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Subsequent Events | 12 Months Ended
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Dec. 31, 2011
Notes to Financial Statements |
Note 17 - Subsequent Events | Settlement Hypertouch, Inc. v. ValueClick, Inc., E-Babylon, Inc., Hi-Speed Media, Inc., VC E-Commerce Solutions, Inc. Webclients, Inc. and Primary Ads, Inc., Case No. LC081000 in the Los Angeles Superior Court. On April 8, 2008, Hypertouch, Inc. filed an action against us and various other defendants in the same industry. The plaintiff sought recovery for purported violations of the California anti-“spam” statute and the California unfair competition statute, alleging that we had sent 4,000 “spam” e-mails. The plaintiff is seeking $1,000 per “spam” email. After summary judgment was entered against the plaintiff, the plaintiff appealed and obtained a partial reversal; however, the appeals court upheld the portion of the order limiting plaintiff’s potential recovery to a set of 34 “spam” e-mails. In January 2012, we settled this case for $40,000 cash and recorded the settlement as part of selling general and administrative expenses in 2012. Microchannel Technologies Ltd. v. Think Partnership, Inc.; Case No. 08-08287-CI-20, in the Circuit Court for the Sixth Judicial Circuit of Florida. This action, instituted in 2008, involves a claim for unpaid license fees by a UK publisher against Inuvo’s former UK subsidiary, Web Diversity Limited. This suit was settled in February 2012 for $7,000. New Credit Facility and Term Loan On March 1, 2012 we entered into a new Business Financing Agreement with Bridge Bank, for a $10 million accounts receivable revolving credit facility (the “Revolving Credit Line”) and a $5 million term loan (the “Term Loan”) . The Revolving Credit Line replaced the Company’s then existing $8 million revolving credit facility. The new credit facility will be used primarily to satisfy the working capital needs of the Company following the closing of the merger with Vertro, Inc. described later in this report, . As of March 1, 2012, there was approximately $4.2 million credit available on the revolving credit facility and $0 on the term loan. Subject to the terms of the new agreement, the Company is entitled to obtain advances against the Revolving Credit Line up to 80% of eligible accounts receivable balances, which are generally those balances owed by U.S. based customers that are less than 90 days from the date of invoice, plus $1 million up to the credit limit of $10 million. In addition, subject to the terms of the agreement, the Company is entitled to borrow up to $5 million under the Term Loan portion of the credit facility, which is repayable in 45 equal monthly installments beginning June 2012. The Revolving Credit Line portion of the credit facility expires on February 28, 2014, at which time all loan advances under the Revolving Credit Line become due and payable. The Term Loan expires in February 2016. Under the terms of the new agreement, we must maintain certain depository, operating and investment accounts at Bridge Bank; provide Bridge Bank a first priority perfected security interest in all of our accounts and personal property; provide various monthly, quarterly and annual reports; and limit additional indebtedness to $500,000 of purchase money including capital leases and an additional $500,000 of all other indebtedness. In addition, the Company must maintain through May 2012 an “operating profit” of net income plus interest and taxes plus non-cash expenses for amortization, depreciation, stock based compensation, discontinued operations, non-recurring non-cash items and certain closing costs associated with the Merger Transaction with Vertro of not less than $200,000 for the immediate proceeding three month period; after May 2012 a Debt Service Coverage Ratio of at least 1.50 to 1.0 tested on the immediate proceeding three month period; and an Asset Coverage Ratio of not less tahn1.10 to 1. At all times until September 30, 2012 and 1.25 to 1.0 thereafter. Interest on the Revolving Credit Line is payable monthly at prime plus 0.5% plus a monthly maintenance fee of 0.125 percentage points on the average daily account balance. Interest on the Term Loan bears interest at prime plus 1%. In connection with establishing the credit facility, the Company incurred fees payable to Bridge Bank of approximately $100,000. The agreement calls for a termination fee until the first anniversary and prepayment fee on the Term Loan until the first anniversary. Completion of Acquisition or Disposition of Assets On March 1, 2012, we completed our merger with Vertro. Pursuant to the terms and conditions of the Agreement and Plan of Merger (the “Merger Agreement”) by and among us, Anhinga Merger Subsidiary, Inc., a Delaware corporation and our wholly owned subsidiary (“Merger Sub”), and Vertro, dated October 16, 2012, Merger Sub was merged with and into Vertro, with Vertro surviving the merger (the “Merger”) and becoming our wholly owned subsidiary. Pursuant to the Merger Agreement, we issued to Vertro stockholders 1.546 shares of our common stock for each outstanding share of Vertro common stock. The total number of our common stock issued to the Vertro shareholders was 12,713,552 shares. Upon completion of the Merger, our stockholders hold approximately 47.2% of our outstanding common stock, and Vertro stockholders hold approximately 52.8% of our outstanding common stock. Assuming the exercise of all the outstanding options (whether or not vested) and warrants of both us and Vertro, prior Inuvo stockholders hold approximately 50.4% of our outstanding common stock, and the Vertro stockholders hold approximately 49.6% of our outstanding common stock. Additionally, pursuant to the terms of the Merger Agreement, we increased the size of our board of directors from five members to seven members, two members of the board of directors resigned, and three former members of the Vertro board of directors were appointed to our board of directors. The board of directors expects to identify a seventh director and make the appointment within the near future. The total purchase price for Vertro was approximately $11.5 million. We are in the process of analyzing our purchase accounting adjustment to allocate the purchase price. Litigation Scott Mitchell v. Inuvo. In January 2012 we were named as a defendant in an action styled Scott Mitchell versus Inuvo, Inc., f/k/a Think Partnership Inc. and Kowabunga! Inc., Does I-X , Case No. A-11-653956-C in the District Court, Clark County, Nevada. The complaint is related to our alleged failure to fully indemnify Mr. Mitchell, our former chief executive officer and member of the board of directors, pursuant to the terms of an indemnification agreement entered into in connection with his employment agreement, for attorneys’ fees and costs incurred by him related to an investigation of insider trading brought against Mr. Mitchell by the Securities and Exchange Commission. The complaint alleges that Mr. Mitchell has subsequently received correspondence from the staff of the Securities and Exchange Commission that the Commission does not intend to make any recommendation for an enforcement action against him. Under the terms of Inuvo’s directors and officers liability policy, its insurer has already paid approximately $588,000 of attorneys’ fees and costs to Mr. Mitchell’s counsel. Mr. Mitchell is seeking an additional approximately $265,000 of fees and costs which he allegedly owes to his counsel. The complaint alleges breach of contract/indemnity agreement, breach of implied covenant of good faith and fair dealing, tortious breach of the implied covenant of good faith and fair dealing, and failure to indemnify pursuant to our bylaws and the Nevada statutes. The complaint seeks a judgment against us for actual, consequential and special damages in excess of $10,000, advances of fees, costs and expenses, punitive damages, attorney’s fees and costs, pre and post-judgment interest and a determination of his rights with respect to the indemnification agreement, our bylaws and the Nevada statutes. Given the amount of recovered funds received by Mr. Mitchell, and the position of Inuvo’s insurer that any reimbursement beyond what has already been paid is unwarranted, Inuvo intends to defend this lawsuit on the basis of the scope of the applicable indemnification and the reasonableness of the fees demanded.

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- Definition Disclosure of accounting policy for reporting subsequent events. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18780-107790 + Details
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