SEC Form PREM14A filed by Sonic Foundry Inc.

UNITED STATES         

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a‑101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

Filed by the registrant         ☒

Filed by a party other than the registrant         ☐

Check the appropriate box:

☒         Preliminary proxy statement

☐         Confidential, for use of the Commission only (as permitted by Rule 14a-6(e)(2))

☐         Definitive proxy statement

☐         Definitive additional materials

☐         Soliciting material pursuant to Section 240.14a‑12

Payment of filing fee (Check the appropriate box):

☐         No fee required.

☐         Fee paid previously with preliminary materials.

☒         Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.

SPECIAL MEETING OF STOCKHOLDERS – YOUR VOTE IS VERY IMPORTANT

SONIC FOUNDRY, INC.
222 W. Washington Avenue
Madison, WI 53703

Dear Fellow Stockholder:

We cordially invite you to attend a special meeting of the stockholders of Sonic Foundry, Inc. to be held virtually, over the Internet, on [●], 2024, at 9:00 a.m. local time.

As previously announced, Sonic Foundry entered into a Stock and Asset Purchase Agreement on January 2, 2024 (the “Purchase Agreement”) providing for the sale of the assets (the “Mediasite Asset Sale”) of Sonic Foundry’s Mediasite business (the “Mediasite Business”) to Enghouse Interactive, Inc., Enghouse Holdings (UK) Limited and Enghouse (Netherlands) Holdings B.V. (collectively, the “Buyer”) on the terms and subject to the conditions set forth in the Purchase Agreement. As consideration for the Mediasite Asset Sale, the Buyer has agreed to pay Sonic Foundry a cash payment of $15.5 million, subject to adjustment as described in the accompanying proxy statement, and assume certain specified liabilities relating to the Mediasite Business.

At the special meeting, you will be asked to consider and vote upon:

The accompanying proxy statement contains important information concerning the special meeting, the transactions contemplated by the Purchase Agreement and related matters, including information as to how to cast your vote. We encourage you to read the accompanying proxy statement and the Purchase Agreement and other annexes to the proxy statement carefully and in their entirety.

After careful consideration, our board of directors has determined that the Purchase Agreement and the transactions contemplated thereby, including the sale of the Mediasite Business, are advisable and in the best interests of Sonic Foundry and recommends that stockholders vote “FOR” all of the proposals to be considered at the special meeting.

Your vote is very important. Whether or not you plan to attend the special meeting, please take the time to vote by completing and mailing to us the enclosed proxy card or by granting your proxy by telephone or through the Internet. You may also cast your vote at the special meeting. If your shares are held in “street name,” you must instruct your broker, bank or other nominee to vote.

The Mediasite Sale Proposal must be approved by the holders of at least two-thirds of the outstanding shares of our common stock entitled to vote at the special meeting. Therefore, if you do not vote by proxy or attend the special meeting and vote during the special meeting or, if you hold your shares in “street name,” properly instruct your broker, bank or other nominee with respect to voting your shares, it will have the same effect as if you voted “AGAINST” the Mediasite Sale Proposal.

On behalf of your management team and board of directors, we thank you for your support and urge you to vote “FOR” approval of all of the proposals at the special meeting.

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the asset sale, passed upon the merits or fairness of the asset sale or passed upon the adequacy or accuracy of the accompanying proxy statement. Any representation to the contrary is a criminal offence.

This proxy statement is dated [●], 2024 and is first being mailed to stockholders on or about [●], 2024.

Sincerely,

Mark D. Burish

Chairman of the Board

SONIC FOUNDRY, INC.
222 W. Washington Avenue
Madison, WI 53703

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On [●], 2024

To the Stockholders of Sonic Foundry, Inc.:

Notice is hereby given that a special meeting of the stockholders of Sonic Foundry, Inc., a Maryland corporation, which we refer to as the “Company,” “Sonic Foundry,” “we,” “us” or “our,” will be held virtually, over the Internet, on [●], 2024, at 9:00 a.m. local time, for the following purposes:

The Company's Board of Directors recommends that the stockholders vote “FOR” the Mediasite Sale Proposal, “FOR” the Advisory Compensation Proposal and, if necessary, “FOR” the proposal for an adjournment of the special meeting.

Only stockholders of record of our common stock at the close of business on December 29, 2023, the record date for the special meeting, are entitled to notice of, and to vote at, the special meeting or any adjournments or postponements thereof.

The special meeting will be a virtual meeting held over the Internet via Mediasite at www.sonicfoundry.com/investors/special-meeting. You will be able to vote your shares electronically at proxyvote.com by entering your sixteen-digit control number located on your proxy card or in the email you have consented to receive from your bank/broker that retains your shares.

The Company has also arranged for space in our offices located at 222 West Washington Avenue, Suite 100, Madison, Wisconsin 53703 from which you can access the Internet and attend the meeting. Should you wish to do so, please contact Laura Delis at [email protected] no later than seven days prior to the virtual special meeting. This is an option we are providing for your convenience, as required by Maryland law. YOU DO NOT HAVE TO UTILIZE THIS SPACE IN ORDER TO ACCESS THE VIRTUAL MEETING. YOU MAY ACCESS THE VIRTUAL MEETING FROM ANY CONVENIENT LOCATION.

Sonic Foundry stockholders may object to the Mediasite Asset Sale and, upon complying with the requirements of Maryland law, may demand payment from Sonic Foundry of the fair value of their shares of common stock. See “ PROPOSAL NO. 1: APPROVAL OF MEDIASITE ASSET SALE --Appraisal Rights” in the accompanying proxy statement for additional information.

YOUR VOTE IS VERY IMPORTANT. YOU MAY VOTE BY MAIL, THROUGH THE INTERNET, BY TELEPHONE OR BY ATTENDING THE SPECIAL MEETING AND VOTING DURING THE MEETING, ALL AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE SPECIAL MEETING, YOU MUST OBTAIN A PROXY ISSUED IN YOUR NAME FROM THE RECORD HOLDER. IF YOU FAIL TO VOTE ON THE MEDIASITE SALE PROPOSAL OR FAIL TO INSTRUCT YOUR BROKER, BANK OR OTHER NOMINEE ON HOW TO VOTE FOR SUCH PROPOSALS, THE EFFECT WILL BE THE SAME AS A VOTE AGAINST THE APPROVAL OF THE Mediasite SALE PROPOSAL

The accompanying proxy statement provides a detailed description of the Proposals. We urge you to read the accompanying proxy statement, including the annexes, carefully and in their entirety. If you have any questions concerning the Proposals or the accompanying proxy statement of which this notice forms a part, would like additional copies of the accompanying proxy statement or need help voting your shares of common stock, please contact please contact Laura Delis at Sonic Foundry, Inc., 222 West Washington Avenue, Madison, WI 53703, Email: [email protected].

Madison, WI
[●], 2024

You are cordially invited to attend the special meeting. Whether or not you expect to attend the special meeting, please complete, date, sign and return the enclosed proxy card, or vote over the telephone or the Internet as instructed in these materials, as promptly as possible to ensure your representation at the special meeting. A return envelope (which is postage prepaid if mailed in the United States) is enclosed for your convenience. Even if you have voted by proxy, you may still vote if you attend the special meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the special meeting, you must obtain a proxy issued in your name from that record holder.

Important Notice Regarding the Availability of Proxy Materials for the special meeting of Stockholders to be Held on [●], 2024:

This Proxy Statement for the special meeting is available at www.proxyvote.com.

VOTING ELECTRONICALLY, BY TELEPHONE OR BY MAIL

Stockholders of the Company at the close of business on December 29, 2023, the record date for the special meeting of stockholders, may submit their proxies:

To vote via telephone or Internet, please have your proxy card in front of you. A phone number and an Internet website address are contained on your proxy card. Upon entering either the phone number or the Internet website address, you will be instructed on how to proceed.

If a stockholder holds shares registered in the name of a broker, bank or other nominee, that broker, bank or other nominee will enclose or provide a voting instruction card for use in directing that broker, bank or other nominee how to vote those shares.

SUMMARY VOTING INSTRUCTIONS

YOUR VOTE IS VERY IMPORTANT

Ensure that your shares of common stock are voted at the special meeting by submitting your proxy or, if your shares of common stock are held in the name of a broker, bank or other nominee, by contacting your broker, bank or other nominee. If you do not vote or do not instruct your broker, bank or other nominee how to vote, it will have the same effect as voting “AGAINST” the approval of the Mediasite Sale Proposal.

If your shares of common stock are registered in your name: submit your proxy as soon as possible by signing, dating and returning the enclosed proxy card in the enclosed postage‑paid envelope, so that your shares of common stock can be voted in favor of the proposals at the special meeting. You may also submit your proxy by using a toll‑free number or the Internet. We have provided instructions on the proxy card for using these convenient services.

If your shares of common stock are registered in the name of a broker, bank or other nominee: check the voting instruction card forwarded by your broker, bank or other nominee or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that your shares of common stock are voted in favor of the proposals at the special meeting.

TABLE OF CONTENTS

ANNEXES

PROXY STATEMENT

SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON [●], 2024

This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of Sonic Foundry Inc. to be voted at the special meeting of stockholders to be held on [●], 2024, at 9:00 a.m. local time. This proxy statement, along with a Notice of the special meeting and either a proxy card or a voting instruction card, are being mailed to our stockholders beginning on or about [●], 2024.

All references in this proxy statement to:

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

The following are some questions that you, as a stockholder of the Company, may have regarding the special meeting, together with brief answers to those questions. We urge you to read carefully the remainder of this proxy statement, including the annexes and other documents referred to in this proxy statement, because the information in this section may not provide all of the information that might be important to you with respect to the special meeting.

If you do not vote your shares as instructed in the enclosed proxy card, or if you do not instruct your broker how to vote any shares held for you in “street name,” the effect will be a vote against the Mediasite Sale Proposal.

To vote, you may provide your proxy instructions in three different ways. First, you can mail your signed proxy card in the enclosed return envelope. Alternatively, you can provide your proxy instructions by calling the toll-free call center set up for this purpose indicated on the enclosed proxy card and following the instructions provided. Please have your proxy card available when you call. Finally, you can provide your proxy instructions over the Internet by accessing the website indicated on the enclosed proxy card and following the instructions provided. Please have your proxy card available when you access the web page. Please provide your proxy instructions only once and as soon as possible so that your shares can be voted at the special meeting.

If you sign, date and mail your proxy card without indicating how you wish to vote, your proxy will be counted as present for the purpose of determining the presence of a quorum for the special meeting and all of your shares will be voted “FOR” the proposals. However, if you submit a proxy card or provide proxy instructions by telephone or over the Internet and affirmatively elect to abstain from voting, your proxy will be counted as present for the purpose of determining the presence of a quorum for the special meeting and your abstention will have the same effect as a vote “AGAINST” the Mediasite Sale Proposal.

If you do not give instructions to your broker, your broker can vote your shares with respect to “discretionary” items, but not with respect to “non-discretionary” items. Each of the Mediasite Sale Proposal and the Advisory Compensation Proposal is expected to be a non-discretionary matter. Therefore, if you do not instruct your broker or other nominee on how to vote your shares then:

If your shares of common stock are held in a brokerage account or by another nominee, you are considered the beneficial owner of shares held in “street name,” and these proxy materials are being forwarded to you together with a voting instruction card. As the beneficial owner, you are also invited to attend the special meeting. However, since a beneficial owner is not the stockholder of record, you may not vote these shares at the virtual special meeting unless you obtain a “legal proxy” from the broker or other nominee that holds your shares giving you the right to vote the shares at the virtual special meeting.

SUMMARY TERM SHEET

This summary highlights information contained elsewhere in this proxy statement and may not contain all the information that is important to you with respect to the Purchase Agreement, the transactions contemplated by the Purchase Agreement and the other matters being considered at the special meeting of the Sonic Foundry stockholders to which this proxy statement relates. We urge you to read carefully the remainder of this proxy statement, including the attached annexes, and the other documents to which we have referred you. We have included page references in this summary to direct you to a more complete description of the topics presented below.

Information about the Parties (see page 21)

The Company

We are a global leader for video capture, management, and streaming solutions as well as virtual and hybrid events. Trusted by thousands of educational institutions, corporations, health organizations and government entities in over 65 countries with solutions that transform communication, training, and learning, our brands include Mediasite®, Mediasite Connect, Vidable™ and Global Learning Exchange™ (which we also refer to herein as “GLX”).

Founded in 1991, Sonic Foundry was incorporated in Wisconsin in March 1994 and merged into a Maryland corporation of the same name in October 1996. Our executive offices are located at 222 West Washington Ave., Madison, Wisconsin 53703 and our telephone number is (608) 443-1600. Our Sonic Foundry International office is located in the Netherlands, and our MSKK office is located in Japan. Our corporate website is www.sonicfoundry.com.

Our common stock is traded on the OTC Pink Market under the symbol “SOFO.”

Buyer

Each of Enghouse Interactive, Inc., Enghouse Holdings (UK) Limited and Enghouse (Netherlands) Holdings B.V. is a direct or indirect wholly owned subsidiary of Parent. Pursuant to the Purchase Agreement, subject to the terms and conditions therein, Enghouse Interactive, Inc. will purchase the assets of the Mediasite business, Enghouse Holdings (UK) Limited will purchase the equity interests of MSKK and Enghouse (Netherlands) Holdings B.V. will purchase the equity interests of Sonic Foundry International.

Parent

Parent is a Canadian publicly traded company (TSX: ENGH) that provides vertically focused enterprise software solutions focusing on contact centers, video communications, healthcare, telecommunications, public safety and the transit market. Parent has a two-pronged growth strategy that focuses on internal growth and acquisitions, which are funded through operating cash flows. Parent is organized around two business segments: the Interactive Management Group and the Asset Management Group.

The Purchase Agreement (see Annex A)

We have entered into the Purchase Agreement with the Buyer pursuant to which we have agreed, subject to certain conditions, including the approval of the Mediasite Sale Proposal by our stockholders at the special meeting to which this proxy statement relates, to sell to the Buyer the stock of Sonic Foundry International and MSKK and the assets of the Mediasite Business directly held by the Sellers and the Buyer has agreed to assume certain specified liabilities of the Sellers relating to the Mediasite Business. Under the terms of the Purchase Agreement, we will retain all assets not transferred to the Buyer, including our cash at closing and all assets exclusively relating to our Vidable and Global Learning Exchange businesses, and we will retain all liabilities of the Sellers not assumed by the Buyer.

A copy of the Purchase Agreement is attached as Annex A to this proxy statement. You are encouraged to read the Purchase Agreement carefully and in its entirety.

Consideration for the Mediasite Asset Sale (see page 22)

As consideration for the Mediasite Asset Sale, the Buyer has agreed to:

The Purchase Agreement generally defines “Net Cash Assets” as (1) the amount as of the closing of the current assets of the Sellers being transferred and the amount of the current assets of MSKK and Sonic Foundry International, minus (2) the amount as of the closing of any short- or long-term deferred revenue included within the liabilities being assumed by the Buyer and all liabilities of MSKK and Sonic Foundry International. The Purchase Agreement contains provisions governing how the amount of Net Cash Assets will be determined.

Repayment of Outstanding Debt (see page 22)

The Company will use part of the proceeds of the Mediasite Asset Sale to repay approximately $5.9 million of outstanding debt as of the date of this proxy statement owed to Neltjeberg Bay Enterprises, LLC (“NBE”), a company affiliated with Frederick H. Kopco, Jr., a former member of the Board (such debt is referred to in this proxy statement as the “NBE Debt”). The Company also owes approximately $6.4 million as of the date of this proxy statement to Mark Burish, Chairman of the Board (such debt is referred to in this proxy statement as the “Burish Debt”). While Mr. Burish has consented to the release of his security interest in the assets to be transferred to the Buyer in the Mediasite Asset Sale, there is insufficient proceeds from the Mediasite Asset Sale to repay the Burish Debt in full. Accordingly, there will be a significant balance on the Burish Debt following the closing of the Mediasite Asset Sale. All transactions with Mr. Burish and NBE were unanimously approved by the Board.

Special Meeting (see page 17)

Date, Time and Place

The special meeting will be held on [●], 2024 at 9:00 a.m., local time, over the Internet via Mediasite at www.sonicfoundry.com/investors/special-meeting.

Purpose

The special meeting is being held to consider and vote on:

Our stockholders must vote to approve the Mediasite Sale Proposal as a condition for the Mediasite Asset Sale to occur. If our stockholders fail to approve the Mediasite Sale Proposal, the Mediasite Asset Sale will not occur.

Record Date, Stockholders Entitled to Vote and Voting Power

Only holders of our common stock as of the close of business on December 29, 2023, the record date for the special meeting, will be entitled to receive notice of, and vote at, the special meeting or any adjournments or postponements of the special meeting, unless a new record date is fixed in connection with any such adjournment or postponement. At the close of business on the record date, there were 12,139,360 shares of our common stock outstanding and entitled to vote at the special meeting.

Each holder of our common stock will be entitled to one vote for each share of our common stock held by such holder as of the close of business on the record date.

Quorum

The presence at the special meeting, in person or by proxy, of at least a majority of the issued and outstanding shares of our common stock entitled to vote at the special meeting is necessary to constitute a quorum for transacting business at the special meeting. Failure of a quorum to be represented at the special meeting will necessitate an adjournment or postponement of the special meeting and will subject us to additional cost and expense.

Required Vote

The approval of the Mediasite Sale Proposal requires the affirmative vote of at least two-thirds of our common stock outstanding as of the close of business on the record date.

The approval of the Advisory Compensation Proposal requires the affirmative vote of the majority of votes cast on the subject matter at the special meeting at which a quorum is present.

The approval of the Adjournment Proposal requires the affirmative vote of the majority of votes cast on the subject matter at the special meeting at which a quorum is present.

Voting

If your shares are registered directly in your name with our transfer agent, you are considered a “stockholder of record” and you may vote your shares at the special meeting or you may vote your shares by proxy by mail, over the internet or by telephone using the instructions provided elsewhere in this proxy statement and on the proxy card provided with this proxy statement.

If you hold shares in “street name” through your broker, bank or other nominee, you are considered the beneficial owner of these shares and, in order to vote, will need to instruct your broker, bank or other nominee on how to vote your shares using the instructions provided to you by your broker, bank or other nominee. If you are a beneficial owner of shares held by a broker, bank or other nominee and would like to vote at the special meeting, you must bring to the special meeting a proxy from the broker, bank or other nominee that holds your shares authorizing you to vote at the special meeting.

Your vote is very important, regardless of the number of shares of our common stock that you own. Accordingly, whether or not you plan to attend the special meeting, we encourage you to vote as soon as possible:

Solicitation of Proxies

We are soliciting proxies on behalf of the Board. We will bear the costs of soliciting proxies. The solicitation of proxies will initially be made by mail. Forms of proxies and proxy materials may also be distributed through brokers, banks and other nominees to the beneficial owners of our common stock, in which case such parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail or other electronic medium by certain of our directors, officers or employees. Any of our directors, officers or employees participating in the solicitation will not receive additional compensation for their efforts.

Support Agreements

In connection with the execution of the Purchase Agreement, solely in their respective capacities as stockholders of the Company, each of our executive officers and directors and one other significant stockholder who beneficially owns greater than 5% of the outstanding common stock (each, a “Supporting Stockholder” and, collectively, the “Supporting Stockholders”) entered into support agreements with the Buyer (the “Support Agreements”). Each Supporting Stockholder has agreed, among other things, to vote all of their beneficially owned shares of common stock in favor of (i) the approval of the Purchase Agreement and the Mediasite Asset Sale and (ii) the approval of any proposal to adjourn or postpone the special meeting to a later date if there are not sufficient votes to approve the Purchase Agreement on the date on which the special meeting is held. As of the record date, the Supporting Stockholders beneficially owned, in the aggregate, 5,826,839 shares of the common stock, all of which are subject to the Support Agreements, representing approximately 48.0% of the shares of the common stock outstanding as of the record date. The form of Support Agreement is attached to this proxy statement as Annex B. For further details, see the section of this proxy statement captioned “The Mediasite Asset Sale—Support Agreements.

Recommendation of our Board (see page 17)

After careful consideration, the Board recommends that you vote:

In reaching its decision to approve the Purchase Agreement and the Mediasite Asset Sale and to recommend that you vote in the manner noted above, our Board considered a wide range of material factors relating to the Purchase Agreement and the Mediasite Asset Sale and consulted with management and outside financial and legal advisors. For more information on these factors, see “Proposal 1: Mediasite Proposal – Reasons for the Mediasite Asset Sale and Recommendation of our Board” beginning on page 28 below.

Opinion of our Financial Advisor (see page 29 and Annex C)

At a meeting held on December 22, 2023, our financial advisor, Silverwood Partners LLC (“Silverwood Partners”), presented its analysis and oral opinion to our Board, and subsequently confirmed in a written opinion dated December 22, 2023, that, as of that date and based upon and subject to the assumptions, procedures, matters and limitations stated in such written opinion, the consideration to be received by us in connection with the Mediasite Asset Sale pursuant to the terms of the Purchase Agreement, was fair to us from a financial point of view.

The full text of the written opinion dated December 22, 2023, which includes the assumptions, procedures, matters and limitations referred to above, is attached to this proxy statement as Annex C. You should carefully review the opinion in its entirety. The opinion was provided for the information and assistance of our Board and does not address the merits of the underlying decision by us to enter into the Purchase Agreement, the merits of the Mediasite Asset Sale as compared to other alternatives potentially available to us or the relative effects of any alternative transaction in which we might engage, nor is the opinion intended to be a recommendation to any person as to how to vote on the Mediasite Sale Proposal.

Interests of our Directors and Executive Officers in the Mediasite Asset Sale (see page 37)

In considering the recommendation of our Board to vote “FOR” the Mediasite Sale Proposal, you should be aware that, aside from their interests as Sonic Foundry stockholders, our directors and executive officers have interests in the Mediasite Asset Sale that are different from, or in addition to, the interests of our stockholders generally.

Burish Debt. If the Mediasite Asset Sale is completed, we will use part of the net proceeds to repay the NBE Debt in full. As a result, the majority of the approximately $6.4 million of Burish Debt that we owe as of the date of this proxy statement to Mark Burish, Chairman of the Board, will have a first priority security interest in our remaining assets and will no longer be subordinated to the NBE Debt. Any additional amounts we borrow from Mr. Burish will also have such a first priority security interest.

Executive Employment Agreements. The Company has an employment agreement each of Joseph P. Mozden, Jr., our Chief Executive Officer, and Robert M. Lipps, our Executive Vice President - Sales. Pursuant to his employment agreement, in connection with a “change of control,” Mr. Mozden will have the right to voluntarily terminate his employment within 60 days of such change of control and, in such case, receive immediate vesting of all previously unvested stock options and cash severance is equal to his base compensation earned over the previous year payable in a lump sum within 30 days of such termination. Pursuant to his employment agreement, in connection with a “change of control,” Mr. Lipps if within two years after a “change of control” good reason occurs, which is defined as (i) a material diminution of his title, authority, status, duties or responsibilities; (ii) a material breach by the Company of the employment agreement; or (iii) a change in the location of the Company’s principal office to a location more than 50 miles outside of the Madison metropolitan area and Mr. Lipps gives notice of termination within 90 days thereafter, he will receive immediate vesting of all previously unvested stock options and cash severance equal to his total cash compensation (including base compensation and incentive/bonus) paid to him in the fiscal year immediately prior to his termination. The Mediasite Asset Sale may be deemed a “change of control” under such employment agreements. Mr. Mozden has stated his intent to remain with Sonic Foundry after the completion of the Mediasite Asset Sale.

Use of Proceeds and Future Operations (see page 37)

Sonic Foundry, and not its stockholders, will receive the proceeds from the Mediasite Asset Sale. We do not intend to liquidate following the Mediasite Asset Sale. As described under “-Repayment of Outstanding Debt” above, part of the proceeds will be used to repay the outstanding obligations under the NBE Debt. In addition, we estimate that approximately $0.8 million of the proceeds will be used to pay transaction and other expenses. After the repayment of the NBE Debt and payment of transaction and other expenses, we expect net proceeds at closing of approximately $1.7 million. We expect to use the remaining cash proceeds for working capital and general corporate purposes.

No Solicitation of Competing Acquisition Proposals (see page 48)

Under the terms of the Purchase Agreement, we are generally not permitted to, and may not authorize or permit our representatives to, directly or indirectly, solicit, initiate or knowingly take any action to encourage or facilitate the submission of an “acquisition proposal,” as defined in the Purchase Agreement, or any inquiries relating to a potential “acquisition proposal.”

We may, prior to the approval of the Mediasite Sale Proposal by our stockholders, respond to, and engage in discussions and negotiations concerning, a written unsolicited bona fide acquisition proposal submitted, and not withdrawn, by a party other than the Buyer that our Board believes, in good faith and after consultation with its outside legal counsel and its financial advisor, constitutes, or could reasonably be expected to lead to, a proposal that is superior to the Mediasite Asset Sale as provided in more detail in the Purchase Agreement.

If the Purchase Agreement were to be terminated in connection with or as a result of our adoption of a superior proposal or entry into a competing acquisition agreement or upon our Board changing its recommendation that stockholders vote “FOR” the Mediasite Sale Proposal, we would be required to pay a termination fee to Buyer of $450,000. See “Purchase Agreement – Termination” and “Purchase Agreement – Termination Fees” beginning on page 51 for more information.

Expected Timing of the Mediasite Asset Sale

We expect to complete the Mediasite Asset Sale promptly following the special meeting if the Mediasite Sale Proposal is approved by our stockholders and the various other conditions to closing are satisfied or waived. However, there can be no assurance that the Mediasite Asset Sale will be completed as currently anticipated. Certain factors, including factors outside of our control and the control of the Buyer, could result in the Mediasite Asset Sale being delayed or not occurring at all.

Conditions to Closing (see page 50)

The completion of the Mediasite Asset Sale is dependent upon the satisfaction of a number of conditions, including:

Termination of the Purchase Agreement (see page 51)

The Purchase Agreement may be terminated prior to the closing of the Mediasite Asset Sale in certain specified circumstances.

Either party may terminate the Purchase Agreement if the Mediasite Asset Sale has not closed by March 29, 2024, subject to extension in certain circumstances, or if the Company’s stockholders fail to approve the Mediasite Sale Proposal.

The Buyer may terminate the Purchase Agreement if we breach or fail to perform, in any material respect, our representations and warranties or covenants under the Purchase Agreement. The Buyer may also terminate the Purchase Agreement if our Board changes its recommendation to stockholders to vote “FOR” the Mediasite Sale Proposal or adopts or approves an acquisition proposal or if we enter into a competing acquisition agreement. See “Purchase Agreement – Covenants – No Solicitation and Change in Board Recommendation” in Annex A for more information.

We may terminate the Purchase Agreement if our Board changes its recommendation as discussed above or if we enter into a competing acquisition agreement. We may also terminate the Purchase Agreement if the Buyer breaches, or fails to perform, in any material respect, its representations and warranties or covenants under the Purchase Agreement.

If the Purchase Agreement is terminated in certain specified circumstances, we may owe the Buyer a termination fee of $450,000 or $100,000. See “The Stock and Asset Purchase Agreement – Termination Fee” in Annex A for more information.

Regulatory Approvals

We are not aware of any material federal, state or foreign regulatory requirements or approvals in connection with the Mediasite Asset Sale.

Appraisal Rights (see page 39)

If you hold Company common stock and do not vote in favor of the Mediasite Sale Proposal, you are entitled to obtain payment of the fair value of your shares in cash if you follow the applicable requirements of the MGCL. In that case, your shares will then be known as “objecting shares.” In order to receive payment for objecting shares, you must file a written objection to the Mediasite Asset Sale at or before the special meeting, you must not vote in favor of the Mediasite Asset Sale, and within 20 days following the date on which the Mediasite Asset Sale closes, you must make a written demand on the Company for the payment of your shares of common stock, stating the number and class of shares for which you demand payment. Strict compliance with statutory procedures is necessary in order to perfect your rights to an appraisal and to receive fair value for your shares of common stock. A copy of the relevant sections of the MGCL is attached to this proxy statement as Annex E.

Once a demand for cash payment is filed, holders of objecting shares will cease to have any rights of a stockholder, except the right to receive payment of the fair value of their shares. Once you make a demand for payment, you may withdraw that demand only with the consent of the Company. If you do not properly file a written objection to the Mediasite Asset Sale, if you vote in favor of the Mediasite Asset Sale, or if you otherwise fail to comply with the requirements of the MGCL, then you will not have appraisal rights.

If you object to the Mediasite Asset Sale and demand payment of the fair value of your shares, the fair value will be determined by a court. How the court will value shares of the common stock cannot be predicted.

Risk Factors (see page 14)

In evaluating the Mediasite Sale Proposal, in addition to the other information provided elsewhere in this proxy statement and the annexes hereto, you should carefully consider the risk factors relating to the Mediasite Asset Sale and our future operations that are discussed beginning on page 41 below.

RISK FACTORS

In addition to the other information included in this proxy statement, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 16 of this proxy statement, you should carefully consider the following risk factors before deciding how to vote your shares of common stock at the special meeting. These factors should be considered in conjunction with the other information included in this proxy statement. If any of the risks described below actually materialize, the businesses, financial condition, results of operations, prospects or stock prices of Sonic Foundry could be materially and adversely affected.

Risks Related to the Mediasite Asset Sale

The announcement and pendency of the Mediasite Asset Sale, whether or not consummated, may adversely affect our business.

The announcement and pendency of the Mediasite Asset Sale, whether or not consummated, may adversely affect the trading price of our common stock, our business or our relationships with customers, suppliers and employees. In addition, pending the completion of the Mediasite Asset Sale, we may be unable to attract and retain key personnel and the focus and attention of our management and employee resources may be diverted from operational matters during the pendency of the Mediasite Asset Sale.

We cannot be sure if or when the Mediasite Asset Sale will be completed.

The consummation of the Mediasite Asset Sale is subject to the satisfaction or waiver of various conditions, including the approval of the Mediasite Sale Proposal by our stockholders. We cannot guarantee that the closing conditions set forth in the Purchase Agreement will be satisfied. If we are unable to satisfy the closing conditions in the Buyer’s favor or if other mutual closing conditions are not satisfied, the Buyer will not be obligated to complete the Mediasite Asset Sale. In the event that the Mediasite Asset Sale is not completed, the announcement of the termination of the Purchase Agreement may adversely affect the trading price of our common stock, our business and operations or our relationships with customers, suppliers and employees and may also cause NBE, our senior secured lender, to declare an event of default under its debt and to pursue its available legal remedies.

The Purchase Agreement limits our ability to pursue alternatives to the Mediasite Asset Sale.

The Purchase Agreement contains provisions that make it more difficult for us to sell our assets or engage in another type of acquisition transaction with a party other than the Buyer. These provisions include a non-solicitation provision and a provision obligating us to pay the Buyer a termination fee of $450,000 or $100,000 under certain circumstances. These provisions could discourage a third party that might have an interest in acquiring Sonic Foundry or the Mediasite Business from considering or proposing such an acquisition, even if that party were prepared to pay consideration with a higher value than the consideration to be paid by the Buyer.

Our stockholders will not receive any of the proceeds of the Mediasite Asset Sale.

The proceeds from the Mediasite Asset Sale will be paid directly to us. As discussed elsewhere in this proxy statement, we intend to use the proceeds of the Mediasite Asset Sale, after repaying the NBE Debt and paying transaction and other expenses, for working capital and general corporate purposes.

We will incur significant expenses in connection with the Mediasite Asset Sale, regardless of whether the Mediasite Asset Sale is completed and, in certain circumstances, may be required to pay a termination fee to the Buyer.

We expect to incur significant expenses related to the Mediasite Asset Sale. These expenses include, but are not limited to, financial advisory and opinion fees and expenses, legal fees, accounting fees and expenses, certain employee expenses, filing fees, printing expenses and other related fees and expenses. Many of these expenses will be payable by us regardless of whether the Mediasite Asset Sale is completed. In addition, if the Purchase Agreement is terminated in certain circumstances, we will be required to pay Buyer a termination fee.

The purchase price for the Mediasite Asset Sale is subject to adjustment provisions in the Purchase Agreement which may reduce the total amount we actually receive.

Although the Purchase Agreement provides for a total purchase price of up to $15.5 million, the Purchase Agreement includes a number of provisions for adjustment that are expected to reduce the total amount of proceeds we actually receive from the Mediasite Asset Sale. The Holdback Amount of $1 million will be deducted from the purchase price payable at closing and payable on the first anniversary of the closing date, but will be subject to claims for indemnification and based on the collectability of accounts receivable and the sale of inventory after closing. In addition, the amount of the purchase price is subject to adjustment based on the amount by which our net cash assets at closing is less than $0. We currently estimate that the net cash asset adjustment will reduce the purchase price by approximately $4.3 million.

We must use a significant portion of the Closing Consideration to repay the NBE Debt.

We are required to repay the NBE Debt upon the closing of the Mediasite Asset Sale. We estimate that the amount to repay the NBE Debt will be approximately $5.9 million, which will reduce the Closing Consideration that we receive pursuant to the Purchase Agreement.

Even after repaying the NBE Debt we will have a significant amount of debt.

Although we will repay the NBE Debt upon the closing of the Mediasite Asset Sale, we do not expect to use a significant portion of the proceeds of the Mediasite Asset Sale to repay the Burish Debt. The Company owes approximately $6.4 million as of the date of this proxy statement to Mark Burish, and we may borrow additional amounts from Mr. Burish if he agrees in order to provide funds for the Company’s business. Following the closing of the Mediasite Asset Sale, our business operations will be limited to the Vidable and GLX businesses, both of which generate limited revenues, negative cash flow and significant losses. As a result, our ability to make scheduled payments of the principal of, to pay interest on or to refinance the Burish Debt will be limited. Our business likely will not be able to generate cash flow from operations sufficient to service the Burish Debt under its current terms and fund the Company’s operating and other expenses. We may be required to adopt one or more alternatives, such as selling assets (including as a potential sale of the GLX business to Mr. Burish in exchange for debt relief), restructuring the Burish Debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to raise equity capital will depend on the capital markets and our financial condition at such time, and will be challenging due to the reduced size of our operations and the recent delisting of our common stock from the NASDAQ Capital Market. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations, our inability to continue as a going concern and the loss of all or a substantial part of the value of our common stock.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement and the attached annexes contain or may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. Statements that include words such as “may,” “will,” “project,” “might,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue,” “pursue,” “possible” or “potential” or the negative of these words or other words or expressions of similar meaning may identify forward-looking statements. These forward-looking statements are found at various places throughout this proxy statement and relate to a variety of matters, including but not limited to statements regarding the closing of the Mediasite Asset Sale and the expected net proceeds from the sale, the expected use of the net proceeds of the Mediasite Asset Sale and the Company’s operations and strategies after the closing of the Mediasite Asset Sale. These forward-looking statements are made on the basis of the current beliefs, expectations and assumptions of the Company's management, are not guarantees of performance and are subject to significant risks and uncertainty. Important factors that could cause actual results to differ materially from those described in forward-looking statements contained herein include, but are not limited to:

Additional factors that could cause actual results to differ materially from those described in the forward-looking statements are set forth under “Risk Factors” above and in the Company's Annual Report on Form 10-K for the year ended September 30, 2023, which was filed with the SEC on January 4, 2024, under the heading “Item 1A-Risk Factors,” and in subsequent reports on Forms 10-Q and 8-K.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement. The Company undertakes no obligation to publicly update or release any revisions to these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this proxy statement or to reflect the occurrence of unanticipated events, except as required by law.

THE SPECIAL MEETING

General

The Company is furnishing this proxy statement to its stockholders in connection with the solicitation of proxies by the Board for use at the special meeting of the Company's stockholders with respect to the Mediasite Sale and the Adjournment Proposal.

Date, Time and Place

The special meeting will be held on [●], 2024 at 9:00 a.m., local time, over the Internet via Mediasite at www.sonicfoundry.com/investors/special-meeting. The Company has also arranged for space in our offices located at 222 West Washington Avenue, Suite 100, Madison, Wisconsin 53703 from which you can access the Internet and attend the meeting. Should you wish to do so, please contact Laura Delis at [email protected] no later than seven days prior to the virtual special meeting. This is an option we are providing for your convenience, as required by Maryland law. YOU DO NOT HAVE TO UTILIZE THIS SPACE IN ORDER TO ACCESS THE VIRTUAL MEETING. YOU MAY ACCESS THE VIRTUAL MEETING FROM ANY CONVENIENT LOCATION.

Purpose of the special meeting

At the special meeting, and any adjournments or postponements thereof, the Company's stockholders will be asked to:

THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE TO THE COMPANY'S STOCKHOLDERS. ACCORDINGLY, STOCKHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT.

Recommendation of the Board

The Board, by a unanimous vote, recommends that the stockholders of the Company vote:

Record Date; Shares Entitled to Vote

The Board has fixed December 29, 2023 as the record date for the determination of stockholders entitled to notice of, and to vote at, the special meeting and any adjournment or postponement thereof. Only holders of record of shares of our common stock at the close of business on the record date are entitled to receive notice of, attend, and vote at the special meeting. A stockholder whose shares are held of record by a broker, bank or other nominee as of the record date, should check the voting instruction card forwarded by the stockholder's broker, bank or other nominee in order to obtain directions on how to vote the stockholder's shares, and such a stockholder must obtain a proxy issued in such stockholder's name from that record holder in order to attend and vote at the special meeting.

At the close of business on the record date, the Company had outstanding and entitled to vote 12,139,360 shares of common stock.

Each share of common stock outstanding on the record date outstanding on the record date entitles the holder thereof to one vote on each matter properly brought before the special meeting, exercisable in person or by proxy. For each matter scheduled for a vote at the special meeting, you may vote “For” or “Against” or you may “Abstain” from voting.

Quorum

To conduct the business described above at the special meeting, the Company must have a quorum present. Stockholders who hold a majority of the shares of our common stock outstanding as of the close of business on the record date for the special meeting must be present either in person or by proxy to constitute a quorum to conduct business at the special meeting.

Required Vote

The Proposals being submitted for approval by the Company's stockholders at the special meeting will be approved or rejected on the basis of certain specific voting thresholds. In particular:

If you do not vote your shares as instructed in the enclosed proxy card, or if you do not instruct your broker how to vote any shares held for you in “street name,” the effect will be a vote against the Mediasite Sale Proposal.

Counting of Votes; Treatment of Abstentions and Incomplete Proxies; Broker Non-Votes

Stockholder of Record: Shares Registered in Your Name

The transfer agent for the common stock is Equiniti Group Ltd. If, as of the record date, your shares of common stock were registered directly in your name with the transfer agent, then you are a stockholder of record.

If you are a stockholder of record, you may vote at the special meeting, vote by proxy by telephone, vote by proxy over the Internet, or vote by completing and returning the enclosed proxy card. Whether or not you plan to attend the special meeting, the Company urges you to vote by proxy to ensure that your vote is counted. You may still attend the special meeting and vote during the special meeting even if you have already voted by proxy.

Stockholders of at the close of business on December 29, 2023, the record date for the special meeting, may vote as follows:

To vote via telephone or Internet, please have your proxy card in front of you. A phone number and an Internet website address is contained on your proxy card. Upon entering either the phone number or the Internet website address, you will be instructed on how to proceed.

If a stockholder does not submit a proxy card, provide proxy instructions by telephone or over the Internet or vote at the special meeting, such stockholder's shares will not be counted as present for the purpose of determining the presence of a quorum, which is required to transact business at the special meeting, and will have the same effect as a vote “AGAINST” the Mediasite Sale Proposal.

If a stockholder signs, dates and mails a proxy card without indicating how such stockholder wishes to vote, such proxy card will be counted as present for the purpose of determining the presence of a quorum for the special meeting and all of such stockholder's shares will be voted “FOR” each proposal. However, if a stockholder submits a proxy card or provides proxy instructions by telephone or over the Internet and affirmatively elects to abstain from voting, such proxy will be counted as present for the purpose of determining the presence of a quorum for the special meeting and the abstention will have the same effect as a vote “AGAINST” the Mediasite Sale Proposal.

Beneficial Owner: Shares Registered in the Name of Broker or Bank

If, on the record date, your shares of common stock were held in an account at a broker, bank or other nominee, rather than in your name, then you are the beneficial owner of shares of common stock held in “street name” and a voting instruction card is being forwarded to you by that organization. The organization holding your account is considered to be the stockholder of record for purposes of voting at the special meeting. Since you are not the stockholder of record, you may not vote your shares of common stock at the special meeting unless you request and obtain a valid proxy from your broker or other agent.

Simply follow the voting instructions in the voting instruction card to ensure your vote is counted. Alternatively, you may vote by telephone or over the Internet as instructed by your broker or bank. To vote at the special meeting, you must obtain a valid proxy from your broker, bank or other agent. Follow the instructions from your broker or bank included with these proxy materials, or contact your broker or bank to request a proxy form.

If you do not give instructions to your broker, your broker can vote your shares of common stock with respect to “discretionary” items, but not with respect to “non-discretionary” items. Non-discretionary matters include director elections and other matters like those involving a matter that may substantially affect the rights or privileges of stockholders, such as mergers, acquisitions, share issuances or stockholder proposals. On non-discretionary items for which you do not give your broker instructions, the shares will be treated as broker non-votes. Discretionary items are proposals considered routine under the rules of the New York Stock Exchange on which your broker may vote shares held in street name in the absence of your voting instructions.

Each of the Mediasite Sale Proposal and the Advisory Compensation Proposal is expected to be a non-discretionary matter. Therefore, if you do not instruct your broker or other nominee on how to vote your shares then:

Counting Votes

Votes will be counted by the inspector of election appointed for the special meeting, who will separately count “For,” “Against,” “Abstain” and broker non-votes.

Revoking Your Proxy

If you wish to change your vote with respect to any proposal, you may do so by revoking your proxy at any time prior to the commencement of voting with respect to that Proposal at the special meeting.

If you are the record holder of your shares, you can revoke your proxy by:

If you are a stockholder of record, revocation of your proxy or voting instructions by written notice must be received by 11:59 p.m., Eastern Time, on [●], 2024, although you may also revoke your proxy by attending the special meeting and voting during the meeting. Simply attending the special meeting will not, by itself, revoke your proxy. Your most current proxy card or telephone or Internet proxy is the one that will be counted. If your shares are held in street name by your broker or bank as a nominee or agent, you should follow the instructions provided by your broker or bank to revoke your proxy.

Solicitation of Proxies

The Company will pay for the cost and expense of preparing, filing, assembling, printing and mailing this proxy statement, any amendments thereto, the proxy card and any additional information furnished to the Company's stockholders. The Company may also reimburse brokerage houses and other custodians, nominees and fiduciaries for their costs of soliciting and obtaining proxies from beneficial owners, including the costs of reimbursing brokerage houses and other custodians, nominees and fiduciaries for their costs of forwarding this proxy statement and other solicitation materials to beneficial owners. In addition, proxies may be solicited without extra compensation by directors, officers and employees of the Company by mail, telephone, email, fax or other methods of communication.

Delivery of Proxy Materials to Households Where Two or More Stockholders Reside

The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost-savings for companies.

In connection with the special meeting, a number of brokers with account holders who are the Company's stockholders will be householding the proxy materials. As a result, a single proxy statement will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the applicable stockholders. Once a stockholder receives notice from its broker that they will be householding communications to such stockholder's address, householding will continue until such stockholder is notified otherwise or until such stockholder revokes its consent. If, at any time, a stockholder no longer wishes to participate in householding and would prefer to receive a separate proxy statement, such stockholder should notify its broker or contact the Company at Laura Delis at [email protected]. Stockholders who currently receive multiple copies of this proxy statement at their address and would like to request householding of their communications should contact their broker.

Attending the special meeting

The special meeting will be a virtual meeting held over the Internet via Mediasite at www.sonicfoundry.com/investors/special-meeting. All the stockholders as of the record date, or their duly appointed proxies, may attend the special meeting. If you are a registered stockholder (that is, if you hold your stock in your own name) and you wish to attend the special meeting, please have your proxy card available to access the special meeting.

If your shares are held in street name in a stock brokerage account or by another nominee and you wish to attend the special meeting, you need to contact Laura Delis at [email protected].

PROPOSAL NO. 1: APPROVAL OF MEDIASITE ASSET SALE

Information about the Parties

The Company

We are a global leader for video capture, management, and streaming solutions as well as virtual and hybrid events. Trusted by thousands of educational institutions, corporations, health organizations and government entities in over 65 countries with solutions that transform communication, training, and learning, our brands include Mediasite®, Mediasite Connect, Vidable™ and Global Learning Exchange™.

Founded in 1991, Sonic Foundry was incorporated in Wisconsin in March 1994 and merged into a Maryland corporation of the same name in October 1996. Our executive offices are located at 222 West Washington Ave., Madison, Wisconsin 53703 and our telephone number is (608) 443-1600. Our Sonic Foundry International office is located in the Netherlands, and our MSKK office is located in Japan. Our corporate website is www.sonicfoundry.com.

Our common stock is traded on the OTC Pink Market under the symbol “SOFO.”

Buyer

Each of Enghouse Interactive, Inc., Enghouse Holdings (UK) Limited and Enghouse (Netherlands) Holdings B.V. is a direct or indirect wholly owned subsidiary of Parent. Pursuant to the Purchase Agreement, subject to the terms and conditions therein, Enghouse Interactive, Inc. will purchase the assets of the Mediasite business, Enghouse Holdings (UK) Limited will purchase the equity interests of MSKK and Enghouse (Netherlands) Holdings B.V. will purchase the equity interests of Sonic Foundry International.

Parent

Parent is a Canadian publicly traded company (TSX: ENGH) that provides vertically focused enterprise software solutions focusing on contact centers, video communications, healthcare, telecommunications, public safety and the transit market. Parent has a two-pronged growth strategy that focuses on internal growth and acquisitions, which are funded through operating cash flows. Parent is organized around two business segments: the Interactive Management Group and the Asset Management Group. As of October 31, 2023, Parent had total assets of $784 million (reflected in Canadian dollars) and cash and cash equivalents of $240 million (reflected in Canadian dollars).

General Description of the Mediasite Asset Sale

Subject to the terms and conditions of the Purchase Agreement, including the approval of the Mediasite Sale Proposal by our stockholders, the Sellers have agreed to sell to the Buyer the equity interests of Sonic Foundry International and MSKK and the assets of the Mediasite Business held directly by the Sellers and the Buyer has agreed to assume certain specified liabilities of the Sellers relating to the Mediasite Business. Under the terms of the Purchase Agreement, we will retain all assets not transferred to the Buyer, including our cash at closing and all assets exclusively relating to our Vidable and Global Learning Exchange businesses, and we will retain all liabilities of Sonic Foundry not assumed by the Buyer.

For more information on the above, please see “The Stock and Asset Purchase Agreement – Purchase and Sale of Assets” and “The Stock and Asset Purchase Agreement – Assumption and Transfer of Liabilities” beginning on pages [●] and [●], respectively.

A copy of the Purchase Agreement is attached as Annex A to this proxy statement. You are encouraged to read the Purchase Agreement carefully and in its entirety.

Consideration for the Asset Sale Transaction

As consideration for the Mediasite Asset Sale, the Buyer has agreed to:

Repayment of Outstanding Debt

On November 16, 2022, the Company entered into a Loan and Security Agreement (the “NBE Loan Agreement”) with NBE whereby NBE loaned the Company $5,500,000 at a rate of 12% interest per annum due in 30 equal installments beginning on June 1, 2023. The facility also includes a 2% facility fee and a loan premium due at maturity equal to 20% of the amount loaned which is earned monthly based on the number of months the loan remains outstanding. The loan is secured by all assets of the Company and carries certain restrictions and financial covenants including (1) a debt coverage ratio of cash and accounts receivable to the NBE loan of not less than 1.15:1.0; (2) trailing six-month billings requirement of at least $12,000,000 for the September and December 2022 quarters, $11,000,000 for the March and June 2023 quarters and $12,000,000 for the September 2023 quarter and (3) a trailing six-month EBITDA burn requirement of less than $6,000,000 for the quarter ended September 2022, $6,500,000 for the quarter ending December 2022 and $7,000,000 for each of the quarters ending March, June and September 2023. As of October 31, 2023, we were in breach of certain financial covenants in the NBE Loan Agreement. In December 2023, the Company received a Conditional Consent Agreement from NBE whereby NBE agreed not to call its loan in default due to breaches of certain financial covenants. NBE has the right to reconsider its consent and withdraw such conditional agreement at any time. If NBE were to do so, it could declare an event of default under the loan and pursue its available legal remedies. The Managing Director of NBE is Frederick H. Kopko, Jr., a former member of the Board. Pursuant to the Purchase Agreement, we must repay our obligations under the Credit Agreement in order to deliver the assets relating to the Mediasite Business to the Buyer free and clear of any liens. As of the date of this Proxy Statement, approximately $5.9 million is outstanding under the NBE loan.

On November 16, 2022, the Company also entered into a Security Agreement and Promissory Note (as amended, the “Burish Note”) with Mark Burish, who is Chairman of our Board, whereby Mr. Burish loaned the Company $3,000,000, which amount has subsequently been increased to $6,000,000 through three amendments to the Burish Note. The note carries the same interest rate and fees as the note with NBE and is secured by all assets of the Company but is subordinate to the NBE Loan Agreement. As of the date of this Proxy Statement, approximately $6.4 million is outstanding under the Burish Note. While Mr. Burish has consented to the release of his security interest in the assets to be transferred to the Buyer in the Mediasite Asset Sale, we do not expect to use a significant portion of the proceeds of the Mediasite Asset Sale to repay the Burish Debt.

All transactions with Mr. Burish and NBE were unanimously approved by the Board.

Background of the Mediasite Asset Sale

The following chronology summarizes the key meetings and events that led to the Sellers’ signing of the Purchase Agreement. In this process, Sonic Foundry held many conversations, both by telephone and in-person, about possible strategic alternatives. The chronology below covers only the key events leading up to the Purchase Agreement and does not purport to catalogue every conversation or meeting among representatives of Sonic Foundry or between Sonic Foundry and other parties.

The Board has from time to time evaluated strategies for enhancing stockholder value and has periodically evaluated various strategic alternatives. While Sonic Foundry has worked steadily at improving the results of its Mediasite business, it recognized growth constraints in the Mediasite business based on Sonic Foundry’s size and began to shift its focus toward building its Vidable and Global Learning Exchange businesses. As a result, Sonic Foundry’s Board and management began to evaluate a potential sale of the Mediasite Business in 2022.

At the November 17, 2022, meeting of the Board, the Board discussed conversations that management had with two parties potentially interested in acquiring Sonic Foundry’s Mediasite business. The Board encouraged management to continue such discussions.

On January 24, 2023, Sonic Foundry engaged Silverwood Partners to assist in the process of selling Sonic Foundry’s Mediasite business.

Over the period from January 24, 2023 to February 22, 2023, management and Silverwood Partners developed a list of potential bidders for Sonic Foundry's Mediasite business. From February 22, 2023 to June 14, 2023, approximately 349 potential bidders were contacted by Silverwood Partners. Of that group, approximately 37 of the potential bidders expressed an interest in obtaining more information about Mediasite and received a confidential information memorandum (“CIM”) after executing a non-disclosure agreement for the benefit of Sonic Foundry. Five potential bidders eventually submitted an initial oral or written indication of interest as a result of this process.

Sonic Foundry entered into a Non-Disclosure Agreement with Bidder A on January 23, 2023. Silverwood Partners provided Bidder A with a copy of the CIM on February 28, 2023. On May 17, 2023, Bidder A submitted an initial indication of interest.

Sonic Foundry entered into a Non-Disclosure Agreement with Bidder B on March 1, 2023, and on that same day Silverwood Partners provided Bidder B with a copy of the CIM. On May 8, 2023, Bidder B submitted an initial indication of interest.

Sonic Foundry entered into a Non-Disclosure Agreement with Bidder C on March 2, 2023, and on that same day Silverwood Partners provided Bidder C with a copy of the CIM.

At the March 10, 2023 meeting of the Board, Silverwood Partners updated the Board on the potential bidders and the Board discussed the sale process, timing and related topics.

Sonic Foundry entered into a Non-Disclosure Agreement with Parent on March 29, 2023, and on that same day Silverwood Partners provided Parent with a copy of the CIM. Parent submitted a verbal initial indication of interest on April 19, 2023.

On March 14, 2023, management of Sonic Foundry met with Bidder A to introduce Sonic Foundry, discuss process and answer diligence questions.

On March 20, 2023, representatives of Silverwood Partners had an introductory call with representatives of Bidder C. Bidder C submitted an initial indication of interest on March 22, 2023.

On each of March 23, 2023, and March 24, 2023, management of Sonic Foundry and representatives of Silverwood Partners again spoke with Bidder A to discuss valuation matters. Further diligence calls between management of Sonic Foundry and Bidder A took place on April 3, 2023 and April 4, 2023.

On April 5, 2023, management of Sonic Foundry met with representatives of Bidder C to introduce Sonic Foundry, discuss process and answer diligence questions. Management had similar calls with Bidder B on April 6, 2023, and on April 12, 2023.

On April 6, 2023, management of Sonic Foundry met with representatives of Bidder C to introduce Sonic Foundry, discuss process, and answer diligence questions. Management had similar calls with Bidder B on April 6, 2023, and April 12, 2023.

On April 19, 2023, management and Silverwood Partners met again with Bidder A to discuss due diligence matters. Management again met with Bidder A on April 26, 2023 to further discuss due diligence matters.

On April 20, 2023, Bidder C communicated to Silverwood Partners that it had no interest in submitting a formal bid and dropped out of the process.

Management and/or Silverwood Partners had additional meetings with Bidder C on each of April 19, 2023, April 20, 2023, April 21, 2023, and April 26, 2023. During these meetings, management and Silverwood Partners answered diligence questions and the parties discussed valuation.

On April 26, 2023, management of Sonic Foundry met with representatives of Parent to introduce Sonic Foundry, discuss process, and answer diligence questions.

On April 26, 2023, senior management of Sonic Foundry again met with representatives of Bidder B. During the meeting, the parties reviewed and discussed Sonic Foundry’s annual billings data, including with respect to revenues booking categorization and reconciliation.

On May 2, 2023, Silverwood Partners met with representatives of Bidder B to discuss due diligence matters. On May 2, 2023, management of Sonic Foundry also met with representatives of Bidder A to discuss due diligence matters. Silverwood Partners also had an introductory call with representatives of Bidder D.

On May 8, 2023, Bidder B submitted a written letter of intent with a purchase price of $14.5 million, but with purchase price adjustments that Sonic Foundry’s management estimated would result in a net purchase price of approximately $13.4 million.

Sonic Foundry entered into a Non-Disclosure Agreement with Bidder D on May 8, 2023, and on that same day Silverwood Partners provided Bidder D with a CIM. On June 5, 2023, Bidder D submitted an initial indication of interest.

On May 26, 2023, management of Sonic Foundry met separately with representatives of each of Bidder C and Parent to answer diligence questions and discuss valuation.

On May 26, 2023, Silverwood Partners also asked for Bidder B’s final and best offer. The parties further discussed valuation on May 31, 2023, June 2, 2023, and June 5, 2023.

On May 31, 2023, Bidder B communicated orally that it would increase its purchase price to $17.5 million.

On May 31, 2023, the Board met along with representatives of Silverwood Partners to receive an update on the sale process, as well as a status update on the various bidders.

On June 2, 2023, the Board met to discuss the sale process. Specifically, the Board was given an update on the status of various bidders, and the Board discussed alternatives to selling the Mediasite business.

On June 5, 2023, Bidder D indicated that it wished to exit the process as it believed its bid would not be competitive.

On June 7, 2023, Bidder B delivered a draft of a non-binding letter of intent to purchase the Mediasite Business.

On June 8, 2023, management provided pre-exclusivity calls to each of Bidder A and Parent. There was also a call with Bidder B to discuss potential transaction structure.

On June 9, 2023, the Board met to discuss the letter of intent received from Bidder B, as well as the status of the other active bidders. The Board formally authorized proceeding with the negotiation of the letter of intent with Bidder B concurrent with management reaching out to the other potential bidders to solicit their final and best offers.

The Company’s management and Silverwood Partners communicated with the other bidders between June 9, 2023, and June 14, 2023, and none made a superior offer to the offer made by Bidder B.

On June 14, 2023, Bidder B submitted a signed non-binding letter of intent, which the Company countersigned on June 16, 2023. The letter of intent provided for a total purchase price of $19 million, subject to a working capital adjustment that management estimated would result in a purchase price of approximately $13.8 million. The letter of intent also provided for an exclusive negotiation period with Bidder B through July 15, 2023.

Following the execution of the letter of intent with Bidder B, Bidder B performed more extensive due diligence regarding the Mediasite business.

On June 20, 2023, the Board met to discuss alternatives for the Company after the completion of the proposed Mediasite sale transaction. Among the alternatives considered by the Board were retaining both the Vidable and Global Learning Exchange businesses and seeking to sell one or both of these businesses. The Board recognized that Mark Burish, Chairman of the Board and a significant stockholder of the Company, had expressed an interest in purchasing one or both of these businesses. As a result, Reinhart Boerner Van Deuren s.c. (“Reinhart”), the Company’s counsel, recommended that the Board form a special committee of independent directors to act in the interests of the Company’s stockholders other than Mr. Burish. William St. Lawrence and Nelson A. Murphy were discussed as possible members of the special committee.

Subsequently on June 20, 2023, the Board approved resolutions by unanimous written consent forming a special committee (the “Special Committee”) of the Board and designating William St. Lawrence and Nelson A. Murphy as the members of the Special Committee. The Special Committee was delegated the authority to (1) review, evaluate and establish the terms and conditions, and determine the advisability, of a possible sale of the Vidable and/or Global Learning Exchange businesses to Mr. Burish and any alternative thereto, (2) negotiate with Mr. Burish or any other party the Special Committee deems appropriate with respect to the terms and conditions of a possible sale of the Vidable and/or Global Learning Exchange businesses or any alternative thereto, (3) determine whether a possible sale of the Vidable and/or Global Learning Exchange businesses to Mr. Burish or any alternative thereto is advisable, fair to, and in the best interests of the Company and its stockholders, and (4) recommend to the full Board what action, if any, should be taken by the Board with respect to a possible sale of the Vidable and/or Global Learning Exchange businesses to Mr. Burish or any alternative thereto, or to decide not to recommend a possible sale of the Vidable and/or Global Learning Exchange businesses to Mr. Burish or any alternative thereto. The Board further provided that it would not recommend any potential sale of the Vidable and/or Global Learning Exchange businesses to Mr. Burish or other alternatives for approval by Sonic Foundry’s stockholders or otherwise approve such a transaction without a prior favorable recommendation of the Special Committee. The Special Committee determined to engage Reinhart as its legal counsel.

On June 26, 2023, the Special Committee held its first meeting during which it approved the engagement of Silverwood Partners as its financial advisor to assist with exploring alternatives for a possible sale of the Vidable and/or Global Learning Exchange businesses.

On June 28, 2023, the Special Committee met with representatives of management and Silverwood Partners to discuss potential bidders for each of the Vidable business and the Global Learning Exchange business and the process to solicit bidders. Representatives of Silverwood Partners also made a presentation to the Special Committee without management present regarding the process and valuation of the Vidable and Global Learning Exchange businesses, including challenges in finding bidders given the early stage of each of these businesses and the challenging M&A market environment.

On July 6, 2023, Bidder B indicated on a call that it was concerned with the customer churn for the Mediasite Business based on the cloud usage data that Company management had provided and Bidder B indicated that it would be stepping away.

On July 11, 2023, Mr. Mozden and another Company employee had a call with Bidder B to review a presentation providing more context on the cloud usage data as well as a revised churn analysis.

On July 12, 2023, the Company sent additional usage data to Bidder B.

On July 15, 2023, Bidder B allowed its letter of intent to expire by its terms.

On July 20, 2023, Silverwood Partners met with representatives of Bidder B, and Bidder B confirmed that it was no longer pursuing the transaction.

On July 21, 2023, the Special Committee and the Company entered into an engagement letter with Silverwood Partners formally engaging Silverwood Partners as financial advisor to the Special Committee.

On July 21, 2023, Mr. Mozden spoke with representatives of Bidder B, and Bidder B indicated that it may still have interest in a transaction but not at the price reflected in the letter of intent.

On July 26, 2023, Silverwood Partners spoke with representatives of Bidder B during which Bidder B indicated that it would consider the transaction at a purchase price of $9.5 million. Silverwood Partners and the Board discussed whether this price was fair and reasonable. Bidder B was told that this price was not acceptable. Bidder B asked for a call the next day to discuss with Silverwood Partners.

On July 27, 2023, Bidder B did not participate in the planned call. Bidder B sent an e-mail which indicated that it would be willing to pursue the transaction at a purchase price of $10 million.

On July 28, 2023, Silverwood Partners informed Bidder B that its $10 million proposed price was also unacceptable to the Company.

On July 31, 2023, Bidder B confirmed to Silverwood Partners that it could not offer a higher price at that time.

Over the period from July 24, 2023 to July 25, 2023, management and Silverwood Partners developed a list of potential bidders for Sonic Foundry's Vidable business and/or Global Learning Exchange business. From late July 2023 through August 2023, approximately 15 potential bidders for the Vidable business or Global Learning Exchange business were contacted by Silverwood Partners. Two of these potential bidders expressed an interest in obtaining more information about Vidable, and representatives of Silverwood Partners spoke with these potential bidders on August 2, 2023, and August 3, 2023, respectively. After these initial calls, both of the potential bidders expressed no further interest in acquiring Vidable and no other potential bidder expressed an interest in acquiring Vidable or Global Learning Exchange, other than Mark Burish. From late July 2023 through August 2023, Mr. Mozden separately contacted nine potential bidders for Sonic Foundry's Vidable business and/or Global Learning Exchange business and none of these bidders ultimately were interested in submitting an indication of interest for either business.

On July 27, 2023, Mark Burish received a copy of a confidential information memorandum relating to the Vidable and Global Learning Exchange businesses.

From August 1, 2023 to August 31, 2023, Silverwood Partners contacted approximately 35 potential bidders for the Mediasite business, including 23 potential bidders previously involved in the process and 12 new potential bidders. Of that group, three potential bidders expressed an interest in the Mediasite business and eventually submitted an initial oral or written indication of interest as a result of this process, consisting of Parent, Bidder B and Bidder E.

On August 10, 2023, Mark Burish sent an email with an initial indication of interest to purchase both the Vidable business and Global Learning Exchange business for a combined value of $4 million to $6 million.

On August 16, 2023, Mr. St. Lawrence sent an email to Mark Burish on behalf of the Special Committee acknowledging receipt of his indication of interest for the Vidable business and Global Learning Exchange business.

On August 16, 2023, Bidder E entered into a Non-Disclosure Agreement and Silverwood Partners provided Bidder E with a copy of the CIM on that same day.

On September 22, 2023, at a meeting of the Board, management summarized the status of discussions with Parent and Bidder E. Each would be requested to provide a proposed draft letter of intent by the end of the following week.

On October 2, 2023, Bidder E submitted an initial indication of interest.

On October 4, 2023, at a meeting of the Board, Mr. Mozden summarized the status of discussions with Parent and Bidder E, including their most recent indications of interest. The Board directed Mr. Mozden to go back to Bidder E and ask it to provide a more competitive bid.

On October 27, 2023, Bidder E submitted a written letter of intent with a purchase price of $10 million, including $8 million payable at closing and $2 million payable one year after closing and with purchase price adjustments that Sonic Foundry’s management estimated would result in net proceeds of approximately $8 million.

On November 8, 2023, Silverwood Partners sent Bidder E comments to its proposed letter of intent. Issues with its letter of intent included the proposed purchase price and timing to sign.

On November 11, 2023, Parent submitted a written letter of intent with a purchase price of $15.0 million, including a $1.5 million holdback amount and subject to adjustment substantially consistent with the final terms of the Purchase Agreement.

On November 14, 2023, Mr. Mozden spoke with Parent’s Chief Executive Officer to discuss Parent’s letter of intent and its ability to increase its proposed purchase price.

Between November 15, 2023 and December 14, 2023, Mr. Mozden held further conversations with Mark Burish regarding his interest in acquiring the Vidable business and Global Learning Exchange business. Mr. Burish indicated a preference for acquiring the Global Learning Exchange business.

On November 15, 2023, Bidder E communicated to Sonic Foundry that it was not willing to change its proposed terms.

On November 17, 2023, Sonic Foundry sent its comments to Parent’s proposed letter of intent.

On November 18, 2023, Bidder B submitted a written letter of intent, which it revised on November 19, 2023. Sonic Foundry did not view its proposal as competitive.

On November 20, 2023, Parent submitted a revised letter of intent, which it revised again on November 21, 2023, in response to feedback from Sonic Foundry.

On November 21, 2023, the Company entered into a letter of intent with Parent. The letter of intent provided for a total purchase price of $15.5 million, subject to adjustment substantially consistent with the final terms of the Purchase Agreement. The letter of intent also provided for an exclusive negotiation period with Parent through December 22, 2023.

Following the execution of the letter of intent with Parent, Parent performed more extensive due diligence regarding the Mediasite business.

On December 4, 2023, Reinhart sent Parent’s counsel an initial draft of the Purchase Agreement and the Transition Services Agreement.

Between December 4, 2023, and December 22, 2023, Reinhart and Sonic Foundry negotiated the terms of the Purchase Agreement and other transaction documents with Parent and its counsel.

On December 17, 2023, Mark Burish sent an email expressing an interest in acquiring the Global Learning Exchange business for a purchase price of $1.5 million, to be paid through the exchange of debt, and expressed an interest in potentially converting additional debt into equity and restructuring additional debt.

On December 22, 2023, the Special Committee communicated to Mark Burish its preference that the Company focus on getting the Purchase Agreement with Parent signed and closing the Mediasite Asset Sale, and proposed that discussions regarding a potential sale of the Global Learning Exchange business to Mr. Burish and potential related modifications to the Burish Debt resume promptly after the closing of the Mediasite Asset Sale.

The Board held a meeting on December 22, 2023, with representatives of Silverwood Partners and Reinhart attending. Reinhart reviewed the material proposed terms of the Purchase Agreement. Representatives of Silverwood Partners made a presentation to the Board, and responded to questions from members of the Board with respect to this information and the financial aspects of the transaction. At the conclusion of its presentation, Silverwood Partners delivered an oral opinion, confirmed in writing by an opinion dated December 22, 2023, as to the fairness, from a financial point of view, to Sonic Foundry of the consideration to be received by Sonic Foundry pursuant to the Purchase Agreement, as of December 22, 2023, and based upon and subject to the assumptions, limitations, qualifications and factors contained in its written opinion. The members of the Board then conducted further discussion and evaluation of the terms and conditions of the Purchase Agreement. By a unanimous vote, the Board determined that the Purchase Agreement and the transactions contemplated thereby, including the Mediasite Asset Sale, were advisable, fair to, and in the best interests of Sonic Foundry, and approved the Purchase Agreement and the transactions contemplated thereby.

After December 22, 2023, Reinhart and Sonic Foundry continued to negotiate the remaining open terms of the Purchase Agreement and other transaction documents with Parent and its counsel.

On January 2, 2024, Sonic Foundry, Sonic Foundry Media Systems, the Buyer, and Parent executed and delivered the Purchase Agreement. On January 4, 2024, before the opening of trading, Sonic Foundry issued a press release announcing the execution of the Purchase Agreement.

Reasons for the Mediasite Asset Sale and Recommendation of our Board

In reaching its decision to approve the Purchase Agreement and the Mediasite Asset Sale, and to recommend that our stockholders vote to approve the Mediasite Asset Sale, the Board consulted with management and outside financial and legal advisors. Our Board considered a wide range of material factors relating to the Purchase Agreement and the proposed Mediasite Asset Sale, many of which our board believed supported its decision, including the following:

Our Board also considered and balanced against the potential benefits of the Mediasite Asset Sale a number of potentially adverse factors concerning the Mediasite Asset Sale, including the following: 

The foregoing discussion of the factors considered by our Board is not intended to be exhaustive, but does set forth the principal factors considered by our Board. Our Board collectively reached the conclusion to approve the Purchase Agreement and the Mediasite Asset Sale in light of the various factors described above, as well as other factors that our Board felt were appropriate. In view of the wide variety of factors considered by our Board in connection with its evaluation of the Mediasite Asset Sale and the complexity of these matters, our Board did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Rather, our Board made its recommendation based on the totality of the information presented to, and the investigation conducted by, the Board. In considering the factors discussed above, individual directors may have given different weights to different factors.

After evaluating these factors and consulting with its outside legal counsel and financial advisor, our Board unanimously approved the Purchase Agreement and the Mediasite Asset Sale and determined that the Mediasite Asset Sale is advisable, fair to and in the best interests of Sonic Foundry. Accordingly, our Board unanimously recommends that stockholders vote “FOR” the Mediasite Sale Proposal.

Opinion of Our Financial Advisor

On December 22, 2023, Silverwood Partners rendered its oral opinion to the Board (which was subsequently confirmed in writing by delivery of a written opinion by Silverwood Partners, dated the same date), stating that, as of the date of the letter and subject to and based on the assumptions made, procedures followed, matters considered, limitations of the review undertaken and qualifications in such letter, the consideration (the “Consideration”) of $15,500,000, subject to adjustment, to be received by Sonic Foundry in connection with the sale of the Mediasite Business pursuant to the terms of the Purchase Agreement is fair, from a financial point of view, to Sonic Foundry.

The full text of the Silverwood Partners written opinion letter, dated as of December 22, 2023, is attached as Annex C. You should read the Silverwood Partners opinion letter carefully and in its entirety for a discussion of, among other things, the scope of the review undertaken, and the assumptions made, procedures followed, matters considered and qualifications and limitations upon the review undertaken by Silverwood Partners in connection with its opinion. This summary is qualified in its entirety by reference to the full text of the opinion letter. The Silverwood Partners opinion letter was directed to the Board, in its capacity as the board of directors of Sonic Foundry, and addressed only the fairness from a financial point of view, as of the date of the opinion, of the Consideration to be received under the Purchase Agreement. Silverwood’s opinion and opinion letter do not constitute a recommendation as to whether or how any Sonic Foundry stockholder should vote or otherwise act in relation to the proposed Mediasite Asset Sale or any other matter.

In connection with rendering its opinion, Silverwood Partners, among other things:

In addition, Silverwood Partners conducted such other analyses, examinations, and inquiries and considered such other financial, economic and market criteria as it deemed necessary in arriving at its opinion.

In its review and analysis, and in arriving at its opinion, Silverwood Partners assumed and relied on the accuracy and completeness of all of the financial, business, and other information provided to or otherwise discussed with Silverwood Partners or publicly available. Silverwood Partners was not engaged to, and did not independently attempt to, verify any of such information. Silverwood Partners also relied upon information provided by Sonic Foundry management as to the reasonableness and achievability of the financial projections for the Mediasite Business (and the assumptions and bases therefor) provided to Silverwood Partners, and, with Sonic Foundry’s consent, Silverwood Partners assumed that the projections were reasonably prepared and reflect the best currently available estimates and judgments of Sonic Foundry’s management. Silverwood Partners was not engaged to assess the reasonableness or achievability of the projections or the assumptions on which they were based, and Silverwood Partners expressed no view as to such projections or assumptions. In addition, Silverwood Partners did not conduct a physical inspection or appraisal of any of the assets, properties or facilities owned relating to the Mediasite Business, and Silverwood Partners was not furnished with any such evaluation or appraisal. Silverwood Partners also assumed that all governmental, regulatory, or other consents and approvals necessary for the consummation of the transactions contemplated by the Purchase Agreement would be obtained without any material adverse effect on the Mediasite Business or the transactions contemplated by the Purchase Agreement.

Silverwood Partners was not asked to, nor did Silverwood Partners, offer any opinion as to the material terms of the Purchase Agreement or the form of the transactions contemplated by the Purchase Agreement. In rendering its opinion, Silverwood Partners assumed, with Sonic Foundry’s consent, that the final executed form of the Purchase Agreement would not differ in any material respect from the drafts that Silverwood Partners examined, and that the conditions in the Purchase Agreement will be satisfied and that the transactions contemplated by the Purchase Agreement will be consummated on a timely basis in the manner contemplated by the Purchase Agreement.

The opinion of Silverwood Partners was based on economic and market conditions and other circumstances existing on, and information made available to Silverwood Partners as of, December 22, 2023, and does not address any matters subsequent to such date. The opinion of Silverwood Partners was limited to the fairness from a financial point of view, as of the date of the opinion, of the Consideration to be received by Sonic Foundry for the sale of the Mediasite Business under the Purchase Agreement. Silverwood Partners’ opinion does not address the underlying business decision to effect the transactions contemplated by the Purchase Agreement or any other terms of the Purchase Agreement or the relative merits of the transactions contemplated by the Purchase Agreement as compared to any alternative business strategies or transactions that might be available to Sonic Foundry or the Mediasite Business. Although subsequent developments may affect the Silverwood Partners opinion, Silverwood Partners does not have any obligation to update, revise, or reaffirm its opinion.

The following is a summary of the material financial analyses performed by Silverwood Partners in arriving at its opinion. The Silverwood Partners opinion letter was only one of many factors considered by the Board in evaluating the transactions contemplated by the Purchase Agreement. Neither the Silverwood Partners opinion nor its financial analyses were determinative of the Consideration or of the views of the Board or Sonic Foundry’s management with respect to the Consideration or the transactions contemplated by the Purchase Agreement. Some of the summaries in the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Silverwood Partners’ financial analyses. The summary text describing each financial analysis does not constitute a complete description of Silverwood Partners’ financial analyses, including the methodologies and assumptions underlying the analyses, and if viewed in isolation could create a misleading or incomplete view of the financial analyses performed by Silverwood Partners. The summary text set forth below does not represent and should not be viewed by anyone as constituting conclusions reached by Silverwood Partners with respect to any of the analyses performed by it in connection with its opinion. Rather, Silverwood Partners made its determination as to the fairness to us, from a financial point of view, of the Consideration to be paid under the Purchase Agreement based on its analyses as a whole.

Analysis of Comparable Publicly Traded Companies

Silverwood Partners reviewed and compared certain publicly available financial data, ratios and trading multiples for seven comparable publicly traded companies that Silverwood Partners determined, based on its professional judgment, to be reasonably comparable to the Mediasite Business. The comparable publicly traded companies Silverwood Partners selected were 2U, Inc., Vantiva (Technicolor S.A), Vimeo, Inc., Brightcove, Inc., ON24, Inc., Haivision Systems, Inc., and AI-Media Technologies, Ltd. Although none of the seven selected publicly traded companies are directly comparable to the Mediasite Business, Silverwood Partners reviewed these companies because, among other things, Silverwood Partners determined that their businesses, financial information, service offerings, and operating profiles are reasonably comparable to those of the Mediasite Business for purposes of this analysis. In selecting comparable public companies, Silverwood Partners focused on businesses that provide video solutions with product or service offerings comparable to the Mediasite Business. Financial data of the selected companies was based on publicly available information. Silverwood Partners reviewed data, including stock price, market capitalization, enterprise value, revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) multiples based on the last publicly available trailing twelve months revenues and EBITDA, for each of the selected publicly traded companies. The multiples for each of the selected companies were calculated using their respective closing prices on December 15, 2023 and were based on the most recent publicly available information and information collected from PitchBook Data, Inc.

The following table reflects the results of this analysis:

Source: PitchBook Data, Inc.; Public Market Information is as of December 15, 2023; TTM EBITDA and TTM Net Income Numbers are Analyst Normalized; 2U, Vimeo, Brightcove, and ON24 TTM Revenue, EBITDA, and Net Income as of
Sep’23; Vantiva and AI Media TTM Revenue, EBITDA, and Net Income as of Jun’23; Haivision TTM Revenue, EBITDA, and Net Income, and EBITDA as of Jul’23.

No company used in the comparable company analysis is identical to the Mediasite Business. In evaluating selected publicly traded companies, Silverwood Partners made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters which are beyond Sonic Foundry’s control, such as the impact of competition on the Mediasite Business and the industry generally, industry growth, and financial conditions and prospects of the industry or the financial markets in general.

Analysis of Comparable Acquisition Transactions

Silverwood Partners performed a precedent transactions analysis, which is designed to imply a value of a company based on publicly available financial terms for selected acquisition transactions.

Silverwood Partners reviewed and compared certain publicly available transaction valuation metrics that Silverwood Partners determined, based on its professional judgment, were reasonably comparable to the proposed Mediasite Asset Sale.

Silverwood Partners reviewed and selected precedent acquisition transactions that, in the exercise of its professional judgment, were deemed to be relevant to its analysis after meeting the following criteria: (i) the target company operated in media, education, event, or enterprise technology, (ii) primarily transactions that closed in 2022 or 2023 with publicly available financial terms, certain transactions were included from 2020 and 2021, (iii) the target company’s implied enterprise value was less than $60 million, and (iv) the acquisition was not of a minority interest. The following table reflects the results of these analyses with respect to comparable acquisition transactions:

No transaction used in the analysis of comparable acquisition transactions is identical to the Mediasite Business or the transactions contemplated by the Purchase Agreement. In evaluating the precedent acquisition transactions, Silverwood Partners made judgments and assumptions with regard to general business, market and financial conditions and other matters, which are beyond Sonic Foundry’s control. These include, among other things, the impact of competition on the Mediasite Business or the industry generally, industry growth, and the absence of any adverse material change in the financial condition of the Mediasite Business or the industry or in the financial markets in general.

Discounted Cash Flow Analysis

Silverwood Partners performed a discounted cash flow analysis of the Mediasite Business, using financial projections for the Mediasite Business provided by Sonic Foundry management. Silverwood Partners calculated a range of potential enterprise values of the Mediasite Business based on forecasts of future unlevered free cash flows for the fiscal year ended September 30, 2023, through the fiscal year ending September 30, 2026. Silverwood Partners first calculated unlevered free cash flows (calculated as earnings before interest and taxes, less taxes, plus depreciation and amortization, less the amount of any increase or plus the amount of any decrease in net working capital, less capital expenditures) of the Mediasite Business for fiscal years 2023 to 2026.

Silverwood Partners then calculated terminal values for the Mediasite Business using the terminal value method based on revenue multiples. The terminal value based on revenue multiples was calculated by applying a range of terminal year revenue multiples of 0.8x to 1.0x (selected based on the professional judgment of Silverwood Partners after consideration of the precedent M&A transactions multiples and comparable public company multiples) to Sonic Foundry management’s revenue forecast for fiscal year 2026. These unlevered free cash flows and the terminal values were then discounted to their respective present values as of September 30, 2023, using a range of discount rates of 11.9% to 13.9% (selected based on the professional judgment of Silverwood Partners, and derived from an analysis of the estimated weighted average cost of capital using the Mediasite Business’s comparable company data) to calculate a range of potential enterprise values for the Mediasite Business.

Although discounted cash flow analysis is a widely accepted and practiced valuation methodology, it relies on a number of assumptions, discount rates, and can be disproportionately affected by assumptions related to “terminal value”. The valuation derived from the discounted cash flow analysis is not necessarily indicative of the Mediasite Business’s present or future value or results. Discounted cash flow analysis in isolation from other analyses is a less effective method of evaluating transactions than when discounted cash flow is considered together with other analyses used for valuation purposes.

Determination of Reference Value Range

Silverwood Partners derived a reference valuation range for the Consideration on a weighted basis in consideration of the following factors: (i) Mediasite Business projections assume a continued revenue decline and no expectation of profitability for the Mediasite Business on a standalone basis throughout the projection period, or at the end of the projection period; (ii) the companies referenced in the comparable public companies analysis all had positive EBITDA and, while comparable from an industry perspective, the analysis is less relevant in overall considerations of value as the negative Mediasite Business circumstances render less comparable a valuation analysis of public companies that have positive EBITDA; (iii) the companies referenced in the comparable precedent acquisitions analysis were comparable from an industry perspective, and several comparable acquisitions were of companies that had negative business circumstances (Lifesize and Qumu); (iv) discounted cash flow analysis was considered to be the most useful valuation methodology as it includes the impact of expected losses on the overall present value; (iv) a deficiency of the discounted cash flow analysis was that the terminal value is calculated solely off a revenue multiple as an EBITDA-based terminal value estimate is not possible given the expectation of negative EBITDA in the fiscal year ending September 30, 2026; (v) it is challenging to select an appropriate terminal value revenue multiple for the discounted cash flow analysis that is reflective of four years of revenue decline, a consistent lack of profitability, and no expectation of profitability for the Mediasite Business as a standalone business. After considering the above factors and other considerations deemed relevant to the valuation of the Mediasite Business, Silverwood Partners indicated the reference value range to be USD $8,000,000 to $10,000,000. Silverwood Partners then compared this to the Consideration to be paid for the Mediasite Business of USD $15,500,000, plus estimated net debt as of September 30, 2023, for the Japanese and Dutch subsidiaries being assumed by the purchaser of USD $150,000, less certain estimated trade liabilities of the Mediasite Business to be retained by Sonic Foundry of $1,800,000, resulting in an adjusted consideration of USD $13,850,000. Such adjusted consideration represents a 38.5% to 73.1% premium to the reference valuation range.

These analyses indicated the following implied multiples for the Mediasite Business:

Summary Valuation Analysis – Mediasite

Summary Valuation Analysis – Mediasite

Miscellaneous

The summary set forth above does not contain a complete description of the analyses performed by Silverwood Partners but does summarize the material analyses performed by Silverwood Partners in rendering its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. In arriving at its opinion, Silverwood Partners did not draw, in isolation, conclusions from or with regard to any factor or analysis that it considered. Rather, Silverwood Partners made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of the analyses. Silverwood Partners based its analyses on assumptions that it deemed reasonable, including those concerning general business and economic conditions and industry-specific factors. The other principal assumptions upon which Silverwood Partners based its analysis have been described under the description of each analysis in the foregoing summary. Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by Silverwood Partners are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, Silverwood Partners’ analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which securities may trade at the present time or at any time in the future or at which businesses actually could be bought or sold.

The fact that any specific analysis has been referred to in the summary above is not meant to indicate that this analysis was given greater weight than any other analysis, unless specifically referenced in the summary. In addition, the ranges of valuations resulting from any particular analysis described above should not be taken to be Silverwood Partners’ view of the actual value of the Mediasite Business.

Under the terms of an engagement letter dated January 24, 2023, Sonic Foundry has agreed to pay Silverwood Partners a fee of $65,000 for rendering its opinion, which was payable upon the delivery of the Silverwood Partners opinion, and is not contingent on the closing of the transaction. Of such amount, $20,000 has been paid as of the date hereof and $45,000 will be paid in full prior to the closing of the transaction. No part of Silverwood Partners’ opinion fee is conditioned upon the conclusion expressed in its opinion. In addition, Sonic Foundry has paid Silverwood Partners monthly financial advisory fees, all of which have been paid in full as of the date hereof, and no amount of which is or will be outstanding or contingent on the closing of the transaction. If the Mediasite Asset Sale is completed, Silverwood Partners will be paid a fee of $620,000. In addition, Sonic Foundry has agreed to reimburse Silverwood Partners for certain of its expenses and to indemnify Silverwood Partners and related persons against various potential liabilities, including certain liabilities that may arise in connection with Silverwood Partners’ engagement.

Silverwood Partners has been retained by the Special Committee of the Board in connection with exploring strategic alternatives for the Vidable and Global Learning Exchange businesses, and may be paid a fee or fees in connection with any transaction(s) related thereto.         

Silverwood Partners has in the past provided investment banking and financial advisory services to Sonic Foundry and has received fees for the rendering of such services. These services include acting as financial advisor in connection with (i) the sale of the Sonic Foundry Media Services business to Deluxe Entertainment Services in May 2003, (ii) the sale of the Sonic Foundry Desktop Software Business to Sony Pictures Digital in July 2003, and (iii) the conversion of approximately $5.6 million of debt into common stock in May 2020. Silverwood Partners may also, in the future, provide investment banking and financial advisory services to Sonic Foundry, or entities that are affiliated with Sonic Foundry, for which Silverwood Partners would expect to receive compensation.

Silverwood Partners has not provided any financial advisory services to Parent during the past two years.

Silverwood Partners’ analyses were prepared solely as part of Silverwood Partners’ analysis of whether the Consideration to be received by Sonic Foundry in connection with the sale of Sonic Foundry’s Mediasite Business pursuant to the terms of the Purchase Agreement is fair, from a financial point of view, to Sonic Foundry, as of December 22, 2023. The opinion of Silverwood Partners was only one of the factors taken into consideration by the Board in making its determination to approve the Asset Purchase Agreement and the transactions contemplated by the Purchase Agreement.

Certain Unaudited Financial Projections for the Mediasite Business

Sonic Foundry does not, as a matter of course, for Sonic Foundry or the Mediasite Business, publicly disclose long-term forecasts or internal projections as to future performance, revenues, earnings, financial condition or other results due to, among other reasons, the inherent difficulty of predicting financial performance for future periods and the likelihood that the underlying assumptions and estimates may not be realized. However, in connection with the potential sale of its Mediasite Business, Sonic Foundry senior management prepared certain risk-adjusted non-public, unaudited prospective financial information for the Mediasite Business for fiscal years 2023 to 2026 (the “Management Projections”).

The Management Projections were provided to the Board in considering, analyzing and evaluating the potential sale of the Mediasite Business. In addition, the Management Projections were provided to Silverwood Partners, Sonic Foundry’s financial advisor, and were relied upon by Silverwood Partners in connection with the rendering of Silverwood Partners’ fairness opinion to the Board and in performing the related financial analyses as described in “ – Opinion of Our Financial Advisor” and were the only financial projections with respect to the Mediasite Business used by Silverwood Partners in performing such financial analyses.

In light of the foregoing factors and the uncertainties inherent in the Management Projections, holders of common stock are cautioned not to place undue, if any, reliance on the Management Projections. The Management Projections were not prepared with a view toward public disclosure. The inclusion of the Management Projections should not be regarded as an indication that Sonic Foundry or any of its affiliates, advisors or representatives considered or consider the Management Projections to be predictive of actual future events, and the Management Projections should not be relied upon as such or construed as financial guidance. Neither Sonic Foundry nor any of its affiliates, advisors (including its financial advisor) or representatives assumes any responsibility for the accuracy of this information. Neither Sonic Foundry nor any of its respective affiliates, advisors (including its financial advisor), officers, directors or representatives can give any assurance that actual results will not differ from the Management Projections, and none of them undertakes any obligation to update or otherwise revise or reconcile the Management Projections to reflect circumstances existing after the date the Management Projections were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the Management Projections are shown to be in error. Sonic Foundry does not intend to make publicly available any update or other revision to the Management Projections, except as may otherwise be required by law. Neither Sonic Foundry nor any of its respective affiliates, advisors (including its financial advisor), officers, directors or representatives has made or makes any representation or warranty to any holders of Shares or other person regarding the ultimate performance of the Mediasite Business compared to the information contained in the Management Projections or the likelihood that the Management Projections will be achieved. The Management Projections were prepared based on the Mediasite Business’s continued operation as part of Sonic Foundry on a standalone basis, and do not take into account the Mediasite Asset Sale, including the effect of any business or strategic decision or action that has been or will be taken as a result of the execution of the Purchase Agreement.

The Management Projections were not prepared with a view toward compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts, or U.S. generally accepted accounting principles (“GAAP”). In addition, the Management Projections were not prepared with the assistance of, or reviewed, compiled or examined by, independent accountants. The Management Projections are not being included in this proxy statement to influence any stockholder’s decision whether to vote in favor of the Mediasite Sale Proposal, but instead because the Management Projections were provided to the Board and to Silverwood Partners. The Management Projections may differ from publicly available analyst estimates, and the Management Projections do not take into account any events or circumstances after the date they were prepared, including the announcement of the Mediasite Asset Sale. Further, the Management Projections cover multiple years and, by their nature, become subject to greater uncertainty with each successive year. Accordingly, there can be no assurance that the Management Projections will be realized, and actual results may vary materially from those shown.

Certain of the Management Projections may be considered non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used in the Management Projections may not be comparable to similarly titled measures used by other companies. Sonic Foundry has not provided reconciliations of the non-GAAP Projections to the comparable GAAP measure due to, among other reasons, no reasonably accessible or reliable comparable GAAP measures for these measures and because of the inherent difficulty in forecasting and quantifying these measures that are necessary for such reconciliation. In the view of Sonic Foundry’s management, the Management Projections were prepared on a reasonable basis based on the information available to Sonic Foundry’s management at the time of their preparation.

In light of the foregoing factors and the uncertainties inherent in the Management Projections, Sonic Foundry’s stockholders are cautioned not to place undue, if any, reliance on the Management Projections.

The Management Projections are forward-looking statements and are based on estimates and assumptions that are inherently subject to factors such as industry performance, competition, general business, economic, regulatory, market and financial conditions, as well as changes to the business, financial condition or results of operations of the Mediasite Business, including the factors described under “Cautionary Statement Regarding Forward-Looking Statements” and the risk factors described in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

SONIC FOUNDRY HAS NOT UPDATED AND DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE MANAGEMENT PROJECTIONS, INCLUDING, WITHOUT LIMITATION, TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE SUCH INFORMATION WAS PREPARED OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, INCLUDING, WITHOUT LIMITATION, CHANGES IN GENERAL ECONOMIC, REGULATORY OR INDUSTRY CONDITIONS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE MANAGEMENT PROJECTIONS ARE NO LONGER APPROPRIATE.

The following table presents a summary of selected metrics included in the Management Projections:

Statement of Net Income and Cash Flow

Use of Proceeds and Future Operations

Sonic Foundry, and not its stockholders, will receive the proceeds from the Mediasite Asset Sale. We do not intend to liquidate following the Mediasite Asset Sale. As described under “-Repayment of Outstanding Debt” above, part of the proceeds will be used to repay the outstanding obligations under the NBE Debt. In addition, approximately $0.8 million of the proceeds will be used to pay transaction and other expenses. After the repayment of the NBE Debt and payment of transaction and other expenses, we expect net proceeds at closing of approximately $1.7 million. We expect to use the remaining cash proceeds for working capital and general corporate purposes.

Interests of our Directors and Executive Officers in the Mediasite Asset Sale

In considering the recommendation of our Board to vote “FOR” the Mediasite Sale Proposal, you should be aware that, aside from their interests as Sonic Foundry stockholders, our directors and executive officers have interests in the Mediasite Asset Sale that are different from, or in addition to, the interests of our stockholders generally.

Burish Debt. If the Mediasite Asset Sale is completed, we will use part of the net proceeds to repay the NBE Debt in full. As a result, the approximately $6.4 million of Burish Debt that we owe as of the date of this proxy statement to Mark Burish, Chairman of the Board, will have a first priority security interest in our remaining assets and will no longer be subordinated to the NBE Debt. Any additional amounts we borrow from Mr. Burish will also have such a first priority security interest.

Executive Employment Agreements. The Company has an employment agreement each of Joseph P. Mozden, Jr., our Chief Executive Officer, and Robert M. Lipps, our Executive Vice President - Sales. Pursuant to his employment agreement, in connection with a “change of control,” Mr. Mozden will have the right to voluntarily terminate his employment within 60 days of such change of control and, in such case, receive immediate vesting of all previously unvested stock options and cash severance is equal to his base compensation earned over the previous year payable in a lump sum within 30 days of such termination. Pursuant to his employment agreement, in connection with a “change of control,” Mr. Lipps if within two years after a “change of control” good reason occurs, which is defined as (i) a material diminution of his title, authority, status, duties or responsibilities; (ii) a material breach by the Company of the employment agreement; or (iii) a change in the location of the Company’s principal office to a location more than 50 miles outside of the Madison metropolitan area and Mr. Lipps gives notice of termination within 90 days thereafter, he will receive immediate vesting of all previously unvested stock options and cash severance equal to his total cash compensation (including base compensation and incentive/bonus) paid to him in the fiscal year immediately prior to his termination. The Mediasite Asset Sale may be deemed a “change of control” under such employment agreements. Additional details regarding these potential benefits to the named executive officers are provided below. Mr. Mozden has stated his intent to remain with Sonic Foundry after the completion of the Mediasite Asset Sale.

Options Outstanding. Outstanding options held by each of Joe Mozden, Jr. and Robert Lipps that are outstanding immediately prior to the closing of the Mediasite Asset Sale may become fully vested following the closing as described in the previous section.

As of January 2, 2024, there were 322,160 outstanding unvested options held directly by such named executive officers. The following table sets forth the number of unvested options held by the named executive officers that are subject to such potential vesting after the closing of the Mediasite Asset Sale.

Quantification of Benefits and Payments to the Company’s Named Executive Officers

The table below sets forth the amount of potential payments and benefits that each of Mr. Mozden and Mr. Lipps may receive in connection with Mediasite Asset Sale pursuant to their respective employment agreements, assuming that the Mediasite Asset Sale was consummated as of December 29, 2023. Our other named executive officer, Kenneth A. Minor, our Chief Financial Officer and Secretary, does not have any compensation arrangements that would result in potential payments or benefits in connection with the Mediasite Asset Sale.

Appraisal Rights

Under Subtitle 2 of Title 3 of the MGCL, a copy of which appears as Annex E to this proxy statement, stockholders have the right to demand payment from the Company of the fair value of their shares of common stock.

To qualify as an objecting stockholder, you must deliver to the corporate secretary of the Company at 222 West Washington Avenue, Madison, Wisconsin 53703, at or prior to your special meeting, your written objection to the Mediasite Asset Sale. The written objection must be separate from and in addition to any proxy or vote against the Mediasite Asset Sale. A proxy or vote against the Mediasite Asset Sale does not by itself constitute your written objection or demand for appraisal.

In addition, if you are a stockholder and wish to exercise your right to demand payment of the fair value of your stock, within 20 days following the date on which the Mediasite Asset Sale closes, you must make a written demand on the Company for the payment of your common stock stating the number and class of shares for which you demand payment. In addition to making a written demand for the payment of your stock, you must not vote in favor of the Mediasite Asset Sale. Stockholders who return executed but unmarked proxies will be deemed to have voted in favor of the Mediasite Asset Sale. If a properly executed proxy card is returned or properly submitted by telephone or over the Internet and the stockholder has abstained from voting on the Mediasite Asset Sale, the shares of common stock represented by the proxy will not be considered to have been voted on the Mediasite Asset Sale. Abstentions will have the same effect as a vote against approval of the Mediasite Asset Sale.

Once you have filed a demand for payment, you cease to have any rights as a stockholder, including the right to receive the Closing Consideration or vote the common stock, as applicable, except the right to receive payment of the fair value of your shares. Once you make a demand for payment, you may withdraw that demand only with the consent of the Company. Provided that you do not vote in favor of the Mediasite Asset Sale, or return an executed but unmarked proxy, and assuming the stockholders approve the Mediasite Asset Sale, then, promptly after the Mediasite Asset Sale is effective, the Company must notify you in writing of the date on which the Mediasite Asset Sale closes. Within 50 days after the date on which the Mediasite Asset Sale closes, if you have not received from the Company the fair value of your shares, you may file a petition with a court of equity in the county where the principal office of the Company is located for an appraisal to determine the fair value of your shares.

IF YOU DO NOT COMPLY WITH THE PROCEDURES FULLY AND THE MEDIASITE ASSET SALE IS APPROVED, YOU MAY LOSE YOUR RIGHT TO DEMAND PAYMENT OF THE FAIR VALUE OF YOUR SHARES, AND YOU WILL BE REQUIRED TO ACCEPT THE CLOSING CONSIDERATION.

If the court finds you are entitled to an appraisal of your stock, it will appoint three disinterested appraisers to determine the fair value of your stock. Unless the court permits a longer period, the appraisers have 60 days after their appointment to determine the fair value of your stock and file their report with the court, and within 15 days after the appraisers file their report, any party may object to it and request a hearing. The court may, among other things, accept the report or set its own determination of the fair value, and then direct the Company to pay the appropriate amount.

The Company cannot predict how the court will value the respective shares of common stock, and the fair value may be higher, lower or equal in value to the Closing Consideration being paid in the Mediasite Asset Sale. Stockholders should note that opinions of investment banking firms as to the fairness, from a financial point of view, of the consideration payable in a sale transaction, such as the Mediasite Asset Sale, are not opinions as to, and do not otherwise address, fair value under the MGCL.

If the court finds that the failure of a stockholder to accept an offer for the stock was arbitrary and vexatious or not in good faith, the court has the right to apportion among all or some of the parties any expenses of any proceeding to demand the fair or appraised value of shares as it deems equitable.

The above description is a summary of the material provisions of Subtitle 2 of Title 3 of the MGCL. For complete information, you should review the text of Subtitle 2, which appears as Annex E to this proxy statement.

Support Agreements

In connection with the Purchase Agreement, at the specific request of the Buyer and as an inducement to the Buyer's willingness to enter into the Purchase Agreement, each member of the Board, each other executive officer of the Company and one significant stockholder who beneficially owns more than 5% of the outstanding shares of common stock entered into a Support Agreement with the Buyer (each such person is referred to in this proxy statement as a “Stockholder”). The full text of the form of Support Agreement is attached as Annex B to this proxy statement and is incorporated herein by reference. Pursuant to its Support Agreement, each Stockholder has agreed, subject to the terms of such Support Agreement, to vote all shares of common stock owned by the Stockholder (including shares of common stock acquired after January 2, 2024) (a) in favor of (1) the Purchase Agreement and the Mediasite Asset Sale and the other transactions contemplated by the Purchase Agreement, and (2) any proposal to adjourn or postpone the special meeting to a later date if there are not sufficient votes to approve the Mediasite Asset Sale; and (b) against (1) any Acquisition Proposal, (2) any action, proposal, transaction, or agreement which could reasonably be expected to result in a breach of any covenant, representation or warranty, or any other obligation or agreement of the Company under the Purchase Agreement or of the stockholder under the Support Agreement, and (3) any action, proposal, transaction, or agreement that could reasonably be expected to impede, interfere with, delay, discourage, adversely affect, or inhibit the timely consummation of the Mediasite Asset Sale or the fulfillment of Buyer's or the Company’s conditions under the Purchase Agreement or change in any manner the voting rights of any class of shares of the Company (including any amendments to the Company's organizational documents).

Further, during the term of its Support Agreement, each Stockholder has agreed not to transfer, sell, offer, exchange, assign, pledge or otherwise dispose of or encumber any such shares of common stock or enter into any contract, option or other agreement to do any of the foregoing with respect to any of any such shares, subject to certain exceptions specified in the Support Agreement.

Each Support Agreement will terminate upon the earlier to occur of the closing of the Mediasite Asset Sale and the date on which the Purchase Agreement is terminated in accordance with its terms.

As of December 29, 2023, the record date for the special meeting, the total number of shares of common stock covered by the Support Agreements equaled approximately 48.0% of the total outstanding shares of common stock.

The foregoing is a summary of the material provisions of the Support Agreements entered into in connection with or related to the Mediasite Asset Sale. This summary may not contain all of the information that is important to you. You should refer to the full text of form of Support Agreement which is attached hereto as Annex B and is incorporated by reference in this proxy statement. We encourage you to read it carefully and in its entirety for a complete understanding.

Material U.S. Federal Income Tax Consequences

The following discussion is a general summary of the anticipated material U.S. federal income tax consequences of the Mediasite Asset Sale. The following discussion is based upon the Internal Revenue Code of 1986, as amended (which we refer to as the “Code”), its legislative history, currently applicable and proposed Treasury Regulations under the Code and published rulings and decisions, all as currently in effect as of the date of this proxy statement, and all of which are subject to change, possibly with retroactive effect. Tax consequences under state, local and non-U.S. laws, or federal laws other than those pertaining to income tax, are not addressed in this proxy statement. No rulings have been requested or received from the Internal Revenue Service as to the tax consequences of the Mediasite Asset Sale and there is no intent to seek any such ruling. Accordingly, no assurance can be given that the IRS will not challenge the tax treatment of the Mediasite Asset Sale discussed below or, if it does challenge the tax treatment, that it will not be successful.

The Mediasite Asset Sale will be treated for U.S. federal income tax purposes as a taxable transaction upon which we will recognize gain or loss. The amount of gain or loss we recognize with respect to the sale of a particular asset will be measured by the difference between the amount realized by us on the sale of that asset and our tax basis in that asset. The amount realized by us on the Mediasite Asset Sale will include the amount of cash received, the fair market value of any other property received, and total liabilities assumed or taken by the Buyer. For purposes of determining the amount realized by us with respect to specific assets, the total amount realized by us will generally be allocated among the assets according to the rules set forth in Section 1060(a) of the Code. The basis in the assets is generally equal to its cost, as adjusted for certain items, such as depreciation. The determination of whether we will recognize gain or loss will be made with respect to each of the assets to be sold.

To the extent the Mediasite Asset Sale results in us recognizing a net gain for U.S. federal income tax purposes, it is anticipated that our available net operating loss carryforwards will offset all or a substantial part of such gain.

Financing of the Mediasite Asset Sale

We anticipate that the total amount of funds necessary to complete the Mediasite Asset Sale and the related transactions will be approximately $11.2 million. We understand that Parent and the Buyer expect to use cash on hand and/or funds available to them to fund their obligations under the Purchase Agreement.

Anticipated Accounting Treatment

Under generally accepted accounting principles, upon completion of the Mediasite Asset Sale, we will remove the net assets sold and liabilities assumed from our consolidated balance sheet and we anticipate recording a gain from the Mediasite Asset Sale.

Effects on our Company if the Mediasite Asset Sale is Completed and the Nature of our Business following the Mediasite Asset Sale

If the Mediasite Asset Sale is completed, our business operations will be limited to the Vidable and Global Learning Exchange businesses, both of which generate limited revenues, negative cash flow and significant losses. We will also have a significant amount of debt as we do not expect to use a significant portion of the proceeds of the Mediasite Asset Sale to repay the Burish Debt. The Company owes approximately $6.4 million as of the date of this proxy statement to Mark Burish, and we may borrow additional amounts from Mr. Burish if he agrees in order to provide funds for the Company’s business. Our Board will evaluate a number of alternatives for the Company’s business after the closing, which alternatives include selling assets (including as a potential sale of the GLX business to Mr. Burish in exchange for debt relief), restructuring the Burish Debt or seeking to obtain additional equity capital.

The Mediasite Asset Sale will not alter the rights, privileges or nature of the issued and outstanding shares of our common stock. A stockholder who owns shares of our common stock immediately prior to the closing of the Mediasite Asset Sale will continue to hold the same number of shares immediately following the closing. We do not intend to liquidate following the Mediasite Asset Sale or to otherwise distribute any of the proceeds of the Mediasite Asset Sale to our stockholders. Instead, we intend to use the proceeds of the Mediasite Asset Sale, after the repayment of the NBE Debt and part of the Burish Debt, the payment of transaction related expenses, for working capital and to support our remaining Vidable and Global Learning Exchange businesses.

THE STOCK AND ASSET PURCHASE AGREEMENT

The following is a summary of the material provisions of the Purchase Agreement but does not purport to describe all of the terms of the Purchase Agreement. The following summary is qualified in its entirety by reference to the complete text of the Purchase Agreement, a copy of which is attached as Annex A to this proxy statement and is incorporated by reference into this proxy statement. Terms used in this proxy statement, unless otherwise defined, have the meanings ascribed to them in the Purchase Agreement. This summary may not contain all of the information about the Purchase Agreement that is important to you. We encourage you to read the Purchase Agreement carefully and in its entirety, as it is the legal document governing the Mediasite Asset Sale.

Explanatory Note Regarding the Purchase Agreement

The Purchase Agreement has been included as Annex A to provide you with information regarding its terms, and we recommend that you read it carefully and in its entirety. The Purchase Agreement is a contractual document that is intended to govern the contractual rights and relationships, and to allocate risks, among the Company, SF Media Systems, the Buyer and Parent.

The Purchase Agreement contains representations and warranties made by the Sellers, on the one hand, and the Buyer and Parent, on the other hand, that are qualified in several important respects, which you should consider as you read them in the Purchase Agreement. The representations, warranties and covenants of the parties are qualified by the confidential disclosure schedules provided by the Company in connection with the signing of the Purchase Agreement on January 2, 2024. The disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties of the Sellers set forth in the Purchase Agreement.

In addition, certain of the representations and warranties made by the Sellers, on the one hand, and the Buyer and Parent, on the other hand, were made as of a specified date, and may have been used for the purpose of allocating risk between the parties to the Purchase Agreement rather than as establishing matters as facts. Moreover, certain of the representations, warranties and covenants of the parties may be subject to a contractual standard of materiality different from what might be viewed as material to the Sonic Foundry’s stockholders. The Purchase Agreement has been included to provide stockholders with information regarding its terms. It is not intended to provide any other factual information about the Sellers, the Buyer or Parent. Stockholders are not third-party beneficiaries under the Purchase Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Sellers, the Buyer, Parent or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Purchase Agreement, which subsequent information may or may not be fully reflected in Sonic Foundry's public disclosures.

General

Under the terms of the Purchase Agreement, we have agreed, subject to certain conditions, including the approval of the Mediasite Sale Proposal by our stockholders at the special meeting to which this proxy statement relates, to sell to the Buyer the equity interests of Sonic Foundry International and MSKK and the assets of the Mediasite Business directly held by the Sellers, and the Buyer has agreed to assume certain specified liabilities of Sonic Foundry relating to the Mediasite Business.

Stock to be Sold

The Purchase Agreement provides that, at the closing, Sonic Foundry will sell to the Buyer all of the issued equity interests of Sonic Foundry International and MSKK. Sonic Foundry International is Sonic Foundry’s operating subsidiary in the Netherlands. MSKK is Sonic Foundry’s operating subsidiary in Japan. As a result of the transfer of the shares of Sonic Foundry International and MSKK to the Buyer at the closing, the Buyer would own all of Sonic Foundry’s international operations relating to the Mediasite Business.

Assets to be Sold

The Purchase Agreement provides that, at the closing, the Sellers will sell to the Buyer all right, title and interest of Sellers in, to and under all of the assets of Sellers relating to the Mediasite Business other than the Excluded Assets described below (the “Purchased Assets”), including the following:

Excluded Assets

The Sellers will retain and not sell to the Buyer all assets not expressly included in the Purchased Assets (the “Excluded Assets”), including the following assets:

Assumed Liabilities

Pursuant to the Purchase Agreement, the Buyer will assume only the following liabilities of the Sellers at the closing (the “Assumed Liabilities”):

Excluded Liabilities

Except for the Assumed Liabilities, the Buyer will not assume and will not be responsible for any of the liabilities of Sellers arising out of, relating to or otherwise in respect of the Mediasite Business or the Purchased Assets prior to the closing (the “Excluded Liabilities”), including the following:

Purchase Price

In addition to assuming the Assumed Liabilities, as consideration for the Mediasite Asset Sale, the Buyer has agreed to:

Purchase Price Adjustments

Prior to the closing, we will deliver a statement of the estimated Net Cash Assets at the closing. At the closing, the Closing Consideration of $14.5 million will be decreased by the amount that $0 exceeds the Net Cash Assets estimate.

Within 120 days after closing, the Buyer will prepare and propose a statement of the final Net Cash Assets as of the closing. Sonic Foundry will have 45 days to review this proposed statement. If Sonic Foundry objects to any of the items set forth on the statement, the parties are required to use commercially reasonable efforts for a period of 15 days to negotiate and resolve their disputes. If the parties cannot resolve all of their disagreements during such 15-day period, such disagreements will be resolved by a nationally recognized firm of independent certified public accountants as to which the parties mutually agree. Upon the final determination of the Net Cash Assets as of the closing, the Closing Consideration will be subject to adjustment as follows:

The Purchase Agreement also contains a provision for adjustment of the Closing Consideration based on the collection of the accounts receivable included in the transferred assets by the 180-day anniversary of the closing (or the one-year anniversary of the closing in the case of certain unbilled revenue prepaids Sonic Foundry International or MSKK). If the aggregate amount of uncollected accounts receivable as finally determined pursuant to the Purchase Agreement is greater than the Sellers’ allowance, the Buyer will have the right to recover from the Holdback Amount an amount in cash equal to such excess, and the Sellers must replenish the amount of such excess within 30 days.

The Purchase Agreement also contains a provision for adjustment of the Closing Consideration based on inventory included in the transferred assets that remains unsold by the one-year anniversary of the closing. If the aggregate amount of unsold inventory is greater than the Sellers’ obsolescence reserve, the Buyer will have the right to recover from the Holdback Amount an amount in cash equal to such excess, and Sellers must replenish the amount of such excess within 30 days.

Closing

The closing of the Mediasite Asset Sale will take place on the third business day after our stockholders approve the Mediasite Sale Proposal and the satisfaction or waiver of all of the other closing conditions or at such other time as the parties may otherwise agree.

Representations and Warranties

In the Purchase Agreement, the Sellers made representations and warranties relating to, among other things, the following:

Certain of the Sellers’ representations and warranties are qualified by materiality, a Material Adverse Effect standard (as described below), and our disclosure schedules to the Purchase Agreement. Except for the representations and warranties contained in the Purchase Agreement (including the disclosure schedules), neither Sonic Foundry nor any other person has made or makes any representation or warranty, on behalf of Sonic Foundry or any of its affiliates, as to the Mediasite Business, the Purchased Assets, the Assumed Liabilities or any other matter related to the transactions contemplated by the Purchase Agreement.

In the Purchase Agreement, the Buyer made representations and warranties relating to, among other things

Material Adverse Effect

Many of the Sellers’ representations and warranties, as well as other conditions or provisions in the Purchase Agreement, are qualified by a “Material Adverse Effect” standard. For purposes of the Purchase Agreement, “Material Adverse Effect” means any change, effect, event, occurrence, state of facts or development that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on the Mediasite Business, the Purchased Assets, the Transferred Equity Interests or the ability of Sellers to consummate the transactions contemplated by the Purchase Agreement. The definition of “Material Adverse Effect” does not include any event, occurrence, fact, condition or change resulting from:

Conduct of the Mediasite Business Prior to the Closing

Under the Purchase Agreement, the Sellers have agreed that, until the closing and except as otherwise contemplated by the Purchase Agreement, they will use commercially reasonable efforts to carry on the Mediasite Business in all material respects in the ordinary course, preserve the goodwill, reputation and present relationships of the Mediasite Business with suppliers, customers and others having significant business relationships with the Mediasite Business and keep the Mediasite Business substantially intact, including its present operations, facilities and other working conditions and not to take a number of restricted actions relating to the Mediasite Business detailed in the Purchase Agreement.

No Solicitation of Acquisition Proposals

In the Purchase Agreement, until the earlier of the closing of the Mediasite Asset Sale and the termination of the Purchase Agreement in accordance with its terms, Sonic Foundry has agreed that it will not, and it will cause its subsidiaries and its and their respective directors, officers, legal counsel and investment bankers not to:

Sonic Foundry was obligated upon the execution of the Purchase Agreement immediately to cease and cause to be terminated any and all existing discussions with any person that relate to any Acquisition Proposal.

Prior to the date that Sonic Foundry obtains the required vote of its stockholders approving the transactions contemplated by the Purchase Agreement, if (1) Sonic Foundry has received a bona fide written Acquisition Proposal from a third party, (2) Sonic Foundry has not breached the no solicitation provisions of the Purchase Agreement in any material respect with respect to such Acquisition Proposal and (3) the Board determines in good faith, after consultation with its financial advisors and outside counsel, based on information then available, that such Acquisition Proposal constitutes or would reasonably be expected to lead to a Superior Proposal (as defined below), then Sonic Foundry may furnish information with respect to Sonic Foundry and its subsidiaries to the third party making such Acquisition Proposal, its representatives and potential sources of financing pursuant to one or more confidentiality agreements and Sonic Foundry may participate in discussions or negotiations with the third party making such Acquisition Proposal regarding such Acquisition Proposal.

Sonic Foundry must promptly, and in any event within 48 hours, notify Buyer in the event that Sonic Foundry receives any Acquisition Proposal, including the identity of such person making the Acquisition Proposal, and provide to Buyer a copy of the Acquisition Proposal. In addition, Sonic Foundry must promptly, and in any event within 48 hours after such determination, advise Buyer if Sonic Foundry determines to begin providing information or to engage in discussions or negotiations concerning an Acquisition Proposal and thereafter must keep Buyer reasonably informed, on a current basis, and, in any event, within 24 hours of Buyer's reasonable request,, of the status and material terms of any such proposals and any material changes to the status of any such discussions or negotiations.

If Sonic Foundry receives a bona fide written Acquisition Proposal that the Board determines in good faith, after consultation with its financial advisors and outside counsel, constitutes a Superior Proposal, the Board may at any time prior to the approval of the Purchase Agreement by Sonic Foundry's stockholders, (i) effect a Change of Board Recommendation (as defined below under the heading “Changes in Board Recommendation”) with respect to such Superior Proposal and/or (ii) terminate the Purchase Agreement, in either case if the Board determines in good faith that the failure to take such action would be inconsistent with its fiduciary duties to the stockholders of Sonic Foundry. Sonic Foundry will not be entitled to effect a Change of Board Recommendation or terminate the Purchase Agreement pursuant to this provision unless Sonic Foundry provides Buyer at least four business days' prior written notice of Sonic Foundry's intention to take such action, which notice must include a copy of the Superior Proposal and all related documentation to be entered into in respect of such Superior Proposal, and during such four business day period, if requested by Buyer, Sonic Foundry shall have, and shall have caused its legal and financial advisors to have, engaged in good faith negotiations with Buyer regarding any amendment to the Purchase Agreement proposed in writing by Buyer and intended to cause the relevant Acquisition Proposal to no longer constitute a Superior Proposal; and the Board considers in good faith any adjustments and/or proposed amendments to the Purchase Agreement and the other agreements contemplated hereby that may be irrevocably offered in writing by Buyer during such four business day period and shall have determined in good faith, after consultation with its financial advisors and outside counsel, that the Superior Proposal would continue to constitute a Superior Proposal and that the failure to take such action would continue to be inconsistent with its fiduciary duties to the stockholders of Sonic Foundry if any such change in terms were to be given effect.

As used in this proxy statement, the term “Acquisition Proposal” means any offer, inquiry, indication of interest or proposal from a third party concerning (1) a merger, consolidation or other business combination transaction or series of related transactions involving 25% or more of the voting power of Sonic Foundry, (2) any direct or indirect sale, lease or other disposition by merger, consolidation, business combination, share exchange, joint venture, recapitalization, spin-off or otherwise, of assets of Sonic Foundry (including equity interests of any subsidiary of Sonic Foundry) or its subsidiaries representing 25% or more of the consolidated assets of Sonic Foundry and its subsidiaries, based on their fair market value as determined in good faith by the Board, (3) any acquisition by any person or group (as defined under Section 13 of the Exchange Act), resulting in, or any proposal, offer, inquiry or indication of interest that if consummated would result in, any person or group (as defined under Section 13 of the Exchange Act) becoming the beneficial owner of, directly or indirectly, in one or a series of related transactions, any class of equity securities of Sonic Foundry representing 25% or more of the voting power or the common stock, or (4) any combination of the foregoing; provided that in no event will an Acquisition Proposal include any inquiry, offer or proposal, or any indication of interest, solely with respect to the sale or other disposition or acquisition of any of the Excluded Assets.

As used in this proxy statement, the term “Superior Proposal” means a bona fide written Acquisition Proposal that did not result from a breach by Sonic Foundry of the no solicitation provisions of the Purchase Agreement and that the Board determines in good faith, after consultation with its financial advisors and outside counsel, taking into account such factors as the Board considers in good faith to be appropriate, including the conditionality, timing and likelihood of consummation of such proposals, is more favorable from a financial point of view to Sonic Foundry's stockholders than the Purchase Agreement, taking into account any proposed changes with respect to such Superior Proposal; provided that an Acquisition Proposal shall not be more favorable from a financial point of view unless such Acquisition Proposal provides for aggregate consideration of at least $17,000,000.

Changes in the Board Recommendation

Under the Purchase Agreement, subject to certain exceptions, the Board has agreed to recommend that our stockholders vote in favor of the approval and adoption of the Purchaser Agreement and the transactions contemplated by the Purchase Agreement, and that, except as expressly permitted by the Purchase Agreement, until the termination of the Purchase Agreement in accordance with its terms, neither the Board nor any committee thereof may:

Nothing contained in the Purchase Agreement prevents Sonic Foundry or the Board from issuing a “stop, look and listen” communication pursuant to Rule 14d-9(f) under the Exchange Act or complying with Rule 14e-2(a), Rule 14d-9 or Item 1012(a) of Regulation M-A under the Exchange Act with respect to an acquisition proposal or from making any disclosure to our stockholders if the Board determines in good faith, after consultation with its outside counsel, that its failure to make such disclosure would be reasonably likely to be inconsistent with its fiduciary duties or violate applicable law; provided, however, Sonic Foundry may only make any such disclosure that constitutes a Change of Board Recommendation in compliance with the applicable provisions of the Purchase Agreement.

Conditions to Completion of the Mediasite Asset Sale

The obligations of Sellers and Buyer to complete the Mediasite Asset Sale are each subject to the satisfaction of a number of conditions set forth in the Purchase Agreement, including the following:

Termination of the Purchase Agreement

The Purchase Agreement may be terminated, at any time prior to the closing of the Mediasite Asset Sale:

If the Purchase Agreement is validly terminated, the Purchase Agreement will become void with no liability on the part of any party or related party thereto, except as provided under the section entitled “Termination Fee and Expenses” below and for provisions relating to confidentiality matters and certain other specified general provisions and except in the case of a willful breach of the Purchase Agreement.

Termination and Fees

The Purchase Agreement provides that all costs and expenses, including fees and disbursements of counsel, financial advisors and accountants incurred in connection with the Purchase Agreement and the transactions contemplated thereby will be borne by the party incurring such costs and expenses.

The Purchase Agreement provides that Sellers will be required to pay to Buyer a termination fee of $450,000 if:

The Purchase Agreement provides that Sellers will be required to pay to Buyer a termination fee of $100,000 if the Purchase Agreement is terminated by Buyer if the required approval by Sonic Foundry's stockholders of the Purchase Agreement and the transactions contemplated by the Purchase Agreement is not obtained at the special meeting.

In no event will Sellers be required to pay the termination fee in connection with the termination of the Purchase Agreement more than once. In the event that the termination fee is paid to Buyer, except with respect to remedies that cannot be waived as a matter of law: (1) the payment of such termination fee will be the sole and exclusive remedy of Buyer, its subsidiaries, stockholders, affiliates, officers, directors, employees and representatives against Sellers or any of their respective representatives or affiliates for, and (ii) in no event will Buyer or any other such person seek to recover any other money damages or seek any other remedy based on a claim in law or equity with respect to, in each case of clause (1) and (2), any loss suffered, directly or indirectly, as a result of the failure of the transactions contemplated by the Purchase Agreement to be consummated, the termination of the Purchase Agreement, any liabilities or obligations arising under the Purchase Agreement, or any claims or actions arising out of or relating to any breach, termination or failure of or under the Purchase Agreement, and (3) upon payment of the termination fee, neither Sellers nor any of their respective affiliates or representatives will have any further liability or obligation to Buyer relating to or arising out of the Purchase Agreement or the transactions contemplated hereby.

Post-Closing Indemnification and Holdback

Each of the Sellers and Parent and the Buyer has indemnification obligations in the Purchase Agreement.

The indemnification obligations of the Sellers cover any loss, damage, injury, settlement, judgment, award, fine, penalty, fee (including reasonable attorneys' fees), charge, cost or expense of any nature, but excluding consequential, punitive, special, indirect or exemplary damages or damages which are not the natural, probable and reasonably foreseeable result of the event giving rise to the loss, suffered, sustained, incurred or paid by the Buyer and certain related parties with respect to:

The indemnification obligations of Parent and the Buyer covers any loss, damage, injury, settlement, judgment, award, fine, penalty, fee (including reasonable attorneys' fees), charge, cost or expense of any nature, but excluding consequential, punitive, special, indirect or exemplary damages or damages which are not the natural, probable and reasonably foreseeable result of the event giving rise to the loss, suffered, sustained, incurred or paid by the Sellers and certain related parties with respect to:

The Purchase Agreement contains certain limitations on indemnification obligations of the parties including a basket of $75,000 for claims relating to breaches of representations or warranties and a maximum limit on the amount of claims equal to the total purchase price under the Purchase Agreement.

The representations of Sellers and Buyer contained in the Purchase Agreement survive for a period of 12 months following the Closing Date, except that except that representations and warranties of the Sellers relating to organization, good standing and authority), the equity interests of MSKK and Sonic Foundry International, litigation, and software and intellectual property and the representations and warranties of the Buyer relating to organization, good standing and authority, solvency and the absence of brokers or brokers’ fees relating to the Mediasite Asset Sale survive for a period of three years following the Closing Date.

PROPOSAL NO. 2: APPROVAL OF ADVISORY COMPENSATION PROPOSAL

As required by Section 14A of the Exchange Act and the applicable SEC rules issued thereunder, we are providing our stockholders with a separate non-binding, advisory vote to approve certain compensation that may be paid or become payable to our named executive officers in connection with the Mediasite Asset Sale, as described in the table under “Proposal No. 1 — Adoption of the Mediasite Asset Sale — Interests of our Directors and Executive Officers in the Mediasite Asset Sale — Quantification of Payments and Benefits to the Company’s Named Executive Officers ,” including the footnotes to the table and related narrative discussion. This vote is commonly referred to as a “say on golden parachute” vote. This non-binding, advisory proposal relates only to contractual obligations of the Company that may result in a payment to our named executive officers in connection with, or following, the consummation of the Mediasite Asset Sale. As such, this proposal applies only in the event that the Purchase Agreement is approved, the Mediasite Asset Sale is effected and the other conditions for payment under the applicable employment agreements are satisfied. Further, this proposal does not relate to any compensation arrangements that are or may become applicable to our directors or executive officers who are not named executive officers.

This proposal is an advisory vote and is not binding upon the Company or our Board. Approval of this proposal is not a condition to completion of the Mediasite Asset Sale, and this vote is separate from the other proposals at the special meeting. Accordingly, you may vote to approve such other proposals to be considered and vote not to approve the advisory compensation proposal, and vice versa. To the extent that we are contractually obligated to pay the compensation, such compensation will be payable, subject only to the conditions applicable thereto, regardless of the outcome of the advisory vote. These payments are a part of our comprehensive executive compensation program and are intended to align our named executive officers’ interests with yours as stockholders by ensuring their continued retention and commitment during critical events such as the Mediasite Asset Sale, which may create significant personal uncertainty for them.

The Board recommends that our stockholders vote “FOR” the following resolution, on a non-binding, advisory basis:

“RESOLVED, that the compensation that may be paid or become payable to the Company’s named executive officers, in connection with the Mediasite Asset Sale, and the agreements or understandings pursuant to which such compensation may be paid or become payable, in each case as disclosed pursuant to Item 402(t) of Regulation S-K in ‘Proposal No. 1 — Approval of the Mediasite Asset Sale — Interests of our Directors and Executive Officers in the Mediasite Asset Sale— Quantification of Payments and Benefits to the Company’s Named Executive Officers’, including the footnotes to the table and the related narrative discussion, are hereby APPROVED.”

Assuming a quorum is present, the affirmative vote of a majority of the shares of Common Stock represented at the special meeting, either in person or by proxy, and entitled to vote is required to approve the above resolution approving the Mediasite Asset Sale-related compensation of our named executive officers on a non-binding, advisory basis.

Our Board recommends a vote “FOR” the Advisory Compensation Proposal.

PROPOSAL NO. 3: APPROVAL OF ADJOURNMENT PROPOSAL

Summary of Proposal

The Company's stockholders are being asked to approve a proposal providing for the adjournment or postponement of the special meeting if necessary or appropriate in the view of the Board to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve any of the other proposals described in this proxy statement and to allow reasonable additional time for the filing and distribution of any supplemental or amended disclosure to be disseminated to and reviewed by the stockholders of the Company prior to the special meeting.

In this proposal, the Company is asking the Company's stockholders to authorize the holder of any proxy solicited by the Board to vote in favor of adjourning or postponing the special meeting, and any subsequent adjournments or postponements, to another time and place. If the Company's stockholders approve the Adjournment Proposal, the Company could adjourn or postpone the special meeting, and any adjourned or postponed session of the special meeting, in any of the circumstances described above to a later date and use the additional time to, among other things, solicit additional proxies in favor of any of the other proposals described in this proxy statement, including the solicitation of proxies from holders of our common stock that have previously voted against any such proposal. Among other things, approval of the Adjournment Proposal could mean that, even if the Company had received proxies representing a sufficient number of votes against any proposal, the Company could adjourn or postpone the special meeting without a vote on any such proposal and seek to convince the holders of those shares of common stock to change their votes to votes in favor of any such proposal.

The Board believes that if the number of shares of common stock present in person or by proxy at the special meeting and voting in favor of any proposal is not sufficient to approve such proposal, it is in the best interests of the stockholders to enable the Board to continue to seek to obtain a sufficient number of additional votes to approve any such proposal. If the special meeting is adjourned or postponed for the purpose of soliciting additional proxies, stockholders who have already submitted their proxies will be able to revoke them at any time prior to their use.

Required Vote and Board Recommendation

The vote on the Adjournment Proposal is a vote separate and apart from the vote on the other proposals. Accordingly, a stockholder may vote to approve any proposal and vote not to approve the Adjournment Proposal and vice versa. Approval of the adjournment or postponement of the special meeting, if necessary, including for the purpose of soliciting additional proxies if a quorum is not present or if there are not sufficient votes in favor of any proposal, requires the votes cast favoring the action exceed the votes cast opposing the action. Abstentions and broker non-votes, if any, will have no effect on the approval of the Adjournment Proposal, while shares of common stock not in attendance will have no effect on the outcome of any vote on the Adjournment Proposal.

THE BOARD RECOMMENDS A VOTE “FOR” THE ADJOURNMENT PROPOSAL.

SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of December 29, 2023 for (a) the named executive officers, (b) each of our directors, (c) all of our current directors and executive officers as a group and (d) each stockholder known by us to own beneficially more than 5% of our common stock. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. We deem shares of our common stock that may be acquired by an individual or group within 60 days of December 29, 2023 pursuant to the exercise of options or warrants to be outstanding, which we refer to as Presently Exercisable Options or Presently Exercisable Stock Warrants, for the purpose of computing the percentage ownership of such individual or group, but those shares are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of our common stock shown to be beneficially owned by them based on information provided to us by these stockholders. Percentage of ownership is based on 12,139,360 shares of our common stock outstanding on December 29, 2023.

*         less than 1%

INFORMATION ABOUT THE BUSINESS OF SONIC FOUNDRY

Who We Are

Sonic Foundry, Inc. (NASDAQ: SOFO) is dedicated to transforming how the world works and learns through innovative and scalable technology solutions. We help customers maximize the value of their video initiatives and infrastructure while leveraging our expertise and global footprint to help unlock a smarter, more connected world for learners, workers, and entrepreneurs everywhere. Sonic Foundry’s family of brands includes Mediasite®, Video Solutions, Vidable® and Global Learning Exchange™, which are trusted by thousands of educational institutions, students, corporations, and health care organizations in dozens of countries around the world.  

Founded in 1991, Sonic Foundry, Inc. was incorporated in Wisconsin in March 1994 and merged into a Maryland corporation of the same name in October 1996. Our executive offices are located at 222 West Washington Ave., Madison, Wisconsin 53703 and our telephone number is (608) 443-1600. Our Sonic Foundry International B.V. (“Sonic Foundry International”) (formerly Media Mission B.V.) office is located in the Netherlands, and our Mediasite K.K. (“Mediasite KK” or “MSKK”) office is located in Japan. Our corporate website is www.sonicfoundry.com. In the “Investors” section of our website we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to reports required to be filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after the filing of such reports with the Securities and Exchange Commission. 

Our Solutions Address Today's Communication and Education Challenges

In this digital-first world, video adoption and utilization are at the core of every in person and remote working or learning environment, helping to facilitate communication and collaboration. With Sonic Foundry’s 30-year reputation as a leader in video technology and deep relationships in higher education, the Company is well-positioned to capitalize on the fundamental needs for rapid and remote communication in the workplace and classroom. Sonic Foundry’s products and services help customers efficiently and cost-effectively address the challenge of sharing information whenever and wherever content is consumed. 

Our Brands  

Mediasite

Video Capture Solutions (Hardware)

Mediasite® is an integrated and scalable video management platform that quickly and cost-effectively automates the capture, management, and distribution of live and on-demand video content. Ideal for a wide spectrum of use cases from higher education classrooms, virtual lab experiences to corporate townhalls and online training modules, Mediasite is used by over 1,500 educational institutions, corporations, health organizations and government entities globally. 

Mediasite provides the following primary flexible hardware and software solutions to record and upload any video-based content from anywhere, automatically: 

Video Capture Solutions (Software)

Video is a critical communication and learning tool that has become part of everyday life for businesses and consumers. As part of Sonic Foundry’s end-to-end video solutions, Mediasite video management and delivery solutions ensure the rapid and efficient delivery of recorded and live content. 

Video Management and Delivery Solutions 

Mediasite is a scalable, reliable, and secure solution to manage, search, analyze, publish, and stream video content. With Mediasite, government, businesses, and educational institutions can: 

Mediasite On-Premises or Mediasite Cloud 

Mediasite is available as either an on-premises license or as a SaaS (Software as a Service) offering within our Mediasite Cloud. Customers can conveniently host and manage all their content with Mediasite Cloud, or use it as needed for large events to divert heavy viewing traffic from their on-premises Mediasite deployment. In 2020, the Company made an investment in a new dual redundant, high availability data center in the United Kingdom, which went online at the end of September 2020. The Company also upgraded its existing US data centers, which went online during the first calendar quarter of 2021 and in fiscal 2023 through early fiscal 2024 we are transitioning to a public cloud environment.  

Vidable®  

Vidable® is an AI powered solution that turns an organization’s video libraries into dynamic knowledge bases. Vidable is an integrated AI solution with 3 powerful features: Vidable Assistant which applies real-time search and content generation capabilities to single videos or entire libraries of video allowing users to quickly locate the content they need and create derivative content from any video. Vidable Insights is a video analytics tool that organizes video library data and delivers custom analytics through a customizable dashboard. Vidable Transformations is a set of AI tools used to enhance video content through automated workflow which improves production quality, accessibility and searchability of video. Vidable is delivered as a standalone platform or through integrations with Mediasite and other video platforms.

Global Learning Exchange™ 

Global Learning Exchange™ (GLX) provides students in emerging countries access to higher education in a flexible, cost effective, locally supported environment. GLX offers coursework, degree programs and certifications through partnerships with 7 US and EU Universities and 2 skill-based certification providers.

Global Learning Exchange opened its first GLX Hub in Nassau, Bahamas in July 2022 and has since opened Hubs in Abuja and Benin City, Nigeria and Johannesburg, South Africa. GLX Hubs are used as enrollment and admissions centers and act as support centers where enrolled students can study, network with other students, obtain Wi-Fi access and other technological resources, and receive educational and career support from local Hub advisors.  

Video Solutions

Video Solutions specializes in comprehensive video services and is organized around a simple value proposition: Making video easy. Video Solutions technicians and project managers have decades of experience planning, managing, and executing video initiatives for event organizers and enterprise organizations around the world. Video Solutions plugs into organizations as needed – providing self-service tools or full-service offerings supported by expert technicians and project managers. From organizing video capture and distribution for an in person, live or hybrid event, to migrating an existing video content library to the cloud to planning and executing an organization's video strategy from start to finish, Video Solutions is a full service offering that is customized specifically to an organization’s needs and objectives.

Mediasite Professional Services

Customers can maximize the value of their Mediasite instance and their video library with additional Mediasite Professional Services including integration services, installation assistance, custom development, training, cloud migration support and monitoring services. The majority of professional services are completed remotely, allowing for uninterrupted year-round professional services support for new users and existing customers. 

Mediasite Customer Care

Mediasite Customer Care plans include software upgrades for Mediasite and Mediasite capture solutions, technical support, warranty extensions and advanced replacement on hardware, as well as access to the Mediasite Community and other online resources. Nearly all our customers purchase a Customer Care plan when they purchase Mediasite or a Mediasite capture solutions. Annual service contracts for Mediasite Cloud include a standard Customer Care plan.  

Segment Information

In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280-10, Segment Reporting, the Company has three operating segments; however, these segments meet the criteria for aggregation for reporting purposes as one reporting segment as of fiscal years ended September 30, 2023 and 2022.

Billings

Our services are typically billed and collected in advance of providing the service. Billings, which are a non-GAAP measure, are an important indicator of customer activity and cash flow, in addition to revenue, and is therefore used by management as a key operational indicator. Billings are computed by combining revenue with the change in unearned revenue.

Our largest individual customers can be either value added resellers (“VARs”) or end users in the case of large higher education institutions. No single customer represented over 10% of billings or revenue in 2023 or 2022.

Sales

We sell and market our offerings through a sales force that manages a channel of value-added resellers, system integrators, and consultants. These third-party representatives specialize in understanding both audio/video systems and IT networking. We also sell to over 200 resellers, and over 1,150 total end users.

Our GLX business sells directly to students.

Market expansion:

Historically, over two-thirds of our revenue has been realized from the education market. However, we have recently diversified our customer base due to the rapid adoption of video across verticals.

In recent years, the Company has made extensive investments in our cloud infrastructure which has resulted in an increase in multi-year agreements and the growth of annual recurring revenue as customers have migrated to our cloud environment.

Additionally, the Company has diversified its core offerings through the launch of Vidable® and Global Learning Exchange™ which has expanded the Company into new and adjacent markets where we have the opportunity to expand and leverage relationships with existing education and enterprise customers.

Operations

We do not own or operate any manufacturing facilities. Instead, we contract with a third party to build the hardware for our Mediasite Recorders and purchase quantities sufficient to fill specific customer orders, including purchases of inventory by resellers. Quantities are maintained in inventory by the third-party provider and shipped directly to the end customer or reseller. The hardware manufacturer provides a limited one-year warranty on the hardware, which is passed on to our customers who purchase a Mediasite Customer Care support and maintenance plan. While we have long-standing relationships with our contract manufacturer, there are other manufacturing alternatives if needed.

Research and Development

We believe that our future success will depend on our ability to deepen our relationship with current customers and attract new customers by offering a compelling value proposition that enhances their workplace and business objectives. Accordingly, we invest a significant amount of our resources in research and development activities, with a particular focus on our SaaS offerings. During the fiscal years ended September 30, 2023 and 2022, we spent $11.2 million and $7.6 million, respectively, on internal research and development activities in our business. These amounts represent 50% in 2023 and 28% in 2022 of total revenue.

Global Expansion

We continue to operate Sonic Foundry, International B.V.in the Netherlands and Mediasite KK in Japan which we acquired in 2014.  The investment in maintaining a local presence in these regions has allowed us to better serve the ongoing sales and support demands of our customers and prospective customers in those markets. Additionally, we’ve been able to deploy customer care and cloud hosting services more quickly in each of those markets to capitalize on the trend to move data intensive applications, such as video, to the cloud.

In 2022, our Global Learning Exchange business opened its first Hub in Nassau, Bahamas that provides students with local support resources and a physical space to connect with other students in the area. In 2023, GLX expanded its presence into Africa with the opening of GLX Hubs in Nigeria (2) and South Africa (1). These strategic locations were selected based upon the dramatic supply-demand imbalance in higher education that exists in these markets. The GLX Hub facilities are used for both student recruitment and for student support services, once students are enrolled in coursework or a degree program through one of GLX’s education partners.

Human Capital

At September 30, 2023 and 2022, we had 153 and 193 full-time employees, respectively. Our employees are not represented by a labor union, nor are they subject to a collective bargaining agreement.

We have a competitive compensation plan and benefits plan that is designed to attract, retain, and reward individuals and includes an employee stock purchase plan and a 401k plan with a matching contribution. We offer 6 weeks of PTO and flexible work arrangements that encourage employees to achieve a comfortable work-life balance.

Properties

Our principal office is located in Madison, Wisconsin in a leased facility of approximately 26,000 square feet. The building serves as our corporate headquarters, accommodating our general and administrative, product development and selling and marketing departments. We believe this facility is adequate for our needs. The current lease term for this office expires on June 30, 2024. The monthly rent for the remainder of the current lease period is approximately $58 thousand and $60 thousand for the calendar years 2023, and January to June 2024, respectively.

Our operations in Japan are managed in Tokyo, Japan in a leased facility of 7,870 square feet with a lease term that will expire on December 31, 2025. The facility includes sales, technical and administrative functions. The rent is approximately $22 thousand per month.

Our European operations are managed in Utrecht, Netherlands in a leased facility of approximately 540 square feet with a term expiring on June 30, 2025. The facility includes sales, technical and administrative functions with rent of approximately $7 thousand per month.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SONIC FOUNDRY

The financial and business analysis below provides information that Sonic Foundry believes is relevant to an assessment and understanding of the Company’s consolidated financial position and results of operations. This financial and business analysis should be read in conjunction with the consolidated financial statements and related notes.

Overview

Sonic Foundry, Inc. is the global leader for video capture, management, and streaming solutions as well as virtual and hybrid events. Trusted by thousands of educational institutions, corporations, health organizations and government entities in over 65 countries with solutions that transform communication, training, and learning.  Sonic Foundry’s brands include Mediasite®, Mediasite Connect, Vidable® and Global Learning Exchange™.

Mediasite Asset Sale

The information in this section does not give effect to the proposed Mediasite Asset Sale.

Critical Accounting Policies

We have identified the following as critical accounting policies to our Company and have discussed the development, selection of estimates and the disclosure regarding them with the audit committee of the board of directors:

Revenue recognition

We recognize revenues in accordance with the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). Recording revenues requires judgment, including determining whether an arrangement includes multiple performance obligations, whether any of those obligations are distinct and cannot be combined and allocation of the transaction price to each performance obligation based on the relative standalone selling prices (“SSP”). Customers receive certain contract elements over time. Changes to the elements in an arrangement or, in our determination, to the relative SSP for these elements, could materially affect the amount of earned and unearned revenues reflected in our consolidated financial statements.

The primary judgments relating to our revenue recognition include determining whether (i) the contract with a customer exists; (ii) performance obligations are identified; (iii) the transaction price is determined; (iv) the transaction price is allocated to performance obligations; and (v) the distinct performance obligations are satisfied by transferring control of the product or service to the client. Transfer of control is typically evaluated from the customer's perspective.

At contract inception, we determine whether we satisfy the performance obligation over time or at a point in time. Revenues from hosted software and hosting solutions are primarily recognized ratably over time or as fee-bearing usages occur. Certain software licenses are sold either on-premises or through term-based hosting agreements. These hosting arrangements provide customers with the same product functionality and differ mainly in the duration over which the customer benefits from the software. We deliver our software licenses electronically. Electronic delivery occurs when we provide the customer with access to the software and license key via a secure portal. Revenue from on-premises software licenses is generally recognized at the point in time when the software is made available to the customer.

Our contracts with customers for on-premises software licenses include maintenance services and may also include training and/or professional services. Maintenance services agreements consist of fees for providing software updates on an if and when available basis and for providing technical support for software products for a specified term. We believe that our software updates and technical support each have the same pattern of transfer to the customer and are substantially the same. Therefore, we consider these updates and technical support to be a single distinct performance obligation. Revenues allocated to maintenance services are recognized ratably as the maintenance services are provided. Revenues related to training services are billed on a fixed fee basis and are recognized as the services are delivered. Payments received in advance of services performed are deferred and recognized when the related services are performed. Revenues related to professional services are billed on a time and materials basis and are recognized as the services are performed.

We also provide cloud-based subscriptions, which allow customers to access our software during a contractual period without taking possession of the software. We recognize revenue related to these cloud-based subscriptions ratably over the life of the subscription agreement beginning when the customer first has access to the software.

We are often party to multiple concurrent contracts or contracts pursuant to which a client may purchase a combination of goods and services. These situations require judgment to determine whether multiple contracts should be combined and accounted for as a single arrangement. In making this determination, we consider whether the economics of the individual contracts cannot be understood without reference to the whole and multiple promises represent one single performance obligation.

Due to the large number, broad nature, and average size of individual contracts we are a party to, the effect of judgments and assumptions we apply in recognizing revenues for any single contract is not likely to have a material effect on our consolidated operations. However, the broader accounting policy assumptions that we apply across similar arrangements or classes of clients could significantly influence the timing and amount of revenues recognized in our results of operations.

Inventory Reserves

Beginning in fiscal year 2020, the Company established a hardware inventory reserve. In conjunction with a new hardware release due in the fourth quarter FY 2020, certain older models are no longer being actively sold and those units, along with their corresponding raw materials, have been 100% reserved. The inventory reserve methodology was unchanged in fiscal year 2023. The Company has fully reserved all inactive hardware due to the release of Media Site 8.0.

Credit Evaluation and Allowance for Doubtful Accounts

We assess the realization of our receivables by performing ongoing credit evaluations of our customers’ financial condition. Through these evaluations, we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. Our reserve requirements are based on the best facts available to us and are reevaluated and adjusted as additional information is received. Our reserves are also based on amounts determined by using percentages applied to certain aged receivable categories. These percentages are determined by a variety of factors including, but not limited to, current economic trends, historical payment, and bad debt write-off experience. The allowance for doubtful accounts for accounts receivable and financing receivables was $245 thousand at September 30, 2023 and $53 thousand at September 30, 2022.

Asset retirement obligation

An asset retirement obligation (“ARO”) represents a legal obligation associated with the retirement of a tangible long-lived asset that is incurred upon the acquisition, construction, development, or normal operation of that long-lived asset. The Company’s ARO is associated with MSKK leasehold improvements that we are contractually obligated to remove at the end of a lease to comply with the lease agreement. We recognize asset retirement obligations upon construction of leasehold improvements with such conditions if a reasonable estimate of fair value can be made. The ARO is recorded in other noncurrent liabilities in the consolidated balance sheets. The associated estimated ARO is capitalized as part of the carrying amount of the long-lived asset and depreciated over its useful life.

Valuation allowance for net deferred tax assets

Deferred tax assets and liabilities are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. We do not provide for U.S. income taxes on the undistributed earnings of our foreign subsidiaries, which we consider to be permanently invested outside of the U.S.

We make judgments regarding the realizability of our deferred tax assets. The balance sheet carrying value of our net deferred tax assets is based on whether we believe that it is more likely than not that we will generate sufficient future taxable income to realize these deferred tax assets after consideration of all available evidence. We regularly review our deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses. Generally, cumulative losses in recent years is a significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is not needed.

As of September 30, 2023 and 2022, valuation allowances have been established for all U.S. and for certain foreign deferred tax assets which we believe do not meet the “more likely than not” criteria for recognition. If we are subsequently able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been established, then we will be required to recognize these deferred tax assets through the reduction of the valuation allowance, which could result in a material benefit to our results of operations in the period in which the benefit is determined.

Accounting for stock-based compensation

The Company uses a lattice valuation model to account for all employee stock options granted. The lattice valuation model is a more flexible analysis to value options because of its ability to incorporate inputs that change over time, such as actual exercise behavior of option holders. The Company uses historical data to estimate the option exercise and employee departure behavior in the lattice valuation model. Expected volatility is based on historical volatility of the Company’s stock. The Company considers all employees to have similar exercise behavior and therefore has not identified separate homogenous groups for valuation. The expected term of options granted is derived from the output of the option pricing model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods the options are expected to be outstanding is based on the U.S. Treasury yields in effect at the time of grant. Forfeitures are based on actual behavior patterns.

All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measured.

Restructuring and exit activities

The determination of when the Company accrues for involuntary termination benefits under restructuring plans depends on whether the termination benefits are provided under an on-going benefit arrangement or under a one-time benefit arrangement. The Company accounts for on-going benefit arrangements in accordance with Accounting Standards Codification 712 (“ASC 712”) Nonretirement Postemployment Benefits. According to ASC 712, involuntary termination benefits would be measured and recognized when the expense is both probable and predictable. For those employees who have a severance arrangement outlined under an existing employment agreement, the communication date would be the date of hire since at that point in time, the Company and the employee had a mutual understanding of the agreement. The measurement and recognition date of the expense would occur when the Company is committed to the plan and it is probable the impacted employee is entitled to the termination benefit. The Company accounts for one-time benefit arrangements in accordance with ASC 420 Exit or Disposal Cost Obligations. According to ASC 420, an arrangement for one-time employee termination benefits exists at the date the plan of termination meets certain criteria and has been communicated to employees.

RESULTS OF OPERATIONS

You should read the following discussion of our results of operations and financial condition in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this proxy statement.

Revenue

Revenue from our business includes the sale of Mediasite recorders and server software products and related services contracts, such as customer support, installation, customization services, training, content hosting and event services. We market our products to educational institutions, corporations and government agencies that need to deploy, manage, index and distribute video content on Internet-based networks. We reach both our domestic and international markets through reseller networks, a direct sales effort and partnerships with system integrators.

Revenue decreased by approximately $5.4 million from fiscal 2022 to fiscal 2023 consisting of the following:

Gross Margin

Total gross margin in fiscal 2023 was $12.9 million or 58% compared to $18.8 million or 68% in fiscal 2022.  The decline year over year is primarily attributed to transition costs incurred as we move to a public cloud, incentive pricing on recorder and other sales components to drive increased and longer-term orders, as well as the decrease in services revenue without the corresponding decrease in COGS expense in cost centers that support services revenue.

Operating Expenses

Selling and Marketing Expenses

Selling and marketing (“S&M”) expenses include wages and commissions for sales, marketing and business development personnel, print and digital advertising, tradeshows and various promotional expenses for our products. Timing of these costs may vary greatly depending on introduction of new products and services or entrance into new markets, or participation in major tradeshows.

S&M expense decreased $1.8 million, or 15%, from $12.3 million in fiscal 2022 to $10.5 million in fiscal 2023. Fluctuations in the major categories include:

General and Administrative Expenses

General and administrative expenses consist of personnel and related costs associated with the facilities, finance, legal, human resources, and information technology departments, as well as other expenses not fully allocated to functional areas.

G&A expenses decreased by approximately $0.9 million, or 16%, to $5.0 million in fiscal 2023 from $5.9 million in fiscal 2022. Fluctuations in major categories include:

Product Development Expenses

Product development (“PD”) expenses include salaries and wages of the software research and development staff and an allocation of benefits, facility, and administrative expenses.

PD expenses increased approximately $3.5 million, or 46%, from $7.5 million in fiscal 2022 to $11.0 million in fiscal 2023. The increase is primarily due to the following:

During the quarter ended June 30, 2023 the Company made a strategic decision to shift its Vidable development efforts toward events related analytics, access and dynamic content to better serve the needs of event promoters, sponsors, and attendees. As a result, the Company reevaluated its capitalization policies for costs to develop software products to be sold to external users and ceased capitalization beginning quarter ended September 30, 2023. There were $1.5 million of capitalized software development costs in fiscal 2023 that previously qualified for capitalization, compared to $2.4 million in fiscal 2022. These costs were associated with the development of new AI video tools for our Vidable software products.

Impairment of Intangible Assets

The Company recorded an impairment loss of $3.8 million and $0 for capitalized software development in fiscal years ended 2023 and 2022, respectively. The non-cash loss incurred in 2023 was primarily due to a strategic shift in Vidable development efforts to better serve the needs of the events industry. 

Other Income and Expense, Net

Interest expense for fiscal 2023 increased $1.7 million compared to fiscal 2022. The increase in interest expense is driven by monthly interest payments related to the Loan and Security Agreement and subsequent amendment with NBE as well as the Security Agreement and Promissory Note and subsequent amendment with Mark Burish.

During the year ended September 30, 2023, no gain in fair value was recorded related to the fair value remeasurement on the derivative liability associated with the Loan and Security Agreement and Warrant Debt with PFG V compared to a gain in fair value of $53 thousand the year ended September 30, 2022. The fair value of the derivative liability is measured at fair value based on a Black Scholes option pricing model with assumptions for stock price, exercise price, volatility, expected term, risk free interest rate and dividend yield.

During fiscal 2023 and 2022, a $60 thousand gain and $364 thousand loss, respectively, was recorded as the net result of other expense and income, primarily due to the foreign currency translation changes from the foreign subsidiaries. 

Provisions Related to Income Taxes

The Company believes the valuation allowance for its deferred tax assets is appropriate. See Note 6 - Income Taxes for further details. The repatriation of undistributed foreign earnings is not expected to result in a material change to our financial results.

Foreign Currency Translation Adjustment

The Company’s wholly-owned subsidiaries operate in Japan and the Netherlands, and utilize the Japanese Yen and Euro, respectively, as their functional currency. Assets and liabilities of the Company’s foreign operations are translated into US dollars at period end exchange rates whiles revenues and expenses are translated using average rates for the period. Gains and losses from the translation are deferred and included in accumulated other comprehensive loss on the consolidated statements of operations.

For the year ended September 30, 2023, the Company’s foreign currency translation adjustment was a gain of $111 thousand compared to a loss of $364 thousand in the year ended September 30, 2022.

During fiscal 2023, the Company recorded an aggregate transaction loss of $6 thousand compared to an aggregate loss of $63 thousand during fiscal 2022. The aggregate transaction loss is included in the other expense line of the consolidated statements of operations.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary sources of liquidity are from debt and equity financing. During fiscal 2023, the Company used $11.3 million cash for operating activities, compared with a use of $5.6 million in operating activities in fiscal 2022. The primary factors driving the fiscal 2023 cash usage from operating activities are the $19.3 million net loss, which was partially offset by a non-cash charge for impairment of fixed assets of $3.8 million, $2.3 million of depreciation and amortization of property and equipment, and $801 thousand decrease in accounts receivable, net of allowances.

Capital expenditures for property and equipment were $550 thousand in fiscal 2023 compared to $2.6 million in fiscal 2022. Capitalized software development costs were $1.5 million in fiscal 2023 compared to $2.4 million capitalization in fiscal 2022.  

During fiscal years 2023 and 2022, cash provided from financing activities were $11.0 million and $4.5 million, respectively. During fiscal year, 2023, payments on capital lease and financing arrangements of $7 thousand were offset by proceeds from stock option exercises of $2 thousand, proceeds from notes payable due to related parties of $10.0 million, proceeds from notes payable of $338 thousand and common stock issuance of $1.2 million. For the same period in fiscal 2022, the Company recorded $4.5 million of cash flows from financing activities primarily due to $4.0 million proceeds from issuance of common stock and $441 thousand proceeds from notes payable.

At September 30, 2023, the Company had $11.1 million outstanding of debt, related to notes payable with Neltjeberg Bay Enterprises, Mark Burish and MSKK term debt.  The Company is currently paying a fee of approximately $31 thousand per month to defer principal payments. At September 30, 2022, the Company had $921 thousand outstanding, net of warrant debt and debt discounts, related to notes payable with PFG V and MSKK term debt.

At September 30, 2023 approximately $0.5 million of cash and cash equivalents was held by the Company’s foreign subsidiaries.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. In fiscal year 2023, the Company incurred a net loss of $19.3 million compared to $7.1 million in fiscal year 2022 and has a deficit in stockholders’ equity at September 30, 2023 of $13.7 million. The Company currently does not have access to capital through a line of credit nor other readily available sources of capital.  Together, these factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

However, management has considered its plans to continue the Company as a going concern and believes substantial doubt is alleviated. Management developed a plan to improve liquidity in its operations through reductions in expenses, incentives to accelerate cash collections, monetization of excess inventory, utilization of the final $500,000 tranche available under its existing credit agreement with Mark Burish, as well as anticipated exchange of a portion of his debt into equity, exchange of a portion of debt for the sale of certain assets and further financial support in the form of additional debt or equity, and proceeds from the proposed sale of the Company’s Mediasite business. The Company believes it will be successful in such initiatives and will be able to continue as a going concern through at least the next twelve months.

Contractual Obligations

The following summarizes our contractual obligations at September 30, 2023 and the effect those obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma condensed consolidated financial statements are derived from the historical consolidated financial statements of Sonic Foundry, Inc. (“Sonic Foundry” or the “Company”) as of and for the year ended September 30, 2023, which are included as Annex D hereto. The pro forma adjustments give effect to the Mediasite Asset Sale.

These unaudited pro forma condensed consolidated financial statements include adjustments to reflect the Mediasite Asset Sale and the proceeds received therefrom. Final values may differ significantly in the event the Mediasite Asset Sale closes and are expected to reflect changes that occur from now until closing of the transaction.

The unaudited pro forma consolidated balance sheet as of September 30, 2023, is presented to reflect adjustments to the Company’s balance sheet as if the Mediasite Asset Sale was completed on September 30, 2023.

The unaudited pro forma consolidated statement of operations for the year ended September 30, 2023 are presented as if the Mediasite Asset Sale was completed on October 1, 2022. The Mediasite Business column in the pro forma consolidated statement of operations reflects the operations of the Mediasite Business excluding any allocation of corporate overhead.

The following unaudited pro forma condensed consolidated financial statements should be read in conjunction with the accompanying notes to the unaudited pro forma consolidated financial statements and the audited consolidated financial statements and accompanying notes of the Company.

The unaudited pro forma condensed consolidated financial data has been presented for informational purposes only. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information, and the Company believes such assumptions are reasonable under the circumstances. The pro forma data is not necessarily indicative of our results of operations or financial condition had the Mediasite Asset Sale been completed on the dates assumed. In addition, they are not necessarily indicative of our future results of operations or financial condition.