litigation arising in the ordinary course of business. ConversionPoint is currently involved in two litigation matters related to the mergers, D’Arcy v. Inuvo, Inc. et al, and Franchi v. Inuvo, Inc. et al. For a description of these two lawsuits, see “Risk Factors—Risks Related to the Mergers—Litigation related to the mergers is filed against Inuvo and the Inuvo board and/or ConversionPoint and the ConversionPoint board that could prevent or delay the completion of the mergers and/or result in the payment of damages following the completion of the mergers” on page 31.

 

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

 

Company Overview

 

ConversionPoint, through its wholly-owned subsidiaries, helps e-commerce companies and brands target, convert, manage and re-engage their customers using sophisticated online tracking and data analytics. ConversionPoint’s suite of technologies manages and optimizes multiple aspects of e-commerce including: rich media content creation and syndication, audience targeting, conversion optimization, remarketing, logistics and customer management. ConversionPoint both delivers its technologies to its customers through software-as-a-service, which we refer to as SaaS, and uses its technologies to provide managed digital marketing and e-commerce technology services to brands and advertisers, which we refer to as managed services. ConversionPoint also uses its own technologies to sell various products directly to consumers, which we refer to as e-commerce product sales. ConversionPoint’s vision is to simplify the entire e-commerce experience by integrating its technologies and offering a broad range of e-commerce solutions on a single, easy-to-use platform.

 

ConversionPoint was formed as a Delaware corporation on November 2, 2016. In April 2017, ConversionPoint acquired Branded Response and Push Holdings, both of which are engaged in the business of e-commerce product sales, with the vision of using Push’s existing technology platform as the foundation to develop both organically and through strategic acquisition, a unified e-commerce solution to (a) more efficiently manage ConversionPoint’s own internal e-commerce product campaigns, (b) manage campaigns for third parties, on a managed services basis, and (c) develop and license their technology to third parties on a self-serve SaaS subscription basis. In 2017, ConversionPoint began generating managed service revenues.

 

In December 2017, ConversionPoint acquired SellPoints, Inc., a venture-backed Delaware corporation, which had developed a suite of software solutions enabling brands to create and syndicate interactive rich media content experiences to a network of online retailers, track online consumer behavior, retarget consumers based on their online behavior, and deliver robust data analytics and reporting. ConversionPoint believed that SellPoints’ technologies, coupled with its large brand customers and partners, would add significant capabilities to the end-to-end e-commerce platform ConversionPoint was creating.

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. ConversionPoint evaluates these estimates and assumptions on an ongoing basis and bases its estimates on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. ConversionPoint’s actual results may materially differ from these estimates.

 

The more critical accounting estimates include estimates related to revenue recognition, accounts receivable, business combinations, goodwill and intangible assets, software development costs, stock-based compensation and income taxes, have the greatest potential impact on our consolidated financial statements. Therefore, ConversionPoint considers these to be our critical accounting policies and estimates.

 

Revenue Recognition

 

ConversionPoint generates revenue from three primary revenue types: e-commerce products sales, managed services, and Software-as-a-Service (“SaaS”).

 

ConversionPoint recognizes revenue in accordance with ASC 605, Revenue Recognition, and related authoritative guidance. Under ASC 605, revenue is recognized when the following criteria are met: (i) persuasive evidence of an arrangement exists; (ii) fees are fixed or determinable; (iii) the collection of the fees is reasonably assured; and (iv) services have been rendered.

 

ConversionPoint recognizes revenue in accordance with ASC 605-2, Multiple Deliverables. The determination of whether the arrangement contains multiple elements is determined based on whether the product or service has a stand-alone value. ConversionPoint evaluates each arrangement and was determined that SaaS offerings are recorded as a single unit of accounting for the purposes of allocation of the arrangement consideration and revenue recognition. For arrangements that include a combination of both managed services and SaaS, ConversionPoint has determined that standalone value exists since both products are sold separately. In these cases, ConversionPoint allocates the arrangement consideration to the managed services and SaaS elements based on the relative stand-alone selling prices.

 

Accounts Receivable

 

Accounts receivable consists primarily of in-transit credit card settlements from customer sales processed through merchant accounts and revenue earned from customers based on contractual agreements. Merchant accounts frequently require a portion of settlements to be held back for potential future chargebacks and refunds. Holdbacks generally amount to 10% of total settlements and are generally released within six months or when the risk of chargebacks is remote. ConversionPoint estimates the impact of future chargebacks and sales returns based on historical experience and provides an allowance against accounts receivable. Additionally, ConversionPoint performs ongoing evaluations of its customers’ financial condition. ConversionPoint provides credit to some of its customers in the normal course of business and maintains allowances for potential credit losses.

 

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Business Combinations

 

ConversionPoint allocates the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets and liability obligations. Although ConversionPoint believes the assumptions and estimates ConversionPoint has made are reasonable, they are based in part on historical experience, market conditions and information obtained from management of the acquired companies and are inherently uncertain. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:

 

· future expected cash flows from software technologies;
· historical and expected customer attrition rates and anticipated growth in revenue from acquired customers;
· the acquired company’s trade name and trademarks as well as assumptions about the period of time the acquired trade name and trademarks will continue to be used in the combined company’s product portfolio;
· the expected use of the acquired assets; and
· discount rates.

 

Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.

 

Goodwill and Intangible Assets

 

Goodwill is recorded as the difference between the aggregate consideration paid for the acquisitions of Push and SellPoints in 2017 and the fair value of the acquired net tangible and intangible assets acquired. ConversionPoint evaluates goodwill for impairment on an annual basis in the fourth quarter or more frequently if indicators of impairment exist that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

 

For 2018, ConversionPoint conducted the goodwill impairment testing by assessing qualitative factors to determine whether it was more likely than not that the fair value of our reporting unit was less than its carrying amount. As part of this assessment, ConversionPoint considered factors, including but not limited to, the overall macroeconomic environment, specific industry and market conditions, cost factors, our overall financial performance against expectations, and changes in strategy or the manner in which it uses its assets. While ConversionPoint had operating losses in 2018, ConversionPoint increased its revenues in managed services and SaaS, which are the key segments. No other indicators of impairment were identified during ConversionPoint assessment. Accordingly, ConversionPoint concluded there was no impairment to goodwill at the impairment testing date.

 

ConversionPoint’s intangible assets consist of software technology, customer lists, and brand names which are amortized using the straight-line method over five years. These intangible assets resulted from the acquisitions of Push and SellPoints in 2017.

 

Software Development Costs

 

Capitalization of software development costs begins during the application development stage. Costs incurred in the application development phase, including upgrades and enhancements, if it is probable that such expenditures will result in additional functionality, are capitalized and will be amortized over their estimated useful life. Software development costs incurred subsequent to the establishment of technological feasibility are capitalized on the accompanying balance sheets on a periodic basis, usually quarterly. Software development costs are amortized using the straight-line method over five years.

 

Software development activities generally consist of three stages: (i) the planning stage; (ii) the application and infrastructure development stage; and (iii) the post-implementation stage. Costs incurred in the planning and post-implementation stages of software development, including costs associated with the post configuration training and repairs and maintenance of the developed technologies, are expensed as incurred. ConversionPoint capitalizes costs associated with software developed when both the preliminary project stage is completed and management has authorized further funding for the completion of the project. Costs incurred in the application and infrastructure development stages, including significant enhancements and upgrades, are capitalized. Capitalization ends once a project is substantially complete and the software and technologies are ready for their intended purpose. Software development costs are amortized using a straight-line method over the estimated useful life of five years, commencing when the software is ready for its intended use.

 

Stock-Based Compensation

 

ConversionPoint values stock compensation based on the fair value recognition provisions of ASC 718, Compensation – Stock Compensation, which establishes accounting for stock-based awards exchanged for employee services and requires companies to expense the estimated grant date fair value of stock awards over the requisite employee service period.

 

The fair value of restricted stock awards is based on the market price of ConversionPoint’s common stock on the date of the grant. To value stock option awards, ConversionPoint uses the Black-Scholes-Merton option pricing model. This model involves assumptions including the stock price, expected life of the option, stock price volatility, risk-free interest rate, dividend yield and exercise price. ConversionPoint recognizes compensation expense in earnings over the requisite service period, while forfeitures of awards are recognized as they occur.

 

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ConversionPoint also grants stock-based awards to non-employees. ConversionPoint believes that for stock options issued to non-employees, the fair value of the stock option is more reliably measurable than the fair value of the services rendered. Therefore, ConversionPoint estimates the fair value of non-employee stock options using a Black-Scholes-Merton valuation model with appropriate assumptions. The estimated fair value of non-employee stock options is re-measured over the vesting period, and the expense is recognized on a straight-line basis over the period during which the award vests.

 

Income Taxes

 

ConversionPoint uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax laws is recognized in the consolidated statement of operations in the period that includes the enactment date.

 

Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized based on the weighting of positive and negative evidence. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the applicable tax law. ConversionPoint regularly reviews the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. ConversionPoint’s judgments regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute its business plans and/or tax planning strategies. Should there be a change in the ability to recover deferred tax assets, the tax provision would increase or decrease in the period in which the assessment is changed.

  

Overview of 2018

 

In the second quarter of 2018, ConversionPoint shifted its focus away from e-commerce product sales towards its long-term growth strategy of further developing its managed services and SaaS offerings for brands and advertisers. ConversionPoint began devoting resources to integrating its various technology solutions into an end-to-end e-commerce platform and increasing managed services and SaaS revenues. While ConversionPoint continued, and plans to continue, e-commerce product sales, the shift in internal resources away from e-commerce product sales resulted in a decrease in overall revenues in 2018, as compared to 2017, although managed services and SaaS revenues increased during 2018.

 

As part of its strategy of focusing on developing its managed services and SaaS businesses and continuing to develop and enhance its end-to-end e-commerce solutions, in November 2018, ConversionPoint entered into the merger agreement to acquire Inuvo. Inuvo owns IntentKey, a first party consumer data platform with strong intellectual property that allows brands to better target potential customers online. ConversionPoint views Inuvo and its first party data platform as a key part of the development of its end-to-end e-commerce technology platform and the growth of its managed services and SaaS revenues.

 

ConversionPoint believes it is providing enterprise grade e-commerce technologies available to SMBs, which primarily currently use multiple technology point solutions to operate their e-commerce businesses.

 

Results of Operations for the Years ended December 31, 2018 and 2017

 

    For the Years Ended 
December 31,
 
    2018     2017     Change     % Change  
Net Revenues   $ 39,780,941     $ 49,920,921     $ (10,139,680 )     (20.3 )%
Cost of Revenues     29,898,887       37,776,678       (7,877,791 )     (20.9 )%
Gross Profit     9,882,054       12,143,943       (2,261,889 )     (18.6 )%
Gross Profit Percentage     24.8 %     24.3 %                
Operating Expenses:                                
Sales and marketing     2,920,030       4,298,412       (1,378,382 )     (32.1 )%
General and administrative     28,721,023       5,776,332       22,944,691       397.2 %
Amortization of intangibles assets     4,483,121       1,278,344       3,204,777       250.7 %
Total operating expenses     36,124,174       11,353,088       24,771,086       218.2 %
(Loss) Income from Operations     (26,242,120 )     790,855       (27,032,975 )     (3,418.2 )%
Interest Expense:                                
Debt conversion to equity discount     4,360,929       -       4,360,929       N/A  
Warrants issued to debt holders     1,494,308       -       1,494,308       N/A  
Interest expense – stated rate     1,450,855       829,169       621,686       75.0 %
Total interest expense, net     7,306,092       829,169       6,476,923       781.1 %
Loss Before Income Tax Benefit     (33,548,212 )     (38,314 )     (33,509,898 )     87,461.2 %
Income Tax Benefit     (308,719 )     (434,974 )     126,255       (29.0 )%
Net (Loss) Income   $ (33,239,493 )   $ 396,660     $ (33,636,153 )     (8,479.8 )%

 

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Segment Reporting

 

ConversionPoint and its subsidiaries operate in the following three business segments: e-commerce product sales, managed services, and SaaS. The following financial information presents ConversionPoint’s consolidated statements of income (loss) and certain operating data for each of the periods indicated. The results of operations by segment are also discussed as part of a discussion of the consolidated overview.

 

In the e-commerce product sales reportable segment, ConversionPoint sells various products, primarily, in the health, wellness and beauty industries, directly to consumers online. ConversionPoint sells these products, primarily through trial offers and a monthly subscription model. ConversionPoint uses its expertise and its internally developed technologies to maximize the lifetime value of customers.

 

The managed services reportable segment consists mainly of the management of digital advertising campaigns and retargeting technologies for brands and advertisers.

 

The SaaS reportable segment consists of rich media content creation and product information management and syndication, which increase the return on investment for brands and advertisers selling on various online retail channels through higher online check out rates for the brands and advertisers using the technology.

 

Operating Data for the Year ended December 31, 2018 and 2017

 

    For the Years Ended 
December 31,
 
    2018     2017     Change     % Change  
e-commerce Products                                
Revenue   $ 20,287,005     $ 41,651,146     $ (21,364,141 )     (51.3 )%
Cost of revenues     16,511,602       32,952,100       (16,446,498 )     (49.9 )%
Segment gross profit     3,775,403       8,693,046       (4,917,643 )     (56.6 )%
Gross profit percentage     18.6 %     20.9 %     23.0 %     (2.3 )%
                                 
Managed Services                                
Revenue   $ 15,951,669     $ 7,950,890     $ 8,000,779       100.6 %
Cost of revenues     12,785,624       4,766,526       8,019,098       168.2 %
Segment gross profit     3,166,045       3,184,364       (18,319 )     (0.6 )%
Gross profit percentage     19.8 %     40.1 %     (0.2 )%     (20.3 )%
                                 
SaaS                                
Revenue   $ 3,542,267     $ 318,585     $ 3,223,682       1,011.9 %
Cost of revenues     601,661       52,052       549,609       1,055.9 %
Segment gross profit     2,940,606       266,533       2,674,073       1,003.3 %
Gross profit percentage     83.0 %     83.7 %     83.0 %     (0.7 )%

 

Net Revenues

 

Revenues were $39.8 million for the year ended December 31, 2018, compared to $49.9 million for the same period in 2017, a decrease of $10.1 million, or 20.3%. The decline in revenues was primarily driven by a strategic effort by ConversionPoint to shift its prior focus on e-commerce product revenues, to growing managed services and SaaS revenues, which generally have higher gross margins.

 

Revenues in the e-commerce product sales segment decreased from $41.7 million for the year ended December 31, 2017, to $20.3 million for the same period in 2018. The $21.4 million decrease is due to ConversionPoint’s increased focus growing its SaaS and managed services businesses, which it began in the second quarter of 2018, together with a more competitive online payment processing environment. At the beginning of 2018, ConversionPoint was selling nine different products online, however, in the second half of the year, ConversionPoint decided to keep only the highest selling product offerings. As a result, ConversionPoint was selling four products at the end of the year. Additionally, ConversionPoint reallocated employees from e-commerce product sales to managed services to focus on assisting customers sell their own products online.

 

Revenues from managed services increased from $8.0 million for the period ended December 31, 2017, to $16.0 million for the same period in 2018. The $8.0 million increase is primarily a result of increasing focus on expanding ConversionPoint’s managed services business commencing in the second quarter of 2018 by allocating more headcount to assist customers sell their own products online, and the acquisition of SellPoints in December 2017, which contributed an additional $3.1 million of managed services revenue during the year ended December 31, 2018. In 2018, ConversionPoint launched various managed services’ campaigns, which increased from three in mid-2018 to eight at the end of 2018.

 

Revenues from SaaS increased from $0.3 for the period ended December 31, 2017, to $3.5 million for the same period in 2018. The $3.2 million increase is primarily as a result of ConversionPoint’s acquisition of SellPoints in December 2017, and revenues derived during 2018, from its cloud-based technology platforms.

 

Cost of Revenues and Gross Profit

 

Consolidated cost of revenues was $29.9 million for the year ended December 31, 2018, compared to $37.8 million for the year ended December 31, 2017, a decrease of $10.1 million, or 20.3%. The decrease is primarily due to the decrease in e-commerce product revenues which had a corresponding decrease in customer acquisition costs that are lower in ConversionPoint’s other business segments.

 

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Cost of revenues for the e-commerce products segment was $16.5 million for the year ended December 31, 2018, compared to $33.0 million for the same period in 2017, a decrease of $16.4 million, or 49.9%. Cost of revenues for the e-commerce products segment as a percentage of overall e-commerce products revenues for the years ended December 30, 2018 and 2017 was relatively consistent at 81.4% and 79.1%, respectively.

 

Cost of revenues for the managed services segment was $12.8 million and $4.8 million for the years ended December 31, 2018 and 2017, respectively, an increase of $8.0 million. Cost of revenues for the managed services segment as a percentage of overall managed services revenues was 80.2% and 59.9% for the years ended December 31, 2018 and 2017, respectively. The increase in managed services costs of revenues is due, primarily, to higher than expected customer delivery costs, including digital marketing costs incurred on behalf of customers.

 

Cost of revenues for the SaaS segment increased from $0.1 million to $0.6 million for the years ended December 31, 2018 and 2017, respectively, an increase of $0.5 million. The $0.5 million increase is due to the SellPoints acquisition in December 2017 and the costs of revenues resulting from its technology platforms. Cost of revenues for the SaaS segment as a percentage of overall SaaS revenues was relatively consistent at 17.0% and 16.3% for the years ended December 31, 2018 and 2017, respectively.

 

Consolidated gross profit was $9.9 million for the year ended December 31, 2018 compared to $12.1 million for the same period in 2017, a decrease of $2.2 million or 18.6%. The decrease in gross profit is due to shifts in ConversionPoint’s strategic focus to managed services and SaaS, which resulted in lower total revenue in 2018. Gross profit as a percentage of net sales increased slightly from 24.3% to 24.8% for the years ended December 31, 2018 and 2017, respectively.

 

Gross profit in the e-commerce products segment was $3.8 million for the year ended December 31, 2018, compared to $8.7 million for the same period in 2017, a decrease of $4.9 million. The decrease is primarily the result of ConversionPoint’s strategic shift from e-commerce product sales towards managed services and SaaS. Costs of revenue related to e-commerce products are variable and as a result, as a percentage of net sales, gross profit was relatively constant at 18.6% and 20.9% for the years ended December 31, 2018 and 2017, respectively.

 

Gross profit in the managed services segment was flat at $3.2 million for both years ended December 31, 2018 and 2017. The managed services segment gross profit as a percentage of net sales was 19.8% and 40.1% for the years ended December 31, 2018 and 2017, respectively. The lower gross profit percentage from managed services is due to higher than expected customer delivery costs. ConversionPoint expects managed services gross margins to increase in 2019.

 

Gross profit in the SaaS segment was $2.9 million for the year ended December 31, 2018, compared to $0.3 million for the same period in 2017, an increase of $2.6 million. This segment of revenue was new in 2018, as a result of the acquisition of SellPoints. The SaaS segment gross profit as a percentage of net sales was relatively constant at 83.0% and 83.7% for the years ended December 31, 2018 and 2017, respectively.

 

Operating Expenses

 

Sales and marketing - Sales and marketing expenses include those expenses required to support the e-commerce products segment, including, customer acquisition costs. Sales and marketing expenses for the years ended December 31, 2018 and 2017 were $2.9 million and $4.3 million, respectively. The decrease in sales and marketing costs of $1.4 million for the year ended December 31, 2018, compared to the same period in the prior year, is primarily due to a decrease in e-commerce product revenues and the related decrease in sales and marketing expenses. The variable third party sales and marketing costs include, among others, call center expenses, chargeback management, and other software and web hosting related costs.

 

General and administrative - General and administrative expenses were $28.7 million for the year ended December 31, 2018, compared to $5.8 million for the same period in 2017, an increase of $22.9 million. The increase is primarily due to the inclusion of a full year of operating expenses in 2018, for Push and SellPoints, which were acquired in April 2017 and December 2017, respectively. In addition, $9.7 million of additional general and administrative expenses in 2018, resulted from stock-based compensation plans established in 2018, and $2.1 million resulted from an increased headcount and additional compensation costs.

 

General and administrative expenses for Push, which ConversionPoint acquired in April of 2017, for the years ended December 31, 2018 and 2017, were $4.7 million and $1.7 million, respectively. The $3.0 million increase is primarily a result of the general and administrative expenses for Push for all of 2018, compared to 8 months for the prior year, and the hiring of additional employees to scale up the business.

 

General and administrative expenses for SellPoints, which ConversionPoint acquired in December 2017, for the years ended December 31, 2018 and 2017, were $6.6 million and $0.4 million, respectively. The $6.2 million increase is primarily a result of the general and administrative expenses for SellPoints for all of 2018, compared to one month for the prior year, and the hiring of additional employees to scale up the business.

 

Amortization of intangible assets - Amortization of intangible assets was $4.5 million for the year ended December 31, 2018 compared to $1.3 million for 2017. The increase resulted from the intangible assets acquired as part of the acquisitions of Push and SellPoints. ConversionPoint is amortizing the intangible assets acquired over a five-year period.

 

Interest expense, net - Interest expense, net, which represents interest expense on the outstanding notes payable, increased from $0.8 million during the year ended December 31, 2017, to $7.3 million, for the year ended December 31, 2018. The increase primarily resulted from the conversion of notes to equity at a 50% discount to the conversion price provided in the notes. ConversionPoint recognized approximately $4.4 million in debt conversion discounts for the year ended December 31, 2018, which are non-recurring. Additionally, ConversionPoint issued warrants to lenders having a fair market value of $1.5 million for the year ended December 31, 2018. Finally, interest expense increased by $0.6 million due to the notes acquired as part of the SellPoints’ acquisition.

 

Income tax benefit - Income tax benefit is primarily driven by the change in the valuation allowance resulting from the changes in the Tax Cuts and Jobs Act which included a rate reduction which took effect on January 1, 2018.

 

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Liquidity and Capital Resources

 

During the year ended December 31, 2018, ConversionPoint funded its operations primarily from cash on hand, cash generated by operations and private placements of equity securities. As of December 31, 2018, ConversionPoint had cash and cash equivalents of $2,282,526, as compared to $4,695,803 at December 31, 2017.

 

ConversionPoint and all of its subsidiaries are parties to a Loan and Security Agreement with Montage Capital II, L.P. and Partners for Capital Growth IV, L.P. As of March 1, 2019, $2,438,664, in principal and interest was outstanding under the loan. As of March 15, 2019, ConversionPoint was in default under the loan agreement, which default, the lenders have agreed to forebear until May 31, 2019 as described below. On November 2, 2018, ConversionPoint and its subsidiaries had certain technical defaults and an anticipated financial covenant default under the Loan and Security Agreement, and entered into an amendment to the Loan and Security Agreement, pursuant to which the lenders agreed to forbear from exercising remedies arising out of the existing defaults and the anticipated default until the earlier to occur of (i) their timely compliance with certain non-financial covenants under the Loan and Security Agreement as amended, upon which time the existing defaults and anticipated default shall automatically be waived, (ii) the occurrence of another event of default, or (iii) February 15, 2019. Pursuant to such amendment, the lenders also agreed to decrease ConversionPoint’s minimum cash covenant from $5,000,000 to $3,500,000 measured as of the last day of each month, and to eliminate the minimum EBITDA covenant included in the loan agreement, until February 15, 2019. As of February 15, 2019, ConversionPoint remained in default under the financial covenants under the loan agreement.

 

As of December 31, 2018, the financial covenants were as follows: (1) minimum cash covenant of $3,500,000 or (2) maximum adjusted quarterly EBITDA and Minimum adjusted quarterly revenue for the three-month period ending on December 31, 2018 of $1,750,000 and $18,000,000, respectively. As of December 31, 2018, ConversionPoint was not in compliance with either financial covenant. As of December 31, 2018, ConversionPoint had a cash balance of $2,282,526 and the maximum adjusted quarterly EBITDA and Minimum adjusted quarterly revenue for the three-month period ending on December 31, 2018 was $(9,057,622) and $11,171,501, respectively. Subsequently, on March 13, 2019, the lenders agreed to a further forbearance from exercising remedies arising from such defaults until May 31, 2019, and that such forbearance would be converted into a waiver of such defaults if ConversionPoint raises a minimum of $5,000,000 on or before May 31, 2019 through New Parent’s initial public offering or otherwise. ConversinoPoint is obligated to repay all amounts due and owing upon New Parent’s initial public offering. The lenders also agreed to decrease ConversionPoint’s minimum cash covenant from $3,500,000 to $2,500,000 effective June 1, 2019.

 

In connection with the Loan and Security Agreement, ConversionPoint has entered into deposit control agreements with all of its banking institutions in favor of the lenders pursuant to which the lenders can assume control of ConversionPoint’s bank accounts in the event ConversionPoint defaults under the Loan and Security Agreement. 

 

For the year ended December 31, 2018, ConversionPoint’s revenues declined 20.3% from the same period in the prior year. The lower revenue, combined with increased operating expenses, is principally responsible for ConversionPoint’s $25.4 million net operating loss during the year ended December 31, 2018. ConversionPoint incurred operating losses, has a working capital deficit, and generated negative cash flows from operating activities during the year ended December 31, 2018 which raises substantial doubt about its ability to continue as a going concern.

 

ConversionPoint expects to use a significant amount of cash over the next twelve-month period for operating activities in order to carry out its strategic objectives. ConversionPoint’s management is therefore seeking additional sources of financing, including an initial public offering. Furthermore, ConversionPoint’s management is focused on increasing revenues and improving profit margins through the integration of its technology platform and expansion of managed services and SaaS products, which the ConversionPoint expects will reduce the levels of cash required for its operating activities.

 

ConversionPoint considers historical operating results, capital resources and financial position, in combination with current projections and estimates, as part of its plan to fund operations over a reasonable period of time. While management believes it will have access to other financing sources and that based on current projections, ConversionPoint will be able to maintain current operations and meet its obligations, there can be no assurance that additional sources of financing will be available on acceptable terms or that ConversionPoint will successfully execute its operating plans.

 

ConversionPoints consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

 

Cash Flows

 

The table below sets forth a summary of ConversionPoint’s cash flows for the years ended December 31, 2018 and 2017:

 

    For the Years Ended December 31,  
    2018     2017  
Net cash provided by (used in)                
Operating activities   $ (10,371,061 )   $ (1,405,236 )
Investing Activities     (2,624,959 )     455,224  
Financing Activities     10,582,743       5,000,885  

 

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Cash Flows - Operating

 

Net cash used in operating activities was $10.4 million during the year ended December 31, 2018. During that period, ConversionPoint reported a net loss of $33.2 million, which included the following non-cash expenses: depreciation and amortization expense of $4.6 million, stock-based compensation expense of $9.7 million, discount on conversion of debt of $4.4 million, cancellation of warrants of $1.5 million, and warrants issued to lenders of $1.3 million. The change in operating assets and liabilities during the year ended December 31, 2018, was primarily due to an increase in other accrued liabilities and deferred revenue.

 

During the comparable period in 2017, cash used in operating activities was $1.4 million from a net income of $0.3 million, which included the following non-cash expense: depreciation and amortization of $1.3 million and $0.5 million deferred tax benefit. The cash provided was decreased by a $2.2 million increase in accounts receivable and $0.3 million in other assets as the business was ramping up in 2017.

 

Cash Flows - Investing

 

Net cash used in investing activities was $2.6 million during 2018, which primarily consisted of capitalized internal software development costs and purchases of property and equipment.

 

Net cash provided by investing activities was $0.5 million during 2017, which primarily consisted of cash acquired in business acquisitions, offset by capitalized internal software development costs and purchases of property and equipment.

 

Cash Flows - Financing

 

Net cash provided by financing activities was $10.6 million during 2018, which primarily resulted from net proceeds of $12.1 million resulting from the sale of common stock, offset by repayments of ConversionPoint’s notes payable of $1.8 million.

 

In 2017, net cash provided by financing activities was $5.0 million which largely consisted of net proceeds of $2.6 million from the issuance of convertible promissory notes, net proceeds of $1.8 million from the sale of common stock, and net proceeds of $0.6 million from issuance of bridge notes.

 

For information concerning ConversionPoint’s term and convertible notes payable, see Note 8 to ConversionPoint’s Consolidated Financial Statements for the years ended December 31, 2018 and 2017 included elsewhere in this joint proxy statement/prospectus.

 

Off Balance Sheet Arrangements

 

As of December 31, 2018, ConversionPoint did not have any off-balance sheet arrangements that had or were reasonably likely to have a current or future effect on ConversionPoint’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with ConversionPoint is a party, under which ConversionPoint has any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

 

Dividends on ConversionPoint Common Stock

 

ConversionPoint has never declared or paid cash dividends on its capital stock. ConversionPoint currently intends to retain all available funds and future earnings, if any, to fund the development and growth of its business and to repay indebtedness. Therefore, ConversionPoint does not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of its board of directors, and will depend upon its results of operations, financial condition, capital requirements and other factors including contractual obligations that its board of directors deems relevant.

 

 Management

 

The following table sets forth the names, ages and positions of ConversionPoint’s executive officers and directors as of the date of this joint proxy statement/prospectus.

 

Executive Officers and Directors

 

Name   Age   Positions Held
Robert Tallack   40   Chief Executive Officer and Chairman of the Board
Raghu Kilambi   53   Chief Financial Officer, Vice Chair and Director
Haig Newton   42   Chief Technology Officer and Director
Christopher Jahnke   32   Chief Marketing Officer and Director
Andre Peschong   51   Chief Strategy Officer and Director
Jack Thomsen   57   Treasurer
Jeffrey Marks   49   General Counsel, Senior Vice President of Corporate Development
Jonathan Gregg   45   President of SellPoints, Inc.

 

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There are no family relationships between any of the directors.

 

Executive officers of ConversionPoint are appointed by the board of directors and serve at the pleasure of the board.

 

Robert Tallack, has served as ConversionPoint’s Chief Executive Officer and as a director since its inception in April 2017, where he completed two major acquisitions of two technology companies, Push Holdings, Inc., and SellPoints Inc. Between May 2016 and the present date, Mr. Tallack has served as Chief Executive Officer, Treasurer and as a director of Branded Response, Inc. Since January 2009, Mr. Tallack has served as Chairman of Karate Kids Canada, where he has driven the mission of this organization, to provide free fitness programs to disadvantaged youth in Canada. Between January 2011 and December 2015, Mr. Tallack served as Chief Executive Officer of Revive Bioscience, Inc., where he successfully secured a global license with a leading sports brand and developed products which were distributed across North America. Mr. Tallack is a former three-time world martial arts champion, nine-time Canadian national martial arts champion, a former Professional Mixed Martial Arts fighter and holds a board breaking world record. Mr. Tallack attended Queens University between September 2001 and June 2004, where he received a bachelor’s degree in health science, with a minor in commerce.

 

Raghunath “Raghu” Kilambi, has served as ConversionPoint’s Chief Financial Officer since December 2017, and as Vice Chair and a director since January 2018. Mr. Kilambi has also been the principal of Kirarv Capital, a technology investment firm, since June 2009. Mr. Kilambi has raised over $1 billion of equity and debt capital for growth private and public companies in his career and has also been a senior officer and director of companies that were awarded Barron’s ASAP Magazine Top Ramp Champ awards and Profit Magazine’s Top 3 Growth Company awards. Previously, from 1998 to 2001 Mr. Kilambi was the Co-Founder, CFO and Chief Strategy Officer of FutureLink Corp., a leading first-generation VC-backed cloud computing technology company that grew from startup to over $100 million in annualized revenues and a peak NASDAQ valuation of over $2 billion. Mr. Kilambi has also been an investor in companies that were subsequently acquired by companies including Yahoo! (1998), eBay (2005) and CGI Group (2006). Mr. Kilambi graduated with Great Distinction with a Bachelor of Commerce (University Scholar) and a Graduate Diploma in Public Accounting from McGill University and qualified as a Canadian Chartered Accountant in 1989.

 

 Haig Newton, has served as ConversionPoint’s Chief Technology Officer and as a director since ConversionPoint’s inception in April 2017, and oversees the technology development of ConversionPoint’s platforms. Mr. Newton has also served as President, Chief Executive Officer, Treasurer and as a director of Push and its various subsidiaries since their inception in July 2012. Mr. Newton brings skills and knowledge in a variety of areas, including design, finance, web development, accounting, technical development, and branding. With more than 15 years of experience in the internet marketing space, Mr. Newton has a proven track record in enterprise-level custom architecture, working with teams large and small. Mr. Newton holds a B.S. in Business and Advertising, with a minor in Computer Science from University of Kansas.

 

Christopher Jahnke, has served as ConversionPoint’s Chief Marketing Officer and as a director since ConversionPoint’s inception in April 2017, and oversees all aspects of online marketing of ConversionPoint. Mr. Jahnke has also served as Vice President, Chief Marketing Officer, Secretary and as a director of Push and its various subsidiaries since their inception in July 2012. Mr. Jahnke is an expert on media buying strategies, and has developed and launched thousands of successful digital marketing campaigns resulting in millions per month in product sales. Mr. Jahnke received his undergraduate degree from Saint John’s University.

 

Andre Peschong, has served as ConversionPoint’s Chief Strategy Officer since its inception in April 2017, and as a director since July 2018. As Chief Strategy Officer, Mr. Peschong is responsible for driving ConversionPoint’s long-term growth strategy, which includes strategic acquisitions and capital markets navigation, as well as transitioning the company toward greater adoption of its fully integrated SaaS e-commerce solution. Between January 2011 and February 2014, Mr. Peschong served as CEO of Oxygen Plus, Inc., and has served as a director since January 2011. Between January 1995 and the present date, Mr. Peschong has served as President and a director of Bridgewater Capital Corporation which provides advisory services to small growth companies. Mr. Peschong brings more than 25 years of experience in the capital markets, having previously structured and closed more than $300 million in capital formation.

 

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Jack Thomsen, has served as ConversionPoint’s Treasurer since December 2017 and served as ConversionPoint’s Chief Financial Officer between April 2017 and December 2017. He has been the CFO of Branded Response, a subsidiary of ConversionPoint, since September 2016. Between 1995 and the present date, Mr. Thomsen has served as Chief Financial Officer and a partner of Bridgewater Capital Corporation, a corporate advisory firm. Mr. Thomsen has been a licensed CPA since 1983, and has worked at international, national, and local firms in both Iowa and California.

 

Jeffrey Marks, has served as SVP of Corporate Development and General Counsel for ConversionPoint Technologies Inc., since June 2017. In his role as SVP of Corporate Development, Mr. Marks works with senior management on identifying, structuring and consummating acquisitions and strategic partnerships, and in identifying potential investors. In his role as General Counsel, he oversees mergers and acquisitions, private placements, financings and the day to day legal affairs of ConversionPoint. Mr. Marks has served as principal of Alliance Legal Partners, Inc., in Newport Beach, California, since 2001, and as Of Counsel for Fortis LLP since May 2017. Prior thereto, he served as General Counsel for FutureLink Corp., a leading VC-backed cloud computing technology company that grew from startup to over $100 million in annual revenues and a peak NASDAQ National market capitalization of over $2 billion, and was a corporate and securities attorney at the Orange County offices of Paul Hastings. Mr. Marks is also an entrepreneur having, among other things, founded Titan Nightlife Group, Inc., a restaurant development company based in Las Vegas, Nevada, for which he serves as Chairman. Mr. Marks received his Bachelor of Arts degree from the University of California, Santa Barbara, and his Juris Doctor degree from Loyola Law School.

 

Jonathan Gregg, has served as President of SellPoints since March 2018 and served as its Chief Revenue Officer between August 2017and March 2018. Between October 2015 and May 2017, Mr. Gregg served as Chief Revenue Officer for Sqor, Inc., where he was responsible for revenue strategy and partnerships. Between October 2013 and August 2015, he served as Chief Revenue Officer for Share This, Inc., where he was responsible for revenue strategy, operations and partnerships. Between August 2012 and October 2013, he served as Vice President of Sales at inPowered, where he was responsible for sales strategy and operations. Previously, Mr. Gregg served as a Vice President of Business Development at Blinkx, and a Manager of Global Alliances at Yahoo!, where he set in motion major alliances aligned with corporate initiatives. Prior thereto, he was a leading contributor for Yahoo!’s Media Sales team in both New York City, New York and Sunnyvale, California. Mr. Gregg started his career in New York City in media planning for Ogilvy & Mather and in account services for Wunderman, Cato Johnson, and has a degree in English from LeMoyne College in Syracuse, New York.

 

Corporate Governance

 

ConversionPoint is committed to maintaining the highest standards of honest and ethical conduct in running ConversionPoint’s business efficiently, serving ConversionPoint’s stockholders’ interests and maintaining ConversionPoint’s integrity in the marketplace. To further this commitment, ConversionPoint has adopted a Code of Ethics and an Insider Trading Policy, which applies to all ConversionPoint’s directors, officers and employees. ConversionPoint’s bylaws, Code of Ethics and Insider Trading Policy provide the framework for ConversionPoint’s corporate governance.

 

Board of Directors

 

The ConversionPoint board oversees ConversionPoint’s business affairs and monitors the performance of management. ConversionPoint’s directors hold office until their successors have been elected and duly qualified unless the director is removed, resigns or by reason of death or otherwise, is unable to serve in the capacity of director. If any director resigns, dies, removes, or is otherwise unable to serve out his or her term, or if the board increases the number of directors, the board may fill any vacancy by a vote of a majority of the directors then in office, although less than a quorum exists.

 

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Board Leadership Structure and Board’s Role in Risk Oversight

 

Mr. Robert Tallack serves as both the Executive Chairman of ConversionPoint’s board of directors and Chief Executive Officer, and Mr. Raghu Kilambi serves as both the Vice Chairman of ConversionPoint’s board of directors and Chief Financial Officer.

 

Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. ConversionPoint faces a number of risks, including credit risk, interest rate risk, liquidity risk, operational risk, strategic risk and reputation risk. Management is responsible for the day-to-day management of the risks ConversionPoint faces, while the board, as a whole, has responsibility for the oversight of risk management. In its risk oversight role, the ConversionPoint board has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. To do this, the ConversionPoint board meets regularly with management, as well as independently, to review ConversionPoint’s risks. ConversionPoint’s General Counsel attends all of the board meetings and is available to address any questions or concerns raised by any member of the ConversionPoint board on risk management and any other matter.

 

  Board Committees

 

The ConversionPoint board does not currently have any committees.

 

Executive Compensation

 

Compensation Philosophy

 

The fundamental objectives of ConversionPoint’s executive compensation program is to attract and retain highly qualified executive officers, motivate these executive officers to materially contribute to ConversionPoint’s long-term business success, and align the interests of ConversionPoint’s executive officers and stockholders.

 

2018 Compensation Determination Process

 

In 2018, the compensation program for ConversionPoint’s executive officers consisted of the following components:

 

  base salary; and
  cash bonuses.

 

ConversionPoint believes that its executive compensation package consists of elements of compensation that are typically used to incentivize and reward executive management at other private companies of ConversionPoint’s size, in its geographic area or in ConversionPoint’s industry.

 

Base Salary

 

Base salary is an important component of executive compensation because it provides executives with an assured-level of income, assists ConversionPoint in attracting executives and recognizes different levels of responsibility and authority among executives. The determination of base salaries is based upon the executive’s qualifications and experience, scope of responsibility and potential to achieve the goals and objectives established for the executive. Additionally, contractual provisions in executive employment agreements, past performance, internal pay equity and comparison to competitive salary practices are also considered.

 

Plan Awards

 

The objective of ConversionPoint’s long-term incentive program is to provide a long-term retention incentive for the named executive officers and others and to align their interests directly with those of ConversionPoint’s stockholders by way of stock ownership. Under ConversionPoint’s 2018 Omnibus Incentive Plan, which we refer to as the ConversionPoint 2018 Plan, the ConversionPoint board has the discretion to determine whether equity awards will be granted to named executive officers and if so, the number of shares subject to each award. To date, the named executive officers have been granted restricted stock units as a reward for prior performance, which vest upon termination without “Cause,” a change of control or a public company event, and have been awarded restricted stock units.

 

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The ConversionPoint board determines the recipients of long-term incentive awards based upon such factors as performance, the length of continuous employment, managerial level, any prior awards, and recruiting and retention demands, expectations and needs. All of ConversionPoint’s employees are eligible for awards. The ConversionPoint board grants such awards by formal action, which awards are not final until a stock option agreement or restricted stock unit agreement is delivered by ConversionPoint and executed by both the company and the employee. There is no set schedule for the ConversionPoint board to consider and grant awards. The ConversionPoint board has the discretion to make grants whenever it deems it appropriate in ConversionPoint’s best interests.

 

ConversionPoint does not have any program, plan or practice in place to time option or other award grants with the release of material, non-public information and does not release such information for the purpose of affecting the value of executive compensation. The exercise price of stock subject to options awarded under the ConversionPoint 2018 Plan is the fair market value of the stock on the date the grant is approved by the ConversionPoint board. Under the terms of each plan, the fair market value of the stock is determined by the ConversionPoint board.

 

Cash Bonus Plan

 

To date, there is no formal cash bonus plan for named executive officers. Rather, ConversionPoint has granted named executives cash bonuses based on overall company performance.

 

Retirement and Other Post-Termination Benefits

 

Other than 401(k) plans established by SellPoint and Push described below, employment agreements with ConversionPoint’s executive officers and certain other employment agreements which provide for severance for termination without cause or by the executive for good reason, ConversionPoint has not entered into any employment agreements that provide for a continuation of post-employment benefits. ConversionPoint’s benefits plans are generally the same for all employees, and so as of the date hereof, the ConversionPoint board does not believe that any such plans in their present forms would continue post-employment, except as required by law (including with respect to COBRA), in connection with separation agreements entered into with certain terminated employees, or otherwise set forth herein. ConversionPoint does not currently maintain any other retirement or post-termination benefits plans.

 

Change in Control Severance Policy

 

ConversionPoint does not currently maintain any change in control severance plans or severance policies. Therefore, none of ConversionPoint’s named executive officers will receive any cash severance payments in the event ConversionPoint undergoes a change in control, unless their employment agreement otherwise provides.

 

Insurance

 

All full-time employees of Branded Response, including the named executive officers who are employees of Branded Response, which include Messrs. Tallack and Kilambi, are eligible to participate in standard medical, dental and vision insurance plans. Branded Response pays 50% of health insurance premiums, and 75% of dental and vision insurance premiums, with employees paying the balance through payroll deductions. All full-time employees of SellPoints are eligible to participate in standard medical, dental, vision and long-term and short-term disability insurance plans, with their dependents being covered by the medical and dental insurance plans. SellPoints pays 90% of the employees’, and 40% of their dependents’, annual health, dental and vision insurance premiums, and 100% of the employees’ disability insurance premiums, with employees paying the balance through payroll deductions. All full-time employees of Push, including the named executive officers who are employees of Push, which include Messrs. Newton and Jahnke, are eligible to participate in standard medical, dental, and long-term and short-term disability insurance plans, with their dependents being covered by the medical and dental plans. Push pays 100% of the annual insurance premiums for employees and their dependents.

 

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 401(k) Plans

 

Employees of Push and SellPoints can participate in 401(k) plans established by each of Push and SellPoints, which are qualified defined contribution retirement plans, sponsored by Principal Financial and ADP Retirement Services, respectively. Participants are provided the opportunity to make salary reduction contributions to the plan on a pre-tax basis. SellPoints and Push have the ability to make discretionary matching contributions and discretionary profit sharing contributions to such plans, however, currently do not make any matching contributions.

 

Other Benefits

 

ConversionPoint seeks to maintain an open and inclusive culture in its facilities and operations among executives and other company employees. Thus, ConversionPoint does not provide executives with separate dining or other facilities, nor does ConversionPoint have programs for providing personal-benefit perquisites to executives, such as defraying the cost of personal entertainment or family travel.

 

Summary Compensation Table

 

The tables and discussion below present compensation information for ConversionPoint’s chief executive officer, chief financial officer and its two other most highly compensated executive officers for the years ended December 31, 2018 and 2017, whom ConversionPoint refers to as its named executive officers. Amounts set forth below reflect compensation received by the named executive officer while such named executive officer was employed by ConversionPoint or its subsidiaries.

 

Name and Function   Year     Salary ($)     Bonus ($)    

Restricted Stock Unit

Awards ($)

    Total ($)  
Robert Tallack     2018     $ 425,558 (1)   $ 83,333 (2)   $ 723,003 (3)   $ 1,231,894  
Chief Executive Officer     2017     $ 306,500 (4)   $ 0         $ 306,500  
                                         
Raghu Kilambi     2018     $ 291,667 (5)   $ 100,000 (6)   $ 483,000 (3)   $ 874,667  
Chief Financial Officer     2017     $ 35,000     $ 50,000 (7)         $ 85,000  
                                         
Christopher Jahnke     2018     $ 274,314 (8)   $ 81,666     $ 1,212,404 (3)   $ 1,568,474  
Chief Marketing Officer     2017     $ 135,000     $ 182,727           $ 317,727  
                                         
Haig Newton     2018     $ 274,314 (8)   $ 81,666     $ 1,212,404 (3)   $ 1,568,474  
Chief Technology Officer     2017     $ 135,000     $ 182,727           $ 317,727  

  

 

(1) Includes $337,000 in consulting fees paid to MJB Fitness, Inc., an entity in which Mr. Tallack has an economic interest, and $88,558 in deferred compensation which has not yet been paid.
(2)

Bonus accrued in 2018, lower, has not yet been paid.

(3) Restricted stock units in the amounts of 78,502, 52,554, 131,640 and 131,604 were granted respectively to Messrs. Tallack, Kilambi, Jahnke and Newton, and all vest at the effective time of the mergers the completion of the ConversionPoint merger.  The value of the restricted stock units are based on the valuation of shares of common stock sold by ConversionPoint in recent securities offerings. 43,000 of the restricted stock units granted to each of Messrs. Newton and Jahnke replaced 43,000 shares of common stock issued to each of them in 2018, which were cancelled upon the issuance of the restricted stock units.
(4) Includes $108,000 paid as consulting fees to Shogun Health, Inc., an entity controlled by Mr. Tallack, and $158,500 paid as consulting fees to MJB Fitness, Inc., an entity in which Mr. Tallack has an economic interest $40,000, of which was paid in 2018.

 

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(5) Includes $7,705 in deferred compensation which has not yet been paid.
(6) Includes $8,333 in bonuses which have been accrued and not yet paid.
(7) Bonus amount was accrued in 2017 and paid in 2018.
(8) Includes $41,875 in deferred compensation which has not yet been paid.
   

 Executive Employment Agreements

 

On November 1, 2018, ConversionPoint entered into employment agreements with each of Messrs. Tallack, Kilambi, Jahnke and Newton.

 

The employment agreements entered with Messrs. Tallack, Kilambi, Newton and Jahnke, have an initial term of three years, after which each executive’s employment agreement automatically renews for additional one-year periods on the same terms and conditions, unless either party to the agreement exercises their respective termination rights available to such party in the agreement. The employment agreements currently provide for a minimum annual base salary of $350,000 for Mr. Tallack, $300,000 for Mr. Kilambi, and $335,000 for each of Messrs. Newton and Jahnke. The employment agreements provide for target bonuses of $200,000 for each executive. The employment agreements require ConversionPoint to compensate the executives and provide them with certain benefits if their employment is terminated. The compensation and benefits the executives are entitled to receive upon termination of employment vary depending on whether their employment is terminated:

 

  by ConversionPoint for cause (as defined in the employment agreements);
     
  by ConversionPoint without cause, or by the executive for good reason (as defined in the employment agreements);
     
  due to death or disability; or
     
  by the executive without good reason.

 

In the event of a termination by ConversionPoint without cause or a termination by the executive for good reason, the executive would be entitled to receive the following:

 

  his earned but unpaid base salary and all bonuses earned for services provided through the termination date;
     
  an amount payable on the effective termination date equal to, in the case of Mr. Tallack and Mr. Kilambi, 18 months of base salary, and in the case of Messrs. Newton and Jahnke, 12 months of base salary;
     
  an amount payable on the effective termination date equal to, in the case of Mr. Tallack and Mr. Kilambi, the greater of 150% of the cash bonus paid to him during the prior 18 months, and 150% of the target cash bonus set forth in his employment agreement, and in the case of Messrs. Newton and Jahnke, the greater of 100% of the cash bonus paid to them during the prior 18 months, and 100% of the target cash bonus set forth in their employment agreement;
     
  benefits (including health and disability) as if the executive was still an employee during the 18-month period following termination for Mr. Tallack and Mr. Kilambi, and during the 12-month period following termination for Messrs. Newton and Jahnke; and
     
  any equity awards held by the executive will immediately and fully vest and become exercisable throughout the full term of such award as if the executive were still employed by ConversionPoint.

 

In the event of a termination by ConversionPoint of Messrs. Tallack, Kilambi, Newton or Jahnke upon their death or permanent disability, they would be entitled to receive the earned but unpaid portion of their base salary through the date of termination, and any equity award held by them will immediately and fully vest and become exercisable throughout the full term of such award as if they were still employed by ConversionPoint.

 

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 Messrs. Tallack, Kilambi, Newton or Jahnke may terminate their employment for any reason (other than good reason) upon giving 10 days’ advance written notice to ConversionPoint, in which case ConversionPoint will pay the executive the earned but unpaid portion of their base salary through the termination date.

 

 Outstanding Equity Awards at Fiscal Year End

 

The following table provides information concerning unexercised warrants, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of December 31, 2018. 

 

Restricted Stock Unit Awards (1)

 

    Number
of units of
stock that
have not
vested (#)
   

Market

value

of units of

stock that

have not

vested ($)

   

Number

of units of

stock

that have

vested (#)

   

Market value of units of

stock that have vested ($)

    Expiration Date
                             
Robert Tallack     78,502     $ 723,003       0     $ -     October 30, 2028
Raghunath Kilambi     52,443     $ 483,000       0     $ -     October 30, 2028
Christopher Jahnke     43,000     $ 396,030       0     $ -     August 29, 2028
      88,640     $ 816,374       0     $ -     October 30, 2028
Haig Newton     43,000     $ 396,030       0     $ -     August 29, 2028
      88,640     $ 816,374       0     $ -     October 30, 2028

   

(1) Provided that the recipient of a restricted stock unit continues to be employed by ConversionPoint at the effective time of the ConversionPoint merger, the ConversionPoint board intends to accelerate the vesting of the restricted stock unit at such time.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

On February 21, 2018, ConversionPoint adopted the ConversionPoint Technolgies Inc. 2018 Omnibus Incentive Plan, as later amended on February 21, 2018 by the Amended and Restated ConversionPoint Technolgies Inc. 2018 Omnibus Incentive Plan, which we collectively refer to as the ConversionPoint Plan. The ConversionPoint Plan is intended to permit the grant of stock options (both incentive stock options, or ISOs and non-qualified stock options, or NQSOs or, collectively, Options), stock appreciation rights, or SARs, restricted stock awards, or Restricted Stock Awards, restricted stock units, or RSUs, incentive awards, or Incentive Awards, other stock-based awards, or Stock-Based Awards, dividend equivalents, or Dividend Equivalents, and cash awards, or Cash Awards.

 

The ConversionPoint Plan is administered by ConversionPoint Board. Any of ConversionPoint’s employees or service providers, employees or service providers of its Affiliates (as defined in the ConversionPoint Plan), and nonemployee members of its board or of any board of directors of its Affiliates is eligible to receive an award under the ConversionPoint Plan.

 

 Under the ConversionPoint Plan, ConversionPoint may issue a maximum aggregate of 4,500,000 shares of ConversionPoint common stock, all of which may be issued pursuant to Options, SARs, Restricted Stock Awards, RSUs, Incentive Awards, Stock-Based Awards or Dividend Equivalents.

  

Compensation of Directors

 

The directors do not receive any compensation for service as directors.

 

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Certain Relationships and Related Party Transactions

 

The following is a summary of transactions since May 20, 2016 (the date of inception) to which ConversionPoint has been a participant, in which:

 

  the amount involved exceeded or will exceed $120,000; and
     
  any of ConversionPoint’s directors, executive officers, or holders of more than 5% of its voting securities, or immediate family member or affiliate of such persons, had or will have a direct or indirect material interest, other than compensation and other arrangements that are described under “Description of ConversionPoint—Executive Compensation—Executive Employment Agreements” beginning on page 86.

 

All of the related party transactions described below have been approved by a majority of the disinterested members of the ConversionPoint board. ConversionPoint believes that each of the transactions described below were on terms no less favorable to ConversionPoint than terms ConversionPoint would have obtained from unaffiliated third parties.

 

Agreements with Branded Response and Push Holdings

 

On May 19, 2016 Branded Response issued Shock Media Group, Inc., a company controlled by Peter Nguyen, a significant stockholder and former director of ConversionPoint, a non-interest bearing Promissory Note in the principal amount of $100,000, which note was repaid on July 5, 2018.

 

On June 22, 2016, Branded Response entered into a Bill of Sale and Assignment and Assumption Agreement with FigJam Media, Inc., a Florida corporation, pursuant to which Branded Response purchased various beauty product inventory and domain names in exchange for a $540,000 Promissory Note issued to Spoya Pty Ltd., and an agreement to pay a royalty to FigJam equal to 5% of the net sales generated by the assets purchased. At the time of the transaction, Stephen Blazick, who was a director, officer and shareholder of Branded Response, owned 33% of FigJam Media, Inc. On August 7, 2017, Branded Response transferred the assets of FigJam to an equity holder in FigJam Media, Inc., in exchange for a mutual release of claims.

 

On July 18, 2016, Branded Response issued Shock Media Group, Inc., a non-interest bearing Promissory Note in the amount of $225,000, which was due and payable on July 13, 2018. On May 1, 2017, Branded Response and Shock Media Group, Inc., amended the note to extend the maturity date to April 30, 2019. As of October 31, 2018, $225,000 was outstanding under the note.

 

Pursuant to a CFO Consulting Agreement dated October 1, 2016, between Branded Response and Thomsen & Associates Consulting Corporation, which is wholly-owned by Jack Thomsen, the Chief Financial Officer of Branded Responses, Inc., and ConversionPoint’s current Treasurer, Branded Response paid Thomsen & Associates $27,000 during 2016 and $98,000 during 2017, for CFO consulting services provided to Branded Response and ConversionPoint.

 

On January 11, 2017, in exchange for a loan in the amount of $100,000, Branded Response issued a non-interest-bearing $100,000 Promissory Note to Shogun Health Inc., a company controlled by Robert Tallack, which note was repaid in May 2018. 

 

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On April 25, 2017, in connection with ConversionPoint’s acquisition of Push Holdings, ConversionPoint assumed a Lease Agreement dated June 1, 2017, between Tamble, Inc., as tenant, and Glenwood, LLC, as landlord, for the premises located at 225 Thomas Avenue North, Minneapolis, Minnesota, at which Push and its subsidiaries conduct their operations. The original rent was $14,000 per month and the lease expired on June 30, 2019. On June 1, 2018, in connection with the further build out of the premises for use by ConversionPoint, the lease was amended to increase the rent to $27,000 per month and extend the term of the lease to December 31, 2021. On September 15, 2018, in connection with the assumption of space vacated by a prior tenant, ConversionPoint amended the lease to increase the rent to $30,600 per month. Messrs. Newton and Jahnke, are officers and directors, and each hold over 5% of ConversionPoint’s voting securities and are members and managers of Glenwood, LLC.

 

On April 25, 2017, pursuant to an Exchange Agreement, ConversionPoint acquired of all of the outstanding shares of common stock of Branded Response Inc., from Peter Nguyen, Stephen Blazick and Robert Tallack in exchange for an aggregate of 6,824,500 shares of ConversionPoint’s common stock. At the time of the acquisition, Messrs. Nguyen, Blazick and Tallack were ConversionPoint’s sole officers, directors and stockholders, and each held over 5% of ConversionPoint’s voting securities.

 

Pursuant to a Services Agreement entered into in or about June 2016, between Branded Response and Push Innovation Live LLC, a California limited liability company which is controlled by Peter Nguyen, ConversionPoint’s former chairman and the holder of over 5% of ConversionPoint’s voting securities, between July 2016 and March 2017, and between June 4, 2017 and August 25, 2018, Push Innovations Live provided Branded Response with call center services. Pursuant to the agreement, for the fiscal years ended December 31, 2016, December 31, 2017 and December 31, 2018, Branded Response paid $411,282, $880,483, and $93,513, respectively, to Push Innovations Live LLC. On August 25, 2018, ConversionPoint terminated its agreement with Push Innovations Live LLC.

 

Pursuant to a Services Agreement dated in or about June 2016, between Branded Response and Chargeback 360, LLC, a California limited liability company, which is controlled by Mr. Nguyen, Chargeback 360, LLC, provided certain chargeback services to Branded Response. Pursuant to the agreement, for the fiscal years ended December 31, 2016, December 31, 2017, and December 31, 2018, Branded Response paid $398,053, $1,607,107 and $109,371, respectively, to Chargeback 360, LLC. On September 30, 2018, ConversionPoint terminated its agreement with Chargeback 360, LLC.

 

Pursuant to a Master Services Agreement dated June 2, 2016, between Branded Response and Ad Exchange Group, LLC, a California limited liability company, which is controlled by Mr. Nguyen, Ad Exchange Group, LLC provides Branded Response with certain order fulfillment services. Under the agreement, for the fiscal years ended December 31, 2016, December 31, 2017 and December 31, 2018, Branded Response paid $1,184,873, $2,534,250 and $853,271, respectively, to Push Innovations, LLC, which is wholly-owned by Ad Exchange Group, LLC.

 

Between May 2016 and July 2018, Branded Response and ConversionPoint shared office space, equipment, furniture and fixtures with Shock Media Group, Inc., which is controlled by Mr. Nguyen, and between May 2016 and April 2017, Branded Response’s employees were on Shock Media Group, Inc.’s payroll. For the fiscal years ended December 31, 2016, and December 31, 2017, ConversionPoint paid $401,094 and $604,200, respectively, to Shock Media Group, Inc., for rent and reimbursement of expenses, including, but not limited to payroll and related expenses, and for the nine months ended September 30, 2018, ConversionPoint paid $115,477 to Shock Media Group, Inc., for rent and expense reimbursements.

 

During 2016 and 2017, Branded Response purchased $43,461, and $72,844, respectively, in web traffic from Ad Exchange Group, LLC. During 2017, Branded Response sold $53,514 in web traffic to Ad Exchange Group, LLC. Mr. Nguyen owns and controls Ad Exchange Group, LLC.

 

On September 1, 2017, Branded Response entered into an Intellectual Property License Agreement with MJB Fitness Inc., an entity in which Mr. Tallack holds an economic interest, pursuant to which MJB Fitness licensed the right to Branded Response to sell certain ebooks developed and owned by MJB Fitness, Inc., in exchange for a royalty equal to 5% of Branded Response’s gross sales of such ebooks.

 

For the fiscal year ended December 31, 2016, Branded Response paid $142,032 to Shogun Health, Inc., a Canadian corporation, which is wholly-owned by Robert Tallack, of which $101,000 constituted compensation for consulting services provided to Branded Response, in lieu of salary, and $41,032 constituted royalties for sales of eBooks created and owned by Shogun Health, Inc. For fiscal year ended December 31, 2017, Branded Response paid $152,316 to Shogun Health, Inc., of which $108,000 constituted compensation for consulting services provided to Branded Response, in lieu of salary, and $44,316 constituted royalties for sales of eBooks created and owned by Shogun Health, Inc.

 

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For the fiscal year ended December 31, 2017, Branded Response paid MJB Fitness, Inc., $277,331, of which $158,500 constituted compensation for consulting services provided to Branded Response, in lieu of salary, $82,195 constituted reimbursement for expenses incurred in connection with such consulting services, and $36,636, constituted royalties for sales of eBooks pursuant to the Intellectual Property License Agreement with MJB Fitness, Inc., described above. For the fiscal year ended December 31, 2018, Branded Response paid MJB Fitness, Inc., $840,471, of which $337,000 constituted compensation for consulting services provided to Branded Response, in lieu of salary, $71,863 constituted reimbursement of expenses incurred in connection with such consulting services, and $431,609, constituted royalties for sales of eBooks earned pursuant to the Intellectual Property License Agreement described above.

 

CPT Investments, LLC

 

On October 31, 2018, ConversionPoint loaned $25,000 to CPT Investments, LLC, a California limited liability company, owned by Bridgewater Capital Corporation, Mr. Marks and Mr. Kilambi. Bridgewater Capital is controlled by Messrs. Peschong and Thomsen and CPT Investments, LLC, is managed by Mr. Kilambi. In exchange for the loan, CPT Investments, LLC issued ConversionPoint a Promissory Note that accrues interest at a rate of 10% per annum and is due and payable on or before June 30, 2019.

 

On November 1, 2018, CPT Investments, LLC, agreed to loan up to $2,000,000 to Inuvo and in connection with the same, CPT Investments, LLC loaned $1,000,000 to Inuvo, in exchange for a Convertible Promissory Note in the principal amount of $1,000,000 which accrues interest at a rate of 10% per annum and is due and payable on or before the earlier of November 1, 2021 and the closing of the mergers.

 

On March 1, 2019, CPT Investment, LLC, agreed to waive certain of its rights under the CPT bridge note and permitted Inuvo to issue the Inuvo convertible notes.

 

Acquisitions

 

On April 25, 2017, pursuant to an Exchange Agreement, ConversionPoint acquired of all of the outstanding shares of common stock of Branded Response Inc., a California corporation, from Peter Nguyen, Stephen Blazick and Robert Tallack in exchange for an aggregate of 6,824,500 shares of ConversionPoint’s common stock.

 

On April 28, 2017, pursuant to an Exchange Agreement, ConversionPoint acquired all of the outstanding shares of common stock of Push Holdings, Inc., a Delaware corporation, from Christopher Jahnke and Haig Newton, in exchange for an aggregate of 3,157,500 shares of ConversionPoint’s common stock. Push Holdings wholly owns Push Interactive, LLC, a Delaware limited liability company, Comiseo LLC, a Minnesota limited liability company, and Tamble Inc., a Delaware corporation. Push Interactive, LLC, wholly owns Push Properties, LLC, a Minnesota limited liability company and Tremeta LLC, a Minnesota limited liability company. In connection with the Share Exchange Agreement, Branded Response and Push Holdings entered into a two-year Source Code License Agreement with Haig Newton and Christopher Jahnke pursuant to which Messrs. Newton and Jahnke granted ConversionPoint a worldwide, exclusive, fully-paid royalty free license for the source code developed by the subsidiaries of Push Holdings, Inc., which underlies certain of ConversionPoint’s software solutions.

 

On December 1, 2017, ConversionPoint acquired SellPoints, a Delaware corporation, through a reverse triangular merger, pursuant to which SellPoints became ConversionPoint’s wholly-owned subsidiary, and the stockholders of SellPoints became stockholders of ConversionPoint. The purchase price was $17,291,818, calculated based on the fair value of the ConversionPoint common stock delivered in connection with the purchase. As a result of the closing of the merger, ConversionPoint issued (1) 1,302,230 shares of common stock to the former stockholders of SellPoints, (2) 260,051 shares of common stock to certain bridge note holders of SellPoints, (3) 19,111 shares of common stock to the secured lenders of SellPoints, and (4) 296,133 shares of common stock was placed in escrow to satisfy certain indemnification claims and other obligations under the merger agreement, of which 162,071 remains in escrow.

 

Warrant Cancellations

 

On October 31, 2018, ConversionPoint entered into agreements with each of Messrs. Newton, Jahnke, Peschong, Thomsen, Marks and Kilambi and with Hybrid Theory Capital, Ltd., a company controlled by Mr. Tallack, whereby warrants to purchase an aggregate of 2,900,000 shares of ConversionPoint common stock held by such warrant holders were voluntarily cancelled in order to obtain an acceptable capitalization of ConversionPoint in connection with the mergers.

 

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RSU Grants

 

On August 30, 2018, ConversionPoint issued restricted stock units covering an aggregate of 234,000 shares of ConversionPoint common stock to certain executive officers. On October 31, 2018, ConversionPoint issued an aggregate of 694,893 RSUs to certain executive officers and employees.

 

Employment Agreements

 

ConversionPoint has entered into an employment agreement with each of Messrs. Tallack, Janke, Kilambi, Marks, Peschong and Newton, providing for, without limitation, certain payments upon termination. See “Description of ConversionPoint–Executive Compensation–Executive Employment Agreements” in this joint proxy statement/prospectus for a further discussion of these agreements.

 

Loans to ConversionPoint

 

On January 1, 2019, in exchange for a $100,000 loan made by each of Christopher Jahnke, a director and Chief Marketing Officer of ConversionPoint, and Robert Tallack, a director and Chief Executive Officer of ConversionPoint, ConversionPoint issued a $100,000 Subordinated Unsecured Promissory Note to each of Messrs. Jahnke and Tallack. On January 8, 2019, in exchange for a $50,000 loan received from Haig Newton, a director and Chief Technology Officer of ConversionPoint, ConversionPoint issued a $50,000 Subordinated Unsecured Promissory Note to Mr. Newton. Each of the notes accrue interest at a rate of 8% per annum, are subordinated to amounts due to Montage Capital II, L.P. and Partners for Growth IV, L.P under the Loan and Security Agreement between ConversionPoint, its subsidiaries and such lenders and is due and payable in full within 30 days after the date on which all amounts are repaid under such Loan and Security Agreement.

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth information regarding beneficial ownership of ConversionPoint’s common stock as of March 8, 2019 by:

 

  each person, or group of affiliated persons, known by ConversionPoint to beneficially own more than 5% of its shares of common stock;
     
  each of its directors;
     
  each of its executive officers; and
     
  all of its directors and executive officers as a group.

 

The table is based on information provided to ConversionPoint by its directors, executive officers and principal stockholders. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security, including stock options and warrants that are exercisable within 60 days of March 8, 2019 and restricted stock units, or RSUs, that are scheduled to vest within 60 days of March 8, 2019. To ConversionPoint’s knowledge, except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. Shares of common stock underlying derivative securities, if any, that are currently exercisable or exercisable within 60 days after March 8, 2019 are deemed to be outstanding in calculating the percentage ownership of the applicable person or group, but are not deemed to be outstanding as to any other person or group.

 

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Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o ConversionPoint, 840 Newport Center Drive, Suite 450, Newport Beach, California 92660

 

Beneficial Ownership Table
                     
Name of Beneficial Owner(1)   Title of Class     Amount