RMGN Rmg Networks Holding Corp. (delisted)

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On [     ·     ], 2018

Dear Stockholder:

        PLEASE TAKE NOTICE that a special meeting of stockholders of RMG Networks Holding Corporation, a Delaware corporation (which we refer to as the "Company"), will be held on [     ·     ], 2018, at [     ·     ] [a.m./p.m.], local time, at the Company's principal executive offices located at 15301 North Dallas Parkway, Suite 100, Addison, Texas 75001, to consider and vote upon the following matters:

1.

A proposal to adopt and approve the Agreement and Plan of Merger (which we refer to as the "original merger agreement"), dated as of April 2, 2018, by and among the Company, SCG Digital, LLC, a Delaware limited liability company (which we refer to as "Parent"), SCG Digital Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (which we refer to as "Merger Sub") and (solely for the purposes of Sections 6.19, 8.03 and 8.04 of the merger agreement) SCG Digital Financing, LLC, a Delaware limited liability company and an affiliate of Parent (which we refer to as "Lender"), as the merger agreement was amended by the First Amendment and Waiver Agreement, dated as of August 18, 2018, by and among the Company, Parent, Merger Sub and Lender (which we refer to as the "First Amendment," and the First Amendment together with the original merger agreement we refer to as the "merger agreement"), and as it may be further amended from time to time (which we refer to as the "merger proposal").



2.

A proposal to approve, on a non-binding, advisory basis, the compensation that named executive officers of the Company may receive in connection with the merger pursuant to agreements or arrangements with the Company (which we refer to as the "compensation proposal").



3.

A proposal to approve one or more adjournments or postponements of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to approve the merger proposal (which we refer to as the "adjournment proposal").

        The record date for the determination of stockholders entitled to notice of and to vote at the special meeting is August 3, 2018 (which we refer to as the "record date"). Accordingly, only stockholders of record as of that date will be entitled to notice of and to vote at the special meeting or any adjournment or postponement thereof. A list of our stockholders will be available at our principal executive offices at 15301 North Dallas Parkway, Suite 500, Addison, Texas 75001, during ordinary business hours for ten days prior to the special meeting.

        Adoption and approval of the merger agreement requires the affirmative vote in person or by proxy of holders of at least both (1) a majority of the outstanding shares of Company common stock entitled to vote at the special meeting and (2) a majority of the outstanding shares of Company common stock, excluding shares held by (i) Parent or Merger Sub or any of their respective affiliates, including Gregory H. Sachs, the Company's executive chairman, (ii) any rollover investors (as defined in the accompanying proxy statement) and (iii) any of the Company's executive officers. Parent and the Company may, if they choose, mutually agree to waive the voting requirement set forth in clause (2) above, but may not waive the requirement set forth in clause (1). Neither the Company nor Parent has any current intention to waive this requirement. Any mutual agreement to do so would be made in advance of the special meeting and would be disclosed to the Company stockholders prior to the special meeting. Approval of the compensation proposal and the adjournment proposal requires the

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affirmative vote of a majority of the votes cast at the special meeting by Company stockholders present in person or by proxy at the special meeting and entitled to vote thereon.

        Certain stockholders of the Company, who are affiliates of Gregory H. Sachs and who collectively own approximately 18% of the outstanding shares of Company common stock as of the record date, entered into a voting agreement with the Company pursuant to which, among other things, each of them has agreed to vote its shares of Company common stock in favor of the merger proposal.

         Our board of directors, in a meeting on April 2, 2018 attended by each of the six members of the board of directors at the time except for Gregory H. Sachs who recused himself due to his interest in the transaction and Alan Swimmer who was unable to attend due to a personal matter, on the unanimous recommendation of the special committee of the board of directors, in a meeting attended by each member of the special committee except Mr. Swimmer, unanimously (1) declared that the original merger agreement and the transactions contemplated by the original merger agreement (other than any rollover by any rollover investor (as defined in the accompanying proxy statement)) were advisable, fair to, and in the best interests of the Company and its stockholders (other than certain affiliates of Mr. Sachs and any rollover investors), (2) approved the original merger agreement and the transactions contemplated by the original merger agreement, including the merger, (3) directed that the approval of the adoption of the original merger agreement be submitted to the Company stockholders, and (4) recommended that the Company stockholders vote "FOR" the merger proposal. The Company board of directors also recommends that holders of Company common stock vote "FOR" the compensation proposal and "FOR" the adjournment proposal.

         Subsequently, our board of directors, in a meeting on August 16, 2018 attended by each of the three members of the board of directors except for Mr. Sachs who recused himself due to his interest in the transaction, unanimously (1) declared that the merger agreement, as amended by the First Amendment, and the transactions contemplated by the merger agreement, as amended by the First Amendment (other than any rollover by any rollover investor), were advisable, fair to, and in the best interests of the Company and its stockholders (other than certain affiliates of Mr. Sachs and any rollover investors), (2) approved the merger agreement, as amended by the First Amendment, and the transactions contemplated by the merger agreement, as amended by the First Amendment, including the merger, (3) directed that the approval of the adoption of the merger agreement, as amended by the First Amendment, be submitted to the Company stockholders, and (4) recommended that Company stockholders vote in favor of adoption of the merger agreement, as amended by the First Amendment.

         Your vote is very important. We cannot complete the merger unless the Company stockholders approve the merger proposal.

        If you have any questions about the merger or the accompanying proxy statement, would like additional copies of the proxy statement or need assistance voting your shares of Company common stock, please contact the Company's information agent, Broadridge Corporate Issuer Solutions, Inc., by telephone at (855) 793-5068 (toll free) or by email at shareholder@broadridge.com. If you hold your shares in "street name" through a bank, broker or other nominee, please also contact your bank, broker or other nominee for additional information.

        Each copy of the proxy statement mailed to the Company stockholders is accompanied by a form of proxy card with instructions for voting. Regardless of whether you plan to attend the special meeting, please vote as soon as possible by accessing the Internet site listed on the proxy card, voting telephonically using the phone number listed on the proxy card or submitting your proxy card by mail. If you hold shares of Company common stock in your name as a stockholder of record and are voting by mail, please complete, sign, date and return the accompanying proxy card in the enclosed postage-paid return envelope. This will not prevent you from voting in person at the special meeting, but it will help to secure a quorum and avoid added solicitation costs. Any holder of record of shares of Company common stock who is present at the special meeting may vote in person instead of by proxy, thereby canceling any previous proxy. In any event, a proxy may be revoked at any time before the special meeting in the manner described in the accompanying proxy statement. Information and applicable deadlines for voting through the Internet or by telephone are set forth in the enclosed proxy

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card instructions. If you hold your stock in "street name" through a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished by such bank, broker or other nominee.

        Registration will begin at [     ·     ] [a.m./p.m.], local time. If you attend, you must present valid picture identification. "Street name" holders will need to bring a copy of a brokerage statement reflecting stock ownership as of the record date. Cameras, recording devices and other electronic devices will not be permitted at the special meeting.

        Stockholders of the Company who do not vote in favor of the merger proposal will have the right to seek appraisal of the fair value of their shares of Company common stock if they deliver a demand for appraisal before the vote is taken on the merger agreement and comply with all requirements of Delaware law, which are summarized in the accompanying proxy statement.

         WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. STOCKHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON.

Addison, Texas 75001
[     ·     ], 2018

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REFERENCES TO ADDITIONAL INFORMATION

        This proxy statement incorporates important business and financial information about the Company from documents filed with the Securities and Exchange Commission (which we refer to as the "SEC") that are attached as annexes to this proxy statement. You can obtain any of the documents filed with or furnished to the SEC by the Company at no cost from the SEC's website at https://www.sec.gov. You may also request copies of these documents, including documents attached as annexes to this proxy statement, at no cost by oral or written request to the Company at the following telephone number and address:

RMG Networks Holding Corporation
Attention: Corporate Secretary
15301 North Dallas Parkway
Suite 500
Addison, Texas 75001
Telephone: (800) 827-9666

        You will not be charged for any of these documents that you request. To obtain timely delivery of these documents, you must request them no later than five business days before the date of the special meeting. This means that Company stockholders requesting documents must do so by [     ·     ] in order to receive them before the special meeting.

         For additional questions about the merger, assistance in submitting proxies or voting shares of Company common stock, or to request additional copies of the proxy statement or the enclosed proxy card, please contact:

Broadridge Corporate Issuer Solutions, Inc.
If using UPS, FedEx or Courier:
Broadridge, Inc.
Attn: BCIS IWS
51 Mercedes Way
Edgewood, NY 11717

If using a USPS Service:
Broadridge, Inc.
Attn: Proxy Services
P.O. Box 9116
Farmingdale, NY 11735-9547
(855) 793-5068 (toll free)
Email: shareholder@broadridge.com

        If you hold your shares in "street name" through a bank, broker or other nominee, please also contact your bank, broker or other nominee for additional information.

        You should rely only on the information contained in, or incorporated by reference into, this proxy statement. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement. This proxy statement is dated [     ·     ], 2018, and you should assume that the information in this proxy statement is accurate only as of such date.

        This proxy statement 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.

        See " Where You Can Find More Information ," beginning on page 127 for more detail.

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SPECIAL FACTORS

         This discussion of the merger is qualified by reference to the original merger agreement as amended by the First Amendment, both of which are attached to this proxy statement in Annex A . You should read the entire merger agreement, as amended, carefully as it is the legal document that governs the merger.

Background of the Merger

        The board of directors, together with members of the Company's senior management, regularly reviews and assesses the Company's long-term strategy and objectives in light of the Company's financial condition, developments in the industries in which the Company operates and evolving technology trends and advancements. This process has included evaluating strategic alternatives relating to the business of the Company to enhance stockholder value.

        Since July 2014, the Company has been executing a multi-year strategic turnaround plan focused on (a) delivering new, innovative products and solutions, (b) diversifying into select industry verticals, (c) improving the effectiveness and productivity of its sales and marketing efforts and (d) implementing a cost rationalization effort. Although the Company has made progress on its plan by strengthening its management team, enhancing its product offerings and reducing operating costs, the Company continues to incur significant net losses from operations.

        On November 17, 2017, the board of directors held a regularly scheduled meeting to review the Company's performance for the third quarter. In addition to all of the directors, Robert Michelson, the Company's chief executive officer, Jana A. Bell, the Company's chief financial officer, Robert R. Robinson, the Company's general counsel, Jordon Fisher, the board observer of DRW Holdings, LLC and its affiliates (which we refer to, collectively, as "DRW"), the Company's largest stockholder, and representatives of Greenberg Traurig LLP, the Company's outside counsel (which we refer to as "Greenberg Traurig"), participated in the meeting. Mr. Michelson and Ms. Bell reviewed with the directors the Company's third quarter and year-to-date financial performance. The board of directors discussed the Company's long-range plan and prospects and a number of material factors affecting the Company's business. The board of directors noted in particular the negative revenue trend in North America, competitive pressures and technological advancements in or impacting the industry in which the Company competes. The board of directors discussed material execution risks, including the financial impact of transitioning from a perpetual software license model to a software-as-a-service model and the Company's lack of access to capital to fund the required sales and marketing and research and development costs required to improve operations. In light of these trends and risks, the board of directors reviewed various strategic alternatives for the Company, including potential methods to raise capital and the potential sale of the Company. The board of directors determined to explore the available alternatives and form a special committee consisting of three independent, outside directors (which we refer to as the "special committee") to review any strategic opportunities that may be presented to the board of directors and to make a recommendation to the full board of directors as to the advisability of pursuing any such opportunities. The board of directors, after consultation with Greenberg Traurig, noted that although there were no known actual conflicts at the time, because Gregory Sachs, the Company's executive chairman, indicated a willingness to consider participating in a strategic transaction with the Company, it would be prudent to form a special committee of independent, outside directors to direct the strategic process on behalf of the board of directors.

        The board of directors appointed Jeffrey Hayzlett, Alan Swimmer and Jonathan Trutter to the special committee, with Mr. Trutter to serve as chairman. The board of directors delegated to the special committee the exclusive power to, among other things: (a) establish, monitor and direct the process and procedures related to the review and evaluation of a possible sale or capital raise transaction, including the authority to determine not to proceed with any process, procedures, review or evaluation; (b) respond to communications, inquiries or proposals regarding any such transaction;

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(c) review, evaluate and negotiate the terms and conditions of any such transaction; (d) solicit expressions of interest or other proposals for any such transaction; (e) determine whether any such transaction is advisable and is fair to, and in the best interests of, the Company and its stockholders; and (f) reject or approve any such transaction, or recommend such rejection or approval to the board of directors. The board of directors authorized, after receiving information from an outside compensation consultant, the special committee to retain financial, legal and other advisors. The board of directors authorized the payment of $25,000 to each special committee member for serving on the special committee. The amount of this payment was set below the fees paid to special committees in comparable situations based on the information provided by the compensation consultant in light of the Company's liquidity position. Throughout the special committee's evaluation of a potential sale or capital raising transaction, the special committee met frequently via telephone calls, but its members were also in regular informal communications with the committee's advisors and each other.

        On December 5, 2017, the special committee had a telephonic meeting with a representative of Greenberg Traurig. At the meeting, the representative provided an overview of the fiduciary duties of the members of the special committee and the mandate of the special committee in considering a potential sale or capital raise transaction. The special committee discussed the financial condition and liquidity needs of the Company and the impact of such condition and needs on the special committee's process and timeline to attract potential buyers or investors. The special committee also considered the Company's historical efforts to raise capital, including the rights offering and private placement to the existing stockholders in December 2016. The special committee discussed the advisability of engaging an investment banking firm to assist the special committee in its evaluation of a potential sale or capital raise transaction and decided that Mr. Trutter should contact investment banking firms discussed by the special committee about a possible engagement.

        Over the course of the remainder of December 2017, Mr. Trutter had preliminary discussions with five investment banking firms. Mr. Trutter inquired as to their industry expertise and experience in similar sale and capital raise transactions. Mr. Trutter arranged for three of the investment banking firms to meet with members of the special committee in Dallas, Texas on January 9, 2018.

        In early January 2017, in light of Mr. Sach's indication of a willingness to consider a potential strategic transaction with the Company, the Company entered into a mutual nondisclosure agreement with Sachs Capital Group LP (which we refer to as "SCG") effective as of November 11, 2017.

        On January 16, 2018, the members of the special committee held a telephonic meeting to discuss the three investment banking firms the special committee met with on January 9, 2018, and discussed retaining counsel for the special committee.

        On January 22, 2018, SCG submitted a non-binding, highly confidential indication of interest to acquire all of the outstanding shares of the Company (other than those held by SCG, its affiliates and other stockholders who would elect to rollover their shares) for $1.23 per share in cash (which we refer to as the "SCG Proposal"). The indication included that the $1.23 per share price represented a 24% premium to $0.99, the average closing price between November 1, 2017 and January 19, 2018 and a 13% premium to $1.09, the closing price on Friday, January 19, 2018.

        On January 23, 2018, the members of the special committee held a telephonic meeting to discuss the SCG Proposal. The special committee discussed retaining counsel for the special committee and determined that prior to responding to the SCG Proposal, the special committee would retain counsel.

        Beginning in December and continuing through January, the special committee developed a list of law firms to act as counsel to the special committee. The special committee conducted several telephonic interviews with potential counsel, inquiring as to their experience representing a special committee formed to explore strategic alternatives, expertise in mergers and acquisitions and financings and potential fee structures. The special committee developed a list of three finalist law firms and on

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January 27, 2018 held a telephonic meeting of the special committee to discuss the selection of counsel. Following an extensive discussion, the special committee unanimously selected DLA Piper to act as counsel for the special committee. The special committee's decision to engage DLA Piper was based on the experience DLA Piper has representing special committees in evaluating strategic alternatives, the reputations of the attorneys who would represent the special committee and DLA Piper's expertise in mergers and acquisitions and financings.

        On February 1, 2018, the special committee held a telephonic meeting with representatives of DLA Piper to review the SCG Proposal. At the meeting, the representatives provided an overview of process considerations with respect to a potential sale of the Company. The special committee instructed DLA Piper to contact Mr. Sachs and inform him that the special committee had engaged DLA Piper and that any communications, requests for information or questions regarding the special committee's process should be directed to DLA Piper. The special committee also requested that DLA Piper contact the board of directors observer of DRW, the Company's largest stockholder, to determine DRW's willingness to explore potential financing or alternative transactions with the Company.

        The attorney who had served as Greenberg Traurig's primary representative to the Company left Greenberg Traurig and joined Mayer Brown LLP (which we refer to as "Mayer Brown"). In connection with this transfer, and in order to continue its engagement with the primary individual who had previously advised the Company in these matters, the Company executed an engagement letter with Mayer Brown on February 1, 2018. From that point onward, Mayer Brown represented the Company through the same primary attorney who had previously represented the Company on behalf of Greenberg Traurig.

        On February 6, 2018, the special committee held a telephonic meeting with representatives from DLA Piper. At the meeting, the representatives provided an overview of the fiduciary duties of the members of the special committee in the context of evaluating a potential sale of the Company for cash, particularly if the buyer is an affiliate of the Company. The representatives of DLA Piper discussed with the special committee the importance of the process engaged in by the special committee. The special committee discussed feedback received by DLA Piper from DRW, the Company's largest stockholder, that DRW was not interested in further investing in the Company or proposing an alternative transaction for the Company. As part of the meeting, the special committee also discussed management's forecasts as to the Company's liquidity. After taking into consideration the feedback received from DRW and the Company's liquidity position, the special committee determined to proceed with exploring a potential capital raise or sale transaction, including the SCG Proposal. The special committee determined to continue discussions with three of the investment banking firms previously discussed by the special committee and obtain information from an additional two investment banking firms about a possible engagement to assist the special committee in identifying potential financial and strategic buyers in addition to SCG and evaluating potential transactions.

        On February 8, 2018, the special committee held a telephonic meeting with representatives from DLA Piper. At the meeting, the special committee reviewed cash projections made available to the board of directors. Mr. Trutter also reported to the special committee on his discussions with Ms. Bell about the risk that the Company's forecast reflects that the Company will not be able to comply with financial covenants in the Company's senior loan agreement, and as such the Company may receive a going concern explanatory paragraph from its auditors. The special committee, with the assistance of the representatives of DLA Piper, considered the impact of the Company's financial and liquidity condition on the special committee's process and timing in exploring a potential sale or capital raise transaction.

        On February 9, 2018, the special committee held a telephonic meeting with representatives of DLA Piper to review and consider updated projections about the Company's liquidity and covenant compliance prepared by Ms. Bell and circulated to the board of directors. The special committee

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discussed the risks to the Company's business if the Company were unable to generate sufficient cash to satisfy its debt obligations and working capital needs or were to fail to comply with the financial and operational covenants in its senior loan agreement. The special committee also discussed the risk that short- or long-term financing would not be available given the Company's recent efforts to secure such financing and the Company's cash flow projections. In light of these risks, the members of the special committee determined to continue to engage in discussions with SCG while continuing to explore alternative strategic transactions.

        On February 11, 2018, the board of directors held a telephonic meeting to review the Company's performance and liquidity position. In addition to all of the directors, Ms. Bell, Mr. Robinson and representatives from Mayer Brown and DRW participated in the meeting. Mr. Trutter reported to the board of directors on the developing liquidity situation, including the risk that the Company would not be able to comply with financial covenants in the Company's senior loan agreement and as such, the Company may receive a going concern explanatory paragraph from its auditors. Mr. Trutter also informed the board of directors that the special committee was in the preliminary stages of evaluating the SCG Proposal and reviewed several options available to the Company to help its cash flow situation, including seeking a bridge credit facility, implementing a sale of the Company or initiating a restructuring process. Ms. Bell gave a presentation on the liquidity situation and projections, after which the board of directors discussed the liquidity issues. A representative of Mayer Brown led a discussion on various topics, for some of which Mr. Sachs recused himself. The topics included the duties of the Company's directors and the legal issues involved with conducting transactions between the Company and its insiders. Ms. Bell noted that the Company was required to provide a budget approved by the board of directors under its senior loan agreement by February 15, 2018 and that any such budget would indicate that the Company anticipated it might not be in compliance with future financial covenants without an amendment thereto. The board of directors discussed alternatives to ease the liquidity position, including obtaining mezzanine debt, a third-party bridge loan and other similar transactions. The board of directors also discussed the timeline of a potential sale of the Company and cost control efforts being implemented. The board of directors asked Ms. Bell to update her financial projections to reflect only pre-transaction special committee costs that would be due and owing prior to the consummation of a potential transaction.

        On February 12, 2018, the special committee held a telephonic meeting with representatives of DLA Piper. The members of the special committee discussed management's presentation to the board of directors on February 11, 2018 with respect to the Company's financial and liquidity position. The special committee considered the execution risks to a potential sale or capital raise transaction resulting from the Company's projected cash resources, including the risks if the Company were to fail to comply with the financial covenants in the Company's senior loan agreement. The special committee instructed the representatives of DLA Piper to determine whether Mr. Sachs and/or DRW would consider providing bridge financing to the Company to, at a minimum, give the special committee the time and resources to explore a potential capital raise or sale transaction.

        On February 15, 2018, the special committee held a telephonic meeting with representatives of DLA Piper and a representative of Mayer Brown. The representatives of DLA Piper and Mayer Brown reported to the special committee that Mr. Sachs indicated that he would only provide financing to the Company in connection with the Company entering into a definitive merger agreement with SCG. The special committee also noted that DRW indicated that it would not provide any additional financing to the Company. In light of the foregoing, the special committee determined to engage with SCG as to the terms of the potential bridge financing that would be available in connection with a definitive merger agreement. In addition, since Mr. Sachs indicated he would only engage in discussions with respect to a bridge financing in connection with the negotiation of a definitive merger agreement, the special committee authorized DLA Piper to prepare a draft merger agreement to be reviewed by the special committee and then shared with SCG.

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        On February 16, 2018, the special committee held a telephonic meeting with representatives of DLA Piper. Mr. Michelson and Ms. Bell also participated in the meeting. The representatives of DLA Piper discussed with the members of the Company's management the duties and responsibilities of the special committee to independently evaluate strategic alternatives available to the Company. The representatives of DLA informed management that all communications relating to a potential transaction or financing of the Company must be coordinated by the special committee and its counsel. The representatives of DLA Piper and management also discussed the handling of information requests from SCG or any other third parties involved in a potential transaction or financing and coordinating with management as appropriate the implementation of any transaction or financing. The members of the special committee and management also reviewed the Company's financial condition and liquidity position.

        On February 21, 2018, the special committee held a telephonic meeting with representatives of DLA Piper. The members of the special committee reviewed the investment bank candidates to serve as financial advisor to the special committee. The special committee determined that it would be advisable to engage one of the investment banking firms to assist the Company in identifying and pursuing potential buyers and/or financing sources in addition to SCG, but decided to defer engaging an investment banking firm to assist the special committee in valuing the Company's equity and rendering a fairness opinion until the special committee progressed in its discussions with SCG or any other potential third party. A representative of DLA Piper then reviewed in detail with the members of the special committee the terms and conditions set forth in the draft original merger agreement previously circulated by DLA Piper to the members of the special committee. The representatives of DLA Piper and the special committee discussed the advisability of having a go-shop period of at least 45 days to supplement the "market check" that the special committee will continue to engage in prior to entering into any definitive transaction agreement. The special committee and DLA Piper also determined that, given the potential buyer is an affiliate of Mr. Sachs (with Mr. Sachs owning or controlling, directly or indirectly, approximately 18% of the Company's outstanding shares of common stock), having a closing condition that requires the merger agreement to be approved by a majority of stockholders other than SCG and its affiliates and any other stockholders who elect to rollover their shares would give minority stockholders a strong voice in determining whether the proposed transaction is in the best interests of the Company stockholders. The special committee instructed DLA Piper to share the draft original merger agreement with Gardere Wynne Sewell LLP, outside counsel to SCG, and to inform such firm that as a condition to continuing discussions SCG would have to agree to the go-shop provision and majority of minority vote condition and propose bridge financing in an amount, and upon terms, to enable the Company to operate in the ordinary course during the course of any pending transaction and allow the special committee to engage in a process to maximize stockholder value. On April 1, 2018, Gardere Wynne Sewell LLP combined with Foley & Lardner LLP. The combined firm, Foley & Lardner LLP, will do business as "Foley Gardere" in its Texas and Colorado offices for a time following the combination. Throughout the remainder of this proxy statement, the law firm is referred to as "Foley Gardere" without distinguishing between the pre- and post- combination periods. The primary attorneys representing SCG prior to the combination continued to serve as the primary attorneys representing SCG after the combination. The special committee also requested that DLA Piper inform Foley Gardere that, although the special committee was prepared to engage with SCG on the draft original merger agreement, the special committee had not approved the proposed merger consideration, which would not be discussed or negotiated unless and until the parties made progress on the draft original merger agreement and financing terms.

        On February 27, 2018, representatives of DLA Piper and Foley Gardere engaged in discussions concerning the terms of the original merger agreement.

        On February 28, 2018, the special committee held a telephonic meeting with representatives of DLA Piper. The representatives of DLA Piper reviewed with the members of the special committee the

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communications between DLA Piper and Foley Gardere relating to the draft original merger agreement, including comments by Foley Gardere that would reduce the period of the go-shop to thirty days and establish termination fees to $500,000 plus expenses during the go-shop period and $1 million plus expenses thereafter. Foley Gardere also indicated that it would be sending to DLA a proposed term sheet for bridge financing that SCG or one of its affiliates would enter into simultaneously with entering into a definitive merger agreement and that SCG believed that the amount of the bridge financing would reduce the proposed merger consideration. The special committee instructed DLA Piper to inform Foley Gardere that the go-shop period must be at least 45 days (with extension rights to 60 days), the termination fees must be reduced, and the merger consideration would not be reduced by the amount of any bridge financing. The special committee also reviewed the qualifications and terms of engagement of the investment banking firms that had previously met with the special committee and its members. The special committee determined to engage Carl Marks to advise the special committee in its review of strategic alternatives. The special committee's decision to engage Carl Marks was based on Carl Marks' familiarity with the industry in which the Company competes and potential strategic and financial buyers and/or investors as well as Carl Marks' qualifications, reputation and experience in sale and financing transactions. The special committee authorized Mr. Trutter to execute an engagement letter with Carl Marks on the terms discussed at the meeting, which included a monthly retainer fee of $40,000 for a maximum of three months, as well as a success fee of $450,000 in the event that the Company consummates a sale or finance transaction, which success fee is inclusive of any monthly retainer fees paid prior to such time.

        On March 5, 2018, the special committee held a telephonic meeting with representatives of DLA Piper and Carl Marks. Prior to the meeting, the special committee entered into a customary letter agreement formally engaging Carl Marks as financial advisor to the special committee with respect to a potential sale or financing transaction. The representatives of Carl Marks and the special committee discussed the Company's financial condition and liquidity position. The special committee and Carl Marks also discussed potential strategic and financial parties that Carl Marks would contact to determine if they are interested in a potential sale or financing transaction. The special committee noted that, given the Company's liquidity position, any potential party must demonstrate the ability to proceed expeditiously. The representatives of DLA Piper and Carl Marks discussed the process for engaging interest from third parties, including the form of confidentiality agreement to be executed by parties that express an interest in a potential transaction with the Company.

        On March 6, 2018, Foley Gardere sent to DLA Piper a draft term sheet for bridge financing to be provided by an affiliate of SCG simultaneously with the execution of a definitive merger agreement with SCG. The term sheet provided for a facility of up to $2 million that could be drawn in installments of not more than $250,000, each upon ten days' notice. The facility had a one-year term with an interest rate of prime plus 8%, subject to increase up to prime plus 16% under certain conditions, including if the merger with SCG is not approved by stockholders. The facility also provided that the full amount of borrowings thereunder would be convertible into preferred stock of the Company with a liquidation preference of 3x principal that is convertible into shares of common stock at a price per share of common stock equal to $0.10.

        On March 8, 2018 representatives of DLA Piper and Foley Gardere reviewed and discussed the proposed term sheet for the bridge financing.

        On March 8, 2018, the special committee held a telephonic meeting with representatives of DLA Piper and Carl Marks to discuss the proposed term sheet for the bridge financing. Carl Marks presented its views as to the availability of bridge financing from third parties taking into account the Company's liquidity position and the pending process to explore strategic alternatives. The special committee noted that its objectives for any bridge financing, including the proposed bridge financing by SCG, are to provide the Company with adequate resources to operate in the ordinary course while the special committee explores and implements strategic alternatives. The special committee determined

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that the bridge financing proposed by SCG would not allow the Company to accomplish these objectives as it included significant limitations on the Company's ability to borrow funds and other terms, such as conversion into convertible preferred stock with a 3x liquidation preference and $0.10 per share conversion into common stock, that made such bridge financing too expensive and would likely have the effect of precluding third parties from making competing proposals. In light of the foregoing, the special committee instructed DLA Piper and Carl Marks to inform Foley Gardere and SCG that the proposed term sheet is unacceptable and that the special committee will not continue to engage in discussions with SCG on a possible sale transaction unless SCG submits a market-based term sheet that allows the special committee to accomplish its objectives.

        On March 10, 2018, representatives of DLA Piper and Foley Gardere discussed the proposed term sheet for the bridge financing and the objections of the special committee to certain of the terms and conditions therein.

        On March 12, 2018, Foley Gardere submitted to DLA Piper a revised draft of the term sheet for the bridge financing. The term sheet allowed an initial borrowing of an unspecified amount under the bridge financing upon signing of the definitive merger agreement, reduced the range of interest rates to prime plus 8% to 12% instead of 8% to 16%, maintained the ability to convert the bridge financing to convertible preferred stock with a 3x liquidation preference, and increased the conversion price into common stock from $0.10 to $1.23 per share. The draft original merger agreement reduced the go-shop period from 60 to 45 days and proposed a termination fee of $250,000 plus reimbursement of expenses during the go-shop period and $500,000 plus expenses thereafter.

        On March 13, 2018, the special committee held a telephonic meeting with representatives of DLA Piper and Carl Marks. At the meeting, Carl Marks updated the special committee on its efforts to solicit strategic and financial parties that may be interested in a transaction or investment with the Company. Carl Marks noted that of the 40 parties it contacted, 3 had entered into confidentiality agreements and received virtual data room access but none have submitted an indication of intent. DLA Piper next reviewed with the special committee the terms of the revised term sheet for the bridge financing submitted by Foley Gardere. Carl Marks discussed proposed revisions to the terms of the bridge financing, including adding a payment-in-kind interest feature and eliminating or reducing the conversion feature. DLA Piper discussed proposed revisions to the terms of the original merger agreement, including increasing the duration of the go-shop and decreasing the amount of the termination fees. The special committee instructed DLA Piper and Carl Marks to send revised drafts of the term sheet for the bridge financing and the original merger agreement to SCG and Foley Gardere.

        On March 14, 2018, DLA Piper submitted a revised draft of the term sheet for the bridge financing and the original merger agreement to Foley Gardere.

        From March 15, 2018 to March 18, 2018, Messrs. Sachs, Trutter and Swimmer and representatives of each of DLA Piper, Foley Gardere and Carl Marks negotiated the terms of the bridge financing and the original merger agreement. Mr. Sachs indicated that he needed the special committee to agree to the proposed merger consideration of $1.23 per share in order for him to continue to expend the time and resources negotiating the original merger agreement and related documents. Mr. Trutter informed Mr. Sachs that the merger consideration is subject to the receipt by the special committee of a valuation analysis and fairness opinion. Mr. Trutter also noted that, although the trading price of the common stock is not the only factor to be considered by the special committee, the common stock has traded above $1.23 since the time Mr. Sachs submitted his indication and requested that Mr. Sachs increase the merger consideration to take into account recent trading prices. Mr. Sachs ultimately agreed to increase the merger consideration from $1.23 to $1.27 per share but emphasized that such price was the maximum amount that SCG was willing to offer and his view that the recent trading prices of common stock were excessively volatile and that the price offered reflected a premium over the average trading price of the common stock during its recent history. The parties also discussed the

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interest rate and conversion feature of the bridge financing. Mr. Sachs agreed to allowing a portion of the interest to be paid in kind, but refused to eliminate the conversion feature on the grounds that it represents appropriate consideration that any other third party lender would demand under the circumstances; however, in response to the demand from the committee, Mr. Sachs agreed to eliminate the convertibility of the preferred stock into common stock and to provide that SCG may only convert the bridge loan into preferred stock if (i) the Company fails to obtain stockholder approval of the definitive merger agreement with SCG or (ii) the Company terminates the merger agreement in order to enter into an alternative transaction and fails to consummate such alternative transaction within 100 days of the entry into a definitive agreement with respect to such alternative transaction. Finally, during the course of negotiations, Foley Gardere indicated that Mr. Sachs would not guarantee the obligations of the buyer entity to the merger agreement. Instead, Mr. Sachs proposed a $1 million penalty loan on the same terms as the bridge financing if the Company satisfied all of the conditions to closing of the merger, but the buying entity did not close the merger. After Mr. Sachs refused to give a guarantee or agree to a reverse termination fee instead of a penalty loan, the representatives of the special committee, DLA Piper and Carl Marks discontinued negotiations and indicated that the special committee would meet to discuss whether it was possible to proceed with a sale transaction under these circumstances.

        On March 18, 2018, the special committee held a telephonic meeting with DLA Piper and Carl Marks. The special committee, with the advice of DLA Piper, considered the material risks of not having a person or entity with resources guarantee the obligations of the buying entity, including that the buying entity could fail to close the merger on the terms set forth in the definitive merger agreement after the Company incurs the time and expense of filing a proxy statement and having a meeting of stockholders. Although the special committee noted that target companies that agree to financing or other similar conditions in favor of a buyer would typically have the protection of a reverse termination fee payable to the target if such conditions are not satisfied as opposed to a penalty loan, the special committee determined to continue to engage with SCG in light of the absence of interest by any other strategic or financial parties and the Company's liquidity position and the risk that the Company would not be able to comply with financial covenants in the Company's senior loan agreement and, as such, the Company may receive a going concern explanatory paragraph from its auditors. The special committee authorized DLA Piper to negotiate with Foley Gardere terms which would give the Company the benefit of the $2 million bridge financing to have the time to consummate the definitive merger agreement with SCG and solicit alternative transactions and the benefit of the $1 million penalty loan if all closing conditions have been satisfied and the buying entity fails to close. The special committee instructed DLA Piper that the interest rate for the penalty loan should be payable in kind at a rate below the interest rate for the bridge financing and the $1 million should be deposited into escrow upon signing of the merger agreement. Finally, in light of Mr. Sachs' refusal to guarantee the obligations of the buying entity, the special committee also requested improvements in its ability to seek alternative transactions by allowing the Company to extend the go-shop period from 45 to 60 days and eliminating any termination fee (other than reimbursement of legal fees and expenses) during the go-shop period.

        The special committee next reviewed the qualifications and terms of engagement of the investment banking firms that had previously met with the special committee and its members. The special committee determined to engage Lake Street Capital Markets, LLC (which we refer to as "Lake Street") to render a fairness opinion with respect to the merger consideration to be received by the holders of the Company's outstanding shares of common stock (other than certain affiliates of Mr. Sachs and any rollover investor, which we refer to as the "excluded stockholders," and the Company stockholders excluding the excluded stockholders we refer to as the "non-rolling stockholders"). The special committee authorized Mr. Trutter to execute an engagement letter with Lake Street on the terms discussed at the meeting.

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        On March 20, 2018, the special committee held a telephone meeting with representatives of DLA Piper and Lake Street. Ms. Bell also attended for a portion of the meeting. Ms. Bell reviewed with the special committee and Lake Street certain information previously made available to Lake Street and the board of directors, including certain financial projections relating to the Company for the years ending December 31, 2018 through December 31, 2021 (which assumed the Company would be able to continue as a going concern) and weekly cash flow forecasts through April 30, 2018. Lake Street discussed with the special committee Lake Street's preliminary view regarding the valuation of the Company and the process Lake Street was undertaking in connection with the preparation of the fairness opinion.

        From March 20, 2018 to March 26, 2018, Foley Gardere and DLA exchanged drafts of, and negotiated the terms of, the original merger agreement, the bridge loan agreement, a subordination agreement which subordinates the payment and other rights of SCG to the Company's existing senior lender, Silicon Valley Bank (which we refer to as "Silicon Valley Bank" or the "senior lender"), a certificate of designation for the preferred stock which the bridge financing may be converted into under certain circumstances, a voting agreement pursuant to which SCG agrees to vote the shares of common stock held by itself and its affiliates in favor of the merger agreement and the merger and an escrow agreement to hold the $1 million proceeds of the penalty loan. During these negotiations, SCG agreed to fund the entire $2 million bridge financing upon signing of the definitive merger agreement. SCG also agreed to deposit the $1 million penalty loan, which if funded would bear paid-in-kind interest at 5.0% above the prime rate, into escrow upon signing of the definitive merger agreement but requested the ability to alternatively secure a $1 million letter of credit to be deposited into escrow.

        On March 28, 2018, Mr. Trutter, Ms. Bell and representatives of DLA Piper and Mayer Brown discussed provisions of the bridge financing and the subordination agreement relating to the Company's ability to refinance its debt and the cap on the aggregate amount of senior debt under the subordination agreement. Ms. Bell informed the representatives of DLA Piper and Mayer Brown of the feedback received by the Company's senior lender as to these provisions. Based on this feedback, on March 29, 2018, Mayer Brown submitted a revised draft of the bridge loan facility and the subordination agreement to Foley Gardere.

        From March 29, 2018 to April 1, 2018, Mr. Sachs, Mr. Trutter and representatives of DLA Piper, Mayer Brown and Foley Gardere continued to negotiate the original merger agreement and related documents. During these negotiations, the Company and Mayer Brown negotiated with the Company's senior lender an amendment to its senior loan agreement to, among other things, permit the bridge financing and the terms of the subordination agreement.

        On April 2, 2018, the special committee (with Mr. Swimmer unable to attend due to a personal matter) held a telephonic meeting with representatives of DLA Piper, Carl Marks and Lake Street. Ms. Bell also attended for a portion of the meeting. At the request of the special committee, Ms. Bell updated the members of the special committee on the Company's near-term liquidity constraints and management's projection that, absent a substantial capital infusion, the Company would be unable to amend the financial covenants in its senior loan agreement and would likely face a liquidity shortfall by mid-April 2018. The special committee discussed the urgent need to address the Company's liquidity constraints and the Company's ongoing efforts to obtain an amendment to its senior loan agreement as well as the impact the Company's entering into the bridge financing in connection with the definitive merger agreement would have on such efforts. Following such discussion, Ms. Bell was excused from the meeting.

        The representatives of Carl Marks next updated the special committee on its process to seek potential strategic and financial parties interested in a transaction with the Company. Carl Marks said that since March 9, 2018, it had contacted 42 potential strategic and financial parties, with 10 parties executing confidentiality agreements but no parties submitting an indication of interest. Carl Marks

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noted that the capital infusion from the bridge loan together with the 45-day (plus up to 15-day extension) go-shop period would give the special committee time to determine if there are any alternative transactions for the Company, which time would not otherwise be available in light of the Company's liquidity constraints and risk of covenant default under its senior loan agreement, and that the terms of the original merger agreement and the bridge financing would not be likely to preclude any such alternative transaction during the go-shop period.

        At the request of the special committee, Lake Street next reviewed its financial analysis of the $1.27 per share merger consideration and rendered to the special committee an oral opinion (which as subsequently confirmed by delivery of Lake Street's written opinion, dated April 2, 2018, to the special committee) to the effect that, as of such date and based on and subject to various procedures followed, assumptions made, qualifications and limitations on the review undertaken and the other matters considered by Lake Street in connection with the preparation of its opinion, the merger consideration to be received by holders of Company common stock (other than SCG, its affiliates and any rollover investors) in the merger pursuant to the original merger agreement was fair to such holders from a financial point of view. The representatives of Carl Marks and Lake Street were then excused from the meeting.

        DLA Piper confirmed that the special committee had received and reviewed in advance of the meeting the final version of the original merger agreement (including the disclosure schedules thereto), bridge loan agreement, subordination agreement, voting agreement, certificate of designation of preferred stock, escrow agreement, final financial presentation and form of fairness opinion delivered by Lake Street, and the special committee approval resolutions. DLA Piper reviewed the fiduciary duties of the special committee in connection with the sale of the Company. Representatives of DLA Piper then summarized the principal terms and conditions of the original merger agreement, as well as the related transaction agreements.

        The special committee then further discussed and considered the merger and related transactions, including the considerations described in more detail below under " —Reasons for the Merger; Recommendation of the Special Committee and of Our Board of Directors; Fairness of the Merger ," beginning on page 42. Mr. Trutter informed Mr. Hayzlett that Mr. Swimmer was unable to attend the meeting due to a personal matter but had informed Mr. Trutter on April 1, 2018 that, based on Mr. Swimmer's participation in all of the meetings and activities of the special committee through April 1, 2018, Mr. Swimmer was supportive of the merger and related transactions. Following discussion, the special committee, in a meeting attended by each member of the special committee except Mr. Swimmer who was unable to attend due to a personal matter, unanimously adopted resolutions (i) determining that the original merger agreement and the transactions contemplated thereby (other than any rollover by any rollover investor), including the merger and the transaction documents, are advisable, fair to and in the best interest of the Company and non-rolling stockholders, and (ii) recommending that the board of directors (1) declare that the original merger agreement and the transactions contemplated by the original merger agreement (excluding any rollover by any rollover investor), including the merger and the transaction documents, are advisable, fair to, and in the best interests of the Company and non-rolling stockholders, (2) approve the original merger agreement and the transactions contemplated by the original merger agreement (excluding any rollover by any rollover investor), including the merger and the transaction documents, and (3) subject to the foregoing board of directors approval, submit the approval of the adoption of the original merger agreement to the Company stockholders and recommend that the Company stockholders approve the adoption of the original merger agreement.

        Following the meeting of the special committee, on April 2, 2018, the board of directors held a telephonic meeting with representatives of Mayer Brown and DLA Piper. The representatives of Mayer Brown confirmed that the board of directors had received and reviewed in advance of the meeting the final version of the original merger agreement (including the disclosure schedules thereto), bridge loan

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agreement, subordination agreement, voting agreement, certificate of designation of preferred stock, escrow agreement, final financial presentation and form of fairness opinion delivered by Lake Street to the special committee, and the board of directors approval resolutions. The representatives of Mayer Brown and DLA Piper then summarized the principal terms and conditions of the original merger agreement, the bridge loan agreement, and the other related transaction agreements, and reviewed the fiduciary duties of the board of directors in connection with the sale of the Company. Mr. Trutter, as chair of the special committee, then reviewed the process undertaken by the special committee and the special committee's receipt of the oral opinion of Lake Street rendered to the special committee and the determinations and recommendations of the special committee (which determinations and recommendations were made with Mr. Swimmer unable to attend due to a personal matter, but were otherwise unanimous) with respect to the merger, the original merger agreement and the related transactions. The board of directors then further discussed and considered the merger and related transactions, including the considerations described in more detail below under " —Reasons for the Merger; Recommendation of the Special Committee and of Our Board of Directors; Fairness of the Merger ," beginning on page 42.

        Following discussion, the board of directors, in a meeting attended by each member of the board of directors except for Mr. Sachs who recused himself due to his interest in the transaction and Mr. Swimmer who was unable to attend due to a personal matter, after carefully considering the unanimous recommendation of the special committee (in a meeting attended by each member of the special committee except Mr. Swimmer), unanimously adopted resolutions (1) declaring that the original merger agreement and the transactions contemplated by the original merger agreement (other than any rollover by any rollover investor) were advisable, fair to, and in the best interests of the Company and the non-rolling stockholders, (2) approving the original merger agreement and the transactions contemplated by the original merger agreement, including the merger, (3) directing that the approval of the adoption of the original merger agreement be submitted to the Company stockholders and (4) recommending that Company stockholders vote in favor of adoption of the original merger agreement.

        Following the meeting of the board of directors, on April 2, 2018, the Company and SCG executed the original merger agreement and other definitive documentation, including the bridge loan agreement, the subordination agreement and the voting agreement and, on April 3, 2018, the Company issued a press release announcing its entry into the original merger agreement.

Subsequent Events

        Under the terms of the original merger agreement, and as further described under " The Merger Agreement—Go-Shop; Non-Solicitation; Competing Acquisition Proposals ," beginning on page 93, the Company was permitted to actively solicit and negotiate acquisition proposals from third parties during the go-shop period that began on April 2, 2018 and expired on June 1, 2018. We refer to this process of solicitation and negotiation of acquisition proposals during this period as the "go-shop process."

        Promptly after the announcement of the original merger agreement on April 3, 2018, at the direction and under the supervision of the special committee, Carl Marks began the go-shop process on behalf of the Company. During the go-shop period and prior to the Company's entrance into the original merger agreement, Carl Marks contacted a total of 137 potential acquirers, including 35 strategic parties and 102 financial parties that the special committee and Carl Marks believed might be interested in a possible alternative transaction. Of the 137 parties with which Carl Marks communicated, the 4 parties discussed below expressed interest in evaluating a possible transaction during the go-shop period and signed confidentiality agreements with the Company (10 parties had signed confidentiality agreements during the solicitation process undertaken by Carl Marks prior to the Company's entry into the original merger agreement and the commencement of the go-shop period).

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        On April 11, 2018, a financial party, Hale Capital Partners, Inc. (which we refer to as "Hale"), contacted by Carl Marks expressed interest in pursuing a possible alternative transaction with the Company and received a draft confidentiality agreement from Carl Marks. Hale subsequently had discussions with Carl Marks regarding the confidentiality agreement and limitations set forth therein.

        On April 12, 2018, a financial party (which we refer to as "Party B") contacted by Carl Marks expressed interest in entering into a confidentiality agreement with the Company for the purposes of investigating a potential alternative transaction and delivered a mark-up of the confidentiality agreement proposed by the Company to Carl Marks and DLA Piper.

        On April 20, 2018, the special committee held a telephonic meeting, at which representatives of Carl Marks and DLA Piper were present, to discuss the status of the go-shop process.

        After negotiations between DLA Piper and Party B, the confidentiality agreement was executed by the Company and Party B on April 23, 2018. Party B was then granted access to an electronic data room and subsequently conducted due diligence, including discussions with members of the Company's management, with respect to the Company. Although Party B continued its due diligence of the Company throughout the go-shop period, Party B did not submit an acquisition proposal during the go-shop period or thereafter.

        On April 25, 2018, the special committee held a telephonic meeting, at which representatives of Carl Marks and DLA Piper were present, to discuss the status of the go-shop process.

        On April 25, 2018, a financial party (which we refer to as "Party C") contacted by a member of the special committee expressed interest in investigating a potential alternative transaction with the Company and received a draft of the confidentiality agreement. On April 30, 2018, Party C executed the Company's confidentiality agreement without negotiation. Party C was subsequently granted access to the electronic data room. However, Party C did not actively pursue a due diligence investigation of the Company and did not submit an acquisition proposal during the go-shop period or thereafter.

        On May 2, 2018, the special committee held a telephonic meeting, at which representatives of Carl Marks and DLA Piper were present, to discuss the status of the go-shop process.

        After a period of negotiations between DLA Piper, Carl Marks and Hale, on May 3, 2018, Hale and the Company executed the confidentiality agreement and Hale subsequently received access to the electronic data room and began its due diligence review of the Company.

        On May 7, 2018, a financial party (which we refer to as "Party D") contacted by Carl Marks expressed interest in investigating a potential alternative transaction and received a draft of the confidentiality agreement. After subsequent negotiations between Party D and representatives of DLA Piper, the Company and Party D executed a confidentiality agreement on May 8, 2018. Party D received access to the electronic data room and began its due diligence review of the Company, although it never held discussions with management. On May 15, 2018, Party D informed Carl Marks that it was not interested in pursuing a possible alternative transaction.

        On May 9, 2018, the special committee held a telephonic meeting, at which representatives of Carl Marks and DLA Piper were present, to discuss the status of the go-shop process.

        On May 14, 2018, representatives of Carl Marks had discussions with representatives of Hale regarding the status of their due diligence review of the Company and expressed interest in submitting a letter of intent with respect to a possible alternative transaction. At that time, Hale requested a phone call with members of the special committee to discuss preliminary terms of a possible proposal.

        On May 15, 2018, the special committee held a telephonic meeting, at which representatives of Carl Marks and DLA Piper were present, to discuss the status of the go-shop process, the extension of the go-shop period to June 1, 2018 pursuant to the original merger agreement, and next steps with

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respect to the possible proposal from Hale. At this meeting, the special committee agreed that the go-shop period should be extended to June 1, 2018 pursuant to the original merger agreement and directed representatives of DLA Piper to deliver a notice to Mr. Gregory Sachs of such election, which was subsequently delivered on May 16, 2018. The special committee also agreed that Mr. Trutter, Mr. Swimmer and representatives of Carl Marks should arrange a telephone call with Hale to further discuss its possible proposal. Representatives of Carl Marks again spoke with representatives of Hale to arrange such a telephone call for the following day.

        On May 16, 2018, Mr. Trutter, Mr. Swimmer and representatives of Carl Marks held a telephone call with Hale to discuss its possible acquisition proposal. Additionally, representatives of Baker & McKenzie, outside counsel to Hale, held a telephone call with representatives of DLA Piper to discuss a possible acquisition proposal.

        On May 17, 2018, Carl Marks received, on behalf of the special committee, a non-binding indication of interest from Hale which contained a proposal for an alternative transaction. Under the proposed alternative transaction, Hale proposed that the Company, or a successor to the Company, would remain a public company and would undergo a significant recapitalization through a $7 million investment by Hale in exchange for the issuance to Hale of convertible preferred stock in the Company or a successor to the Company. The convertible preferred stock was proposed to have a conversion price of $1.34 per share. Representatives of Carl Marks provided the proposal to the special committee and representatives of DLA Piper for review and a telephonic meeting of the special committee was arranged for the following day to discuss the proposal.

        On May 18, 2018, the special committee held a telephonic meeting, at which representatives of Carl Marks and DLA Piper were present, to discuss the proposal received by Hale and to discuss the status of the go-shop process. Representatives of DLA Piper reviewed the terms of the original merger agreement relating to the special committee's consideration of an acquisition proposal for an alternative transaction.

        On May 22, 2018, the special committee held a telephonic meeting, at which representatives of Carl Marks and DLA Piper were present, to further discuss the proposal received by Hale. Representatives of DLA Piper discussed the proposal in the context of the provisions of the original merger agreement relating to the special committee's consideration of an acquisition proposal for an alternative transaction. Representatives of Carl Marks discussed their preliminary views of the terms of the proposal from an economic perspective, with a view to whether the proposal would reasonably be expected to result in a "superior proposal" within the meaning of the original merger agreement. After discussion at the meeting, the special committee directed representatives of DLA Piper to hold further discussions with Baker & McKenzie to better understand the proposal from a legal perspective and directed representatives of Carl Marks to hold further discussions with Hale with respect to the economic terms of their proposal and the possibility of improving such terms.

        On May 23, 2018, representatives of DLA Piper and Baker & McKenzie held a telephone call to discuss the legal structure and terms on which Hale was prepared to pursue a potential alternative acquisition proposal for the Company.

        Also on May 23, 2018, Carl Marks received, on behalf of the special committee, a revised non-binding indication of interest from Hale which contained a revised proposal for an alternative transaction. The structure of the revised proposal continued to be a recapitalization transaction in which the Company, or a successor of the Company, would remain a public company. However, the revised proposal included an increase in the conversion price of the convertible preferred stock to $1.45 per share.

        On May 24, 2018, the special committee, representatives of Hale, representatives of DLA Piper, representatives of Baker & McKenzie, and representatives of Carl Marks held a joint telephone call to

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discuss the revised proposal and its terms, as well as Hale's request for expense reimbursement in order to proceed to draft preliminary legal documentation with respect to the terms of the revised proposal, as well as to participate in on-site due diligence meetings with Company management the following week. Immediately following the discussion, the special committee held a telephonic meeting to discuss Hale's request for expense reimbursement. Following this discussion, the special committee directed Carl Marks to communicate a proposal to pay one-half of Hale's expenses up to a cap of $50,000 for the period beginning on May 24, 2018 and ending at the end of the go-shop period. Representatives of Carl Marks communicated this proposal to Hale, who asserted that they would be willing to agree to a cap on the expenses, but not to the splitting of expenses up to that amount, and that they would require expenses to be advanced, rather than reimbursed.

        On May 25, 2018, after further negotiations, Hale and the special committee entered into an agreement to provide Hale with reimbursement of its expenses up to a cap of $50,000.

        From May 29, 2018 to May 30, 2018, Hale participated in detailed on-site due diligence meetings with members of Company management (not including Mr. Gregory Sachs) at the Company's principal offices in Addison, Texas.

        On the evening of May 30, 2018, representatives of Baker & McKenzie provided preliminary drafts of transaction documents with respect to Hale's revised proposal to representatives of DLA Piper. Representatives of DLA Piper circulated the draft documents to representatives of Carl Marks and the special committee for review and arranged a telephonic meeting of the special committee to discuss the documents the following day.

        On May 31, 2018, representatives of DLA Piper received, on behalf of the special committee, a final non-binding indication of interest from representatives of Baker & McKenzie, on behalf of Hale (which we refer to as the "Proposal"). The Proposal was identical to the prior revised proposal, but included additional information with respect to the potential legal structures of the proposed recapitalization transaction.

        Also on the evening of May 31, 2018, the special committee held a telephonic meeting, at which representatives of Carl Marks and DLA Piper were present, to discuss the Proposal. Representatives of DLA Piper discussed the legal structure of the Proposal, including certain additional details provided by the draft transaction documentation received from Baker & McKenzie, as well as the alternatives with respect to the legal structure of the transaction. Representatives of DLA Piper further reviewed the terms of the original merger agreement relating to the special committee's consideration of an acquisition proposal and with respect to the designation of a person or group of persons as an "excluded party" under the original merger agreement. Representatives of Carl Marks discussed the economic terms of the Proposal, and gave an update on the go-shop process. After discussion, including consideration of the financing and likelihood of consummation of the potential transaction with Hale and the merger, the special committee determined, after consultation with Carl Marks and DLA Piper, that the Proposal would reasonably be expected to lead to a superior proposal, and therefore that Hale was an "excluded party" under the original merger agreement. The special committee directed representatives of Carl Marks to communicate this decision to Mr. Gregory Sachs, as well as to Hale.

        Immediately following the special committee meeting, representatives of Carl Marks had a telephone call with Hale to communicate the special committee's designation of it as an "excluded party" under the original merger agreement and on the morning of June 1, 2018, representatives of Carl Marks had a telephone call with Mr. Gregory Sachs to communicate to him the special committee's designation. On June 1, 2018, representatives of DLA Piper provided formal notice to Mr. Gregory Sachs, pursuant to the terms of the original merger agreement, of such designation.

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        On June 5, 2018, the special committee held a telephonic meeting at which representatives of DLA Piper and Carl Marks were present to discuss the legal documentation provided to DLA Piper by Baker & McKenzie. After discussion regarding the key issues with respect to the Proposal, including the terms of the transaction documentation, the special committee directed representatives of Carl Marks to discuss certain key business terms with Hale before proceeding any further with legal documentation. Following the meeting, representatives of Carl Marks had a discussion with Hale to convey the special committee's primary business concerns with the Proposal and the transaction documentation.

        Also on June 5, 2018, the special committee issued a press release in which it announced that it had received the Proposal and stated, among other things, that it (i) had designated the party which submitted the Proposal as an "excluded party" under the original merger agreement, (ii) intends to continue negotiations with that party, (iii) had not determined that the Proposal in fact constitutes a superior proposal under the original merger agreement and that the Proposal was not at that stage sufficiently detailed or definitive for such a determination to be appropriate, and (iv) had not changed its recommendation with respect to, and continues to support, the company's pending sale to Parent.

        Later on June 5, 2018, the special committee and representatives of DLA Piper received a letter from Parent informing the special committee that it disagreed with the special committee's designation of Hale as an "excluded party" under the original merger agreement as it did not believe that the Proposal would reasonably be expected to lead a superior proposal under the terms of the original merger agreement. Parent and the special committee disagreed about such designation.

        From June 5 to June 10, 2018, representatives of Carl Marks and Hale continued negotiations regarding the key business terms of the Proposal and proposed legal documentation.

        On June 7, 2018, representatives of DLA Piper held a telephone call with representatives of Baker & McKenzie to further negotiate the Proposal, including with respect to the legal structure of the proposed transaction and certain key business terms.

        Following those negotiations, on June 11, 2018, Mr. Trutter held a telephone call with representatives of DLA Piper and Carl Marks to direct DLA Piper to proceed to revise certain of the proposed transaction documents.

        On June 13, 2018, representatives of DLA Piper provided representatives of Baker & McKenzie with revisions to certain of the proposed transaction documents. That evening, representatives of Carl Marks held a telephone call with representatives of Hale to discuss their initial review of the revisions provided by DLA Piper.

        On June 14, 2018, Mr. Trutter and representatives of Hale, DLA Piper, Baker & McKenzie, and Carl Marks held a joint telephone call to discuss the revisions provided by DLA Piper and to negotiate certain key business and legal issues related thereto. Following the telephone call, Mr. Trutter and representatives of DLA Piper and Carl Marks had a subsequent telephone conversation to discuss the key issues raised by Hale and discuss a potential response.

        On June 15, 2018, Mr. Trutter and representatives of Carl Marks and Hale again held a call to discuss the special committee's response.

        On June 20, 2018, representatives of Carl Marks held a telephone call with representatives of Hale to discuss Hale's response to the special committee's key business concerns.

        On June 21, 2018, Mr. Trutter and representatives of Carl Marks again held a telephone call with representatives of Hale who provided to Mr. Trutter and representatives of Carl Marks a revised draft of certain terms with respect to the proposed legal documentation for discussion.

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        Later on June 21, 2018, the special committee and representatives of DLA Piper received a letter from Parent informing the special committee that it believed that the Company had failed to comply with the terms of the original merger agreement, specifically that the Company had failed to keep Parent informed on a reasonably current basis of the status of the Proposal as it believes is required under the original merger agreement. Parent and the special committee disagreed about what is required under the original merger agreement in this regard.

        On June 22, 2018, Mr. Trutter, representatives of Carl Marks and representatives of DLA Piper held a telephone call in order to discuss the revised terms received from Hale as well as the letter received from Parent. Following such discussion, Mr. Trutter directed representatives of DLA Piper to discuss with representatives of Baker & McKenzie the revised terms received from Hale.

        On June 23, 2018, representatives of DLA Piper held a telephone call with representatives of Foley Gardere for the purpose of discussing the status of Parent's activities relating to any potential rollover investors and financing.

        On the morning of June 24, 2018, the special committee held a telephonic meeting at which representatives of DLA Piper and Carl Marks were present to discuss the outcome of DLA Piper's call with representatives of Foley Gardere and the status of negotiations with Hale.

        Later on June 24, 2018, representatives of DLA Piper held a telephone call with representatives of Baker & McKenzie to discuss certain key business and legal issues with respect to the revised draft of certain terms of the proposed legal documentation received from Hale.

        On June 26, 2018, Mr. Trutter held a telephone call with representatives of Carl Marks and Hale to discuss the key business issues arising from DLA Piper's call with representatives of Baker & McKenzie.

        From June 27 to July 12, 2018, representatives of Carl Marks, Mr. Trutter and Hale held numerous discussions regarding the business terms of the Proposal and proposed legal documentation relating thereto. Additionally, on July 9, 2018, representatives of DLA Piper provided a proposed merger agreement (which we refer to as the "Hale merger agreement") to representatives of Baker & McKenzie, and representatives of Baker & McKenzie provided a revised draft of certain other legal documentation to DLA Piper.

        On July 10, 2018, the special committee and representatives of DLA Piper received a letter from Parent reiterating its position that the Company was failing to comply with the terms of the original merger agreement in not keeping Parent informed of the status of the Proposal as it believes is required under the original merger agreement. Parent and the special committee disagreed about what is required under the original merger agreement in this regard.

        On July 12, 2018, representatives of Baker & McKenzie provided a revised draft of the Hale merger agreement to DLA Piper.

        On July 13, 2018, Mr. Trutter and representatives of Hale, DLA Piper, Baker & McKenzie, and Carl Marks held a joint telephone call to discuss the revisions to the Hale merger agreement provided by Baker & McKenzie and to negotiate certain key business and legal issues related thereto.

        During the period from July 14 to July 18, 2018, the parties held numerous discussions to continue negotiations with respect to finalizing the legal documentation in respect of the Proposal.

        On July 16, 2018, the Company paid interest owed to SCG Digital Finance, LLC (which we refer to as "Lender") under the bridge loan agreement for interest due June 30, 2018. The Company inadvertently failed to pay the interest payment when it came due on June 30, 2018 and it paid the default interest premium on July 17, 2018. The bridge loan agreement permits Lender to exercise certain remedies in the event of such a default, including demanding immediate repayment of all

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outstanding principal and interest. Also, the interest rate under the bridge loan agreement automatically increases by 2.5% for the duration of the default. Additionally, the default under the bridge loan agreement caused a cross default under the Company's amended and restated loan and security agreement with the Company's senior lender, Silicon Valley Bank (as amended, the "SVB loan agreement"), which has caused the Company to not be in compliance with all covenants under the SVB loan agreement.

        On July 17, 2018, the special committee sent a letter to Parent inviting Parent to provide an update on the status of Parent's activities related to any potential rollover investors and financing at a special committee meeting to be held on July 19, 2018.

        On July 19, 2018, the special committee held a meeting at which representatives of DLA Piper and Carl Marks were present. During the meeting, representatives of Hale gave the special committee a presentation with respect to its ideas for certain restructuring actions that could be taken by the Company to improve its financial position. Additionally, the special committee heard an update from Company management with respect to the Company's financial position and cash forecast. Finally, the special committee next reviewed the qualifications and terms of engagement of the investment banking firm Cassel Salpeter & Co., LLC, (which we refer to as "Salpeter"), who the special committee had previously interviewed. The special committee determined to engage Salpeter to render a fairness opinion with respect to the merger consideration proposed to be received in the Hale transaction by the holders of the Company's outstanding shares of common stock. The special committee authorized Mr. Trutter to execute an engagement letter with Salpeter on the terms discussed at the meeting.

        Later on July 19, 2018, the special committee received a response letter from Parent which did not provide an update with respect to Parent's financing activities or rollover investors, but reiterated Parent's position with respect to the Company's alleged failure to comply with the original merger agreement. Parent and the special committee disagreed about what is required under the original merger agreement in this regard.

        During the period from July 20 to July 24, 2018, representatives of DLA Piper and Baker & McKenzie, as well as Carl Marks and Hale, continued discussions and negotiations towards finalizing the legal documentation with respect to the Proposal.

        On July 20, 2018, the special committee again received a letter from Parent which reiterated Parent's position with respect to the Company's alleged failure to comply with the original merger agreement. Parent and the special committee disagree about what is required under the original merger agreement in this regard.

        On July 23, 2018, the Company received a letter from Lender, notifying the Company that it is in default under the bridge loan agreement due to the Company's failure to timely pay cash interest pursuant to the terms of the bridge loan agreement. In the letter, Lender also states that the breaches alleged by Parent in its letters dated June 21, 2018, July 10, 2018 and July 20, 2018 constitute breaches of the bridge loan agreement. In addition, Lender states that it is not exercising any remedies at this time, but reserves its rights and remedies.

        On July 23, 2018, the special committee sent a letter to Parent reiterating the special committee's position with respect to the Company's compliance with the original merger agreement regarding keeping Parent informed of the status of the Proposal. Parent and the special committee disagreed about what is required under the original merger agreement in this regard.

        On July 24, 2018, Mr. Trutter and representatives of Hale, DLA Piper, Baker & McKenzie, and Carl Marks held a joint telephone call to negotiate certain remaining open business and legal issues.

        Later on July 24, 2018, the special committee again received a letter from Parent which reiterated Parent's position with respect to the Company's alleged failure to comply with the original merger

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agreement. Parent and the special committee disagreed about what is required under the original merger agreement in this regard.

        On July 25, 2018, representatives of DLA Piper received an email from representatives of Foley Gardere, requesting that DLA Piper coordinate a telephonic meeting of the special committee at which Mr. Sachs, Foley Gardere, Mayer Brown and DLA Piper would be present, and at which Mr. Sachs would make a presentation with respect to a proposal to revise the terms of the original merger agreement (which we refer to as "Parent's Proposal"). Representatives of DLA Piper subsequently spoke with representatives of Foley Gardere in order to better understand the nature of Parent's Proposal. Foley Gardere explained to DLA Piper that the Parent's Proposal involved an amendment to the original merger agreement to extend the drop dead date from August 30, 2018 to a later date and to give Parent the option to either consummate the transactions contemplated by the original merger agreement by the extended drop dead date or consummate a transaction with Mr. Sachs that mirrored the transaction proposed by Hale, except that certain financial conditions to closing from the Hale draft transaction documents would be removed. Later on July 25, 2018, representatives of DLA Piper had discussions with Mr. Trutter and Mr. Swimmer of the special committee in order to update them with respect to the outline of Parent's Proposal. The special committee thereafter instructed DLA Piper to request from Foley Gardere a writing detailing the terms of Parent's Proposal.

        From July 25, 2018 to July 29, 2018, representatives of DLA Piper held numerous discussions with representatives of Baker & McKenzie to negotiate certain final key business and legal issues related to the draft transaction documentation. Additionally, representatives of Carl Marks, the Company and the special committee had discussions with representatives of Hale with respect to certain terms of the Proposal and draft transaction documents.

        On July 27, 2018, representatives of DLA Piper held a discussion with representatives of Foley Gardere to obtain further details with respect to Parent's Proposal, which involved Mr. Sachs' willingness to establish an escrow to secure Parent's performance of the investment in preferred stock (mirroring the Hale transaction) if Parent were unable or unwilling to consummate the existing merger under the proposed extended timeline. The escrowed amount would be $7 million reduced by (a) all amounts that would have otherwise been payable to Parent and its affiliates upon termination of the existing merger agreement, including all principal and prepayment premiums on the bridge loan and (b) the termination fee of $500,000 plus reimbursement of expenses that would have been payable to Parent if the Company terminated the original merger agreement in order to enter into the Hale transaction so that the total amount escrowed would be equal to the net proceeds, after expenses, to the Company of the Hale transaction. After this call, DLA Piper provided an update to the special committee with respect to the further details offered.

        On the evening of July 29, 2018, the special committee held a telephonic meeting. Representatives of DLA Piper attended and first reviewed the fiduciary duties of the special committee in considering the Hale proposed transaction and then updated the special committee as to the status of the transaction documentation. DLA Piper then gave an overview of the proposed transaction documentation with respect to the Hale proposed transaction. Next, representatives of Salpeter, as well as representatives of Carl Marks, joined the call. At the request of the special committee, Salpeter reviewed its financial analysis of the proposed transaction with Hale and took questions from the special committee; however, given that the transaction documentation was not fully complete, Salpeter did not deliver its oral opinion at this meeting. Salpeter was then excused from the meeting.

        Representatives of Carl Marks then discussed its analysis of the value of the proposed transaction for the Company's stockholders as compared to the value to stockholders of the original merger agreement with Parent and took questions from the special committee before being excused from the meeting.

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        The special committee then further discussed and considered the proposed transaction with Hale and the related documentation. After such discussion, the special committee determined to (i) schedule a final special committee meeting to make a determination as to whether the Hale transaction would result in a transaction that is more favorable to Company stockholders (solely in their capacity as such) than the original merger agreement and the transactions contemplated by the original merger agreement and whether to recommend to the board of directors that it declare the proposed transaction with Hale as a superior proposal pursuant to the original merger agreement, (ii) request a meeting of the full board of directors for the evening of August 1, 2018 and (iii) direct DLA Piper and Carl Marks to finalize the transaction documentation with Hale as soon as possible prior to those meetings.

        On July 30, 2018, representatives of DLA Piper and representatives of Baker & McKenzie had numerous discussions to resolve the open items with respect to the proposed transaction documentation with Hale. Additionally, on the evening of July 30, 2018, representatives of DLA Piper and representatives of Foley Gardere had a further conversation regarding the status of the special committee's consideration of Parent's Proposal, which the special committee did not believe were definite or certain enough to warrant delay in finalizing the terms of Hale's proposed transaction, which were nearly fully agreed. Foley Gardere disagreed with such position, and informed DLA Piper that the terms of Parent's Proposal were substantially definite and would be effected through minimal amendments to the original merger agreement.

        Later on the evening of July 30, 2018, at the request of the special committee and in advance of the board meeting scheduled for August 1, 2018, representatives of DLA Piper provided to the full board of directors of the Company drafts of a (i) Hale merger agreement, (ii) commitment amount agreement, (iii) certificate of designations for convertible preferred stock, (iv) fee reimbursement letter, (iv) registration rights agreement, (v) form of voting agreement, and (vi) consulting agreement (which, together with the transactions contemplated by these documents, we refer to as the "Hale transaction"). Additionally, DLA Piper provided the draft presentation of Salpeter and analysis from Carl Marks, as well as a form of consent to the Hale transaction to be signed by Silicon Valley Bank, the Company's senior lender.

        On July 31, 2018, Mr. Trutter, Hale, representatives of DLA Piper, and representatives of Baker & McKenzie, held a series of joint telephone calls to discuss the final open issues on the Hale merger agreement, which were verbally agreed to during those calls and documentation was finalized later that day. At the request of the special committee, representatives of DLA Piper subsequently distributed the final versions (as well as marked copies showing revisions from drafts previously distributed) of certain Hale transaction documents, as well as an up to date presentation from Salpeter and analysis from Carl Marks, which were in each case updated to reflect minor updates from the prior versions and did not reflect any substantive difference in their respective analyses.

        Later on July 31, 2018, the special committee and the full board of directors received a letter from Parent documenting in writing Parent's Proposal. In the letter, Parent stated that the special committee has expressed concern that Parent would not actually close on the merger and would instead fund the $1 million penalty loan (the remedy under the original merger agreement in the event that all conditions to Parent's obligations to close have been satisfied but Parent does not close the merger), and that this right of Parent created significant uncertainty for Company stockholders. The letter further stated that Parent proposed to replace the $1 million penalty loan with a purchase by Parent of preferred stock on the same terms as those proposed by Hale. Parent stated that it would fund into escrow an amount of net cash equal to the funds that would remain with the Company if the purchase of preferred stock were effected by Hale under the terms of Hale's proposal. Parent reiterated its position that the merger is a superior transaction to the Hale transaction because the merger delivers to the stockholders $1.27 in cash for each outstanding share at closing instead of no cash and massive dilution in a minority financing. Parent emphasized that, in addition, it had now offered, as a backstop

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if the merger did not close, a purchase of preferred stock by Parent on the same terms as the Hale transaction. Parent further stated that the financial conditions to which the Hale transaction is subject (such as net working capital and debt levels at closing) would not apply to Parent's purchase of preferred stock on the same terms. Parent also noted its view that the merger under the original merger agreement will close sooner and with greater certainty than the Hale transaction, and noted that the Hale transaction included an agreement that the Company pay Hale's deal expenses if the Company does not terminate the original merger agreement and proceed with the Hale transaction.

        In the afternoon of August 1, 2018, the special committee and the full board of directors of the Company received from Mr. Sachs an equity commitment letter from a third party financing source (which we refer to as the "commitment letter") in the amount of $10 million with rights, preferences and terms to be acceptable to the third party in its sole discretion in respect of financing for the original merger agreement. The commitment letter was subject to significant contingencies, including satisfactory completion of due diligence, negotiation and completion of transaction documentation in respect of the terms of the financing and required that the Company have sufficient working capital, capitalization and acceptable levels of indebtedness, in each case in the third party's sole discretion.

        Later in the afternoon of August 1, 2018, Mr. Sachs publicly filed Parent's July 31, 2018 letter on an amendment to the Schedule 13D of The Gregory H. Sachs Revocable Trust UDT Dtd. 4/24/98.

        On the evening of August 1, 2018, the special committee held a telephonic meeting at which representatives of DLA Piper, Salpeter and Carl Marks were present. First, representatives of Salpeter reviewed their updated presentation which had been updated to reflect two additional days of trading information for the Company common stock. Salpeter confirmed that nothing had changed with respect to their analysis or assessment of the fairness of the transaction. Salpeter then delivered its oral opinion, as of August 1, 2018, to the effect that, as of such date and based on and subject to various procedures followed, assumptions made, qualifications and limitations on the review undertaken and the other matters considered by Salpeter in connection with the preparation of its opinion, the merger consideration to be received by the holders of the Company common stock in the proposed merger with Hale pursuant to the Hale merger agreement was fair to such holders from a financial point of view. The representatives of Salpeter were then excused from the meeting.

        Representatives of Carl Marks then discussed its updated analysis of the value of the proposed Hale transaction for the Company's stockholders as compared to the value to stockholders of the original merger agreement with Parent which had been updated to reflect the final agreements as to certain transaction expense estimates, which they stated did not materially change the value of the transaction for stockholders. After some discussion, the representatives of Carl Marks were then excused from the meeting.

        Representatives of DLA Piper then reminded the special committee of their fiduciary duties in connection with its consideration of the proposed Hale transaction and reviewed with the special committee the special committee proposed resolutions.

        The special committee then further discussed and considered the proposed Hale transaction taking into account, among other things, the legal, financial, regulatory, financing, and other aspects of the proposed Hale transaction and Hale itself, including the form of consideration, financing terms (and certainty of financing) thereof, and the likelihood and timing of consummation, and determined that the proposed Hale transaction would result in a transaction that is more favorable to the Company's stockholders (solely in their capacity as such) than the original merger agreement and the transactions contemplated thereby. The special committee also took into account the expected timing and risk and likelihood of consummation of the proposed Hale transaction and considered Parent's Proposal and the commitment letter delivered by Parent to the board of directors on August 1, 2018.

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        Following such discussion, the special committee unanimously adopted resolutions to, among other things, recommend that the board of directors (i) declare the Hale transaction, including the Hale merger agreement and related transaction documents to be a "superior proposal" as defined in the original merger agreement, subject to the receipt of Hale's executed signature pages, (ii) determine in good faith that the failure to make such a superior proposal determination would be inconsistent with the fiduciary duties of the board of directors under applicable law, (iii) cause the Company to notify Parent of such determination and of its intent to terminate the original merger agreement pursuant to Section 8.01(h) of the original merger agreement, (iv) cause the Company to make a public announcement via press release and Schedule 14A soliciting materials filed with the SEC that the board of directors has determination that the transaction with Hale is a superior proposal, and (v) cause the Company to negotiate, and cause its representatives to negotiate, in good faith with Parent, to the extent requested by Parent, to make such adjustments to the terms and conditions of the original merger agreement as would enable the board of directors (acting upon the recommendation of the special committee) to maintain the board of directors' recommendation in favor of the original merger agreement and not terminate the original merger agreement.

        Following the meeting of the special committee, on August 1, 2018, the board of directors held a telephonic meeting at which representatives of Mayer Brown and DLA Piper and each member of the board of directors were present. The chairman of the special committee began the meeting by summarizing the composition of the special committee and its purpose of evaluating the potential alternatives available to the Company and determining if it was in the best interest of Company stockholders for the Company to enter into the Hale transaction instead of the pending transaction with Parent. A representative of DLA Piper then summarized the process undertaken by the special committee, the principal terms and conditions of the legal documentation negotiated by the special committee and Hale and the special committee's receipt of a presentation and oral opinion from Salpeter and the determinations and recommendations of the special committee with respect to the Hale transaction. The representative of DLA Piper then stated the special committee's recommendation that the board of directors, among other things, determine the Hale transaction to be a superior proposal under the original merger agreement,

        The board of directors then discussed and considered the Hale transaction with representatives of Mayer Brown and DLA Piper, including considering the oral fairness opinion provided by Salpeter, the transaction structure of each of the original merger agreement and the Hale transaction, the risks to closing of each proposed transaction, the amount of the consideration to be received by the Company's stockholders under each transaction, the Company's projections and liquidity, and the expected time to close each transaction.

        The board of directors and representatives of DLA Piper also discussed Hale's plans for operating the Company following the closing; the changes and improvements to Hale's original proposal; the covenants contained in the Hale transaction; the conditions to Hale's obligation to close the Hale transaction; the seats on the board of directors of the company that would be the successor to the Company in the merger transaction with Hale ("New RMG") which would be controlled by Hale, and the powers that Hale would be able to exercise over New RMG in connection therewith; the preferred stock that would be issued in New RMG to Hale under the Hale transaction; the expense of the Company being a public company in light of the Company's revenues; and the transition that the Company is currently undergoing from a software and hardware company to a software-as-a-service company. The participants in the meeting also discussed the terms of Parent's Proposal to replace the penalty loan under the original merger agreement with an investment on terms mirroring the Hale transaction in the event that the original merger agreement did not close, and that the special committee had determined that the Hale transaction was superior to the original merger agreement after taking into consideration Parent's Proposal.

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        In addition, Mr. Sachs read a statement that included his views regarding, among other things: his right to attend and participate in the board meeting as a director, chairman of the board and the Company's second largest stockholder despite the request of representatives of the special committee that Mr. Sachs not attend the meeting; why the Hale transaction is a bad deal for Company stockholders; that the special committee's consideration and potential for approval of the Hale transaction represents a material breach of the original merger agreement and that the Hale transaction fails to meet the definition of a superior proposal under the terms of the original merger agreement; that the special committee failed to keep Parent informed of the Company's discussions with Hale as is required by the original merger agreement and misled Parent by stating that its concerns about the original merger agreement related to "certainty of closing"; that Parent recently proposed to effect the same deal as Hale should Parent not close the merger; that Parent expects the Company to fully comply with its obligations under the original merger agreement; that Parent will pursue its remedies for Parent's alleged materials breaches of the original merger agreement if the Company proceeds with the Hale transaction; and that Mr. Sachs intends to cause his affiliates to vote against the Hale transaction in their capacity as stockholders.

        Following these discussions, the board of directors voted on whether to (i) declare the Hale transaction to be a superior proposal under the original merger agreement, subject to the receipt of Hale's executed signature pages, (ii) determine in good faith that the failure to make such a superior proposal determination would be inconsistent with the fiduciary duties of the board of directors under applicable law, (iii) cause the Company to notify Parent of such determination and of its intent to terminate the original merger agreement pursuant to Section 8.01(h) thereof, as required by the original merger agreement, (iv) cause the Company to make a public announcement via press release and Schedule 14A soliciting materials filed with the SEC with respect to the determination that the Hale transaction is a superior proposal, and (v) negotiate, and cause its representatives to negotiate, in good faith with Parent, to the extent requested by Parent, to make such adjustments to the terms and conditions of the original merger agreement as would enable the board of directors (acting upon the recommendation of the special committee) to maintain the "board recommendation" in favor of the original merger agreement and not terminate the original merger agreement. Each member of the special committee, Mr. Trutter, Mr. Hayzlett, and Mr. Swimmer, voted in favor of items (i) - (v), Mr. Michelson and Mr. Weber voted against items (i) - (v), and Mr. Sachs abstained from voting. The Company's bylaws provide that, with certain exceptions not applicable to this matter, approval of a matter requires the affirmative vote of a majority of the directors present at any meeting of the board of directors at which there is a quorum. As a result, the matter did not pass.

        On the evening of August 2, 2018, representatives of DLA Piper delivered to the Company resignation letters of each of the members of the special committee from the board of directors of the Company, effective August 2, 2018.

        Beginning August 3, 2018, Mr. Weber and Company management began to receive communications from representatives of Hale regarding the Hale transaction.

        On August 6, 2018, the Company issued a press release disclosing the outcome of the August 1 meetings of the special committee and the board of directors and the resignations of the members of the special committee.

        Also on August 6, 2018, Mr. Weber responded to the representatives of Hale that the board of directors did not find the proposed Hale transaction to be a superior proposal under the original merger agreement and that, due to this and other factors, including the Company's contractual commitments to Parent, the Company would not continue further discussions with Hale.

        On August 7, 2018, representatives of Hale informed Mr. Weber that they were prepared to include a cash out option for Company stockholders as part of their offer and Mr. Weber requested that they submit a written proposal.

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        On August 9, 2018, the Company received a written non-binding proposal from Hale which summarized certain terms of a proposed revised transaction which included a potential right for Company stockholders to have the option to remain stockholders of New RMG or to receive $1.27 in cash for each share of the Company's common stock. The non-binding proposal was subject to additional discussions upon which agreement must be reached for Hale to consummate the proposed revised transaction.

        On August 9, 2018, the Company received notice from Nasdaq that the Company no longer complies with Nasdaq Listing Rules 5605(b)(1), 5605(c)(2) and 5605(d)(2) due to the resignations from the board of directors of the Company, effective August 2, 2018, of the members of the special committee which resulted in the Company having only one independent director and no members remaining on its audit and compensation committees. Nasdaq advised the Company that, although the Company would normally have 45 calendar days to submit a plan to regain compliance, Nasdaq has determined to apply more stringent criteria based upon its review of the Company's recent disclosures, particularly surrounding the simultaneous resignations of three of its independent directors. Nasdaq has provided the Company until August 23, 2018 to submit a plan and, if the Company's plan is accepted, Nasdaq may grant an extension of time to evidence compliance of up to 180 calendar days from the date of the notice letter.

        On August 9, 2018, Mr. Weber and Mr. Michelson received a revised proposal from Parent to amend the original merger agreement to, among other things, increase the merger consideration to $1.29 per share in cash and extend the drop dead date of August 30, 2018.

        Later on August 9, 2018, the board of directors held a regularly scheduled board of directors meeting. As part of the meeting, Mr. Michelson and Mr. Weber met with representatives from Mayer Brown and without Mr. Sachs being present. The members of the board of directors present at the meeting discussed and considered the revised written proposal received from Hale and the revised proposal received from Parent, taking into account the following material factors:

•

the timing and risk of execution that would be associated with each of the revised proposals from Hale and Parent, noting that the process with Hale, if successful, would likely take at least 100 days longer than the process that would be required to complete the revised proposal from Parent;



•

the Company's projections and liquidity position;



•

the additional merger consideration offered to the Company's stockholders by Parent in its revised proposal;



•

the expected time required to negotiate and execute a binding merger agreement with Hale, and Parent's right to match an alternative proposal; and



•

Parent's conversion right in the event that the transaction with Parent is not terminated or consummated prior to August 30, 2018 (unless otherwise extended).

        At the meeting, Mr. Weber and Mr. Michelson also discussed the Company's response to Parent's revised proposal.

        After the board meeting concluded on August 9, 2018, Mr. Michelson discussed the revised proposal received from Parent with Mr. Sachs, including the potential for further amendments to the original merger agreement and the bridge loan agreement, and Mr. Michelson and Mr. Sachs negotiated additional business and legal issues related to those potential amendments.

        On August 10, 2018, the board of directors held a telephonic meeting with representatives of Mayer Brown at which Mr. Michelson and Mr. Weber were present and Mr. Sachs recused himself and did not attend. Mr. Michelson summarized his discussions and negotiations with Mr. Sachs concerning

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the terms of Parent's revised proposal. The board of directors then discussed and considered Parent's revised proposal, which included the following amendments to the original merger agreement and the bridge loan agreement:

•

Parent's offer to the increase of the merger consideration from $1.27 to $1.29 per share;



•

Parent's agreement to amend the drop dead date in the existing merger agreement from August 30, 2018 to September 14, 2018, with an extension to September 28, 2018 at the option of either party;



•

Parent's agreement to increase the penalty loan under the bridge loan agreement from $1 million to $1.5 million;



•

Parent's agreement to waive all actual and alleged breaches by the Company to the existing merger agreement and bridge loan agreement;



•

Parent's request that the Company confirm that, as a result of the revised proposal, Hale would no longer be an excluded party under the merger agreement and would be so notified and accordingly that discussions with Hale would cease; and



•

Parent's reservation of its conversion rights under the bridge loan agreement in the event that the Company accepts a superior proposal from a third party after the original drop dead date of August 30, 2018.

        Following these discussions, each member of the board of directors present at the meeting voted in favor of amending the original merger agreement and the bridge loan agreement and instructed the representatives of Mayer Brown to negotiate the amendments and related legal documentation with Foley Gardere.

        Between August 10, 2018 and August 15, 2018, representatives of Mayer Brown held numerous discussions with representatives of Foley Gardere with respect to the amendment to the original merger agreement (which we refer to as the "First Amendment," and the First Amendment together with the original merger agreement we refer to as the "merger agreement") and the amendment to the bridge loan agreement. The final terms of the First Amendment include the following:

•

an increase of the merger consideration from $1.27 to $1.29 per share;



•

an extension to the drop dead date in the original merger agreement from August 30, 2018 to September 14, 2018, with an extension to September 28, 2018 at the option of either Parent or the Company;



•

an increase in the penalty loan under the bridge loan agreement from $1 million to $1.5 million, with the additional amount to be escrowed within 2 business days of the buyer close period (as defined in the merger agreement);



•

a waiver by Parent of all actual and alleged breaches by the Company to the original merger agreement, which waiver is null and void if the Company breaches certain provisions of the First Amendment;



•

a change to the definition of an "acquisition proposal" under the original merger agreement; and



•

that the Company shall immediately cease all discussions with Hale and its representatives with respect to an alternative transaction, notify Hale that it is no longer an excluded party under the merger agreement, enforce the required standstill provision set forth in the confidentiality agreement entered into between Hale and the Company, and inform Parent of any breach of the required standstill provision.

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In addition, the amendment to the bridge loan agreement includes the following terms:

•

an increase in the penalty loan under the bridge loan agreement from $1 million to $1.5 million, with the additional amount to be escrowed within 2 business days of the buyer close period (as defined in the merger agreement);



•

a waiver by Lender of all actual and alleged breaches by the Company to the bridge loan agreement, which waiver is null and void if the Company breaches certain provisions of the First Amendment; and



•

amend the definition of "conversion trigger date", which is the date on which Lender has the right to convert principal and accrued interest outstanding under the bridge loan into shares of Series A Preferred Stock of the Company, to (a) extend the outside date until the next calendar following the new "drop dead date" under the merger agreement, (b) reserve Lender's conversion rights in the event the merger agreement is terminated on or after August 31, 2018 due (i) to an action by the Company board of directors or any committee thereof to withdraw its approval of the merger or (ii) the Company accepting a superior proposal from a third party and (c) include a new triggering event upon the breach by the Company of the non-solicitation provisions of the merger agreement.

        On August 16, 2018, the board of directors held a telephonic meeting with representatives of Mayer Brown. Mr. Michelson summarized the final negotiated terms of the First Amendment and the amendment to the bridge loan agreement. Following discussion, the board of directors in a meeting attended by each member of the board of directors except for Mr. Sachs who recused himself due to his interest in the transaction, unanimously adopted resolutions (1) declaring that the merger agreement, as amended by the First Amendment, and the transactions contemplated by the merger agreement, as amended by the First Amendment (other than any rollover by any rollover investor), were advisable, fair to, and in the best interests of the Company and the non-rolling stockholders, (2) approving the merger agreement, as amended by the First Amendment, and the transactions contemplated by the merger agreement, as amended by the First Amendment, including the merger, (3) directing that the approval of the adoption of the merger agreement, as amended by the First Amendment, be submitted to the Company stockholders and (4) recommending that Company stockholders vote in favor of adoption of the merger agreement, as amended by the First Amendment.

        On August 18, 2018, the Company and SCG executed the First Amendment and the amendment to the bridge loan agreement.

        On August 20, 2018, the Company notified Hale that it was no longer an excluded party under the merger agreement.

Reasons for the Merger; Recommendation of the Special Committee and of Our Board of Directors; Fairness of the Merger

The Special Committee

        The special committee consisted of three independent, outside directors, which constituted a majority of directors of the Company who are not Company employees. The special committee, in evaluating and negotiating the merger, including the terms and conditions of the original merger agreement, consulted with the special committee's independent legal and financial advisors and the Company's outside legal advisors.

        The special committee determined that the original merger agreement and the transactions contemplated by the original merger agreement (other than any rollover by any rollover investor), including the merger and the transaction documents, are advisable, fair to, and in the best interest of the Company and non-rolling stockholders. The special committee also determined that the merger is

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fair to the Company's "unaffiliated security holders," as defined under Rule 13e-3 of the Exchange Act. The special committee, in a meeting attended by each member of the special committee except Alan Swimmer who was unable to attend due to a personal matter, recommended to the board of directors that it:

•

declare that the original merger agreement and the transactions contemplated by the original merger agreement (excluding any rollover by any rollover investor), including the merger and the transaction documents, are advisable, fair to, and in the best interests of the Company and non-rolling stockholders;



•

approve the original merger agreement and the transactions contemplated by the original merger agreement (excluding any rollover by any rollover investors), including the merger and the transaction documents; and



•

subject to the foregoing board of directors approval, submit the approval of the adoption of the original merger agreement to the Company stockholders and recommend that the Company stockholders approve the adoption of the original merger agreement.

        In the course of reaching its determination and making its recommendations, the special committee considered the following non-exhaustive list of material factors, which are not presented in any relative order of importance and each of which the special committee viewed as being generally supportive of its determinations and recommendations to the board of directors:

•

the current and historical market prices of the Company common stock, including those set forth in the table under " Important Information Regarding the Company—Market Price and Dividend Data ," beginning on page 112, taking into account the market performance of the Company's common stock relative to the common stock of other participants in the industry in which the Company operates and general market indices, the fact that the trading price of the Company's common stock had declined since the initial public offering of the Company, and the fact that the Company has had difficulty maintaining compliance with the Nasdaq Capital Market's continuing listing standards and therefore the Company's common stock is subject to the risk of being removed from the Nasdaq Capital Market, which could adversely affect the Company's ability to attract new investors, decrease the liquidity of outstanding shares of the Company's common stock, reduce the Company's flexibility to raise additional capital, reduce the price at which the Company's common stock trades, and increase the transaction costs inherent in trading such shares with overall negative effects for the Company stockholders;



•

the Company's near-term liquidity constraints and the risk that the Company would not be able to continue as a long-term going concern absent a capital raise or other significant liquidity event, as well as other information with respect to the Company's business, operations, financial condition, earnings and prospects, the Company's long-range plans, and the risk in achieving those prospects and plans, as well as industry, economic and market conditions and trends, the impact on the Company of general, macro-economic developments and other risks and uncertainties discussed in the Company's public filings with the SEC;



•

the merger consideration under the original merger agreement of $1.27 per share in cash represents a premium of (i) approximately 17% over the closing price of the Company common stock as quoted on the Nasdaq Capital Market of $1.09 per share on January 19, 2018 (the last trading day prior to the submission by SCG of its initial proposal) and (ii) approximately 6%, 18%, 18% and 2% over the value weighted average price of the Company common stock as quoted on the Nasdaq Capital Market for the 30, 60, 90, and 180 day period, respectively, ending on April 2, 2018 (the last trading day prior to public announcement of the merger);



•

the fact that the financial and other terms and conditions of the original merger agreement and the relevant transactions contemplated thereby, including the merger, resulted from extensive

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negotiations conducted by or on behalf of the special committee, which consisted of three independent, outside directors and which retained its own independent legal and financial advisors;

•

the fact that the special committee's financial advisor, Carl Marks, had solicited interest from 42 potential strategic or financial parties without such solicitation resulting in any significant interest by such parties in a transaction with the Company;



•

the fact that the special committee was not aware of any firm offer by any other person during the prior two years for a merger or consolidation of the Company with another company, the sale or transfer of all or substantially all of the Company's assets or a purchase of the Company's securities that would enable such person to exercise control of the Company;



•

SCG's representation to the special committee that the $1.27 per share merger consideration under the original merger agreement was its best offer, and the conclusion reached by the special committee that (i) the merger consideration was likely the highest price per share that SCG was willing to pay, (ii) given the Company's near-term liquidity constraints, further negotiations would run the risk of causing SCG to abandon the transaction altogether, in which event the non-rolling stockholders would lose the opportunity to receive the $1.27 per share and, in the event of a bankruptcy, would risk receiving no value for their shares of common stock, and (iii) the combination of SCG's agreement to pay the merger consideration and to the "go-shop" process (as more fully described under " The Merger Agreement—Go-Shop; Non-Solicitation; Competing Acquisition Proposals ," beginning on page 93) would likely result in a sale of the Company at the highest price per share of common stock that was reasonably attainable;



•

the fact that SCG and its affiliates, which controlled, directly or indirectly, approximately 18% of the voting power of the Company's outstanding capital stock as of the date of the original merger agreement, agreed to vote in favor of the merger (as more fully described under " The Voting Agreement ," beginning on page 104);



•

the special committee's consideration of the risk and potential likelihood of achieving greater value for the non-rolling stockholders relative to the benefits of the merger by pursuing strategic alternatives to the merger, including continuing as an independent public company and pursuing the Company's strategic plan and/or acquisition of certain businesses, including risks related to the Company's ability to continue as a long-term going concern absent a capital raise or other significant liquidity event;



•

the special committee's consideration that the timing of the merger is in the best interests of the non-rolling stockholders given the substantial risk that the present value achievable for non-rolling stockholders in an alternative transaction effected at a later date or on a standalone basis would, in the special committee's view, likely not exceed the merger consideration;



•

the fact that the non-rolling stockholders will receive cash for their shares and will therefore have immediate liquidity and certainty in the value for their shares of $1.27 per share of the Company's common stock;



•

the fact that the Company's management did not negotiate or enter into any contracts (including as to post-closing employment) with SCG or any of its affiliates in connection with the execution of the original merger agreement or during the course of the Company's negotiations with SCG;



•

the opinion of Lake Street rendered to the special committee on April 2, 2018 as to the fairness, from a financial point of view and as of such date, of the merger consideration to be received by the non-rolling stockholders in the merger pursuant to the original merger agreement, which opinion was based on and subject to the various procedures followed, assumptions made,

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qualifications and limitations on the review undertaken and the other matters considered by Lake Street in connection with the preparation of its opinion as more fully described below under the section titled " —Opinion of Lake Street Capital Markets, LLC ," beginning on page 56. The special committee expressly adopted Lake Street's analysis and discussion, among other factors, in reaching its determination of the fairness of the merger;

•

the fact that, although the merger consideration is at the low end of the implied ranges calculated by Lake Street in its SOTP and precedent transaction analyses, Lake Street believes that acquirers and investors would value the Company at the low end of those implied ranges and at a significant discount to the median because, in Lake Street's professional opinion, the companies in the analyses were generally larger, growing and profitable but, by contrast, the Company has seen declining revenue in each of the last two years, has lost money in each of the last five years and is not projected to have positive EBITDA until 2021, there is significant risk in executing its proposed business plan and the Company requires at least an additional $6 million in new debt or equity capital over the forecast period in order to achieve the unaudited financial forecasts;



•

the belief of the special committee that the Company's termination fee is reasonable in light of, among other matters, the benefit of the merger to the Company stockholders, and the size of such termination fee in similar transactions and the enterprise value of the Company;



•

the fact that the $2 million received by the Company under the bridge financing upon execution of the original merger agreement would provide the Company with funds to continue to operate as a going concern for a period of time while the Company proceeds towards closing of the merger and the special committee solicits offers for alternative acquisition proposals;



•

the terms of the original merger agreement, including:



•

the condition to the closing of the merger that the merger agreement must be adopted by the Company stockholders, including the "disinterested stockholder approval" by holders of a majority of the outstanding shares of common stock held by stockholders other than (i) Parent or Merger Sub or any of their respective affiliates, including Gregory H. Sachs, the Company's executive chairman, (ii) any rollover investors and (iii) any of the Company's executive officers, which allows for an informed vote on the merits of the merger by Company stockholders that did not participate in evaluating and negotiating the merger, although the Company and Parent may mutually agree to waive the disinterested stockholder approval. Neither the Company nor Parent has any current intention to waive the disinterested stockholder approval. Any mutual agreement to do so would be made in advance of the special meeting and would be disclosed to the Company stockholders prior to the special meeting;



•

the Company's right to solicit offers with respect to alternative acquisition proposals, including by way of providing non-public information pursuant to a confidentiality agreement, during a go-shop period of up to 60 days and to continue discussions with certain excluded parties that make acquisition proposals during the go-shop period;



•

the Company's right, from the end of the go-shop period and prior to the time the Company stockholders vote on the merger proposal as described in this proxy statement, subject to certain conditions and requirements, to consider and respond to unsolicited acquisition proposals or engage in discussions or negotiations with third parties making such acquisition proposals and to terminate the merger agreement to accept a "superior proposal," and only pay SCG a termination fee of $500,000 plus reimbursement of SCG's legal fees and expenses (as more fully described under " The Merger Agreement—Termination Fees, Penalty Loan ," beginning on page 102); and

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•

the limited representations and warranties given by the Company.

        In reaching its fairness determination with respect to the Company's unaffiliated security holders, the special committee was aware that Lake Street's opinion addressed fairness with respect to non-rolling stockholders which is defined to include Company stockholders other than certain affiliates of Gregory H. Sachs and any rollover investors. The special committee understood that, as such, the fairness opinion addressed fairness with respect to both (1) all of the Company's unaffiliated security holders and (2) certain affiliates of the Company, and that, to be fair to both of these groups, the transaction must be fair to each group individually. Furthermore, each non-rolling stockholder (including unaffiliated security holders and affiliates) will receive the same dollar amount per share for their equity securities. In addition, none of the Company's officers are expected to enter into new employment agreements with the Company and none of the Company's officers or directors who are also Company stockholders will receive any consideration in addition to the per-share merger consideration in connection with the merger. Accordingly, the special committee was able to reach its fairness determination as to unaffiliated security holders, which was adopted by the board of directors, notwithstanding that the Lake Street opinion addressed fairness with respect to the broader group of non-rolling stockholders.

        The special committee also considered a number of factors discussed below relating to the procedural safeguards that it believed were present to ensure the fairness of the merger and to permit the special committee to represent effectively the interests of the non-rolling stockholders. In light of such procedural safeguards, the special committee did not consider it necessary to retain an unaffiliated representative to act solely on behalf of the Company's unaffiliated security holders for purposes of negotiating the terms of the merger agreement or preparing a report concerning the fairness of the merger agreement and the merger. The special committee believed these factors support its determinations and recommendations and provide assurance of the procedural fairness of the merger to the non-rolling stockholders:

•

the special committee consisted of three independent, outside directors without any member of the special committee (i) being an employee of the Company or any of its subsidiaries, (ii) being affiliated with SCG or its affiliates, or (iii) having any financial interest in the merger that is different from that of the non-rolling stockholders, other than as discussed in the section titled " —Interests of the Company's Directors and Officers in the Merger ," beginning on page 67;



•

the authority granted to the special committee by the board of directors to negotiate the terms of the definitive agreement with respect to the merger, or to determine not to pursue any agreement with SCG, and to analyze, investigate and negotiate any alternative transaction to the merger;



•

the fact that the special committee held numerous meetings and met regularly to discuss and evaluate the proposals from SCG and that the special committee was actively involved in guiding the negotiation process on a regular basis;



•

the special committee retained and received the advice of its own independent legal and financial advisors and that these legal and financial advisors were involved throughout the process and advised the special committee directly and regularly;



•

the original merger agreement and the merger consideration were the product of extensive negotiations between the special committee and its advisors, on the one hand, and SCG and its affiliates and advisors, on the other hand, which resulted in material improvements, from the point of view of the Company, of the terms of the agreement, including an increase in the amount of merger consideration and the agreement of SCG and its affiliates to enter into a voting agreement with the Company (as more fully described under " The Voting Agreement ," beginning on page 104);

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•

the various terms of the original merger agreement, including that the merger agreement contains "go-shop" provisions and the ability of the Company to terminate the merger agreement under certain circumstances to accept a "superior proposal" (each as more fully described under " The Merger Agreement ," beginning on page 86), that are intended to help ensure that the Company stockholders receive the highest price per share reasonably available;



•

the rights of non-rolling stockholders to elect to dissent from the merger, vote their shares against the merger and exercise their rights to demand an appraisal of their shares by the Delaware Court of Chancery and receive cash payment of the fair value of their shares of the Company's common stock as determined by such court and in accordance with Section 262 of the Delaware General Corporation Law (which we refer to as the "DGCL") (as more fully described under " Appraisal Rights ," beginning on page 119); and



•

the recognition by the special committee that it had no obligation to recommend to the board of directors the approval of the merger or any other transaction.

        In the course of reaching its determinations and making its recommendations, the special committee also considered the following countervailing factors concerning the original merger agreement and the merger, which are not presented in any relative order of importance:

•

that the merger consideration of $1.27 per share in cash under the original merger agreement is below the closing price of the Company's common Stock as priced on the Nasdaq Capital Market of $1.47 on April 2, 2018 (the last trading day prior to the announcement of the merger), although the merger consideration does represent a premium to the 30, 60, 90, and 180 day value weighted average trading of the Company common stock and, in any event, the special committee did not believe that such trading prices were indicative of the then-current fundamental value of the Company given the Company's near-term liquidity constraints and the risk that the Company would not be able to continue as a long-term going concern absent a capital raise or other significant liquidity event. Additionally, the relatively thinly traded nature of the Company's common stock meant that even low levels of trading activity could lead to significant volatility in the price of the stock;



•

that, following the completion of the merger, the Company will no longer exist as an independent public company and that the consummation of the merger and receipt of the merger consideration, while providing relative certainty of value, will not allow the non-rolling stockholders to participate in potential further growth in the Company's assets, future earnings growth, future appreciation in value of the Company's common stock or any future dividends after the merger, and that SCG will be entitled to participate in such potential future appreciation;



•

the risk that the transactions contemplated by the original merger agreement, including the merger, may not be consummated in a timely manner or at all, and the consequences thereof, including (i) the potential loss of value to the Company stockholders, (ii) the potential negative impact on the operations and prospects of the Company, including the risk of loss of key personnel and customers, and (iii) the potential adverse effect on the market's perception of the Company's prospects;



•

the possible effects of the pendency or consummation of the transactions contemplated by the original merger agreement, including the potential for suits, actions or proceedings in respect of the original merger agreement or the transactions contemplated by the original merger agreement, the risk of any loss or change in the relationship of the Company and its subsidiaries with their respective employees, agents, customers and other business relationships, and any possible effect on the Company's ability to attract and retain key employees, including that

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certain key members of senior management might choose not to remain employed with the Company prior to the completion of the merger;

•

the restrictions imposed by the original merger agreement on the Company's solicitation of acquisition proposals from third parties after the go-shop period, and that potential bidders may perceive SCG's right under the original merger agreement to negotiate with the Company to match the terms of any "superior proposal" prior to the Company being able to terminate the original merger agreement and accept a "superior proposal" to be a deterrent to making alternative proposals;



•

that the ownership interest of SCG and its affiliates in the Company would likely be taken into account by third parties considering whether to make alternative proposals;



•

the possibility that the up to $500,000 termination fee plus legal fees and expense reimbursement payable by the Company upon the termination of the original merger agreement under certain circumstances, may discourage other potential bidders from making an acquisition proposal for the Company;



•

that the buying entity is a newly formed entity by SCG with essentially no assets and that, under the original merger agreement, the Company would receive $1 million in the form of a penalty loan as opposed to a reverse termination fee in the event that all closing conditions are satisfied, and the buying entity does not close;



•

the understanding that some of the Company's directors and executive officers, and in particular Mr. Gregory H. Sachs, our executive chairman, have other interests in the merger in addition to their interests as Company stockholders, including the manner in which they would be affected by the merger (as discussed under " —Interests of the Company's Directors and Officers in the Merger ," beginning on page 67);



•

the risk that, while the merger is expected to be completed, there can be no guarantee that all conditions to the parties' obligations to complete the merger will be satisfied, and, as a result, it is possible that the merger may not be completed even if approved by the Company stockholders at the special meeting;



•

the risk that, if the merger is not approved by stockholders, SCG would be entitled to convert the outstanding bridge financing into preferred stock of the Company with a 3x liquidation preference;



•

the restrictions on the Company's operations prior to completion of the merger, which may delay or prevent the Company from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of the Company pending the completion of the merger; and



•

the fact that the Company has incurred and will continue to incur significant transaction costs and expenses in connection with the potential transaction regardless of whether the merger is closed.

        The special committee did not specifically consider the liquidation value of the Company's and its subsidiaries' assets in determining the fairness of the transaction to the non-rolling stockholders. The special committee believed that this method would have undervalued the assets of the company and its subsidiaries and failed to examine the business of the Company and its subsidiaries as a going concern. In addition, the special committee did not seek to establish a pre-merger going concern value for the Company in determining the fairness of the transaction to the non-rolling stockholders because the special committee did not believe there was a single method for determining going concern value. Rather, the special committee believed that the future financial results reflected in the projections of the management of the Company and the related additional factors considered by the special

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committee provided an indication of the Company's going concern value. The special committee also did not consider the purchase price paid for shares of Company common stock in the December 2016 Rights Offering (defined below) of $0.62 per share because the special committee did not consider this to be relevant given that the December 2016 Rights Offering occurred in 2016 and the Company circumstances had changed since that time. In determining the substantive fairness of the transaction to the non-rolling stockholders, the special committee also did not consider the Company's net book value, which is an accounting concept, because the special committee believed that net book value is not a material indicator of the value of the Company's equity but rather an indicator of historical costs.

        The special committee did not consider the error in Lake Street's SOTP analysis described in the section " —Opinion of Lake Street Capital Markets, LLC ," beginning on page 56, because it was not aware of the error at the time of its fairness determination. Lake Street has advised the special committee that the changes to the implied share price ranges and median values that result from correcting the error do not change Lake Street's opinion as to the fairness of the merger, and the changes do not change the special committee's opinion as to the fairness of the merger.

The Board of Directors of the Company

        At a meeting on April 2, 2018, based in part on the unanimous recommendation of the special committee (in a meeting attended by each member of the special committee except Mr. Swimmer), as well as on the basis of the other factors described above, the board of directors, in a meeting attended by a majority of the directors of the Company who are not employees of the Company which included each of the six members of the board of directors at the time except for Mr. Sachs who recused himself due to his interest in the transaction and Mr. Swimmer who was unable to attend due to a personal matter, unanimously:

•

declared that the original merger agreement and the transactions contemplated by the original merger agreement (other than any rollover by any rollover investor) were advisable, fair to, and in the best interests of the Company and the non-rolling stockholders;



•

approved the original merger agreement and the transactions contemplated by the original merger agreement, including the merger;



•

directed that the approval of the adoption of the original merger agreement be submitted to the Company stockholders; and



•

recommended that Company stockholders vote in favor of adoption of the original merger agreement.

        In addition, the board of directors of the Company determined that the merger is fair to the Company's "unaffiliated security holders," as defined under Rule 13e-3 of the Exchange Act.

        In reaching these determinations, the board of directors considered a number of factors, including the following material factors:

•

the special committee's analysis (as to both substantive and procedural aspects of the transaction), conclusions and determination, which the board of directors adopted, that the original merger agreement and the transactions contemplated thereby (other than any rollover by any rollover investor), including the merger and the transaction documents, are advisable, fair to and in the best interest of the Company and non-rolling stockholders, and the special committee's recommendation that the board of directors approve the original merger agreement and the transactions contemplated thereby (excluding any rollover by any rollover investor) and recommend that the Company stockholders approve the adoption of the original merger agreement;

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•

the procedural fairness of the transaction, including that the transaction was negotiated by the special committee consisting of three directors who are not affiliated with SCG or Mr. Sachs and are not employees of the Company or any of its subsidiaries, that the members of the special committee do not have an interest in the merger different from, or in addition to, that of the Company stockholders who are not affiliated with SCG other than their interests described under " —Interests of the Company's Directors and Officers in the Merger ," beginning on page 67, and that the special committee was advised by its own independent legal and financial advisors;



•

the fact that the special committee received an opinion, dated April 2, 2018, of Lake Street as to the fairness, from a financial point of view and as of such date, of the merger consideration to be received by the non-rolling stockholders in the merger pursuant to the original merger agreement, which opinion was based on and subject to the various procedures followed, assumptions made, qualifications and limitations on the review undertaken and the other matters considered by Lake Street in connection with the preparation of its opinion as more fully described below under the section entitled " —Opinion of Lake Street Capital Markets, LLC ," beginning on page 56; and



•

the board of directors' consideration of the Company's near-term liquidity constraints and the risk that the Company would not be able to continue as a long-term going concern absent a capital raise or other significant liquidity event, as well as other information with respect to the Company's business, operations, financial condition, earnings and prospects, the Company's long-range plans, and the risk in achieving those prospects and plans, as well as industry, economic and market conditions and trends, the impact on the Company of general, macro-economic developments and other risks and uncertainties discussed in the Company's public filings with the SEC, as well as the terms of the merger agreement and the countervailing factors concerning the merger agreement and the merger considered by the special committee.

        Subsequent to entering into the original merger agreement, the board of directors negotiated the First Amendment to the original merger agreement and, on August 16, 2018, the board of directors, at a meeting attended by each member of the board of directors except for Mr. Sachs who recused himself due to his interest in the transaction, unanimously:

•

declared that the merger agreement, as amended by the First Amendment, the merger and the other transactions contemplated by the merger agreement, as amended by the First Amendment, are advisable, fair to, and in the best interests of the Company and the non-rolling stockholders, which includes all of the Company's "unaffiliated security holders," as defined under Rule 13e-3 of the Exchange Act,



•

approved the merger agreement, as amended by the First Amendment, and the transactions contemplated by the merger agreement, as amended by the First Amendment, including the merger,



•

directed that the approval of the adoption of the merger agreement, as amended by the First Amendment, be submitted to the Company stockholders, and



•

recommended that Company stockholders vote in favor of adoption of the merger agreement, as amended by the First Amendment.

        In reaching its decision to approve the merger agreement, as amended by the First Amendment, the board of directors considered a number of factors, including the following material factors:

•

the increase in the merger consideration Company stockholders would receive from $1.27 per share in cash, without interest, to $1.29 per share in cash, without interest;



•

that, although the Company did not obtain a new fairness opinion because the cost and timing of doing so were prohibitive given the Company's liquidity position and the approaching drop dead date under the original merger agreement, the increased per share merger consideration

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should be considered no less fair from a financial standpoint than the original $1.27 per share merger consideration when viewed in light of the factors considered by Lake Street in rendering its fairness opinion with respect to the $1.27 per share merger consideration and in light of the fact that the Company's financial condition, results of operation and prospects have not become more favorable since Lake Street rendered its fairness opinion;

•

that the First Amendment extends the "drop-dead date" from August 30, 2018 to September 14, 2018, with an extension to September 28, 2018 at the option of either Parent or the Company. Without this extension, there was a significant risk that the Company would not be in a position to close the merger under the original merger agreement on or prior to the drop dead date of August 30, 2018. This would have allowed Parent to exercise its conversion rights under the bridge loan agreement, entitling it to a 3:1 distribution preference upon sale of the Company to any other entity;



•

the increase in the amount of the penalty loan (the remedy under the original merger agreement in the event that all conditions to Parent's obligations to close have been satisfied but Parent does not close the merger) from $1 million to $1.5 million;



•

that, in the First Amendment and subject to the Company's compliance with certain terms thereof, Parent has waived all actual and alleged breaches by the Company to the original merger agreement and the bridge loan agreement. Without this waiving of actual and alleged breaches, Parent would have been entitled to exercise its conversion rights under the bridge loan agreement entitling it to a 3:1 distribution preference upon sale of the Company to any other entity;



•

that the board of directors had determined that the Hale transaction was not a superior proposal under the original merger agreement, that the revised proposal received from Hale was non-binding, and that completing a transaction with Hale on the terms of Hale's revised non-binding proposal was uncertain and would likely take at least 100 days longer than completing the revised proposal from Parent, and the Company has an immediate need to address its liquidity position;



•

that Parent would have the right to negotiate with the Company to match the terms of the Hale transaction (if it were determined to be a superior proposal under the merger agreement) which would extend the time frame to complete any transaction, and the Company has an immediate need to address its liquidity position;



•

the risk of litigation with Parent in the event that the Company accepted Hale's revised proposal and terminated the original merger agreement;



•

the Company's non-compliance with Nasdaq's Listing Rules related to the resignations of three independent directors from the Board, requiring the Company to submit a plan to regain compliance with Nasdaq's Listing Rules on or before August 23, 2018; and



•

the Company's non-compliance with Nasdaq's Listing Rules related to minimum stockholder equity.

        The foregoing discussion of the information and factors considered by the special committee and by the board of directors is not intended to be exhaustive but includes the material factors considered by the special committee and the board of directors, respectively. In view of the wide variety of factors considered by the special committee and by the board of directors in evaluating the original merger agreement and the merger, and, in the case of the board of directors, the First Amendment, and neither the special committee nor the board of directors found it practicable, or attempted, to quantify, rank or otherwise assign relative weights to the foregoing factors in reaching their respective conclusions. In addition, individual members of the special committee and of the board of directors may have given different weights to different factors and may have viewed some factors more positively

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or negatively than others. The special committee and the board of directors conducted an overall review of the factors described above and considered the factors overall to be favorable to, and to support, their respective determinations. It should be noted that this explanation of the reasoning of the special committee and the board of directors and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in the section titled " Cautionary Statement Concerning Forward-Looking Statements ," beginning on page 79.

         The board of directors of the Company recommends that you vote "FOR" the adoption and approval of the merger agreement.

Purposes, Reasons and Plans for the Company after the Merger

Purposes, Reasons and Plans of the Company

        The purpose of the merger for the Company is (i) to enable the Company to address its near-term liquidity constraints and permit the Company to continue as a long-term going concern and (ii) to enable the non-rolling stockholders (including the Company's unaffiliated stockholders) to immediately realize the value of their investment in the Company through their receipt of the per share merger consideration of $1.29 in cash, without interest and less applicable withholding taxes. Another purpose of the merger is to create greater operating flexibility, allowing management to concentrate on long-term growth rather than the short-term expectations of the financial markets. In light of the foregoing, and given our stock price and the economic and market conditions affecting us and our industry sector as a whole, we believe our long-term objectives can best be pursued as a private company.

        For achieving the purposes (i) to enable the Company to address its near-term liquidity constraints and permit the Company to continue as a long-term going concern and (ii) to create greater operating flexibility, allowing management to concentrate on long-term growth rather than the short-term expectations of the financial markets, the Company considered the alternative of remaining a public company and raising additional capital. The Company rejected this alternative because DRW indicated that it was not interested in further investing in the Company and, as of the date of the original merger agreement, the active solicitation undertaken by the special committee, with the assistance of Carl Marks, resulted in no third party willing to engage in a capital raise transaction with the Company. For further detail, see the section above "— Background of the Merger ," beginning on page 18. During the go-shop period, the Company received an alternative acquisition proposal from Hale to engage in a recapitalization transaction with the Company. The Company rejected this alternative based on the following material factors, among others:

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that the merger agreement provides Company stockholders with the immediate benefit of the $1.29 per share merger consideration while any benefit that might have been achieved under the Hale transaction is uncertain and would take time to achieve;



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that completing the Hale transaction would likely take at least 100 days longer than completing the revised proposal from Parent, and the Company has an immediately need to address its liquidity position;



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that Parent would have the right to negotiate with the Company to match the terms of the Hale transaction (if it were determined to be a superior proposal under the merger agreement) which would extend the time frame to complete any transaction, and the Company has an immediate need to address its liquidity position;



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the conditionality of the non-binding revised proposal from Hale, and that Hale was not prepared to enter into a definitive agreement with the Company until agreement was reached on certain other matters; and

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that the Hale transaction contained certain conditions to Hale's obligation to close the transaction that the Company was uncertain would be satisfied at the time of closing.

For more information on the Company's consideration of the Hale proposal, see the section above "— Subsequent Events ," beginning on page 28.

        The Company did not consider any alternate transaction structures or other alternative means for achieving the purpose to enable non-rolling stockholders (including the Company's unaffiliated stockholders) to immediately realize the value of their investment in the Company through receipt of the merger consideration.

        The reasons for undertaking the transaction at this time are described above under "— Background of the Merger ," beginning on page 18.

        It is expected that, upon consummation of the merger, the operations of the Company will be conducted substantially as they currently are being conducted. Parent has advised the Company that it does not have any current intentions, plans or proposals to cause us to engage in any of the following:

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an extraordinary corporate transaction following consummation of the merger involving the Company's corporate structure, business or management, such as a merger, reorganization or liquidation,



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the relocation of any material operations or sale or transfer of a material amount of assets, or



•

any other material changes in its business.

        Nevertheless, following consummation of the merger, the management and/or board of directors of the surviving corporation may initiate a review of the surviving corporation and its assets, corporate and capital structure, capitalization, operations, business, properties and personnel to determine what changes, if any, would be desirable following the merger to enhance the business and operations of the surviving corporation and may cause the surviving corporation to engage in the types of transactions set forth above if the management and/or board of directors of the surviving corporation decides that such transactions are in the best interest of the surviving corporation upon such review. The surviving corporation expressly reserves the right to make any changes it deems appropriate in light of such evaluation and review or in light of future developments.

Purposes, Reasons and Plans of the Parent Parties

        Under the SEC rules governing "going private" transactions, each of Merger Sub, Lender, SCG Digital Holdings, LLC, SCG, The Gregory H. Sachs Revocable Trust UDT Dtd. 4/24/98, 2011 Sachs Family Trust, White Knight Capital Management LLC and Gregory H. Sachs (who we refer to, collectively with Parent, as the "Parent Parties") are affiliates of Parent, and, therefore, are required (in addition to Parent) to express their reasons for the merger to the Company's unaffiliated stockholders. The Parent Parties are making the statements included in this section solely for the purposes of complying with the requirements of Rule 13e-3 and the related rules under the Exchange Act. For each of the Parent Parties, the purpose of the merger is to enable Parent to acquire all of the outstanding shares of the Company's common stock so that Parent will benefit from any future earnings and growth of the Company after shares of the Company's common stock cease to be publicly traded. The Parent Parties did not consider any alternatives for achieving these purposes. The transaction has been structured as a cash merger in order to provide the Company's non-rolling stockholders (including the Company's unaffiliated stockholders) with cash for their shares of Company common stock and to provide a prompt and orderly transfer of ownership of the Company in a single step, without the necessity of financing separate purchases of the Company's common stock in a tender offer and implementing a second-step merger to acquire any shares of common stock not tendered into any such tender offer, and without incurring any additional transaction costs associated with such activities.

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        The Parent Parties have undertaken to pursue the transaction at this time in light of the opportunities they perceive to strengthen the Company's competitive position, strategy and financial performance under a new form of ownership. The Parent Parties believe that there are significant advantages in the Company becoming a private company, and the Parent Parties plan to cause the Company to avail itself of any opportunities it may have as a private company, including, but not limited to, making any public or private offering for its shares, or entering into any other arrangement or transaction as it may deem appropriate. Although the Parent Parties do not presently have an intent to enter into any such transaction nor is any Parent Party currently in negotiations with respect to any such transaction, there exists the possibility that the Parent Parties may cause the Company to enter into such an arrangement or transaction in the future and the Parent Parties, together with any rollover investors, may receive payment, directly or indirectly, for the shares of the Company's common stock in any such transaction lower than, equal to or in excess of $1.29, the per share merger consideration that stockholders will receive in the merger.

        After the effective time, the Parent Parties anticipate that the Company will continue its current operations, except that it will (i) cease to be an independent public company and will instead be a wholly owned subsidiary of Parent and (ii) have more debt than it currently has. There are no current plans to repay the bridge loan or to repay the debt, if any, taken out to finance the merger. After the effective time, the directors of Merger Sub immediately prior to the effective time will become the directors of the Company, and the officers of the Company immediately prior to the effective time will remain the officers of the Company, in each case until the earlier of their resignation or removal or until their respective successors are duly elected or appointed and qualified, as the case may be. Gregory H. Sachs is the sole director of Merger Sub at this time; however, it is expected that shortly prior to the effective time of the merger, Merger Sub may appoint additional directors who are generally aligned with Mr. Sachs.

        Each Parent Party that owns shares of the Company's common stock intends to vote its shares in favor of all three proposals, including the merger proposal.