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Veritone(VERI) - 2024 Q3 - Quarterly Results
VERIVeritone(VERI)2024-11-12 13:01

Transaction Details - The equity purchase agreement was made on October 17, 2024, between Oxford Buyer, LLC and Veritone, Inc., involving the purchase of company interests[6]. - The aggregate consideration for the company interests includes the purchase price plus any earnout payment, with specific terms outlined in the agreement[9]. - The closing of the transaction is set to occur remotely at 7:00 a.m. Pacific time on the closing date, with the transaction deemed effective as of 12:01 a.m. on that date[9]. - Seller is required to deliver various documents at closing, including a properly completed IRS Form W-9 and executed agreements related to transition services and escrow[10]. - The agreement stipulates that the purchaser will pay the closing purchase price and transaction expenses via immediately available funds[10]. - The seller must provide evidence of the release of all encumbrances related to the assets and properties of the acquired companies[10]. - The seller owns all issued and outstanding equity interests of the company, which has been converted into a Delaware limited liability company prior to the closing[7]. - The agreement includes provisions for the termination of prior agreements regarding voting and transfer arrangements related to the company interests[10]. - The purchaser will receive certified copies of resolutions authorizing the execution of the agreement and the resignations of requested officers and directors at closing[10]. Earnout Payment Structure - The Earnout Payment is capped at 18,000,000,basedonNetRevenueduringtheperiodfromJanuary1,2025,toDecember31,2025[20].−IftheRevenueRetentionAmountisbetween18,000,000, based on Net Revenue during the period from January 1, 2025, to December 31, 2025[20]. - If the Revenue Retention Amount is between 31,000,000 and 32,000,000,thepaymentwillbe32,000,000, the payment will be 3,000,000; if between 32,000,000and32,000,000 and 33,500,000, it will be 8,000,000;ifbetween8,000,000; if between 33,500,000 and 35,000,000,itwillbe35,000,000, it will be 13,000,000; and if 35,000,000ormore,itwillbe35,000,000 or more, it will be 18,000,000[21][22]. - The Company must deliver the Estimated Earnout Statement to Seller within 45 calendar days after the end of the Earnout Period[24]. - Purchaser will pay 50% of the Estimated Earnout Payment within 60 calendar days following the end of the Earnout Period[25]. - The Proposed Final Earnout Statement must be delivered to Seller within 15 days after the earlier of the Purchaser's receipt of audited financial statements for the fiscal year ending December 31, 2025, or April 30, 2026[26]. - The Estimated Earnout Payment is 13,000,000,withtheInitialEarnoutPaymentsetat13,000,000, with the Initial Earnout Payment set at 6,500,000, representing 50% of the Estimated Earnout Payment[28]. - The Final Earnout Payment was determined to be 18,000,000,resultinginaTrue−upEarnoutPaymentof18,000,000, resulting in a True-up Earnout Payment of 11,500,000, calculated as Final Earnout Payment minus Initial Earnout Payment[29]. - If the Initial Earnout Payment exceeds the Final Earnout Payment, a Claw-back Payment will be required, as illustrated by an example where the Initial Earnout Payment is 6,500,000andtheFinalEarnoutPaymentis6,500,000 and the Final Earnout Payment is 3,000,000, leading to a Claw-back Payment of 3,500,000[29].−AnypaymentsmadeundertheEarnoutPaymentprovisionswillbetreatedasanadjustmenttotheFinalPurchasePricefortaxpurposes[30].−TheEarnoutPaymentissubordinatedtothepriorPaymentinFullofallSeniorObligations,meaningnodistributionscanbemadeuntilthoseobligationsaresatisfied[31].−Seller′srighttoreceivetheEarnoutPaymentisacontractualrightanddoesnotconferanyequitysecurityrights[33].−UntiltheSeniorObligationsarefullypaid,SellercannottakeenforcementactionregardingtheEarnoutPayment[34].−TheSeniorAgentandLendersareentitledtorelyontheagreementsregardingtheEarnoutPaymentandareconsideredthird−partybeneficiaries[35].−WithholdingAgentsareentitledtodeductandwithholdamountsrequiredundertaxlawsfrompaymentsmadeundertheagreement[37].FinancialandOperationalRepresentations−TheCompanyisdulyincorporatedandingoodstandingunderDelawarelaw,withallnecessarycorporatepowertoconductitsbusiness[39].−TheunauditedproformabalancestatementoftheAcquiredCompaniesasofDecember31,2023,showsaconsistentfinancialconditionwithGAAPstandards[48].−TheaccountsreceivableoftheAcquiredCompaniesarecurrentandcollectible,withareserveforbaddebtsnotexceedingtheratereflectedontheCompanyBalanceSheet[49].−AsofthedateoftheAgreement,theAcquiredCompanieshavenomaterialliabilitiesotherthanthosedisclosedintheCompanyFinancialStatements[50].−SinceJanuary1,2024,theAcquiredCompanieshaveconductedbusinessintheordinarycoursewithoutanymaterialadverseeffects[51].−TheAcquiredCompaniesownalltangiblepersonalpropertyfreeofanyencumbrances,whichisadequatefortheircurrentbusinessoperations[54].−TheCompanyisthesoleownerofallRegisteredIntellectualProperty,whichisvalidandenforceable[56].−TheCompanyhasnotusedOpenSourceSoftwareinamannerthatwouldrequireittodiscloseorlicenseanyCompanyOwnedIntellectualProperty[60].−TheCompanyProductshavebeenfreeofmaterialdefectsandhaveoperatedinaccordancewithcontractualobligations[60].−TheconsummationoftheTransactionwillnotobligatetheCompanytopayanyroyaltiesoramountsexceedingthosepayablepriortotheClosingDate[61].−TheCompanyhastakencommerciallyreasonablemeasurestoprotecttheconfidentialityoftradesecretsandmaterialconfidentialinformation[63].−TheCompanyanditsSubsidiaryhavenotexperiencedanysecuritybreachesorunauthorizedaccessinthepastthreeyears[67].−TheCompanyhascompliedwithallPrivacyObligationsforthepastthreeyearsandhasadoptedwrittenprivacyandsecuritypolicies[68].−TherehavebeennoinvestigationsorlawsuitsconcerningprivacyanddatasecurityrelatedtoPersonalInformationinthelastthreeyears[70].−TheCompanydoesnotengageinwebscrapingorusebotstocollectPersonalInformationfromotherentities[71].−TheCompanyhascompliedwithPrivacyObligationsrelatedtotheuseofAIToolsandhasmaintainednecessarycontractsgoverningtheiruse[72].−TheCompanyownsorpossessessufficientrightstouseallTrainingDatamaterialtoitsproductsandAITools[74].CustomerandSupplierRelations−ThetopfifteencustomersfortheyearendedDecember31,2023,andtheseven−monthperiodendedJuly31,2024,havenotindicatedanyplanstodecreasebusinesswiththeCompany[78].−TheCompanyhasnotreceivedanymaterialincreaserequestsfromTopSuppliersinconsistentwithexistingcontracts[78].−TheCompanyhasmadeavailableallMaterialContractsandhasensuredtheyareinfullforceandeffect[77].LegalandComplianceMatters−EachAcquiredCompanyhasmateriallycompliedwithallapplicableLegalRequirementsforthelastthreeyears,withnoviolationsreported[80].−AllrequiredTaxReturnshavebeenfiledontimeandaretrueandcorrectinallmaterialrespects[82].−TheCompanyanditsSubsidiarieshavefullypaidallTaxesdueandpayableinatimelymanner[82].−NopendingauditsorexaminationsinvolvingTaxeshavebeenreceivedfromanyGovernmentalBody[84].−TherearenoliensforTaxesonanyassetoftheCompanyoritsSubsidiaries,exceptforthosenotyetdue[88].−TheCompanyhasnotbeenamemberofanAffiliatedGroupfilingaconsolidatedfederalincomeTaxReturn,otherthanwiththeSeller[88].−AllmaterialtransactionsbetweentheCompanyanditsSubsidiarieshavebeenconductedonarm′slengthterms[99].−EachAcquiredCompanyhascollectedandremittedallrequiredsalesanduseTaxes[99].EmploymentandLaborMatters−Allemployeesareemployedonan"at−will"basis,allowingterminationwithoutadditionalpaymentsbeyondlegalrequirements[103].−NoCompanyEmployeehasindicatedplanstoterminatetheiremploymentwiththeAcquiredCompany[103].−EachAcquiredCompanyhasbeeninmaterialcompliancewithalllegalrequirementspertainingtolaborandemploymentpracticesforthepastthreeyears[105].−NoAcquiredCompanyhasanypendingworkers′compensationclaimsoranyfactsthatwouldgiverisetosuchclaimsnotcoveredbyinsurance[107].−Allindividualsclassifiedasemployeesorindependentcontractorshavebeenproperlyclassifiedaccordingtoapplicablelegalrequirements[108].−Noallegationsofsexualharassmentormisconducthavebeenmadeagainstanycurrentorformerdirector,officer,orsupervisor−levelemployeeinthelastthreeyears[109].−EachAcquiredCompanyisincompliancewiththeWorkerAdjustmentandRetrainingNotificationActandhasnotimplementedanyplantclosingorlayoffsthatcouldimplicatetheWARNActinthepastthreeyears[110].InsuranceandEnvironmentalMatters−TheInsurancePoliciesmaintainedbytheAcquiredCompaniesareinfullforce,withallpremiumspaidontime,andcoverallmaterialrisks[121].−TherearenopendingorthreatenedlegalproceedingsagainstanyAcquiredCompanyinthelastthreeyears[124].−NoAcquiredCompanyhasincurredanyliabilityunderthePatientProtectionandAffordableCareAct,includinganypenalties[119].−TheAcquiredCompanieshavemadeavailabletrueandcompletecopiesofallmaterialenvironmentalassessmentreportsandhealthandsafetyaudits[126].MiscellaneousProvisions−NoAcquiredCompanyhasenteredintoanycontractsthatmayresultintheobligationtopayfinder′sfeesorcommissionsinconnectionwiththenegotiationsleadingtothisAgreement[125].−NoAcquiredCompanyhasanygeneralorspecialpowersofattorneyoutstanding[127].−Inthelastfiveyears,noAcquiredCompanyhasmadeanycontributionsorpaymentsthatcouldsubjectittopenaltiesoradverseconsequences[128].−NoAcquiredCompanyhasengagedindealingswithpersonsorcountriessubjecttosanctionsinthelastfiveyears[130].−NoAcquiredCompanyhasenteredintoanycontractsthatmayresultinspecialbonusesorseverancepaymentsrelatedtothetransactionscontemplatedbythisAgreement[131].SellerandPurchaserRepresentations−SellerisacorporationdulyorganizedandingoodstandingunderthelawsofDelaware[132].−SellerhastherequisitepowerandauthoritytoenterintotheAgreementandconsummatetheTransaction[133].−TherearenolegalproceedingsagainstSellerthatwouldadverselyaffectitsperformanceunderthisAgreement[137].−PurchaserisalimitedliabilitycompanydulyorganizedandingoodstandingunderDelawarelaw[138].−Purchaserhasnotincurredanyliabilityforbrokerageorfinders′feesinconnectionwiththisAgreement[142].TaxMatters−Anytax−sharingagreementinvolvingtheCompanySubsidiaryshallbeterminatedasoftheClosingDate[146].−ThePurchaserwillprepareandfileallTaxReturnsfortheAcquiredCompaniesforPre−ClosingTaxPeriods,ensuringconsistencywithpriorpractices[149].−SellershallincludetheincomeoftheCompanyandtheCompanySubsidiaryonitsconsolidatedfederalincomeTaxReturnsforallperiodsthroughtheendoftheClosingDate[148].−ThepartiesagreetotreattheClosingDateasthelastdayofthetaxableperiodoftheCompanyandtheCompanySubsidiaryforallTaxpurposes[152].−PurchaserandSellerwillnegotiateingoodfaithtoresolveanydisputesregardingPurchaserPreparedReturns,withfinaldeterminationsmadebyanAccountingFirm[151].−ThePurchasePricewillbeallocatedtotheassetsoftheCompanyforU.S.federalincometaxpurposesinaccordancewithCodeSection1060[158].EmployeeBenefits−PurchaserwillprovideCompanyContinuingEmployeeswithannualbasesalaryorhourlywagescomparabletothoseprovidedpriortotheClosing[162].−PurchasershallrecognizeallserviceofCompanyContinuingEmployeesforvestingandeligibilitypurposesinanyPurchaserBenefitPlans[163].−SellershallnotberequiredtoshareanyconsolidatedfederalincomeTaxReturnwithPurchaseroritsAffiliates[154].−TheFinalAllocationofthePurchasePricewillbebindingforallincomeTaxpurposes,withadjustmentsallowedforanychangesinthepurchaseprice[160].−PurchaserwilldeliverastatementoftheProposedAllocationtoSeller,whomustrespondwithobjectionswithintwentydays[158].RecordKeepingandInsurance−PurchasershallretainthebooksandrecordsoftheCompanyforaperiodofsixyearsaftertheClosingDate[166].−PurchaserisresponsibleforprocuringandmaintaininginsurancecoveragefortheAcquiredCompanieseffectivefromandaftertheClosing[177].−SellershallcausetheCompanytoremoveallreferencestoVeritonemarksbyMarch31,2026[176].−PurchasermustmaintainseparateaccountingbooksfortheAcquiredCompaniesforcalculatingNetRevenueduringtheEarnoutPeriod[181].−PurchaseranditsAffiliatesarerequiredtodeliverquarterlyreportsonNetRevenuecollectedbytheAcquiredCompaniesstartingfromthefirstcalendarquarterof2025[182].−TheconsummationofaPurchaserChangeofControlwillresultintheimmediateaccelerationoftheEarnoutPayment[183].IndemnificationProvisions−Allrightstoindemnificationforcurrentorformerdirectorsandofficerswillsurviveforsixyearspost−Closing[171].−Purchasershallobtaindirectors′andofficers′liabilityinsuranceforaperiodofsixyearsfromtheClosingDate[172].−SelleranditsAffiliateswillretainallbooksandrecordsoftheAcquiredCompaniesrelatingtoperiodsendingonorpriortotheClosingDate[168].−PurchasershallnottakeactionstoavoidorreduceanEarnoutPaymentduringtheEarnoutPeriod[181].−Sellerwillestablishabonusplanwithinthirty(30)calendardaysaftertheClosingDate[185].−SelleragreestoreleaseandterminateallEncumbrancesrelatedtoStateTaxLienE−050677795−W001−8withinsixty(60)daysoftheAgreementdate[186].−Seller′sindemnificationobligationswillnotapplyunlesstheaggregateLossesexceed3,500,000[29]. - Any payments made under the Earnout Payment provisions will be treated as an adjustment to the Final Purchase Price for tax purposes[30]. - The Earnout Payment is subordinated to the prior Payment in Full of all Senior Obligations, meaning no distributions can be made until those obligations are satisfied[31]. - Seller's right to receive the Earnout Payment is a contractual right and does not confer any equity security rights[33]. - Until the Senior Obligations are fully paid, Seller cannot take enforcement action regarding the Earnout Payment[34]. - The Senior Agent and Lenders are entitled to rely on the agreements regarding the Earnout Payment and are considered third-party beneficiaries[35]. - Withholding Agents are entitled to deduct and withhold amounts required under tax laws from payments made under the agreement[37]. Financial and Operational Representations - The Company is duly incorporated and in good standing under Delaware law, with all necessary corporate power to conduct its business[39]. - The unaudited pro forma balance statement of the Acquired Companies as of December 31, 2023, shows a consistent financial condition with GAAP standards[48]. - The accounts receivable of the Acquired Companies are current and collectible, with a reserve for bad debts not exceeding the rate reflected on the Company Balance Sheet[49]. - As of the date of the Agreement, the Acquired Companies have no material liabilities other than those disclosed in the Company Financial Statements[50]. - Since January 1, 2024, the Acquired Companies have conducted business in the ordinary course without any material adverse effects[51]. - The Acquired Companies own all tangible personal property free of any encumbrances, which is adequate for their current business operations[54]. - The Company is the sole owner of all Registered Intellectual Property, which is valid and enforceable[56]. - The Company has not used Open Source Software in a manner that would require it to disclose or license any Company Owned Intellectual Property[60]. - The Company Products have been free of material defects and have operated in accordance with contractual obligations[60]. - The consummation of the Transaction will not obligate the Company to pay any royalties or amounts exceeding those payable prior to the Closing Date[61]. - The Company has taken commercially reasonable measures to protect the confidentiality of trade secrets and material confidential information[63]. - The Company and its Subsidiary have not experienced any security breaches or unauthorized access in the past three years[67]. - The Company has complied with all Privacy Obligations for the past three years and has adopted written privacy and security policies[68]. - There have been no investigations or lawsuits concerning privacy and data security related to Personal Information in the last three years[70]. - The Company does not engage in web scraping or use bots to collect Personal Information from other entities[71]. - The Company has complied with Privacy Obligations related to the use of AI Tools and has maintained necessary contracts governing their use[72]. - The Company owns or possesses sufficient rights to use all Training Data material to its products and AI Tools[74]. Customer and Supplier Relations - The top fifteen customers for the year ended December 31, 2023, and the seven-month period ended July 31, 2024, have not indicated any plans to decrease business with the Company[78]. - The Company has not received any material increase requests from Top Suppliers inconsistent with existing contracts[78]. - The Company has made available all Material Contracts and has ensured they are in full force and effect[77]. Legal and Compliance Matters - Each Acquired Company has materially complied with all applicable Legal Requirements for the last three years, with no violations reported[80]. - All required Tax Returns have been filed on time and are true and correct in all material respects[82]. - The Company and its Subsidiaries have fully paid all Taxes due and payable in a timely manner[82]. - No pending audits or examinations involving Taxes have been received from any Governmental Body[84]. - There are no liens for Taxes on any asset of the Company or its Subsidiaries, except for those not yet due[88]. - The Company has not been a member of an Affiliated Group filing a consolidated federal income Tax Return, other than with the Seller[88]. - All material transactions between the Company and its Subsidiaries have been conducted on arm's length terms[99]. - Each Acquired Company has collected and remitted all required sales and use Taxes[99]. Employment and Labor Matters - All employees are employed on an "at-will" basis, allowing termination without additional payments beyond legal requirements[103]. - No Company Employee has indicated plans to terminate their employment with the Acquired Company[103]. - Each Acquired Company has been in material compliance with all legal requirements pertaining to labor and employment practices for the past three years[105]. - No Acquired Company has any pending workers' compensation claims or any facts that would give rise to such claims not covered by insurance[107]. - All individuals classified as employees or independent contractors have been properly classified according to applicable legal requirements[108]. - No allegations of sexual harassment or misconduct have been made against any current or former director, officer, or supervisor-level employee in the last three years[109]. - Each Acquired Company is in compliance with the Worker Adjustment and Retraining Notification Act and has not implemented any plant closing or layoffs that could implicate the WARN Act in the past three years[110]. Insurance and Environmental Matters - The Insurance Policies maintained by the Acquired Companies are in full force, with all premiums paid on time, and cover all material risks[121]. - There are no pending or threatened legal proceedings against any Acquired Company in the last three years[124]. - No Acquired Company has incurred any liability under the Patient Protection and Affordable Care Act, including any penalties[119]. - The Acquired Companies have made available true and complete copies of all material environmental assessment reports and health and safety audits[126]. Miscellaneous Provisions - No Acquired Company has entered into any contracts that may result in the obligation to pay finder's fees or commissions in connection with the negotiations leading to this Agreement[125]. - No Acquired Company has any general or special powers of attorney outstanding[127]. - In the last five years, no Acquired Company has made any contributions or payments that could subject it to penalties or adverse consequences[128]. - No Acquired Company has engaged in dealings with persons or countries subject to sanctions in the last five years[130]. - No Acquired Company has entered into any contracts that may result in special bonuses or severance payments related to the transactions contemplated by this Agreement[131]. Seller and Purchaser Representations - Seller is a corporation duly organized and in good standing under the laws of Delaware[132]. - Seller has the requisite power and authority to enter into the Agreement and consummate the Transaction[133]. - There are no legal proceedings against Seller that would adversely affect its performance under this Agreement[137]. - Purchaser is a limited liability company duly organized and in good standing under Delaware law[138]. - Purchaser has not incurred any liability for brokerage or finders' fees in connection with this Agreement[142]. Tax Matters - Any tax-sharing agreement involving the Company Subsidiary shall be terminated as of the Closing Date[146]. - The Purchaser will prepare and file all Tax Returns for the Acquired Companies for Pre-Closing Tax Periods, ensuring consistency with prior practices[149]. - Seller shall include the income of the Company and the Company Subsidiary on its consolidated federal income Tax Returns for all periods through the end of the Closing Date[148]. - The parties agree to treat the Closing Date as the last day of the taxable period of the Company and the Company Subsidiary for all Tax purposes[152]. - Purchaser and Seller will negotiate in good faith to resolve any disputes regarding Purchaser Prepared Returns, with final determinations made by an Accounting Firm[151]. - The Purchase Price will be allocated to the assets of the Company for U.S. federal income tax purposes in accordance with Code Section 1060[158]. Employee Benefits - Purchaser will provide Company Continuing Employees with annual base salary or hourly wages comparable to those provided prior to the Closing[162]. - Purchaser shall recognize all service of Company Continuing Employees for vesting and eligibility purposes in any Purchaser Benefit Plans[163]. - Seller shall not be required to share any consolidated federal income Tax Return with Purchaser or its Affiliates[154]. - The Final Allocation of the Purchase Price will be binding for all income Tax purposes, with adjustments allowed for any changes in the purchase price[160]. - Purchaser will deliver a statement of the Proposed Allocation to Seller, who must respond with objections within twenty days[158]. Record Keeping and Insurance - Purchaser shall retain the books and records of the Company for a period of six years after the Closing Date[166]. - Purchaser is responsible for procuring and maintaining insurance coverage for the Acquired Companies effective from and after the Closing[177]. - Seller shall cause the Company to remove all references to Veritone marks by March 31, 2026[176]. - Purchaser must maintain separate accounting books for the Acquired Companies for calculating Net Revenue during the Earnout Period[181]. - Purchaser and its Affiliates are required to deliver quarterly reports on Net Revenue collected by the Acquired Companies starting from the first calendar quarter of 2025[182]. - The consummation of a Purchaser Change of Control will result in the immediate acceleration of the Earnout Payment[183]. Indemnification Provisions - All rights to indemnification for current or former directors and officers will survive for six years post-Closing[171]. - Purchaser shall obtain directors' and officers' liability insurance for a period of six years from the Closing Date[172]. - Seller and its Affiliates will retain all books and records of the Acquired Companies relating to periods ending on or prior to the Closing Date[168]. - Purchaser shall not take actions to avoid or reduce an Earnout Payment during the Earnout Period[181]. - Seller will establish a bonus plan within thirty (30) calendar days after the Closing Date[185]. - Seller agrees to release and terminate all Encumbrances related to State Tax Lien E-050677795-W001-8 within sixty (60) days of the Agreement date[186]. - Seller's indemnification obligations will not apply unless the aggregate Losses exceed 860,000, known as the "Deductible"[190]. - Specific Indemnity Items related to breaches of Fundamental Representations will not be subject to the Deductible or Cap[191]. - The total cap for Specific Indemnity Items is set at 8,500,000[191].−PurchaserandSellerwilljointlyinstructtheEscrowAgenttorelease8,500,000[191]. - Purchaser and Seller will jointly instruct the Escrow Agent to release 1,500,000 from the Specific Indemnity Escrow Fund within twelve (12) months after the Closing Date[195]. - Purchaser agrees not to take actions to create or accelerate claims under Specific Indemnity Items during the twenty-four (24) month period following the Closing[198]. - Any Losses subject to indemnification will be calculated net of any insurance proceeds received by the Indemnitee[197]. - Seller will indemnify Purchaser Indemnified Parties for any Losses incurred due to breaches of representations or warranties concerning the Acquired Companies[188]. - Purchaser will indemnify Seller Indemnified Parties for any Losses incurred due to breaches of representations or warranties concerning Purchaser[189].