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☐

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 under Rule 14a-12

 

 

 

 

 

☐

No fee required

☐

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

(2)

Aggregate number of securities to which transaction applies:

 

	(3)	Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
		calculated and state how it was determined):

 

(4)

Proposed maximum aggregate value of transaction:

 

(5)

Total fee paid:

 

☒

Fee paid previously with preliminary materials.

☐

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous    filing by registration statement number, or the Form or Schedule and the date of its filing.

(1)	Amount Previously Paid: ______________________________________________________
(2)	Form, Schedule or Registration Statement No.:_____________________________________
(3)	Filing Party: ________________________________________________________________
(4)	Date Filed: _____________

 

 

 

 

 

1.

Approval of the Agreement and Plan of Merger (the “Merger Agreement”), dated as of November 9, 2017, by and among the Company, B. Riley Financial, Inc., a Delaware corporation (“Parent”) and B. R. Acquisition Ltd., an Israeli corporation and an indirect wholly owned subsidiary of Parent (“Merger Sub”), and the terms of the merger contemplated thereby;

2.

Approval, in accordance with the requirements of the Israeli Companies Law, 5759-1999, as currently amended (the “Companies Law”), of an amendment to the employment agreement and an amendment to the restricted stock agreement with the Company’s President and Chief Executive Officer, Don C. Bell III, related to the transactions contemplated by the Merger Agreement;

3.

Approval, on a non-binding, advisory basis, of certain compensation that will be paid or may become payable to our named executive officers in connection with the merger; and

4.

The transaction of such other business as may properly come before the Meeting and any adjournments or postponements thereof.

 

 

 

 

 

By Order of the Board of Directors,   MAGICJACK VOCALTEC LTD.   Don Carlos Bell III President and Chief Executive Officer February 8, 2018

 

 

 

 

QUESTIONS AND ANSWERS ABOUT THE TRANSACTION AND THE MEETING	3
The Transaction	3
The Meeting	6
SUMMARY	9
Parties to the Transaction	9
The Meeting	10
Recommendation of the Board	10
The Agreement and Plan of Merger	11
Appraisal Rights	11
Opinion of BofA Merrill Lynch	11
Treatment of the Company’s Stock Options and Restricted Stock in the Transaction	11
Interests of Our Directors and Executive Officers in the Transaction	12
Conditions to Completion of the Transaction	12
No Solicitation	13
Termination of the Merger Agreement	14
Termination Fees	15
Financing of the Transaction	15
Delisting and Deregistration of the Company’s Ordinary Shares	15
Expenses	15
Material U.S. Federal Income Tax Considerations of the Transaction	16
Regulatory Matters	16
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	17
THE EXTRAORDINARY GENERAL MEETING	18
Date, Time and Place of the Meeting	18
Purpose of the Meeting	18
Persons Entitled to Vote; Quorum; Vote Required	18
Proxies and Voting Procedures	18
Mailing of Proxy Statement	19
Registered Office	19
Abstentions and Broker Non-Votes	19
Adjournments	19
Cost of Proxy Distribution and Solicitation	20
PARTIES TO THE TRANSACTION	21
THE TRANSACTION	22
Background of the Transaction	22
Recommendation of the Board; Reasons for the Transaction	38
Opinion of BofA Merrill Lynch	42
Certain magicJack Unaudited Prospective Financial Information	50
Financing of the Transaction	52
Interests of Our Directors and Executive Officers in the Transaction	52
Delisting and Deregistration of the Company’s Ordinary Shares	59
Regulatory Approvals Required for the Transaction	59
Material U.S. Federal Income Tax Considerations of the Transaction	60
U.S. Federal Income Tax Considerations to U.S. Holders of the Disposition of Company Ordinary Shares	61
Certain Israeli Tax Considerations to U.S. Holders of the Disposition of Company Ordinary Shares	62
Tax Considerations in Other Jurisdictions	62

THE AGREEMENT AND PLAN OF MERGER	63
Explanatory Note Regarding the Merger Agreement	63
The Merger; Articles of Association; Memorandum of Association; Directors and Officers	63
Effective Time	63
Merger Consideration	64
Treatment of Company Equity Awards	64
Payment Procedures	64
Representations and Warranties	65
Covenants Relating to Conduct of Business Pending the Closing	66
Non-Solicitation; Acquisition Proposals; Change in Recommendations	68
Shareholder Meeting	70
Indemnification and Insurance	70
Efforts to Obtain Regulatory Approvals and Tax Ruling	71
Merger Proposal; Certificate of Merger	71
Financing Cooperation	72
Other Covenants	72
Conditions to Completion of the Merger	73
Termination of the Merger Agreement	74
Effect of Termination	75
Transaction Expenses; Termination Fees	75
Amendment	76
Binding Effect; Assignment; Guaranty of Obligations	76
Third Party Beneficiaries	77
Specific Performance	77
Governing Law	77
MARKET PRICES FOR ORDINARY SHARES	78
EXECUTIVE COMPENSATION	79
Compensation Discussion and Analysis	79
Compensation Committee Report	86
2017 Summary Compensation Table	87
2017 Pay Ratio Disclosure	88
2017 Grants of Plan-Based Awards	88
2017 Outstanding Equity Awards and Stock Vesting	89
Pension Benefits and Nonqualified Deferred Compensation	90
Employment Agreements and Potential Payments Upon Termination or Change of Control for Named Executive Officers	90
Compensation Committee Interlocks and Insider Participants	101
2017 Director Compensation	102

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	104
PROPOSAL 1	106
PROPOSAL 2	107
PROPOSAL 3	109
SHAREHOLDER PROPOSALS	110
HOUSEHOLDING OF PROXIES	110
WHERE YOU CAN FIND MORE INFORMATION	110
OTHER INFORMATION	111
Other Business	111
ANNEX A  -  Agreement and Plan of Merger	A - 1
ANNEX B  -  Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated	B -1

 

 

 

 

 

 

 

1.

Approval of the Agreement and Plan of Merger (the “Merger Agreement”), dated as of November 9, 2017, by and among the Company, B. Riley Financial, Inc., a Delaware corporation (“Parent”) and B. R. Acquisition Ltd., an Israeli corporation and an indirect wholly owned subsidiary of Parent (“Merger Sub”), and the terms of the merger contemplated thereby (the “Merger Proposal”);

2.

Approval, in accordance with the requirements of the Israeli Companies Law, 5759-1999, as currently amended (the “Companies Law”), of an amendment to the employment agreement and an amendment to the restricted stock agreement with the Company’s President and Chief Executive Officer, Don C. Bell III, related to the transactions contemplated by the Merger Agreement (the “CEO Compensation Proposal”);

3.

Approval, on a non-binding, advisory basis, of certain compensation that will be paid or may become payable to our named executive officers in connection with the merger (the “Golden Parachute Payments Proposal”); and

4.

The transaction of such other business as may properly come before the Meeting.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q:	What is the Transaction?

 

A:

The Company, Parent and Merger Sub have entered into the Merger Agreement pursuant to which Parent proposes to acquire all of the outstanding ordinary shares of the Company (other than those held by Parent, Merger Sub and their subsidiaries) as a result of the merger of Merger Sub with and into the Company (the “Merger”) for $8.71 per share in cash, without interest, which we refer to as the “Per Share Merger Consideration.”  The transactions contemplated by the Merger Agreement, including the Merger, are referred to as the “Transaction” for purposes of this proxy statement.  The Merger Agreement is attached to this proxy statement as Annex A.  We encourage you to review the Merger Agreement in its entirety.

 

Q:	What will the Company’s shareholders receive when the Transaction occurs?

 

A:	For every Company ordinary share held at the effective time of the Merger, the Company’s shareholders (other than Parent, Merger Sub and their subsidiaries) will be entitled to receive $8.71 in cash, without interest, less any applicable withholding taxes.

 

Q:	How does the purchase price compare to the market price of the Company’s ordinary shares?

 

A:

The purchase price of $8.71 per share to be received by the Company’s shareholders represents a premium of approximately (i) 18.5% over the closing price of the Company’s ordinary shares on the NASDAQ Global Select Market on March 14, 2017, the last completed trading day prior to the date that the Company announced that it had received unsolicited indications of interest and would be considering its strategic alternatives, (ii) 23.6% over the 90-day average closing price of the Company’s ordinary shares for the period ended November 7, 2017, and (iii) 54.2% over the closing price of the Company’s ordinary shares on the NASDAQ Global Select Market on November 8, 2017, the last completed trading day prior to the Company’s announcement that it entered into the Merger Agreement.

 

 

Q:	When do you expect the Transaction to be completed?

 

A:	The Transaction is subject to various closing conditions, including Company shareholder approval and regulatory approvals.  We hope to complete the Transaction in the first half of 2018.

 

 

 

Q:	What are the other Proposals and how do they relate to the Transaction?

 

A:

Proposal 2 relates to approving amendments to the employment agreement and the restricted stock agreement of the Company’s Chief Executive Officer, Don C. Bell III, (i) to allow Mr. Bell to receive certain compensation upon the consummation of the Merger and (ii) to postpone the vesting of the restricted share awards that were previously granted to Mr. Bell and cause such awards to be forfeited upon the consummation of the Merger.  These arrangements were approved by our Compensation Committee and our Board on November 7, 2017 contingent upon approval and execution of the Merger Agreement.  These arrangements are described in more detail in “The Transaction—Interests of Our Directors and Executive Officers in the Transaction—Golden Parachute Compensation—Don C. Bell III Executive Employment Agreement” beginning on page 54 , and under Proposal 2 below.

 

 

Q:	How does the Board recommend that I vote on the Proposals?

 

A:

The Board unanimously determined that it is in the best interest of the Company that the Company enter into the Merger Agreement and consummate the Transaction, and unanimously recommends that you vote “FOR” the Merger Proposal. You should read the section entitled “The Transaction—Recommendation of the Board; Reasons for the Transaction” beginning on page 38.

 

 

 

Q:	What effects will the Transaction have on the Company?

 

A:

As a result of the Transaction, the Company will cease to be a standalone public company and will be an indirect wholly owned subsidiary of Parent.  The Company’s ordinary shares will no longer be publicly traded and will be delisted from the NASDAQ Global Select Market. In addition, the Company’s ordinary shares will be deregistered under the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), upon application to the SEC, and we will no longer file periodic reports with the SEC.

 

Q:	What will happen in the Transaction to the Company’s stock option awards?

 

A:

With the exception of the options issued to Don C. Bell III, the Company’s Chief Executive Officer, each Company stock option, whether or not vested or exercisable, that is unexpired, unexercised and outstanding immediately prior to the effective time of the Merger will vest and terminate in its entirety at the effective time.  The holder of each such stock option will be entitled to receive an amount in cash equal to the product of: (i) the excess of (x) $8.71 over (y) the per share exercise price of such option, multiplied by (ii) the number of ordinary shares underlying each such option, which amount will be paid less any applicable withholding taxes.  To the extent any unexpired and outstanding Company stock option has an exercise price that is equal to or greater than the purchase price of $8.71, such option will be cancelled for no consideration.  The options issued to Mr. Bell will be cancelled for no consideration effective as of the effective time of the Merger.

 

Q:	What will happen in the Transaction to the Company’s restricted share awards?

 

A:

Company restricted share awards outstanding immediately prior to the effective time of the Merger will become vested as a result of the Merger, only if and to the extent provided by the terms of the award or applicable Company equity plan, and any portion of the award that does not become so vested will be forfeited. Each vested restricted share will be cancelled and converted into the right to receive a cash payment with respect thereto equal to $8.71 per share, less any applicable withholding taxes.

 

 

Q:	Do any of the Company’s directors or executive officers have interests in the Transaction that may differ from those of the Company’s shareholders?

 

A:

Yes, some of our directors and executive officers may have interests in the Transaction that are different from, or in addition to, the interests of the Company’s shareholders generally.  The Board was aware of and considered these interests, among other matters, in reaching its decision to approve entry into the Merger Agreement and the consummation of the Merger.  See “The Transaction—Interests of Our Directors and Executive Officers in the Transaction” beginning on page 52  for a description of such interests.

 

Q:	What are the material U.S. federal income tax considerations of the Transaction to the Company’s shareholders?

 

A:

The receipt of cash for Company ordinary shares by U.S. holders (as defined in “The Transaction—Material U.S. Federal Income Tax Considerations of the Transaction”) pursuant to the Transaction will be a taxable transaction for U.S. federal income tax purposes.  In general, for U.S. federal income tax purposes, a U.S. holder of the Company’s ordinary shares will recognize gain or loss in an amount equal to the difference, if any, between (i) the amount of cash received in the Transaction and (ii) the U.S. holder’s adjusted tax basis in the shares.  A non-U.S. holder (as defined in “The Transaction—Material U.S. Federal Income Tax Considerations of the Transaction”) of the Company’s ordinary shares generally will not be required to pay U.S. federal income tax on the receipt of cash in exchange for the Company’s ordinary shares in the Transaction unless such non-U.S. holder has certain connections to the United States.  See “The Transaction—Material U.S. Federal Income Tax Considerations of the Transaction” beginning on page 60 for a more detailed discussion of the U.S. federal income tax treatment of the Transaction.

 

 

Q:	How will I be paid the Per Share Merger Consideration for my shares?

 

A:

On or prior to the closing date of the Merger, Parent or Merger Sub will deposit with a paying agent cash in an amount equal to the aggregate Per Share Merger Consideration payable to all shareholders (other than Parent, Merger Sub and their subsidiaries) as of the closing date of the Merger. The paying agent will provide instructions to our shareholders on how to surrender shares for payment of the Per Share Merger Consideration.

 

Q:	Should I send in my share certificates or other proof of ownership now?

 

A:

No.  The paying agent will provide a letter of transmittal to our shareholders after the effective time of the Merger.  The letter will describe how you can surrender your share certificates for the Per Share Merger Consideration.  If your shares are held in “street name” by your bank, brokerage firm or other nominee, you will receive instructions from them as to how to surrender your “street name” shares in exchange for the Per Share Merger Consideration.  Please do not send in your stock certificates now.

 

Q:	Am I entitled to appraisal rights in connection with the Transaction?

 

A:	No.  There are no appraisal or similar rights of dissenters under Israeli law, whether you vote for or against the Merger Proposal.

 

Q:	What happens if I sell my ordinary shares before the Meeting?

 

A:

The record date for shareholders entitled to vote at the Meeting is earlier than the date of the Meeting and the expected closing date of the Merger. If you transfer your ordinary shares of the Company after the record date but before the Meeting, you will, unless special arrangements are made, retain your right to vote at the Meeting but will transfer the right to receive the Per Share Merger Consideration to the person to whom you transfer your shares.

 

 

Q:	What happens if the Merger Proposal is not approved by the Company’s shareholders or if the Transaction is not completed for any other reason?

 

A:

If the Merger Proposal is not approved by our shareholders or if the Transaction is not completed for any other reason, our shareholders will not receive any payment for their shares in connection with the Transaction.  Instead, we will remain a standalone public company, the Company’s ordinary shares will continue to be listed and traded on the NASDAQ Global Select Market and registered under the Exchange Act, and we will continue to file periodic reports with the SEC.

 

 

 

Q:	When and where is the Meeting?

 

A:	The Meeting will be held at 10:00 a.m., local time, on March 19, 2018 at the offices of Bryan Cave LLP, 1290 Avenue of the Americas, 35th Floor, New York, NY 10104.

 

Q:	What quorum and shareholder vote are required to approve the Proposals?

 

A:

A quorum is required for the transaction of business at the Meeting.  Two or more shareholders, present in person or by proxy and holding shares conferring in the aggregate not less than one-third of the voting power of the Company as of the record date of February 7, 2018 will constitute a quorum.  Each Company share is entitled to one vote on each Proposal.

 

 

 

 

·

the majority voted in favor includes a majority of the shares held by non-controlling shareholders who do not have a personal interest in the approval of Proposal 2 that are voted at the Meeting, excluding abstentions; or

 

·

the total number of shares held by non-controlling, disinterested shareholders (as described in the previous bullet-point) that are voted against approval of Proposal 2 does not exceed two percent of the aggregate voting rights in the Company.

 

 

 

Q:	How can I vote?

 

A:

Shareholders of record at the record date of February 7, 2018 may vote by personally attending the Meeting or attending by proxy, by completing and returning a proxy card.  If you hold your shares in “street name” through a bank, broker or other nominee, you will be able to exercise your vote through such organization by completing a voting instruction form in accordance with the procedures issued by such organization.  “Street name” holders may be able to submit their voting instructions to their bank, broker or other nominee by telephone or through the Internet.

 

 

 

 

Q:	What do I do if I receive more than one proxy card or set of voting instructions?

 

A:

If you hold shares in “street name”, directly as a record holder or otherwise, you may receive more than one proxy card and/or set of voting instructions relating to the Meeting.  If more than one proxy card is received, you should vote and return each proxy card separately in accordance with the applicable voting instructions and this proxy statement in order to ensure that all of your shares are voted.

 

Q:	If my ordinary shares are held in “street name” by my bank, broker or other nominee, will they vote my shares for me?

 

A:

Your broker, bank or nominee will not be able to vote any of your shares without instructions from you.  The vote on each of the Proposals is considered a “non-routine” matter, and your bank, broker or other nominee is not permitted to exercise discretion to vote your ordinary shares.  If you hold your ordinary shares in “street name,” you should follow the procedures provided by your bank, broker or other nominee regarding how to instruct them to vote your shares.  Typically, you would submit your voting instructions by mail, by telephone or through the Internet in accordance with the procedures provided by your bank, broker or other nominee.  Without instructions, your shares will not be voted.

 

Q:	How are votes counted?

 

A:

You may vote FOR or AGAINST each of the Proposals, or you may abstain from voting on each of the Proposals.  Abstentions will not be counted as votes cast or shares voting on the proposal, but will count for the purposes of determining whether a quorum is present.  Pursuant to Israeli law, broker non-votes will not be counted as present for the purpose of determining the presence or absence of a quorum for the transaction of business and, therefore, will not be counted for the purpose of determining whether a quorum is present or approval is obtained with respect to any Proposal.

 

Q:	Can I revoke or change my vote?

 

A:

Yes.  Shareholders have the right to revoke a proxy at any time prior to voting at the Meeting by (i) submitting a subsequently dated proxy, which, if not delivered in person at the Meeting, must be received by us no later than two hours before the appointed time of the Meeting or (ii) attending the Meeting and voting in person, provided that you are a registered shareholder.  If you hold ordinary shares in “street name” through a broker, bank or other nominee, you should follow the procedures provided by such organization to revoke or change your vote.

 

Q:	What happens if I do not submit a proxy card or otherwise vote?

 

A:

Your shares will not be voted on any of the Proposals and will not be counted as present at the Meeting.  Failure to submit a proxy card or otherwise vote could make it more difficult for us to achieve the requisite thresholds we need for approval of the Proposals.  Therefore, we urge all Company shareholders to vote, and we request that you return the proxy card as soon as possible.

 

 

Q:	What do Company shareholders need to do now?

 

A:

Carefully read and consider the information contained in and incorporated by reference into this proxy statement, including its annexes.  In order for Company ordinary shares to be represented at the Meeting, shareholders can (i) indicate on the enclosed proxy card how they would like to vote and return the proxy card in the accompanying pre-addressed postage paid envelope or (ii) attend the Meeting in person.  If your shares are held in “street name” through your broker, bank or other nominee, please follow the procedures provided by such organization regarding how to instruct them to vote your shares.

 

Q:	Who can answer questions?

 

A:	Company shareholders with questions about the Proposals or the Meeting, or who desire additional copies of this proxy statement or additional proxy cards should contact our proxy solicitor:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·

the risk that the Transaction may not be completed in a timely manner or at all, which may adversely affect the Company’s business and the price of its ordinary shares;

 

·

the failure to obtain the Company shareholder approval of the Merger Proposal;

 

·

the possibility that the closing conditions to the Transaction may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant a necessary regulatory approval;

 

·

the potential for regulatory authorities to require divestitures in connection with the proposed Transaction;

 

·

the occurrence of any event that could give rise to termination of the Merger Agreement;

 

·

the risk of shareholder litigation that may be instituted in connection with the contemplated Transaction;

 

·

risks related to the diversion of management’s attention from the Company’s ongoing business operations;

 

·

the effect of the announcement of the Transaction on the Company’s ability to retain and hire key personnel and maintain relationships with customers, suppliers and other third parties; and

 

·

difficult global economic and capital markets conditions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·

a premium of approximately 54.2% over the closing price per share of Company shares on the NASDAQ Global Select Market on November 8, 2017, the trading day before the execution of the Merger Agreement;

 

·

a premium of approximately 18.5% over the closing price per share of Company shares on the NASDAQ Global Select Market on March 14, 2017, the trading day before the Company announced it was exploring strategic alternatives; and

 

·

a premium of approximately 23.6% over the 90-day average closing price of the Company’s ordinary shares for the period ended November 7, 2017.

 

 

 

 

·

the Company’s ability to successfully distribute and commercialize new products;

 

·

the Company’s ability to grow organically and through acquisitions;

 

·

the competitive nature of the Company’s industry and target markets; and

 

·

general risks and market conditions that could reduce the market price of the Company’s shares.

 

 

 

 

·

Ability to Respond to Certain Unsolicited Acquisition Proposals— the Merger Agreement permits the Board to engage in negotiations or discussions with any third-party that has made an unsolicited bona fide written acquisition proposal that the Board, acting upon the recommendation of the Committee, determines in good faith (after consultation with its financial advisor and outside legal counsel) constitutes or would reasonably be expected to result in a superior proposal if such action is reasonably likely to be necessary in order for the directors to comply with their fiduciary duties under applicable Law (assuming the laws of Israel follow those of Delaware with respect to these matters).

 

 

·

Change of Recommendation— either in the event that the Company receives a superior proposal or in the event of an intervening event (as defined in the Merger Agreement and summarized in “The Agreement and Plan of Merger—Non-Solicitation; Acquisition Proposals; Change in Recommendations”), the Board has the right, prior to obtaining shareholder approval of the Merger Proposal, to withhold, withdraw, modify or qualify, in any manner adverse to Parent, its recommendation to its shareholders of the Merger Proposal if the Board, acting upon the recommendation of the Committee, concludes in good faith, after consultation with its financial advisor and outside legal counsel that such action is reasonably likely to be necessary in order for the directors to comply with their fiduciary duties under applicable Law (assuming the laws of Israel follow those of Delaware with respect to these matters); provided that the Board may not make such a Company adverse recommendation change unless (i) the Company notifies Parent in writing at least four business days before the Company adverse recommendation change of its intention to take such action, and provides Parent with certain information relating to the superior proposal or intervening event, (ii) the Company negotiates in good faith with Parent concerning any revisions to the terms of the Merger Agreement that Parent may propose in response to such superior proposal or intervening event, and (iii) the Board determines that, in the case of a superior proposal, such acquisition proposal continues to constitute a superior proposal, and in the case of the intervening event, such intervening event continues to materially adversely affect the advisability of the Merger Agreement and the Merger to the Company from a financial point of view, in each case after giving due consideration to any changes proposed to be made to the Merger Agreement by Parent in writing.

 

·

Fiduciary Termination Right— the Board may terminate the Merger Agreement to accept a superior proposal (that was not solicited in violation of the Merger Agreement) if (i) the Company has materially complied with requirements set forth in the previous bullet and (ii) in connection with such termination, the Company pays to Parent a termination fee of $5,738,297.

 

·

Conditions to Consummation of the Merger; Likelihood of Closing— the fact that Parent’s obligations to close the Merger are subject to a limited number of conditions and the Board’s belief that the Merger is reasonably likely to be consummated.

 

·

No Financing Condition—the Transaction is not subject to a financing condition.

 

·

Remedies—remedies include specific performance and uncapped damages resulting from any willful and material breach of the Merger Agreement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·

reviewed certain publicly available business and financial information relating to the Company;

 

·

reviewed certain internal financial and operating information with respect to the business, operations and prospects of the Company furnished to or discussed with BofA Merrill Lynch by the Company’s management, including certain financial forecasts relating to the Company (including financial forecasts relating to the magicJack Spark initiative) prepared by the Company’s management, referred to as the “magicJack forecasts”, and discussed with the Company’s management its assessment of the probability of success of the magicJack Spark initiative reflected in the magicJack forecasts;

 

·

discussed the past and current business, operations, financial condition and prospects of the Company with members of senior management of the Company;

 

·

reviewed the trading history for the Company ordinary shares and a comparison of that trading history with the trading histories of other companies BofA Merrill Lynch deemed relevant;

 

·

compared certain financial and stock market information of the Company with similar information of other companies BofA Merrill Lynch deemed relevant;

 

·

compared certain financial terms of the Merger to financial terms, to the extent publicly available, of other transactions BofA Merrill Lynch deemed relevant;

 

 

·

considered the fact that the Company publicly announced that it would explore its strategic alternatives and the results of BofA Merrill Lynch’s efforts on behalf of the Company to solicit, at the direction of the Company, indications of interest and definitive proposals from third parties with respect to a possible acquisition of the Company;

 

·

reviewed a draft, dated November 8, 2017, of the Merger Agreement, referred to as the “draft merger agreement”; and

 

·

performed such other analyses and studies and considered such other information and factors as BofA Merrill Lynch deemed appropriate.

 

 

 

 

 

 

 

 

·

its implied growth rate represented by its estimated revenue for calendar year 2017 compared to its estimated revenue for calendar year 2018; and

 

·

its enterprise value, calculated as its equity value based on its closing share price on November 3, 2017, plus its total debt, preferred equity and minority interests less its cash and cash equivalents, short-term investments and long-term investments, in each case based on the company’s most recent public filings, as a multiple of its estimated revenue for each of calendar years 2017 and 2018.

 

 

 

Company		CY 2017E EV/Revenue		CY 2018E EV/Revenue		2017-2018 Growth Rate
8x8, Inc.		4.27x		3.62x		17.8%
Five9, Inc.		7.84x		6.67x		17.6%
LivePerson, Inc.		3.16x		2.95x		7.3%
Ooma, Inc.		1.39x		1.29x		8.3%
RingCentral, Inc.		7.26x		5.87x		23.7%
Vonage Holdings Corp.		2.29x		2.23x		2.3%
Mean		4.37x		3.77x		12.8%
magicJack		0.69x		0.70x		(1.2)%

 

Implied Per Share Equity Value Reference Range for the Company		Per Share Merger Consideration
$6.34 to $8.98		$8.71

 

 

 

 

·

the transaction value, calculated as the enterprise value implied for the target company based on the Per Share Merger Consideration payable in the selected transaction, as a multiple of the target company’s last twelve months revenue, or “LTM revenue” and the target company’s estimated next twelve months revenue, or “NTM revenue,” in each as of the announcement of the relevant transaction and based on publicly available information at that time; and

 

·

the implied growth rate represented by the target company’s LTM revenue as compared to its NTM revenue.

 

 

Announcement Date		Acquirer		Target		LTM Revenue		NTM Revenue		NTM/LTM Revenue Growth
May 1, 2017		ESW Capital, LLC		Jive Software, Inc.		1.7x		1.6x		0.8%
May 1, 2017		IAC/InterActive Corp		Angie’s List, Inc.		1.8x		1.9x		(3.0)%
April 10, 2017		Sino IC Capital Co., Ltd.		Xcerra Corporation		1.4x		1.2x		16.3%
April 10, 2017		Highland Clarke Holdings Corp.		RetailMeNot, Inc.		1.6x		1.5x		6.5%
December 12, 2016		H.I.G. Capital, LLC		Lionbridge Technologies, Inc.		0.8x		0.8x		1.8%
August 24, 2016		Mill Road Capital Management LLC		Skullcandy, Inc.		0.7x		0.6x		17.6%
February 29, 2016		II-VI Incorporated		Anadigics, Inc.		1.1x		1.0x		9.8%
December 17, 2015		TDK Corporation		Micronas Semiconductor Holding AG		0.5x		0.7x		(28.5)%
December 1, 2015		Beijing E-town Dragon Semiconductor Industry Investment Center (Limited Partnership)		Mattson Technology, Inc.		1.3x		1.9x		(29.4)%
November 2, 2015		TDK Corporation		Hutchinson Technology Incorporated		0.9x		0.9x		(1.3)%
September 3, 2015		Diodes Incorporated		Pericom Semiconductor Corporation		2.0x		2.0x		4.1%
August 12, 2015		Leyard Optoelectronic Co., Ltd.		Planar Systems, Inc.		0.7x		0.7x		0.8%
April 30, 2015		Knowles Corporation		Audience, Inc.		0.9x		1.2x		(26.2)%
April 22, 2015		Francisco Partners		Procera Networks, Inc.		1.7x		1.5x		13.6%
February 3, 2015		MaxLinear, Inc.		Entropic Communications, Inc.		0.9x		1.1x		(11.6)%
January 28, 2015		Arrow Electronics, Inc.		Data Modul AG		0.6x		0.6x		7.6%
September 19, 2014		Alegria Beteiligungsgesellschaft mbH		First Sensor International AG		1.3x		1.2x		6.8%
July 11, 2014		Vishay Intertechnology, Inc.		Capella Microsystems Inc.		2.6x		2.7x		(1.7)%
April 27, 2014		Exar Corporation		Integrated Memory Logic Limited		1.5x		1.2x		16.9%
Median						1.27x		1.20x		1.8%

 

 

In addition, BofA Merrill Lynch reviewed, to the extent publicly available, financial information relating to 24 selected transactions that involved target companies that were technology companies, which in the professional judgment of BofA Merrill Lynch, had industry-standard growth profiles.  For each of these transactions, BofA Merrill Lynch reviewed and calculated the transaction value as a multiple of the target company’s NTM revenue as of the announcement of the relevant transaction and based on publicly available information at that time.

 

The results of BofA Merrill Lynch’s calculations with respect to transactions involving target companies with industry-standard growth profiles were as follows:

 

Announcement Date		Acquirer		Target		NTM Revenue
July 27, 2017		Mitel Networks Corporation		ShoreTel, Inc.		1.23x
August 31, 2016		Genesys Telecommunications Laboratories, Inc.		Interactive Intelligence Group, Inc.		3.11x
May 18, 2016		NICE-Systems, Ltd.		inContact, Inc.		3.20x
May 5, 2016		Vonage Holdings Corp.		Nexmo, Inc.		n/a
April 15, 2016		Siris Capital Group, LLC		Polycom, Inc.		1.05x
March 15, 2016		magicJack VocalTec Ltd.		North American Telecommunications Corporation d/b/a Broadsmart		2.56x
December 21, 2015		ShoreTel, Inc.		Corvisa LLC		n/a
November 23, 2015		Comtech Telecommunications Corp.		TeleCommunication Systems, Inc.		1.10x
November 3, 2015		Atos SE		Unify		n/a
September 10, 2015		Siris Capital Group, LLC		Premiere Global Services, Inc.		1.70x
September 3, 2015		Momentum Telecom, Inc.		Alteva, Inc.		0.70x
August 20, 2015		Vonage Holdings Corp.		iCore Networks, Inc.		n/a
June 19, 2015		RingCentral, Inc.		Glip, Inc.		n/a
June 19, 2015		FMR LLC		Colt Group S.A.		n/a
March 2, 2015		Mitel Networks Corporation		Mavenir Systems, Inc.		2.90x
November 5, 2014		Vonage Holdings Corp.		Telesphere Networks Ltd.		~2.00x
May 6, 2014		inContact, Inc.		CallCopy, Inc.		n/a
April 17, 2014		Interactive Intelligence Group Inc.		OrgSpan Inc.		n/a
December 17, 2013		BroadSoft, Inc.		Finocom AG		~3.60x
November 11, 2013		Mitel Networks Corporation		Aastra Technologies Limited		1.80x
November 11, 2013		8x8, Inc.		Voicenet Solutions, Inc.		0.73x
October 10, 2013		Vonage Holdings Corp.		Vocalocity, Inc.		1.66x
August 13, 2013		BroadSoft, Inc.		Hosted IP Communications (Europe) Limited		~3.00x
May 20, 2013		Genesys Telecommunications Laboratories, Inc.		SoundBite Communications, Inc.		2.07x

Based on its professional judgment and experience and after taking into consideration, among other things, the observed data for the selected precedent transactions, BofA Merrill Lynch then applied a selected range of revenue multiples of 1.00x to 1.50x, derived from the selected transactions involving “slow growth” target companies, to the Company’s calendar year 2017 estimated revenue as reflected in the magicJack forecasts.  This analysis indicated the following approximate implied per share equity value reference range for the Company, as compared to the Per Share Merger Consideration:

 

Implied Per Share Equity Value Reference Range for the Company		Per Share Merger Consideration
$7.73 to $10.40		$8.71

 

 

No company, business or transaction used in this analysis is identical or directly comparable to the Company or the Merger. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the acquisition or other values of the companies, business segments or transactions to which the Company and the Merger were compared.

 

 

Implied Per Share Equity Value Reference Range (excluding the magicJack Spark Initiative)

$6.50 to $7.42

BofA Merrill Lynch also performed a discounted cash flow analysis of the Company’s management’s expected benefits of the magicJack Spark initiative to calculate the estimated present value of the unlevered, after-tax free cash flows that the magicJack Spark initiative was forecasted to generate during the Company’s fiscal years 2018 through 2022, based on the magicJack forecasts.  BofA Merrill Lynch calculated terminal values for the magicJack Spark initiative as of the end of 2022 by applying perpetuity growth rates ranging from 2.0% to 5.0% to normalized estimated unlevered, after-tax free cash flows based on the Company’s 2022 estimated stand-alone unlevered, after-tax free cash flows from the magicJack Spark initiative as reflected in the magicJack forecasts.  The cash flows and terminal values were then discounted to present value as of January 1, 2018 using discount rates ranging from 18.0% to 22.0%, which were based on an estimate of the Company’s weighted average cost of capital. In addition, at the direction of the Company’s management, BofA Merrill Lynch applied a 10% probability of success weighting to the magicJack Spark initiative for purposes of its analysis.  This analysis indicated the following approximate implied per share equity value reference range for the magicJack Spark initiative.

 

Implied Per Share Equity Value Reference Range for the magicJack Spark Initiative

$0.44 to $0.69

Adding the approximate implied per share equity value reference range indicated for the Company excluding the magicJack Spark initiative and the approximate implied per share equity value reference range indicated for the magicJack Spark initiative, this analysis indicated the following approximate implied per share equity value reference range for the Company, as compared to the Per Share Merger Consideration:

 

Implied Per Share Equity Value Reference Range		Per Share Merger Consideration
$6.94 to $8.11		$8.71

 

		Fiscal Year Ending December 31,
		2018 (3)				2019				2020				2021				2022
		(in millions)
Core Business & Broadsmart
GAAP Revenue			86.3				82.8				81.4				80.8				79.9
GAAP Operating Income			20.6				18.6				16.7				15.1				13.1
Adjusted EBITDA(1)			27.8				24.9				22.4				20.6				18.6
Spark Initiative(2)
GAAP Revenue			7.7				18.2				31.9				44.3				48.8
GAAP Operating Income			(1.1	)			8.3				20.9				32.1				35.1
Adjusted EBITDA(1)			(1.1	)			8.3				20.9				32.1				35.1
Consolidated
GAAP Revenue			94.0				101.0				113.3				125.1				128.7
GAAP Operating Income			19.5				26.9				37.6				47.2				48.2
Adjusted EBITDA(1)			26.7				33.2				43.3				52.7				53.7

		Fiscal Year Ending December 31,
		2018				2019				2020				2021				2022
		(in millions)
Adjusted EBITDA			26.7				33.2				43.3				52.7				53.7
Depreciation and amortization			(2.8	)			(2.3	)			(1.8	)			(1.6	)			(1.6	)
Stock-based compensation expense			(4.0	)			(4.0	)			(3.9	)			(3.9	)			(3.9	)
Severance and transition payments			(0.4	)
GAAP Income from Operations			19.5				26.9				37.6				47.2				48.2

Name		Number of Restricted Shares to Vest				Value of Unvested Restricted Shares(2)				Number of Option Shares			Value of Vested Options
Executive Officers(1)
Don C. Bell III			0			NA					0		NA
Thomas Fuller			0			NA					0		NA
Kristin Beischel			0			NA					0		NA
Dvir Salomon			16,666			$	145,161				0		NA
Non-Employee Directors
Izhak Gross			12,775			$	111,270				0		NA
Dr. Yuen Wah Sing			8,108			$	70,620				0		NA
Tali Yaron-Elder			8,108			$	70,620				0		NA
Richard Harris			8,108			$	70,620				0		NA
Alan Howe			8,108			$	70,620				0		NA
Directors and executive officers as a group (9 persons)			61,873			$	538,914				0		NA

Name		Cash Payment Amounts ($)			Vesting of Stock Options ($)		Vesting of Restricted Shares ($)				Total ($)
Don C. Bell III(1)			2,000,000		NA		NA					2,000,000
Thomas Fuller(2)			500,000		NA		NA					500,000
Dvir Salomon(3)			574,860		NA			120,973				695,833
Kristin Beischel(4)			620,833		NA		NA					620,833
Jose Gordo(5)			907,725		NA			760,470				1,668,195

		Company Ordinary Shares
		High				Low
Fiscal Year Ending December 31, 2018
First Quarter (through February 6, 2018)		$	8.55			$	8.30
Fiscal Year Ending December 31, 2017
First Quarter		$	8.90			$	6.85
Second Quarter		$	8.75			$	6.25
Third Quarter		$	8.20			$	6.70
Fourth Quarter		$	8.55			$	5.55
Fiscal Year Ending December 31, 2016
First Quarter		$	9.38			$	6.22
Second Quarter		$	6.85			$	5.47
Third Quarter		$	6.87			$	5.27
Fourth Quarter		$	7.60			$	5.65
Fiscal Year Ending December 31, 2015
First Quarter		$	8.67			$	6.50
Second Quarter		$	8.43			$	6.48
Third Quarter		$	9.99			$	6.72
Fourth Quarter		$	12.50			$	8.76

Executive		Target/Maximum Annual Bonus		Bonus Milestones:		Bonus Payout Levels
Don Carlos Bell III		Target of $500,000		50% based on meeting at least 80% and up to 120% of target revenue for the year		Revenue: Range from 35% to 200% of the target annual bonus.
				50% based on meeting at least 80% and up to 120% of target EBITDA for the year		EBITDA: Range from 35% to 200% of the target annual bonus.
Thomas Fuller		Target of $206,250		50% based on meeting at least 80% and up to 120% of target revenue for the year		Revenue: Range from 35% to 200% of the target annual bonus.
				50% based on meeting at least 80% and up to 120% of target EBITDA for the year		EBITDA: Range from 35% to 200% of the target annual bonus.
Kristin Beischel		Target of $112,500		50% based on meeting at least 80% and up to 120% of target revenue for the year		Revenue: Range from 35% to 200% of the target annual bonus.
				50% based on meeting at least 80% and up to 120% of target EBITDA for the year		EBITDA: Range from 35% to 200% of the target annual bonus.
Dvir Salomon		Target of $137,500		50% based on meeting at least 80% and up to 120% of target revenue for the year		Revenue: Range from 35% to 200% of the target annual bonus.
				50% based on meeting at least 80% and up to 120% of target EBITDA for the year		EBITDA: Range from 35% to 200% of the target annual bonus.

Name and Principal Position		Year		Salary ($)		Bonus ($)		Stock Awards ($)(1)		Option Awards ($)(1)		Non-Equity Incentive Plan Compensation ($)(2)		All Other Compensation ($)		Total ($)
(a)		(b)		(c)		(d)		(e)		(f)		(g)		(i)		(j)
Don Carlos Bell, III
Chief		2017		405,449		-		1,244,718		4,003,029		449,000		500,000	(3)	6,602,196
Executive Officer,		2016		-		-		-		-		-		-		-
and President		2015		-		-		-		-		-		-		-
Thomas Fuller
Chief		2017		220,882		-		311,179		1,000,757		185,213		275,000	(4)	1,993,031
Financial		2016		-		-		-		-		-		-		-
Officer		2015		-		-		-		-		-		-		-
Dvir Salomon
Chief		2017		287,500		-		-		373,199		121,911		93,681	(5)	876,291
Technology		2016		25,000		-		607,000		-		125,000		225,000	(5)	982,000
Officer		2015		-		-		-		-		-		-		-
Kristen Beischel
Chief		2017		182,590		-		176,335		567,096		101,026		151,400	(6)	1,178,447
Marketing		2016		-		-		-		-		-		-		-
Officer		2015		-		-		-		-		-		-		-
Gerald Vento
Former Chief		2017		94,872		-		-		-		-		820,591	(7)	915,463
Executive Officer,		2016		500,000		-		-		-		406,500		-		906,500
and President(3)		2015		500,000		-		-		-		706,063		-		1,206,063
Jose Gordo
Former Chief		2017		132,436		-		-		-		-		525,796	(8)	658,232
Financial		2016		350,000		-		-		-		142,275		4,269	(8)	496,544
Officer(4)		2015		325,000		-		1,800,000		1,801,138		211,819		-		4,137,957

						Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1)
		Grant				Threshold				Target				Maximum				All Other Stock Awards: Number of Shares of Stock or Stock Units				All Other Option Awards: Number of Securities Underlying Options				Exercise or Base Price of Option Awards				Grant Date Fair Value of Stock and Option Awards
Name		Date				($)				($)				($)					(#)				(#)			($)				($)
Don Carlos Bell, III		05/08/17					175,000				500,000				1,000,000				149,068				1,883,165				9.51				5,247,747
Thomas Fuller		05/08/17					72,188				206,250				412,500				37,267				470,791				9.51				1,311,936
Dvir Salomon		05/08/17					-				125,000				-				-				175,566				9.51				373,199
Kristen Beischel		05/08/17					39,375				112,500				225,000				21,118				266,782				9.51				743,432
Gerald Vento			-				-				-				-				-				-				-				-
Jose Gordo			-				-				-				-				-				-				-				-

		Option Award																Stock Awards
Name		Number of Securities Underlying Unexercised Options (#) Exercisable				Number of Securities Underlying Unexercised Options (#) Unexercisable				Option Exercise Price ($)				Option Expiration Date				Number of Shares or Units of Stock That Have Not Vested (#)(1)				Market Value of Shares or Units of Stock That Have Not Vested ($)(2)
Don Carlos Bell, III			-				1,883,165				9.51			05/08/22					149,068				1,259,625
Thomas Fuller			-				470,791				9.51			05/08/22					37,267				314,906
Dvir Salomon			-				175,566				9.51			05/08/22					16,666				140,828
Kristen Beischel			-				266,782				9.51			05/08/22					21,118				178,447
Gerald Vento(3)			-				-				-				-				-				-
Jose Gordo(4)			-				-				-				-				-				-

		Stock Awards
Name		Number of Shares Acquired on Vesting (#)				Value Realized on Vesting ($)(1)
Don Carlos Bell, III			-				-
Thomas Fuller			-				-
Dvir Salomon			16,667				140,836
Kristen Beischel			-				-
Gerald Vento			-				-
Jose Gordo			76,211				495,372

Name		Fees Earned or Paid in Cash ($)				Stock Awards ($)				All Other Compensation ($)				Total ($)
Richard Harris(1)			102,000				60,000				-				162,000
Donald A. Burns(2)			38,904				-				-				38,904
Alan Howe(3)			71,096				60,000				-				131,096
Tali Yaron-Eldar(4)			70,000				60,000				-				130,000
Izhak Gross(5)			106,429				111,800				-				218,229
Dr. Yuen Wah Sing(6)			50,000				60,000				-				110,000

		Ordinary Shares Beneficially Owned
Name of Beneficial Owner		Number(1)				Percent
Adams Street Partners, LLC (2) One North Wacker Drive, Suite 2200 Chicago, IL  60606			1,976,861				12.21	%
B. Riley FBR, Inc. (3) 11100 Santa Monica Boulevard, Suite 800 Los Angeles, CA  90025			1,249,600				7.72	%
Renaissance Technologies LLC (4) 800 Third Avenue New York, NY 10022			855,900				5.29	%
The Goldman Sachs Group, Inc. (5)			840,329				5.2	%
Don Carlos Bell III (6)			-				-
Izhak Gross			2,333				*
Richard Harris			13,046				*
Alan Howe			-				-
Dr. Yuen Wah Sing (7)			293,684				1.80	%
Gerald Vento (former executive officer) (8)			217,167				1.34	%
Tali Yaron-Eldar			17,000				*
Thomas Fuller (9)			-				-
Jose Gordo (former executive officer) (10)			301,844				1.85	%
Dvir Salomon (11)			83,334				*
Kristen Beischel (12)			-				-
Directors and current executive officers as a group (9 persons) (13)			409,397				2.51	%