UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.____)
 
   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 under Rule 14a-12
 
MAGICJACK VOCALTEC LTD.
(Name of Registrant as Specified in its Charter)
 
     
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
 
   Payment of Filing Fee (Check the appropriate box):
 
   ☐
   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: _____________
 



MAGICJACK VOCALTEC LTD.
12 Haomanut Street, 2nd Floor
Poleg Industrial Area, Netanya, Israel 42504
 
NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS
 
Notice is hereby given that an extraordinary general meeting of shareholders of magicJack VocalTec Ltd. (the “Company”) will be held at the offices of Bryan Cave LLP, 1290 Avenue of the Americas, 35th Floor, New York, NY 10104, at 10:00 a.m. local time on Monday, March 19, 2018 (the “Meeting”).
 
At the Meeting, shareholders of the Company will be asked to consider and vote on the following proposals:
 
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.
 
These proposals are described more fully in the attached proxy statement, which we urge you to read in its entirety.
 
Only shareholders of record at the close of business on February 7, 2018 will be entitled to attend and vote at the Meeting. This notice and the accompanying proxy statement and proxy card are being first mailed to shareholders on or about February 9, 2018.
 
This notice together with the accompanying proxy statement and proxy card, are available on the Company’s website at www.vocaltec.com.
 
YOUR VOTE IS VERY IMPORTANT. Whether or not you intend to attend the Meeting in person, please take the time to vote your shares by completing, signing and promptly mailing the enclosed proxy card to us in the enclosed, postage-paid envelope. If you attend the Meeting, you may vote in person, whether or not you have already executed and returned your proxy card. You may revoke your proxy card not later than 2 hours prior to the scheduled time of the Meeting or at the Meeting itself if you attend the Meeting. If you revoke your proxy, you may only vote by attending the Meeting in person.
 
 
By Order of the Board of Directors,
 
MAGICJACK VOCALTEC LTD.
 
Don Carlos Bell III
President and Chief Executive Officer
February 8, 2018
 
 


Table of Contents
 
Page         
 
 
3
The Transaction
3
The Meeting
6
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
17
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
21
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
 
i

 
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
78
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
 
ii 

 
 
104
106
107
109
110
110
110
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         
 
iii


 
MAGICJACK VOCALTEC LTD.
12 Haomanut Street, 2nd Floor
Poleg Industrial Area, Netanya, Israel 42504
 
PROXY STATEMENT
 
EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS
 
We are furnishing this proxy statement to the holders of ordinary shares, no par value, of magicJack VocalTec Ltd., a company organized under the laws of the State of Israel (referred to as “we,” “us” or the “Company”), in connection with the solicitation by the Company’s board of directors (the “Board”) of proxies for use at an extraordinary general meeting of shareholders and any adjournment or postponement thereof (the “Meeting”). The Meeting will be held on March 19, 2018 at 10:00 a.m. local time at the offices of Bryan Cave LLP, 1290 Avenue of the Americas, 35th Floor, New York, NY 10104.
 
At the Meeting, you will be asked to consider and approve the following matters (the “Proposals”):
 
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.
 
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE MERGER PROPOSAL, THE CEO COMPENSATION PROPOSAL AND THE GOLDEN PARACHUTE PAYMENTS PROPOSAL.
 
YOUR VOTE IS VERY IMPORTANT.
 
The Board has set February 7, 2018 as the record date for determining shareholders entitled to notice of and to vote at the Meeting.  On that record date, the Company had 16,189,794 ordinary shares issued and outstanding and eligible to vote at the Meeting.  This proxy statement, notice and form of proxy are first being mailed to shareholders on February 9, 2018.
 
Proxies will be solicited by the Company mainly by mail. Certain officers, directors, employees and agents of the Company, none of whom will receive additional compensation, may solicit proxies by telephone, fax or other personal contact. Additionally, we have engaged a proxy solicitor to assist with the solicitation of proxies and expect that the cost of such proxy solicitor to be approximately $30,000.  We will furnish copies of solicitation materials to brokerage firms, nominees, fiduciaries and other custodians for forwarding to their respective principals. We will bear the cost of soliciting proxies, including postage, printing and handling, and will reimburse the reasonable expenses of brokerage firms and others for forwarding material to beneficial owners of ordinary shares.
 
The affirmative vote of the holders of a majority of the voting power represented at the Meeting in person or by proxy and voting on a given Proposal is necessary for the approval of such Proposal.  In addition: (1) with respect to the approval of Proposal 1, the Merger Proposal, abstention votes and votes of Company shares held by Merger Sub, Parent (or any other person who holds 25% or more of the means of control of Merger Sub), or anyone on their behalf (including relatives or corporations controlled by such persons) will be excluded, and (2) the approval of Proposal 2, the CEO Compensation Proposal, is also subject to the fulfillment of one of the following additional voting requirements: (i) the majority of the shares that are voted at the Meeting in favor of Proposal 2, excluding abstentions, must include at least a majority of the votes of shareholders who are not controlling shareholders and do not have a personal interest in the Proposal or (ii) the total number of shares held by the shareholders mentioned in clause (i) above that are voted against the Proposal does not exceed two percent of the aggregate voting rights in the Company.
 
 

 
Under the Companies Law, a personal interest means a personal interest of a person in an act or transaction of a company, including: (i) a personal interest of that person’s relative (which includes for these purposes a person’s spouse, brother or sister, parent, parent’s parent, sibling and any sibling, brother, sister or parent of such person’s spouse, or the spouse of any of the foregoing); or (ii) a personal interest of another entity in which that person or his or her relative holds 5% or more of such entity’s issued shares or voting rights, has the right to appoint a director or the chief executive officer of such entity, or serves as director or chief executive officer of such entity, including the personal interest of a person voting pursuant to a proxy whether or not the proxy grantor has a personal interest. A personal interest resulting merely from holding the Company’s shares will not be deemed a personal interest for purposes of the Companies Law. If you do not state whether you have a personal interest in Proposal 2 by appropriate indication on your proxy card or voting instruction card, you will be deemed to have a personal interest for the purpose of the required vote detailed above and your vote will not be counted with respect to that Proposal.
 
Broker non-votes occur when a beneficial owner of shares held in “street name” does not give instructions to the broker or nominee holding the shares as to how to vote on matters deemed “non-routine.” Generally, if shares are held in street name, the beneficial owner of the shares is entitled to give voting instructions to the broker or nominee holding the shares. If the beneficial owner does not provide voting instructions, the broker or nominee can still vote the shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters. In the event that a broker, bank, or other agent indicates on a proxy that it does not have discretionary authority to vote certain shares on a non-routine proposal, then those shares will be treated as broker non-votes and will not be treated as either a vote “for” or “against” a proposal. Under 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. All of the Proposals are considered non-routine and brokers or other nominees may vote only those shares for which the beneficial owner has given instructions on how to vote.
 
This proxy statement provides you with detailed information about the matters on which you are requested to vote your shares. In addition, you may obtain information about the Company from documents filed with the United States Securities and Exchange Commission (“SEC”). We encourage you to read the entire proxy statement carefully and to vote your shares.
 
Important Notice Regarding the Availability of Proxy Materials for the Extraordinary General Meeting of Shareholders to be Held on March 19, 2018:  This proxy statement is available at www.vocaltec.com.  If you would like to obtain directions to be able to attend the Meeting in person, please call Thomas Fuller, the Company’s Chief Financial Officer, at (561) 749-2255.
 
2


 
QUESTIONS AND ANSWERS ABOUT
THE TRANSACTION AND THE MEETING
 
The following questions and answers briefly address some commonly asked questions about the proposed transactions with Parent and Merger Sub, including the Merger Agreement and the Meeting.  This section may not address every question you have or include all the information that is important to you.  magicJack VocalTec Ltd. urges shareholders to carefully read this entire proxy statement, including the annexes and the other documents referred to herein.
 
Except as specifically noted in this proxy statement, the terms “Company,” “we,” “our” or “us” and similar words refer to magicJack VocalTec Ltd., including in certain cases its subsidiaries.  Throughout this proxy statement, we refer to B. Riley Financial, Inc. as either “B. Riley” or “Parent” and B. R. Acquisition Ltd. as “Merger Sub.”  Additionally, unless otherwise specified, references to “$” refer to the legal currency of the United States.
 
Shareholder votes are important.  We encourage our shareholders to vote as soon as possible.  For more specific information on how to vote, please see the questions and answers in “The Meeting” section below.
 
The Transaction
 
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.
 
The closing sale price of a Company ordinary share on the NASDAQ Global Select Market on February 6, 2018, which was the last practicable trading day before the date of this proxy statement, was $8.38.  You are encouraged to obtain current market quotations for the Company’s ordinary shares in connection with voting your shares.
 
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.
 
3

 
 
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.
 
Proposal 3 relates to approving, on a non-binding, advisory basis, certain compensation that will be paid or may become payable to our named executive officers in connection with or as a result of the Transaction.  These arrangements were approved by our Board in connection with its approval of the Merger Agreement or will be made pursuant to existing agreements between the Company and the executives.  These arrangements are described in more detail in “The Transaction—Interests of Our Directors and Executive Officers in the Transaction—Golden Parachute Compensation” beginning on page 54, and under Proposal 3 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.
 
The Board also unanimously recommends that you vote “FOR” the CEO Compensation Proposal.  Please review Proposal 2, below.
 
The Board also unanimously recommends that you vote “FOR” the Golden Parachute Payments Proposal.  See “The Transaction—Interests of Our Directors and Executive Officers in the Transaction—Golden Parachute Compensation” beginning on page 54  for more information.
 
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.
 
4

 
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.
 
Shareholders, including non-U.S. shareholders, should consult their own tax advisors to determine the tax consequences to them (including the application and effect of any state, local or non-U.S. income and other tax laws) of the Transaction in light of their particular circumstances.
 
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.
 
5

 
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.
 
The Company will be required to pay Parent a termination fee of $5,738,297 upon the termination of the Merger Agreement under specified circumstances, as described under the section entitled “The Agreement and Plan of Merger—Transaction Expenses; Termination Fees—Company Termination Fee” beginning on page 75.
 
The Meeting
 
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.
 
Approval of Proposal 1, the Merger Proposal, requires the affirmative vote of the holders of a majority of the voting power represented at the Meeting in person or by proxy and voting (excluding abstentions, and excluding the votes of Company shares held by Merger Sub, Parent (or any other any person who holds 25% or more of the means of control of Merger Sub), or anyone on their behalf (including relatives or corporations controlled by such persons)) on Proposal 1.
 
Approval of Proposal 2, the CEO Compensation Proposal, requires the affirmative vote of the holders of a majority of the voting power represented at the Meeting in person or by proxy and voting (excluding abstentions) on Proposal 2.
 
In addition, the approval of Proposal 2 requires that either of the following two voting conditions be met as part of the approval by a majority of shares present and voting thereon:
 
·
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.
 
The affirmative vote of the holders of a majority of the voting power represented at the Meeting in person or by proxy and voting (excluding abstentions) on Proposal 3, the Golden Parachute Payments Proposal, is necessary for the approval of Proposal 3.
 
Under Israeli law, abstentions are counted in determining whether a quorum is present, but will not be counted in connection with the vote on any Proposal.
 
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.
 
6

 
The method by which shareholders of record vote will in no way limit the right to vote at the Meeting if such shareholders later decide to attend in person.  If shares are held in “street name,” beneficial holders must vote in accordance with the instructions received from their bank, broker or other nominee.
 
Any shares entitled to vote and represented by properly completed proxy received prior to the Meeting and that is not revoked either (i) more than two hours prior to the Meeting by a properly executed proxy delivered to the Company or (ii) at the Meeting by your participation in person, provided that you are a registered shareholder, will be voted at the Meeting in accordance with your instructions.  If a signed proxy card is returned without indicating how shares should be voted on a matter and the proxy is not revoked, the shares represented by such proxy will be voted as the Board recommends and, therefore, “FOR” the approval of the Merger Proposal and each of the other Proposals.
 
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.
 
7

 
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:
 
Saratoga Proxy Consulting, LLC
520 8th Avenue, New York, NY  10018
(212) 257-1311
 
Registered holders of Company ordinary shares who have questions regarding their share ownership may write to the Company’s transfer agent, American Stock Transfer & Trust Company, LLC, by first class, registered or certified mail at 6201 15th Avenue, Brooklyn, NY 11219 or by overnight courier at 6201 15th Avenue, Brooklyn, NY  11219.  Registered holders may call American Stock Transfer & Trust Company, LLC at (718) 921-8124, or toll-free at 1 (800) 937-5499.
 
8

 
SUMMARY
 
This summary highlights selected information from this proxy statement related to the Transaction and the Proposals, and may not contain all of the information that is important to you.  To understand the Transaction more fully and for a more complete description of the legal terms of the Transaction, you should carefully read this entire proxy statement, including the annexes and other documents referred to herein.  You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under the caption “Where You Can Find More Information.”  The Merger Agreement is attached as Annex A to this proxy statement.  We encourage you to read the Merger Agreement, which is the legal document that governs the Transaction, carefully and in its entirety.
 
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 for $8.71 per share in cash, without interest and less any applicable withholding taxes.
 
Parties to the Transaction
 
magicJack VocalTec Ltd.
 
magicJack VocalTec Ltd. is the cloud communications leader that invented the magicJack device as well as other telecommunication products and services.  The Company is a vertically integrated group of companies, with capabilities including Voice-over-Internet-Protocol (“VoIP”) services and related equipment sales, micro-processor chip design, and development of the magicJack device.  In addition to residential consumers, the Company provides VoIP services and related equipment to small to medium sized businesses at competitive prices and wholesales telephone service to VoIP providers and telecommunication carriers.  In 2016, the Company acquired a provider of hosted Unified Communication as a Service (“UCaaS”) and seller of hardware and network equipment focusing on medium-to-large, multi-location enterprise customers.
 
magicJack devices come with the right to access the Company’s servers (“access right”), which provides customers the ability to obtain free telephone services.  Access rights are renewable.  The Company currently offers the magicJack GO version of the device, which has its own CPU and can connect a regular phone directly to the user’s broadband modem/router and function as a standalone phone without using a computer.  The sale of devices is done through a distribution channel that includes retailers, wholesalers and direct to customer sales via the Company’s website.
 
The Company also offers magicJack mobile apps, which are applications that allow users to make and receive telephone calls through their smart phones or devices.  The Company currently offers the magicApp, magicJack Connect and magicJack Spark.  The magicApp and magicJack Connect are mobile apps available for both iOS and Android.  In July 2017, the Company launched magicJack Spark on iOS devices.  The mobile apps allow customers to place and receive telephone calls in the United States or Canada on their mobile devices through either an existing or new magicJack account.
 
The Company was incorporated in the State of Israel in 1989 and is domiciled in Netanya, Israel, with principal U.S. offices in West Palm Beach, Florida.
 
B. Riley Financial, Inc.
 
B. Riley Financial, Inc. is a diversified financial services company which takes a collaborative approach to the capital raising and financial advisory needs of public and private companies and high net worth individuals.  B. Riley operates through several wholly owned subsidiaries, including B. Riley & Co., LLC; FBR Capital Markets & Co.; Wunderlich Securities, Inc.; Great American Group, LLC; B. Riley Capital Management, LLC (which includes B. Riley Asset Management, B. Riley Wealth Management, and Great American Capital Partners, LLC); and B. Riley Principal Investments, a group that makes proprietary investments in other businesses.
 
The principal executive offices of B. Riley are located at 21255 Burbank Boulevard, Suite 400, Woodland Hills, California 91367.  Its telephone number is (818) 884-3737, and its website is www.brileyco.com. Information on B. Riley’s website is not incorporated by reference into or otherwise part of this proxy statement.
 

 
9

 
Merger Sub
 
B. R. Acquisition Ltd., which we refer to as “Merger Sub,” was organized under the laws of the State of Israel on August 6, 2017 and is an indirect wholly owned subsidiary of B. Riley.  Merger Sub was formed solely for the purpose of completing the Merger.  Merger Sub has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the Transaction.
 
The principal executive offices of Merger Sub are located at 1 Givat Hatachmoshet Street, Tel Aviv, Israel 6702101.  Its telephone number is (818) 884-3737.
 
The Meeting
 
Date, Time and Place
 
The Meeting will be held at the offices of Bryan Cave LLP, 1290 Avenue of the Americas, 35th Floor, New York, NY 10104, at 10:00 a.m. local time on March 19, 2018.
 
Purpose
 
The purpose of the Meeting is to consider and vote upon the proposal to approve the Merger Agreement in connection with the Transaction and the related proposals to approve the amendments to the employment agreement and restricted stock agreement of Don C. Bell III, the Company’s Chief Executive Officer and to approve the related change in control payments to named executive officers as required under SEC rules.  The Board recommends that its shareholders vote “FOR” each of the Proposals.
 
Record Date and Quorum
 
The record date for determining the shareholders who are entitled to vote at the Meeting is February 7, 2018.
 
A quorum is required for the transaction of business at the Meeting.  The presence, in person or by proxy, at the Meeting of two or more shareholders holding not less than one-third of the outstanding ordinary shares of the Company held by all shareholders as of the record date of February 7, 2018 will constitute a quorum.  Parent, Merger Sub and their subsidiaries will not be entitled to vote at the Meeting.
 
Vote Required
 
The affirmative vote of shareholders present and voting, either in person or by proxy at the Meeting, representing not less than a majority of the voting power represented at the Meeting, is required for the approval of the Merger Proposal and for the approval of each of the other Proposals.  In addition: (1) with respect to the approval of Proposal 1, the Merger Proposal, abstention votes and votes of Company shares held by Merger Sub, Parent (or any other any person who holds 25% or more of the means of control of Merger Sub), or anyone on their behalf (including relatives or corporations controlled by such persons) will be excluded, and (2) the approval of Proposal 2, the CEO Compensation Proposal, is also subject to the fulfillment of one of the following additional voting requirements: (i) the majority of the shares that are voted at the Meeting in favor of Proposal 2, excluding abstentions, must include at least a majority of the votes of shareholders who are not controlling shareholders and do not have a personal interest in the Proposal or (ii) the total number of shares held by the shareholders mentioned in clause (i) above that are voted against the Proposal does not exceed two percent of the aggregate voting rights in the Company.
 
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 Proposal has been approved.   Under Israeli law, abstentions are counted in determining whether a quorum is present, but will not be counted in connection with the vote on any Proposal.
 
Recommendation of the Board
 
After careful consideration, 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 approval of the Merger Proposal and the other two Proposals which are related to the Transaction.
 
 
 
 
 
10

 
The Agreement and Plan of Merger
 
Merger Sub will be merged with and into the Company in accordance with the provisions of Sections 314-327 of the Companies Law 5759-1999 and of the Israeli Companies Regulations (Merger), 5760-2000 of the State of Israel (together with the rules and regulations promulgated under the Companies Law 5759-1999, the “ICL”) and as a result thereof, the separate existence of Merger Sub will cease and the Company will be the surviving corporation in the Transaction (the “Surviving Corporation”) and will (a) become a private and indirect wholly owned subsidiary of Parent, (b) continue to be governed by the Laws of the State of Israel, (c) maintain a registered office in the State of Israel, and (d) succeed to and assume all of the rights, properties and obligations of Merger Sub and the Company in accordance with the ICL.
 
Appraisal Rights
 
There are no appraisal or similar rights of dissenters under Israeli law.
 
Opinion of BofA Merrill Lynch
 
In connection with the Merger, Merrill Lynch, Pierce, Fenner & Smith Incorporated, referred to as “BofA Merrill Lynch,” the Company’s financial advisor, delivered to the Board an oral opinion, confirmed by delivery of a written opinion, dated November 8, 2017, as to the fairness, from a financial point of view, as of November 8, 2017, of the Per Share Merger Consideration to be received by holders of Company ordinary shares.  The full text of the written opinion, dated November 8, 2017, of BofA Merrill Lynch, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex B to this proxy statement and is incorporated by reference herein in its entirety.  BofA Merrill Lynch provided its opinion to the Board (in its capacity as such) for the benefit and use of the Board in connection with and for purposes of its evaluation of the Per Share Merger Consideration from a financial point of view.  BofA Merrill Lynch’s opinion does not address any other aspect of the Merger and no opinion or view was expressed as to the relative merits of the Merger in comparison to other strategies or transactions that might be available to the Company or in which the Company might engage or as to the underlying business decision of the Board to proceed with or effect the Merger.  BofA Merrill Lynch’s opinion does not address any other aspect of the Merger and does not constitute a recommendation to any shareholder as to how to vote or act in connection with the proposed Merger or any related matter.
 
For a description of the opinion that the Board received from BofA Merrill Lynch, see “The Transaction—Opinion of BofA Merrill Lynch” beginning on page 42.
 
Treatment of the Company’s Stock Options and Restricted Stock in the Transaction
 
Stock Options
 
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, at the effective time, become fully vested, to the extent not previously vested, and will automatically be cancelled and converted into the right to receive a cash payment in an amount to be paid or to be caused to be paid by the Surviving Corporation equal to the product of: (i) the excess of (x) $8.71 over (y) the per share exercise price of such option, and (ii) the number of ordinary shares underlying each such option, which amount will be paid to such holder 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 $8.71, such options will be terminated immediately prior to the effective time of the Merger, and the holder thereof will not be entitled to consideration in connection with such cancellation.  The only exception to this treatment of stock options is for the options held by Don C. Bell III, the Company’s Chief Executive Officer.  Mr. Bell’s options will be cancelled as of the consummation of the Merger and Mr. Bell will receive no further consideration in connection with such cancellation.
 
 
 
11

 
Restricted Shares
 
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 only 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.
 
Interests of Our Directors and Executive Officers in the Transaction
 
You should be aware that some directors and executive officers of the Company may have interests in the Transaction that are different from, or are in addition to, the interests of 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 consummation of the Transaction.  See “The Transaction—Interests of Our Directors and Executive Officers in the Transaction” beginning on page 52 for a description of these interests.
 
Conditions to Completion of the Transaction
 
We expect to complete the Transaction after all the conditions to the Transaction in the Merger Agreement are satisfied or waived.  We hope to complete the Transaction in the first half of 2018.
 
Pursuant to the Merger Agreement, the obligation of each party to complete the Transaction is subject to the satisfaction or waiver of several conditions set forth in the Merger Agreement, which are summarized below:
 
·
the approval of the Merger Agreement and the terms of the Merger by the Company’s shareholders;
 
·
the absence of any governmental orders or proceedings that make the Transaction illegal or otherwise prohibit the consummation of the Transaction;
 
·
the passing of at least 50 days after the required filing of a merger proposal with the Registrar of Companies of the State of Israel (the “Companies Registrar”) and at least 30 days after approval of the Merger Agreement and the terms of the Merger by the shareholders of each the Company and Merger Sub;
 
·
the expiration or termination of the applicable waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the “HSR Act;” and
 
·
all required approvals of the United States Federal Communications Commission or any successor thereof (the “FCC”) and similar state regulatory approvals and filings have been made or obtained.
 
The obligation of the Company to consummate the Transaction is subject to the satisfaction or waiver of the following additional conditions:
 
·
the representations and warranties of Parent and Merger Sub contained in the Merger Agreement shall be true and correct (without giving effect to materiality qualifications or limitations) on and as of the date of the Merger Agreement and as of the closing date (except to the extent such representations and warranties relate to a specified date, in which case as of such specified date), except for failures that, individually or in the aggregate, would not reasonably be expected to prevent, materially delay or materially impair the consummation of the Transaction or the performance by Parent or Merger Sub of their obligations under the Merger Agreement;
 
·
Parent and Merger Sub shall each have performed or complied in all material respects with all agreements and covenants required by the Merger Agreement to be performed or complied with by it on or prior to the effective date of the Merger;
 
·
the Company shall have received at the closing of the Merger a certificate signed by an executive officer of B. Riley and Merger Sub certifying as to the satisfaction of the conditions set forth in the two immediately preceding bullets;
 
 
 
12

 
 
 
 
·
B. Riley shall have transferred the aggregate amount of consideration due with respect to the Company shares (other than excluded shares), stock options and restricted shares in accordance with the terms of the Merger Agreement; and
 
·
B. Riley Principal Investments shall have executed an undertaking in customary form in favor of the Israeli Innovation Authority (“IIA”) to comply with the provisions of the Israeli Encouragement of Research, Development and Technological Innovation in the Industry Law 5744-1984 (the “R&D Law”).
 
The obligation of Parent and Merger Sub to consummate the Transaction is subject to the satisfaction or waiver of the following additional conditions:
 
·
the representations and warranties of the Company contained in the Merger Agreement, as of the date of the Merger Agreement and as of the closing date (except to the extent such representations and warranties relate to an earlier date, in which case as of such earlier date), with respect to (i) corporate authority, capitalization and no material adverse effect shall be true and correct in all respects (except in the case of capitalization, for de minimis inaccuracies), (ii) standing and corporate power, takeover laws, the financial advisor opinion and the absence of brokers shall be true and correct in all material respects, and (iii) all other representations of the Company shall be true and correct (without giving effect to materiality qualifications or limitations), except, with respect to (iii), to the extent any failures would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect (as defined in the Merger Agreement);
 
·
the Company shall have performed or complied in all material respects with all agreements and covenants required by the Merger Agreement to be performed or complied with by it at or prior to the effective date of the Merger;
 
·
B. Riley shall have received at the closing of the Merger a certificate signed by an executive officer of the Company certifying as to the satisfaction of the conditions set forth in the two immediately preceding bullets;
 
·
the approval required to be obtained from the IIA of the written notice to the IIA regarding the change in ownership of the Company effected as a result of the Merger, required to be submitted to the IIA in connection with the Merger in accordance with the R&D Law, shall have been granted;
 
·
the Company or its subsidiaries shall have filed specified tax returns; and
 
·
all required governmental authorizations, approvals and clearances and all expirations or terminations of waiting periods (including any extensions thereof) shall have been obtained without the imposition of a condition that is not contingent on the consummation of the Merger or that would reasonably be expected to have a material adverse effect on the business, results of operations or financial condition of the Company and its subsidiaries (taken as a whole) or Parent and its subsidiaries (taken as a whole, after giving effect to the Merger) measured on a scale relative to the Company and its subsidiaries (see “The Agreement and Plan of Merger—Efforts to Obtain Regulatory Approvals and Tax Ruling” beginning on page 71).
 
The Merger Agreement provides that any or all of the conditions described above may be waived, in whole or in part, by the Company or Parent, as applicable, to the extent legally allowed (see “The Agreement and Plan of Merger—Conditions to Completion of the Merger” beginning on page 73).
 
No Solicitation
 
The Merger Agreement contains customary “no solicitation” provisions, subject to a “fiduciary exception,” requiring the Company and its subsidiaries and their respective directors and officers not to, and not to authorize or permit their employees, agents or representatives (including investment bankers, financial advisors, attorneys and accountants) to, directly or indirectly:
 
·
solicit, initiate, knowingly encourage or knowingly facilitate the making or submission of any acquisition proposal (as defined in the Merger Agreement and summarized in “The Agreement and Plan of Merger—Non-Solicitation; Acquisition Proposals; Change in Recommendations” beginning on page 68);
 
 
 
 
13

 
 
 
·
enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any information in connection with, or enter into any agreement with respect to any acquisition proposal or any inquiry, proposal or offer, or take any other action to facilitate inquiries or the making of any proposal that constitutes or could reasonably be expected to lead to, any acquisition proposal;
 
·
terminate, amend, modify or waive any provision of any confidentiality, “standstill” or similar agreement under which it has any rights, or fail to enforce in all material respects each such agreement with respect to an acquisition proposal;
 
·
approve, endorse or recommend any acquisition proposal;
 
·
enter into any agreement (including any letter of intent, acquisition agreement or similar agreement) relating to any acquisition proposal, other than a confidentiality agreement in connection with a potential superior proposal (as defined in the Merger Agreement and summarized in “The Agreement and Plan of Merger—Non-Solicitation; Acquisition Proposals; Change in Recommendations” beginning on page 68); or
 
·
propose publicly or agree to any of the foregoing with respect to an acquisition proposal.
 
The Merger Agreement does not, however, prohibit the Company from considering an unsolicited, bona fide acquisition proposal from a third party if certain specified conditions are met.  For a discussion of the prohibition on solicitation of acquisition proposals from third parties, and the exceptions to such prohibition, see “The Agreement and Plan of Merger—Non-Solicitation; Acquisition Proposals; Change in Recommendations” beginning on page 68.
 
Termination of the Merger Agreement
 
The Merger Agreement and the Transaction may be abandoned at any time prior to the effective time of the Merger upon the mutual written agreement of the parties or at the option of either the Company or Parent if:
 
·
the closing of the Transaction does not occur on or before August 9, 2018 (the “End Date”), except that (i) under certain circumstances, the End Date may be automatically extended to November 9, 2018; and (ii) a party may not terminate under this provision if such party’s breach or failure to perform or comply with any obligation under the Merger Agreement resulted in or was a proximate cause of the failure of the Transaction to be completed on or before the End Date;
 
·
a governmental entity of competent jurisdiction shall have enacted or issued any order or law permanently enjoining, restraining, prohibiting or making illegal the consummation of the Transaction, and is final and nonappealable; provided that a party may not terminate under this provision if such party’s breach or failure to perform or comply with any obligation under the Merger Agreement resulted in or was a proximate cause of such government action, or if such party seeking to terminate the Merger Agreement has not complied with its obligations under the Merger Agreement to have any such government action removed; or
 
·
the Company’s shareholders do not approve the Merger Agreement and terms of the Merger at the Meeting.
 
 
 
 
14

 
 
Parent may terminate the Merger Agreement:
 
·
if the Company breaches any of its covenants, representations or warranties in a manner that causes the closing conditions regarding its representations, warranties and covenants not to be satisfied and such violation or breach has not been expressly waived in writing by Parent, Parent has provided written notice of its intent to terminate to the Company and such violation or breach may not be cured by the End Date or, to the extent curable, has not been cured within the earlier of a 30-day cure period or three business days prior to the End Date, provided that neither Parent nor Merger Sub has materially breached the Merger Agreement; or
 
·
in the event that (a) the Board has effected a Company adverse recommendation change (as defined in the Merger Agreement and summarized in “The Transaction—Recommendation of the Board; Reasons for the Transaction” beginning on page 38 of this proxy statement) or (b) at any time following receipt of an acquisition proposal, the Board fails to reaffirm its approval or recommendation of the Merger Proposal within five business days of receipt of written request to do so from Parent.
 
The Company may terminate the Merger Agreement if:
 
·
Parent or Merger Sub breaches any of their respective covenants, representations or warranties in a manner that causes the closing conditions regarding such representations, warranties and covenants not to be satisfied and such violation or breach has not been expressly waived in writing by the Company, the Company has provided written notice of its intent to terminate to Parent and such violation or breach may not be cured by the End Date or, to the extent curable, has not been cured within the earlier of a 30-day cure period or three business days prior to the End Date, provided that the Company has not materially breached the Merger Agreement; or
 
·
prior to obtaining approval of the Merger Proposal, in response to a superior proposal that was not solicited in material violation of the Merger Agreement, the Company enters into a definitive agreement with respect to an acquisition proposal that the Company has concluded constitutes a superior proposal, provided that the Company pays to Parent the termination fee.
 
For a discussion of the termination of the Merger Agreement, see “The Agreement and Plan of Merger—Termination of the Merger Agreement” beginning on page 74.
 
Termination Fees
 
The Company will be required to pay Parent a termination fee of $5,738,297 if the Merger Agreement is terminated following the Board’s withdrawal of its recommendation of the Transaction or the Company terminates the Merger Agreement to accept a superior proposal, and in certain other circumstances.
 
For a discussion of the termination fees see “The Agreement and Plan of Merger—Transaction Expenses; Termination Fees—Company Termination Fee” beginning on page 75.
 
Financing of the Transaction
 
The Transaction is not subject to a financing condition.
 
Delisting and Deregistration of the Company’s Ordinary Shares
 
        Following the Merger, the Company’s shares will be delisted from the NASDAQ Global Select Market, will be deregistered under the Exchange Act and will cease to be publicly traded.
 
Expenses
 
All fees and expenses incurred in connection with the Merger Agreement and the Transaction will be paid by the party incurring such fees and expenses whether or not the Transaction is completed, except that Parent was responsible for all filing fees paid under the HSR Act.
 
 
 
 
 
15

 
 
Material U.S. Federal Income Tax Considerations of the Transaction
 
The receipt of cash for Company ordinary shares by U.S. holders 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 Company ordinary shares will recognize gain or loss in an amount equal to the difference, if any, between (1) the amount of cash received in the Transaction and (2) the U.S. holder’s adjusted tax basis in the shares.  A non-U.S. holder of Company ordinary shares generally will not be required to pay U.S. federal income tax on the receipt of cash in exchange for Company ordinary shares in the Transaction unless such holder has certain connections to the United States.  Holders, including non-U.S. holders, should consult their tax advisors to determine the particular tax consequences to them (including the application and effect of any state, local or non-U.S. income and other tax laws) of the Transaction.  See “The Transaction—Material U.S. Federal Income Tax Considerations of the Transaction” beginning on page 60.
 
Regulatory Matters
 
Antitrust Approvals
 
The Transaction is subject to certain antitrust laws.  The Company and B. Riley made certain filings pursuant to the HSR Act with the United States Department of Justice Antitrust Division, which we refer to as the “DOJ,” and the United States Federal Trade Commission, which we refer to as the “FTC.” Under the HSR Act, the Transaction cannot be completed until the expiration or termination of the initial waiting period or any extension thereof following the submission of complete filings with the DOJ and FTC.  The applicable waiting period under the HSR Act expired on January 16, 2018 at 11:59 p.m. Eastern time.
 
FCC and State Approvals
 
A condition to closing is that all required authorizations, approvals, clearances and consents or filings with the Federal Communications Commission, which we refer to as the “FCC,” and similar state regulators have been obtained or made.  The Company has begun the process of making these filings and seeking these approvals.
 
 
 
16


 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This proxy statement, and the documents incorporated by reference in this proxy statement, include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which are identified by the use of the words “believe,” “expect,” “may,” “could,” “should,” “plan,” “project,” “anticipate,” “intend,” “estimate,” “will,” “contemplate,” “forecast,” “would” and similar expressions that contemplate future events. Such forward-looking statements are based on management’s reasonable current assumptions and expectations, expected completion and timing of the Transaction and other information relating to the Transaction. These statements are subject to risks and uncertainties, including, but not limited to, the factors and matters described in this proxy statement and the following:
 
·
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.
 
Additional factors that may affect the future results of the Company, its financial condition, business, prospects and securities are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, which should be read in conjunction with this proxy statement.  See “Where You Can Find More Information.” Many of the factors that will determine the Company’s future results are beyond its ability to control or predict.  In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof.  We cannot guarantee any future results, levels of activity, performance or achievements.  The statements made in this proxy statement represent the Company’s views as of the date of this proxy statement, and you should not assume that the statements made herein remain accurate as of any future date.  Moreover, we assume no obligation to update forward-looking statements or update the reasons that actual results could differ materially from those anticipated in forward-looking statements, except as required by law.
 
17

 

THE EXTRAORDINARY GENERAL MEETING
 
Date, Time and Place of the Meeting
 
The Meeting is scheduled to be held at the offices of Bryan Cave LLP, 1290 Avenue of the Americas, 35th Floor, New York, NY 10104, at 10:00 a.m. local time on March 19, 2018.
 
Purpose of the Meeting
 
The purpose of the Meeting is to consider and vote upon the Merger Proposal and the other Proposals in connection with the Transaction.  The Board recommends that its shareholders vote “FOR” the approval of the Merger Proposal and each other Proposal.
 
Persons Entitled to Vote; Quorum; Vote Required
 
The record date for determining the shareholders who are entitled to vote at the Meeting is February 7, 2018.
 
The presence, in person or by proxy, at the Meeting of two or more shareholders holding not less than one-third of the outstanding Company ordinary shares held by all shareholders of record as of February 7, 2018 will constitute a quorum, which is necessary to hold the Meeting.  Abstentions are counted in determining whether a quorum is present, but will not be counted in connection with the vote for the Merger Proposal or for the approval of each of the other Proposals.
 
The affirmative vote of the holders of a majority of the voting power represented at the Meeting in person or by proxy and voting on a given Proposal is necessary for the approval of such Proposal. In addition: (1) with respect to the approval of Proposal 1, the Merger Proposal, votes of Company shares held by Merger Sub, Parent (or any other any person who holds 25% or more of the means of control of Merger Sub), or anyone on their behalf (including relatives or corporations controlled by such persons) will be excluded, and (2) the approval of Proposal 2, the CEO Compensation Proposal, is also subject to the fulfillment of one of the following additional voting requirements: (i) the majority of the shares that are voted at the Meeting in favor of Proposal 2, must include at least a majority of the votes of shareholders who are not controlling shareholders and do not have a personal interest in the Proposal or (ii) the total number of shares held by the shareholders mentioned in clause (i) above that are voted against the Proposal does not exceed two percent of the aggregate voting rights in the Company.
 
Under the Companies Law, a personal interest means a personal interest of a person in an act or transaction of a company, including: (i) a personal interest of that person’s relative (which includes for these purposes any members of his/her (or his/her spouse’s) immediate family or the spouses of any such members of his or her (or his/her spouse’s) immediate family); or (ii) a personal interest of another entity in which that person or his or her relative holds 5% or more of such entity’s issued shares or voting rights, has the right to appoint a director or the chief executive officer of such entity, or serves as director or chief executive officer of such entity, including the personal interest of a person voting pursuant to a proxy whether or not the proxy grantor has a personal interest. A personal interest resulting merely from holding the Company’s shares will not be deemed a personal interest for purposes of the Companies Law. If you do not state whether you have a personal interest in Proposal 2 by appropriate indication on your proxy card or voting instruction card, you will be deemed to have a personal interest for the purpose of the required vote detailed above and your vote will not be counted with respect to Proposal 2.
 
As of February 7, 2018, there were 16,189,794 outstanding Company ordinary shares.
 
Proxies and Voting Procedures
 
If you are a shareholder, you can vote your ordinary shares by completing and returning a proxy card, which when properly executed and received by us, will be voted at the Meeting in accordance with the shareholders’ instructions set forth in the proxy card.  If you hold your ordinary shares in “street name,” please vote in accordance with the instructions provided by your broker, bank or other nominee.  “Street name” holders, or beneficial owners holding through a broker, bank or other nominee, may also vote by telephone or by Internet, in accordance with instructions provided by their broker, bank or other nominee.  All shares entitled to vote and represented by properly completed proxies received prior to the Meeting and not revoked will be voted at the Meeting in accordance with your instructions.  If you are a shareholder of record and you return a signed proxy card without indicating how your shares should be voted on a matter and do not revoke your proxy, the shares represented by your proxy will be voted as the Board recommends, and therefore, “FOR” the approval of the Merger Proposal and each of the other Proposals.
 
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Any shareholder entitled to vote at the Meeting has the right to revoke his or her 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) by attending the Meeting and voting in person.  Attendance at the Meeting will not, by itself, revoke your proxy; you must vote in person at the Meeting in order to revoke or change your vote.  If you hold shares in “street name” through a broker, bank or other nominee and would like to change your vote instruction, you should follow the directions provided by your broker, bank or other nominee.  Most organizations provide means by which “street name” holders may vote by telephone or by Internet, as well as by signing and returning voting instructions.
 
If the Meeting is postponed or adjourned, your proxy will remain valid and may be voted at the postponed or adjourned meeting.  You still will be able to revoke your proxy until it is voted.
 
Validly completed proxies received at any time before the Meeting, and not revoked or superseded before being voted, will be voted at the Meeting.  A validly completed proxy will be voted in accordance with the instructions, if any, provided therein.  A validly signed proxy card that does not specify a vote with respect to any Proposal will be voted “FOR” that Proposal.
 
If you hold certificated shares, please do not send in your share certificates with your proxy card.  Shareholders will be notified of the procedures to submit share certificates after the Merger is consummated.
 
Mailing of Proxy Statement
 
This proxy statement, including the Notice, was first mailed to shareholders on or about February 9, 2018.  After we first made this proxy statement, including the Notice, and other soliciting materials available to shareholders, copies were supplied to brokers, banks and other nominees to be provided to “street name” holders for the purpose of soliciting proxies from those holders.
 
Registered Office
 
The mailing address of our registered office is 12 Haomanut Street, 2nd Floor, Poleg Industrial Area, Netanya, Israel 42504.
 
Abstentions and Broker Non-Votes
 
If a shareholder abstains from voting, or if brokers, banks or other nominees holding their customers’ shares of record cause abstentions to be recorded, those shares are considered present and entitled to be voted at the Meeting, and, therefore, are considered for purposes of determining whether a quorum is present.  A “broker non-vote” is treated as neither being present nor entitled to vote on the relevant Proposal and, therefore, is not counted for purposes of determining whether a quorum is present or a Proposal has been approved.  Each of the Proposals, including the Merger Proposal, is considered a “non-routine” matter, and if you are a “street name” holder, your broker will not have the authority to vote your shares for or against any proposal without your instruction.
 
Adjournments
 
Should no quorum be present 30 minutes after the time scheduled for the Meeting, the Meeting will be adjourned to the same day for one week later and will be held at the same place and time on March 26, 2018.  At such adjourned meeting, the presence, in person or by proxy, of two or more shareholders holding not less than one-third of the outstanding Company ordinary shares held by all shareholders as of record as of February 7, 2018 will constitute a quorum.
 
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Cost of Proxy Distribution and Solicitation
 
We will pay the expenses of the solicitation of proxies from our shareholders.  Proxies may be solicited on our behalf in person or by mail, telephone, e-mail, facsimile or other electronic means by our directors, officers or employees, who will receive no additional compensation for soliciting.  In addition, we have engaged Saratoga Proxy Consulting, LLC to assist in the solicitation of proxies and to provide related informational support, for a fee of approximately $30,000 plus reimbursement of reasonable expenses.  In accordance with the regulations of the SEC and NASDAQ rules, we will reimburse brokerage firms and other custodians, nominees and fiduciaries for their expenses incurred in sending proxies and proxy materials to beneficial owners of our shares.
 
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PARTIES TO THE TRANSACTION
 
magicJack VocalTec Ltd.
 
magicJack VocalTec Ltd. is the cloud communications leader that invented the magicJack device as well as other telecommunication products and services.  The Company is a vertically integrated group of companies, with capabilities including Voice-over-Internet-Protocol (“VoIP”) services and related equipment sales, micro-processor chip design, and development of the magicJack device.  In addition to residential consumers, the Company provides VoIP services and related equipment to small to medium sized businesses at competitive prices and wholesales telephone service to VoIP providers and telecommunication carriers.  In 2016, the Company acquired a provider of hosted Unified Communication as a Service (“UCaaS”) and seller of hardware and network equipment focusing on medium-to-large, multi-location enterprise customers.
 
magicJack devices come with the right to access the Company’s servers (“access right”), which provides customers the ability to obtain free telephone services.  Access rights are renewable.  The Company currently offers the magicJack GO version of the device, which has its own CPU and can connect a regular phone directly to the user’s broadband modem/router and function as a standalone phone without using a computer.  The sale of devices is done through a distribution channel that includes retailers, wholesalers and direct to customer sales via the Company’s website.
 
The Company also offers magicJack mobile apps, which are applications that allow users to make and receive telephone calls through their smart phones or devices.  The Company currently offers the magicApp, magicJack Connect and magicJack Spark.  The magicApp and magicJack Connect are mobile apps available for both iOS and Android.  In July 2017, the Company launched magicJack Spark on iOS devices.  The mobile apps allow customers to place and receive telephone calls in the United States or Canada on their mobile devices through either an existing or new magicJack account.
 
The Company was incorporated in the State of Israel in 1989 and is domiciled in Netanya, Israel, with principal U.S. offices in West Palm Beach, Florida.
 
B. Riley Financial, Inc.
 
B. Riley Financial, Inc. is a diversified financial services company which takes a collaborative approach to the capital raising and financial advisory needs of public and private companies and high net worth individuals.  B. Riley operates through several wholly owned subsidiaries, including B. Riley & Co., LLC; FBR Capital Markets & Co.; Wunderlich Securities, Inc.; Great American Group, LLC; B. Riley Capital Management, LLC (which includes B. Riley Asset Management, B. Riley Wealth Management, and Great American Capital Partners, LLC); and B. Riley Principal Investments, a group that makes proprietary investments in other businesses.
 
The principal executive offices of B. Riley are located at 21255 Burbank Boulevard, Suite 400, Woodland Hills, California 91367.  Its telephone number is (818) 884-3737, and its website is www.brileyco.com.  Information on this website is not incorporated by reference into or otherwise part of this proxy statement.
 
Merger Sub
 
Merger Sub was organized under the laws of the State of Israel on August 6, 2017, and is an indirect wholly owned subsidiary of B. Riley. Merger Sub was formed solely for the purpose of completing the Transaction. Merger Sub has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the Transaction.
 
The principal executive offices of Merger Sub are located at 1 Givat Hatachmoshet Street, Tel Aviv, Israel 6702101; and its telephone number is (818) 884-3737.
 
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THE TRANSACTION
 
The following is a description of the material aspects of the Transaction.  While we believe that the following description covers the material terms of the Transaction, the description may not contain all of the information that is important to you.  We encourage you to read carefully this entire proxy statement, including the Merger Agreement, attached to this proxy statement as Annex A, for a more complete understanding of the Transaction.
 
Background of the Transaction
 
The Board and the Company’s management regularly review the Company’s operating and strategic plans, both near-term and long-term, as well as potential partnerships in an effort to enhance shareholder value.  These reviews and discussions focus, among other things, on the opportunities and risks associated with the Company’s business and financial condition, strategic relationships and other strategic opportunities.
 
On April 30, 2015, the Board engaged Merrill Lynch, Pierce, Fenner & Smith Incorporated (“BofA Merrill Lynch”) to act as financial advisor to the Company in connection with a potential transaction involving the Company.  Between April 2015 and July 2015, at the direction of the Board, BofA Merrill Lynch contacted 35 potential strategic and financial buyers regarding a possible sale of the Company. Confidentiality agreements were executed with 10 potential buyers and management presentations were provided to nine interested parties.  On July 15, 2015, the Company received indications of interest from two potential bidders. The highest indication of interest was at $8.00 per ordinary share, all cash. The Board reviewed the highest indication of interest and determined not to pursue a transaction at that price. The Board resolved that the Company should instead move forward with the Board’s strategic plan to increase shareholder value through possible growth initiatives and re-consider a transaction process at a later date.
 
At the beginning of July 2016, Carnegie Technologies Holdings, LLC (“Carnegie”) contacted the Company to express its interest in exploring a strategic transaction with the Company, including the acquisition of one or more of the Company’s businesses or the Company as a whole. Subsequently, senior officers of the Company attended an informal meeting with Carnegie in New York to discuss the possibility of a strategic transaction.  On July 20, 2016, Carnegie sent a letter to the Company indicating it was interested in acquiring all of the outstanding ordinary shares of the Company for a price between $8.00 and $10.00 per ordinary share, all cash, subject to certain conditions regarding the outcome of the due diligence review and the negotiation of definitive agreements. Additionally, further negotiations were conditioned on the Company granting Carnegie a 45-day exclusivity period.
 
On July 25, 2016, the Board received an unsolicited indication of interest from a third party (“Bidder A”) in the range of $7.50 to $8.00 per ordinary share, all cash.
 
On August 1, 2016, in response to the Board’s request for a narrower price range, Carnegie sent a letter to the Company further indicating its interest in acquiring all of the outstanding ordinary shares of the Company at a proposed price range of $8.50 to $9.50 per ordinary share, all cash.
 
On August 12, 2016, the Company sent Carnegie a letter in response informing it that the Board had rejected the proposal contained in its letter of August 1, 2016, but indicating that the Company would be interested in pursuing further negotiations and proposing that the parties enter into a customary confidentiality agreement to facilitate such discussions.
 
On August 12, 2016, the Company responded to Bidder A informing it that the offer was inadequate, but that the Board would consider an offer with a substantially increased purchase price.
 
On August 15, 2016, the Company entered into a confidentiality agreement with Carnegie to facilitate further discussions and more substantive due diligence regarding a proposed acquisition.
 
On August 23, 2016, the Board met to discuss, among other matters, the status of the negotiations with Carnegie.
 
On August 25, 2016, the Board received a revised unsolicited indication of interest from Bidder A stating that Bidder A believed it could “obtain a value range” for the purchase of the Company of $7.50 to $10.00 per ordinary share, all cash.
 
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Also on August 25, 2016, the Company announced that the 2016 annual general meeting of shareholders for the purpose of electing directors (the “2016 Annual Meeting”) would be held on October 7, 2016.  On August 29, 2016, the Company received notice from Kanen Wealth Management LLC (“Kanen”), then a greater than 5% shareholder of the Company, that Kanen intended to nominate a competing slate of directors, which slate included Alan B. Howe.  The Company issued a press release on September 1, 2016, to disclose Kanen’s competing slate and announce the postponement of the 2016 Annual Meeting pending negotiations with Kanen.  The details surrounding this process were disclosed by the Company in its definitive proxy statement for the 2016 Annual Meeting filed with the SEC on March 15, 2017.
 
On September 1, 2016, the Board received a revised unsolicited verbal offer from Bidder A of approximately $10.00 per ordinary share, all cash.  On September 7, 2016, the Company entered into a confidentiality agreement with Bidder A to facilitate further discussions regarding a proposed acquisition.
 
On September 12, 2016, after further discussions between the Company and Carnegie and Carnegie’s performance of due diligence on the Company (including several meetings with senior management), Carnegie sent a letter of intent to the Company communicating its offer to acquire all of the ordinary shares of the Company for $8.50 per ordinary share, all cash. Further negotiations were again conditioned on the Company granting Carnegie an exclusivity period, in this case terminating on November 6, 2016.  On September 16, 2016, Carnegie sent an updated letter of intent with respect to the proposed transaction containing additional details and maintaining an $8.50 per ordinary share offer price, subject to an exclusivity period terminating November 11, 2016.
 
On September 22, 2016, the Board met to discuss, among other matters, Carnegie’s proposal and determined that a counteroffer to Carnegie at $10.00 per ordinary share was appropriate.  Notwithstanding the Company’s counteroffer, on September 29, 2016, Carnegie sent an updated letter of intent to the Company generally confirming the terms of its prior letter (including the previous $8.50 per ordinary share offer price), which contemplated that a definitive agreement would include a 45-day go shop provision. On the same date, the Board met to discuss, among other matters, the letter from Carnegie and the progress of negotiations with Bidder A. The Board determined to not pursue a transaction with Carnegie at a price of $8.50 per ordinary share.
 
On October 6, 2016, the Company received a written offer from Bidder A for $9.30 per ordinary share, all cash.
 
On October 10, 2016, the Board determined that it would be appropriate to again counter the offer received from Carnegie at $10.00 per ordinary share and give Carnegie a short period to respond. The Board also discussed the revised offer from Bidder A of $9.30 per ordinary share and determined to counter this offer at $10.00 per ordinary share. Following the meeting, the Company sent a letter to Carnegie countering the offer made in Carnegie’s letter of September 29, 2016 with, among other things, a purchase price of $10.00 per ordinary share and an exclusivity period terminating on November 7, 2016.
 
On October 13, 2016, the Board received a counteroffer from Bidder A of $9.50 per ordinary share, all cash.  On October 15, 2016, the Board met to discuss the offer from Bidder A of $9.50 per ordinary share and decided to move forward with due diligence with Bidder A in connection with a possible transaction. The Board also discussed negotiations with Carnegie and noted that Carnegie had informed the Company that it was not willing to increase its offer above $8.50 per ordinary share.
 
On October 19, 2016, the Company entered into an exclusivity agreement with Bidder A, terminating on November 14, 2016, regarding a possible acquisition of the Company and due diligence with respect to the Company by Bidder A.
 
Between October 18, 2016 and November 14, 2016, the Company responded to extensive due diligence inquiries from Bidder A and negotiated the terms of a merger agreement to be executed by the Company and Bidder A if Bidder A decided to move forward with the transaction.
 
On November 7, 2016, the Board discussed, among other things, the progress of Bidder A’s due diligence efforts and negotiation of the merger agreement.
 
On November 14, 2016, the exclusivity period with Bidder A ended.
 
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On November 15, 2016, the Board discussed the fact that Bidder A had missed the November 14, 2016 deadline for finalizing the terms of the merger agreement as set forth in the exclusivity agreement, but had requested an extension of the exclusivity period.  The Board directed management to negotiate an extension of the deadline in the exclusivity agreement, either formally or informally, for an additional two weeks until November 29, 2016, however, no agreement relating to extension of the exclusivity period was reached between the Company and Bidder A.
 
On November 29, 2016, the Board discussed the fact that the Company and Bidder A had not entered into a definitive agreement by the November 29, 2016 deadline and discussed how to move forward.  Bidder A failed to produce an unconditional financing commitment by this deadline and, consequently, the Company ceased active discussions with Bidder A until such time as Bidder A would be in a position to provide such commitment.
 
On January 4, 2017, Carnegie contacted the Company to express its displeasure that the Company had not entered into a strategic transaction.  On January 5, 2017, Carnegie issued a press release announcing its intent to nominate a slate of competing directors for election to the Board at the 2016 Annual Meeting, which had not yet been rescheduled following Kanen’s director proposal.  On January 6, 2017, the Company issued a press release and filed a Form 8-K with the SEC acknowledging receipt of Carnegie’s director proposal.  Carnegie was subsequently notified by counsel to the Company that the Company would be required to disclose its negotiations with Carnegie in the Company’s proxy statement for the annual meeting due to Carnegie’s director proposal.  From January 9, 2017 through March 30, 2017, the Company and Carnegie addressed Carnegie’s director proposal through SEC filings and litigation in Israel.  Meanwhile, the Company reached an agreement with Kanen pursuant to which Kanen withdrew its competing slate of directors and the Company agreed to nominate one of Kanen’s director nominees, Alan B. Howe, and a new director nominee, Don C. Bell III.  On March 30, 2017, Carnegie agreed to withdraw its competing slate of directors.  The 2016 Annual Meeting was finally held on April 19, 2017.
 
Meanwhile, on January 9, 2017, the Company received an unsolicited indication of interest from a third party (“Bidder B”) to acquire the Company for a purchase price of $9.50 per ordinary share, all cash, which was in excess of the $8.50 price previously offered by Carnegie.  On January 31, 2017, Bidder B provided the Company with a letter from a third party potentially interested in financing Bidder B’s proposed acquisition of the Company, subject to satisfactory completion of due diligence.  On February 2, 2017, the Company entered into a confidentiality agreement with Bidder B to facilitate further discussions regarding a proposed acquisition and on February 6, 2017, Bidder B commenced due diligence on the Company.
 
On February 8, 2017, at the instruction of the Board, representatives of BofA Merrill Lynch reached out to Carnegie’s financial advisor to again inquire whether Carnegie intended to submit a renewed offer to acquire the Company and to indicate that the Board remained open to reviewing any such offer.  On February 13, 2017, Carnegie’s financial advisor communicated to BofA Merrill Lynch that Carnegie was interested in engaging in transaction discussions with the Company and wished to refresh its prior due diligence review.  On February 15, 2017, Carnegie submitted a due diligence request list to the Company.  On February 21, 2017, in connection with Carnegie’s due diligence of the Company, Company counsel sent a letter agreement to Carnegie’s counsel seeking to modify the existing confidentiality agreement between Carnegie and the Company.  On February 23, 2017, Carnegie and the Company entered into a letter agreement, modifying the existing confidentiality agreement between the parties. The letter agreement provided that Carnegie may use any confidential information obtained from the Company through its due diligence solely for the purpose of evaluating a transaction with the Company, and not for any purposes related to Carnegie’s proxy contest in connection with the 2016 annual general meeting.
 
On February 22, 2017, Bidder A informed the Company that it had secured committed financing for its proposal to acquire the Company at a price of $9.50 per ordinary share.
 
On March 2, 2017, the Company received an unsolicited indication of interest from another third party (“Bidder C”) to acquire the Company for a purchase price in the range of $9.00 to $9.50 per ordinary share, all cash, which was in excess of the $8.50 price previously offered by Carnegie.
 
On March 3, 2017, Bidder A provided the Company with copies of debt and equity commitments it had received for financing its proposal to acquire the Company at a price of $9.50 per ordinary share. Bidder A further proposed entering into a five-day exclusivity period with the Company in order to conduct legal due diligence and finalize definitive documentation regarding the proposed acquisition.
 
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On March 6, 2017, the Board met to discuss the status of outstanding offers from Bidder A, Bidder B and Bidder C.  The Board determined to continue to consider these offers while resolving the then outstanding issues relating to the election of directors.
 
On March 9, 2017, the Company appointed Don C. Bell III, then a director nominee of the Company, as the President and Chief Executive Officer of the Company and Thomas Fuller as the Executive Vice President of Finance of the Company.
 
On March 12, 2017, the Board met to further discuss the Company’s strategic alternatives.  Mr. Bell was present at the meeting and participated in the discussion.  After discussion, the Board determined that it would be in the best interest of the Company to conduct a fresh review of potential strategic alternatives, while at the same time pursuing an aggressive organic growth strategy, and to publicly announce its intent to pursue this dual strategy.  The Board engaged Bryan Cave LLP (“Bryan Cave”) as legal advisor and BofA Merrill Lynch continued to act as financial advisor pursuant to the terms of its April 30, 2015 engagement letter.
 
On March 14, 2017, the Board formed a committee consisting of Izhak Gross and Richard Harris, independent directors of the Company, to work with Mr. Bell (the “Committee”) to oversee on behalf of the Board the strategic alternatives process, with the assistance of the Company’s financial and legal advisors. On March 15, 2017, the Company announced the Board’s strategic alternatives process and dual track strategy.
 
Between March 14, 2017 and March 27, 2017, the Company negotiated and entered into a confidentiality agreement with Bidder C which contained a standstill provision.  The standstill provision allowed Bidder C to communicate exclusively with the Board with respect to a potential acquisition of the Company and with respect to a waiver of any of its standstill obligations.  The standstill provision included a “fall-away” of obligations to the Company in the event that the Company entered into a definitive agreement for its acquisition with a third party.
 
On March 17, 2017, the Company’s new management team and representatives of BofA Merrill Lynch met with Bidder C.
 
On March 22, 2017, the Company’s new management team met with each of Bidder A and Bidder B.  Representatives of BofA Merrill Lynch attended these meetings.
 
Between March 22, 2017 and April 6, 2017, the Company negotiated and entered into a new confidentiality agreement with Bidder B which contained a standstill provision similar to the provision contained in the agreement with Bidder C.  On April 7, 2017, the Company entered into a confidentiality agreement with another potential bidder which contained a standstill provision similar to the provisions contained in the confidentiality agreements with Bidder B and Bidder C.
 
On March 30, 2017, the Company and representatives of BofA Merrill Lynch discussed the transaction process with counsel for Bidder A’s equity sponsor.
 
On April 19, 2017, Mr. Howe and Mr. Bell were elected to join the Board at the 2016 Annual Meeting.
 
Prior to Mr. Howe’s election to the Board, he had one or two informal conversations with Kenny Young, the Chief Executive Officer of B. Riley Principal Investments, a wholly-owned subsidiary of B. Riley, about B. Riley’s potential interest in the transaction process.  Mr. Howe and Mr. Young are professional acquaintances and have served together (and continue to serve together) on boards of directors of other companies.  Additionally, between December 2009 and December 2012, Mr. Howe was a managing director of B. Riley & Co., LLC in its Corporate Governance Advisory Services Group.
 
From April 19, 2017 to April 21, 2017, pursuant to discussions with members of the Board, representatives of BofA Merrill Lynch engaged with Bidder A concerning the new transaction process and requesting a new confidentiality agreement prepared by counsel to the Company with a standstill provision similar to that of the confidentiality agreements with Bidder B and Bidder C.
 
On April 25, 2017, the Committee held a telephonic meeting at which Company management discussed the Company’s five-year financial plan for 2017 through 2021.
 
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On May 4, 2017, at the direction of the Board, BofA Merrill Lynch began approaching potential bidders regarding a sale of the entire Company as well as a potential sale of Broadsmart, a business segment of the Company. Between May 5, 2017 and May 9, 2017, BofA Merrill Lynch contacted a total of 40 financial and strategic buyers.
 
On May 8, 2017, the Committee held a telephonic meeting at which representatives of BofA Merrill Lynch were present.  Representatives of BofA Merrill Lynch provided the Committee with an update on the transaction process and a summary of conversations to date with potential bidders.  The Committee discussed these matters.
 
On May 12, 2017, the Board held a regularly scheduled in-person meeting.  Representatives of BofA Merrill Lynch and of Bryan Cave were present for a portion of the meeting.  Representatives of BofA Merrill Lynch provided the Board with an update on the transaction process and a summary of conversations to date with potential bidders. They also led the Board through a financial discussion of publicly available information and Company management’s five-year financial plan for 2017 through 2021, which was approved for BofA Merrill Lynch’s use by the Board. The Board and its advisors discussed the various potential strategic alternatives that might be available to the Company.
 
After the Board meeting, Mr. Howe suggested to the representatives of BofA Merrill Lynch that B. Riley be contacted in connection with the transaction process to see if it would be interested in participating and, on May 13, 2017, Mr. Howe introduced Mr. Young to BofA Merrill Lynch via e mail.
 
On May 15, 2017, the Committee held a telephonic meeting at which representatives of BofA Merrill Lynch were present.  Representatives of BofA Merrill Lynch provided the Committee with an update on the transaction process and a summary of conversations to date with potential bidders.  The Committee discussed these matters.
 
During the period from May 18, 2017 through June 6, 2017, the Company entered into confidentiality agreements with eight potential bidders, including B. Riley, all of which contained standstill provisions.  Each standstill provision was similar to that of the confidentiality agreements with Bidder B and Bidder C, except that one agreement did not contain the “fall away” provision in the event the Company entered into a definitive agreement for its acquisition with another entity.  The other 27 parties contacted by BofA Merrill Lynch expressed no interest in pursuing a transaction.  The parties that entered into confidentiality agreements (including those that entered into confidentiality agreements prior to this period) included six potential financial sponsor acquirers, including Bidder A and Bidder C, and seven potential strategic acquirers, including B. Riley and Bidder B.
 
From May 22, 2017 through June 7, 2017, the 13 potential bidders who had executed confidentiality agreements up to this point participated in meetings with Company management, which were also attended by representatives of BofA Merrill Lynch.  During this period, potential bidders were provided with access to the data room to commence or continue diligence of the Company. Company management and BofA Merrill Lynch, on behalf of the Company, responded to various diligence requests.
 
On May 22, 2017, the Board held a telephonic meeting, at which Mr. Bell and Mr. Howe were approved as additional members of the Committee.
 
On May 30, 2017, the Committee held a telephonic meeting at which representatives of BofA Merrill Lynch were present.  BofA Merrill Lynch provided the Committee with an update on the transaction process and a summary of conversations to date with potential bidders as well as the extent of due diligence activities of the bidders.  The Committee members discussed these matters among themselves.
 
On June 9, 2017, at the direction of the Committee, BofA Merrill Lynch distributed process letters to the 13 potential bidders, including B. Riley, Bidder A, Bidder B and Bidder C, in which the bidders were advised to submit, by June 27, 2017, final bids (including a mark-up of the draft merger agreement and/or the asset purchase agreement, as applicable, which would be made available by the Company) for the acquisition of the entire Company or for the acquisition of only the Broadsmart segment.
 
On June 12, 2017, the Committee held a telephonic meeting at which representatives of BofA Merrill Lynch were present.  Representatives of BofA Merrill Lynch provided the Committee with an update on the transaction process and a summary of conversations to date with potential bidders.  The Committee members discussed these matters among themselves.
 
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Between June 12, 2017 and June 15, 2017, the Company negotiated and entered into a new confidentiality agreement with Bidder A that contained a standstill provision similar to that of the confidentiality agreements with Bidder B and Bidder C, except for the absence of the “fall away” provision in the event the Company entered into an agreement for its acquisition by another entity.
 
On June 16, 2017, Bryan Cave and the Company agreed upon the form of merger agreement to be made available to bidders for review and comment as part of the bid process, and posted it in the data room.
 
On June 19, 2017, the Committee held a telephonic meeting at which representatives of BofA Merrill Lynch were present.  Representatives of BofA Merrill Lynch provided the Committee with an update on the transaction process and a summary of conversations to date with potential bidders.  The Committee members discussed these matters among themselves.  Also, on June 19, 2017, Bidder B notified BofA Merrill Lynch that it was considering partnering with another entity as an equity provider and requested that access to the data room be provided to such entity, which was not a potential bidder at that time.  The same day, the potential partner of Bidder B executed a joinder to the confidentiality agreement between the Company and Bidder B and was given access to the data room.
 
On June 26, 2017, B. Riley and Bidder A each had separate meetings with the Company and representatives of BofA Merrill Lynch to discuss due diligence matters.
 
On June 27, 2017, the Company received proposals to acquire the entire Company from three potential bidders:  B. Riley, Bidder A and Bidder B.  The offer letters from each of Bidder A and Bidder B included as part of the bid package a mark-up of the draft merger agreement that had been posted in the data room.  B. Riley did not submit a mark-up of the draft merger agreement.  The bid from B. Riley was $9.00 per ordinary share, all cash; the bid from Bidder A was $9.55 per ordinary share, all cash; and the bid from Bidder B was $8.72 per ordinary share, all cash.  The bid from B. Riley provided that a definitive agreement would not be subject to any financing contingency.  The bid from Bidder A was accompanied by a debt commitment letter from a proposed lender to Bidder A, subject to several non-standard conditions, for partial financing for the transaction as well as a draft equity commitment letter and a draft limited guaranty, each from an equity sponsor for Bidder A.  Bidder A’s total debt and equity commitment equaled approximately $129.2 million, less than the full amount of the offered purchase price, and did not explain the source of the balance of the purchase price.  Bidder B’s bid included a financing contingency and Bidder B did not provide standard commitment papers from a financing source for the required financing but instead provided a term sheet for discussion purposes only from a potential financing source conditioned on successful completion of diligence by the financing source. On June 27, 2017, the Company also received three bids to purchase the Broadsmart segment.  Two of those bids were for $8 million and one was for $10 million.
 
On June 28, 2017, the Committee held a telephonic meeting, with representatives of BofA Merrill Lynch and Bryan Cave present, to review the three bid proposals for the entire Company and the three bid proposals for the Broadsmart segment. Following deliberation, the Committee determined that the bids for the acquisition of the Company’s Broadsmart segment should not be pursued and that the Company should focus on a potential sale of the entire Company.  The Committee and BofA Merrill Lynch then discussed the financial aspects of the proposals to acquire the entire Company, including the need for Bidder A and Bidder B to obtain financing for their proposed transactions and whether they were likely to have the financial ability to consummate a transaction.  A detailed summary of the submitted bids was delivered by BofA Merrill Lynch to the Committee prior to the meeting.  Representatives from Bryan Cave presented to the Committee a legal analysis of the bids.  The Committee noted significant issues raised in the mark-ups of the draft merger agreement provided by Bidder A and Bidder B, the significant differences between the two mark-ups of the draft merger agreement received and certain legal issues to be considered in connection with any signing and closing of a transaction.  The Committee also discussed the fact that the mark-up provided by Bidder A was minimal and the Committee expressed concern that the draft merger agreement provided by Bidder A was not an accurate representation of Bidder A’s position on the draft merger agreement, particularly in light of the Company’s prior negotiations with Bidder A. The Committee instructed both Bryan Cave and BofA Merrill Lynch to obtain confirmation from Bidder A that it would have no further comments to the draft merger agreement.  The Committee also instructed Bryan Cave to prepare and send to Bidder B’s outside legal counsel a list of significant legal issues for discussion regarding Bidder B’s mark-up of the draft merger agreement and to begin negotiations regarding these issues.  BofA Merrill Lynch was instructed by the Committee to inform B. Riley that the Company had received a price per ordinary share that was materially higher than B. Riley’s offer and that B. Riley should provide a mark-up of the merger agreement and complete its due diligence process.
 
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On June 29, 2017, representatives of BofA Merrill Lynch contacted B. Riley as instructed by the Committee.  At the request of the Committee, Mr. Howe also contacted Mr. Young to communicate the same message.  BofA Merrill Lynch also contacted Bidder A to discuss its bid, the status of its financing and whether or not it would have additional comments to the draft merger agreement. Later that day, Bryan Cave circulated to the Committee a comparison of key issues raised in Bidder A’s and Bidder B’s merger agreement mark-ups, as well as a summary of the financing documents provided by each of Bidder A and Bidder B.  BofA Merrill Lynch provided an update to the Committee of the telephone calls with B. Riley and Bidder A.
 
During the period from June 30, 2017 to July 28, 2017, B. Riley conducted extensive legal, business and financial diligence, Bidder A continued financial and business diligence on the Company and Bidder B conducted some limited business and financial diligence.
 
On July 3, 2017, Bidder A notified BofA Merrill Lynch of Bidder A’s interest in seeking Company approval to contact an entity that had already executed a confidentiality agreement with the Company regarding a potential joint bid (“Potential Partner”).  Bidder A also reaffirmed that it had no further comments on the draft merger agreement and requested exclusivity for 14 days, among other requests.  On July 4, 2017, BofA Merrill Lynch updated the Committee via e-mail on its conversation with Bidder A and advised the Committee that Bidder A had been asked by BofA Merrill Lynch for additional information regarding Bidder A’s intended sources of funding.  The Committee agreed via email that Bidder A could contact Bidder A’s Potential Partner.
 
On July 6, 2017, an issues list prepared by Bryan Cave at the instruction of the Committee with respect to Bidder B’s mark-up of the draft merger agreement was circulated to Bidder B.
 
On July 9, 2017, outside legal counsel for B. Riley, Sullivan & Cromwell LLP (“Sullivan & Cromwell”), provided a mark-up of the draft merger agreement to Bryan Cave.
 
On July 10, 2017, the Committee held a telephonic meeting with representatives of BofA Merrill Lynch and Bryan Cave present.  BofA Merrill Lynch reported on the status of the diligence process and communications with the three active bidders. Representatives from Bryan Cave provided an update on changes requested to the draft merger agreement by Bidder A.  Representatives from Bryan Cave then presented to the Committee a legal analysis of the significant issues raised in the mark-up of the draft merger agreement provided by B. Riley. The Committee then discussed timing issues.
 
On July 11, 2017, at the direction of the Committee, representatives of BofA Merrill Lynch contacted each of B. Riley, Bidder A and Bidder B telephonically and informed them that best and final bids were due on July 20, 2017.
 
On July 12, 2017, Bidder A provided the Company with revised draft debt commitment papers.
 
On July 13, 2017, revised drafts of the merger agreement, debt commitment papers, equity commitment papers and limited guaranty were circulated to Bidder A.  In addition, representatives of BofA Merrill Lynch met with Bidder B to discuss Bidder B’s proposed financing for the potential transaction, in light of the non-standard nature of the documentation Bidder B had provided with respect to such proposed financing.
 
On July 14, 2017, Bryan Cave circulated a revised draft merger agreement between the Company and B. Riley to Sullivan & Cromwell.
 
On July 15, 2017, Bryant Riley contacted Mr. Howe to reaffirm B. Riley’s interest in pursuing a transaction.
 
On July 17, 2017, the Committee held a telephonic meeting that included representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon & Co., the Company’s Israeli counsel (“Yigal Arnon”).  Representatives of BofA Merrill Lynch provided an update on the process and the status of negotiations with each of B. Riley, Bidder A and Bidder B and the status of the due diligence process, and confirmed that all bidders had been notified that best and final bids are due on July 20, 2017.  Representatives of BofA Merrill Lynch reviewed with the Committee information regarding both Bidder A and Bidder B and the Board and its advisors discussed Bidder A’s and Bidder B’s respective financial ability to consummate a transaction.  Representatives from Bryan Cave presented to the Committee a legal analysis of the key issues raised in B Riley’s initial mark-up of the draft merger agreement and Bidder A’s revised draft debt commitment papers and an initial mark-up of the draft merger agreement, the significant differences between the two mark-ups of the draft merger agreement, and legal issues to be considered in connection with the closing of a transaction.  A detailed summary of each party’s respective positions relative to those of the Company was provided to the Committee in advance of the meeting. The Committee discussed the key terms of the mark-ups to the draft merger agreements provided by each of B. Riley and Bidder A and the overall bids submitted by each of the bidders.  Representatives of Yigal Arnon discussed the issues under Israeli law surrounding the bids.  The Committee instructed the Company’s legal advisors to follow up with respect to these issues.  Representatives of Yigal Arnon also discussed the fiduciary duties and responsibilities of the Committee and the full Board in connection with the evaluation of the bids. The Committee discussed approaches to encourage B. Riley to increase its bid price and to instruct Sullivan & Cromwell to work with Bryan Cave to resolve the outstanding legal issues.
 
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On July 18, 2017, as requested by the Committee, Mr. Howe had conversations with each of Mr. Riley and Mr. Young of B. Riley to communicate the messaging provided by the Committee.  On July 18, 2017, Bryan Cave circulated to the Committee updated materials which compared the key provisions of the mark-ups of the draft merger agreements received from B. Riley, Bidder A and Bidder B, and the positions of each of B. Riley and Bidder A relative to the positions being taken by the Company on key points.
 
On July 19, 2017, representatives from Bryan Cave and Yigal Arnon had a telephone conference with Bidder A and its Israeli counsel to discuss the structure for the transaction, including the financing. Bidder A and its Israeli counsel indicated that they would be providing comments to the transaction documents, including comments to the draft merger agreement.  Later that day, Bidder A sent comments to the draft equity commitment letter and draft limited guaranty, and a revised draft merger agreement, indicating further comments from Bidder A’s U.S. counsel would be provided at a later date.  That same day, Bryan Cave and Sullivan & Cromwell engaged in high level discussions regarding the draft merger agreement.
 
On July 20, 2017, representatives of Bryan Cave had a telephone conference with a representative of Bidder A’s U.S. counsel who conveyed to Bryan Cave that counsel had not reviewed the draft merger agreement and that they had not been engaged in connection with Bidder A’s current bid.  That same day, Bryan Cave representatives had a telephone conference with representatives of Bidder B’s counsel to discuss at a high level the issues list with respect to the draft merger agreement.
 
Also on July 20, 2017, the Company received final proposals to acquire the entire Company from each of B. Riley, Bidder A and Bidder B.  The bid from B. Riley was increased to $9.20 per ordinary share, all cash, and was not subject to any financing contingency.  B. Riley did not submit a revised draft merger agreement but indicated it would do so by July 24, 2017.  B. Riley asked for two weeks of exclusivity to complete its due diligence and finalize the documents and indicated its belief that it would be in a position to sign and announce a transaction by August 3, 2017.  Bidder A reaffirmed its bid of $9.55 per ordinary share, all cash, and provided a draft of the merger agreement which the Company had been negotiating with Bidder A in November 2016.  Bidder A did not provide a revised draft debt commitment letter.  The bid from Bidder B was increased to $10.06 per ordinary share, all cash.  Bidder B also provided comments to the issues list that had been previously distributed to Bidder B.  Bidder B’s bid remained subject to a financing contingency and Bidder B did not provide standard commitment papers from a financing source for the required financing but instead provided a revised term sheet for discussion purposes only from a potential financing source, which term sheet was conditioned on successful completion of diligence and did not include a number of provisions typical for a standard commitment letter.
 
On July 23, 2017, Sullivan & Cromwell distributed a revised mark-up of the draft merger agreement to Bryan Cave.
 
On July 24, 2017, the Committee held a telephonic meeting that included representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon. Representatives of Bryan Cave presented to the Committee a legal analysis of the key issues raised in the mark-ups of the draft merger agreement provided by B. Riley, Bidder A and Bidder B.  Representatives of Yigal Arnon discussed with the Committee its fiduciary duties and responsibilities in connection with the bids and the process and, in particular, discussed the fact that the Company’s ability to seek specific performance against any potential purchaser was an important factor.  The Committee engaged in an extensive discussion with the Company’s senior management and financial and legal advisors about the strengths and weaknesses of each bid and the importance of both price per ordinary share and certainty of closing. In particular, the Committee expressed concern that Bidder A had yet to provide evidence of unconditioned, committed financing or proof of funds of its equity sponsor and noted the lack of comments to the revised debt commitment letter from Bidder A’s financing source and the fact that Bidder A provided a draft of the merger agreement which the Company had been negotiating with Bidder A in November 2016.  The Committee expressed concern that Bidder B did not have adequate financing to consummate the proposed transaction. Finally, the Committee expressed concern about B. Riley finalizing its diligence efforts in advance of the Company potentially entering into an exclusivity agreement with B. Riley.  The Committee instructed BofA Merrill Lynch to contact each of B. Riley, Bidder A, and Bidder B with a list of specific issues that would need to be resolved before the Company could proceed to the next step in the process with each particular bidder.
 
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Later that day, at the direction of the Committee, BofA Merrill Lynch spoke to Mr. Riley and Mr. Young of B. Riley and indicated that it would need to finalize its due diligence prior to any consideration of exclusivity by the Company and that a revised draft merger agreement would be provided to Sullivan & Cromwell by Bryan Cave the following day.  Also on July 24, 2017, at the direction of the Committee, BofA Merrill Lynch contacted Bidder B in connection with Bidder B’s potential financing and, that same day, Bidder B provided a draft letter from a potential financing source that provided that the potential financing source had the funds necessary to consummate the transaction and that such source was willing to provide such financing to Bidder B, subject to various non-standard conditions.
 
On July 25, 2017, representatives of BofA Merrill Lynch, at the direction of the Committee, contacted Bidder A by telephone and conveyed to Bidder A that it should engage U.S. counsel to review the draft merger agreement in order for the Company to have a full understanding of any issues Bidder A had with the draft merger agreement. Later that day, the Committee met telephonically with representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon present.  Representatives of BofA Merrill Lynch provided an update to the Committee on their communications with B. Riley, Bidder A and Bidder B.  Representatives from Bryan Cave presented to the Committee a legal analysis of the key issues raised in the most recent mark-ups of the draft merger agreement provided by B. Riley, Bidder A and Bidder B (as modified by Bidder B’s comments to the issues list), the significant differences among the three such mark-ups received, and certain legal issues, a detailed summary of which was provided to the Committee prior to the meeting. The Committee engaged in extensive discussion of the proposed price per ordinary share and the terms of the draft merger agreement for each bidder.  The Committee discussed the fact that although B. Riley had the lowest price per ordinary share, based on its proposed draft merger agreement, B. Riley seemed to have the greatest certainty of closing, while Bidder B had the highest price per ordinary share but its bid seemed to have the least certainty of closing, especially in light of financing being a condition to closing.  In addition, Bidder B had not provided any evidence of committed financing or any information which would allow the Company to evaluate the viability of its financing source. The Committee instructed BofA Merrill Lynch to provide Bidder A with a specific set of issues identified by the Committee which needed to be resolved by July 27, 2017, in order for Bidder A to advance in the process while representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon continued to engage with each of B. Riley and Bidder B to try to resolve open issues.
 
Later that day, representatives of BofA Merrill Lynch, at the direction of the Committee, contacted Bidder A by telephone and identified specific items that needed to be addressed by July 27, 2017 in order for Bidder A to advance in the process.
 
On July 26, 2017, representatives of BofA Merrill Lynch, Bryan Cave, Bidder B and Bidder B’s counsel conferred by telephone to discuss the issues identified by the Committee and to identify with specificity what Bidder B needed to do to increase the viability of its bid. Later that day, Bryan Cave distributed a revised draft merger agreement to Sullivan & Cromwell.
 
On July 27, 2017, representatives from Bryan Cave and Yigal Arnon had a telephone conference with Bidder A and its Israeli counsel to discuss Bidder A’s proposal and the issues identified by the Committee.  Later that day, Bidder A’s Israeli counsel provided a revised draft merger agreement to Bryan Cave.  Bryan Cave, Yigal Arnon, Bidder A and Bidder A’s Israeli counsel then had another telephone conference to discuss the revised draft merger agreement.  Later that day, Bidder A’s Israeli counsel provided a further revised draft merger agreement.
 
On July 28, 2017, Bidder B provided the Company with a letter from Bidder B’s potential financing source indicating that Bidder B had been made “a beneficiary” of up to $150 million in funds for the sole purpose of paying the aggregate merger consideration to acquire the Company that would be released to Bidder B subject to certain conditions.  The letter indicated that proof of funds for any portion of the purchase price in excess of $150 million would be provided at the time that Bidder B “won the bid.”
 
 
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Also on July 28, 2017, the Committee held a telephonic meeting with representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon present.  The remaining members of the Board who are not members of the Committee attended the Committee meeting in order to participate in the discussion of the status of the various bids.  Mr. Bell informed the Committee that he had a prior professional relationship with B. Riley in that B. Riley provided advisory services to a prior company for which Mr. Bell had led a strategic process.  Yigal Arnon led the Committee in a discussion of Mr. Bell’s prior professional relationship with B. Riley and the Committee concluded that Mr. Bell did not have a conflict of interest (or personal interest as defined under Israeli law).  Mr. Howe then advised the Committee of the professional relationship that he has with each of Mr. Young and Mr. Riley.  Yigal Arnon led the Committee in a discussion of Mr. Howe’s professional relationship with B. Riley and the Committee concluded that Mr. Howe did not have a conflict of interest (or personal interest as defined under Israeli law).  A representative of BofA Merrill Lynch then presented to the Committee an overview of the process to date.  Prior to the meeting, Bryan Cave had distributed to the Committee an updated summary of the significant issues raised in the mark-ups of the draft merger agreements provided by the three bidders, and the important differences among such mark-ups.  The Committee and those members of the Board not on the Committee had an extensive discussion with the Company’s senior management and financial and legal advisors concerning the issues with each of the three bids.  The Committee discussed that both the price per ordinary share and the certainty of closing were important factors in evaluating the bids.  The Committee concluded that given the uncertainty related to the financing of both Bidder A and Bidder B, the relative terms of the proposed merger agreements from each of Bidder A and Bidder B and the higher certainty of closing with B. Riley, the Committee would recommend to the Board that it enter into exclusivity with B. Riley for a period of seven days, subject to B. Riley’s agreeing to increase its price per ordinary share and the resolution of three legal issues in the definitive documentation which all focused on increasing the Company’s certainty of closing.
 
Immediately following the Committee meeting on July 28, 2017, the Board held a telephonic meeting at which representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon were present. Upon the recommendation of the Committee, the Board approved the Company entering into an exclusivity agreement with B. Riley, subject to conditions identified by the Committee.  Also, the Board instructed BofA Merrill Lynch to provide Bidder A with the opportunity to address certain issues necessary to give the Company sufficient comfort that Bidder A might proceed in the process during the pendency of B. Riley considering the Company’s conditions to the exclusivity agreement.  Later that day, BofA Merrill Lynch informed Bidder A of the issues it needed to address by July 29, 2017 in order to continue in the process and contacted B. Riley and conveyed the conditions for exclusivity. Sullivan & Cromwell then contacted Bryan Cave for clarification and discussion of the legal issues in the conditions for exclusivity.
 
On July 29, 2017, B. Riley contacted representatives of BofA Merrill Lynch with respect to the conditions to exclusivity and Sullivan & Cromwell sent Bryan Cave revised provisions of the draft merger agreement with agreed upon language with respect to the identified legal issues.  B. Riley declined to increase its offered price per ordinary share.  From July 29, 2017 through July 30, 2017, Bryan Cave and Sullivan & Cromwell negotiated the provisions of the merger agreement applicable to the legal issues that the Company had identified as conditions to entering into the exclusivity agreement, which were resolved.
 
On July 30, 2017, the Board held a telephonic meeting at which representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon were present.  The BofA Merrill Lynch representative reported to the Board that the legal issues identified by the Committee had been addressed but that B. Riley had declined to increase its offer per ordinary share.  Prior to the meeting, Bryan Cave circulated to the Board updated materials which provided an overview of key issues in bids from Bidder A, Bidder B and B. Riley, and an updated summary of the significant issues raised in the mark-ups of the draft merger agreement provided by the three bidders, the important differences among the three merger agreement mark-ups and a comparison of each bidder’s position on certain key issues with the Company’s position. Bryan Cave reported on the discussions with Sullivan & Cromwell and noted that while there were still a number of provisions in the draft merger agreement to be resolved, the legal items outlined by the Board as conditions to exclusivity had been resolved.  Representatives of BofA Merrill Lynch then reported to the Board the status of Bidder A’s bid and the fact that Bidder A failed to provide any of the requested information.  The Board discussed the issues related to Bidder A’s bid.  After discussion, the Board concluded that the bids of Bidder A and Bidder B were subject to significant uncertainty.  The Board then deliberated on B. Riley’s ability to finance the transaction based on B. Riley’s publicly available reports and financial statements.  After considering the terms of each of the bids, the importance of certainty of closing and the likelihood of reaching a definitive agreement with each of the bidders, the Board authorized the Company to enter into an exclusivity agreement with B. Riley for a period of seven days, expiring at 5:00 p.m. Eastern Time on August 7, 2017.  Upon instruction by the Board, BofA Merrill Lynch informed B. Riley of the Board’s decision and Bryan Cave provided Sullivan & Cromwell with a draft exclusivity agreement.
 
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Later that day, Bidder A provided revised debt commitment papers but did not respond to the other issues which the Company had asked Bidder A to address.  The Company and B. Riley entered into an exclusivity agreement on July 30, 2017.
 
On July 31, 2017, representatives of BofA Merrill Lynch informed both Bidder A and Bidder B that the Company had entered into an exclusivity agreement with another party.
 
On August 1, 2017, Sullivan & Cromwell submitted a revised merger agreement to Bryan Cave and representatives of those firms discussed the draft merger agreement.  Also on August 1, 2017, the Board held a regularly scheduled in-person board meeting with representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon present for portions of that meeting. Representatives of each of BofA Merrill Lynch and Bryan Cave provided an update on the status of the proposed transaction and discussions with B. Riley and Sullivan & Cromwell, respectively.
 
On August 2, 2017, Sullivan & Cromwell circulated to Bryan Cave a revised draft merger agreement as well as additional due diligence requests.  Later that day, representatives of Bryan Cave, Yigal Arnon, Sullivan & Cromwell and Gross, Kleinhendler, Hodak, Halevy, Greenberg and Co. (B. Riley’s Israeli counsel) (“GKH”) had a telephone call regarding the draft merger agreement.  During the period of August 2, 2017 through August 4, 2017, the Company and Bryan Cave continued to respond to legal due diligence questions from B. Riley and Sullivan and Cromwell.
 
On August 4, 2017, Mr. Young of B. Riley contacted representatives of BofA Merrill Lynch to highlight and discuss certain issues that B. Riley had identified that would need to be addressed in the draft merger agreement.  Later that day, Bryan Cave circulated a revised merger agreement to Sullivan & Cromwell.
 
On August 5, 2017, Sullivan & Cromwell circulated a revised draft merger agreement to Bryan Cave.  Over the course of that day, Bryan Cave and Sullivan & Cromwell negotiated the terms of the draft merger agreement.
 
Over the course of August 6, 2017 and August 7, 2017, Mr. Howe, on behalf of the Company, and Mr. Young, on behalf of B. Riley, discussed open items in the draft merger agreement between the Company and B. Riley.
 
On August 7, 2017, the Board held a telephonic meeting, with representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon present.  BofA Merrill Lynch, Bryan Cave and Yigal Arnon each updated the Board with respect to developments over the preceding week.  BofA Merrill Lynch summarized the status of negotiations with B. Riley and the open items which B. Riley had identified as necessary to resolve before B. Riley could proceed with further negotiations.  Representatives from Bryan Cave reviewed for the Board the materials distributed to the Board prior to the meeting, which compared B. Riley’s position and the Company’s position on the key provisions of the draft merger agreement and the status of negotiations.  The Board considered extending exclusivity in order to finalize the outstanding items in the draft merger agreement, and ultimately determined to do so, subject to the resolution of one outstanding issue.  Later that day, BofA Merrill Lynch, as directed by the Board, contacted B. Riley to inform B. Riley that the Company would extend exclusivity in the event that the parties reached resolution on the key issue outstanding in the draft merger agreement.  Agreement was reached on this point and the Company and B. Riley entered into an extension of the exclusivity agreement through August 14, 2017.
 
On August 8, 2017, Bryan Cave and Sullivan & Cromwell engaged in further negotiations with respect to the draft merger agreement and, on August 9, 2017, Bryan Cave circulated a revised draft merger agreement to Sullivan & Cromwell.
 
On August 10, 2017, Sullivan & Cromwell submitted a revised draft of the merger agreement to Bryan Cave, and Sullivan & Cromwell and representatives from Bryan Cave thereafter engaged in ongoing negotiations with respect to the draft merger agreement.  From August 10, 2017 to August 12, 2017, B. Riley and Sullivan & Cromwell continued to engage in legal, business and financial diligence and the Company and its legal and financial advisors responded to various diligence inquiries. Also on August 10, 2017, Mr. Young contacted Mr. Howe to alert the Company to a structural issue identified by B. Riley that could impact the timing and/or certainty of the potential transaction.
 
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On August 12, 2017, Bryan Cave circulated a revised draft merger agreement to Sullivan & Cromwell.  Also on that day, representatives of B. Riley conferred with Company management regarding the recently identified transaction structural issue.  Later that day, B. Riley informed the Company by telephone that B. Riley would not be able to proceed with the proposed transaction at such time due to certain structuring considerations.
 
On August 13, 2017, the Board held a telephonic meeting with representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon present.  The Board was advised of the communications from B. Riley about the recently identified structural issue and B. Riley’s inability to proceed with a transaction with the Company at such time subject to further work in respect of this issue.  The Board was advised that B. Riley had inquired about the possibility of re-structuring the transaction as an asset purchase.  The Board discussed this and then requested that each of Bryan Cave and Yigal Arnon complete a preliminary analysis of the consequences of an asset purchase structure for the Company.  The Board then discussed re-engaging with each of Bidder A and Bidder B and determined that given the concerns over Bidder B’s financing as well as the conditionality of its offer, the Company should not re-engage with Bidder B.  The Board instructed BofA Merrill Lynch to contact Bidder A, once exclusivity with B. Riley expired on August 14, 2017, to determine whether Bidder A would like to re-engage in discussions with the Company about a potential transaction.
 
During the period of August 13, 2017 through August 17, 2017, the Company and B. Riley remained in contact and the Company was advised that B. Riley remained interested in a possible transaction and was working on a revised structure to accommodate the issue.
 
On August 14, 2017, representatives of BofA Merrill Lynch had a call with principals from Bidder A and informed them that the Company was no longer under exclusivity and inquired as to whether Bidder A remained interested in a potential transaction with the Company.  Bidder A indicated that, while it remained interested in a potential transaction and would like to meet with the Company, the previously contemplated financing was no longer available as originally structured.
 
During the period of August 17, 2017 through September 25, 2017, B. Riley continued to engage in business and financial diligence of the Company and the Company and its financial advisors responded to various diligence inquiries, including in connection with a potential new transaction structure.  On August 18, 2017, the Company was advised by B. Riley that B. Riley remained committed to exploring alternatives to the merger structure originally contemplated, and that B. Riley’s tax and legal advisors had been instructed to explore the issues related to an asset purchase structure.
 
On August 31, 2017, members of the Committee met telephonically and in-person with principals from Bidder A as well as Bidder A’s equity sponsor.  Representatives of BofA Merrill Lynch were also present at the meeting.  The Committee and Bidder A agreed that, in exchange for the Company’s reimbursing Bidder A for certain transaction expenses during a limited window, Bidder A and its debt financing source would engage in the necessary legal, financial and business due diligence in order for Bidder A to move forward with its bid of $9.55 per ordinary share and secure committed financing and Bidder A would engage U.S. counsel to work to finalize the merger agreement that had been distributed on July 27, 2017.
 
Between September 1, 2017 and September 7, 2017, BofA Merrill Lynch, acting at the direction of the Company, and Bidder A negotiated certain terms of Bidder A’s proposed bid.
 
On September 7, 2017, the Committee held a telephonic meeting with representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon present.  The Committee and its advisors discussed the key terms now proposed by Bidder A, including the amounts of the Company termination fee and Parent termination fee, as well as the terms of the proposed expense reimbursement agreement.  The Committee received an update on the status of B. Riley’s further work on a possible proposal for a revised transaction structure.
 
Members of the Committee considered Bidder A’s proposal from September 7, 2017 to September 8, 2017.  On September 8, 2017, the Company provided Bidder A with a draft expense reimbursement agreement.  From September 8, 2017 through September 15, 2017, the Company and Bidder A, together with their respective advisors, negotiated the expense reimbursement agreement, which was executed by each of the Company and Bidder A, respectively, on September 18, 2017.
 
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On September 18, 2017, the Committee held a telephonic meeting with representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon present.  The Committee received an update from representatives of BofA Merrill Lynch on the status of Bidder A’s due diligence and on the status of B. Riley’s work to date regarding the possible proposal for a revised transaction structure. Mr. Fuller noted that B. Riley had requested that Mr. Riley be given the opportunity to address the Committee directly.  Later that day, representatives of Bryan Cave and Yigal Arnon had a telephone conference with Bidder A, Bidder A’s Israeli counsel and Bidder A’s debt financing source and its counsel regarding the due diligence process, which Bidder A’s debt financing source was beginning.
 
On September 25, 2017, the Committee held a telephonic meeting with representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon present. Representatives from Bryan Cave and Yigal Arnon provided an update regarding the diligence call with Bidder A and its advisors held on September 18, 2017, noting that Bidder A’s U.S. counsel had not participated in the call and that Bidder A’s debt financing source had not yet started diligence.  The Committee discussed the slow pace of Bidder A’s due diligence and whether the draft merger agreement provided by Bidder A on July 27, 2017 fully reflected the terms under which Bidder A was prepared to consummate a transaction given that Bidder A’s U.S. counsel had not been involved.  After discussion with the Company’s advisors, the Committee instructed Bryan Cave to provide Bidder A with mark-ups of the draft merger agreement, debt commitment papers, equity commitment letter and limited guaranty to try to ascertain if Bidder A was going to have further legal comments.  The Committee then discussed timing for signing a potential transaction with Bidder A and requested that BofA Merrill Lynch convey to Bidder A that it needed to complete diligence and be in a position to sign definitive transaction documents by October 4, 2017.  The Committee also received an update from representatives of BofA Merrill Lynch on the status of B. Riley’s due diligence to date and a possible proposal for a revised transaction structure. The Committee requested that Mr. Howe reach out to Mr. Young to set a time for a meeting between Mr. Riley and members of the Committee as requested by Mr. Riley.
 
On September 28, 2017, at the direction of the Committee, Bryan Cave distributed comments to the draft merger agreement received from Bidder A’s Israeli counsel on July 27, 2017, and comments to the draft debt commitments papers received from Bidder A on July 30, 2017, to Bidder A, Bidder A’s U.S. and Israeli counsel and counsel for Bidder A’s equity sponsor.
 
On October 2, 2017, Bryan Cave contacted Bidder A’s U.S. counsel to inquire about the status of comments to the transaction documents.  Bidder A’s U.S. counsel responded that it was working through the documents and would revert with any questions. Later that day, the Committee held a telephonic meeting with representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon present. The Committee received an update from representatives of BofA Merrill Lynch on the status of Bidder A’s due diligence to date and on the status of a potential transaction with B. Riley. The Committee discussed the upcoming call scheduled with the Committee and Mr. Riley and what they hoped to accomplish from such a call.  Representatives from Bryan Cave provided an update to the Committee on the legal diligence requests which Bryan Cave had received from Bidder A’s U.S. counsel as well as the status of the draft transaction documents which had been sent to Bidder A’s counsel the previous week. Also on October 2, 2017, Bidder A’s Potential Partner executed a letter stating that it would be deemed to be a joint venture partner of Bidder A, but would remain subject to its existing confidentiality agreement with the Company.
 
On October 3, 2017, Bryan Cave distributed comments to the draft equity commitment letter and limited guaranty received from Bidder A on July 19, 2017 to Bidder A, Bidder A’s U.S. and Israeli counsel and counsel for Bidder A’s equity sponsor.  That same day, members of the Committee, together with representatives of BofA Merrill Lynch, had a telephonic meeting with Mr. Riley and Mr. Young during which Mr. Riley affirmed his continued desire to consummate a transaction with the Company.  Members of the Committee also spoke with representatives of BofA Merrill Lynch regarding BofA Merrill Lynch’s contacting Bidder B to inquire whether Bidder B remained interested in a potential transaction with the Company, and, if so, to inquire about the status of Bidder B’s financing.
 
From October 4, 2017 through October 26, 2017, Bidder A, its advisors and its debt financing source and their respective advisors periodically engaged in legal, business and financial diligence of the Company and the Company, BofA Merrill Lynch and Bryan Cave periodically responded to additional due diligence requests from Bidder A and its advisors.
 
On October 5, 2017, the Committee approved extending the existing term of the expense reimbursement agreement with Bidder A to October 11, 2017, in light of the increased commitment shown by Bidder A to complete its due diligence of the Company.
 
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On October 6, 2017, Bryan Cave circulated an executed amendment to the expense reimbursement agreement to Bidder A’s U.S. legal counsel.  Also on October 6, 2017, B. Riley sent the Company a draft term sheet setting out the proposed terms for a purchase of substantially all of the assets of the Company.
 
On October 9, 2017, the Committee held a telephonic meeting with representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon present.  The Committee received an update from representatives of BofA Merrill Lynch on the status of Bidder A’s due diligence and representatives from Bryan Cave updated the Committee on the status of the draft transaction documents with Bidder A.  The Committee, Company senior management and the Company’s advisors then had a discussion of the terms of B. Riley’s proposed asset purchase transaction, including, among other things, the implied price per ordinary share of such proposed transaction, the retention of liabilities, the need for court approval in Israel for such proposed transaction and subsequent distribution to shareholders and the tax implications for Company shareholders.  After extensive discussion, the Committee determined that the proposed structure would likely not return adequate value to shareholders and instructed Mr. Fuller to contact Mr. Young to discuss the Company’s concerns with the revised structure and explore the possibility of B. Riley acquiring 100% of the Company through a merger. Representatives of BofA Merrill Lynch also reported to the Committee that, as requested by the Committee, they had contacted Bidder B, and Bidder B had reiterated its interest in pursuing a transaction with the Company and requested that its access to the data room be restored.  The Committee instructed BofA Merrill Lynch to communicate to Bidder B that it would need to revise its proposed transaction documents and obtain committed financing before such access to the data room would be restored.
 
During the period of October 9, 2017 through October 11, 2017, Mr. Young contacted Mr. Howe to explore the feasibility of an asset acquisition by B. Riley.
 
During the period of October 11, 2017 through October 13, 2017, representatives of BofA Merrill Lynch and Bryan Cave contacted Bidder A and Bidder A’s U.S. counsel, respectively, to inquire about the status of diligence and the draft transaction documents.
 
At the instruction of the Committee, on October 11, 2017, Mr. Fuller had a telephone call with Mr. Young to discuss the concerns that the Company had with an asset structure.  In light of the concerns expressed, Mr. Fuller conveyed that the Company would like B. Riley to reconsider a bid to acquire the Company through a merger, with any structuring costs to B. Riley factored into any revised bid that B. Riley might make.  Mr. Young indicated that B. Riley would be amenable to exploring a bid for the entire Company again.
 
On October 12, 2017, Bidder A provided Bryan Cave a fully executed amendment to the expense reimbursement agreement.
 
On October 17, 2017, at the request of members of the Committee, representatives of BofA Merrill Lynch met with Bidder B to discuss whether Bidder B remained interested in a possible transaction with the Company and whether Bidder B would reaffirm its bid of $10.06 per ordinary share and to inquire whether Bidder B had the necessary committed financing to support its bid.  Bidder B indicated to BofA Merrill Lynch that it remained interested in a possible transaction with the Company and reaffirmed its bid of $10.06 per ordinary share.  Bidder B said that it continued to work on financing for a possible transaction and would provide financing documentation to BofA Merrill Lynch in approximately one week.
 
On October 19, 2017, Mr. Riley contacted Mr. Howe to indicate that B. Riley would be submitting a revised bid to acquire the Company through a merger.
 
On October 23, 2017, B. Riley submitted to the Company a revised bid of $8.50 per ordinary share to acquire 100% of the Company through a merger.
 
On October 25, 2017, Bidder A’s U.S. counsel circulated a revised draft merger agreement which contained extensive comments, including items which had been previously discussed and agreed upon by each of the Company and Bidder A.  Later that day, the Committee held a telephonic meeting with representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon present. The Committee, together with the Company’s financial and legal advisors, discussed B. Riley’s revised bid and whether, from a financial perspective, it provided an adequate return of value to the Company’s shareholders as compared to the risks and challenges to the Company in executing its strategic plan if it remained independent. Representatives from Bryan Cave presented to the Committee a legal analysis of the key issues raised in the mark-up of the draft merger agreement provided by Bidder A, including increased conditionality to closing. The Committee agreed that Bidder A should be given a deadline of October 27, 2017 to submit comments to all transaction documents, including debt and equity commitment papers, and instructed BofA Merrill Lynch and Bryan Cave to convey this message to Bidder A and Bidder A’s U.S. counsel, respectively. The Committee also discussed and agreed that Mr. Fuller should reach out to Mr. Young to convey that the Committee was considering a higher bid and that the Committee had a meeting scheduled for October 30, 2017, after which they would provide B. Riley with formal feedback. Each of BofA Merrill Lynch, Bryan Cave and Mr. Fuller subsequently conveyed the requested messages to each of Bidder A, Bidder A’s U.S. counsel and Mr. Young, respectively.
 
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On October 27, 2017, Bidder A’s U.S. counsel circulated revised drafts of the equity commitment letter and the limited guaranty to Bryan Cave.  Bidder A did not provide a revised draft of the debt commitment papers.
 
On October 30, 2017, the Committee held a telephonic meeting with representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon present.  Representatives from Bryan Cave reviewed for the Board the highlights from the materials distributed to the Board prior to the meeting, which compared the Company’s position and Bidder A’s position as reflected in Bidder A’s July 27, 2017 mark-up provided by its Israeli legal counsel as well as Bidder A’s October 25, 2017 mark-up provided by its U.S. legal counsel on the key provisions of the draft merger agreement. The Committee extensively discussed with the Company’s management as well as its legal and financial advisors the significant issues with the draft merger agreement received from Bidder A as well as the fact that Bidder A had still not provided acceptable evidence of committed financing. The Committee also discussed whether the price per ordinary share offered by B. Riley provided an adequate return of value to the Company’s shareholders, from a financial perspective, as compared to the risks and challenges to the Company in executing its strategic plan if it remained independent.  The Committee determined that Bidder A should be told that it needed to deliver evidence of committed financing or it would no longer be allowed to participate in the formal transaction process and that Mr. Bell should meet with Mr. Riley and Mr. Young to discuss the price per share offered by B. Riley.
 
On October 31, 2017, Mr. Bell had a telephone conversation with the principals from Bidder A and Bidder A’s equity sponsor during which the status of Bidder A’s financing, the conditionality of Bidder A’s financing and Bidder A’s failure to meet deadlines throughout the process was discussed. Mr. Bell conveyed to Bidder A that it needed to deliver evidence of committed financing no later than November 2, 2017, if it wanted to remain a participant in the formal transaction process.
 
On November 2, 2017, Mr. Bell met with Mr. Riley and M. Young.  They discussed B. Riley’s proposed $8.50 price per ordinary share and Mr. Bell indicated that B. Riley needed to improve its proposal to be competitive.  After Mr. Bell left the meeting, Mr. Riley called Mr. Bell to indicate that B. Riley was prepared to offer $8.71 per share on the same terms and conditions as B. Riley had previously negotiated in August, so long as B. Riley had the ability to assign the merger agreement to an affiliate, and requested six days of exclusivity with the Company to complete negotiations and finalize a potential transaction.  Also on November 2, 2017, representatives from Bidder A’s U.S. counsel had a telephone call with Bryan Cave during which Bidder A’s U.S. counsel previewed the terms of Bidder A’s revised bid, including a price of $9.00 per ordinary share, certain new financial conditions for the debt and equity commitments and proposed new conditions to closing. Later that night, Bidder A’s U.S. counsel sent a revised draft merger agreement and draft debt commitment papers to Bryan Cave.  Also that night, Bidder A’s equity sponsor called representatives of BofA Merrill Lynch to inform them of the terms of Bidder A’s revised bid, including a further price reduction to $8.50 per ordinary share if the Company did not want to have the proposed transaction subject to the outlined additional conditions to closing proposed by Bidder A in its revised bid.
 
On November 3, 2017, the Committee held a telephonic meeting with representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon present.  The Committee extensively discussed with the Company’s senior management as well as its legal and financial advisors the fact that Bidder A’s bid of $9.00 per ordinary share was subject to several closing conditions that would ultimately make consummating a transaction very difficult and, consequently, Bidder A’s bid of $8.50 per ordinary share was a better comparison to use when evaluating Bidder A’s bid and B. Riley’s bid of $8.71 per ordinary share.  The Committee determined, based on the relative price per ordinary share being offered by each of B. Riley and Bidder A, as well as the terms of the draft merger agreement from each of B. Riley and Bidder A, to recommend to the Board that the Board authorize the Company to enter into exclusivity with B. Riley through November 7, 2017 to finalize the merger agreement.  Immediately following the Committee meeting, the Board held a telephonic meeting with members of the Company’s senior management and representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon to extensively discuss the fact that Bidder A’s bid of $9.00 per ordinary share was subject to several closing conditions that would ultimately make consummating a transaction very difficult and, consequently, Bidder A’s bid of $8.50 per ordinary share was a better comparison to use when evaluating Bidder A’s bid, and B. Riley proposed bid of $8.71 per ordinary share.  The Board authorized, based on the relative price per ordinary share being offered by each of B. Riley and Bidder A, as well as the terms of the draft merger agreement from each of B. Riley and Bidder A, the Company to enter into an exclusivity agreement with B. Riley through November 7, 2017, in order to finalize the merger agreement.
 
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After the meeting, Bryan Cave circulated an exclusivity agreement to Sullivan & Cromwell and the parties executed the agreement, agreeing to exclusivity through 5:00 p.m., Eastern Time, on November 7, 2017.  Also on November 3, 2017, Sullivan & Cromwell circulated to Bryan Cave a revised draft merger agreement, reflecting changes to the draft merger agreement distributed to Sullivan & Cromwell by Bryan Cave on August 12, 2017, and representatives from Bryan Cave and Yigal Arnon thereafter engaged in ongoing negotiations with Sullivan & Cromwell and GKH, respectively, through the evening of November 7, 2017, with respect to the draft merger agreement.
 
On November 7, 2017, the Audit Committee of the Board met in person at the offices of Bryan Cave for a regularly scheduled meeting, at which the Audit Committee discussed the interests of the Company’s directors and executive officers in the merger transaction, more fully described in “—Interests of Our Directors and Executive Officers in the Transaction” beginning on page 52, as well as the various factors more fully described in “—Recommendation of the Board; Reasons for the Transaction” beginning on page 38. After discussion and in light of the reasons considered, the Audit Committee unanimously determined to approve and recommend to the Board the execution, delivery, and performance by the Company of the proposed merger agreement with B. Riley and the consummation by the Company of the transactions contemplated thereby, including the Merger.
 
Later that day, the Board met in person for a regularly scheduled meeting.  Representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon attended a portion of the meeting.  A detailed summary regarding the terms of the proposed merger agreement with B. Riley was distributed to the Board in advance of the meeting.  Representatives from Bryan Cave reported to the Board that substantial progress had been made in negotiations with B. Riley and Sullivan & Cromwell and that all material issues had been resolved but that transaction documents were not yet final.  Representatives from Yigal Arnon then reviewed the Board’s fiduciary duties in connection with the potential sale of the Company.  Bryan Cave summarized, among other things, certain obligations, conditions and termination rights related to obtaining regulatory approvals under the proposed merger agreement.  Bryan Cave also discussed the termination fee applicable in situations in which the transaction was made the subject of competitive bids from third parties or in which the Board withdrew the Board recommendation supporting the transaction. The Board discussed the terms of the proposed merger agreement and engaged in a discussion regarding the risks and challenges to the Company in executing its strategic plan if it remained independent. The Board also discussed the various factors more fully described below under “—Recommendation of the Board; Reasons for the Transaction” beginning on page 38. Representatives of BofA Merrill Lynch then reviewed and discussed with the Board certain financial analysis with respect to the consideration of $8.71 per ordinary share summarized under “—Opinion of BofA Merrill Lynch” beginning on page 42. The Board agreed to reconvene the following day to further discuss the transaction.
 
During the afternoon of November 8, 2017, the Board held a telephonic meeting with representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon present.  A detailed summary regarding the final terms of the proposed merger agreement was distributed to the Board in advance of the meeting.  Representatives from Bryan Cave noted that, while all material issues had been resolved and there had been no material changes to the proposed merger agreement since the previous Board meeting, transaction documents were not yet final.  The directors continued their discussion from the previously held Board meeting of the proposed merger agreement and engaged in a discussion regarding the risks and challenges to the Company in executing its strategic plan if it remained independent. The Board also further discussed the various factors more fully described in “—Recommendation of the Board; Reasons for the Transaction” beginning on page 38. Representatives of BofA Merrill Lynch then reiterated the financial analysis provided to the Board at the prior meeting with respect to the consideration of $8.71 per share and rendered an oral opinion to the Board, which was confirmed by delivery of a written opinion, dated November 8, 2017, to the effect that, as of that date, and based upon and subject to various assumptions and limitations described in its opinion, the consideration of $8.71 in cash to be received by holders of each ordinary share was fair, from a financial point of view, to such holders, which is summarized in “—Opinion of BofA Merrill Lynch” beginning on page 42.  After discussion with the Company’s financial and legal advisors, the Board unanimously (i) determined that the Merger is fair to, and in the best interest of, the Company and shareholders, and that, considering the financial position of the merging companies, no reasonable concern exists that the surviving corporation will be unable to fulfill the obligations of the Company to its creditors as such become due and payable following the consummation of the Merger, and that it is in the best interests of the Company and shareholders for the Company to enter into the proposed merger agreement (subject to the resolution of certain minor contractual provisions), (ii) approved, declared advisable, adopted, and authorized the execution, delivery, and performance by the Company of the proposed merger agreement and the consummation by the Company of the Transaction contemplated thereby, including the Merger, and (iii) upon the terms and subject to the conditions set forth in the proposed merger agreement, resolved to recommend that the Company’s shareholders vote in favor of the Merger Proposal.
 
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Throughout the day and during the evening of November 8, 2017, Bryan Cave and Yigal Arnon, and Sullivan & Cromwell and GKH, respectively, continued to discuss the proposed merger agreement and resolved the final unresolved provisions of the proposed merger agreement to the satisfaction of their respective clients.
 
On November 9, 2017, the Company and B. Riley executed the Merger Agreement.  At approximately 8:05 a.m., Eastern Time, on November 9, 2017, the parties issued a joint press release announcing the Transaction.
 
On January 9, 2018, the Board held a telephonic meeting with Thomas Fuller and representatives of BofA Merrill Lynch, Bryan Cave and Yigal Arnon present. The Board received a briefing on developments related to the Transaction, including the implications of the recently enacted Tax Cuts and Jobs Act (the “TCJA”). At the request of the Board, a representative of BofA Merrill Lynch confirmed that had the TCJA been enacted prior to November 8, 2017, it would not have changed the conclusion set forth in BofA Merrill Lynch’s opinion, dated November 8, 2017, as further discussed in “Opinion of BofA Merrill Lynch – Subsequent BofA Merrill Lynch Confirmation” beginning on page 49. After discussion, the Board concluded that the lower corporate tax rate implemented by the TCJA had no effect on the advisability of the Merger. The Board thereupon set the record date for and the date of the Meeting.
 
Recommendation of the Board; Reasons for the Transaction
 
At an extraordinary general meeting of the Board held on November 8, 2017, the Board, after receiving and reviewing all the relevant information that the Board considered necessary or appropriate in connection with its consideration of the Transaction and the Merger Agreement, and after careful review of the facts and circumstances relating to the Transaction, including the efforts of the Committee in developing the material terms of the Transaction with the assistance of the Company’s advisors, and, as appropriate, senior management of the Company and receiving the opinion of BofA Merrill Lynch that the Per Share Merger Consideration to be paid to the holders of the Company’s ordinary shares was fair, from a financial point of view and as of the date of the opinion, to such holders, determined that the Merger Agreement was in the best interests of the shareholders of the Company, and that, considering the financial position of the merging companies, no reasonable concern existed that the Surviving Corporation will be unable to fulfill the obligations of the Company to its creditors as such become due and payable following the consummation of the Transaction, approved and declared the advisability of the Merger Agreement and the Merger, authorized the Company to enter into the Merger Agreement and resolved to recommend to the Company’s shareholders that they vote to adopt the Merger Agreement and the terms of the Merger.
 
In reaching its determination, the Board considered:
 
Premium to Market Price. The Board considered the relationship of the Per Share Merger Consideration to the current and historical market prices of the Company’s shares and to the Company’s intrinsic value. The Per Share Merger Consideration to be paid in cash for each share of the Company would provide shareholders of the Company with the opportunity to receive a premium over the current and historical market price of the Company’s shares. The Board reviewed historical market prices, volatility and trading information with respect to the shares, including the fact that the Per Share Merger Consideration of $8.71 represents:
 
·
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.
 
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Certainty of Value. The Board considered that the consideration to be received by the Company’s shareholders in the Transaction will consist entirely of cash, which provides liquidity and certainty of value to shareholders. The Board believed this certainty of value was compelling compared to the long-term value creation potential of the Company’s business taking into account the risks of remaining independent and pursing the Company’s current business and financial plans.  The Board also considered the degree of risk and uncertainty associated with various proposed or potential transaction structures, specifically considering factors such as regulatory approvals and financing commitments.  The Board discussed uncertainty around reaching an acceptable deal with the two alternative bidders who participated in the auction process, one of whom offered a higher per share purchase price compared to that of Parent, particularly as it related to each of those alternative bidders’ ability to finance the transaction and the proposed terms of a merger agreement being less favorable than those of the Merger Agreement, especially as they related to certainty of closing.  The Board believed that it was unlikely to reach a definitive merger agreement with either of the two alternative bidders and therefore the consideration offered by such alternative bidders did not represent the highest value reasonably obtainable for the Company’s shares.
 
The Prospects of the Company. The Board considered the Company’s prospects and risks if the Company were to remain an independent company. The Board discussed the Company’s current business and financial plans, including the risks and uncertainties associated with achieving and executing upon the Company’s business and financial plans in the short- and long-term, as well as the general risks of market conditions that could reduce the price of the Company’s shares.  Among the potential risks identified by the Board were:
 
·
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.
 
Potential Strategic Alternatives. The Committee and the Board extensively considered possible alternatives to the acquisition by Parent (including the sale of only the Broadsmart division of the Company and the possibility of continuing to operate the Company as an independent entity, and the desirability and perceived risks of those alternatives), potential benefits to the Company’s shareholders of such alternatives and the timing and likelihood of effecting such alternatives, as well as the Board’s assessment that, among other things, given the comprehensive nature of the auction process run by the Committee leading up to the execution of the Merger Agreement, none of these alternatives was reasonably likely to create greater value for the Company’s shareholders, taking into account risks of execution as well as business, competitive, industry and market risks. The Board also considered the risk that Parent could withdraw its proposal if the Company delayed in proceeding with Parent’s bid.
 
Value. The Board believed that the Per Share Merger Consideration of $8.71 represented full and fair value for the Company’s shares, taking into account the Company’s intrinsic value, the auction process that the Company followed prior to signing the Merger Agreement and the Board’s familiarity with the business strategy, assets and prospects, and the relative certainty of the consideration in cash as compared to forecasted financial results.
 
Negotiations with Parent and Terms of the Merger Agreement. The Board believed that the Per Share Merger Consideration represented the highest value reasonably obtainable for the Company’s shares, based on the progress and outcome of its negotiations with Parent and the auction process preceding the signing of the Merger Agreement, especially given the absence of a financing condition and the high certainty of closing, as compared to the alternatives which were negotiated and discussed in the auction process.  In particular, the Board believed, based on these negotiations and discussions, and after obtaining all the information which it deemed to be necessary for the purpose thereof, that it was unlikely to reach a definitive merger agreement with either of the two alternative bidders that participated in the auction process and therefore the consideration offered by such alternative bidders (one of which was higher than the purchase price offered by Parent) did not represent the highest value reasonably obtainable for the Company’s shares.  The considerations that the Board took into account in reaching such determination included the inability of either of the alternative bidders that participated in the process to provide acceptable proof of financing, including, in the case of one or both bidders, as applicable, the conditionality of the financing in the documents provided, the lack of customary financing documents, inability to provide proof of funds and/or inclusion of financing as a condition to closing in the proposed merger agreements.  In addition, the terms of the proposed merger agreements from both alternative bidders were less favorable than those of the Merger Agreement, particularly as they related to certainty of closing.  The Board further believed, based on these negotiations and discussions, that the Per Share Merger Consideration was the highest price per share for the Company’s shares that Parent was willing to pay and that the Merger Agreement contained the most favorable terms to the Company to which Parent was willing to agree.  Terms of the Merger Agreement supporting the Board’s belief that the Merger Agreement was advisable and in the best interest of the Company’s shareholders include:
 
·
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).
 
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·
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.
 
Shareholder Approval. The Merger is subject to the approval of Company shareholders, and the shareholders are free to reject the Merger.
 
Solvency Determination. The Board considered the financial position of the merging companies, based, among other things, on (i) the representations provided by Parent and Merger Sub in the Merger Agreement, (ii) the identity of the shareholder of the Surviving Corporation after the consummation of the Merger, (iii) the events and resolutions of the Board following the date of the most recent audited consolidated financial statements of the Company or the most recent reviewed consolidated financial statements of the Company, which may have, in the opinion of the Board, a material effect on the information included in such financial statements, and (iv) any liens on Company assets and any liens on the assets of the Surviving Corporation which could materialize as a result of the consummation of the Merger, and determined that no reasonable concern existed that the Surviving Corporation will be unable to fulfill the obligations of the Company to its creditors as such become due and payable following the consummation of the Merger.
 
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Each of these factors favored the Board’s conclusion that the Transaction was in the best interests of the Company’s shareholders.
 
The Board also considered a variety of risks or potentially adverse factors in making its determination and recommendation.  These factors included:
 
No Shareholder Participation in Future Growth or Earnings.  The fact that, following the Transaction, the Company will cease to be a public company and its current shareholders will no longer participate in any of its potential future growth or benefit from any future increase in the Company’s value.
 
Risk Associated with Failure to Complete and Consummate the Merger.  The possibility that the Transaction might not be consummated, and the fact that if the Transaction is not consummated, (i) the Company’s directors, senior management and other employees will have expended extensive time and effort and will have experienced significant distractions from their work during the pendency of the Transaction, (ii) the Company will have incurred significant transaction costs, (iii) the Company’s continuing business relationships with consultants, licensors, business partners and employees may be adversely affected, (iv) the trading price of the Company shares could be adversely affected and (v) the market’s perceptions of the Company’s prospects could be adversely affected.
 
Interim Restrictions on Business Pending the Completion of the Merger.  Restrictions on the conduct of the Company’s business prior to the effective time of the Merger due to pre-closing covenants in the Merger Agreement whereby the Company agreed that it will carry on its business in the ordinary course of business consistent with past practice and, subject to specified exceptions, will not take a number of actions related to the conduct of its business without the prior written consent of Parent, which may have a material adverse effect on the Company’s ability to respond to changing market and business conditions in a timely manner or at all.
 
Effects of Transaction Announcement. The effect of the public announcement of the Merger Agreement, including effects on the Company’s share price, and the Company’s ability to attract and retain key management and personnel, during the pendency of the Transaction, as well as the likelihood of litigation in connection with the Merger.
 
Timing Risks. The amount of time it could take to complete the Merger, including the risk that Parent and the Company might not receive the necessary regulatory approvals or clearances to complete the Merger or that governmental authorities could attempt to condition their approvals or clearances of the Merger on one or more of the parties’ compliance with certain terms or conditions which may cause one or more of the Merger conditions not to be satisfied, or that creditors (if any) may file objections in Israeli court to prevent or delay the Merger. The fact that Parent has the ability to assign the Merger Agreement could delay the timing of closing though not beyond the outside date as set forth in the Merger Agreement.
 
Other Interested Parties.  The fact that other parties expressed interest in acquiring the Company, but with greater uncertainty around reaching an acceptable deal particularly as it relates to each of those parties’ ability to finance the transaction.
 
No Solicitation.  The terms of the Merger Agreement that place certain limitations on the Company’s ability to further shop the Company.
 
Company Termination Fee.  The fact that the Company may be required to pay Parent a termination fee in the event that the Company were to terminate the Merger Agreement to accept another proposal.
 
Taxable Considerations. The fact that, for U.S. federal income tax and Israeli income tax and capital gains tax purposes, the Per Share Merger Consideration will generally be taxable to the shareholders of the Company being paid the consideration.
 
41

 
This discussion of the information and factors considered by the Board in reaching its conclusions and recommendation includes all of the material factors considered by the Board but is not intended to be exhaustive.  In view of the wide variety of factors considered by the Board in evaluating the Transaction and the complexity of these matters, the Board did not find it practicable to, and did not attempt to, quantify, rank or otherwise assign relative weight to those factors.  In addition, different members of the Board may have given different weight to different factors.
 
Opinion of BofA Merrill Lynch
 
The Company retained BofA Merrill Lynch to act as the Company’s financial advisor in connection with the Merger. BofA Merrill Lynch is an internationally recognized investment banking firm which is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes.  The Company selected BofA Merrill Lynch to act as the Company’s financial advisor in connection with the Merger on the basis of BofA Merrill Lynch’s experience in transactions similar to the Merger, its reputation in the investment community and its familiarity with the Company and its business.
 
On November 8, 2017, at a meeting of the Board held to evaluate the Merger, BofA Merrill Lynch delivered to the Board an oral opinion, confirmed by delivery of a written opinion dated November 8, 2017, to the effect that, as of that date and based on and subject to various assumptions and limitations described in the opinion, the Per Share Merger Consideration to be received in the Merger by holders of Company ordinary shares was fair, from a financial point of view, to such holders.
 
The full text of BofA Merrill Lynch’s written opinion, dated November 8, 2017, to the Board, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex B to this proxy statement and is incorporated by reference herein in its entirety.  The following summary of BofA Merrill Lynch’s opinion is qualified in its entirety by reference to the full text of the opinion. BofA Merrill Lynch delivered its opinion to the Board for the benefit and use of the Board (in its capacity as such) in connection with and for purposes of its evaluation of the Per Share Merger Consideration, from a financial point of view.  BofA Merrill Lynch’s opinion did not address any other aspect of the Merger, and no opinion or view was expressed as to the relative merits of the Merger in comparison to other strategies or transactions that might be available to the Company or in which the Company might engage or as to the underlying business decision of the Company to proceed with or effect the Merger.  BofA Merrill Lynch’s opinion does not address any other aspect of the Merger and does not constitute a recommendation to any shareholder as to how to vote or act in connection with the proposed Merger or any related matter.
 
In connection with rendering its opinion, BofA Merrill Lynch, among other things:
 
·
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;
 
42

 
·
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.
 
In arriving at its opinion, BofA Merrill Lynch assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with BofA Merrill Lynch and relied upon the assurances of the Company’s management that they were not aware of any facts or circumstances that would make such information or data inaccurate or misleading in any material respect.  With respect to the magicJack forecasts, BofA Merrill Lynch was advised by the Company, and assumed, that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the Company’s management as to the future financial performance of the Company.  BofA Merrill Lynch also relied, at the direction of the Company, on the assessment of the Company’s management of the probability of success of the magicJack Spark initiative reflected in the magicJack forecasts.  BofA Merrill Lynch did not make and was not provided with any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company, nor did BofA Merrill Lynch make any physical inspection of the properties or assets of the Company.  BofA Merrill Lynch did not evaluate the solvency or fair value of the Company or B. Riley under any state, federal or other laws relating to bankruptcy, insolvency or similar matters.  BofA Merrill Lynch assumed, at the direction of the Company, that the Merger would be consummated in accordance with its terms, without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the Merger, no delay, limitation, restriction or condition, including any divestiture requirements or amendments or modifications, would be imposed that would have an adverse effect on the Company or the contemplated benefits of the Merger.  BofA Merrill Lynch also assumed, at the direction of the Company, that the final executed merger agreement would not differ in any material respect from the draft merger agreement reviewed by BofA Merrill Lynch.
 
BofA Merrill Lynch expressed no view or opinion as to any terms or other aspects of the Merger (other than the Per Share Merger Consideration to the extent expressly specified in its opinion), including, without limitation, the form or structure of the Merger. BofA Merrill Lynch’s opinion was limited to the fairness, from a financial point of view, of the Per Share Merger Consideration to be received by holders of Company ordinary shares and no opinion or view was expressed with respect to any consideration received in connection with the Merger by the holders of any class of securities, creditors or other constituencies of any party. In addition, no opinion or view was expressed with respect to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation to any of the officers, directors or employees of any party to the Merger, or class of such persons, relative to the Per Share Merger Consideration.  Furthermore, BofA Merrill Lynch expressed no opinion or view as to the relative merits of the Merger in comparison to other strategies or transactions that might be available to the Company or in which the Company might engage or as to the underlying business decision of the Company to proceed with or effect the Merger.  In addition, BofA Merrill Lynch expressed no opinion or recommendation as to how any shareholder should vote or act in connection with the Merger or any related matter.
 
BofA Merrill Lynch’s opinion was necessarily based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to BofA Merrill Lynch as of, the date of its opinion. It should be understood that subsequent developments may affect BofA Merrill Lynch’s opinion, and BofA Merrill Lynch does not have any obligation to update, revise or reaffirm its opinion. The issuance of BofA Merrill Lynch’s opinion was approved by a fairness opinion review committee of BofA Merrill Lynch.
 
The discussion set forth below in “—magicJack Financial Analyses” represents a brief summary of the material financial analyses presented by BofA Merrill Lynch to the Board in connection with BofA Merrill Lynch’s opinion, dated November 8, 2017. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by BofA Merrill Lynch, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by BofA Merrill Lynch. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by BofA Merrill Lynch.
 
43

 
magicJack Financial Analyses
 
Selected Publicly Traded Companies Analysis.  BofA Merrill Lynch reviewed publicly available financial and stock market information for the Company and the six selected publicly traded companies listed below.  For each of the Company and the selected publicly traded companies, BofA Merrill Lynch calculated and reviewed, among other things:
 
·
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.
 
The estimated revenue data used for the selected publicly traded companies were based on publicly available research analysts’ estimates and the estimated revenue data for the Company was from the magicJack forecasts.
 
The results of BofA Merrill Lynch’s calculations were as follows:
 
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)%

Based on its professional judgment and experience and after taking into consideration, among other things, the observed data for the selected publicly traded companies and for the Company, BofA Merrill Lynch applied 2018 revenue multiples of 0.75x to 1.25x to the Company’s calendar year 2018 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
$6.34 to $8.98
 
$8.71

The selected publicly traded companies were selected because they are unified communications companies with end-markets and customers similar to those of the Company.  However, none of the selected publicly traded companies used in this analysis is identical or directly comparable to the Company. 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 public trading or other values of the companies to which the Company was compared.
 
44

 
 
Selected Precedent Transactions Analysis.  BofA Merrill Lynch reviewed, to the extent publicly available, financial information relating to 19 selected transactions that involved target companies that, in the professional judgment of BofA Merrill Lynch, were “slow growth” technology companies.  For each of these transactions, BofA Merrill Lynch reviewed and calculated:
 
·
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.
 
The results of BofA Merrill Lynch’s calculations with respect to transactions involving “slow growth” target companies were as follows:
 
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%
 
45

 

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
 
46

 

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.
 
Discounted Cash Flow Analysis.  BofA Merrill Lynch performed a discounted cash flow analysis of the Company, excluding any expected benefits from the magicJack Spark initiative, to calculate the estimated present value of the unlevered, after-tax free cash flows that the Company 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 Company as of the end of 2022 by applying perpetuity growth rates ranging from (3.0%) to 0.0% to the Company’s normalized estimated unlevered, after-tax free cash flows based on the Company’s 2022 estimated stand-alone unlevered, after-tax free cash flows 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.  This analysis indicated the following approximate implied per share equity value reference range for the Company, excluding any expected benefits from the magicJack Spark initiative:
 
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
 
Other Factor
 
BofA Merrill Lynch also reviewed the historical trading prices of the Company ordinary shares during the 52‑week period ended November 3, 2017, noting that the low and high closing prices per share during such period were $5.65 and $8.90.  This additional factor was not considered part of BofA Merrill Lynch’s material financial analyses with respect to its opinion, but was referenced for informational purposes.
 
47

 
Miscellaneous
 
As noted above, the discussion set forth above is a summary of the financial analyses presented by BofA Merrill Lynch to the Board in connection with its opinion and is not a comprehensive description of all analyses undertaken or factors considered by BofA Merrill Lynch in connection with 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 partial analysis or summary description. BofA Merrill Lynch believes that the analyses summarized above must be considered as a whole. BofA Merrill Lynch further believes that selecting portions of its analyses and the factors considered or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying BofA Merrill Lynch’s analyses and opinion. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis referred to in the summary.
 
In performing its analyses, BofA Merrill Lynch considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company. The estimates of the future performance of the Company in or underlying BofA Merrill Lynch’s analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by BofA Merrill Lynch’s analyses. These analyses were prepared solely as part of BofA Merrill Lynch’s analysis of the fairness, from a financial point of view of the Per Share Merger Consideration to be received by holders of Company ordinary shares in the Merger and were provided to the Board in connection with the delivery of BofA Merrill Lynch’s opinion. The analyses do not purport to be appraisals or to reflect the prices at which the Company might actually be sold or acquired or the prices at which any securities of the Company have traded or may trade at any time in the future. Accordingly, the estimates used in, and the ranges of valuations resulting from, any particular analysis described above are inherently subject to substantial uncertainty and should not be taken to be BofA Merrill Lynch’s view of the actual values of the Company.
 
The type and amount of consideration payable in the Merger was determined through negotiations between the Company and B. Riley, rather than by any financial advisor, and was approved by the Board.  The decision to enter into the Merger Agreement was solely that of the Board.  As described above, BofA Merrill Lynch’s opinion and analyses were only one of many factors considered by the Board in its evaluation of the Merger and should not be viewed as determinative of the views of the Board, the Company’s management or any other party with respect to the Merger or the Per Share Merger Consideration.
 
In connection with BofA Merrill Lynch’s services as the Company’s financial advisor, the Company has agreed to pay BofA Merrill Lynch an aggregate fee of up to $3.5 million, of which $1 million was payable upon delivery of its opinion.  In addition, the Company has agreed to reimburse BofA Merrill Lynch for its expenses, including fees and expenses of BofA Merrill Lynch’s legal counsel, incurred in connection with BofA Merrill Lynch’s engagement and to indemnify BofA Merrill Lynch and related persons against liabilities, including liabilities under the federal securities laws, arising out of BofA Merrill Lynch’s engagement.
 
BofA Merrill Lynch and its affiliates comprise a full service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and financial advisory services and other commercial services and products to a wide range of companies, governments and individuals. In the ordinary course of their businesses, BofA Merrill Lynch and its affiliates may invest on a principal basis or on behalf of customers or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions in the equity, debt or other securities or financial instruments (including derivatives, bank loans or other obligations) of the Company, B. Riley and certain of their respective affiliates.
 
BofA Merrill Lynch and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to B. Riley, including entities that have been acquired by B. Riley, and have received or in the future may receive compensation for the rendering of these services, including having provided or providing certain treasury management services and equity and derivatives trading services to B. Riley.  From November 1, 2015 through October 31, 2017, BofA Merrill Lynch and its affiliates derived aggregate revenues from B. Riley and its affiliates, other than entities acquired by B. Riley during such period, of less than $1 million for investment and corporate banking services, and derived aggregate revenues from B. Riley and its affiliates, including entities acquired by B. Riley during such period, of approximately $3 million for investment and corporate banking services.
 
48
Subsequent BofA Merrill Lynch Confirmation
 
On December 22, 2017, subsequent to BofA Merrill Lynch having rendered to the Board BofA Merrill Lynch’s opinion, dated November 8, 2017, summarized above, President Trump signed into law the Tax Cuts & Jobs Act (“TCJA”).

At the request of the Board, a representative of BofA Merrill Lynch confirmed to the Board at a meeting of the Board held on January 9, 2018 that had the TCJA been enacted prior to November 8, 2017, it would not have changed the conclusion set forth in BofA Merrill Lynch’s opinion, dated November 8, 2017.
 
For purposes of providing this confirmation to the Board, at the direction of the Board, BofA Merrill Lynch relied solely upon the magicJack forecasts and applying, at the direction of the Company management, a 21% federal corporate tax rate, referred to as the “magicJack TCJA-effected forecasts”.  BofA Merrill Lynch was advised by the Company, and assumed, that the magicJack TCJA-effected forecasts were reasonably prepared on bases reflecting the best available estimates and good faith judgments of the Company’s management as to the future financial performance of the Company, as of November 8, 2017, the date of BofA Merrill Lynch’s opinion, had the TCJA then been in effect.
 
At a meeting of the Board held on January 9, 2018, BofA Merrill Lynch presented to the Board an update to the discounted cash flow analysis that it had previously performed and presented to the Board (summarized above under “Discounted Cash Flow Analysis”).  For purposes of its updated discounted cash flow analysis, BofA Merrill Lynch used the magicJack TCJA-effected forecasts and applied discount rates ranging from 19.0% to 23.0%, based on an estimate of the Company’s weighted average cost of capital derived using the 21% federal corporate tax rate reflected in the magicJack TCJA-effected forecasts (instead of the 18.0% to 22.0% discount rate range used by BofA Merrill Lynch in its previous discounted cash flow analysis, which had reflected an estimate of the Company’s weighted average cost of capital derived using a pre-TCJA 35% federal corporate tax rate at the direction of Company management). For purposes of its updated discounted cash flow analysis, BofA Merrill Lynch applied the same range of perpetuity growth rates ((3.0%) to 0.0%), and, at the direction of Company management, the same probability of success weighting to the magicJack Spark initiative (10%), as were applied by BofA Merrill Lynch in performing its previous discounted cash flow analysis.

BofA Merrill Lynch’s updated discounted cash flow analysis indicated (i) an approximate implied per share equity value reference range for the Company, excluding any expected benefits from the magicJack Spark initiative, of $7.16 to $8.17, (ii) an approximate implied per share equity value reference range for the magicJack Spark Initiative of $0.51 to $0.78, and (iii) an approximate implied per share equity value reference range for the Company, including the expected benefits from the magicJack Spark initiative, of $7.67 to $8.95, compared to the Per Share Merger Consideration of $8.71.

BofA Merrill Lynch was not asked to, and did not, update its selected publicly traded companies and the selected precedent transaction analyses (summarized above under “Selected Publicly Traded Companies Analysis” and “Selected Precedent Transactions Analysis”) for the Board meeting on January 9, 2018 because these analyses were not affected by the change to the Company’s federal corporate tax rate incorporated in the magicJack TCJA-effected forecasts.  BofA Merrill Lynch’s confirmation to the Board did not address any conditions or circumstances occurring after the date of the BofA Merrill Lynch’s opinion other than the enactment of the TCJA.  By providing its confirmation, BofA Merrill Lynch did not assume any obligation to further update, revise, or reaffirm its opinion in respect of the TCJA or otherwise.
 
49
Certain magicJack Unaudited Prospective Financial Information
 
In connection with the Merger, Company management prepared certain forecasts for internal use and provided them to the Board for the purposes of considering, analyzing and evaluating the Company’s strategic and financial alternatives, including the Merger. The magicJack forecasts were also provided to BofA Merrill Lynch in connection with performing its financial analysis related to rendering its opinion to the Board and were provided by the Company to B. Riley to evaluate a potential acquisition of the Company.
 
Except for limited quarterly guidance, the Company does not as a matter of course make public projections as to future revenue, earnings or other results due, among other reasons, to the inherent difficulty in accurately predicting financial performance for future periods and the uncertainty of underlying assumptions and estimates. However, Company management provides below certain limited unaudited prospective financial information in order to provide the Company’s shareholders with access to otherwise nonpublic information that was made available to the Board, BofA Merrill Lynch and B. Riley for purposes of considering and evaluating the Merger. Such prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of the Company's management, was prepared on a reasonable basis, reflecting the best available estimates and judgments, and presented, to the best of Company management's knowledge and belief, the expected course of action and the expected future financial performance of the Company at the time of their preparation. However, this information is not fact and should not be relied upon as being necessarily indicative of future results. Readers of this proxy statement are cautioned not to place undue reliance on the prospective financial information.
 
Neither the Company’s independent auditors, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.
 
The assumptions and estimates underlying the prospective financial information are inherently uncertain and, though considered reasonable by Company management as of the date of the preparation of the information, are subject to a wide variety of significant business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the prospective financial information, including, among others, risks and uncertainties described in the section entitled “Cautionary Note Regarding Forward-Looking Statements,” on page 17 of this proxy statement. The risks and uncertainties could cause the magicJack forecasts and/or the underlying assumptions to be inaccurate. Accordingly, there can be no assurance that the projections are indicative of the future performance of the Company or that actual results will not differ materially from those presented in the prospective financial information.  The Company can give no assurance that, had the unaudited prospective financial information been prepared either as of the date of the Merger Agreement or as of the date of this proxy statement, similar estimates and assumptions would be used.
 
The Company does not generally publish its business plans and strategies or, except for limited quarterly guidance, make external disclosures of its anticipated financial position or results of operations. Accordingly, the Company does not intend to update or otherwise revise the prospective financial information to reflect circumstances existing since its preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error. Furthermore, the Company does not intend to update or revise the prospective financial information to reflect changes in general economic or industry conditions.
 
Additional information relating to the principal assumptions used in preparing the projections is set forth below. See “Cautionary Note Regarding Forward-Looking Statements” beginning on page 17 of this proxy statement for a description of various risk factors that could materially affect the Company’s financial condition, results of operations, business, prospects, and securities.
 
The inclusion of the magicJack forecasts should not be regarded as an indication that the Board, the Company, BofA Merrill Lynch, B. Riley or any other recipient of this information considered, or now considers, such information to be an assurance of the achievement of future results or an accurate prediction of future results, and they should not be relied upon as such.
 
50

 
The magicJack forecasts and the underlying assumptions upon which the magicJack forecasts were based are subjective in many respects and subject to multiple interpretations and revisions based on actual experience and business developments. The magicJack forecasts reflect numerous assumptions with respect to the Company performance, industry performance, general business, economic, regulatory, market, and financial conditions and other matters, many of which are difficult to predict, subject to significant economic and competitive uncertainties, and beyond the Company’s control. As a result, there can be no assurance that the magicJack forecasts will be realized or that actual results will not be significantly higher or lower than projected. Because the magicJack forecasts cover multiple years, such information by its nature becomes less reliable with each successive year. The magicJack forecasts do not take into account any circumstances or events occurring after the date on which they were prepared. Economic and business environments can and do change quickly, which adds an additional significant level of uncertainty as to whether the results portrayed in the magicJack forecasts will be achieved. As a result, the inclusion of the magicJack forecasts in this proxy statement does not constitute an admission or representation by the Company or any other person that the information is material. The summary of the magicJack forecasts is not provided to influence the Company’s shareholders’ decisions regarding whether to vote for the Merger Proposal.
 
The magicJack forecasts were not prepared with a view toward compliance with United States generally accepted accounting principles (“GAAP”) or published guidelines of the SEC regarding projections or forward-looking statements; provided, however, that the revenue and income from operations forecast was prepared in a manner consistent with GAAP.
 
In light of the foregoing factors and the uncertainties inherent in the magicJack forecasts, the Company’s shareholders are cautioned not to place undue, if any, reliance on the information presented in the summary of the magicJack forecasts that follows.
 
magicJack forecasts
 
   
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
 
__________________
 
(1)
Adjusted EBITDA is a non-GAAP financial measure.  The Company defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization adjusted to exclude the impact of certain non-cash and non-recurring items such as stock based compensation expense, severance and restructuring costs, and certain other items.  See Non-GAAP Reconciliation of Adjusted EBITDA table below.
 
(2)
The projections for the Spark initiative used by BofA Merrill Lynch in completing its analysis were discounted to 10% of the projections provided by the Company as presented above.
 
(3)
The projections did not include any Transaction specific costs or corresponding cash payments including banker fees, legal or professional fees, transaction specific bonuses or other Transaction specific costs.
 
51

 
magicJack – Non-GAAP Reconciliation of Adjusted EBITDA
 
   
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
 

As part of its discounted cash flow analysis, BofA Merrill Lynch calculated estimated after-tax unlevered free cash flow based upon financial information provided by Company management for the fiscal years ending December 31, 2018, 2019, 2020, 2021 and 2022. BofA Merrill Lynch calculated after-tax unlevered free cash flow as (a) Adjusted EBITDA, less, (b) taxes, less (c) capital expenditures, less (d) change in working capital. Working capital was calculated by BofA Merrill Lynch as current assets plus certain other assets minus current liabilities minus certain other liabilities (including deferred revenue), excluding cash and cash equivalents, income taxes payable, the current portion of long-term debt, and discontinued operations. Estimated after-tax unlevered free cash flow based upon information contained in Company management’s forecasts and assumptions approved for use by the Company, which amounts were approved for BofA Merrill Lynch’s use by the Company, excluding the Spark business, for the years ended December 31, 2018, 2019, 2020, 2021 and 2022 were calculated by BofA Merrill Lynch as $18.8 million, $16.8 million, $14.9 million, $13.5 million and $12.2 million, respectively.
 
The magicJack forecasts do not take into account the possible financial impact and other effects of the Merger on the Company and do not attempt to predict or suggest future results following the consummation of the Merger. The magicJack forecasts do not give effect to the Merger, including the impact of negotiating or executing the Merger Agreement, the expenses that may be incurred in connection with consummating the Merger, the potential synergies that may be achieved following the consummation of the Merger, the effect on the Company of any business or strategic decision or action that has been or will be taken as a result of the Merger Agreement having been executed, or the effect of any business or strategic decisions or actions that would likely have been taken if the Merger Agreement had not been executed, but that were instead altered, accelerated, postponed or not taken in anticipation of the Merger. Further, the magicJack forecasts do not take into account the effect on the Company of any possible failure of the Merger to occur.
 
For the foregoing reasons, and considering that Meeting will be held months after the magicJack forecasts were prepared, as well as the uncertainties inherent in any forecasting information, readers of this proxy statement are cautioned not to place undue reliance on the magicJack forecasts. No one has made or makes any representation to any shareholder regarding the information included in the magicJack forecasts. The Company urges all Company shareholders to review the Company’s most recent SEC filings for a description of its reported financial results.  See the section entitled “Where You Can Find More Information.”
 
Financing of the Transaction
 
The Transaction is not subject to a financing condition.
 
Interests of Our Directors and Executive Officers in the Transaction
 
In considering the recommendation of the Board that the Company’s shareholders vote to approve the Merger Proposal, shareholders should be aware that our directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of our shareholders generally. These interests include the potential employment of our executive officers following the Merger with B. Riley or with one of its affiliates; the treatment pursuant to the Merger Agreement of outstanding Company stock options and restricted share awards held by them; potential cash transaction bonuses; and their rights under the Merger Agreement to ongoing indemnification and insurance coverage. The members of the Board were aware of such different or additional interests and considered those interests, among other matters, in negotiating, evaluating, and approving the Merger and the Merger Agreement, and in recommending to the Company’s shareholders that the Merger Proposal be approved.
 
52

 
Bonuses
 
Upon, and subject to, consummation of the Merger, certain of our current executive officers will be entitled to cash bonuses.  These bonuses were approved by the Board and the compensation committee of the Board (the “Compensation Committee”), as required by the Companies Law, prior to our entry into the Merger Agreement.  In each case, payment of these bonuses to our current executive officers is conditioned upon the applicable executive officer’s continued employment through the consummation of the Merger.
 
The bonuses for our named executive officers are set forth in the section below entitled “Golden Parachute Compensation Payable to Named Executive Officers.”  These payments include a payment to a former named executive officer.
 
Severance
 
Pursuant to their respective employment agreements, each of Dvir Salomon and Kristin Beischel is entitled to receive a severance payment upon his or her termination without “cause” or resignation for “good reason”, in each case prior to or after a “change of control” of the Company.  The Merger would constitute a “change of control” as defined in each employment agreement.  “Cause” for termination is defined in each employment agreement to exist if (i) the executive commits fraud, theft or embezzlement against the Company; (ii) the executive commits a felony or a crime involving moral turpitude; (iii) the executive breaches any non-competition, confidentiality or non-solicitation agreement with the Company; (iv) the executive’s material breach of the Company’s insider trading policy or corporate communication policy; (v) the executive breaches any of the terms of the employment agreement and fails to cure within thirty days; or (vi) the executive engages in gross negligence or willful misconduct that causes harm to the business and operations of the Company.  “Good reason” is defined as (i) a material reduction in the authority, duties or responsibilities of the executive; (ii) any material reduction in the executive’s annual base salary; or (iii) any material breach of the employment agreement by the Company.
 
If Mr. Salomon or Ms. Beischel is terminated by the Company without cause or terminates employment for good reason before or after the consummation of the Merger, the Company must pay the applicable individual a lump sum equal to one times the sum of his or her base salary and target annual bonus for the year in which the termination occurs.
 
Our other current executive officers, Don Bell and Thomas Fuller, are not entitled to such severance payments under their employment agreements.
 
Treatment of Company Equity Awards
 
Company Stock Options.  With the exception of the options held by 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, at the effective time of the Merger, become fully vested, to the extent not previously vested, and will automatically be cancelled and converted into the right to receive a cash payment equal to the product of: (i) the excess of (x) $8.71 over (y) the per share exercise price of such option, and (ii) the number of ordinary shares underlying each such option, which amount will be paid less any applicable withholding taxes.  To the extent any outstanding Company stock option has an exercise price that is equal to or greater than $8.71, such options will be cancelled at the effective time of the Merger, and the holder thereof will not be entitled to consideration in connection with such cancellation.  All of the options held by Mr. Bell will be cancelled upon the consummation of the Merger.
 
Company Restricted Shares.  Company restricted shares outstanding immediately prior to the effective time of the Merger will vest 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.  The restricted shares held by each of Mr. Bell, Mr. Fuller and Ms. Beischel will be forfeited upon the effective time of the Merger for no consideration.  The restricted shares held by Mr. Salomon will be accelerated and converted into the right to receive the cash payment equal to $8.71 per share, less any applicable withholding taxes.
 
The table below sets forth the value of equity awards held by the directors and executive officers of the Company that will vest as a result of the Merger, based on each individual’s unvested equity awards as of January 31, 2018.
 
53

 
Quantification of Outstanding Equity Awards for Executive Officers and Directors
 
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
__________________
 
(1)
In addition to the payments reflected here for the Company’s current executive officers, a former named executive officer, Jose Gordo, will be entitled to a cash payment of $760,470 upon the acceleration and cancellation of 87,310 restricted shares.  See “—Golden Parachute Compensation Payable to Named Executive Officers,” below at page 58.
 
(2)
Value calculated based on $8.71 per ordinary share as provided in the Merger Agreement for accelerated restricted stock to be cancelled and converted into the right to receive cash.

Indemnification and Insurance
 
The Merger Agreement provides that prior to the closing of the Merger, the Company will obtain a prepaid tail policy with a claims period of at least 7 years for the directors and officers of the Company for matters existing or occurring at or prior to the effective time of the Merger, at a level of coverage at least as favorable as the current insurance policies for such persons, provided that the amount paid for such tail policy shall not exceed 300% of the Company’s current premium.
 
Golden Parachute Compensation
 
·
Don C. Bell III Executive Employment Agreement
 
Bonus on change of control.  The executive employment agreement with Mr. Bell (the “Bell Agreement”) provides for a special transaction bonus if the closing of a transaction resulting in a “change of control” (as defined in the Bell Agreement) occurs before the one-year anniversary of the execution date of the Bell Agreement and Mr. Bell is still employed by the Company on the closing date.  The Transaction will constitute a change of control for purposes of the Bell Agreement. As indicated in Proposal 2 (the CEO Compensation Proposal), below, the Company has entered into an amendment to the Bell Agreement, subject to shareholder approval as required under Israeli law, to extend the date by which a transaction may close such that Mr. Bell is still eligible for this special transaction bonus in connection with the Merger.  The bonus is based on the sales price or Company valuation in the change of control transaction.  If the price is equal to or less than $8.50 per share, Mr. Bell receives no bonus.  If the price is greater than $8.50 per share but less than $9.50 per share, Mr. Bell is entitled to receive a bonus of $2 million.  If the price is greater than $9.50 per share, Mr. Bell is entitled to a $2.5 million bonus.  Because the Per Share Merger Consideration is greater than $8.50 per share but less than $9.50 per share, upon the closing of the Transaction, giving effect to the Bell Amendment, Mr. Bell will be entitled to a cash transaction bonus of $2 million.  Also on November 9, 2017, the Company and Mr. Bell entered into an amendment to his restricted stock agreement (which is also subject to shareholder approval as required under Israeli law and is included as Proposal 2 in this proxy statement).  This amendment provides that the restricted stock awards will be forfeited immediately prior to and contingent upon the consummation of the Merger.  Finally, on November 9, 2017, the Company and Mr. Bell entered into an Equity Rights Contingency Cancellation Agreement pursuant to which all of Mr. Bell’s stock options will be cancelled effective upon the consummation of the Merger.
 
54

 
Termination.  Either the Company or Mr. Bell may terminate Mr. Bell’s employment under the Bell Agreement for any reason upon not less than 30 days prior written notice.
 
(i)          Upon termination of Mr. Bell’s employment prior to a change of control by Mr. Bell for good reason (as defined in the Bell Agreement) or by the Company without cause (as defined in the Bell Agreement), Mr. Bell will be entitled to a termination payment equal to two times Mr. Bell’s annual base salary at the time of such termination.
 
(ii)          Upon termination of Mr. Bell’s employment by the resignation of Mr. Bell without good reason or by the Company with cause or by reason of death or disability or for any other reason except as provided in the immediately preceding paragraph above or the immediately following paragraph below, Mr. Bell will be due no further compensation other than what is due and owing through the effective date of Mr. Bell’s resignation or termination (including any annual bonus that may be due and payable to Mr. Bell).
 
(iii)          If upon or within six months subsequent to a change of control, Mr. Bell’s employment is terminated by Mr. Bell for good reason or by the Company without cause, Mr. Bell will be entitled to and be paid a termination payment (the “Change of Control Payment”) equal to two times the sum of (a) Mr. Bell’s annual base salary at the time of such termination and (b) Mr. Bell’s target annual bonus for the fiscal year in which his employment is terminated (as if the applicable performance criteria have been met at the level that would result in payment of the target annual bonus at the 100% level irrespective of whether or not that is the case); provided, however, that any change of control closes after the six month anniversary of the execution date of the Bell Agreement and the change of control transaction meets a per share threshold price as provided in the Bell Agreement of greater than or equal to $9.51 per share.
 
Accordingly, if the Merger closes, Mr. Bell will not be entitled to any Change of Control Payment or other termination payment, acceleration of restricted shares or acceleration of options, but will be entitled to the cash bonus of $2 million.
 
·
Thomas E.D. Fuller Executive Employment Agreement
 
Bonus on change of control.  The executive employment agreement with Mr. Fuller (the “Fuller Agreement”) provides for a special transaction bonus if the closing of a transaction resulting in a “change of control” (as defined in the Fuller Agreement) occurs before the one-year anniversary of the execution date of the Fuller Agreement and Mr. Fuller is still employed by the Company on the closing date.  The Transaction will constitute a change of control for purposes of the Fuller Agreement.  The Company entered into an amendment to the Fuller Agreement on November 9, 2017 (the “Fuller Amendment”) to extend the date by which a transaction may close such that Mr. Fuller is still eligible for this special transaction bonus with respect to the Merger.  The bonus is based on the sales price or Company valuation in the change of control transaction.  If the price is equal to or less than $8.50 per share, Mr. Fuller receives no bonus.  If the price is greater than $8.50 per share but less than $9.50 per share, Mr. Fuller is entitled to receive a bonus of $500,000.  If the price is greater than $9.50 per share, Mr. Fuller is entitled to a bonus of $706,250.  Because the Per Share Merger Consideration is greater than $8.50 per share but less than $9.50 per share, upon the closing of the Merger, giving effect to the Fuller Amendment, Mr. Fuller will be entitled to a cash transaction bonus of $500,000.  Also on November 9, 2017, the Company and Mr. Fuller entered into an amendment to his restricted stock agreement.  This amendment provides that Mr. Fuller’s restricted shares will be forfeited immediately prior to and contingent upon the consummation of the Merger.
 
55

 
Termination.  Either the Company or Mr. Fuller may terminate Mr. Fuller’s employment under the Fuller Agreement for any reason upon not less than 30 days’ prior written notice.
 
(i)          Upon termination of Mr. Fuller’s employment prior to a change of control (as defined in the Fuller Agreement) by Mr. Fuller for good reason (as defined in the Fuller Agreement) or by the Company without cause (as defined in the Fuller Agreement), Mr. Fuller will be entitled to a termination payment equal to one times the sum of (a) Mr. Fuller’s annual base salary at the time of such termination and (b) Mr. Fuller’s target annual bonus for the fiscal year in which his employment is terminated.
 
(ii)          Upon termination of Mr. Fuller’s employment by the resignation of Mr. Fuller without good reason or by the Company with cause or by reason of death or disability or for any other reason except as provided in the immediately preceding paragraph above or the immediately following paragraph below, Mr. Fuller will be due no further compensation other than what is due and owing through the effective date of Mr. Fuller’s resignation or termination (including any annual bonus that may be due and payable to Mr. Fuller).
 
(iii)          If upon or within six months subsequent to a change of control, Mr. Fuller’s employment is terminated by him for good reason or by the Company without cause, Mr. Fuller will be entitled to and be paid a termination payment (the “Change of Control Payment”) equal to one and one-half times the sum of (a) Mr. Fuller’s annual base salary at the time of such termination and (b) Mr. Fuller’s target annual bonus for the fiscal year in which his employment is terminated (as if the applicable performance criteria have been met at the level that would result in payment of the target annual bonus at the 100% level irrespective of whether or not that is the case); provided, however, that any change of control closes after the six month anniversary of the execution date of the Fuller Agreement and the change of control transaction meets a per share threshold price as provided in the Fuller Agreement that is greater than or equal to $9.51 per share.
 
Accordingly, if the Merger closes, Mr. Fuller will not be entitled to any Change of Control Payment or other termination payment or acceleration of restricted shares, but will be entitled to the special cash transaction bonus of $500,000.
 
·
Kristin Beischel Executive Employment Agreement
 
Bonus on change of control.  The executive employment agreement with Ms. Beischel (the “Beischel Agreement”) provides for a special transaction bonus upon the occurrence of a qualifying change of control transaction of up to $395,833 if the per share sales price of the Company in the transaction is greater than $9.50 per share.  If the per share sales price is between $8.50 per share and $9.50 per share, the special transaction bonus would be $283,333.  If the per share sales price is less than $8.50, Ms. Beischel would receive no special transaction bonus.  Because the Per Share Merger Consideration is $8.71 per share, Ms. Beischel will be entitled to a special transaction bonus of $283,333 as a result of the closing of the Merger.  Under her original employment agreement, the special transaction bonus was payable only if the change of control transaction was consummated within one year of her employment agreement (May 8, 2017) and she was still employed by the Company on the closing date.  In connection with the Merger Agreement, the Company and Ms. Beischel entered into an amendment to Ms. Beischel’s employment agreement to provide for the payment of the special transaction bonus to Ms. Beischel upon the occurrence of the closing of the Merger at any time (but subject to Ms. Beischel’s continued employment through the closing of the Merger).  Concurrently with the amendment to Ms. Beischel’s employment agreement, the Company and Ms. Beischel entered into an amendment to her restricted stock award agreement, pursuant to which the restricted shares held by Ms. Beischel will be forfeited.
 
Termination.  Either the Company or Ms. Beischel may terminate Ms. Beischel’s employment under the Beischel Agreement for any reason upon not less than 30 days prior written notice.
 
(i)          Upon termination of Ms. Beischel’s employment by Ms. Beischel for good reason (as defined in the Beischel Agreement) or by the Company without cause (as defined in the Beischel Agreement), Ms. Beischel will be entitled to a termination payment equal to one times the aggregate of Ms. Beischel’s annual base salary and target annual bonus at the time of such termination. The termination payment will be paid in a lump sum.
 
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(ii)          Upon termination of Ms. Beischel’s employment by the resignation of Ms. Beischel without good reason or by the Company with cause or by reason of death or disability or for any other reason except as provided in the immediately preceding paragraph above, Ms. Beischel will be due no further compensation other than what is due and owing through the effective date of her resignation or termination (including any annual bonus that may be due and payable).
 
Ms. Beischel shall only be entitled to the termination payment if she executes and delivers to the Company a general release of claims in a form Ms. Beischel and the Company shall reasonably agree.
 
·
Dvir Salomon Executive Employment Agreement
 
Bonus on change of control.  The employment agreement (as amended) with Mr. Salomon (the “Salomon Agreement”) provides for a special transaction bonus upon the occurrence of a qualifying change of control transaction of up to $420,833 if the per share sales price of the Company is greater than $9.50 per share, subject to his continued employment through the occurrence of the transaction.  If the per share sales price is between $8.50 per share and $9.50 per share, the special transaction bonus would be $283,333.  If the per share sales price is less than $8.50, Mr. Salomon would receive no special transaction bonus.  Because the Per Share Merger Consideration is $8.71 per share, Mr. Salomon will be entitled to a special transaction bonus of $283,333, subject to setoff related to acceleration of certain restricted shares granted to him in October 2016 (referred to as the “set-off shares”) as described below, but only if the closing of the Merger occurs on or before May 8, 2018 and Mr. Salomon is employed by the Company on the closing date.
 
Under the terms of Mr. Salomon’s employment agreement, his special transaction bonus will be reduced by the value of the set-off shares that are accelerated, cancelled and converted into the right to receive a cash payment in connection with the closing of the Merger.  For purposes of determining the number of set-off shares, the 50,000 restricted shares granted to Mr. Salomon which were subject to vesting as of the grant date are treated as if they vest ratably based upon the passage of whole calendar months from January 1, 2016 through December 31.  Accordingly, the number of set-off shares is calculated as the excess of (i) 50,000 minus (ii) the product of (a) a fraction, the numerator of which is the number of full calendar months elapsed from January 1, 2016 and the end of the calendar month immediately preceding the closing date, and the denominator of which is 36 months, multiplied by (b) 50,000.  As of February 1, 2018, 34,722 restricted shares have vested, leaving 15,278 restricted shares unvested and subject to acceleration upon the closing of the Merger and the set-offs.  If the Merger were to close prior to February 28, 2018, Mr. Salomon would be entitled to a payment of $133,071 in connection with the acceleration and cash-out of all of the remaining restricted shares, which would result in a special transaction bonus of approximately $150,262.  The number of set-off shares will decline in each month until the Merger closes pursuant to the formula set forth above, which will cause the special transaction bonus payable to Mr. Salomon to increase.
 
Termination.  Either the Company or Mr. Salomon may terminate Mr. Salomon’s employment under the Salomon Agreement for any reason upon not less than 30 days prior written notice.
 
(i)          Upon termination of Mr. Salomon’s employment by Mr. Salomon for good reason (as defined in the Salomon Agreement) or by the Company without cause (as defined in the Salomon Agreement), Mr. Salomon will be entitled to a termination payment equal to one times the aggregate of Mr. Salomon’s annual base salary and target annual bonus at the time of such termination. The payment will be paid in a lump sum.
 
(ii)          Upon termination of Mr. Salomon’s employment by the resignation of Mr. Salomon without good reason or by the Company with cause or by reason of death or disability or for any other reason except as provided in the immediately preceding paragraph above, Mr. Salomon will be due no further compensation other than what is due and owing through the effective date of his resignation or termination (including any annual bonus that may be due and payable).
 
Mr. Salomon shall only be entitled to the termination payment if he executes and delivers to the Company a general release of claims in a form Mr. Salomon and the Company shall reasonably agree.
 
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·
Jose Gordo Executive Employment Agreement
 
One former named executive officer, Jose Gordo, had an executive employment agreement with the Company relating to his service as chief financial officer of the company.  Mr. Gordo’s employment was terminated on May 25, 2017.  As previously disclosed, Mr. Gordo was paid a severance payment of $525,000 and he executed a Separation and Release Agreement.  His employment agreement provided that if the Company executed an agreement within six (6) months from the date of his termination which, if consummated, would constitute a “change of control” for purposes of his employment agreement, he would be entitled to a change of control payment.
 
The payment to which Mr. Gordo is entitled under his employment agreement and separation agreement is $907,725, which is calculated as three times the sum of his base salary at the time of termination ($350,000), plus the target bonus for 2017 to which he would have been entitled ($175,000), less severance already paid to him in connection with his termination ($525,000), and less the 2016 bonus paid to him ($142,275). In addition, certain restricted shares and options held by Mr. Gordo that remained outstanding following his termination of employment pursuant to his Separation and Release Agreement will fully vest upon the consummation of the Merger, and Mr. Gordo will be entitled to receive cash payments in connection with the vesting of these restricted shares, as described in greater detail under the section entitled “Golden Parachute Compensation” on page 54 of this proxy statement.  All outstanding options held by Mr. Gordo are at an exercise price of $9.33 per share, greater than the Per Share Merger Consideration.  Accordingly, upon consummation of the Merger, Mr. Gordo’s options will be terminated and Mr. Gordo will be entitled to no consideration in connection with such termination.
 
Golden Parachute Compensation Payable to Named Executive Officers
 
As required by Item 402(t) of Regulation S-K, the following table sets forth, for our named executive officers, compensation that is based on or otherwise relates to the Merger and that may or will become payable to or realized by such individuals.  Specifically, in the event the Merger occurs, the compensation that may or will be paid to or realized by our named executive officers will consist of a special cash transaction bonus for each of Mr. Bell, Mr. Fuller, Mr. Salomon and Ms. Beischel, in each case subject to the terms of the executive officer’s agreement; and a “change of control” payment to Mr. Gordo consisting of base compensation plus bonus less prior severance pay, plus the value of accelerated vesting of restricted shares all as detailed below.  In the event of their termination for good reason by them or without cause by the Company, each of Ms. Beischel and Mr. Salomon are also entitled to a termination payment.
 
The table assumes that: (a) the Per Share Merger Consideration is $8.71 per share; (b) March 31, 2018 is the date of the closing of the Merger; (c) each of Mr. Bell, Mr. Fuller, Ms. Beischel and Mr. Salomon are employed by the Company on the date of the closing of the Merger; and (d) each of Ms. Beischel and Mr. Salomon are terminated either by them for good reason or by the Company without cause.
 
Please note that the amounts set forth in the table are the subject of a non-binding, advisory vote of our shareholders, as described in the section entitled “Proposal 3 – Golden Parachute Payments” beginning on page 109 of this proxy statement.
 
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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
 
__________________
 
(1)
Represents the special “single-trigger” lump-sum cash transaction bonus to which Mr. Bell is entitled upon the consummation of the Merger under the Bell Agreement, as amended by the Bell Amendment.  Because the Per Share Merger Consideration is less than $9.51 per share, Mr. Bell is not entitled to any severance payment in the event of his termination prior to or following the Transaction in connection with the Transaction.  Assumes that Proposal 2 is approved by the shareholders.
 
(2)
Represents the special “single-trigger” lump-sum cash transaction bonus to which Mr. Fuller is entitled upon the consummation of the Merger under the Fuller Agreement, as amended by the Fuller Amendment.  Because the Per Share Merger Consideration is less than $9.51 per share, Mr. Fuller is not entitled to any severance payment in the event of his termination prior to or following the Transaction in connection with the Transaction.
 
(3)
Represents $162,360 as the special “single-trigger” lump-sum cash transaction bonus to which Mr. Salomon is entitled upon the consummation of the Merger under the Salomon Agreement, and, in the event of his termination by him for good reason or by the Company without cause, the termination payment equal to $275,000 (his base compensation) plus $137,500 (the amount of his annual target bonus).
 
(4)
Represents $283,333 as the special “single-trigger” lump-sum cash transaction bonus to which Ms. Beischel is entitled upon the consummation of the Merger under the Beischel Agreement, and, in the event of her termination by her for good reason or by the Company without cause, the termination payment equal to $225,000 (her base compensation) plus $112,500 (the amount of her annual target bonus).
 
(5)
Represents payment due to Mr. Gordo pursuant to his executive employment agreement.  This includes a lump-sum change of control payment equal to three times his base salary as of his date of termination less the severance payment paid to Mr. Gordo when he left the Company’s employ in March of 2017, plus acceleration of vesting of 87,310 restricted shares.  Although Mr. Gordo still has unvested options which would otherwise be accelerated in connection with the Transaction, the exercise price of those options is $9.33 per share.  Accordingly, effective with the consummation of the Merger, these options will be terminated and no payment will be made in connection with them.

Delisting and Deregistration of the Company’s Ordinary Shares
 
Following the Merger, the Company’s shares will be delisted from the NASDAQ Global Select Market, will be deregistered under the Exchange Act and will cease to be publicly traded.
 
Regulatory Approvals Required for the Transaction
 
Antitrust ApprovalsThe Transaction is subject to certain antitrust laws.  The Company and B. Riley made certain filings pursuant to the HSR Act with the United States Department of Justice Antitrust Division, which we refer to as the “DOJ,” and the United States Federal Trade Commission, which we refer to as the “FTC.”  Under the HSR Act, the Transaction cannot be completed until the expiration or termination of the initial waiting period or any extension thereof following the submission of complete filings with the DOJ and FTC.  The applicable waiting period under the HSR Act expired on January 16, 2018 at 11:59 p.m. Eastern time.
 
FCC and State Approvals.  The Company is subject to regulation by the FCC under the Communications Act of 1934, the rules and regulations established by the FCC and codified in Title 47 of the Code of Federal Regulations and the effective orders, rulings and written policies of the FCC (the “Communications Act”).  The Company holds a number of FCC authorizations related to the provision of regulated services. FCC approval is required before the Company may transfer control of its authorizations.  The Company is subject to similar communications regulation by some state regulators.  The Company and Parent have submitted to the FCC and state regulators all filings and requests for consent to the change in ownership of the Company required at this time.  Other filings required to be made or consents required to be obtained as a condition to closing of the Merger have been or will be made by the Company.
 
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Material U.S. Federal Income Tax Considerations of the Transaction
 
General
 
The following is a general discussion of the material U.S. federal income tax considerations of the Transaction to U.S. Holders (as defined below) of Company ordinary shares who receive cash in exchange for their Company ordinary shares in the Transaction.  The following discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to a U.S. Holder.
 
This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), final, temporary and proposed U.S. Treasury Regulations, judicial opinions, published positions of the IRS, and the United States-Israel Income Tax Treaty (the “US-Israel Tax Treaty”), all as in effect on the date hereof and all of which are subject to differing interpretations or change, possibly with retroactive effect. This discussion does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a holder as a result of the Transaction or as a result of the ownership and disposition of Company ordinary shares. In addition, this discussion does not address all aspects of U.S. federal income taxation that may be relevant to particular holders nor does it take into account the individual facts and circumstances of any particular holder that may affect the U.S. federal income tax consequences to such holder, and accordingly, is not intended to be, and should not be construed as, tax advice. This discussion does not address the U.S. federal 3.8% Medicare tax imposed on certain net investment income or any aspects of U.S. federal taxation other than those pertaining to the income tax, nor does it address any tax consequences arising under any U.S. state and local tax laws. Holders should consult their own tax advisors regarding such tax consequences in light of their particular circumstances.
 
We have not sought, and will not seek, any ruling from the IRS or any opinion of counsel with respect to the tax consequences discussed herein, and there can be no assurance that the IRS will not take a position contrary to the tax consequences discussed herein or that any position taken by the IRS would not be sustained.
 
The following discussion applies to you only if you hold your Company ordinary shares as capital assets for U.S. federal income tax purposes. This section does not apply to you if you are a member of a class of holders subject to special rules under the U.S. federal income tax laws, including, without limitation:
 
·
a dealer in securities or currencies;
·
a trader in securities that elects to use a mark-to-market method of accounting;
·
a bank or other financial institution;
·
an underwriter or insurance company;
·
a regulated investment company;
·
a real estate investment trust;
·
a controlled foreign corporation;
·
persons subject to alternative minimum tax;
·
persons who acquire shares as compensation for services;
·
partnerships or other pass-through entities, and investors in such entities;
·
a tax-exempt organization;
·
a U.S. holder whose functional currency for tax purposes is not the U.S. dollar;
·
a person who owns or is deemed to own 10% or more of our voting stock or of the total value of our stock; or
·
a U.S. expatriate.
 
As used herein, the term “U.S. Holder” means a beneficial owner of Company ordinary shares that does not own directly, constructively or by attribution 10% or more of the Company ordinary shares and is, for U.S. federal income tax purposes:
 
·
a citizen or resident individual of the U.S.;
·
a domestic corporation;
·
a domestic partnership;
·
an estate the income of which is subject to U.S. federal income tax regardless of its source; or
·
a trust (a) if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust or (b) that has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
 
This section does not consider the specific facts and circumstances that may be relevant to a particular U.S. Holder, nor the income tax treatment to a U.S. Holder under the laws of any state, local or certain foreign jurisdictions.
 
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Please consult your own tax advisor concerning the consequences of the receipt of cash for your Company ordinary shares in the Transaction based upon your particular circumstances, as well as any tax consequences that may arise under the laws of any state, local or certain foreign taxing jurisdictions.
 
U.S. Federal Income Tax Considerations to U.S. Holders of the Disposition of Company Ordinary Shares
 
Subject to the discussion in the following paragraph, a U.S. Holder generally will recognize gain or loss on any sale, exchange, redemption, or other taxable disposition of Company ordinary shares in an amount equal to the difference between the cash received in the Transaction and such U.S. Holder’s adjusted tax basis in such shares. Any gain or loss recognized by a U.S. Holder on a taxable disposition of Company ordinary shares generally will be capital gain or loss and will be long-term capital gain or loss if the holder’s holding period in such shares exceeds one (1) year at the time of the disposition. Preferential tax rates may apply to long-term capital gains of non-corporate U.S. Holders (including individuals). The deductibility of capital losses is subject to limitations. Any gain or loss recognized by a U.S. Holder on the sale or exchange of Company ordinary shares generally will be treated as a U.S. source gain or loss.
 
The Company believes that it is not and never has been a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes, but this conclusion is a factual determination with which the IRS may not agree.  With certain exceptions, Company ordinary shares would be treated as stock in a PFIC with respect to a U.S. Holder if the Company were a PFIC at any time during the U.S. Holder’s holding period in the Company ordinary shares. If a U.S. Holder were to be treated as having disposed of stock in a PFIC, the gain realized by the U.S. Holder in the Transaction would in general not be treated as capital gain.  Instead, the U.S. Holder would be treated as if it had realized such gain and certain “excess distributions” ratably over the U.S. Holder’s holding period for the Company ordinary shares and would generally be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year.  U.S. Holders should consult their own tax advisors regarding the application of the PFIC rules to their investment in the Company ordinary shares and the Transaction.
 
Information Reporting and Backup Withholding
 
In general, information reporting requirements will apply to the proceeds received on the disposition of Company ordinary shares effected within the United States (and, in certain cases, outside the United States), in each case, other than with respect to U.S. Holders that are exempt recipients (such as corporations). Backup withholding (currently at a rate of 24%) may apply to such amounts if the U.S. Holder fails to provide an accurate taxpayer identification number (generally on an IRS Form W-9 provided to the paying agent or the U.S. Holder’s broker) or is otherwise subject to backup withholding.
 
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or credit against a holder’s U.S. federal income tax liability, if any, provided the required information is timely furnished to the IRS.
 
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Certain Israeli Tax Considerations to U.S. Holders of the Disposition of Company Ordinary Shares
 
According to Article 97(b3) of the Israeli Income Tax Ordinance [New Version], 5721-1961 (the “Israeli Tax Ordinance”), a foreign resident is exempt from tax on the sale of shares of an Israeli resident company, or on the sale of a right in a foreign resident company most of the assets of which are rights related directly or indirectly to assets located in Israel, provided that such gains were not derived from a permanent establishment or business activity of such shareholders in Israel, and provided that the shares are not listed in Israel at the time of the sale (if the shares are listed in Israel, the exemption is according to article 97(b2), which has different terms and conditions). This exemption applies to shares purchased after January 1, 2009. Non-Israeli corporations will not be entitled to the foregoing exemptions if Israeli residents (i) have a controlling interest of 25% or more in such non-Israeli corporation or (ii) are the beneficiaries of or are entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
 
In addition, under the US-Israel Tax Treaty, the sale, exchange or disposition of our shares by a shareholder who is a United States resident (for purposes of the US-Israel Tax Treaty) (i.e., a U.S. Holder) holding the shares as a capital asset is generally exempt from Israeli capital gains tax unless either (i) the shareholder holds, directly or indirectly, shares representing 10% or more of our voting capital during any part of the 12-month period preceding such sale, exchange or disposition, (ii) the capital gains arising from such sale are attributable to a permanent establishment of the shareholder located in Israel, or (iii) an individual shareholder is present in Israel for a period or periods aggregating 183 days or more during the taxable year. In either case, the sale, exchange or disposition of the shares would be subject to Israeli tax, to the extent applicable; however, under the US-Israel Tax Treaty, the US resident would be permitted to claim a credit for the tax against the U.S. federal income tax imposed with respect to the sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. Holders should be aware that even in cases where the US-Israel Tax Treaty does not provide for an exemption, the Israeli Tax Ordinance may provide an exemption as per article 97(b3) as detailed above.
 
As described in greater detail below, the Company is required to request a pre-ruling from the ITA and in connection with that ruling, or otherwise at the time of sale, shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding tax at the time of the disposition of their Company ordinary shares.
 
Israeli Tax Ruling
 
The Merger Agreement generally requires that the Company, prior to closing, request a pre-ruling from the Israeli Tax Authority with respect to, among other things, the Company, Parent, and paying agent’s withholding obligations relating to the consideration to be paid to non-Israeli residents (including U.S. Holders) for the Company’s ordinary shares. The pre-ruling requests that the ITA rule that either (1) the Company, Parent and paying agent, and their respective agents, are exempt from any obligation to withhold taxes levied, assessed, charged or imposed by any governmental entity in Israel from any consideration payable or otherwise deliverable to such holders or clarifies that no such obligation exists, or (2) clearly instructs the Company, Parent, and paying agent, and their respective agents, on how such withholding is to be executed, and in particular, with respect to the classes or categories of holders of the Company ordinary shares from which tax is to be withheld (if any), the rate or rates of withholding to be applied and how to identify any such non−Israeli residents.
 
Tax Considerations in Other Jurisdictions
 
Depending on the country in which a Company shareholder is resident, the Transaction may be a taxable event to such shareholder under such country’s tax laws. We encourage all shareholders to consult their tax advisors regarding the applicable tax considerations of the Transaction.
 
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THE AGREEMENT AND PLAN OF MERGER
 
The following is a summary of the material provisions of the Merger Agreement, a copy of which is attached to this proxy statement as Annex A and which is incorporated by reference into this proxy statement. This summary does not purport to be complete and may not contain all of the information about the Merger Agreement that is important to you. We encourage you to read carefully the Merger Agreement in its entirety, as the rights and obligations of the parties thereto are governed by the express terms of the Merger Agreement and not by this summary or any other information contained in this proxy statement.
 
Explanatory Note Regarding the Merger Agreement
 
The following summary of the Merger Agreement, and the copy of the Merger Agreement attached as Annex A to this proxy statement, are intended to provide information regarding the terms of the Merger Agreement and are not intended to provide any factual information about the Company or B. Riley or to modify or supplement any factual disclosures about the Company or B. Riley in their respective public reports filed with the SEC. In particular, the Merger Agreement and the related summary are not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to the Company or B. Riley. The Merger Agreement contains representations and warranties by and covenants of the Company, B. Riley and Merger Sub, and they were made only for purposes of that Merger Agreement and as of the specified dates. The representations, warranties and covenants in the Merger Agreement were made solely for the benefit of the parties to the Merger Agreement, may be subject to limitations, qualifications and other particulars agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts or being made for other purposes, and may be subject to contractual standards of materiality or material adverse effect applicable to the contracting parties that generally differ from those applicable to investors. In addition, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. The representations, warranties and covenants in the Merger Agreement and any descriptions thereof should be read in conjunction with the disclosures in the Company’s or B. Riley’s respective periodic and current reports, proxy statements and other documents filed with the SEC. See the section entitled “Where You Can Find More Information.”
 
The Merger; Articles of Association; Memorandum of Association; Directors and Officers
 
The Merger Agreement provides that Merger Sub, an indirect wholly owned subsidiary of B. Riley, will be merged with and into the Company. The Company will be the Surviving Corporation of the Merger and continue its corporate existence and will become an indirect wholly owned subsidiary of B. Riley.  The Company will continue to be governed by the Laws of the State of Israel and will succeed to assume all of the rights, properties and obligations of Merger Sub and the Company in accordance with the provisions of the ICL. Immediately following the effective time of the Merger, the amended and restated articles of association of the Company, as set forth on Exhibit A of the Merger Agreement, will thereafter be the articles of association of the Surviving Corporation. Immediately following the effective time, the existing memorandum of association of the Company, as amended, will thereafter be the memorandum of association of the Surviving Corporation.
 
From and after the effective time of the Merger, the directors and officers of Merger Sub at the effective time will be the directors and officers of the Surviving Corporation.
 
Effective Time
 
The closing of the Merger will take place at 10:00 a.m., Israeli time, on the second business day following the satisfaction or waiver of the conditions set forth in the Merger Agreement (other than those conditions that by their nature are to be satisfied by actions taken at the closing, but subject to the satisfaction or waiver of those conditions), or at such place or such other time or date as will be agreed in writing between the Company and B. Riley.
 
The Company and Merger Sub will request that the Companies Registrar declare the Merger effective and issue a certificate evidencing the Merger in accordance with Section 323(5) of the ICL on the closing date upon receipt of notice that the closing has occurred. The Merger will be effective upon the issuance by the Companies Registrar of the certificate of merger.
 
63

 
Merger Consideration
 
At the effective time of the Merger, each Company share that is issued and outstanding immediately prior to the effective time (other than shares owned by B. Riley, Merger Sub or their subsidiaries, which shares will be cancelled) will be converted into the right to receive the Per Share Merger Consideration of $8.71 in cash, without interest and less any applicable withholding taxes.
 
Each Merger Sub ordinary share that is issued and outstanding immediately prior to the effective time will be converted into one ordinary share of the Surviving Corporation, and such converted shares will thereafter constitute the only outstanding share capital of the Surviving Corporation.
 
Treatment of Company Equity Awards
 
Company Stock Options. With the exception of the options held by Don C. Bell III, the Company’s Chief Executive Officer, each Company stock option that is outstanding and unexercised immediately prior to the effective time of the Merger will, at the effective time of the Merger, become fully vested, to the extent not previously vested, and will automatically be cancelled and converted into the right to receive a cash payment equal to the product of (i) the total number of shares subject to such cancelled Company option as of immediately prior to the effective time and (ii) the excess, if any, of (a) the Per Share Merger Consideration of $8.71 over (b) the exercise price per share of such cancelled Company option, without interest and after any required tax withholding. Each Company stock option with respect to which, immediately prior to the effective time, the exercise price per share subject thereto is equal to or greater than $8.71 will be cancelled at the effective time in exchange for no consideration.  All options held by Mr. Bell will be cancelled effective as of the effective time of the Merger for no consideration.
 
Company Restricted Shares. Each award of restricted shares outstanding immediately prior to the effective time 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.  Any portion of the award that does not become so vested will be forfeited.  Each vested restricted share will automatically be cancelled and converted into the right to receive a cash payment equal to the Per Share Merger Consideration of $8.71, without interest and as reduced by the amount of any tax withholdings required by law.  As described in the section entitled “The Transaction—Interests of Our Directors and Executive Officers in the Transaction—Treatment of Company Equity Awards” beginning on page 53 of this proxy statement, the restricted shares held by each of Mr. Bell, Mr. Fuller and Ms. Beischel will be forfeited upon the effective time of the Merger for no consideration.
 
Payment Procedures
 
At the closing, B. Riley will deposit funds with a paying agent in an amount necessary for the payment of the aggregate Per Share Merger Consideration.
 
Within three business days after the effective time, the paying agent will mail to each holder of record of certificates representing Company shares immediately prior to the effective time a letter of transmittal, a tax declaration and instructions for surrendering such certificates. Upon surrender of any certificate to the paying agent, together with a properly completed letter of transmittal and the tax declaration, the holder of the certificate will be entitled to receive the Per Share Merger Consideration in cash for each share represented by the certificate, without interest and subject to any applicable withholding taxes.
 
The Merger Agreement provides for a process for any shareholder whose certificate has been lost, stolen or destroyed to facilitate payment to that holder.
 
Any holder of Company shares in book-entry form must deliver a tax declaration to the paying agent but is not required to deliver a certificate or an executed letter of transmittal. Those holders will be entitled to receive the Per Share Merger Consideration for such shares, without interest and less any applicable withholding taxes, upon receipt by the paying agent of the tax declaration and an “agent’s message” as to those shares.
 
Any cash deposited with the paying agent that remains unclaimed for six months after the effective time will be delivered to the Surviving Corporation, and any holders of Company shares who have not complied with the exchange procedures in the Merger Agreement will thereafter look only to the Surviving Corporation for payment of the Per Share Merger Consideration.
 
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Representations and Warranties
 
The Merger Agreement contains customary representations and warranties made by the Company that are subject, in some cases, to specific exceptions and qualifications contained in the Merger Agreement. These representations and warranties relate to, among other things:
 
·
due organization, good standing, and corporate power and authority with respect to the execution and delivery of the Merger Agreement;
·
absence of conflicts with, or violations of, organizational documents, applicable laws and contracts, and required consents of governmental authorities;
·
capital structure and ownership of subsidiaries;
·
our filings with the SEC, financial statements and internal controls and procedures;
·
absence of undisclosed liabilities;
·
accuracy and compliance with applicable laws of the information supplied by the Company contained in this proxy statement;
·
absence of certain developments from March 31, 2017 to the date of the Merger Agreement;
·
absence of certain litigation;
·
compliance with applicable laws;
·
material contracts;
·
tax matters;
·
labor and employment matters;
·
employee benefits matters;
·
intellectual property;
·
government grants;
·
real property;
·
environmental matters;
·
customers and suppliers;
·
insurance;
·
transactions with affiliates;
·
compliance with applicable U.S. and foreign export control laws;
·
compliance with anti-corruption and anti-money laundering laws;
·
inapplicability of takeover statutes;
·
opinion from financial advisor;
·
brokers’ fees payable in connection with the Merger;
·
indebtedness;
·
solvency determination; and
·
operating performance.
 
The Merger Agreement also contains customary representations and warranties made by B. Riley and Merger Sub that are subject to specified exceptions and qualifications contained in the Merger Agreement. The representations and warranties relate to, among other things:
 
·
due organization, good standing and corporate power and authority with respect to the execution and delivery of the Merger Agreement;
·
absence of conflicts with, or violations of, organizational documents, applicable laws and contracts, and required consents of governmental authorities;
·
ownership and operations of Merger Sub;
·
accuracy of the information supplied by B. Riley contained in this proxy statement;
·
absence of certain litigation;
·
financing matters;
·
the absence of B. Riley’s and Merger Sub’s ownership of Company shares;
·
brokers’ fees payable in connection with the Merger;
·
shareholder and management arrangements;
·
solvency determination; and
·
approval of the Merger Agreement and the Transaction by B. Riley and Merger Sub.
 
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Many of the representations and warranties in the Merger Agreement made by the Company are qualified by a “materiality” or “material adverse effect” standard (that is, they will not be deemed to be untrue or incorrect unless their failure to be true or correct, individually or in the aggregate, would, as the case may be, be material or have a material adverse effect). For purposes of the Merger Agreement, a “material adverse effect” with respect to the Company means any changes, effects, events, occurrences, states of facts or developments that have had or would reasonably be expected to have a material adverse effect on the business, properties, assets, liabilities, results of operations or financial condition of the Company and its subsidiaries taken as a whole; provided, that any adverse change, effect, event, occurrence, state of facts or development attributable to any of the following will not constitute, and will not be taken into account in determining whether there has been, a material adverse effect:
 
·
the execution, delivery, announcement or pendency of the Merger Agreement or the Transaction;
 
·
conditions generally affecting the industry or segments in which the Company and its subsidiaries participate, the Israeli and U.S. economy as a whole or the capital, credit or financial markets in general in the markets which the Company and its subsidiaries have material operations;
 
·
the failure to take any action by the Company or its subsidiaries which is prohibited by the Merger Agreement;
 
·
compliance with the terms of, or the taking of any action required by, the Merger Agreement or approved in advance by B. Riley in writing, including any action taken in connection with obtaining regulatory or third party approvals and in compliance with the terms of the Merger Agreement;
 
·
any change of general applicability after the date of the Merger Agreement in accounting requirements or principles or in applicable laws or the interpretation or enforcement thereof;
 
·
changes in political conditions in Israel, the United States or any specific country or region in the world where the Company or any of its subsidiaries have operations, or any acts of war (whether or not declared), armed hostilities, sabotage or terrorism occurring after the date of the Merger Agreement or the continuation, escalation or worsening of any such acts of war, armed hostilities, sabotage or terrorism threatened or underway as of the date of the Merger Agreement;
 
·
any natural disasters, acts of God or force majeure events;
 
·
the failure of the Company or any of its subsidiaries to meet internal forecasts, budgets or financial projections or any decline in the market price or trading volume of the Company’s shares on the NASDAQ Global Select Market; and
 
·
any matter set forth in the disclosure schedule.
 
Covenants Relating to Conduct of Business Pending the Closing
 
Under the Merger Agreement, the Company agreed that, subject to certain exceptions in the Merger Agreement and the disclosure schedule delivered by the Company in connection with the Merger Agreement, between the date of the Merger Agreement and the earlier of the termination of the Merger Agreement and the effective time, the Company will, and will cause each of its subsidiaries to, conduct its business in all material respects in the ordinary course of business and use commercially reasonable efforts to preserve intact its current business organization and maintain relationships with governmental authorities, its significant customers, suppliers and distributors and its employees, and others having significant business relations with them, and reasonably consult with B. Riley regarding any material changes in the Company’s strategy.
 
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In addition, subject to certain exceptions set forth in the Merger Agreement and the disclosure schedule, the Company agreed not to and agreed not to permit any of its subsidiaries to:
 
·
split, combine or reclassify any shares of its capital stock; declare, set aside or pay any dividend or make any other distribution in respect of any shares of its capital stock or other securities, or redeem, repurchase, cancel, or otherwise acquire or offer to redeem, repurchase or otherwise acquire, any of its securities, except as required (or permitted in connection with any net share settlement or tax withholding) by the terms of the Company equity plans or any award agreement thereunder or required by the terms of any other employee benefit plans, arrangements or contracts existing on the date of the Merger Agreement;
 
·
issue, sell, pledge, grant, transfer, dispose of, enter into any contract with respect to, or encumber any shares of its capital stock or other equity interests or securities exercisable or convertible into, or exchangeable or redeemable for, any such shares or other equity interests, or any rights, warrants, options, calls, or commitments to acquire any such shares or other equity interests, except for  issuances or sales of any of the foregoing to the Company or any wholly owned subsidiary of the Company, and issuances of Company shares upon the exercise of Company stock options or upon the vesting of restricted shares, in each case as outstanding on the date of the Merger Agreement;
 
·
voluntarily adopt or publicly propose a plan of merger, consolidation, complete or partial liquidation or dissolution of the Company or any of its subsidiaries or otherwise enter into any agreements or arrangements imposing changes or restrictions on its assets, operations or businesses that are material to the Company and its subsidiaries taken as a whole;
 
·
amend its organizational documents;
 
·
acquire or dispose (directly or indirectly) of any entity or any business or division thereof;
 
·
incur, assume or guarantee any indebtedness;
 
·
make any loans or advances to any person, subject to limited exceptions;
 
·
acquire, transfer, assign, divest, sell, lease, license, permit or suffer to exist the creation of any lien upon, or otherwise dispose of any subsidiary or any material amount of assets, securities or property (including owned intellectual property) except as permitted pursuant to contracts existing as of the date of the Merger Agreement;
 
·
abandon or allow any material owned intellectual property to lapse or expire;
 
·
settle any action against the Company or any of its subsidiaries (other than actions arising in connection with the Merger Agreement or the transactions contemplated thereby), other than as excepted by the terms of the Merger Agreement;
 
·
materially change its accounting or tax reporting methods, principles or policies, except as may be required by law or GAAP;
 
·
make, change or revoke any material tax election, file any amended tax return, enter into any closing agreement with respect to taxes, settle any material tax claim, audit, assessment or dispute, surrender any right to claim a refund of a material amount of taxes, take any action which is reasonably likely to result in a material increase in the tax liability of the Company or its subsidiaries, or, in respect of any taxable period (or portion thereof) ending after the closing date, the tax liability of B. Riley or its affiliates;
 
·
make or authorize certain capital expenditures;
 
·
assign, transfer, lease, cancel, fail to renew or fail to extend any permit issued by the FCC or any other governmental authority or discontinue any operations that require prior regulatory approval for discontinuance;
 
·
enter into any line of business in any geographic area other than the lines of business of the Company and its subsidiaries as of the date of the Merger Agreement;
 
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·
enter into any contract that would have been a material contract or real property lease had it been entered into prior to the Merger Agreement, or amend, modify or terminate any material contract or real property lease in any material respect, other than expirations of any such material contract in the ordinary course of business in accordance with the terms of such contract;
 
·
other than as required by any contract or benefit plan in existence as of the date of the Merger Agreement, (i) increase the amount of compensation or benefits payable to any employee, officer, individual independent contractor or director of the Company or any of its subsidiaries, including as a result of making any promotion, changing job titles or reclassifying any employee, officer, individual independent contractor or director of the Company or any of its subsidiaries, other than annual increases in employees’ wage or salary, in the ordinary course of business, consistent with past practice, with respect to any employee whose annual compensation is not in excess of $100,000 and which increases do not exceed 5% for any individual employee or 3% for all employees of the Company and its subsidiaries, (ii) grant any rights to or pay any severance or termination pay to, or enter into any employment or severance agreement with, any director, officer or other employee of the Company or any of its subsidiaries, (iii) take any action to amend or waive any vesting criteria or accelerate vesting, exercisability or funding under any benefit plan or award granted thereunder, (iv) grant any new awards, or amend or modify the terms of any outstanding awards, under any benefit plan, (v) forgive any loans or issue any loans (other than routine travel advances issued in the ordinary course of business) to any employee of the Company or its subsidiaries, (vi) hire any employee or engage any independent contractor (who is a natural person) with an annual salary or wage rate or consulting fees in excess of $100,000 individually, (vii) terminate the employment of any officer other than for cause; (viii) become a party to, establish, adopt, terminate or amend in any material respect any benefit plan or any similar arrangement; or (ix) become a party to any consulting contract, other than any such contract that can be terminated on 30 days’ or fewer notice and without payment of a penalty;
 
·
become a party to, establish, adopt, amend, commence participation in or terminate any collective bargaining agreement or other agreement with a labor union, works council or similar organization;
 
·
make any written or oral communications to the directors, officers or employees of the Company or any of its subsidiaries addressing how existing compensation or benefit matters will or may be affected by the Transaction prior to providing B. Riley with a copy of the intended communication; provided, that B. Riley will be allowed a reasonable period of time to review and comment on the communication, and the Company will consider any such comments in good faith; or
 
·
authorize any of, or commit or agree to take any of, the foregoing actions.
 
Non-Solicitation; Acquisition Proposals; Change in Recommendations
 
Subject to certain exceptions described below, the Company has agreed to a non-solicitation provision.  The Merger Agreement provides that neither the Company, its subsidiaries nor any of their respective directors, officers or representatives will directly or indirectly solicit, initiate, encourage or facilitate any acquisition proposal or any inquiry, proposal or offer that could reasonably be expected to lead to any acquisition proposal, or the making or consummation of any acquisition proposal.  The Company has agreed that, except to inform a person of the existence of the Company’s non-solicitation obligations, it will not enter into, continue, or otherwise participate in any discussions or negotiations regarding any acquisition proposal or any inquiry, proposal or offer that could reasonably be expected to lead to any acquisition proposal.
 
If the Company receives a bona fide written acquisition proposal (not solicited in violation of the Merger Agreement) 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, it may take actions that are reasonably likely to be necessary in order for the directors to comply with their fiduciary duties under applicable law.  These actions are set forth in the Merger Agreement to include furnishing information pursuant to a customary confidentiality agreement and participating in discussions or negotiations with the person making such acquisition proposal regarding the proposal.
 
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The Company must notify B. Riley promptly (and in any event within 24 hours) after receipt of any acquisition proposal, any inquiry that would be reasonably expected to lead to an acquisition proposal, or any request for information relating to the Company by any person that would be reasonably expected to make, or has made, an acquisition proposal.  The Company has agreed to keep B. Riley informed, on a current basis, of the status and terms of any such proposals or offers (including any amendments thereto) and any material changes thereto.
 
The term “acquisition proposal” means any proposal, inquiry or offer with respect to (i) a merger, consolidation, dissolution, liquidation, recapitalization, reorganization, spin-off, share exchange, or other business combination, tender offer, exchange offer or any transaction involving the purchase or acquisition of 20% or more of the shares of the Company, including as a result of a primary issuance of Company shares, or (ii) a direct or indirect purchase or acquisition of 20% or more of the consolidated net revenues, net income or total assets of the Company and its subsidiaries, taken as a whole (other than any such proposal or offer made by B. Riley, Merger Sub or any of their affiliates).
 
The Merger Agreement prohibits our Board and the Committee from withholding, withdrawing, modifying or qualifying in any manner adverse to B. Riley the recommendation that the Company’s shareholders should vote to approve the Merger Proposal (which we refer to as the “Board recommendation”), from approving or recommending (or publicly declaring advisable) any acquisition proposal or any agreement that would reasonably be expected to lead to an acquisition proposal, or entering into any such agreement.  If any acquisition proposal structured as a tender offer or exchange offer for outstanding Company shares is commenced, the Company has agreed that it will recommend against acceptance of such offer by the Company’s shareholders.
 
Notwithstanding the restrictions described above, if, prior to obtaining shareholder approval of the Merger Proposal, the Company receives a bona fide acquisition proposal (not solicited in violation of the Merger Agreement) and the Board, acting upon the recommendation of the Committee, concludes in good faith, after consultation with its financial advisor and outside legal counsel, that (a) such acquisition proposal would, if consummated, constitute a superior proposal, and (b) such action is reasonably likely to be necessary in order for the directors to comply with their fiduciary duties under applicable law, the Board may make a Company adverse recommendation change with respect to the Merger Proposal or cause the Company to terminate the Merger Agreement (and pay the termination fee to B. Riley).  Similarly, notwithstanding the restrictions in the non-solicitation provision, if, prior to obtaining shareholder approval of the Merger Proposal, an intervening event occurs and the Board, acting upon the recommendation of the Committee, concludes in good faith, after consultation with its financial advisor and outside legal counsel, that (a) such intervening event materially adversely affects the advisability of the Merger Agreement and the Merger to the Company from a financial point of view and (b) such action is reasonably likely to be necessary in order for the directors to comply with their fiduciary duties under applicable Law, the Board may make a Company adverse recommendation change with respect to the Merger Proposal.
 
The ability of the Board to make a Company adverse recommendation change or terminate the Merger Agreement as contemplated above is subject to the Company’s compliance with the provisions of the Merger Agreement that it first:
 
·
cause the Company to provide B. Riley at least four business days’ prior written notice advising B. Riley that it intends to take such action, which notice must (i) state that the Company has received a superior proposal or an intervening event has occurred, (ii) specify the material terms and conditions of such superior proposal, or the material facts and circumstances related to such intervening event, (iii) in the case of a superior proposal, identify the person making such superior proposal, to the extent not previously identified and (iv) in the case of a superior proposal, enclose the most recent draft of any agreements intended to be entered into with the person making such superior proposal;
 
·
cause the Company to negotiate, to the extent B. Riley so wishes to negotiate, during the four business day period following delivery of the notice of a superior proposal or an intervening event, in good faith with B. Riley concerning any revisions to the terms of the Merger Agreement that B. Riley proposes in response to such superior proposal or intervening event, and
 
·
after complying with these requirements, determine that, in the case of a superior proposal, such acquisition proposal continues to constitute a superior proposal, and in the case of an 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 B. Riley in writing.
 
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The term “superior proposal” is defined in the Merger Agreement to mean any bona fide acquisition proposal not solicited in violation of the Merger Agreement made after the date of the Merger Agreement that did not arise from or in connection with a breach of the obligations which the Board, acting upon the recommendation of the Committee, concludes in good faith (after consultation with its financial advisor and outside legal counsel), taking into account all financial, legal, regulatory and other aspects of the acquisition proposal and the person making the acquisition proposal and the likelihood of the proposal being consummated in accordance with its terms, (i) would, if consummated, be more favorable to the Company’s shareholders from a financial point of view than the Transaction and (ii) is reasonably likely to be completed in accordance with its terms (provided that for the purpose of this definition, references to “20% or more” in the definition of acquisition proposal are deemed to be references to “50%”).
 
The term “intervening event” is defined in the Merger Agreement to mean any change, effect, event, occurrence, state of facts or development, that (i) was not known to, or reasonably foreseeable by, the Committee or the Board, or the material consequences of which were not known or reasonably foreseeable, in each case as of or prior to the date of the Merger Agreement, (ii) becomes known to, or reasonably foreseeable by the Board or the Committee prior to shareholder approval of the Merger Proposal and (iii) does not involve or relate to (a) an acquisition proposal or (b) any fluctuation in the market price or trading volume of Company shares, in and of itself.
 
Shareholder Meeting
 
The Company has agreed to call a meeting of its shareholders to be held as promptly as reasonably practicable, in compliance with the applicable provisions of the ICL. The Company must use its commercially reasonable efforts to solicit proxies in favor of the Merger Proposal. Unless required by law, the Company may postpone or adjourn the shareholders meeting for a limited amount of time only for the absence of a quorum, or to allow additional solicitation of votes in order to obtain the requisite shareholder approval.
 
The Company has also agreed that the Board will recommend to the Company’s shareholders the approval of the Merger Proposal, subject to the provisions of the Merger Agreement described above under “—Non-Solicitation; Acquisition Proposals; Change in Recommendations” beginning on page 68 of this proxy statement.
 
In the event that B. Riley or any person listed in section 320(c) of the ICL casts any votes in respect of the Merger, B. Riley must disclose to the Company its interest in the Company shares so voted.  At the shareholders meeting, B. Riley and Merger Sub must cause any Company shares owned by them and their affiliates to be voted in favor of the approval of the Merger Proposal.
 
Indemnification and Insurance
 
The Merger Agreement provides that the rights to indemnification, advancement of expenses and exculpation from liabilities for acts or omissions occurring at or prior to the effective time of the Merger in favor of the current or former directors and officers of the Company acting in such capacities will be assumed by the Surviving Corporation and will survive the Merger and continue in full force and effect, to the fullest extent that the Company would have been permitted to indemnify, defend, hold harmless or advance expenses.
 
In addition, Parent has agreed that for seven years after the closing of the Merger, the Surviving Corporation will include and cause to be maintained in effect in the Surviving Corporation’s (or any successor’s) organizational documents, provisions regarding elimination of liability of directors, and indemnification of and advancement of expenses to directors and officers of the Company, no less favorable than those contained in the Company’s organizational documents as of the date of the Merger Agreement, and not settle, compromise or consent to the entry of any judgment in any proceeding or threatened action (and in which indemnification could be sought by an indemnified party), unless such settlement, compromise or consent includes an unconditional release of such indemnified party from all liability arising out of such action or such indemnified party otherwise consents in writing (not to be unreasonably withheld, conditioned or delayed), and cooperates in the defense of such proceeding or threatened action.
 
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Prior to the effective time, the Company will, and, if the Company is unable to, Parent will cause the Surviving Corporation to, obtain and fully pay for, at no expense to the individual insureds, non-cancellable “tail” insurance policies with claims periods of at least seven years from and after the effective time from insurance carriers with the same or better claims-paying ability ratings as the Company’s insurance carriers with respect to directors’ and officers’ liability insurance policies and fiduciary liability insurance policies in place immediately prior to the effective time for the persons who are currently covered by the Company’s existing insurance.
 
Efforts to Obtain Regulatory Approvals and Tax Ruling
 
Subject to the conditions of the Merger Agreement, Parent and the Company have agreed to use their reasonable best efforts to, as promptly as practicable:
 
·
obtain from any third party and/or any governmental authority any consent, approval, authorization, waiver, or order required to be obtained or made by any party, and avoid any action by any governmental authority, in connection with the Merger and to fulfill the conditions to the Transaction; and
 
·
make all necessary filings with, and thereafter make any other required submissions to, any governmental authority required under applicable law, including the HSR Act, the Communications Act and any applicable state communications laws, in connection with the Merger and to fulfill the conditions to the Transaction.
 
B. Riley and the Company will cooperate with each other in connection with obtaining all such consents, approvals, authorizations, waivers, or orders and the making of all such filings.
 
B. Riley and the Company will, subject to the other terms and conditions of the Merger Agreement, (i)  supply the other with any information that may be required in order to make such filings, (ii) supply any additional information that may be required or requested by the FTC, the DOJ, the FCC or state regulators in which any such notification filing is required to be made, and (iii) use reasonable best efforts to take all action necessary to cause the expiration or termination of the applicable waiting periods under the applicable antitrust laws as soon as practicable, and to obtain any required consents under any antitrust laws applicable to the Merger or approvals under the Communications Act or other state telecommunications law or requirement imposed by a state regulator as soon as practicable, including by filing as promptly as reasonably practicable, all notifications, questionnaire responses, documents, and information required or advisable in order to obtain such expiration or termination of the applicable waiting periods or such required consents or approvals.
 
The Company has filed with the ITA, in coordination with B. Riley, an application for an Option Tax Ruling (as defined in the Merger Agreement).  The Option Tax Ruling is subject to customary conditions regularly associated with such a ruling, including the limitation related to Section 102 of the Israeli Tax Ordinance.  Transfer of the option and restricted share consideration to the option holders and the holders of restricted shares is subject to withholding tax, as per applicable law and in accordance with the Option Tax Ruling.
 
In addition, the Company has prepared and filed with the Israeli tax authorities an application for a ruling that (a) with respect to holders of Company shares that are non-Israeli residents (as defined in the Israeli Tax Ordinance), exempts Parent, the paying agent, the Surviving Corporation and their respective agents from any obligation to withhold Israeli tax from any consideration payable pursuant to the Merger Agreement, including the Per Share Merger Consideration, or clearly instructs Parent, the paying agent, the Surviving Corporation and their respective agents on how such withholding is to be executed; and (b) with respect to holders of the Company’s shares that are Israeli residents clearly instructs Parent, the paying agent, the Surviving Corporation and their respective agents on how such withholding is to be executed.
 
Merger Proposal; Certificate of Merger
 
The Company and Merger Sub have agreed to take all necessary actions as required under the ICL to effectuate the Transaction in compliance with Israeli law.  These actions include:
 
·
causing a merger proposal (in the Hebrew language) to be executed in accordance with Section 316 of the ICL;
 
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·
delivering the merger proposal to the Companies Registrar in accordance with Section 317(a) of the ICL;
 
·
causing a copy of the merger proposal to be delivered to any of the Company’s secured creditors; and
 
·
promptly informing the Companies Registrar, in accordance with Section 317(b) of the ICL, that notice was given to creditors, if any, under Section 318 of the ICL.
 
The Company and Merger Sub have agreed to cooperate in providing notice to the Companies Registrar of the approval of the Company’s shareholders of the Merger Proposal in accordance with Section 317(b) of ICL, and request that the Companies Registrar declare the Merger effective and issue the certificate of merger on the closing date.
 
Financing Cooperation
 
The Company has agreed to cooperate, at Parent’s request and expense, if Parent elects to seek financing prior to the closing in connection with the Merger, until the earlier of the closing and the date that the Merger Agreement is terminated in accordance with its terms, so long as the financing does not require any approvals, orders, authorizations, or actions by or any registrations, declarations, or filings with any governmental authority.
 
The parties agreed that the Company will not be required to cooperate in connection with any financing at such point that such financing would be reasonably likely to prevent or materially delay the consummation of the Merger.  Additionally, the failure of the Company, its subsidiaries and/or representatives to cooperate with B. Riley or Merger Sub’s financing efforts will not constitute grounds for (i) B. Riley or Merger Sub to refuse to consummate the Merger or to terminate the Merger Agreement or (ii) the payment of the termination fee by the Company.
 
Other Covenants
 
Access to Information
 
Subject to customary exceptions as set forth in the Merger Agreement, the Company has agreed to provide B. Riley and its representatives reasonable access at reasonable times, and upon reasonable notice, to the books and records and properties of the Company and its subsidiaries and any financial, operating and other data and information regarding the assets, properties, or business of the Company and its subsidiaries as B. Riley may from time to time reasonably request.
 
Public Announcement
 
Subject to certain exceptions described in the Merger Agreement, B. Riley and the Company have agreed to consult with each other before issuing any press release or other public statements with respect to the Transaction.
 
Other Covenants and Agreements
 
The Merger Agreement also contains additional covenants, including, among others, covenants relating to satisfying requirements under Section 16 and Rule 16b-3 of the Exchange Act, efforts to obtain certain third party consents, delisting and deregistration of the Company shares, takeover laws, intellectual property assignments and shareholder litigation, if any arises, relating to the Transaction.
 
IIA Notice
 
The Company has prepared and filed with the IIA, a written notice regarding the change in ownership of the Company effected as a result of the Merger as required in accordance with the R&D Law.  On December 25, 2017, the IIA confirmed its approval of the change of control of the Company, subject to the filing of an undertaking by B. Riley Principal Investments in accordance with the R&D Law.  We expect the undertaking to be provided at Closing and filed in due course.
 
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Conditions to Completion of the Merger
 
The respective obligation of each party to complete the Merger is subject to the satisfaction or waiver of the following conditions:
 
·
approval by the Company’s shareholders of the Merger Proposal;
 
·
all applicable waiting periods under the HSR Act having expired or been terminated;
 
·
no governmental authority having enacted, entered, or enforced any order or law which is in effect and restrains, prohibits, declares unlawful or enjoins the consummation of the Transaction;
 
·