| KINTERA INC Item 1A Risk Factors Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described below in addition to the other cautionary statements and risks described elsewhere, and the other information contained, in this Report and in our other filings with the SEC, including our subsequent reports on Forms 10-Q and 8-K The risks and uncertainties described below are not the only ones we face |
| Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business |
| If any these known or unknown risks or uncertainties actually occur with material adverse effects on Kintera, our business, financial condition and results of operations could be seriously harmed |
| In that event, the market price for our common stock will likely decline, and you may lose all or part of your investment |
| 10 ______________________________________________________________________ [32]Table of Contents Risks Related to Our Business Because we have a limited operating history, it is difficult to evaluate our prospects |
| We incorporated in February 2000 and first achieved meaningful revenues in 2001 |
| As a result, we will encounter risks and difficulties frequently encountered by early-stage companies in new and rapidly evolving markets |
| These risks include the following: • we may not increase our sales to our existing customers and expand our customer base; • fees related to Kintera Sphere are our principal source of revenues, and we may not successfully introduce new services and enhance existing services of Kintera Sphere; • we may not successfully expand our sales and marketing efforts; • we may not attract and retain key sales, technical and management personnel; and • we may not effectively manage our anticipated growth |
| In addition, because of our limited operating history and the early stage of the market for online fundraising solutions, we have limited insight into trends that may emerge and affect our business |
| We have a history of losses, and we may not achieve or maintain profitability |
| We have experienced operating and net losses in each fiscal quarter since our inception, and as of December 31, 2005, we had an accumulated deficit of dlra95dtta0 million |
| We incurred net losses of dlra41dtta9 million for the year ended December 31, 2005 and dlra19dtta2 million for the year ended December 31, 2004 |
| We will need to increase revenues and reduce operating expenses to achieve profitability, and we may not be able to do so |
| Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis in the future |
| We may also fail to accurately estimate our increased operating expenses as we grow |
| If our operating expenses exceed our expectations, our financial performance will be adversely affected |
| Our operating results have fluctuated and may fluctuate significantly, and these fluctuations may cause our stock price to fall |
| Our operating results have varied significantly in the past and will likely vary in the future as the result of fluctuations in our revenues and operating expenses |
| For example, our revenues increased to dlra40dtta9 million for the year ended December 31, 2005, from dlra23dtta7 million for the year ended December 31, 2004 and our net loss increased to dlra41dtta9 million for the year ended December 31, 2005, from dlra19dtta2 million for the year ended December 31, 2004 |
| Although we have reviewed and implemented plans to help reduce our overall operating expenses and will continue to do so, operating expenses may increase in the future as we expand our selling and marketing activities and hire additional personnel |
| Our revenues in any period depend substantially on monthly service fees, on the number and size of donations that we process in that period for customer sponsored fundraising events and on the sale and licensing of our software products |
| In addition, the number and size of transactions we process tends to be seasonal, with the first calendar quarter representing the seasonal low for non-profit fundraising |
| As a result, it is possible that in some future periods, our revenues may not meet our expectations or, due to our increased expense levels, our results of operations may be below the expectations of current or potential investors |
| If this occurs, the price of our common stock may decline |
| Recent acquisitions and potential future acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and strain our resources, which could prevent us from properly servicing and maintaining customer relationships |
| Acquisitions have been an important part of our development to date |
| During 2004, we completed acquisitions of several complementary businesses including Prospect Information Network, Carol/Trevelyan Strategy Group, BNW, Inc, KindMark, Inc, Kamtech, Inc, Giving Capital, Inc |
| In 2005, we completed the acquisition of Gold Box, Inc |
| As part of our business strategy, we may acquire companies, services and technologies that we feel could complement or expand our business, augment our 11 ______________________________________________________________________ [33]Table of Contents market coverage, enhance our technical capabilities, provide us with important customer contacts or otherwise offer growth opportunities |
| Acquisitions and investments involve numerous risks, including: • difficulties in integrating operations, technologies, services, accounting and personnel; • difficulties in supporting and transitioning customers of our acquired companies; • diversion of financial and management resources from existing operations; • risks of entering new sectors of the nonprofit industry; • potential loss of key employees; and • inability to generate sufficient revenues to offset acquisition or investment costs |
| Acquisitions also frequently result in recording of goodwill and other intangible assets which are subject to potential impairments in the future that could harm our operating results |
| In addition, if we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted which could affect the market price of our stock |
| As a result, if we fail to properly evaluate and execute acquisitions or investments, we may not achieve the anticipated benefits of any such acquisition, and we may incur costs in excess of what we anticipate |
| If we are not able to manage our growth effectively, we may not become profitable |
| Since commencing operations in 2000, we have experienced significant growth, and we anticipate that expansion will continue to be required to address potential market opportunities |
| There can be no assurance that our infrastructure will be sufficiently scalable to manage our experienced growth and any future projected growth |
| For example, our anticipated growth will result in a significant increase in the volume of transactions handled by our payment processing system |
| If we are unable to sufficiently enhance and improve this system to handle this increased volume, our profitability and growth may suffer |
| There also can be no assurance that if we continue to expand our operations, management will be effective in expanding our physical facilities or that our systems, procedures or controls will be adequate to support such expansion |
| Our inability to manage our growth may harm our business |
| Nonprofit organizations have not traditionally used the Internet or online software solutions, and they may not adopt our solution |
| The market for online fundraising solutions for nonprofit organizations is new and emerging |
| Nonprofit organizations have not traditionally used the Internet or online software solutions for fundraising |
| We cannot be certain that the market will continue to develop and grow or that nonprofit organizations will elect to adopt our solution rather than continuing to use traditional offline methods, attempting to develop software solutions internally or utilizing standardized software solutions without integrating them |
| Nonprofit organizations that have already invested substantial resources in other fundraising methods may be reluctant to adopt a new approach like ours to supplement or replace their existing systems or methods |
| In addition, increasing concerns about fraud, privacy, reliability and other problems may cause nonprofit organizations not to adopt the Internet as a method for fundraising |
| We expect that we will continue to need to pursue intensive marketing and sales efforts to educate prospective nonprofit organization customers about the uses and benefits of our solution |
| If demand for and market acceptance of our solution does not occur, we may not grow our business as we expect |
| If our efforts to increase awareness of Kintera Sphere and expand sales to other sectors of the nonprofit industry do not succeed, our revenue may not increase as we expect |
| We have primarily sold our Kintera Sphere solution to nonprofit organizations in the health and human services, religion and education sectors, in part because they rely on special events for fundraising |
| Based on our experience, we believe that many nonprofit organizations in all nonprofit sectors are still unaware of the benefits that can be achieved through the use of Kintera Sphere |
| We intend to commit significant resources to promote awareness of Kintera Sphere, but we cannot assure you that we will be successful in this effort |
| Developing and maintaining awareness of Kintera Sphere is important to our success |
| If we fail to successfully promote Kintera Sphere, our financial condition could suffer |
| 12 ______________________________________________________________________ [34]Table of Contents We have also begun, and intend to continue, to market Kintera Sphere to nonprofit organizations in additional nonprofit sectors |
| Organizations in these other sectors may not rely on special events or be as willing to purchase our solutions as health and human services nonprofit organizations |
| If we are unable to increase awareness of Kintera Sphere and expand sales to other sectors of the nonprofit industry, our revenue may not increase as we expect |
| Any failure to manage and accurately account for the large amounts of donations we process could diminish the use of Kintera Sphere, which may prevent or delay our becoming profitable |
| Our ability to manage and account accurately for the online donations we process requires a high level of internal controls |
| We have a limited operating history of maintaining these internal controls |
| As our business continues to grow, we must monitor our internal controls to ensure they are effective |
| Our success requires significant customer and donor confidence in our ability to handle large and growing donation volumes and amounts |
| Any failure to maintain necessary controls or to accurately manage online donations could severely diminish nonprofit organizations’ and donors’ use of Kintera Sphere |
| We may experience customer dissatisfaction and lose sales if our solution does not scale to accommodate a high volume of traffic and transactions |
| We seek to generate a high volume of traffic and transactions on the websites we host for our customers |
| A portion of our revenues depends on the number of donations raised by our customers using Kintera Sphere |
| Accordingly, the satisfactory performance, reliability and availability of our solution, including its processing systems and network infrastructure, are critical to our reputation and our ability to attract and retain new customers |
| Any system interruptions that result in the unavailability of our solution or reduced donor activity would reduce the volume of donations and may also diminish the attractiveness of our solution to our customers |
| Furthermore, our inability to add software and hardware or to develop and further upgrade our existing technology, payment processing systems or network infrastructure to accommodate increased traffic or increased transaction volume may cause unanticipated system disruptions, slower response times, degradation in levels of customer service, impaired quality of the user’s experience, and delays in reporting accurate financial information |
| There can be no assurance that we will be able to effectively upgrade and expand our systems or to integrate smoothly any new technologies with our existing systems |
| Any inability to do so would have an adverse effect on our ability to maintain customer relationships and grow our business |
| Our products may contain defects, which may result in liability and/or decreased sales |
| Software products frequently contain errors or failures, especially when first introduced or when new versions are released |
| Despite our best efforts to test our products, we might experience significant errors or failures in our products, or they might not work with other hardware or software as expected, which could delay the development or release of new products or new versions of our products and adversely affect market acceptance of our products |
| We might not discover software errors that affect our new or current products or enhancements until after they are deployed, and we may need to provide enhancements to correct such errors |
| These errors could result in: • harm to our reputation; • lost sales; • delays in commercial release; • product liability claims; • delays in or loss of market acceptance of our products; and • unexpected expenses and diversion of resources to remedy errors |
| We may not be able to develop new enhancements to or support services for Kintera Sphere at a rate required to achieve customer acceptance in our rapidly changing market |
| Although Kintera Sphere is designed to operate with a variety of network hardware and software platforms, we will need to continuously modify and enhance Kintera Sphere to keep pace with changes in Internet-related 13 ______________________________________________________________________ [35]Table of Contents hardware, software, communication, browser and database technologies |
| Our future success depends on our ability to develop new enhancements to or support services for Kintera Sphere that keep pace with rapid technological developments and that address the changing needs of our nonprofit customers |
| We may not be successful in either developing such services or introducing them to the market in a timely manner |
| In addition, uncertainties about the timing and nature of new network platforms or technologies, or modifications to existing platforms or technologies, could increase our development expenses |
| Any failure of our services to operate effectively with the existing and future network platforms and technologies could limit or reduce the market for our services, result in customer dissatisfaction or cause our revenue growth to suffer |
| If we are unable to detect and prevent unauthorized use of credit cards and bank account numbers and safeguard confidential donor data, our reputation may be harmed and customers may be reluctant to use our service |
| We rely on encryption and authentication technology to provide secure transmission of confidential information, including customer credit card and bank account numbers, and protect confidential donor data |
| Identity thieves and criminals using stolen credit card or bank account numbers could still potentially circumvent our anti-fraud systems |
| Advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments may result in a compromise or breach of the technology we use to protect sensitive transaction data |
| If any such compromise of our security were to occur, it could result in misappropriation of our proprietary information or interruptions in our operations and have an adverse impact on our reputation |
| We may have to spend significant money and time protecting against such security breaches or alleviating problems caused by such breaches |
| If we are unable to detect and prevent unauthorized use of credit cards and bank account numbers or protect confidential donor data, our business may suffer |
| If we were found subject to or in violation of any laws or regulations governing privacy or electronic fund transfers, we could be subject to liability or forced to change our business practices |
| It is possible that the payment processing component of Kintera Sphere and certain services we provide are subject to various governmental regulations |
| In addition, we may be subject to the privacy provisions of the Gramm-Leach-Bliley Act and related regulations |
| Pending and enacted legislation at the state and federal levels, including those related to fundraising activities, may also restrict further our information gathering and disclosure practices, for example, by requiring us to comply with extensive and costly registration, reporting or disclosure requirements |
| The provisions of these laws and related regulations are complicated, and we do not have extensive experience with these laws and related regulations |
| Even technical violations of these laws can result in penalties that are assessed for each non-compliant transaction |
| Given the high volumes of transactions we process, if we were found to be subject to and in violation of any of these laws or regulations, our business would suffer and we would likely have to change our business practices |
| In addition, these laws and regulations could impose significant compliance costs on us and make it more difficult for donors to make online donations |
| System failure could harm our reputation and reduce the use of Kintera Sphere by nonprofit organizations, which could cause our revenues and operating results to decline |
| If nonprofit organizations believe Kintera Sphere to be unreliable, they will be unlikely to use Kintera Sphere which will harm our revenue and profits |
| Our systems and operations are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, electronic virus or worm attacks and similar events |
| They also could be subject to break-ins, sabotage and intentional acts of vandalism |
| Our business interruption insurance may not be sufficient to compensate us for losses that may occur |
| Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our facilities could result in interruptions in our services |
| Interruptions in our service could harm our reputation and reduce our revenues and profits |
| 14 ______________________________________________________________________ [36]Table of Contents Sales cycles to major customers can be long, which makes it difficult to forecast our results |
| It typically takes us between three and nine months to complete a sale to a major customer account, but it can take us up to one year or longer |
| It is therefore difficult to predict the quarter in which a particular sale will occur and to forecast our sales |
| The period between our initial contact with a potential customer and its purchase of Kintera Sphere is relatively long due to several factors, including: • our need to educate potential customers about the uses and benefits of Kintera Sphere; • our customers have budget cycles which affect the timing of purchases; and • many of our customers have lengthy internal approval processes before purchasing our services |
| Any delay or failure to complete sales in a particular quarter could reduce our revenues in that quarter, as well as subsequent quarters over which revenues for the sale may be recognized |
| If our sales cycle unexpectedly lengthens in general or for one or more large orders, it would adversely affect the timing of our revenues |
| Because we recognize revenue from upfront payments ratably over the term of the contract, downturns in sales may not be immediately reflected in our revenues |
| We have derived the substantial majority of our historical revenues from fees paid by nonprofit organizations related to their use of Kintera Sphere, and we anticipate that Kintera Sphere will account for an increasing portion of our revenues in future periods |
| The fees we receive for Kintera Sphere include upfront fees that nonprofit organizations pay for the right to access to Kintera Sphere |
| We recognize revenue from the upfront service fees over the term of the contract, which is typically one year or more |
| Because of this deferred revenue, the revenues we report in any quarter or series of quarters may mask significant downturns in sales and the market acceptance of Kintera Sphere |
| Our ability to generate increased revenues depends in part on the efforts of our strategic partners, over whom we have little control |
| Our ability to generate increased revenues depends in part upon the ability and willingness of our strategic partners to increase awareness of our solution to their customers |
| We cannot control the level of effort these partners expend or the extent to which any of them will be successful in increasing awareness of our solution |
| We may not be able to prevent these parties from devoting greater resources to support services developed by them or other third parties |
| If our strategic partners fail to increase awareness of our solution or to assist us in getting access to decision-makers, then we may need to increase our marketing expenses, change our marketing strategy or enter into marketing relationships with different parties, any of which could impair our ability to generate increased revenues |
| We are dependent on our management team, and the loss of any key member of this team may prevent us from achieving our business plan in a timely manner |
| Our success depends largely upon the continued services of our executive officers and other key personnel |
| In particular, we rely on Harry E Gruber, MD, our President, Chief Executive Officer and Chairman |
| We do not have employment agreements with our executive officers and, therefore, they could terminate their employment with us at any time without penalty |
| We do not maintain key person life insurance policies on any of our employees |
| The loss of one or more of our key employees could seriously harm our business, results of operations and financial condition |
| We cannot assure you that in such an event we would be able to recruit personnel to replace these individuals in a timely manner, or at all, on acceptable terms |
| In the past year we have hired several new members of our senior management and have experienced a high rate of employee turnover at all levels |
| Our newly-hired employees have not worked with our senior management team and finance personnel for a significant length of time, and we cannot assure you that these management transitions will not result in some disruption of our business |
| If our new senior management team and finance department are unable to work together effectively to implement our strategies, manage our operations and accomplish our objectives, our business, operations and financial results could be severely impaired |
| 15 ______________________________________________________________________ [37]Table of Contents Because competition for highly qualified sales and software development personnel is intense, we may not be able to attract and retain the employees we need to support our planned growth |
| To execute our growth plan, we have significantly increased the size of our sales force and software development staff |
| To successfully meet our objectives, we must continue to attract and retain highly qualified sales and software development personnel with specialized skill sets focused on the nonprofit industry |
| Competition for qualified sales and software development personnel can be intense, and we cannot assure you that we will be successful in retaining current employees or attracting and retaining new ones |
| The pool of qualified personnel with experience working with or selling to nonprofit organizations is limited |
| Our ability to expand our sales team will depend on our ability to recruit, train and retain top quality people with advanced skills who understand sales to nonprofit organizations |
| Because the sale of online fund raising solutions is still relatively new, there is a shortage of sales personnel with the experience we need |
| We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications for our business |
| In addition, it takes time for our new sales personnel to become productive, particularly with respect to obtaining major customer accounts |
| In many cases, newly hired sales personnel are unable to develop their skills rapidly enough, which results in a relatively high turnover rate and a corresponding increased need to make continual new hires |
| If we are unable to hire or retain qualified sales and software development personnel, or if newly hired personnel fail to develop the necessary skills or reach productivity slower than anticipated, it would be more difficult for us to sell our solution, and we may experience a shortfall in revenues and not achieve our planned growth |
| Our failure to compete successfully against current or future competitors could cause our revenues or market share to decline |
| Our market is fragmented, competitive and rapidly evolving, and there are limited barriers to entry for some aspects of this market |
| We mainly face competition from four sources: • traditional fundraising methods; • custom developed solutions created by technical staff or outside custom service providers; • companies that offer specialized software designed to address needs of businesses across a variety of industries; and • companies that offer integrated software solutions designed to address the needs of nonprofit organizations |
| In the past, we have competed with these companies by focusing on and committing significant resources to promote awareness of Kintera Sphere to nonprofit organizations in the health and human services sector, and by developing features to better meet the needs of our customers |
| However, the companies we compete with may have greater financial, technical and marketing resources, generate greater revenues and better name recognition than we do |
| These competitive pressures could cause our revenues and market share to decline |
| Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and establish our Kintera Sphere brand |
| Our success and ability to compete depend in part on our internally developed technology and software applications |
| We rely on patent, trademark, copyright and trade secret laws and restrictions in the United States and other jurisdictions, together with contractual restrictions on our employees, strategic partners and customers, to protect our proprietary rights |
| Any of our trademarks may be challenged by others or invalidated through administrative process or litigation |
| As of March 1, 2006, we have three issued patents and 19 pending patent applications in the United States |
| We may not be successful in obtaining these patents and we may be unable to obtain additional patent protection in the future |
| In addition, any issued patents may not provide us with any competitive advantages, or may be challenged by third parties |
| Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain |
| Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our solution is available |
| As a result, we cannot assure you that our means of protecting our proprietary rights will be adequate |
| Furthermore, despite our efforts, we may be unable to prevent third parties from infringing upon or 16 ______________________________________________________________________ [38]Table of Contents misappropriating our intellectual property |
| Any such infringement or misappropriation could have a material adverse effect on our revenues and prospects for growth |
| Litigation may harm our business or otherwise distract our management |
| Substantial, complete or extended litigation could cause us to incur large expenditures and distract our management |
| For example, lawsuits by employees, stockholders or customers could be very costly and substantially disrupt our business |
| Disputes from time to time with such companies or individuals are not uncommon, and we cannot assure you that we will always be able to resolve such disputes on terms favorable to us |
| Risks Related to the Securities Markets and Ownership of Our Common Stock Our common stock price may fluctuate substantially, and your investment could suffer a decline in value |
| The market price of our common stock may be volatile and could fluctuate substantially due to many factors, including: • actual or anticipated fluctuations in our results of operations; • the introduction of new products or services, or product or service enhancements by us or our competitors; • developments with respect to our or our competitors’ intellectual property rights; • announcements of significant acquisitions or other agreements by us or our competitors; • our sale of common stock or other securities in the future; • the trading volume of our common stock; • conditions and trends in the nonprofit industry; • changes in our pricing policies or the pricing policies of our competitors; • changes in the estimation of the future size and growth of our markets; and • general economic conditions |
| In addition, the stock market in general, the Nasdaq National Market, and the market for shares of technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies |
| Further, the market prices of securities and technology companies have been particularly volatile |
| These broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance |
| In the past, following periods of volatility in the market price of a company’s securities, shareholder derivative lawsuits securities class action litigation has often been instituted against that company |
| Such litigation, if instituted against us, could result in substantial costs and a diversion of management’s attention and resources |
| Our publicly-filed reports are reviewed from time to time by the SEC and any significant changes or amendments required as a result of any such review may result in material liability to us and may have a material adverse impact on the trading price of our common stock |
| The reports of publicly-traded companies are subject to review by the SEC from time to time for the purpose of assisting companies in complying with applicable disclosure requirements, and the SEC is required to undertake a comprehensive review of a company’s reports at least once every three years under the Sarbanes-Oxley Act of 2002 |
| SEC reviews may be initiated at any time |
| While we believe that our previously filed SEC reports comply, and we intend that all future reports will comply, in all material respects with the published rules and regulations of the SEC, we could be required to modify, amend or reformulate information contained in prior filings as a result of an SEC review |
| Any modification, amendment or reformulation of information contained in such reports could be significant and result in material liability to us and have a material adverse impact on the trading price of our common stock |
| 17 ______________________________________________________________________ [39]Table of Contents If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results |
| As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business |
| Effective internal controls are necessary for us to provide reliable financial reports |
| If we cannot provide reliable financial reports, our operating results could be misstated, our reputation may be harmed and the trading price of our stock could be negatively affected |
| In connection with the audit of our financial statements for the year ended December 31, 2005, we identified several material weaknesses in our control over financial reporting |
| There can be no assurance that our controls over financial processes and reporting will be effective in the future |
| For more information, see Item 9A of this Annual Report on Form 10-K Because of their significant stock ownership, some of our existing stockholders will be able to exert control over us and our significant corporate decisions |
| Our executive officers, directors and their affiliates own, in the aggregate, approximately 31dtta2prca of our outstanding common stock |
| As a result, these persons, acting together, have the ability to exercise significant influence the outcome of all matters submitted to our stockholders for approval, including the election and removal of directors and any significant transaction involving us |
| In addition, these persons, acting together, have the ability to control our management and affairs |
| This concentration of ownership may harm the market price of our common stock by, among other things: • delaying, deferring, or preventing a change in control of our company; • impeding a merger, consolidation, takeover, or other business combination involving our company; • causing us to enter into transactions or agreements that are not in the best interests of all stockholders; or • discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company |
| Our future capital needs are uncertain, and we may need to raise additional funds in the future which may not be available on acceptable terms or at all |
| Our capital requirements will depend on many factors, including: • acceptance of, and demand for, Kintera Sphere and our other product and service offerings; • the costs of developing new products, services or technology; • the extent to which we invest in new technology and product development; • the number and timing of acquisitions and other strategic transactions; and • the costs associated with the growth of our business, if any |
| Our existing sources of cash and cash flows may not be sufficient to fund our activities |
| As a result, we may need to raise additional funds, and such funds may not be available on favorable terms, or at all |
| Furthermore, if we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences, and privileges senior to those or our existing stockholders |
| If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization |
| If we cannot raise funds on acceptable terms, we may not be able to develop or enhance our products and services, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements |
| Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control and could also limit the market price of our stock |
| Our certificate of incorporation, as amended, and our bylaws, as amended, contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders 18 ______________________________________________________________________ [40]Table of Contents might consider favorable, including provisions authorizing the board of directors to issue preferred stock, prohibiting stockholder action by written consent and requiring advance notice for nominations for election to our board of directors or for proposing matters to be acted upon by stockholders at meetings of our stockholders |
| In addition, our certificate of incorporation, as amended, and bylaws, as amended, also provide that our board of directors is classified into three classes of directors, with each class elected at a separate election |
| The existence of a staggered board could delay a potential acquiror from obtaining majority control of our board, and thus deter potential acquisitions that might otherwise provide our stockholders with a premium over the then current market price for their shares |
| In addition, on January 25, 2006, we adopted a stockholder rights plan (“Rights Plan”) |
| Pursuant to the Rights Plan, our board of directors declared a dividend distribution of one preferred share purchase right (“Right”) on each outstanding share of our common stock |
| Each Right will entitle stockholders to buy one one-hundredth of a share of a newly created Series A Preferred Stock at a purchase price of dlra50dtta00, subject to adjustment, in the event the Right becomes exercisable |
| Subject to limited exceptions, the Rights will become exercisable if a person or group acquires more than 15prca or more of our common stock or announces a tender offer for 15prca or more of our common stock |
| If we are acquired in a merger or other business combination transaction which has not been approved by our board of directors, each Right will entitle its holder to purchase, at the Right’s then-current purchase price, a number of the acquiring company’s common shares having a market value at the time of twice the Right’s exercise price |
| The Rights Plan may discourage certain types of transactions involving an actual or potential change in control and may limit our stockholders’ ability to approve transactions that they deem to be in their best interests |
| We are also governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15prca or more of our outstanding voting stock |
| These and other provisions in our certificate of incorporation, as amended, and our bylaws, as amended, and Delaware law could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors, including delaying or impeding a merger, tender offer, or proxy contest or other change of control transaction involving our company |
| Any delay or prevention of a change of control transaction or changes in our board of directors could prevent the consummation of a transaction in which our stockholders could receive a premium over the then current market price for their shares |