(1)
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Proxy Statement in connection with the Extraordinary General Meeting of Shareholders of Perion to be held on November 18, 2013, attached as Exhibit 99.1 hereto, together with the following appendices thereto:
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Appendix A – Share Purchase Agreement by and among Perion, Conduit Ltd. and ClientConnect Ltd., dated as of September 16, 2013, attached as Exhibit 99.2 hereto;
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Appendix B – Opinion of RBC Capital Markets, LLC, attached as Exhibit 99.3 hereto;
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Appendix C – Form of Registration Rights Undertaking, attached as Exhibit 99.4 hereto;
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Appendix D – Form of Voting Agreement of Significant Conduit Shareholders, attached as Exhibit 99.5 hereto;
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Appendix E – Form of Standstill Agreement, attached as Exhibit 99.6 hereto;
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Appendix G – Form of D&O Indemnification Agreement, attached as Exhibit 99.7 hereto;
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Appendix H – Compensation Policy of Directors and Officers, attached as Exhibit 99.8 hereto; and
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Appendix I – Perion Equity Incentive Plan, attached as Exhibit 99.9 hereto.
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(2)
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Form of Proxy Card for holders of Ordinary Shares of Perion in connection with the Extraordinary General Meeting of Shareholders of Perion, to be held on November 18, 2013, attached as Exhibit 99.10 hereto.
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PERION NETWORK LTD.
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By:
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/s/ Limor Gershoni Levy | |
Name: Limor Gershoni Levy | |||
Title: Corporate Secretary & General Counsel |
Exhibit
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Description
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Number
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of Exhibit
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99.1
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Proxy Statement in connection with the Extraordinary General Meeting of Shareholders of Perion to be held on November 18, 2013.
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99.2
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Appendix A – Share Purchase Agreement by and among Perion, Conduit Ltd. and ClientConnect Ltd., dated as of September 16, 2013.
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99.3
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Appendix B – Opinion of RBC Capital Markets, LLC.
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99.4
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Appendix C - Form of Registration Rights Undertaking.
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99.5
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Appendix D - Form of Voting Agreement of Significant Conduit Shareholders.
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99.6
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Appendix E - Form of Standstill Agreement.
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99.7
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Appendix G - Form of D&O Indemnification Agreement.
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99.8
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Appendix H - Compensation Policy of Directors and Officers.
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99.9
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Appendix I - Perion Equity Incentive Plan.
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99.10
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Form of Proxy Card for holders of Ordinary Shares of Perion in connection with the Extraordinary General Meeting of Shareholders of Perion to be held on November 18, 2013.
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1.
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To approve the Share Purchase Agreement, the Share Purchase and all other transactions contemplated by the Share Purchase Agreement, including the following related matters, each of which is contingent upon the other:
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a.
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the amendment of each of our Articles of Association and Memorandum of Association to increase our authorized share capital to NIS 1,200,000 divided into 120,000,000 Perion Shares; and
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b.
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the election of each of Dror Erez and Roy Gen to our Board of Directors.
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2.
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To approve a new form of D&O indemnification agreement, which is a condition to closing under the Share Purchase Agreement;
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3.
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To approve the purchase of D&O liability insurance, which is a condition to closing under the Share Purchase Agreement;
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4.
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To approve compensation for our chief executive officer;
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5.
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To approve a compensation policy for our directors and officers; and
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6.
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To approve our amended Equity Incentive Plan for U.S. tax purposes.
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Page
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1
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10
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11 | |
19 | |
19 | |
Risks Related to the Share Purchase
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19
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Risks Related to Our Company Following the Share Purchase
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21
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Risks Related to Our Company
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22
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Risks Related to ClientConnect
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23
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34
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36
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40
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Issuance of New Shares and Exchanged Options
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40
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New RSUs
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40
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SEC Registration
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40
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Lock-up Arrangements
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41
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Representations and Warranties
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42
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Material Adverse Effect
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45
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Conduct of Business Prior to Closing
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46
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Restrictions on Solicitations of Other Offers
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49
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Non-Competition
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52
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Tax Matters
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52
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Court Approval
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55
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Agreement to Take Other Actions and to Use Reasonable Best Efforts
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55
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Closing Conditions
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56
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Termination
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60
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Fees and Expenses
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61
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Additional Matters
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62
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64
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65
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66
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67
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Registration Rights Undertakings
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67
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Voting Agreements of Significant Conduit Shareholders
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68
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Standstill Agreements
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68
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Voting of Perion Shares Held in Trust
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69
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Executive Lock-Up Agreement
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69
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70
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Split Agreement
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70
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Transition Services Agreement
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71
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Office and Administrative Services Agreement
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72
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Working Capital Financing Agreement
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72
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74
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Overview
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74
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Industry Background
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74
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ClientConnect Solutions
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75
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Applications
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77
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Strategy
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78
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Marketing, Sales and Distribution
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78
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Websites
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78
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Material Agreements with Search Providers
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79
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Competition
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80
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Research and Development
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80
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Intellectual Property
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80
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Customers
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81
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Property
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81
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Employees
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81
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Legal Proceedings
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82
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83
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86
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Management Overview
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86
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Key Measures of ClientConnect’s Performance
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87
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Liquidity and Capital Resources
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93
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Quantitative and Qualitative Disclosures About Market Risk
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96
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97
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108
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112
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120
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120
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121
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123
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125
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Proposal 5: Approval of Compensation Policy for our Directors and Officers | 127 |
129
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134
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135
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136
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137
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138
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F-1
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PF-1
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Appendix A Share Purchase Agreement
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A-1
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Appendix B Opinion of RBC Capital Markets, LLC
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B-1
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Appendix C Form of Registration Rights Undertaking
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C-1
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Appendix D Form of Voting Agreement of Significant Conduit Shareholders
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D-1
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Appendix E Form of Standstill Agreement
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E-1
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Appendix F [Intentionally Omitted]
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Appendix G Form of D&O Indemnification Agreement
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G-1
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Appendix H Compensation Policy of Directors and Officers
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H-1
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Appendix I Perion Equity Incentive Plan
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I-1
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·
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the occurrence of any event, change or other circumstances that could give rise to the termination of the Share Purchase Agreement;
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the costs and outcome of any legal proceedings that may be instituted against us and others relating to the Share Purchase Agreement;
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the inability to complete the Share Purchase due to the failure to obtain shareholder approval or the failure to satisfy other conditions to consummation of the Share Purchase;
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the failure of the Share Purchase to close for any other reason;
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risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the Share Purchase;
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the ability to recognize the benefits of the Share Purchase;
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the distraction of our management resulting from the proposed transaction; and
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other risks detailed in our current filings with the Securities and Exchange Commission (the "SEC"), including those set forth under the heading "Risk Factors" in our most recent annual report on Form 20-F. See the section of this Proxy Statement entitled "Where You Can Find More Information".
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Q:
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What is the proposed Share Purchase?
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A:
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On September 16, 2013, we entered into the Share Purchase Agreement with Conduit and ClientConnect. Prior to our entering into discussions with Conduit regarding a possible transaction, Conduit decided to spin-off its ClientConnect business to ClientConnect, a newly formed company to be owned by the shareholders of Conduit in proportion to their ownership of Conduit, and on September 16, 2013, Conduit and ClientConnect entered into the Split Agreement, pursuant to which the entire activities and operations, and related assets and liabilities, of the ClientConnect business will be transferred to ClientConnect on a cash-free and debt-free basis under the terms and conditions set forth in the Split Agreement, and the Conduit shareholders will be issued ClientConnect Shares in proportion to their ownership of Conduit and will become the ClientConnect Shareholders.
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Q:
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Will I receive any consideration as a result of the Share Purchase, and what will happen to my Perion Shares?
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A:
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No, you will not receive any consideration as a result of the Share Purchase and nothing will happen to your Perion Shares. It should be noted that, given the acquisition of ClientConnect by the Company, the number of issued and outstanding Perion Shares is expected to increase substantially as a result of the issuance of between 57 million and 62 million New Shares (including the Perion Shares underlying the Exchanged Options), as described above under "
What is the proposed Share Purchase
?".
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Q:
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What will we be acquiring in the Share Purchase and what will be our relationship with Conduit following the Share Purchase?
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A:
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Pursuant to the Share Purchase Agreement, we will acquire all of the outstanding shares of ClientConnect, which will have received from Conduit the entire activities and operations, and related assets and liabilities, of Conduit's ClientConnect business pursuant to the Split Agreement.
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Q:
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Where can I find additional information about ClientConnect?
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A:
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This Proxy Statement contains the following information about ClientConnect:
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A description of the business of ClientConnect, beginning on page 74;
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Risk factors about ClientConnect, beginning on page 23;
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Selected pro forma financial data of ClientConnect, beginning on page 83;
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An operating and financial review of ClientConnect, beginning on page 86; and
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·
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Unaudited pro forma financial information of ClientConnect, beginning on page PF-1.
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Q:
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What will happen to our management as a result of the Share Purchase?
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A:
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Mr. Josef Mandelbaum will continue to serve as our Chief Executive Officer following the Closing, and substantially all of our other officers will continue to serve in their current positions as well. Mr. Joshua Wine, the Chief Revenue Officer of Conduit, will become the President of Perion and will continue to manage the ClientConnect business.
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Q:
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Will we grant new rights to purchase Perion Shares in connection with the Share Purchase?
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A:
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In connection with the Split, Conduit employees that are engaged in the ClientConnect business will be offered to become ClientConnect employees. All related employment liabilities of the employees who agree to transfer to ClientConnect will be assumed by ClientConnect, and all severance funds for such employees will be fully funded at the consummation of the Split. Effective as of the Split, all then-outstanding options to purchase Conduit shares owned by such transferring Conduit employees, whether or not exercisable, will be rolled-over into ClientConnect Options. The ClientConnect Options will be subject to the same vesting schedule and the same terms and conditions as the options to purchase Conduit shares. The exercise price per share of a ClientConnect Option will be adjusted as described below in "Agreements Related to the Split of Conduit—Split Agreement".
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Q:
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Will the New Shares be subject to any lock-up arrangements following the Closing?
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A
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Yes.
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Q:
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Has the Company agreed to register the resale of the New Shares with the SEC?
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A:
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Yes. By virtue of the Court Approval, the issuance of the New Shares to the ClientConnect Shareholders will be exempt from the prospectus delivery requirements of the Israel Securities Law and will also be exempt from the registration requirements under the Securities Act pursuant to Section 3(a)(10) thereunder. However, holders of New Shares that are deemed "affiliates" under the SEC regulations will be subject to volume limitations under Rule 144 under Securities Act ("Rule 144"). Also, holders of a significant number of New Shares may be unable to sell their shares on NASDAQ in large quantities. Therefore, pursuant to the terms of a registration rights undertaking to be entered into by us and each ClientConnect Shareholder who executes a joinder thereto (the "Registration Rights Undertaking"), as soon as practicable following the filing of our Annual Report on Form 20-F for the 2013 fiscal year (and in any event within the earlier of (i) 30 days following the filing of such annual report and (ii) 150 days following the Closing), we will file with the SEC a registration statement on Form F-3 (the "Form F-3") covering the resale of the New Shares held by any person whose resale of such shares would otherwise be subject to volume limitations under Rule 144 under Securities Act ("Rule 144"). Such registration will not release the Tax Lock-up or the Contractual Lock-up.
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Q:
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When and where is the Meeting?
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A:
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The Meeting will be held on Monday, November 18, 2013, at 4:00 p.m. (Israel time) and at any time to which the Meeting is adjourned. The Meeting will be held at our offices located at 4 HaNechoshet Street, Tel Aviv 69710, Israel.
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Q:
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What am I being asked to vote on?
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A:
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You are being asked to vote on six proposals. First, you are being asked to approve the Share Purchase Proposal, which is a proposal to approve the Share Purchase Agreement, the Share Purchase and the other transactions contemplated by the Share Purchase Agreement, including the increase of our share capital and the election of two new directors, each of which is contingent upon the other (Proposal 1 on the agenda). Second, you are being asked to approve a form of D&O indemnification agreement (the "Indemnification Agreement") (Proposal 2 on the agenda). Third, you are being asked to approve the purchase of D&O liability insurance, including run-off insurance (Proposal 3 on the agenda). The approval of Proposal 2 and Proposal 3 at the Meeting are conditions to the consummation of the Share Purchase. Fourth, you are being asked to approve compensation for our Chief Executive Officer (Proposal 4 on the agenda). Fifth, you are being asked to approve a compensation policy for our directors and officers (Proposal 5 on the agenda). Finally, you are being asked to approve our amended Equity Incentive Plan for U.S. tax purposes (Proposal 6 on the agenda). No other matters are on the agenda at the Meeting.
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Q:
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What vote is required for our shareholders to approve each of the different proposals?
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A:
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The approval of each of Proposal 1 and Proposal 6 requires the affirmative vote of the holders of a majority of the Perion Shares present (in person or by proxy) at the Meeting and voting on such matter (not including abstentions).
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Q:
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Are any Perion Shares committed to be voted for approval of the Share Purchase Proposal?
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A:
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Yes. We have provided an instruction letter to SGS irrevocably instructing it to vote all of the Perion Shares it is holding in trust pursuant to the Paying Agent Agreement in favor of the Share Purchase Proposal and against any alternative transaction. As of the Record Date, SGS held 1,428,806 Perion Shares in trust (constituting 11.46% of the Perion Shares as of the Record Date). See "Agreements Related to the Share Purchase – Voting of Perion Shares Held in Trust", beginning on page 69.
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Q:
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How does our Board of Directors recommend that I vote?
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A:
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Our Board of Directors, following the approval of our Audit Committee, has approved the Share Purchase Agreement, the Share Purchase and the other transactions contemplated by the Share Purchase Agreement, and recommends that you vote "FOR" the approval of the Share Purchase Proposal. Our Board of Directors also recommends that you vote "FOR" each of the other proposals to be voted on at the Meeting.
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Q:
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Why is our Board of Directors recommending that I vote for approval of the Share Purchase Proposal?
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A:
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Our Audit Committee and Board of Directors have determined that the terms and provisions of the Share Purchase Agreement, the Share Purchase and the other transactions contemplated by the Share Purchase Agreement are fair to, and in the best interests of, our company and our shareholders. For additional information see the sections of this Proxy Statement entitled "Recommendation of our Audit Committee and Board of Directors", beginning on page 108.
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Q.
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Did our Board of Directors receive a fairness opinion from an independent financial expert in connection with the Share Purchase?
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A.
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Yes, on September 15, 2013, RBC Capital Markets, LLC ("RBC") delivered its oral opinion (which was subsequently confirmed in writing) to our Board of Directors to the effect that, as of such date, based upon and subject to the factors and assumptions made, procedures followed, matters considered and limits of the review undertaken by RBC set forth therein, the Exchange Ratio was fair from a financial point of view to our shareholders.
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Q.
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Does the Share Purchase also require the approval of the shareholders of Conduit?
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A.
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Yes, as a condition to the Court Approval, the Share Purchase is required to be approved by the affirmative vote of a majority of the shareholders of Conduit holding at least 75% of the Conduit shares voting on the matter. As discussed below in "Agreements Related to the Share Purchase – Voting Agreements of Significant Conduit Shareholders", several shareholders of Conduit have each entered into a Voting Agreement with us under which such shareholder has agreed to vote, and has provided us an irrevocable proxy to vote, in favor of the approval of the Share Purchase Agreement and the transactions contemplated thereby and against any alternative transaction. These agreements and proxies account for approximately 77% of Conduit’s outstanding shares. The full text of the form of the Voting Agreement is included as
Appendix D
to this Proxy Statement and is incorporated herein by reference.
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Q:
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When will the Share Purchase be completed?
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A:
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We are working to complete the Share Purchase as soon as possible. Several conditions must be satisfied or waived before the Share Purchase is completed. See the section of this Proxy Statement titled "Share Purchase Agreement—Closing Conditions" for a summary description of these conditions. We expect to complete the Share Purchase in January 2014, but because the Share Purchase is subject to certain closing conditions, some of which are beyond ClientConnect's and our control, the exact timing cannot be predicted. The Share Purchase Agreement may be terminated by either party if the Share Purchase is not completed by January 31, 2014, or February 28, 2014 if all closing conditions have been satisfied other than the receipt of U.S. antitrust approval.
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Q:
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What happens if the Share Purchase is not completed?
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A:
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If the Share Purchase Agreement is not approved by our shareholders or if the Share Purchase is not completed for any other reason, we will not acquire the ClientConnect Shares and will not consummate the Share Purchase. Under circumstances specified in the Share Purchase Agreement, we may be required to pay Conduit a termination fee as described in the section of this Proxy Statement entitled "Share Purchase Agreement—Fees and Expenses", beginning on page 61.
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Q:
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Are there any risks related to the proposed Share Purchase?
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A:
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Yes. You should carefully read the section of this Proxy Statement entitled "Risk Factors – Risks Related to the Share Purchase", beginning on page 19 and in our SEC filings incorporated by reference herein.
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Q:
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What is the required quorum for the Meeting?
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A:
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The presence of at least two shareholders, holding at least one-third of our issued share capital, represented in person or by proxy at the Meeting, will constitute a quorum. If within one half of an hour from the time appointed for the Meeting a quorum is not present, the Meeting shall stand adjourned for one week at the same hour and place, or to such day and such time and place as the chairperson may determine with the consent of a majority of the voting power represented at the Meeting in person or by proxy and voting on the question of adjournment. If a quorum is not present at the adjourned date of the Meeting within one half of an hour of the time fixed for the commencement thereof, then the Meeting shall take place regardless of the number of shareholders present and in such event the required quorum shall consist of any number of shareholders present in person or by proxy.
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Q:
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What do I need to do now?
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A:
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This Proxy Statement contains important information regarding the Share Purchase as well as information about us. It also contains important information regarding the factors considered by our Board of Directors in evaluating the Share Purchase. We urge you to read this Proxy Statement carefully in its entirety. You should also complete, sign and date the enclosed proxy card and return it in the enclosed envelope. You may also want to review the documents referenced under the section of this Proxy Statement entitled "Where You Can Find More Information", beginning on page 137.
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Q:
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How do I vote?
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A:
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If you are a registered shareholder, you should indicate on the enclosed proxy card how you want to vote by completing, signing and mailing the proxy card in the enclosed, postage-paid envelope. If your shares are held in "street name", you should follow the voting instructions provided by your bank, broker, trustee or nominee. If you are a registered shareholder, whether or not you submit a proxy, you may attend the Meeting and vote your shares in person. If your shares are held in "street name" you will need to obtain a proxy from your bank, broker, trustee or nominee in order to vote your shares in person at the Meeting.
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Q:
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If my shares are held in "street name" by my bank, broker, trustee or nominee, will my bank, broker, trustee or nominee vote my shares for me?
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A:
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Your bank, broker, trustee or nominee will vote your shares only if you provide instructions to your bank, broker, trustee or nominee on how to vote and provided you do so within ample time before the Meeting. You should follow the procedures provided by your bank, broker, trustee or nominee regarding the voting of your shares (including the timing to do so) and be sure to provide your bank, broker, trustee or nominee with instructions on how to vote your shares. If your shares are held in "street name" you must contact your bank, broker, trustee or nominee to change or revoke your voting instructions. If your shares are held through a member of the Tel Aviv Stock Exchange Clearinghouse, and you intend to vote your shares at the Meeting in person or by proxy, you must deliver to us, via messenger or registered mail, a confirmation of ownership (
ishur baalut
) issued by the applicable bank or broker, confirming your ownership of Perion Shares as of the record date for the Meeting, as required by the Israeli Companies Regulations (Proof of Ownership of Shares for Voting at General Meeting), 5760-2000.
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Q:
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Who can vote at the Meeting?
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A:
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Only those holders of record of outstanding Perion Shares at the close of business on October 9, 2013, the record date for the Meeting, are entitled to vote at the Meeting. As of the Record Date, there were 12,472,717 Perion Shares issued and outstanding.
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Q:
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Who can help answer my questions?
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A:
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If you have additional questions about the Share Purchase Agreement, the Share Purchase or the proposals, or would like additional copies of this Proxy Statement or the enclosed proxy card, you should contact "D.F. King", the proxy solicitation firm, to assist us in soliciting proxies for the Meeting, at 48 Wall Street, 22nd Floor, New York, New York, 10005, by telephone at 1-800-488-8075 (banks and brokerage firms should call 1-212-269-5550) or by email at
perion@dfking.com
. Shareholders in Israel may also contact Ms. Limor Gershoni Levy, the Company's Corporate Secretary and General Counsel, at our executive offices located at 4 HaNechoshet Street, Tel Aviv 69710, Israel; telephone number: +972-3-769-6100.
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·
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we may be required to pay a termination fee of $6,000,000, in certain circumstances as described below in
"Share Purchase Agreement – Fees and Expenses"
;
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·
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we will be required to pay certain expenses relating to the Share Purchase, including substantial legal, financial advisor and accounting fees, whether or not the Share Purchase is completed;
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the price of the Perion Shares may decline to the extent that the current market price reflects a market assumption that the Share Purchase will be completed;
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·
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under the Share Purchase Agreement, we are subject to certain restrictions on the conduct of our business prior to completing the Share Purchase that may affect our ability to execute certain of our business strategies; and
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during the period before completion of the Share Purchase, our management’s attention, which could otherwise have been devoted to other opportunities (including other business or acquisition opportunities) that may have been beneficial to us, will be diverted from our day−to−day business, and there may also be unavoidable disruptions to our relationships with our employees, customers and suppliers.
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the diversion of management and employee attention and the unavoidable disruption to our relationships with customers and suppliers may detract from our ability to grow revenues and minimize costs;
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we have and will continue to incur significant expenses related to the Share Purchase prior to its closing; and
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we may be unable to respond effectively to competitive pressures, industry developments and future opportunities.
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·
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managing the ClientConnect business independently of Conduit;
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transitioning to our brand by the termination of the transition period during which we can continue to utilize the name "Conduit";
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integrating the operations of the ClientConnect business with our operations;
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retaining the customers and sales distribution channels of both companies;
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incorporating ClientConnect's technology and products into our current and future technology and product lines;
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demonstrating to the customers of the ClientConnect business that the Share Purchase will not result in adverse changes in customer service standards or product support;
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·
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coordinating research and development activities to enhance introduction of new products and technologies;
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persuading the employees of both companies that the companies' business cultures are compatible; and
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maintaining employee morale and retaining key employees.
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·
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we do not achieve the perceived benefits of the Share Purchase as rapidly or to the extent anticipated by financial or industry analysts;
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·
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the effect of the Share Purchase on us and ClientConnect and the prospects of the combined company is not consistent with the expectations of financial or industry analysts;
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·
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investors react negatively to the significant dilution to their holdings in us as a result of the Share Purchase or the effect of the Share Purchase on us and ClientConnect and the prospects of the combined company; or
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there are sales of a significant number of New Shares or Perion Shares issued upon exercise of Exchanged Options, or the public believes that these sales may occur in the future.
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·
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approving the Share Purchase Agreement, the Share Purchase and the other transactions contemplated thereby;
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·
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directing management to call a meeting of our shareholders, to seek to obtain the requisite approvals and consents and to take such other actions as may be necessary to complete the Share Purchase; and
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recommending that our shareholders approve the Share Purchase Agreement, the Share Purchase and the other transactions contemplated thereby.
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·
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If the prevailing market price of the Perion Shares (defined as the closing price on NASDAQ for any consecutive ten trading day period following the Closing Date) is equal to or greater than $15.00 per share (as appropriately adjusted for any stock splits, cash dividends, stock dividends, combinations, recapitalizations or the like) for any ten consecutive trading days beginning at any time after the Closing Date, then each ClientConnect Shareholder may transfer up to an aggregate of thirty-three percent (33%) of the New Shares issued to such shareholder (including any New Shares previously transferred by such shareholder);
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·
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If the prevailing market price of the Perion Shares is equal to or greater than $18.50 per share (as appropriately adjusted as aforesaid) for any ten consecutive trading days beginning at any time after the Closing Date, then each ClientConnect Shareholder may transfer up to an aggregate of sixty seven percent (67%) of the New Shares issued to such shareholder (including any New Shares previously transferred by such shareholder); and
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·
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If the prevailing market price of the Perion Shares is equal to or greater than $22.00 per share (as appropriately adjusted as aforesaid) for any ten consecutive trading days beginning at any time after the Closing Date, then each ClientConnect Shareholder may transfer up to an aggregate of one hundred percent (100%) of the New Shares issued to such shareholder (including any New Shares previously transferred by such shareholder).
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·
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Conduit's and ClientConnect's corporate organization, valid existence and similar corporate matters;
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·
|
ClientConnect's charter documents and the accuracy and completeness of all books and records;
|
|
·
|
ownership of the ClientConnect Shares and the ClientConnect Options;
|
|
·
|
Conduit's and ClientConnect's corporate power and authority to execute and deliver the Share Purchase Agreement and to perform and consummate the Share Purchase and the other transactions contemplated thereby;
|
|
·
|
Conduit's and ClientConnect's Boards of Directors have approved the Split, the Split Agreement, the Share Purchase Agreement, the Share Purchase and the other transactions contemplated thereby, and Conduit's Board of Directors directed that the adoption of such items be submitted to the shareholders of Conduit for their consideration and recommended that their shareholders approve such items;
|
|
·
|
the accuracy, completeness and preparation of each of the ClientConnect Financial Statements and the Conduit Historical Financial Statements and the absence of undisclosed liabilities;
|
|
·
|
the absence of conflict with, termination, breach or violation of Conduit's or ClientConnect's organizational documents or any material legal requirements applicable to the ClientConnect business or any of the properties or assets primarily used in the ClientConnect business, in either case as a result of the execution and delivery of the Share Purchase Agreement and the consummation of the transactions contemplated thereby;
|
|
·
|
the absence of the creation of any lien on any of the properties or assets of ClientConnect or the ClientConnect business or the ClientConnect Shares as a result of the execution and delivery of the Share Purchase Agreement and the consummation of the transactions contemplated thereby;
|
|
·
|
governmental authorizations and regulatory filings required in order to consummate the transactions contemplated by the Share Purchase Agreement;
|
|
·
|
the conduct of the ClientConnect business in the ordinary course since June 30, 2013 and the absence of events or circumstances that constitute or would reasonably be expected to result in a Material Adverse Effect;
|
|
·
|
material contracts primarily relating to the ClientConnect business, the absence of known breaches or defaults under such contracts, that each such contract is valid, binding and enforceable, and the assignment of each such agreement relating to the ClientConnect business by Conduit to ClientConnect pursuant to the Split;
|
|
·
|
the absence of any pending or threatened litigation, claim, proceeding, suit, judgment, decree, rule, injunction or order against or governmental investigation or claims against Conduit (solely with respect to the ClientConnect business) or ClientConnect or any of the assets or properties of ClientConnect or the ClientConnect business or any of the directors, officers, or employees of ClientConnect;
|
|
·
|
compliance with applicable law and receipt of governmental permits and licenses;
|
|
·
|
tax matters, liabilities for current and deferred taxes in the ClientConnect Financial Statements, withholding, granting of stock options in accordance with Section 102 of the Tax Ordinance, and material tax or other grants or incentives granted to or enjoyed by them under Israeli law;
|
|
·
|
no material restrictions or prohibitions on the ClientConnect business or ClientConnect;
|
|
·
|
employee and employee benefit matters, employment or consultancy agreements, and labor relations and labor-related litigation with respect to the employees of the ClientConnect business;
|
|
·
|
title to and sufficiency of properties, assets and the rights transferred by Conduit to ClientConnect pursuant to the Split or made available under the Office and Administrative Service Agreement;
|
|
·
|
insurance matters;
|
|
·
|
intellectual property matters, including licenses of intellectual property, validity and non-infringement of patents, receipt of invention assignment agreements, title and ownership of the intellectual property primarily used in the ClientConnect business and necessary to provide the services under the Transition Services Agreement, source code, open source software, privacy and personal data;
|
|
·
|
interested party transactions involving Conduit or ClientConnect and any of their respective officers, directors, employees, consultants, shareholders or related parties;
|
|
·
|
no brokers and finders’ fees payable in connection with the Share Purchase;
|
|
·
|
environmental matters; and
|
|
·
|
propriety of past payments.
|
|
·
|
our corporate organization, valid existence and similar corporate matters;
|
|
·
|
our charter documents and the accuracy and completeness of our books and records;
|
|
·
|
our capitalization and our options and option plans;
|
|
·
|
our corporate power and authority to execute and deliver the Share Purchase Agreement and to perform and consummate the Share Purchase and the other transactions contemplated thereby;
|
|
·
|
the approval of our Board of Directors of the Share Purchase Agreement, the Share Purchase and the other transactions contemplated thereby, directed that the adoption of such items be submitted to our shareholders for their consideration and recommended that the shareholders approve such items;
|
|
·
|
the documents filed by us with the SEC, the accuracy, completeness and preparation of the financial statements we have filed with the SEC, the absence of undisclosed liabilities, our internal controls and maintenance of appropriate disclosure controls, and our compliance with the listing and governance rules and regulations of NASDAQ;
|
|
·
|
the absence of conflict with, termination, breach or violation of (i) our organizational documents, (ii) any of our material contracts or (iii) provisions of applicable law, in each case, as a result of the execution and delivery of the Share Purchase Agreement and the consummation of the transactions contemplated thereby;
|
|
·
|
the absence of the creation of any lien on any of our properties, assets or Perion Shares as a result of the execution and delivery of the Share Purchase Agreement and the consummation of the transactions contemplated thereby;
|
|
·
|
governmental authorizations and regulatory filings required in order to consummate the transactions contemplated by the Share Purchase Agreement;
|
|
·
|
the conduct of our business in the ordinary course since June 30, 2013 and the absence of events or circumstances that constitute or would reasonably be expected to result in a Material Adverse Effect;
|
|
·
|
material contracts, the absence of known breaches or defaults under such contracts, and that each such contract is valid, binding and enforceable;
|
|
·
|
the absence of any pending or threatened litigation, claim, proceeding, suit, judgment, decree, rule, injunction or order against or governmental investigation or claims against us, any of our assets or properties or any of our directors, officers, or employees;
|
|
·
|
compliance with applicable law and receipt of governmental permits and licenses;
|
|
·
|
tax matters, withholding, granting of stock options in accordance with Section 102 of the Tax Ordinance, and material tax or other grants or incentives granted to or enjoyed by us under Israeli law;
|
|
·
|
no material restrictions or prohibitions on us or our business;
|
|
·
|
employee and employee benefit matters, employment or consultancy agreements, and labor relations and labor-related litigation;
|
|
·
|
title to and sufficiency of assets and properties;
|
|
·
|
insurance matters;
|
|
·
|
intellectual property matters, including licenses of intellectual property, validity and non-infringement of patents, receipt of invention assignment agreements, title and ownership of our intellectual property, source code, open source software, privacy and personal data;
|
|
·
|
interested party transactions involving us and any of our officers, directors, employees, consultants, shareholders or related parties;
|
|
·
|
no brokers and finders’ fees payable in connection with the Share Purchase, and a good faith estimate of all of our fees, costs, expenses, payments, and expenditures incurred and expected to be incurred by Closing in connection with the Share Purchase, the Share Purchase Agreement and the transactions contemplated thereby;
|
|
·
|
environmental matters;
|
|
·
|
propriety of past payments; and
|
|
·
|
our receipt of letters from each of Adi Soffer Teeni and Josef Mandelbaum resigning from our Board of Directors effective no later than immediately prior to the Closing.
|
|
1.
|
changes in general economic or political conditions whether worldwide or in any country or region in which such entity or its subsidiaries conduct business (provided that such changes do not affect such entity disproportionately as compared to other companies or businesses operating in any such country or region);
|
|
2.
|
changes affecting the industry generally in which such entity and its subsidiaries operate (provided that such changes do not affect such entity disproportionately as compared to other participants in such industries);
|
|
3.
|
changes in laws applicable such entity or any of its subsidiaries or generally accepted accounting principles ("GAAP");
|
|
4.
|
acts of war, armed hostilities or terrorism (other than such acts of war, armed hostilities or terrorism, or escalation or worsening thereof that cause any damage or destruction to, or render physically unusable, any facility or property of such entity or otherwise disrupt in any material manner the business or operations of such entity or its subsidiaries);
|
|
5.
|
with respect to us, any decline in the market price or decrease or increase in the trading volume of the Perion Shares;
|
|
6.
|
any failure to meet internal or published projections, forecasts, or revenue or earning predictions for any period;
|
|
7.
|
any litigation arising from allegations of a breach of fiduciary duty or other violation of applicable legal requirements relating to the Share Purchase Agreement or the Split or the transactions contemplated thereby, or the approval thereof;
|
|
8.
|
the announcement or performance of the Split Agreement, the Share Purchase Agreement and the transactions contemplated therein (including without limitation the Split, the Share Purchase and the impact thereof on relationships, contractual or otherwise, with customers, suppliers, search providers, publishers, vendors, employees or venture partners); and
|
|
9.
|
any action taken by Conduit or ClientConnect at the written request of or with the written consent of us, or any action taken by us at the written request of or with the written consent of Conduit or ClientConnect.
|
|
·
|
conduct its business in the usual, regular and ordinary course, consistent with past practice; and
|
|
·
|
use all commercially reasonable efforts consistent with past practice to:
|
|
o
|
pay and perform all debts and other obligations (including taxes) when due;
|
|
o
|
collect accounts receivable when due and not extend credit outside of the ordinary course of business;
|
|
o
|
sell its products in all material respects consistent with past practices as to license, service and maintenance terms, incentive programs, and revenue recognition;
|
|
o
|
keep available the services of its present current officers and key employees, and preserve its relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with it; and
|
|
o
|
promptly notify the other parties of any change, occurrence or event not in the ordinary course of business, or of any change, occurrence or event which, in each case, individually or in the aggregate with any other changes, occurrences and events, would reasonably be expected to be materially adverse to such party or cause any of the Closing conditions not to be satisfied.
|
|
·
|
(i) in our case, declare or pay any dividends on or make any other distributions in respect of any of our share capital, or split, combine or reclassify any of our share capital or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of our share capital except for exercise of outstanding options, or repurchase or otherwise acquire, directly or indirectly, any shares of our share capital except from former employees, non-employee directors and consultants in accordance with agreements providing for the repurchase of shares in connection with any termination of service, and (ii) in the case of Conduit and ClientConnect, make any stock distributions in respect of any of its share capital, or split, combine or reclassify any of its share capital or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its share capital, except for exercise of outstanding options, including as set forth in the Split Agreement and except that the Split may be effected in accordance with the Split Agreement;
|
|
·
|
issue, deliver, sell or authorize any shares of its share capital or securities convertible into, or other rights obligating it to issue any such shares or other convertible securities, and (i) in the case of Conduit and ClientConnect, issue Conduit Options to any ClientConnect employee other than in the ordinary course of business, in each case other than the issuance of ClientConnect Shares to the ClientConnect Shareholders in accordance with their shares of Conduit and the issuance of the ClientConnect Options in exchange for Conduit Options, all pursuant to the Split and the Split Agreement, and (ii) in our case, other than the grant of awards under our Equity Incentive Plan in the ordinary course of business and the issuance of Perion Shares pursuant to the exercise of awards under our Equity Incentive Plan;
|
|
·
|
enter into any contract that would constitute a material contract under the Share Purchase Agreement, or violate, terminate, amend or otherwise modify any of the material terms of any of such material contracts (other than in the ordinary course of business) provided, however, that neither party may violate, terminate, amend, or otherwise modify (including by entering into a new contract with such party or otherwise) or waive any of the material terms of any contract with a search engine provider;
|
|
·
|
amend the organizational documents or the organizational documents of ClientConnect, Perion or any of their respective subsidiaries;
|
|
·
|
hire any officers (in the case of Conduit and ClientConnect, of the ClientConnect business) on the level of vice president or above or enter into any contract with a labor union or collective bargaining agreement;
|
|
·
|
make any loans or advances (in case of Conduit and ClientConnect, solely with respect to ClientConnect and its subsidiaries) (other than routine expense advances to employees consistent with past practice) to, or any investments in or capital contributions to, any person, or forgive or discharge in whole or in part any outstanding loans or advances, or prepay any Indebtedness for borrowed money;
|
|
·
|
transfer or license from any person any rights to any intellectual property of such party, other than in the ordinary course of business consistent with past practice, or transfer or grant an exclusive license to any person any rights to any intellectual property of such party, or transfer or provide a copy of any source code of such party to any person;
|
|
·
|
take any action regarding a patent (or, in our case, any patent application or other intellectual property right), other than filing continuations for existing patent applications or completing or renewing registrations of existing patents (and, in our case, domain names, trademarks or service marks) in the ordinary course of business;
|
|
·
|
sell, lease, license or otherwise dispose of any of its properties or assets, or enter into any contract with respect to the foregoing, other than sales, leases, nonexclusive licenses or other dispositions of products and services in the ordinary course of business consistent with past practice;
|
|
·
|
incur any indebtedness for borrowed money or guarantee any such indebtedness;
|
|
·
|
(i) in the case of ClientConnect, incur or make any capital expenditures, capital additions or capital improvements, other than in the ordinary course of business and exceeding $2,000,000 and (ii) in our case, incur or make any capital expenditures, capital additions or capital improvements, other than in the ordinary course of business and exceeding $500,000;
|
|
·
|
materially change the amount of any insurance coverage other than, with respect to Conduit and us, directors and officers liability insurance;
|
|
·
|
except in each case as required pursuant to the Share Purchase Agreement, the Split Agreement or under applicable legal requirements, (i) pay or accrue any special bonus or special remuneration outside the ordinary course of business to any key employee or (ii), in our case, adopt or amend any employee incentive plan;
|
|
·
|
(i) commence a lawsuit other than (A) for the routine collection of bills, (B) in such cases where such party in good faith determines that failure to commence suit would result in the material impairment of a valuable aspect of its business (provided that it consults with the other party prior to the filing of such a suit), or (C) for a breach of the Share Purchase Agreement or (ii) settle or agree to settle any pending or threatened lawsuit or other dispute in an amount greater than $2,000,000 in the case of Conduit and $250,000 in our case;
|
|
·
|
acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which, in the case of the ClientConnect business, that are material, individually or in the aggregate to the ClientConnect business, or enter into any contract with respect to a joint venture, strategic alliance or partnership which, in the case of the ClientConnect business, are not in the ordinary course of business consistent with past practice;
|
|
·
|
enter into any agreement for the purchase, sale or lease of any real property;
|
|
·
|
other than in the ordinary course of business consistent with past practice, place or allow the creation of any encumbrance (other than a permitted encumbrance) on any of its properties (in the case of Conduit and ClientConnect, primarily used in the ClientConnect business);
|
|
·
|
change the manner in which it provides warranties, discounts or credits to customers of its business;
|
|
·
|
enter into any contract in which any officer or director (or, in the case of ClientConnect, a ClientConnect Shareholder) or any member of their immediate families has a personal interest;
|
|
·
|
in the case of Conduit and ClientConnect, amend the Split Agreement or waive any rights thereunder on behalf of ClientConnect; and
|
|
·
|
agree, resolve or commit to take any of the actions described above.
|
|
·
|
solicit, initiate, seek or knowingly encourage the making, submission, or announcement of any Takeover Proposal with respect to such company or business;
|
|
·
|
furnish any information in connection with or in response to a Takeover Proposal with respect to such company or business;
|
|
·
|
continue or otherwise engage or participate in any discussions or negotiations with respect to a Takeover Proposal with respect to such company or business;
|
|
·
|
approve, endorse or recommend any Takeover Proposal with respect to such company or business (except in our case, in connection with a Change of Recommendation (as defined below)); or
|
|
·
|
enter into any letter of intent, arrangement, agreement or understanding, written or oral, relating to any Acquisition Transaction with respect to such company or business;
|
|
·
|
a bona fide unsolicited written Takeover Proposal with respect to Perion is made in writing to us by a third party and such offer is not withdrawn;
|
|
·
|
our Board of Directors determines that such offer constitutes a Superior Offer;
|
|
·
|
we are not and have not been in breach of our non-solicitation obligations under the Share Purchase Agreement;
|
|
·
|
we provide Conduit five business days prior written notice of our intention to take such action, which notice will include the information with respect to such Superior Offer;
|
|
·
|
we will have negotiated during the five business day notice period with Conduit and ClientConnect in good faith regarding the making of any adjustments to the terms and conditions of the Share Purchase Agreement; and
|
|
·
|
at the end of the period described above, our Board of Directors again makes the determination in good faith after consultation with outside legal counsel and a reputable international financial advisor (after taking into account any adjustments of modifications to the terms of the Share Purchase Agreement proposed by Conduit and ClientConnect) that such Takeover Proposal continues to be a Superior Offer and that failure to approve a Change of Recommendation would constitute a breach of its fiduciary duties under applicable law.
|
|
·
|
enter into, participate or engage, directly or indirectly, in the development, marketing or sale of Toolbar Platforms, standalone Search Protects, Value Apps or Download Managers, as such products are defined below (the "
Field of Business
");
|
|
·
|
engage in selling or proxying internet search feeds or search pages to third-party products, unless we serve as the search partner for such activities and such services will be provided on commercial terms and conditions which are the most favorable terms and conditions for similar services of ours, at any time and from time to time after the Closing Date; or
|
|
·
|
promote or assist, financially or otherwise, any person engaged in the Field of Business;
|
|
·
|
Toolbar Platform: A cloud-based toolbar and app generation platform, which allows for the creation, implementation and administration of web browser toolbars for distribution by publishers to targeted audiences. The Toolbar Platform includes, without limitation, software applications and tools that provide comprehensive solutions for the full customization of toolbar GUI, features and services, through a user friendly online drag and drop system and additional features or services (such as a search box, home page takeover, value apps) that may be provided therein or in connection thereto.
|
|
·
|
Search Protect: Standalone software, which protects the end user’s browser’s settings. Search Protect is designed to the end user to maintain its selected browser settings and to prevent third-party software downloads from changing them.
|
|
·
|
Value Apps: Conduit’s and third party’s applications, services and offers aggregation and optimization tool, which is offered as a toolbar feature or as a standalone software to end users.
|
|
·
|
Download Manager: An installer that provides an end user with the ability to download and install a toolbar and, if available, Additional Offers via a single process. "Additional Offers" refers to any third party content features or services that are presented to end users as part of the Download Manager or in connection thereto.
|
|
(i)
|
the Split will be treated as a tax-deferred restructuring pursuant to Section 105 of the Tax Ordinance;
|
|
(ii)
|
the Share Purchase will be treated as a tax-deferred merger pursuant to Section 103T of the Tax Ordinance;
|
|
(iii)
|
the exchange of the ClientConnect Options for the Perion Options at the Closing (the "Options Exchange") will not result in a requirement for an immediate Israeli tax payment (or any tax withholding by us), until such time as (x) any such Perion Option is exercised or (y) in the case of Perion Options which are part of a plan under Section 102 of the Tax Ordinance, until the actual sale of the underlying Perion Shares by the holder thereof or their release from the trustee of such plan (the "Section102 Trustee"), in accordance with the terms of such ruling;
|
|
(iv)
|
with respect to such ClientConnect Options subject to Section 102 of the Tax Ordinance, that the requisite two-year holding period will not be restarted as a result of the Options Exchange; and
|
|
(v)
|
the transfer of severance funds of ClientConnect employees from Conduit to ClientConnect will not constitute a tax event.
|
|
·
|
each of Conduit and ClientConnect may not sell a majority of its assets (as defined in the Tax Ordinance) and such assets must be put to reasonable use under the circumstances in the course of its business;
|
|
·
|
each of Conduit and ClientConnect must continue the principal business activities that Conduit was engaged in during the two years preceding the Split;
|
|
·
|
there may be no transfers of cash or other consideration, granting of guaranties or any other activities between Conduit and ClientConnect outside the ordinary course of business;
|
|
·
|
subject to certain exceptions detailed below, shareholders of Conduit (and ClientConnect) are required to retain their same respective interests in Conduit as they had in Conduit prior to the Split, and are also required to maintain their same respective interests in us as they will be immediately following the Closing. According to the requested Tax Ruling, this restriction would apply only to certain controlling shareholders of Conduit. For this purpose, a controlling shareholder means any person who, directly or indirectly, holds 5% or more of the outstanding shares of a company, 5% or more of the voting rights in a company, the right to receive 5% or more of the assets of a company upon liquidation or the right to appoint at least one director;
|
|
·
|
subject to certain exceptions detailed below, we are required to maintain our interests in ClientConnect as they will be immediately following the Closing; and
|
|
·
|
subject to certain exceptions detailed below, our controlling shareholders at the time of the Closing are required to retain their same respective interests in us as they will be immediately following the Closing. According to the requested Tax Ruling, this restriction would apply only to our controlling shareholders who will remain controlling shareholders immediately after the Closing. Based on our current shareholder base, these restrictions would not apply to any of our current shareholders.
|
|
·
|
the sale of up to 10% of the restricted interests in Conduit, ClientConnect or the Company to a person who was not a security holder of the relevant company prior to the Split and the Share Purchase transactions;
|
|
·
|
the issuance of shares of Conduit, ClientConnect or the Company in a private placement to any single person (or a group of related persons) of up to 25% of the relevant company’s outstanding shares, measured prior to the issuance, provided such person (or persons) was not a security holder of the relevant company prior to the Split and the Share Purchase transactions;
|
|
·
|
a public offering of Conduit, ClientConnect or the Company pursuant to which the offered shares will be listed on a stock market; or
|
|
·
|
an involuntary sale, such as by inheritance or in liquidation.
|
|
·
|
use commercially reasonable efforts to obtain prior to the Closing, and deliver to other party at or prior to the Closing, all consents, waivers and approvals necessary to be obtained from third parties;
|
|
·
|
(i) notify the other parties in writing promptly after learning of any legal proceeding initiated by or against it, or known by such party to be threatened against it, or any of their respective directors, officers, employees or shareholders, in their capacity as such (a "New Litigation Claim"), (ii) notify the other parties of ongoing material developments in any New Litigation Claim and (iii) consult in good faith with the other party regarding the conduct of the defense of any New Litigation Claim; and
|
|
·
|
afford the other parties and their representatives, reasonable access upon reasonable notice and during business hours to (i) all of such party’s properties, books, contracts and records (in the case of Conduit, only in connection with the ClientConnect business) and (ii) all other information concerning the business, properties and personnel (subject to restrictions imposed by applicable legal requirement) of such party as the other parties may reasonably request (in the case of Conduit, only in connection with the ClientConnect business).
|
|
(i)
|
no temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Share Purchase shall be in effect, nor shall any action have been taken by any governmental entity seeking any of the foregoing, and no statute, rule, regulation or order shall have been enacted, entered, enforced or deemed applicable to the Share Purchase which makes the consummation of the Share Purchase illegal;
|
|
(ii)
|
Conduit, ClientConnect and we will have timely obtained from each governmental entity all approvals, waivers and consents (or the applicable waiting periods under applicable antitrust laws shall have expired) necessary for consummation of the Share Purchase and the other transactions contemplated hereby, without imposing any material limitation, restriction or obligation on any such party, respectively;
|
|
(iii)
|
the Court Approval will have been obtained;
|
|
(iv)
|
the approval of our shareholders of the Share Purchase Proposal will have been obtained;
|
|
(v)
|
we will have obtained the approval of the NASDAQ Stock Market for the listing of the New Shares following the Closing;
|
|
(vi)
|
we will have obtained the approval of the Tel Aviv Stock Exchange for the listing of the New Shares to be issued at the Closing;
|
|
(vii)
|
the Split will have been consummated in accordance with the Split Agreement (including the exhibits and schedules thereto), with no amendments thereto or waivers of any rights of ClientConnect, except as approved by us; and other than
de minimis
deviations; and
|
|
(viii)
|
ClientConnect and Conduit will have entered into each of the Transition Services Agreement and the Office and Administrative Services Agreement.
|
|
(i)
|
the representations and warranties made by us in the Share Purchase Agreement relating to (a) our organization, good standing and power, (b) our capital structure and (c) our authority to execute and perform the Share Purchase Agreement and the due authorization thereof will be true and correct in all material respects as of the date of the Share Purchase Agreement and as of the Closing Date as though made on the Closing Date (except for such representations and warranties which address matters only as to a specified date, which representations and warranties will be true and correct in all material respects with respect to such specified date and except for such representations and warranties that are qualified by their terms by a reference to materiality or Material Adverse Effect, which representations and warranties as so qualified will be true and correct in all respects), except that the representations and warranties made by us relating to the issuance of the New Shares and the Perion Shares to be issued pursuant to the exercise of Exchanged Options will be true and correct as of the date of the Share Purchase Agreement and as of the Closing Date as though made on the Closing Date;
|
|
(ii)
|
the other representations and warranties made by us in the Share Purchase Agreement will be true and correct as of the date of the Share Purchase Agreement and as of the Closing Date as though made on and as of such date (except for representations and warranties which address matters only as to a specified date, which representations and warranties will be true and correct with respect to such specified date), except for any failure to be true and correct which, individually or together with other failures, does not constitute a Material Adverse Effect on us;
|
|
(iii)
|
we will have performed and complied in all material respects with all covenants, obligations and conditions of the Share Purchase Agreement required to be performed and complete with by us at or prior to the Closing;
|
|
(iv)
|
Conduit will have received each of the following closing deliverables:
|
|
·
|
irrevocable instruction letter from us to American Stock Transfer & Trust Company LLC, our U.S. transfer agent, directing it to issue the New Shares to the respective ClientConnect Shareholders as set forth in the Closing Spreadsheet;
|
|
·
|
a certificate, dated as of the Closing Date, executed on our behalf by our Chief Executive Officer and the Chief Financial Officer of Perion, to the effect that certain closing conditions have been satisfied;
|
|
·
|
a certificate, dated as of the Closing Date and executed on our behalf by our Corporate Secretary, certifying (A) our Memorandum and Articles of Association, as in effect on the Closing Date, (B) the resolutions of our Board of Directors approving the Share Purchase, the Share Purchase Agreement, and all the transactions contemplated by the Share Purchase Agreement and (C) the resolutions of our shareholders approving the Share Purchase Agreement and all the transactions contemplated by the Share Purchase Agreement;
|
|
·
|
the Registration Rights Undertaking duly executed by us;
|
|
·
|
a legal opinion of Kramer Levin Naftalis and Frankel LLP, our U.S. legal counsel, relating to the exemption from registration under the Securities Act by reason of Section 3(a)(10) thereof; and
|
|
·
|
evidence satisfactory to Conduit of the resignation of both of Josef Mandelbaum and Adi Soffer Teeni as directors of Perion prior to the Closing;
|
|
(v)
|
there will not have been any Material Adverse Effect on us;
|
(vi)
|
we will have entered into the amended Indemnification Agreement described below in Proposal 2 with each of the two Conduit Director Designees, and purchased the D&O insurance described below in Proposal 3;
|
(vii)
|
at least 65% of our key employees will be employees of ours and none of such employees will have given any notice or other indication that he or she is not willing to remain employed by us following the Closing;
|
|
(viii)
|
at least 65% of our employees as of September 16, 2013, will be our employees, and none of such employees will have given any notice or other indication that he or she is not willing to remain employed by us following the Closing;
|
|
(ix)
|
all consents required to be obtained in connection with the transactions contemplated by the Share Purchase Agreement will have been obtained in a form satisfactory to Conduit and ClientConnect, been delivered to Conduit and ClientConnect, and will be in full force and effect;
|
|
(x)
|
our indebtedness as of the Closing Date will not exceed $14,741,000;
|
|
(xi)
|
the Tax Ruling will have been obtained on terms reasonably satisfactory to Conduit and ClientConnect based on agreed upon principles; and
|
|
(xii)
|
both of Conduit's director designees will have been duly elected and serve as directors and are members of the respective classes of directors vacated by both of our resigning directors, with one designee appointed as a member of the Nominating Committee of our Board of Directors and the other designee appointed as a member of the Investment Committee of our Board of Directors, as described under "Election of Two New Directors".
|
|
(i)
|
the representations and warranties made by each of Conduit and ClientConnect in the Share Purchase Agreement relating to (a) its organization, good standing and power, (b) its capital structure and (c) its authority to execute and perform the Share Purchase Agreement and the due authorization thereof will be true and correct in all material respects, as of the date of the Share Purchase Agreement and as of the Closing Date as though made on the Closing Date (except for such representations and warranties which address matters only as to a specified date, which representations and warranties shall be true and correct in all material respects with respect to such specified date and except for such representations and warranties that are qualified by their terms by a reference to materiality or Material Adverse Effect, which representations and warranties as so qualified shall be true and correct in all respects);
|
|
(ii)
|
the other representations and warranties made by each of Conduit and ClientConnect in the Share Purchase Agreement will be true and correct as of the date of the Share Purchase Agreement and as of the Closing Date as though made on and as of such date (except for representations and warranties which address matters only as to a specified date, which representations and warranties will be true and correct with respect to such specified date), except for any failure to be true and correct which does not constitute, individually or together with other failures, a Material Adverse Effect on ClientConnect;
|
|
(iii)
|
each of Conduit and ClientConnect will have performed and complied in all material respects with all covenants, obligations and conditions of the Share Purchase Agreement required to be performed and complied with by it at or prior to the Closing;
|
|
(iv)
|
we will have received each of the following closing deliverables:
|
|
·
|
certificates, dated as of the Closing Date and executed on behalf of Conduit and ClientConnect by each of Conduit's and ClientConnect's Chief Executive Officer and Chief Financial Officer, respectively, to the effect that certain conditions have been satisfied;
|
|
·
|
a certificate, dated as of the Closing Date and executed on behalf of Conduit by the Secretary of Conduit, certifying (A) the resolutions of the Conduit Board of Directors approving the Share Purchase Agreement and all the transactions contemplated by the Share Purchase Agreement and (B) the resolutions of the Conduit shareholders approving the Share Purchase Agreement and all the transactions contemplated by the Share Purchase Agreement;
|
|
·
|
a certificate, dated as of the Closing Date and executed on behalf of ClientConnect by the Secretary of ClientConnect, certifying (A) the Articles of Association, including all amendments thereto, of ClientConnect, as amended as of the Closing Date and (B) the resolutions of the ClientConnect Board of Directors approving the Share Purchase Agreement and all the transactions contemplated by the Share Purchase Agreement;
|
|
·
|
evidence satisfactory to us of the resignation of each of the directors of ClientConnect and its subsidiaries prior to the Closing;
|
|
·
|
the Closing Spreadsheet completed to include all of the information specified in the Share Purchase Agreement, and a certificate executed by the Chief Financial Officer of Conduit on behalf of Conduit, dated as of the Closing Date, certifying that such Closing Spreadsheet is true, correct and complete; and
|
|
·
|
the shareholders registry of ClientConnect certified as true and complete by the Secretary of ClientConnect, evidencing the ownership of all of the outstanding ClientConnect Shares by Perion.
|
|
(v)
|
there will not have been any Material Adverse Effect on the ClientConnect business or ClientConnect;
|
(vi)
|
at least 65% percent of the ClientConnect key employees will have signed and delivered to us the employment confirmation between such employee and ClientConnect, each of which will continue to be in full force and effect and no notice of termination action will have been received from any such ClientConnect key employee;
|
(vii)
|
at least 65% of the ClientConnect employees , will be employees of ClientConnect, and none of such employees will have given any notice or other indication that he or she is not willing to remain employed by ClientConnect following the Closing;
|
(viii)
|
certain of the ClientConnect key employees will have signed and delivered to us an undertaking to comply with the Tax Lock-up;
|
|
(ix)
|
all consents required to be obtained in connection with the transactions contemplated by the Share Purchase Agreement will have been obtained in a form satisfactory to us, been delivered to us, and will be in full force and effect;
|
|
(x)
|
ClientConnect will have no indebtedness as of the Closing Date;
|
|
(xi)
|
each of the Standstill Agreements will continue to be in full force and effect and no action will have been taken by any person to any of such agreements to rescind any of such agreements;
|
|
(xii)
|
the Tax Ruling will have been obtained on terms reasonably satisfactory to us based on agreed upon principles;
|
|
(xiii)
|
Conduit will have made the amendments to its D&O insurance policy and will have purchased the run-off insurance policy described below in " – Additional Matters – Additional Covenants"; and
|
|
(xiv)
|
the Preliminary ClientConnect Net Working Capital Certificate described in " – Additional Matters – ClientConnect Net Working Capital Adjustment" below will have been delivered by Conduit to us.
|
|
(a)
|
By mutual written consent of Conduit, ClientConnect and us;
|
|
(b)
|
By either Conduit, ClientConnect or us if:
|
|
(c)
|
By either Conduit or ClientConnect if:
|
|
(d)
|
By us if:
|
|
(ii) there will have been a breach by Conduit or ClientConnect of any of its representations, warranties, covenants or obligations contained in the Share Purchase Agreement, which breach would result in the failure to satisfy by the Outside Date one or more of the conditions set forth in the conditions of each of the parties or of us, and in any such case such breach will be incapable of being cured or, if capable of being cured, will not have been cured within thirty days after written notice thereof will have been received by Conduit or ClientConnect, as applicable, of such breach; provided, however, the right to terminate the Share Purchase Agreement pursuant to this provision will not be available to us if at such time Conduit or ClientConnect would be entitled to terminate the Share Purchase Agreement pursuant to our breach of clause (c)(ii) above or if we are otherwise in material breach of our obligations; or
|
|
·
|
confidentiality and public disclosure;
|
|
·
|
filings with government entities, including all necessary applications with each of NASDAQ and the Tel Aviv Stock Exchange for the listing of the New Shares, the U.S. Federal Trade Commission and Department of Justice and any other applicable antitrust authorities;
|
|
·
|
Conduit and ClientConnect continuing to pay (and set aside, as applicable) through the Closing all salaries, benefits and other entitlements to the ClientConnect employees;
|
|
·
|
our issuance of the New RSUs immediately following the Closing pursuant to Section 102(b) or 102(c) of the Tax Ordinance;
|
|
·
|
Conduit providing us the audited and reviewed historical consolidated financial statements of Conduit and the unaudited ClientConnect pro forma financial information (as discussed below in "Selected Pro Forma Financial Data of ClientConnect");
|
|
·
|
our preparation of the Proxy Statement, calling the Meeting, recommending to our shareholders that they approve the Share Purchase Proposal and using commercially reasonable efforts to solicit from our shareholders proxies in favor of the Share Purchase Proposal;
|
|
·
|
ClientConnect taking all steps necessary to consummate the Split in accordance with the Split Agreement, subject to the Court Approval;
|
|
·
|
public announcements with respect to the Share Purchase;
|
|
·
|
access to information and updating of the disclosure letters to the Share Purchase Agreement until the earlier of the termination of the Share Purchase Agreement or the Closing;
|
|
·
|
Conduit and ClientConnect providing us a spreadsheet at or prior to the Closing (the "Closing Spreadsheet"), certified as complete and correct by the Chief Financial Officer of Conduit, which will set forth certain information, including (i) the names of all the ClientConnect Shareholders and holders of ClientConnect Options, (ii) the number of ClientConnect Shares held by such persons, (iii) the number of ClientConnect Shares subject to, and the exercise price for, each ClientConnect Option held by each holder of ClientConnect Options and other relevant information, and (iv) the number of New Shares to be issued to such ClientConnect Shareholder and the number of Perion Options to be granted to such ClientConnect employee;
|
|
·
|
post-closing covenants, such as:
|
|
o
|
each party will afford the other party and its representatives, during normal business hours, reasonable access to the books, records and other information in such party's possession relating, directly or indirectly to the assets, liabilities and operations of the ClientConnect business with respect to periods prior to the Closing;
|
|
o
|
(i) by no later than February 15, 2014, Conduit will provide us with the unaudited balance sheet, income statements and cash flow statements of the ClientConnect business as of and for the three-month and 12-month periods ended December 31, 2013, for inclusion in our press release containing our fourth quarter and 2013 financial information; and (ii) by no later than March 10, 2014, Conduit will provide us with (A) the final consolidated balance sheet of the ClientConnect business as of December 31, 2013 and 2012, and the related consolidated statements of income, changes in shareholders equity, and cash flows for the three years ended December 31, 2013, 2012 and 2011 (the "Delivered Financial Statements"), (B) a full management discussion and analysis and business disclosure relating to the Delivered Financial Statements and the ClientConnect business for inclusion in our SEC filings, (C) a certificate executed by the Chief Financial Officer of Conduit, dated as of the delivery date, as to certain matters regarding the Delivered Financial Statements and (D) a letter from Conduit's auditor that upon receipt of the executed management letter referenced therein, the auditor would sign the audit letter relating to the Delivered Financial Statement in the form attached thereto;
|
|
o
|
until the full amounts due under the Credit Line are repaid and the Credit Line is terminated, neither ClientConnect nor we will declare or distribute any dividend, in cash or in kind, to our respective shareholders, repurchase or redeem any of our shares or other equity securities, prepay any indebtedness prior to its stated maturity date or undertake any new indebtedness not in effect on the date hereof, other than new indebtedness used to concurrently repay the Credit Line; and
|
|
o
|
not later than the earlier of (i) our 2014 annual meeting of shareholders and (ii) September 30, 2014, we will convene a general meeting of shareholders for (or add to the agenda of the annual shareholder meeting, as applicable) the approval of an amendment to our Articles of Association authorizing the indemnification for matters relating to administrative enforcement actions of the Israel Securities Authority (as specified in Section 1.1.4 of the form of indemnification agreement attached to this Proxy Statement as
Appendix G
) and use commercially reasonable best efforts to solicit from our shareholders proxies in favor of the approval of this resolution; and
|
|
·
|
from the closing of the Split until the Closing Date, Conduit will add ClientConnect and its directors and officers, at no expense to ClientConnect, as additional insureds to Conduit's D&O liability insurance policy and its errors and omissions insurance policy, as applicable, and effective as of the Closing Date (i) Conduit will purchase run-off insurance for a period of seven years from the Closing Date with respect to Conduit's current D&O liability insurance policy and errors and omissions insurance policy and (ii) we will cause ClientConnect and its directors and officers to be covered by our D&O liability insurance policy in the amount of at least $50 million and errors and omissions insurance policy in the amount of at least $5 million, as applicable, for acts following the Closing Date and (iii) we will purchase run-off insurance for a period of seven years from the Closing Date with respect to our current D&O liability insurance policy and errors and omissions insurance policy.
|
|
·
|
Form F-3
. We will be required to file a "shelf" registration statement on Form F-3 as soon as practicable following the filing of our Annual Report on Form 20-F for the 2013 fiscal year (and in any event within the earlier of (i) 30 days following the filing of such annual report and (ii) 150 days following the Closing. Each holder of Registrable Securities whose resale of such shares would otherwise be subject to limitations under Rule 144 desiring to include in the Form F-3 all or any part of the Registrable Securities held by it will, within thirty days following the Closing Date, deliver to us a signed joinder to the Registration Rights Undertaking in the form attached thereto specifying the number of Registrable Shares requested to be included and the other information required to set forth therein. We will use our commercially reasonable efforts to cause the Form F-3 to become effective as soon as possible and will maintain the effectiveness of the Shelf Registration until the earliest of (i) five years following effectiveness, (ii) the resale of all the Registrable Securities covered thereby and (iii) with respect to any shareholder, the ability of such shareholder to sell all of its Registrable Securities under Rule 144 without any volume limitations. Such registration will not derogate from the Tax Lock-up or the Contractual Lock-up that applies to the Registrable Securities.
|
|
·
|
Piggyback Registration Rights
. If we effect a registered offering of securities (except on Form S-8 or a registration relating solely to a Rule 145 transaction on Form F-4), the holders of Registrable Securities consisting of at least 3% of our outstanding share capital at the relevant time or a holder whose resale of Registrable Securities would otherwise be subject to volume limitations set forth in Rule 144 will have the right to include its Registrable Securities in the registration effected pursuant to such offering. Each such holder will be afforded this right regardless of the Contractual Lock-up that may apply to such holder’s Registrable Securities. If the applicable registration statement is for an underwritten offering, the right of any holder of Registrable Securities to be included in a registration will be conditioned upon such holder’s participation in such underwriting, subject to the right of the managing underwriter to reduce the number of Registrable Securities in the offering due to marketing factors. The number of piggyback registrations is unlimited.
|
|
·
|
Shelf Registration Rights
. For a period of three years following the expiration of the Form F-3 described above, we may be required to file a "shelf" registration statement covering the resale of Registrable Securities if we receive a request from holders thereof whose resale of such shares would otherwise be subject to volume limitations under Rule 144 holding, in the aggregate, not less than 10% of the total Registrable Securities then outstanding and requesting the registration of Registrable Securities with an aggregate anticipated offering price of at least $2,000,000 (the "Shelf Registration Statement"). We will use our commercially reasonable best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act within two months after the holders' initial request and to keep such Shelf Registration Statement continuously effective under the Securities Act until the disposition of all Registrable Securities included in such Shelf Registration Statement. Such shelf registration rights are limited to four requests during the Shelf Registration Period.
|
|
·
|
Software business models are continuing to evolve.
Software vendors traditionally have sought to build powerful, full-featured applications and distribute them directly to consumers and businesses. Over the past decade, the growing ubiquity of low-cost, high-speed Internet access, an increased focus on attracting users on a global basis and a drive to reduce adoption barriers have driven software vendors to adopt new business models, such as:
|
|
o
|
Distribution of software online, either directly or through third party online distribution channels, replacing the traditional need to rely on physical retail distribution;
|
|
o
|
Simple, task-specific applications, such as music and video players, video chat services and utility applications that are easy to distribute online have grown in popularity;
|
|
o
|
Software-as-a-Service ("SaaS"), distribution methods have become widespread with users now accustomed to subscription-based and pay-as-you-go pricing; and
|
|
o
|
Adoption of new revenue models, including free-to-download software (with feature and function upgrades for a fee) and advertisement-supported software.
|
|
·
|
Challenge of monetization.
Consumers present software publishers with a monetization challenge given consumers’ reluctance to pay for software. To overcome that challenge, software publishers are increasingly adopting a free model centered on monetization through advertising, which enables software publishers to generate revenues from end users who otherwise might have been unwilling to purchase their products or services. This model, centered around monetization of content through advertising, has been successfully utilized by television, radio and online content channels for many years.
|
|
·
|
User loyalty challenge.
Given the preponderance of online publishers and their competing software and applications that are usually freely available, new and even experienced publishers find it difficult to ensure that their users remain with them on an ongoing basis in a manner that enables publishers to reap the economic benefits from their products.
|
|
·
|
Constant contact with users
builds loyalty
.
By enabling downloads of a customized toolbar that is compatible with all major browsers and remains with users, publishers are given an opportunity to remain visible to users on an ongoing basis. A downloaded toolbar can be updated on a real-time basis by publishers allowing users to remain aware of the latest features and upgrades to the publishers' products. Such constant engagement helps build and maintain user loyalty.
|
|
·
|
Monetization features.
|
|
o
|
Toolbars
.
Most publishers are initially paid by ClientConnect for each installation of their customized toolbars by an end user, while some are also paid based on the number of average daily active users of the customized toolbar. Publishers also earn fees from ClientConnect on a pay-per-search or revenue sharing basis for search activity emanating from the toolbars' incorporated search engine and related searches from other search assets.
|
|
o
|
Syndication and Search Assets.
Publishers can also monetize their products and websites via search syndication, whereby publishers incorporate a search engine on their products and websites, and via users' other search assets such as browser default search, new tab search, home page takeover and error page redirection. As with toolbars, publishers who generate search activity earn fees from ClientConnect on a pay-per-search or revenue sharing basis for syndicating search and from their users' searches on other search assets.
|
|
·
|
Innovative, powerful technology
.
The cloud-based platform is backed by a powerful infrastructure, advanced application programming interfaces (
APIs
) and is able to easily scale up or down based upon the system it is running on. Publishers are therefore not likely to experience technical difficulties in using it to develop a toolbar or for any of its other features.
|
|
·
|
Broad distribution
.
The platform enables publishers to reach users in over 80 languages and more than 120 countries, thereby maximizing the exposure that publishers receive for their products and applications.
|
|
·
|
Search box
.
The search box is the most central feature of the toolbar, enabling users to conduct Internet searches. The searches are powered by search providers that contract with ClientConnect. For United States and Canadian users, Microsoft Bing is most likely to serve as the search provider, whereas for users throughout the rest of the world Google and Yahoo are more likely to serve as the search providers. ClientConnect's agreements with these search providers are described below under "Material Agreements with Search Providers".
|
|
·
|
Home page takeover
.
This feature results in taking over the homepage of a user’s browser during the installation process of the toolbar.
|
|
·
|
Value Apps
.
This serves as a tool for aggregating and optimizing applications, services and offers. It enriches a user's web experience by offering deals, coupons and related content. It is compatible with all major web browsers, including Google Chrome, Internet Explorer and Mozilla Firefox. Value Apps is a general name which includes the add-ons described below (under "Applications"). Besides being offered as a tool for the toolbar, it may also (or instead) be incorporated during the installation process of publisher’s software as standalone software for use by end users (as described below under "Value Apps"). This serves as an effective monetization mechanism, as ClientConnect compensates a publisher either based on a fixed fee per installation or via a revenue sharing arrangement for revenue generated when users follow the links related to the applications, services and offers included in Value Apps.
|
|
·
|
Search Syndications
:
Publishers may incorporate a search box on their own websites that is powered by ClientConnect's search providers and which pay ClientConnect fees for searches emanating from such search box. These search syndications can only be incorporated to the extent that Microsoft Bing or Yahoo serves as the search provider, and they may not be incorporated if Google serves as the search provider.
|
|
·
|
Browser Default Searches; New Tab; Error Page
:
During the installation process of publisher software or a toolbar, ClientConnect may take over other search assets such as the default search set in one or more browsers installed on an end user's computer and browsers' new tabs. Additionally, in the event that end users generate either an error URL or an error search query, ClientConnect can provide a search field to redirect the requested search. These assets generate additional searches per user and further increase monetization.
|
|
·
|
broadening its publisher base and deepening its connection with existing publishers by increasing marketing efforts and adding methods of advertising to reach out to more publishers of Internet content;
|
|
·
|
expanding its existing platform and/or developing new platforms that will offer (i) an even wider array of applications and features to publishers for customization and protection of search assets that they distribute, thereby broadening the usefulness of the search assets to end users whose use of the search assets would increase as a result, and (ii) other monetization tools; and
|
|
·
|
advancing its technological capabilities by continuing to invest in research and development efforts, which serve as the basis for its efforts to further enhance its existing platform and develop new platforms for publishers.
|
Location
|
Approximate
square feet
|
|||
Foster City, California
|
6,903
|
Number of full-time
equivalent employees
by region as of
|
||||||||
Region
|
June 30, 2013
|
December 31, 2012
|
||||||
Israel
|
225 (8 part time)
|
204 (8 part time)
|
||||||
United States
|
11 | 13 | ||||||
Total
|
236 | 217 |
Number of full-time
equivalent employees
by function as of
|
||||||||
Division
|
June 30, 2013
|
December 31, 2012
|
||||||
BSS
|
40 | 37 | ||||||
Product units
(TB, DM, Value Apps, Search, Tech Innov.)
|
136 | 129 | ||||||
Customer service
|
0 | 4 | ||||||
Sales and marketing
|
42 | 35 | ||||||
General and administrative (HR, legal, compliance, finance)
|
18 | 12 | ||||||
Total
|
236 | 217 |
Selected ClientConnect Pro Forma Statement of Income Data (1)
(U.S. dollars, in thousands)
|
||||||||||||||||
Six months ended
June 30,
|
Year ended
December 31,
|
|||||||||||||||
2013
|
2012
|
2012
|
2011
|
|||||||||||||
Revenues
|
$ | 160,450 | $ | 259,723 | $ | 537,008 | $ | 481,724 | ||||||||
Costs and expenses:
|
||||||||||||||||
Cost of revenues
|
2,954 | 2,643 | 5,513 | 4,168 | ||||||||||||
Traffic acquisition costs
|
81,975 | 49,253 | 119,555 | 113,358 | ||||||||||||
Research and
development
|
10,243 | 7,493 | 16,858 | 18,346 | ||||||||||||
Sales and marketing
|
4,948 | 3,944 | 7,920 | 17,917 | ||||||||||||
General and administrative
|
6,053 | 2,296 | 4,705 | 4,126 | ||||||||||||
Operating income
|
54,277 | 194,094 | 382,457 | 323,809 | ||||||||||||
Financial income (expense), net
|
1,305 | 1,640 | 7,696 | (636 | ) | |||||||||||
Income before taxes on income
|
55,582 | 195,734 | 390,153 | 323,173 | ||||||||||||
Taxes on income
|
8,572 | 29,607 | 75,435 | 22,564 | ||||||||||||
Net income
|
$ | 47,010 | $ | 166,127 | $ | 314,718 | $ | 300,609 |
Selected ClientConnect Pro Forma Historical Continuing Operations Balance Sheet Data
(Pre-spin-off) (1) (U.S. dollars, in thousands)
|
||||||||||||
As of
|
||||||||||||
June 30, 2013
|
December 31, 2012
|
December 31, 2011
|
||||||||||
Cash and cash equivalents
|
$ | 228,085 | $ | 78,395 | $ | 41,239 | ||||||
Total assets
|
322,872 | 293,039 | 312,230 | |||||||||
Total liabilities
|
52,759 | 63,285 | 46,122 | |||||||||
Discontinued operation net assets
|
11,076 | 14,267 | 19,736 | |||||||||
Shareholders’ equity
|
$ | 281,189 | $ | 244,021 | $ | 285,844 |
Cash and cash equivalents
|
$ | 5,000 | ||
Total assets
|
$ | 37,835 | ||
Total liabilities
|
$ | 15,133 | ||
Shareholders’ equity
|
$ | 22,702 |
|
·
|
broadening ClientConnect's publisher base and deepening its connection with existing publishers by increasing marketing efforts and adding methods of advertising to reach out to more publishers of Internet content;
|
|
·
|
expanding ClientConnect's existing platform and/or developing new platforms that will offer (i) a wider array of applications and features to publishers for customization and protection of search assets that they distribute, thereby broadening the usefulness of the search assets to end users, whose use of the search assets would increase as a result, and (ii) other monetization tools; and
|
|
·
|
extending ClientConnect's technological capabilities by continuing to invest in its research and development efforts, which underlies ClientConnect's effort to further enhance its existing platform and develop new platforms for publishers.
|
Six months ended
|
Year ended
|
|||||||||||||||||||||||||||||||
June 30, 2013
|
June 30, 2012
|
December 31, 2012
|
December 31, 2011
|
|||||||||||||||||||||||||||||
(U.S. dollars in thousands)
|
Revenues*
|
Percentage
|
Revenues*
|
Percentage
|
Revenues*
|
Percentage
|
Revenues*
|
Percentage
|
||||||||||||||||||||||||
Geographical region
|
||||||||||||||||||||||||||||||||
North America
|
82,037 | 61 | % | 209,218 | 84 | % | 425,646 | 83 | % | 374,769 | 81 | % | ||||||||||||||||||||
Europe
|
38,812 | 29 | % | 28,703 | 12 | % | 62,655 | 13 | % | 67,693 | 15 | % | ||||||||||||||||||||
Other
|
13,278 | 10 | % | 10,768 | 4 | % | 22,456 | 4 | % | 21,968 | 4 | % | ||||||||||||||||||||
Total
|
134,127 | 100 | % | 248,689 | 100 | % | 510,757 | 100 | % | 464,430 | 100 | % |
Year ended
|
Six months ended
|
|||||||||||||||
December 31,
|
June 30,
|
|||||||||||||||
2011
|
2012
|
2012
|
2013
|
|||||||||||||
Revenues
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Costs of revenues
|
0.9 | % | 1 | % | 1 | % | 1.8 | % | ||||||||
Traffic acquisition costs
|
23.5 | % | 22.3 | % | 19 | % | 51.1 | % | ||||||||
Research and development expenses
|
3.8 | % | 3.1 | % | 2.9 | % | 6.4 | % | ||||||||
Sales and marketing expenses
|
3.7 | % | 1.5 | % | 1.5 | % | 3.1 | % | ||||||||
General and administrative expenses
|
0.9 | % | 0.9 | % | 0.9 | % | 3.8 | % | ||||||||
Operating income
|
67.2 | % | 71.2 | % | 74.7 | % | 33.8 | % | ||||||||
Financial income (expense)
|
(0.1 | )% | 1.4 | % | 0.7 | % | 0.8 | % | ||||||||
Income before taxes on income
|
67.1 | % | 72.6 | % | 75.4 | % | 34.6 | % | ||||||||
Taxes on income
|
4.7 | % | 14 | % | 11.4 | % | 5.3 | % | ||||||||
Net income
|
62.4 | % | 58.6 | % | 64 | % | 29.3 | % |
Six Months ended June 30,
|
Year ended December 31,
|
|||||||||||||||
2013
|
2012
|
2012
|
2011
|
|||||||||||||
(U.S. dollars, in thousands)
|
||||||||||||||||
Net cash provided by operating activities
|
$ | 64,797 | $ | 174,934 | $ | 328,649 | $ | 300,175 | ||||||||
Net cash provided by (used in) investing activities
|
94,668 | (175,525 | ) | 61,212 | (156,584 | ) | ||||||||||
Net cash used in financing activities
|
10 | 149 | (335,603 | ) | (77,602 | ) |
Client
Connect
|
Perion
|
Pro Forma
Adjustments
|
Pro
Forma
Adjustments
|
Note
|
Combined Pro Forma
|
|||||||||||||||||||
4 | (h) | |||||||||||||||||||||||
Revenues
|
$ | 160,450 | $ | 52,005 | $ | - | $ | - | $ | 212,455 | ||||||||||||||
Cost of revenues
|
- | 6,069 | (6,069 | ) | - | - | ||||||||||||||||||
Gross Profit
|
160,450 | 45,936 | 6,069 | - | 212,455 | |||||||||||||||||||
Costs and expenses:
|
||||||||||||||||||||||||
Cost of revenues
|
2,954 | - | 6,069 | 4,135 | 4(g) | 13,158 | ||||||||||||||||||
Research and development
|
10,243 | 6,293 | - | - | 16,536 | |||||||||||||||||||
Traffic acquisition costs
|
81,975 | 23,881 | - | 105,856 | ||||||||||||||||||||
Selling and marketing
|
4,948 | 5,342 | - | 2,875 | 4(g) | 13,165 | ||||||||||||||||||
General and administrative
|
6,053 | 4,284 | - | 10,337 | ||||||||||||||||||||
Operating income
|
54,277 | 6,136 | - | ((7,010 | 53,403 | |||||||||||||||||||
Financial income (expense), net
|
1,305 | (801 | ) | - | - | 504 | ||||||||||||||||||
Income before taxes on income
|
55,582 | 5,335 | - | (7,010 | ) | 53,907 | ||||||||||||||||||
Taxes on income
|
8,572 | 1,604 | - | (912 | ) | 4(i) | 9,264 | |||||||||||||||||
Net income from continued operations
|
47,010 | 3,731 | - | (6,098 | ) | 44,643 | ||||||||||||||||||
Discontinued operations, net of taxes
|
(14,973 | ) | - | - | - | (14,973 | ) | |||||||||||||||||
Net income
|
$ | 32,037 | $ | 3,731 | $ | - | $ | (6,098 | ) | $ | 29,670 | |||||||||||||
Weighted average common shares:
|
||||||||||||||||||||||||
Basic
|
66,415 | |||||||||||||||||||||||
Diluted
|
68,080 | |||||||||||||||||||||||
Net income from continued operations per common share:
|
||||||||||||||||||||||||
Basic
|
0.67 | |||||||||||||||||||||||
Diluted
|
0.66 | |||||||||||||||||||||||
Net income from discontinued operations per common share:
|
||||||||||||||||||||||||
Basic
|
(0.23 | ) | ||||||||||||||||||||||
Diluted
|
(0.22 | ) |
Client
Connect
|
Perion
|
Pro Forma Adjustments
|
Pro Forma Adjustments
|
Pro Forma Adjustments
|
Note
|
Combined Pro Forma
|
||||||||||||||||||||||
4 | (h) | 4 | (k) | |||||||||||||||||||||||||
Revenues
|
$ | 537,008 | $ | 60,223 | $ | - | $ | 31,196 | $ | - | $ | 628,427 | ||||||||||||||||
Cost of revenues
|
- | 5,230 | (5,230 | ) | - | - | - | |||||||||||||||||||||
Gross Profit
|
537,008 | 54,993 | 5,230 | 31,196 | - | 628,427 | ||||||||||||||||||||||
Costs and expenses:
|
||||||||||||||||||||||||||||
Cost of revenues
|
5,513 | - | 5,230 | 68 | 14,711 | 4(g) | 25,522 | |||||||||||||||||||||
Research and development
|
16,858 | 10,735 | - | 2,932 | - | 30,525 | ||||||||||||||||||||||
Traffic acquisition costs
|
119,555 | - | 22,061 | 15,028 | - | 156,644 | ||||||||||||||||||||||
Selling and marketing
|
7,920 | 29,517 | (22,061 | ) | 2,832 | 6,722 | 4(g) | 24,930 | ||||||||||||||||||||
General and administrative
|
4,705 | 8,560 | - | 3,325 | - | 16,590 | ||||||||||||||||||||||
Operating income
|
382,457 | 6,181 | - | 7,011 | (21,433 | ) | 374,216 | |||||||||||||||||||||
Financial income (expense), net
|
7,696 | (174 | ) | - | 766 | - | 8,288 | |||||||||||||||||||||
Income before taxes on income
|
390,153 | 6,007 | - | 7,777 | (21,433 | ) | 382,504 | |||||||||||||||||||||
Taxes on income
|
75,435 | 2,473 | - | 2,514 | (2,712 | ) | 4(i) | 77,710 | ||||||||||||||||||||
Net income from continued operations
|
314,718 | 3,534 | - | 5,263 | (18,721 | ) | 304,794 | |||||||||||||||||||||
Discontinued operations, net of taxes
|
(23,798 | ) | - | - | - | - | (23,798 | ) | ||||||||||||||||||||
Net income
|
$ | 290,920 | $ | 3,534 | $ | - | $ | 5,263 | $ | (18,721 | ) | $ | 280,996 | |||||||||||||||
Weighted average common shares:
|
||||||||||||||||||||||||||||
Basic
|
64,618 | |||||||||||||||||||||||||||
Diluted
|
65,777 | |||||||||||||||||||||||||||
Net income from continued operations per common share:
|
||||||||||||||||||||||||||||
Basic
|
4.72 | |||||||||||||||||||||||||||
Diluted
|
4.63 | |||||||||||||||||||||||||||
Net income from discontinued operations per common share:
|
||||||||||||||||||||||||||||
Basic
|
(0.37 | ) | ||||||||||||||||||||||||||
Diluted
|
(0.36 | ) |
Current assets
|
$ | 53,872 | ||
Property and equipment
|
1,492 | |||
Goodwill
|
111,962 | |||
Other intangible assets
|
63,400 | |||
Other assets
|
1,424 | |||
Total assets
|
232,150 | |||
Current liabilities
|
(48,490 | ) | ||
Non-current liabilities
|
(19,258 | ) | ||
Total liabilities
|
(67,748 | ) | ||
Estimated purchase price
|
$ | 164,402 |
Six months
ended
June 30, 2013
|
Year ended
December 31, 2012
|
|||||||
Cost of revenues
|
||||||||
Elimination of Perion’s historical intangible asset amortization
|
$ | (3,715 | ) | $ | (1,489 | ) | ||
Estimated amortization of fair value of acquired intangible assets
|
7,850 | 16,200 | ||||||
Adjustments to cost of revenues
|
$ | 4,135 | $ | 14,711 | ||||
Selling and marketing
|
||||||||
Elimination of Perion’s historical intangible asset amortization
|
$ | (942 | ) | $ | (935 | ) | ||
Estimated amortization of fair value of acquired intangible assets
|
3,817 | 7,657 | ||||||
Adjustments to selling and marketing
|
$ | 2,875 | $ | 6,722 |
(h)
|
Perion will present a one-step statement of income to be consistent with ClientConnect's presentation. In addition, traffic acquisition cost will be presented in a separate line item, so it will be reclassified from selling and marking expense to be consistent with ClientConnect's presentation.
|
Six months
Ended
June 30,
2013
|
Year ended
December 31, 2012
|
|||||||
Elimination of Perion’s historical change in deferred taxes associated with the amortization of the purchase accounting adjustments
|
$ | (488 | ) | $ | (88 | ) | ||
Estimated change in deferred taxes associated with the amortization of the purchase accounting adjustments
|
1,400 | 2,800 | ||||||
Adjustments to income tax
|
$ | 912 | $ | 2,712 |
(
k
)
|
On November 30, 2012, Perion completed the acquisition of 100% of the shares of SweetIM Ltd. ("SweetIM"). This pro forma adjustment gives effect to the operations of SweetIM as if the acquisition of SweetIM had occurred on January 1, 2012. Refer to Note 3 in the audited consolidated financial statements of Perion contained in its annual report on Form 20-F/A for the fiscal year ended December 31, 2012, incorporated by reference in this Proxy Statement for further details on the SweetIM acquisition
|
|
·
|
the expectation that the Share Purchase would be immediately accretive to our earnings per share;
|
|
·
|
that the consideration for the Share Purchase is entirely in the form of Perion Shares, without the need for us to pay cash or raise debt;
|
|
·
|
that the Exchange Ratio reflects a premium to Perion's shareholders;
|
|
·
|
the complementary strengths of Perion and ClientConnect across their respective product suites, including their aligned search products, monetization platforms and global search distribution capabilities;
|
|
·
|
the expectation that the combined company would have an attractive growth profile and increased financial flexibility;
|
|
·
|
recent developments in the industry in which we operate and the impact of such developments on the business and prospects of our company;
|
|
·
|
that the Share Purchase would enhance our search footprint, which on a pro forma basis for the 12 months ended June 30, 2013 would have handled over 17 billion search queries, served 570 million combined installs and generated approximately $367 million in revenue;
|
|
·
|
the anticipated ability to fund future growth through the financial strength of the combined company in general and the cash flow generation from its operations in particular;
|
|
·
|
the companies’ combined expertise in search services and the complementary strengths of the two management teams offer additional growth opportunities;
|
|
·
|
that the combined company will be a leading search and monetization platform;
|
|
·
|
that Josef Mandelbaum and Yacov Kaufman will remain Chief Executive Officer and Chief Financial Officer, respectively, of the combined company, and substantially all of Perion’s management would remain in their respective positions;
|
|
·
|
that our staggered board structure and size would remain unchanged, maintaining a professional Board of Directors that consists primarily of independent directors;
|
|
·
|
that Dror Erez, a co-founder and Chief Technology Officer of Conduit, and Roy Gen, the Chief Financial Officer of Conduit, would join our Board of Directors following the Closing, contributing their expertise and knowledge of the ClientConnect business and the industry;
|
|
·
|
that the ClientConnect Shareholders would be subject to lock-up arrangements that would limit their ability to sell their Perion Shares for six to 24 months following the Closing, as described above under "Share Purchase Agreement—Lock-up Arrangements" and "Share Purchase Agreement—Tax Matters", respectively;
|
|
·
|
that no single shareholder will beneficially own more than 15% of the outstanding Perion Shares following the Closing;
|
|
·
|
that our shareholders immediately prior to the Closing will be able to participate in any future earnings or growth of the combined company, synergies and cost savings, and any potential future appreciation in the value of the Perion Shares;
|
|
·
|
the expectation of our management that, following our complete integration with ClientConnect, we would generate yearly operating synergies, driven by scale advantages across core functional areas;
|
|
·
|
the financial and other terms of the Share Purchase Agreement and the transactions contemplated thereby and, in particular, the limited number and nature of the conditions to the parties’ obligations to complete the Share Purchase;
|
|
·
|
the terms and conditions of the Split Agreement and the transactions contemplated thereby;
|
|
·
|
the view of Conduit's and Perion's legal counsels that the transaction would not trigger change of control provisions in ClientConnect's contracts that are considered material from a financial perspective;
|
|
·
|
that neither we nor our shareholders would recognize any gain or loss for tax purposes as a result of the Share Purchase;
|
|
·
|
that our Board of Directors has the right under the Share Purchase Agreement to change its recommendation to our shareholders, if prior to the Meeting, our Board of Directors determines, in its good faith judgment and after consultation with its outside legal counsel, that the failure to change its recommendation would be inconsistent with the Perion board of directors’ fiduciary duties under applicable law, as described above under "Share Purchase Agreement— Restrictions on Solicitations of Other Offers"; and
|
|
·
|
that the Share Purchase will be submitted to our shareholders for approval, which allows for an informed vote by our shareholders on the merits of the Share Purchase and the transactions contemplated thereby.
|
|
·
|
the complexity of the transaction and the potential negative impact on the market price of the Perion Shares upon announcement of the transaction;
|
|
·
|
the possible negative perception among investors that could arise from a review of ClientConnect's declining revenues and earnings in recent years, especially since our historical financial statements will be based on Conduit's historical financial statements as a result of the Share Purchase;
|
|
·
|
the potential diversion of management resources from operational matters and the opportunity costs associated with the Share Purchase;
|
|
·
|
that our or ClientConnect's customers could potentially move to cancel or amend their respective contracts if they view the Share Purchase as a change of control event;
|
|
·
|
the risks arising from the challenges of integrating the businesses, management teams, strategies, cultures and organizations of the two companies, including the possibility that the Share Purchase and the resulting integration process could result in the loss of key employees, the disruption of on-going business and the loss of customers;
|
|
·
|
the restrictions to which we will be subject under Israeli tax law as a result of the Share Purchase, as described above under "Share Purchase Agreement—Tax Matters";
|
|
·
|
the non-solicitation provisions in the Share Purchase Agreement, which might have the effect of discouraging parties potentially interested in acquiring our company from pursuing an acquisition of our company;
|
|
·
|
that we could become obligated to pay Conduit a termination fee of $6 million in certain circumstances related to an alternative transaction;
|
|
·
|
that the potential synergies and other potential benefits of the Share Purchase may not be realized or that we may not be successful in implementing our business plan for the combined company;
|
|
·
|
that Conduit's representations and warranties in the Share Purchase Agreement terminate upon the Closing, which increase our exposure to liabilities arising from the ClientConnect business;
|
|
·
|
that the ClientConnect shareholders and option holders would hold 81% of the outstanding Perion Shares upon completion of the Closing, while our shareholders and option holders will be diluted to 19% of the outstanding Perion Shares, on a Fully Diluted basis, immediately upon the Closing;
|
|
·
|
the customary restrictions on the conduct of our business prior to the Closing, requiring us to conduct our business solely in the ordinary course, subject to specific limitations, which may delay or prevent us from undertaking business opportunities that may arise during this period;
|
|
·
|
that the Share Purchase might not be consummated on a timely basis or at all despite the parties’ efforts;
|
|
·
|
the impact of costs and expenses related to the Share Purchase, including transaction expenses and integration expenses, on our financial condition;
|
|
·
|
that directors and executive officers of Perion may have interests in the Share Purchase that are different from, or in addition to, the interests of our shareholders, as described above under "Interests of our Directors and Officers in the Share Purchase"; and
|
|
·
|
other applicable risks described above under "Risk Factors".
|
•
|
reviewed the financial terms of the Share Purchase Agreement;
|
•
|
reviewed the financial terms of a draft of the Split Agreement;
|
•
|
reviewed and analyzed certain publicly available financial and other data with respect to Perion and certain other relevant historical operating data relating to ClientConnect and Perion made available to RBC from published sources (in the case of Perion) and from the internal records of Conduit and Perion, respectively;
|
•
|
reviewed financial projections and forecasts of Perion and the combined post-Closing company prepared by Perion’s management, and of ClientConnect, prepared by Conduit’s management, as adjusted downward by Perion’s management ("Forecasts");
|
•
|
conducted discussions with members of the senior managements of Conduit and Perion with respect to the business prospects and financial outlook of ClientConnect and Perion as standalone entities as well as the strategic rationale and potential benefits of the transactions contemplated by the Share Purchase Agreement;
|
•
|
reviewed Wall Street research estimates regarding the potential future performance of Perion as a standalone entity;
|
•
|
reviewed the reported prices and trading activity for the Perion Shares; and
|
•
|
performed other studies and analyses as RBC deemed appropriate.
|
•
|
performed a valuation analysis of each of ClientConnect and Perion as a standalone entity, using comparable company and discounted cash flow analyses with respect to each of ClientConnect and Perion, as well as precedent transaction analysis with respect to Perion;
|
•
|
performed an analysis of the contribution of selected historical and projected metrics of ClientConnect and Perion as standalone entities; and
|
•
|
performed a pro forma combination analysis, determining the potential impact of the Share Purchase on the projected 2014 and 2015 earnings per share of Perion, pro forma for the Share Purchase.
|
•
|
all conditions to the consummation of the Share Purchase would be satisfied without waiver thereof; and
|
•
|
the executed version of the Split Agreement would not differ, in any respect material to RBC’s opinion, from the latest draft reviewed by RBC.
|
|
·
|
enterprise value, calculated as the value of the relevant company’s outstanding equity securities (taking into account its outstanding options and other convertible securities, as applicable) based on the relevant company’s closing stock price ("equity value") plus (i) par value of debt less cash and equivalents ("net debt") and (ii) noncontrolling interest, net of investment in unconsolidated affiliates (if any);
|
|
·
|
earnings before interest, taxes, depreciation, and amortization ("EBITDA");
|
|
·
|
earnings before interest and taxes ("EBIT"); and
|
|
·
|
net income.
|
Relative Contribution
|
|||||
Low
|
High
|
||||
Implied Percentage Ownership of Perion Shareholders
|
Implied Exchange Ratio
|
Implied Percentage Ownership of Perion Shareholders
|
Implied Exchange Ratio
|
||
EBITDA
|
14.0%
|
0.302x
|
17.8%
|
0.228x
|
|
EBIT
|
13.4%
|
0.320x
|
17.1%
|
0.239x
|
|
Net Income
|
12.8%
|
0.386x
|
16.3%
|
0.291x
|
•
|
IAC/InteractiveCorp
|
•
|
AVG Technologies N.V.
|
•
|
Babylon Ltd.
|
•
|
Enterprise value as a multiple of CY 2013E EBITDA.
|
•
|
Enterprise value as a multiple of CY 2014E EBITDA.
|
Selected Multiple Range
|
Implied Per Share Equity Value Reference Range
|
|
Enterprise value as a multiple of CY 2013E EBITDA
|
5.9x – 8.9x
|
$13.17 – $18.62
|
Enterprise value as a multiple of CY 2014E EBITDA
|
4.6x – 8.1x
|
$13.17 – $21.28
|
Selected Multiple Range
|
Implied Per Share Equity Value Reference Range
|
|
Enterprise value as a multiple of CY 2013E EBITDA
|
5.9x – 8.9x
|
$3.08 – $4.65
|
Enterprise value as a multiple of CY 2014E EBITDA
|
4.6x – 8.1x
|
$3.98 – $6.97
|
Implied Exchange Ratio
|
Low/High
|
High/Low
|
Enterprise value as a multiple of CY 2013E EBITDA
|
0.166x
|
0.353x
|
Enterprise value as a multiple of CY 2014E EBITDA
|
0.187x
|
0.530x
|
Announced
|
Acquiror
|
Target
|
November 8, 2012
|
Perion
|
SweetIM
|
October 22, 2012
|
Permira
|
Ancestry.com
(1)
|
August 26, 2012
|
IAC
|
About.com
(2)
|
June 1, 2012
|
MoneySupermarket
|
MoneySavingExpert
(3)
|
January 9, 2012
|
InfoSpace
|
TaxACT
|
October 17, 2007
|
Spectrum Equity
|
Ancestry.com
|
(1)
|
Cash balance includes restricted cash of $16.2 million.
|
(2)
|
LTM EBITDA adds back a $3.1 million write-down of assets and a goodwill impairment charge of $194.7 million.
|
(3)
|
British Pounds converted to US Dollars at the prevailing exchange rate on the announcement date.
|
Comparable Transactions High
|
Comparable Transactions Median
|
Comparable Transactions Low
|
|
Enterprise value as a multiple of LTM EBITDA
|
9.2x
|
7.0x
|
4.6x
|
Selected Multiple Range
|
Implied Per Share Equity Value Reference Range
|
|
Enterprise value as a multiple of LTM EBITDA
|
4.6x – 9.2x
|
$9.03 – $15.88
|
|
·
|
the closing trading prices for the Perion Shares during the one-year period ended September 13, 2013, which reflected low and high stock prices of $6.70 and $14.70 per share, respectively;
|
|
·
|
the historical volume weighted prices for the Perion Shares during certain periods ended September 13, 2013, which reflected the following volume weighted average prices ("VWAP") for the Perion Shares: (i) $12.36 for the 10-trading-day VWAP; (ii) $11.25 for the 30-trading-day VWAP; and (iii) $12.47 for the 90-trading-day VWAP; and
|
|
·
|
one-year forward stock price targets for the Perion Shares in recently published, publicly available Wall Street research analysts’ reports, which indicated low and high share price targets ranging from $16.00 to $18.00 per share, discounted to present value (using a 13.8% discount rate based on the estimated cost of equity for Perion) resulting in values ranging from approximately $14.06 to $15.82 per share.
|
|
·
|
200,000 RSUs would be granted on the date of the Meeting, and 232,400 RSUs would be granted immediately following the consummation of the Share Purchase described above in Proposal 1, which is expected to take place in January 2014;
|
|
·
|
the purchase price of each RSU would be NIS 0.01, the par value of the Perion Shares;
|
|
·
|
the RSUs would automatically vest into Perion Shares over a period of three years, subject to Mr. Mandelbaum's continued employment with the Company, with 20% of each grant vesting on the first anniversary of the applicable date of grant, 30% of each grant vesting on the second anniversary of the applicable date of grant and 50% of each grant vesting on the third anniversary of the applicable date of grant; and
|
|
·
|
all other terms and conditions in connection with the above RSUs would be in accordance with our Equity Incentive Plan, a copy of which is attached hereto as
Appendix I
.
|
Summary of the Compensation Policy
|
·
|
Objectives:
To support the achievement of our long-term work plan goals and to ensure that (i) the interests of our office holders are aligned as closely as possible with the interests of our shareholders, (ii) the correlation between performance and payment will be enhanced, (iii) we will be able to recruit and retain top-level executives capable of leading us to further business success, facing the challenges ahead, (iv) office holders will be motivated to achieve a high level of business performance without taking unreasonable risks and (v) an appropriate balance will be established between different compensation elements – fixed vs. variable, short-term vs. long-term and cash payments vs. equity-based compensation.
|
·
|
Compensation instruments:
Include base salary, benefits and perquisites; cash bonuses; equity-based compensation; and/or retirement arrangements
.
|
·
|
Base salary, benefits and perquisites
: The Policy provides guidelines and criteria for determining base salary, benefits and perquisites for office holders.
|
·
|
Cash bonuses
: Our policy is to allow annual cash bonuses, which may be awarded to office holders pursuant to the guidelines and criteria, including caps, set forth in the Policy.
|
·
|
"Clawback"
: In the event of an accounting restatement, we will be entitled to recover from office holders bonus compensation in the amount of the excess over what would have been paid under the accounting restatement, as specified in the Policy.
|
·
|
Equity-based compensation:
We may provide equity-based compensation in the form of stock options and/or other forms of equity, which may be awarded to office holders pursuant to the guidelines set forth in the Policy.
|
·
|
Severance arrangements:
The Policy provides guidelines and criteria for determining severance arrangements of office holders, including caps thereon.
|
·
|
Indemnification, exculpation and insurance:
The Policy permits providing office holders with indemnification, exculpation and insurance, as permitted by the Companies Law. In particular, the Policy contains specific guidelines for liability insurance covering office holders.
|
·
|
Directors:
The Policy permits providing compensation to our directors in accordance with applicable regulations promulgated under the Companies Law.
|
·
|
Applicability:
The Policy will apply to
compensation agreements and arrangements approved after the date on which the Policy is approved and will not be construed as altering or amending any compensation duly approved prior to the approval of the Policy.
|
·
|
Review
: The Compensation Committee and the Board of Directors will review, from time to time, the ratio between the total cost of employment of each of the office holders and the average and median total costs of employment of the rest of the employees, and discuss its possible impact on labor relations within the Company.
|
Shares Beneficially Owned:
1
|
||||||||||||||||
Prior to the Closing
2
|
Following the Closing
3
|
|||||||||||||||
5% Shareholders
|
Number
|
Percent
|
Number
|
Percent
|
||||||||||||
Holine Finance Ltd.
4
|
1,109,732 | 8.9 | % | 1,109,732 | 1.7 | % | ||||||||||
Ronen Shilo
|
- | - | 9,902,168 | 14.8 | % | |||||||||||
Dror Erez
|
- | - | 9,902,168 | 14.8 | % | |||||||||||
Benchmark Israel II, L.P.
5
|
- | - | 9,707,503 | 14.6 | % | |||||||||||
Zack Rinat
6
|
- | - | 6,523,219 | 9.8 | % | |||||||||||
Project Condor LLC
7
|
- | - | 4,228,263 | 6.3 | % | |||||||||||
Directors and officers as a group
8
|
683,328 |
5.2
|
% | 11,415,854 | 16.9 | % |
NASDAQ Global
Market
|
Tel Aviv Stock
Exchange
|
|||||||||||||||
High
($)
|
Low
($)
|
High
($)
|
Low
($)
|
|||||||||||||
Five most recent full financial years
|
||||||||||||||||
2012
|
10.50 | 3.68 | 10.45 | 3.85 | ||||||||||||
2011
|
8.25 | 3.45 | 8.20 | 3.41 | ||||||||||||
2010
|
10.75 | 3.85 | 10.96 | 4.04 | ||||||||||||
2009
|
10.89 | 2.30 | 10.46 | 2.48 | ||||||||||||
2008
|
5.58 | 1.86 | 5.28 | 2.00 | ||||||||||||
Financial quarters during the past two recent full financial years and any subsequent period
|
||||||||||||||||
Third Quarter 2013
|
13.80 | 10.03 | 14.14 | 10.10 | ||||||||||||
Second Quarter 2013
|
14.94 | 9.53 | 14.90 | 9.57 | ||||||||||||
First Quarter 2013
|
13.10 | 8.19 | 12.79 | 8.21 | ||||||||||||
Fourth Quarter 2012
|
10.50 | 6.66 | 10.45 | 6.65 | ||||||||||||
Third Quarter 2012
|
7.68 | 4.04 | 7.38 | 4.16 | ||||||||||||
Second Quarter 2012
|
5.20 | 3.68 | 5.13 | 3.81 | ||||||||||||
First Quarter 2012
|
5.59 | 3.90 | 5.59 | 3.85 | ||||||||||||
Fourth Quarter 2011
|
5.87 | 3.45 | 5.65 | 3.41 | ||||||||||||
Third Quarter 2011
|
7.96 | 4.50 | 7.77 | 4.67 | ||||||||||||
Second Quarter 2011
|
8.25 | 6.57 | 7.92 | 6.44 | ||||||||||||
First Quarter 2011
|
8.10 | 6.85 | 8.20 | 6.59 | ||||||||||||
Most recent six months
|
||||||||||||||||
September 2013
|
13.80 | 10.38 | 14.14 | 10.66 | ||||||||||||
August 2013
|
13.30 | 10.03 | 13.26 | 10.10 | ||||||||||||
July 2013
|
13.45 | 10.75 | 13.38 | 10.71 | ||||||||||||
June 2013
|
14.12 | 10.96 | 14.20 | 11.15 | ||||||||||||
May 2013
|
14.94 | 11.67 | 14.90 | 11.61 | ||||||||||||
April 2013
|
12.38 | 9.53 | 12.22 | 9.57 | ||||||||||||
Date: October 15, 2013
|
By Order of the Board of Directors,
Tamar Gottlieb
Chairperson of the Board of Directors
|
Page
|
|
F-2
|
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F-3 – F-4
|
|
F-5
|
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F-6
|
|
F-7 – F-8
|
|
F-9 – F-34
|
Kost Forer Gabbay & Kasierer
3 Aminadav St.
Tel-Aviv 6706703, Israel
|
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
|
/s/
KOST FORER GABBAY & KASIERER
|
|
Tel-Aviv, Israel
|
KOST FORER GABBAY & KASIERER
|
September 30, 2013
|
A Member of Ernst & Young Global
|
Six months ended
June 30,
|
Year ended
December 31,
|
|||||||||||||||
2013
|
2012
|
2012
|
2011
|
|||||||||||||
Unaudited
|
||||||||||||||||
Revenues
|
$ | 161,359 | $ | 260,089 | $ | 537,801 | $ | 482,051 | ||||||||
Costs and expenses:
|
||||||||||||||||
Cost of revenues
|
3,383 | 3,037 | 6,304 | 4,521 | ||||||||||||
Traffic acquisition costs
|
81,975 | 49,375 | 119,705 | 113,436 | ||||||||||||
Research and development
|
20,439 | 17,136 | 36,903 | 28,720 | ||||||||||||
Sales and marketing
|
8,789 | 5,380 | 11,406 | 20,354 | ||||||||||||
General and administrative
|
8,831 | 3,427 | 6,893 | 5,801 | ||||||||||||
Operating income
|
37,942 | 181,734 | 356,590 | 309,219 | ||||||||||||
Financial income (expenses), net
|
1,495 | 1,600 | 7,898 | (453 | ) | |||||||||||
Income before taxes on income
|
39,437 | 183,334 | 364,488 | 308,766 | ||||||||||||
Taxes on income
|
7,400 | 28,551 | 73,419 | 21,918 | ||||||||||||
Equity losses
|
- | 149 | 149 | 441 | ||||||||||||
Net income
|
$ | 32,037 | $ | 154,634 | $ | 290,920 | $ | 286,407 |
Ordinary shares
|
Preferred shares
|
Additional paid-in
|
Retained
|
Total shareholders'
|
||||||||||||||||||||||||
Number
|
Amount
|
Number
|
Amount
|
capital
|
earnings
|
equity
|
||||||||||||||||||||||
Balance as of January 1, 2011
|
123,696,414 | $ | 335 | 69,538,900 | $ | 186 | $ | 11,863 | $ | 63,081 | $ | 75,465 | ||||||||||||||||
Share-based compensation
|
- | - | - | - | 1,574 | - | 1,574 | |||||||||||||||||||||
Dividend declared and paid
|
- | - | - | - | - | (79,683 | ) | (79,683 | ) | |||||||||||||||||||
Exercise of employee options
|
25,073,824 | 65 | - | - | 2,016 | - | 2,081 | |||||||||||||||||||||
Net income
|
- | - | - | - | - | 286,407 | 286,407 | |||||||||||||||||||||
Balance as of December 31, 2011
|
148,770,238 | 400 | 69,538,900 | 186 | 15,453 | 269,805 | 285,844 | |||||||||||||||||||||
Share-based compensation
|
- | - | - | - | 2,860 | - | 2,860 | |||||||||||||||||||||
Dividend declared and paid
|
- | - | - | - | - | (338,676 | ) | (338,676 | ) | |||||||||||||||||||
Exercise of employee options
|
7,475,070 | 19 | - | - | 3,054 | - | 3,073 | |||||||||||||||||||||
Net income
|
- | - | - | - | - | 290,920 | 290,920 | |||||||||||||||||||||
Balance as of December 31, 2012
|
156,245,308 | 419 | 69,538,900 | 186 | 21,367 | 222,049 | 244,021 | |||||||||||||||||||||
Share-based compensation
|
- | - | - | - | 5,121 | - | 5,121 | |||||||||||||||||||||
Exercise of employee options
|
14,656 | * | ) | - | - | 10 | - | 10 | ||||||||||||||||||||
Net income
|
- | - | - | - | - | 32,037 | 32,037 | |||||||||||||||||||||
Balance as of June 30, 2013 (unaudited)
|
156,259,964 | $ | 419 | 69,538,900 | $ | 186 | $ | 26,498 | $ | 254,086 | $ | 281,189 |
Six months
ended June 30,
|
Year ended
December 31,
|
|||||||||||||||
2013
|
2012
|
2012
|
2011
|
|||||||||||||
Unaudited
|
||||||||||||||||
Cash flows from operating activities
:
|
||||||||||||||||
Net income
|
$ | 32,037 | $ | 154,634 | $ | 290,920 | $ | 286,407 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||||||||
Depreciation and amortization
|
1,510 | 1,602 | 2,976 | 2,637 | ||||||||||||
Share-based compensation
|
5,121 | 1,126 | 2,860 | 1,574 | ||||||||||||
Accrued interest, net
|
1,102 | (1,446 | ) | (1,407 | ) | 443 | ||||||||||
Equity losses
|
- | 149 | 149 | 441 | ||||||||||||
Decrease (increase) in trade receivables
|
22,021 | 402 | (7,719 | ) | (17,952 | ) | ||||||||||
Decrease (increase) in prepaid expenses and other current assets
|
3,425 | 2,760 | 5,819 | (8,312 | ) | |||||||||||
Increase (decrease) in trade payables
|
(5,249 | ) | 1,653 | 10,589 | (1,494 | ) | ||||||||||
Increase (decrease) in other accounts payable and accrued expenses
|
(3,522 | ) | 8,506 | 12,017 | 2,385 | |||||||||||
Increase (decrease) in deferred revenues
|
(3,132 | ) | (3,218 | ) | (6,266 | ) | 18,887 | |||||||||
Accrued severance pay, net
|
11 | 7 | 22 | 10 | ||||||||||||
Deferred taxes, net
|
(309 | ) | (93 | ) | (524 | ) | (2,519 | ) | ||||||||
Net cash provided by operating activities
|
53,015 | 166,082 | 309,436 | 282,507 | ||||||||||||
Cash flows from investing activities:
|
||||||||||||||||
Deposits, net
|
95,567 | (178,527 | ) | 61,405 | (153,821 | ) | ||||||||||
Purchase of property and equipment
|
(603 | ) | (1,450 | ) | (2,462 | ) | (4,091 | ) | ||||||||
Purchase of Wibiya, net of cash acquired (a)
|
- | - | - | (36,214 | ) | |||||||||||
Receipt on account of investment in affiliate
|
- | - | 147 | - | ||||||||||||
Investment in affiliate
|
(40 | ) | - | (200 | ) | - | ||||||||||
Net cash provided by (used in) investing activities
|
94,924 | (179,977 | ) | 58,890 | (194,126 | ) | ||||||||||
Cash flows from financing activities:
|
||||||||||||||||
Dividend paid
|
- | - | (338,676 | ) | (79,683 | ) | ||||||||||
Proceeds from exercise of employee options
|
10 | 150 | 3,073 | 2,081 | ||||||||||||
Net cash provided by (used in) financing activities
|
10 | 150 | (335,603 | ) | (77,602 | ) | ||||||||||
Increase (decrease) in cash and cash equivalents
|
147,949 | (13,745 | ) | 32,723 | 10,779 | |||||||||||
Cash and cash equivalents at beginning of the period
|
80,731 | 48,008 | 48,008 | 37,229 | ||||||||||||
Cash and cash equivalents at end of the period
|
$ | 228,680 | $ | 34,263 | $ | 80,731 | $ | 48,008 | ||||||||
Cash paid during the year:
|
||||||||||||||||
Supplemental disclosure of cash flow information:
|
||||||||||||||||
Income taxes paid
|
$ | 20,850 | $ | 15,590 | $ | 55,696 | $ | 25,019 |
Year ended December 31,
2011
|
||||
Supplemental disclosure of cash flow information:
|
||||
a.
Purchase of Wibiya:
|
||||
Working capital deficit ,net
|
$ | 425 | ||
Long-term assets
|
(86 | ) | ||
Long-term liabilities
|
21 | |||
Deferred taxes, net
|
375 | |||
Intangible assets
|
(3,488 | ) | ||
Goodwill
|
(33,461 | ) | ||
$ | (36,214 | ) |
|
a.
|
Conduit Ltd. (the "Company" or "Conduit") was incorporated and commenced operations in March 2005. Conduit empowers web and mobile publishers to engage their users across multiple platforms. The Company's products, such as community toolbars, mobile apps, notifications and web bars, enable publishers such as website owners, (the "Partners") to constantly connect with their users wherever they are. Conduit also allows publishers to maintain and analyze their performance through its environment.
|
|
The Company has a few product lines that include the community toolbar (collectively "Client Connect" or "CC") and four other product lines: Mobile app platform, Quick launch, U browser and Wibiya floating bar (collectively "Conduit Initiatives" or "CI").
In January 2008, the Company established a wholly-owned subsidiary, Conduit USA, Inc. ("Conduit Inc.") in Delaware, United States. Conduit Inc. supports the Company's business activities in the United States. In January 2011, the Company established a wholly-owned subsidiary, Conduit Connect B.V. Operation ("Conduit B.V.") in Holland. Conduit B.V. supports the Company's business operations in Europe, through maintenance and operations of the Company's servers. In July, 2011, the Company acquired Modular Patterns Ltd. ("Wibiya"), an Israeli based company which offers customized web-based toolbars, to online publishers, bloggers, and other online properties. For further details please see Note 3.
|
|
b.
|
During the years ended December 31, 2011 and 2012 and for the six months ended June 30, 2013 (unaudited), the Company's revenues were mostly derived from two customers, Microsoft Online Inc. ("Microsoft") (89%, 81% and 56% in 2011, 2012 and for the six months ended June 30 (unaudited), 2013, respectively) and Google Ireland Limited ("Google") (9%, 15% and 30% in 2011, 2012 and for the six months ended June 30, 2013 (unaudited), respectively).
The agreement with Microsoft (the "Microsoft Agreement") was signed in November 2010 and amended in May 2011 for a total period of four years (ending December 31, 2014). Pursuant to the Microsoft Agreement, Microsoft received exclusivity in providing search services and search monetization services to the Company in the United States for the period of the first two years. The fees received by the Company vary over the term of the agreement. The fees from the Microsoft Agreement include an upfront payment of $25,000 and fees payable based on queries from end users and/or revenue share from searches per geographical location, that vary annually over the term of the Microsoft Agreement and are payable to Conduit per queries or searches performed. The pricing mechanism with respect to the fees significantly decreases during the last two years (2013 and 2014) compared to the first two years of the term of the agreement (2011 and 2012).
|
|
The agreement with Google was signed on May 2011, for a term of two years ending April 30, 2013 and was extended until August 31, 2013, pursuant to which the Company is eligible to participate in the Google AdSense program. On September 1, 2013, an additional agreement was signed with Google, for a term of two years, with similar terms to the previous agreement.
|
|
c.
|
In July, 2013, Company's management has signed a Letter of Intent ("LOI") agreement with a public company, Perion Ltd. ("Perion"), pursuant to which CC will be spun off into a newly formed Israeli company, while the CI activity will be retained in the Company (the "Spin-off").
|
|
Pursuant to the LOI, the Company will transfer the ClientConnect operations and certain related assets and liabilities, to the ClientConnect entity excluding cash, debt, accounts receivable, accounts payable and accrued expenses. In addition, the Company will provide a short term loan to CC to finance its working capital needs. There will be a transition service agreement between the Company and ClientConnect relating to the shared services which is intended to govern the ongoing relationship between the Company and ClientConnect going forward. ClientConnect will be owned by the shareholders of the Company in the same proportions as their ownership in the Company immediately prior to the Spin-off. The Spin-off is subject to certain conditions including receipt of a favorable tax ruling from the Israeli Income Tax authority effective as of December 31, 2013, and other regulatory approvals.
|
|
On September 16, 2013, the Company signed a Split agreement pursuant to which the entire activities and operations of the CC business, and certain related assets and liabilities, will be transferred to a new company, ClientConnect Ltd., as described above, pursuant to the LOI. Following the Split agreement, ClientConnect Ltd. and Conduit entered into a Share Purchase Agreement with Perion. See also Note 13.
|
|
The consolidated financial statements are prepared according to United States generally accepted accounting principles ("U.S. GAAP").
|
|
a.
|
Use of estimates:
|
|
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, the Company's management evaluates estimates, including those related to fair values of share-based compensation, deferred taxes and income tax uncertainties, and contingent liabilities. Such estimates are based on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
|
|
b.
|
Financial statements in U.S. dollars:
|
|
The accompanying financial statements have been prepared in U.S. dollars.
|
|
The Company finances its operations in U.S. dollars and all of its revenues and a substantial portion of its costs is incurred in U.S. dollars. As such, the Company's management believes that the dollar is the currency of the primary economic environment in which the Company operates. Thus, the functional and reporting currency of the Company is the U.S. dollar.
|
|
Transactions and balances denominated in U.S. dollars are presented at their original amounts. Monetary accounts maintained in currencies other than the dollar are remeasured into dollars in accordance with Accounting Standards Codification No. 830, "Foreign Currency Matters". All transaction gains and losses of the remeasurement of monetary balance sheet items are reflected in the consolidated statements of operations as financial income or expenses, as appropriate.
|
|
c.
|
Principles of consolidation:
|
|
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.
|
|
d.
|
Cash equivalents:
|
|
Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at the date acquired.
|
|
e.
|
Short-term and long-term bank deposits:
|
|
A short-term bank deposit is a deposit with a maturity of more than three months but less than one year. Deposits in U.S. dollars bear interest at rates ranging from 0.2%-1.62% per annum as of December 31, 2012 and 2011. Deposits in NIS bear interest at rates ranging from 1.19%-1.45% per annum as of December 31, 2012 and 2011. Long-term deposits include deposits with a maturity of more than one year bear interest at rates ranging from 1.5%-2.5% per annum as of December 31, 2011. Short-term and long-term deposits are presented at their cost including accrued interest.
|
|
f.
|
Investment in affiliates:
|
|
The Company accounts for investments in its affiliated companies in which it has the ability to exercise significant influence over the operating and financial policies using the equity method of accounting in accordance with the requirements of ASC 323 ("ASC 323"), "Investments-Equity Method and Joint Ventures". If the Company does not have the ability to exercise significant influence over operating and financial policies of a company, the investment is stated at cost.
|
|
The Company's investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. During the years ended December 31, 2011, 2012 and for the six months ended June 30, 2013 (unaudited), the Company recorded $441, $149 and $0 equity losses, including impairment losses, respectively.
|
|
g.
|
Property and equipment:
|
|
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following annual rates:
|
%
|
|
Computer equipment
|
33
|
Office furniture and equipment
|
6 - 20
|
Leasehold improvements
|
Over the shorter of the lease
term or estimated useful life
|
|
h.
|
Impairment of long-lived assets:
|
|
The Company's long-lived assets are reviewed for impairment in accordance with ASC 360, "Property, Plant and Equipment" whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the years ended December 31, 2011, 2012 and for the six months ended June 30, 2013 (unaudited), no impairment losses have been recorded.
|
|
i.
|
Goodwill:
|
|
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired under ASC 350, "Intangibles, Goodwill and Other". Goodwill is not amortized, but rather is subject to an annual impairment test.
|
|
The Company performs an annual impairment test at December 31 of each fiscal year, or more frequently if impairment indicators are present. The Company operates in one operating segment and this segment comprises its only reporting unit. ASC 350 prescribes a two-phase process for impairment testing of goodwill. The first phase screens for impairment, while the second phase (if necessary) measures impairment. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value determined using market capitalization. In such case, the second phase is then performed, and the Company measures impairment by comparing the carrying amount of the reporting unit's goodwill to the implied fair value of that goodwill. An impairment loss is recognized in an amount equal to the excess. During the years ended December 31, 2011, 2012 and for the six months ended June 30, 2013 (unaudited), no impairment losses have been recorded.
|
|
j.
|
Intangible assets:
|
|
Intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful lives, which range from 1.5 to five years. Acquired customer relationships are amortized over their estimated useful lives in proportion to the economic benefits realized. This accounting policy results in accelerated amortization of such customer relationships as compared to the straight-line method. Technology is amortized over its estimated useful life on a straight-line basis.
|
|
The carrying amount of these assets to be held and used is reviewed whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of each asset (or asset group) to the future undiscounted cash flows the asset (or asset group) is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.
|
|
During the years ended December 31, 2011, 2012 and for the six months ended June 30, 2013 (unaudited), no impairment losses have been recorded.
|
|
k.
|
Revenue recognition:
|
|
The Company obtains the substantial majority of its revenues from third-party search services providers, Google and Microsoft (see also Note 1b). The revenues are generated primarily from monthly transaction volume-based fees earned by the Company for making its applications available to the Company's Partners, through which search revenues are produced (either based on a revenue share or fixed price models).
|
|
Accordingly, such revenue is recognized in accordance with ASC 605-20 "Revenue Recognition" ( formerly: Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements") provided that persuasive evidence of an arrangement exists, no significant Company's obligations remain, collection of the resulting receivable is reasonably assured, and the fees are fixed or determinable. The Company's customers do not have the right to take possession of the Company's software at any time during or after the term of the relevant customer agreement. Accordingly, as prescribed by ASC 605-30 "Rights to Use" (formerly: EITF Issue No. 00-3, "Application of AICPA Statement of Position 97-2 to Arrangements that Include the Right to Use Software Stored on Another Entity's Hardware"), the Company's revenue recognition is outside the scope of ASC 985-605 (formerly: SOP No. 97-2, "Software Revenue Recognition").
|
|
The upfront fees of $25,000, received as part of the Microsoft Agreement are recognized ratably over the term of the agreement.
|
|
Deferred revenues represent revenues paid in advance and recognized over the term of the service.
|
|
l.
|
Cost of revenues:
|
|
The cost of revenues includes mainly expenses related to the Company's servers.
|
|
m.
|
Traffic acquisition costs:
|
|
The traffic acquisition costs are direct and incremental costs that consist of payments made to Partners who distribute the Company's toolbars ("access points") through their websites. These payments include amounts based mainly on a fixed price per access point installed or per active user and are charged to expense as incurred.
|
|
n.
|
Research and development expenses:
|
|
Research and development expenses are charged to income as incurred.
|
|
o.
|
Accounting for share-based compensation:
|
|
The Company accounts for share-based compensation in accordance with ASC No. 718, "Compensation-Share Compensation". ASC No. 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an Option-Pricing Model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated statements of income.
|
|
The Company recognizes compensation expense for the fair value of its awards granted based on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. ASC No. 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures.
|
|
The Company selected the Black-Scholes-Merton option pricing model as the most appropriate fair value method for its share-option awards. The option-pricing model requires a number of assumptions, of which the most significant are the fair value of the underlying ordinary share, expected share price volatility and the expected option term. Expected volatility was calculated based upon certain peer companies that the Company considered to be comparable. The expected option term represents the period of time that options granted are expected to be outstanding. For share-option awards which were at the money when granted (plain vanilla share-options), the expected option term is determined based on the simplified method in accordance with SAB No. 110, as adequate historical experience is not available to provide a reasonable estimate. The simplified method will continue to apply until enough historical experience is available to provide a reasonable estimate of the expected term. For share-option awards which were in the money when granted, the Company used an expected term which it believes is appropriate under these circumstances, which is not materially different than determining the expected term based on a lattice model and then use it as an input to the Black-Scholes-Merton option pricing model. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. Dividend yield was determined according to management's intention to distribute a dividend.
|
|
The fair value of the ordinary share underlying the share options has historically been determined by the Company's management with the assistance of a third party valuator. Because there has been no public market for the ordinary shares, management has determined fair value of the ordinary shares at the time of grant of the option by considering a number of objective and subjective factors including valuation of comparable companies, sales of ordinary shares to unrelated third parties, operating and financial performance and general and industry specific economic outlook, amongst other factors.
|
|
The valuations of the Company were performed using the market approach. The fair value for options granted in 2011, 2012 and for the six months ended June 30, 2013 (unaudited) were estimated at the date of grant using a Black-Scholes-Merton option pricing model with the following weighted average assumptions: expected volatility of 50%, risk free interest rates of 1.16%-2.12 %, 0.9%-1.33% and 0.9%-1.38%, respectively, dividend yields of 0%, 0% and 0% , respectively and a weighted-average expected term of 6.25 years.
|
|
The compensation expense related to employees for the years ended December 31, 2011, 2012 and for the six months period ended June 30, 2013 (unaudited) amounted to approximately $1,574, $2,860 and $5,121, respectively.
|
|
p.
|
Income taxes:
|
|
The Company accounts for income taxes in accordance with Accounting Standards Codification No. 740 (formerly, Statement of Financial Accounting Standards No. 109), "Accounting for Income Taxes" ("ASC 740"), using the liability method whereby deferred tax assets and liability account balances are determined based on the differences between financial reporting and the tax basis for assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to the amounts that are more likely-than-not to be realized.
|
|
ASC 740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company accrues interest and penalties related to unrecognized tax benefits in its taxes on income.
|
|
As of December 31, 2011, 2012 and June 30, 2013 (unaudited) the Company recorded an accrual for uncertain tax positions of $0, $0 and $1,300, respectively.
|
|
q.
|
Concentrations of credit risks:
|
|
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, short-term and long-term deposits and trade receivables.
|
|
The Company's cash, cash equivalents and deposits are invested in major banks in Israel and the United States.
|
|
Management believes that the financial institutions that hold the Company's investments are institutions with high credit standing and, accordingly, minimal risk exists with respect to these investments. The Company has no off-balance-sheet concentrations of credit risk such as, foreign exchange contracts, option contracts or other foreign hedging arrangements.
|
|
r.
|
Severance pay:
|
|
Israeli employees are entitled to severance pay equal to one month's salary for each year of employment, or a portion thereof. The Company's employee arrangements (except for the Company's founders, which are also employees) are under section 14 to Israel's Severance Pay Law, pursuant to which the severance pay liability is fully covered by the deposits with the severance pay fund. Since under section 14 mentioned above, the Company has no right to use the money or transfer it between employees, the severance pay is presented in its net amount.
|
|
The Company recorded a severance pay accrual for three of its founders, in respect of the Company's liability for severance pay which is calculated pursuant to Israel's Severance Pay Law, based on the most recent salary of the employees, multiplied by the number of years of employment as of the balance sheet date. Certain amounts of the liability are provided by monthly deposits into severance pay funds, insurance policies and by an accrual. The value of these funds and policies is recorded as an asset in the Company's balance sheet.
|
|
The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation, pursuant to the Severance Pay Law or Labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies, and includes immaterial profits.
|
|
Severance expense for the years ended December 31, 2012 and 2011 amounted to $16 and $27, respectively.
|
|
s.
|
Fair value of financial instruments:
|
|
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
|
|
-
|
Level 1: Observable inputs obtained from independent sources, such as quoted prices for identical assets and liabilities in active markets.
|
|
-
|
Level 2: Other inputs that are directly or indirectly observable in the market place.
|
|
-
|
Level 3: Unobservable inputs which are supported by little or no market activity.
|
|
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
|
|
The carrying amounts of cash and cash equivalents, trade receivables, short-term deposits, trade payables approximate their fair value due to the short-term maturity of such instruments.
|
|
t.
|
Comprehensive income:
|
|
The Company accounts for comprehensive income in accordance with ASC Topic 220, "Comprehensive Income". This statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income generally represents all changes in stockholders' equity during the period except those resulting from investments by, or distributions to, stockholders. The adoption of the standard, does not have an effect on the Company's financial statements.
|
|
u.
|
Impact of recently issued Accounting Standards:
|
|
In July 2012, the FASB issued Accounting Standards 2012-02 "Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment", which introduced an optional qualitative assessment for testing intangible asset for impairment. ASU 2011-02 allows companies to qualitatively assess whether it is more likely than not (i.e., a likelihood of greater than 50%) that an indefinite-lived intangible asset is impaired. If that is the case, the company would have to perform the annual quantitative impairment test. The ASU is effective for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption will not have a material effect on the Company's consolidated financial statements.
|
|
On July 13, 2011, the Company acquired Modular Patterns Ltd. ("Wibiya"), an Israeli based company which offers customized web-based toolbars, (the "Wibiya toolbars"), to online publishers, bloggers, and other online properties (the "Publishers"). These toolbars, which enable the Publishers to integrate services and applications of their choice into their website, can be tailored by the Publishers to their individual needs.
The total consideration is comprised as follows:
|
Cash paid
|
$ | 45,000 | ||
Cash and cash equivalents acquired
|
(740 | ) | ||
Additional consideration (see (1) below)
|
(8,046 | ) | ||
Total consideration, net of cash acquired
|
$ | 36,214 |
|
(1)
|
$8,046 of the total consideration will be payable to the Founders and certain employees of Wibiya subject to their continuing employment with Wibiya or with the Company over a two year period and will be held in escrow on behalf of the Founders and such employees (the "Additional Consideration"). The Company recognizes the Additional Consideration as compensation expense in its consolidated statements of income over the two year employment term of the respective employees. For the years ended December 31, 2011 and 2012 and for the period ended June 30, 2013 (unaudited), the Company recorded $2,112, $3,956 and $1,978, respectively of compensation expense in respect of the above Additional Consideration.
Purchase price allocation:
The total purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values as set forth below as of the acquisition date. The excess of the purchase price over the net tangible and identifiable intangible assets was assigned to goodwill.
|
|
|
The fair value of assets acquired and liabilities assumed at the date of acquisition (July 13, 2011) are as follows:
|
Current assets
|
$ | 795 | ||
Non-current assets
|
117 | |||
Liabilities assumed
|
(532 | ) | ||
Deferred taxes, net
|
(375 | ) | ||
Intangible assets
|
3,488 | |||
Goodwill
|
33,461 | |||
Total purchase price consideration
|
$ | 36,954 |
|
|
Pro forma information in accordance with ASC 805 "Business Combinations", has not been provided, since the revenues were not material in relation to total consolidated revenues and net income.
|
December 31,
|
||||||||
2012
|
2011
|
|||||||
Government authorities
|
$ | 1,860 | $ | 1,297 | ||||
Prepaid expenses
|
630 | 2,760 | ||||||
Additional consideration related to acquisition of Wibiya (see note 3)
|
1,978 | 3,956 | ||||||
Deferred tax assets
|
2,094 | 1,951 | ||||||
Loans to employees
|
- | 296 | ||||||
$ | 6,562 | $ | 10,260 |
December 31,
|
||||||||
2012
|
2011
|
|||||||
Cost:
|
||||||||
Computers
|
$ | 8,994 | $ | 7,033 | ||||
Office and electronic equipment
|
919 | 724 | ||||||
Leasehold improvements
|
1,358 | 1,052 | ||||||
11,271 | 8,809 | |||||||
Accumulated depreciation:
|
||||||||
Computers
|
5,866 | 3,930 | ||||||
Office and electronic equipment
|
190 | 116 | ||||||
Leasehold improvements
|
502 | 262 | ||||||
6,558 | 4,308 | |||||||
Depreciated cost
|
$ | 4,713 | $ | 4,501 |
|
Depreciation expense for the years ended December 31, 2012 and 2011 amounted to $2,250 and $2,052, for the years ended December 31, 2012 and 2011, respectively.
|
|
Intangible assets, net, are comprised of the following:
|
December 31,
|
||||||||
2012
|
2011
|
|||||||
Original amounts:
|
||||||||
Customer relationships
|
$ | 519 | $ | 519 | ||||
Technology
|
2,909 | 2,909 | ||||||
Covenants not-to-compete
|
60 | 60 | ||||||
3,488 | 3,488 | |||||||
Accumulated amortization:
|
||||||||
Customer relationships
|
509 | 380 | ||||||
Technology
|
779 | 197 | ||||||
Covenants not-to-compete
|
23 | 8 | ||||||
1,311 | 585 | |||||||
Other intangible assets, net
|
$ | 2,177 | $ | 2,903 |
|
Amortization of intangible assets charged to expense was $726 and $585 for the years ended December 31, 2012 and 2011, respectively.
|
|
The estimated future amortization expense of the intangible assets as of December 31, 2012 is as follows:
|
December 31,
|
||||
2013
|
$ | 633 | ||
2014
|
$ | 624 | ||
2015
|
$ | 616 | ||
2016
|
$ | 304 |
December 31,
|
||||||||
2012
|
2011
|
|||||||
Employees and payroll accruals
|
$ | 3,285 | $ | 2,338 | ||||
Government authorities
|
1,196 | 896 | ||||||
Accrued consulting fees
|
- | 5,000 | ||||||
Accrued taxes
|
16,197 | - | ||||||
Accrued expenses to Partners
|
6,262 | 6,517 | ||||||
Deferred taxes
|
289 | 673 | ||||||
Other accrued expenses
|
297 | 469 | ||||||
$ | 27,526 | $ | 15,893 |
|
a.
|
The Company and its subsidiaries lease their facilities and motor vehicles in Israel and the United States under various operating lease agreements that expire on various dates.
|
|
Expenses for lease of facilities for the years ended December 31, 2011 and 2012 were approximately $737 and $1,132, respectively.
|
|
Expenses for the lease of motor vehicles for the years ended December 31, 2011 and 2012 were approximately $703 and $768, respectively.
|
|
Lease commitments:
|
|
Aggregate minimum rental commitments under non-cancelable leases at December 31, 2012, are as follows:
|
Year ended December 31,
|
Facilities
|
Motor vehicles
|
Total
|
|||||||||
2013
|
1,100 | 614 | 1,714 | |||||||||
2014
|
949 | 334 | 1,283 | |||||||||
2015
|
384 | 31 | 415 | |||||||||
2016
|
389 | - | 389 | |||||||||
2017
|
147 | - | 147 | |||||||||
2018 and thereafter
|
105 | - | 105 |
|
b.
|
The Company provided a bank guarantee in the amount of $163 in favor of its offices leased in Israel as of December 31, 2012.
|
|
c.
|
On February 21, 2010, the Company received a demand letter from one of the Company's publishers (the "Publisher") for additional compensation related to fees that the Publisher claims is due to him based on the Private Label Distribution Agreement signed with the Company and various alleged oral representations made by the Company. On November 11, 2010, the Publisher filed a claim in Tel-Aviv court in the amount of NIS 2.14 million ($574 at December 31, 2012). On January 21, 2011, the Company submitted a statement of defense asserting that the agreement was properly terminated and the Publisher is not entitled to any additional fees. On October 17, 2011, the Company submitted an amended statement of defense as a consequence of prior request to do so, which was approved by the court. On June 27, 2012, the court ruled that the law applicable to the dispute is the law of the State of New York. The parties are currently awaiting ruling on a motion submitted by the Company to require one of the plaintiffs to deposit a guarantee bond. A preliminary hearing is scheduled for September 30, 2013.
|
|
According to Company's management and legal advisors, the outcome of the above claim cannot be predicted at this stage. Accordingly, the Company did not record a provision for this claim.
|
|
d.
|
In March, 2010, a certain third party filed suit against the Company in the United States District Court for breach of contract, unjust enrichment and unfair competition in the amount of $1,100 (the "claim").
|
|
The Company filed a motion for partial summary judgment asking the court to enforce the parties contractual limitation of liability that would cap total liability for all claims against the Company in this case at $5. On July 29, 2011, the trial ruled that the limitation of liability provision in the publisher agreement unambiguously limits the Company's liability for all types of damages to $5.
|
|
A bifurcated jury trial was held in April, 2013 and the jury awarded no third party compensatory nominal damages and $500 in "unjust-enrichment" damages.
|
|
On May 10, 2013, the third party filed a motion seeking an award of $948 in attorney fees and $12 in the expense reimbursement claim. On May 22, 2013, the Company filed a renewed motion for judgment as a matter of law or, in the alternative, for a new trial. The Company argued that the jury award should be reduced to $296, if not to zero.
|
|
On August 12, 2013, the trial court denied the Company’s motion for judgment as a matter of law or, in the alternative, for a new trial, and also denied the third party’s motion for reimbursement of attorney fees and expenses. On August 29, 2013, the Company filed an amended notice of cross-appeal. The Court of Appeals has scheduled a pre-argument settlement conference under the court’s Civil Appeal Management Program, to be held on September 16, 2013.
|
|
According to the Company's legal advisors, the outcome of the appeal cannot be predicted at this stage and the Company intends to vigorously defend itself; therefore, no provision was recorded.
|
|
e.
|
On February 14, 2012, a certain third party filed a complaint against the Company in the United States District Court for infringing U.S. Patent No. 7,853,881. According to the Company's legal advisors, an ultimately unfavorable outcome of this matter cannot be determined at this time, due to the preliminary stage of the litigation.
|
|
a.
|
Ordinary shares:
|
|
The Ordinary shares confer upon their holders the right to receive notices of shareholders meeting, to vote in such meetings, to receive dividends and to participate in the distribution of the surplus assets and funds on the liquidation of the Company.
|
|
b.
|
Preferred shares
|
|
The Series A, A-1, B, B-1 and B-2 Convertible Preferred shares confer upon their holders the same rights as the Ordinary shares. In addition, the Convertible Preferred shares are convertible into Ordinary Shares based on their Original Issue price and the applicable conversion price at the time of conversion on a 1:1 basis (as defined in the Company's Amended and Restated Article of Association).
|
|
c.
|
Dividend:
|
|
In September 2011, the Company distributed a dividend in an aggregate amount of $79,700 in cash, derived from the Company's income earned in 2011.
|
|
On November 30, 2012, the Company distributed a dividend of $338,676 in cash derived from the Company
'
s income earned in 2012 of $243,134 and an additional amount out of prior years' income of $95,542 (see also Note 10c(3)).
|
|
d.
|
Ordinary share option plan:
|
|
Under the Company's 2005 Share Option Plan ("the Plan"), options may be granted to officers, directors, employees and consultants of the Company or any subsidiary thereof. The Plan is executed under Section 102 of the Israeli Tax Ordinance. Immediately upon allotment, the ordinary shares purchased by exercising of the options will have the same rights as the Company's ordinary shares.
|
|
Pursuant to the Plan, the Company has reserved 11,815,792 ordinary shares for issuance. As of June 30, 2013 (unaudited), an aggregate of 19,807,698 ordinary shares of the Company are still available for future grants.
|
|
Each option granted under the Plan is exercisable until the earlier of ten years from the date of the grant of the option or the expiration dates of the respective option. The options vest primarily over four years. Options which are forfeited or not exercised before expiration become available for future grants.
During the years ended December 31, 2012 and 2011 and six months periods ended June 30, 2013 (unaudited), the Company recognized share-based compensation expense in the consolidated financial statements of $2,860, $1,574, and $5,121 respectively.
|
|
A summary of the Company's share options activities in the periods ending June 30, 2013 and 2012 (unaudited), December 31, 2012 and December 31, 2011 are as follows:
|
Six months ended
June 30, 2013 (Unaudited)
|
||||||||||||
Average
|
||||||||||||
Average
|
remaining
|
|||||||||||
exercise
|
contractual
|
|||||||||||
Number
|
price
|
life (years)
|
||||||||||
Options outstanding at the beginning of the year
|
10,801,270 | $ | 2.47 | 6.98 | ||||||||
Granted
|
9,729,200 | $ | 0.64 | |||||||||
Exercised
|
(14,656 | ) | $ | 0.68 | ||||||||
Forfeited
|
(1,139,371 | ) | $ | 2.71 | ||||||||
Expired
|
(159,828 | ) | $ | 1.94 | ||||||||
Options outstanding at the end of the period
|
19,216,615 | $ | 1.55 | 7.03 | ||||||||
Options exercisable at the end of the period
|
1,996,090 | $ | 0.08 | 6.85 |
Six months ended June 30, 2012
(Unaudited)
|
||||||||||||
Average
|
||||||||||||
Average
|
remaining
|
|||||||||||
exercise
|
contractual
|
|||||||||||
Number
|
price
|
life (years)
|
||||||||||
Options outstanding at the beginning of the year
|
15,664,122 | $ | 0.88 | 7.33 | ||||||||
Granted
|
3,478,125 | $ | 2.61 | |||||||||
Exercised
|
(307,514 | ) | $ | 0.45 | ||||||||
Forfeited
|
(1,391,320 | ) | $ | 1.13 | ||||||||
Expired
|
(115,310 | ) | $ | 0.51 | ||||||||
Options outstanding at the end of the period
|
17,328,103 | $ | 1.22 | 7.38 | ||||||||
Options exercisable at the end of the period
|
1,680,601 | $ | 0.10 | 6.33 |
Year ended December 31, 2012
|
||||||||||||
Average
|
||||||||||||
Average
|
remaining
|
|||||||||||
exercise
|
contractual
|
|||||||||||
Number
|
price
|
life (years)
|
||||||||||
Options outstanding at the beginning of the year
|
15,664,122 | $ | 0.88 | 7.33 | ||||||||
Granted
|
6,172,125 | $ | 3.21 | |||||||||
Exercised
|
(7,475,070 | ) | $ | 0.41 | ||||||||
Forfeited
|
(3,270,321 | ) | $ | 2.03 | ||||||||
Expired
|
(289,586 | ) | $ | 0.75 | ||||||||
Options outstanding at the end of the year
|
10,801,270 | $ | 2.20 | 6.98 | ||||||||
Options exercisable at the end of the year
|
785,570 | $ | 0.04 | 5.70 |
Year ended December 31, 2011
|
||||||||||||
Weighted
|
||||||||||||
Weighted
|
average
|
|||||||||||
average
|
remaining
|
|||||||||||
exercise
|
contractual
|
|||||||||||
Number
|
price
|
life (years)
|
||||||||||
Options outstanding at the beginning of the year
|
39,689,520 | $ | 0.18 | 7.43 | ||||||||
Granted
|
4,921,975 | $ | 1.97 | |||||||||
Exercised
|
(25,073,824 | ) | $ | 0.08 | ||||||||
Forfeited
|
(3,680,010 | ) | $ | 0.59 | ||||||||
Expired
|
(193,539 | ) | $ | 0.25 | ||||||||
Options outstanding at the end of the year
|
15,664,122 | $ | 0.79 | 7.33 | ||||||||
Options exercisable at the end of the year
|
862,501 | $ | 0.13 | 6.79 |
|
The weighted average grant date fair values of options granted during the years ended December 31, 2011 and December 31, 2012 and for the six month periods ended June 30, 2012 and 2013 (unaudited) were $2.19, $4.04, $4.04 and $3.00, respectively.
|
|
As of December 31, 2012 and June 30, 2013 (unaudited), there was $12,156 and $31,608 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. This cost is expected to be recognized over a period of approximately 3.2 and 3.6 years, respectively.
|
|
The options outstanding as of December 31, 2012, have been classified by ranges of exercise prices as follows:
|
Options outstanding
|
Options exercisable
|
||||||||||||||||
Exercise price
|
Options
outstanding
as of
December 31,
2012
|
Weighted
average
remaining
contractual
life
|
Exercisable
as of
December 31,
2012
|
Weighted
average
remaining
contractual
life
|
|||||||||||||
Number
|
Years
|
Number
|
Years
|
||||||||||||||
0.00 | 700,000 | 3.02 | 700,000 | 3.02 | |||||||||||||
0.06 | 66,297 | 5.91 | 52,237 | 5.85 | |||||||||||||
0.13 | 1,162,059 | 6.70 | - | - | |||||||||||||
0.76 | 1,724,826 | 7.63 | 33,333 | 8.22 | |||||||||||||
2.19 | 4,459,088 | 8.88 | - | - | |||||||||||||
4.04 | 2,689,000 | 9.74 | - | - | |||||||||||||
10,801,270 | 785,570 |
|
The options outstanding as of June 30, 2013 (unaudited) have been separated into ranges of exercise price as follows:
|
Options outstanding
|
Options exercisable
|
||||||||||||||||
Exercise price
|
Options
outstanding
as of
June 30, 2013
(unaudited)
|
Weighted
average
remaining
contractual
life
|
Exercisable
as of
June 30, 2013
(unaudited)
|
Weighted
average
remaining
contractual
ife
|
|||||||||||||
Number
|
Years
|
Number
|
Years
|
||||||||||||||
0.00 | 700,000 | 2.53 | 700,000 | 2.53 | |||||||||||||
0.01 | 7,930,200 | 9.94 | 1,037,400 | 9.94 | |||||||||||||
0.06 | 66,297 | 5.41 | 66,297 | 5.41 | |||||||||||||
0.13 | 1,149,559 | 6.20 | 114,060 | 6.07 | |||||||||||||
0.76 | 1,889,234 | 7.19 | 33,333 | 8 | |||||||||||||
2.19 | 3,784,325 | 8.39 | 45,000 | 9 | |||||||||||||
4.04 | 3,697,000 | 9.53 | - | - | |||||||||||||
19,216,615 | 1,996,090 |
|
e.
|
Share-based compensation expense for employees:
|
|
The Company recognized non-cash share-based compensation expense in the consolidated statements of operations as follows (in thousands):
|
Six months ended
June 30,
|
Year ended
December 31,
|
|||||||||||||||
2013
|
2012
|
2012
|
2011
|
|||||||||||||
(Unaudited)
|
||||||||||||||||
Research and development expenses
|
$ | 973 | $ | 699 | $ | 1,762 | $ | 785 | ||||||||
Sales and marketing
|
552 | 330 | 877 | 665 | ||||||||||||
General and administrative expenses
|
3,597 | 97 | 221 | 124 | ||||||||||||
$ | 5,122 | $ | 1,126 | $ | 2,860 | $ | 1,574 |
|
a.
|
Tax rates:
|
|
The corporate tax rate in Israel is as follows: 2012 – 25%, 2011 - 24%. Tax at a reduced rate of 25% applies on capital gains arising after January 1, 2003, instead of the regular tax rate. In December 2011, the Israeli Parliament (the "Knesset") passed the Law for Socioeconomic Change (Legislative Amendments) (Taxes), 2011, which prescribes, among others, to cancel, effective from 2012, the scheduled progressive reduction in the corporate tax rate and to raise the statutory corporate tax rate to 25% in 2012. In view of the increase in the corporate tax rate to 25% in 2012, the real capital gains tax rate and the real betterment tax rate will also be increased. The Amendment was enacted effective as of December 6, 2011.
|
|
On July 30, 2013, the Knesset approved the second and third readings of the Economic Plan for 2013-2014 ("Amended Budget Law") which consists, among others, of fiscal changes whose main aim is to enhance long-term collection of taxes. These changes include, among others, raising the Israeli corporate tax rate from 25% to 26.5%, canceling the lowering of the tax rates applicable to preferred enterprises (9% in development area A and 16% in other areas), taxing revaluation gains and increasing the tax rates on dividends within the scope of the Law for the Encouragement of Capital Investments to 20% effective from January 1, 2014.
|
|
The deferred tax balances included in the financial statements as of June 30, 2013 are calculated according to the tax rates that were in effect as of the balance sheet date and do not take into consideration the possible effects of the Amended Budget Law. These effects will be included in the financial statements starting from the actual enactment date, namely in the third quarter of 2013.
|
|
b.
|
The Company received final tax assessments through the year 2011. The subsidiaries, Conduit Inc., Conduit B.V. and Wibiya have not received final tax assessments since their incorporation.
|
|
c.
|
Tax benefits under the Law for the Encouragement of Capital Investments, 1959:
|
|
1.
|
On April 1, 2005, an amendment to the Investment Law came into effect ("the Amendment") and has significantly changed the provisions of the Investment Law. The Amendment limits the scope of enterprises which may be approved by the Investment Center by setting criteria for the approval of a facility as a Beneficiary Enterprise, such as provisions generally requiring that at least 25% of the Beneficiary Enterprise's income will be derived from export. Additionally, the Amendment enacted major changes in the manner in which tax benefits are awarded under the Investment Law so that companies no longer require Investment Center approval in order to qualify for tax benefits. However, the Investment Law provides that terms and benefits included in any certificate of approval already granted will remain subject to the provisions of the law as they were on the date of such approval.
|
|
In 2009, the Company submitted a pre-ruling request to Israel's Tax Authorities to be granted status as a new "Beneficiary Enterprise" under the Law for the Encouragement of Capital Investments, 1959 ("the Law"). The Company also elected the year 2007 to be the year of election. In March 2010, the Company received final approval from the Israeli Income Tax Authority ("ITA").
|
|
Pursuant to the provisions of the Law, the Company's undistributed income will be tax-exempt for a period of two years, and subject to a reduced tax rate of 10%-25% for an additional period of five to eight years, depending on the percentage of foreign ownership of the Company.
The entitlement to the above benefits is conditional upon the Company fulfilling the conditions stipulated by the above law, regulations published there under and the letters of approval for the specific investments in "Beneficiary Enterprises". In the event of failure to comply with these conditions, the benefits may be canceled and the Company income from sources other than the Beneficiary Enterprises during the benefit period will be subject to tax at Israel's regular corporate tax rate. As of December 31, 2012, the Company is of the opinion that it fully complies with all requirements.
If cash dividends are distributed out of tax-exempt profits in a manner other than upon complete liquidation, Conduit will then become liable for tax at the rate of 10%-25% (depending on the level of foreign investments in Conduit) in respect of the amount distributed.
As of December 31, 2012, Conduit had $178,862 (using NIS/dollar exchange rate as of December 31, 2012) of tax-exempt income attributable to its Beneficiary Enterprise programs and potential income tax liability of up to $44,716 (using NIS/dollar exchange rate as of December 31, 2012) as of December 31, 2012 in the event that such tax exempt income is distributed.
|
|
2.
|
On December 2010, the Knesset passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011, which prescribes, among others, amendments in the Law for the Encouragement of Capital Investments, 1959 ("the Law"). The amendment became effective as of January 1, 2011. According to the amendment, the benefit tracks in the Law were modified and a flat tax rate applies to the Company's entire preferred income. The Company will be able to opt to apply (the waiver is non-recourse) the amendment and from then on it will be subject to the amended tax rates that are: 2011 and 2012 - 15% (in development area A - 10%), 2013 and 2014 - 12.5% (in development area A - 7%) and in 2015 and thereafter - 12% (in development area A - 6%).
Pursuant to the Company's examination of the Amendment, the Company applied to adopt the Amendment commencing in the year 2012.
|
|
3.
|
Temporary, partial tax relief for repatriation of exempt income:
On November 5, 2012, the Knesset approved a final bill regarding repatriations of trapped earnings out of Approved/Privileged Enterprises. The temporary provisions have come into effect as of its official publication (December 2012). The Israeli government agreed to grant relief of 30%-60% on the amount of tax which should have been paid on distributable earnings in order to encourage companies to pay the reduced taxes during the next 12 months (the "temporary order"). The temporary order provides partial relief from Israeli corporate income tax for companies which opt to enjoy the privilege, on a linear basis: greater release of "trapped" retained earnings will result in a higher relief from corporate income tax. According to the new linear statutory formula, the corporate income tax to be paid, would vary from 6% to 17.5% effective tax rate (depends on the Company's corporate tax rate in the year in which the income was derived and the amount of "trapped" retained earnings elected to be relieved), without taking into account the 15% dividend withholding tax (which should be levied only upon actual distribution, if any). The reduced corporate tax is payable within 30 days of making the election. The new temporary order does not require the actual distribution of the retained earnings, nor does it provide any relief from the 15% dividend withholding tax.
The partial corporate income tax relief is available to companies that elect to implement the temporary reduced tax relief by November 12, 2013 in respect of exempt retained earnings accrued up until December 31, 2011, provided that up to 30% (the exact rate is calculated by a new statutory formula) of the "released" earnings are re-invested in Israel in at least one of the following: Industrial activities, Research and development activities, Assets used by the company, Salaries of newly recruited employees.
|
|
Pursuant to the Temporary Order in December, 2012, the Company "released" an approximate amount of $110,000 out of its "trapped" earnings out of Beneficiary Enterprise and distributed $95,542 as part of the dividend paid in 2012 (see note 9c). The additional corporate tax incurred by the Company in 2012 as a result of such release amounted to $15,719.
The Company's intention is not to distribute any amounts of its undistributed tax-exempt income as dividends in the near-term. The Company currently intends to reinvest its tax-exempt income and not to distribute such income as a dividend. Accordingly, no deferred income taxes have been provided on income attributable to the Company's Beneficiary Enterprise program as the undistributed tax-exempt income is essentially permanent by reinvestment.
|
|
d.
|
Income before taxes on income is comprised as follows:
|
Year ended
December 31,
|
||||||||
2012
|
2011
|
|||||||
Domestic
|
$ | 364,069 | $ | 308,325 | ||||
Foreign
|
419 | 441 | ||||||
$ | 364,488 | $ | 308,766 |
|
e.
|
Taxes on income comprised as follows:
|
Year ended
December 31,
|
||||||||
2012
|
2011
|
|||||||
Current taxes (1)
|
$ | 73,130 | $ | 24,394 | ||||
Adjustments in respect of prior years
|
813 | 43 | ||||||
Deferred taxes
|
(524 | ) | (2,519 | ) | ||||
$ | 73,419 | $ | 21,918 |
|
(1)
|
Includes an additional tax expense of $15,719 in respect of release of the Company's trapped earnings (see c3 above).
|
|
f.
|
Deferred taxes:
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, the Company considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized.
|
|
1.
|
Provided in respect of the following:
|
December 31,
|
||||||||
2012
|
2011
|
|||||||
Accrued vacation and severance pay
|
$ | 158 | $ | 143 | ||||
Research and development costs
|
2,999 | 2,873 | ||||||
Net operating loss carry forwards
|
880 | 393 | ||||||
Net deferred tax assets before valuation allowance
|
4,037 | 3,409 | ||||||
Valuation allowance
|
(496 | ) | - | |||||
Deferred tax asset
|
3,541 | 3,409 | ||||||
Property and equipment
|
(289 | ) | (298 | ) | ||||
Intangible assets
|
(384 | ) | (767 | ) | ||||
Deferred tax liability
|
(673 | ) | (1,065 | ) | ||||
Deferred tax asset, net
|
$ | 2,868 | $ | 2,344 |
|
2.
|
Deferred income taxes are presented in the balance sheet as follows:
|
December 31,
|
||||||||
2012
|
2011
|
|||||||
Current assets
|
$ | 2,094 | $ | 1,951 | ||||
Non-current assets
|
1,063 | 1,066 | ||||||
Current liabilities
|
(289 | ) | (673 | ) | ||||
$ | 2,868 | $ | 2,344 |
|
g.
|
Reconciliation of the theoretical tax expense:
|
|
A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company, and the actual tax expense as reported in the consolidated statements of income is as follows:
|
Year ended
December 31,
|
||||||||
2012
|
2011
|
|||||||
Income before taxes on income, as reported in the consolidated statements of income
|
$ | 364,488 | $ | 308,766 | ||||
Statutory tax rate
|
25 | % | 24 | % | ||||
Theoretical tax expense
|
91,122 | 74,104 | ||||||
Income tax at rate other than the statutory tax rate
|
(37,018 | ) | (52,568 | ) | ||||
Non-deductible expenses (including share-based compensation)
|
1,996 | 1,073 | ||||||
Operating losses of Wibiya for which valuation allowance was provided
|
496 | - | ||||||
Taxes in respect with prior years
|
813 | 43 | ||||||
Taxes in respect to release of "trapped earnings"
|
15,719 | - | ||||||
Others
|
291 | (734 | ) | |||||
Actual tax expense
|
$ | 73,419 | $ | 21,918 |
Year ended
December 31,
|
||||||||
2012
|
2011
|
|||||||
Financial income:
|
||||||||
Interest on bank deposits
|
$ | 5,641 | $ | 2,137 | ||||
Foreign currency translation gains, net
|
2,266 | - | ||||||
7,907 | 2,137 | |||||||
Financial expenses:
|
||||||||
Bank charges
|
9 | 58 | ||||||
Foreign currency translation loss, net
|
- | 2,532 | ||||||
9 | 2,590 | |||||||
$ | 7,898 | $ | (453 | ) |
|
a.
|
Summary information about geographic areas:
|
|
ASC 280, "Segment Reporting," establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company manages its business on a basis of one reportable segment, and derives revenues from monthly transaction volume based fees for making its application available to the Company's Partners (see Note 1 for a brief description of the Company's business). The following is a summary of revenues within geographic areas:
|
|
b.
|
For major customers, see Note 1b.
|
June 30,
|
December 31,
|
|||||||||||
2013
|
2012
|
2011
|
||||||||||
Unaudited
|
||||||||||||
Long-lived assets by geographic region:
|
||||||||||||
United States
|
$ | 1,201 | $ | 1,575 | $ | 1,558 | ||||||
Europe
|
367 | 618 | 934 | |||||||||
Israel
|
4,415 | 4,697 | 4,912 | |||||||||
$ | 5,983 | $ | 6,890 | $ | 7,404 |
Six months
ended,
June 30,
2013, Conduit Ltd.
|
Adjustments
(Note 1)
|
Six months ended,
June 30,
2013, post discontinued operations
|
||||||||||
Revenues
|
$ | 161,359 | $ | 909 | $ | 160,450 | ||||||
Cost and expenses:
|
||||||||||||
Cost of revenues
|
3,383 | 429 | 2,954 | |||||||||
Traffic acquisition costs
|
81,975 | - | 81,975 | |||||||||
Research and development
|
20,439 | 10,196 | 10,243 | |||||||||
Sales and marketing
|
8,789 | 3,841 | 4,948 | |||||||||
General and administrative
|
8,831 | 2,778 | 6,053 | |||||||||
Operating income (loss)
|
37,942 | (16,335 | ) | 54,277 | ||||||||
Financial income, net
|
1,495 | 190 | 1,305 | |||||||||
Income before taxes on income
|
39,437 | (16,145 | ) | 55,582 | ||||||||
Taxes on income
|
7,400 | (1,172 | ) | 8,572 | ||||||||
Discontinued operations, net of taxes
|
- | - | (14,973 | ) | ||||||||
Net income
|
$ | 32,037 | $ | (14,973 | ) | $ | 32,037 |
Year ended,
December 31,
2012, Conduit Ltd.
|
Adjustments
(Note 1)
|
Year ended,
December 31,
2012, post
discontinued
operations
|
||||||||||
Revenues
|
$ | 537,801 | $ | 793 | $ | 537,008 | ||||||
Cost and expenses:
|
||||||||||||
Cost of revenues
|
6,304 | 791 | 5,513 | |||||||||
Traffic acquisition costs
|
119,705 | 150 | 119,555 | |||||||||
Research and development
|
36,903 | 20,045 | 16,858 | |||||||||
Sales and marketing
|
11,406 | 3,486 | 7,920 | |||||||||
General and administrative
|
6,893 | 2,188 | 4,705 | |||||||||
Operating income (loss)
|
356,590 | (25,867 | ) | 382,457 | ||||||||
Financial income, net
|
7,898 | 202 | 7,696 | |||||||||
Income before taxes on income
|
364,488 | (25,665 | ) | 390,153 | ||||||||
Taxes on income
|
73,419 | (2,016 | ) | 75,435 | ||||||||
Equity losses
|
149 | (149 | ) | - | ||||||||
Discontinued operations, net of taxes
|
- | - | (23,798 | ) | ||||||||
Net income
|
$ | 290,920 | $ | (23,798 | ) | $ | 290,920 |
Year ended,
December 31,
2011, Conduit Ltd.
|
Adjustments
(Note 1)
|
Year ended,
December 31,
2011, post discontinued operations
|
||||||||||
Revenues
|
$ | 482,051 | $ | 327 | $ | 481,724 | ||||||
Cost and expenses:
|
||||||||||||
Cost of revenues
|
4,521 | 353 | 4,168 | |||||||||
Traffic acquisition costs
|
113,436 | 78 | 113,358 | |||||||||
Research and development
|
28,720 | 10,374 | 18,346 | |||||||||
Sales and marketing
|
20,354 | 2,437 | 17,917 | |||||||||
General and administrative
|
5,801 | 1,675 | 4,126 | |||||||||
Operating income (loss)
|
309,219 | (14,590 | ) | 323,809 | ||||||||
Financial income (expense), net
|
(453 | ) | 183 | (636 | ) | |||||||
Income before taxes on income
|
308,766 | (14,407 | ) | 323,173 | ||||||||
Taxes on income
|
21,918 | (646 | ) | 22,564 | ||||||||
Equity losses
|
441 | (441 | ) | - | ||||||||
Discontinued operations, net of taxes
|
- | - | (14,202 | ) | ||||||||
Net income
|
$ | 286,407 | $ | (14,202 | ) | $ | 286,407 |
Exhibit A
|
Definitions
|
Exhibit B
|
Split Agreement
|
Exhibit C
|
Form of Conduit Undertaking Agreement
|
Exhibit D
|
Form of Conduit Standstill Agreement
|
Exhibit E
|
Form of Perion Undertaking Agreement
|
Exhibit F
|
Form of Perion Instruction Letter
|
Exhibit G
|
Form of CEO Lock-up Agreement
|
Exhibit H
|
Signing Spreadsheet
|
Exhibit I
|
Exchange Ratio Formula
|
Exhibit J
|
Form of Registration Rights Undertaking
|
Exhibit K
|
Form of Legal Opinion of Perion U.S. Legal Counsel
|
Exhibit L
|
Form of Perion Director Indemnification Letter
|
Exhibit M
|
Form of Transition Services Agreement
|
Exhibit N
|
Form of Office and Administrative Services Agreement
|
Exhibit O
|
Form of ClientConnect Employment Confirmation
|
Schedule A
|
Conduit Shareholders Entering Conduit Undertaking Agreements
|
Schedule B
|
Conduit Shareholders Entering Conduit Standstill Agreements
|
Schedule C
|
Perion Shareholders Entering Undertaking Agreements
|
Schedule 4.2
|
Conduit and ClientConnect Conduct of Business between Signing and Closing
|
Schedule 4.2(m)
|
ClientConnect Key Employees
|
Schedule 4.3
|
Perion Conduct of Business between Signing and Closing
|
Schedule 4.3(m)
|
Perion Key Employees
|
Schedule 5.1(b)
|
Lock-up Arrangements
|
Schedule 5.11(b)(i)
|
New Securities
|
Schedule 6.1(b)
|
Governmental Approvals
|
Schedule 6.2(f)
|
Required Perion Consents
|
Schedule 6.2(h)
|
Conduit and ClientConnect Tax Ruling Principles
|
Schedule 6.3(d)(iii)
|
ClientConnect Key Employees Executing Lock-up Arrangements
|
Schedule 6.3(e)
|
Required ClientConnect Consents
|
Schedule 6.3(h)
|
Perion Tax Ruling Principles
|
A.
|
Conduit has decided to spin-off the ClientConnect Business to ClientConnect, a newly formed company to be owned by the Conduit Shareholders.
|
B.
|
Conduit and ClientConnect have entered into a Split Agreement, dated as of September 16, 2013, a copy of which (including all exhibits and schedules thereto) is attached hereto as
Exhibit B
(the "
Split Agreement
"), pursuant to which the entire activities and operations, and related assets and liabilities, of the ClientConnect Business will be transferred to ClientConnect under the terms and conditions set forth in the Split Agreement, and the Conduit Shareholders will be issued shares in ClientConnect identical to their respective holdings in Conduit, thereby becoming the ClientConnect Shareholders (the "
Split
"), all pursuant to a court approved arrangement among Conduit and the Conduit Shareholders under Sections 350 and 351 of the Companies Law.
|
C.
|
As soon as practicable following the consummation of the Split, the Parties desire to combine Perion and ClientConnect by way of a share purchase transaction pursuant to which Perion will purchase all of the ClientConnect Shares from the ClientConnect Shareholders in exchange for Perion Shares, and ClientConnect will become a wholly owned subsidiary of Perion, pursuant to a court approved arrangement among Conduit and the Conduit Shareholders under Sections 350 and 351 of the Companies Law and the terms and conditions set forth in this Agreement (the "
Share Purchase
").
|
D.
|
It is contemplated that each of the Split and the Share Purchase will be effected as a restructuring pursuant to a tax ruling under Sections 105 and 103T, respectively, of the Israeli Income Tax Ordinance (the "
Tax Ruling
").
|
E.
|
The board of directors of Conduit (the "
Conduit Board of Directors
") and the board of directors of ClientConnect (the "
ClientConnect Board of Directors
") have carefully considered the respective terms of this Agreement and have determined that the terms and conditions of the transactions contemplated thereby are fair to and in the best interests of, and are advisable to, Conduit and the Conduit Shareholders and ClientConnect and the ClientConnect Shareholders, respectively, have approved this Agreement and the transactions contemplated hereby and have recommended that the Conduit Shareholders approve this Agreement and the transactions contemplated thereby.
|
F.
|
Concurrently with the execution of this Agreement, and as a condition and inducement to Perion’s willingness to enter into this Agreement, (i) the Conduit Shareholders identified on
Schedule A
hereto are entering into undertaking agreements containing certain voting provisions in the form attached hereto as
Exhibit
C
and (ii) the Conduit Shareholders identified on
Schedule B
hereto are entering into standstill agreements in respect of their Perion Shares (the "
Standstill Agreements
") in the form attached hereto as
Exhibit
D
.
|
G.
|
The board of directors of Perion (the "
Perion Board of Directors
") has carefully considered the terms of this Agreement and has determined that the terms and conditions of the transactions contemplated thereby, are fair to and in the best interests of, and are advisable to, Perion and its shareholders, has approved this Agreement and the transactions contemplated thereby and has recommended that its shareholders approve this Agreement and the transactions contemplated thereby.
|
H.
|
Concurrently with the execution of this Agreement
,
and as a condition and inducement to Conduit's and ClientConnect's willingness to enter into this Agreement, (i) the shareholders of Perion identified on
Schedule C
hereto are entering into undertaking agreements containing certain voting and lock-up provisions in the form attached hereto as
Exhibit E
, (ii) Perion is entering into an instruction letter with respect to the voting of certain Perion Shares held in trust in the form attached hereto as
Exhibit F
and (iii) the CEO of Perion is entering into a lock up agreement in respect of his Perion Shares in the form attached hereto as
Exhibit G
.
|
2.10
|
Taxes
.
|
2.11
|
Employee Benefit Plans and Employee Matters
.
|
2.12
|
Interested Party Transactions
.
|
2.15
|
ClientConnect Material Contracts
.
|
Perion Ltd.
|
|||
By:
|
/s/ Josef Mandelbaum /s/ Yacov Kaufman
|
||
Name:
|
|||
Title:
|
|||
ClientConnect Ltd.
|
|||
By:
|
/s/ Dror Erez
|
||
Name:
|
|||
Title:
|
|||
Conduit Ltd.
|
|||
By:
|
/s/ Dror Erez
|
||
Name:
|
|||
Title:
|
A
|
-
|
All issued and outstanding Perion Shares
|
B
|
-
|
All Perion Shares underlying In-the-Money-Options based on the Treasury Stock Method (TSM)
|
C
|
-
|
Value of "out of money" Perion Options, as determined by the Black Scholes Methodology divided by the Perion Reference Price
|
D
|
-
|
Perion's Fully Diluted Shares (as defined below), the sum of A + B + C
|
E
|
-
|
the result of multiplying (i) 0.81 by (ii) the quotient received by dividing (x) D by (y) 0.19;
minus
H
|
F
|
-
|
All issued and outstanding ClientConnect Shares
|
G
|
-
|
All ClientConnect Shares underlying In-the-Money-Options based on TSM
|
H
|
-
|
Value of "out of money" ClientConnect Options, as determined by the Black Scholes Methodology divided by the Perion Reference Price
|
I
|
-
|
ClientConnect's Fully Diluted Shares - the sum of F + G
|
J
|
-
|
the result of dividing (i) E by (ii) I,
which result represents the number of Perion Shares to be issued in exchange for each one (1) ClientConnect Share, i.e., the
Exchange Ratio
|
1.
|
The example above is based on the 30 day trailing volume weighted average closing price per share of Perion on NASDAQ up to and including 13 September 2013 or $11.2461
|
1.
|
Certain Restrictions on Transfers of the Shares
.
|
2.
|
First Relaxation of the Restrictions on Transfers of the Shares
.
|
3.
|
Second Relaxation of the Restrictions on Transfers of the Shares
.
|
4.
|
Third Relaxation of the Restrictions on Transfers of the Shares
.
|
5.
|
Additional Relaxation or Expiration of
the Restrictions on Transfers
|
6.
|
Brokers
|
7.
|
Definitions
|
APPENDIX B
OPINION OF RBC CAPITAL MARKETS, LLC
|
RBC Capital Markets, LLC
Three World Financial Center
200 Vesey Street, 9
th
Floor
New York, NY 10281-8098
|
Very truly yours,
/s/ RBC CAPITAL MARKETS, LLC
RBC CAPITAL MARKETS, LLC
|
|
14.7.1.
|
If to the Company:
|
|
14.7.2.
|
If to a Holder: to the address set forth in the Closing Spreadsheet.
|
Perion Network Ltd
.
|
||
Name:
|
||
Title:
|
||
PERION NETWORK LTD.
|
|||
|
By:
|
||
Name:
|
|||
Title: | |||
[SHAREHOLDER].
|
|||
|
By:
|
||
Name: | |||
Title: | |||
Number of Shares owned of record: [_______]
|
[SHAREHOLDER].
|
|||
|
By:
|
||
Name: | |||
Title: | |||
Number of Shares owned of record: [_______]
|
PERION NETWORK LTD.
|
|||
|
By:
|
||
Name: | |||
Title: | |||
[SHAREHOLDER]
|
|||
|
By:
|
||
Name: | |||
Title: | |||
WHEREAS,
|
Indemnitee is an Office Holder (“
Nosse Misra
”), as such term is defined in the Companies Law, 5759–1999 (the
“
Companies Law
” and “
Office Holder
” respectively), of the Company;
|
WHEREAS
,
|
the Articles of Association of the Company authorize the Company to indemnify and advance expenses to its Office Holders and provide for insurance and exculpation to its Office Holders, and this Agreement is provided to Indemnitee in accordance with applicable law, the Articles of the Association of the Company and all requisite corporate approvals;
|
WHEREAS,
|
the Company has determined that (i) the increased difficulty in attracting and retaining competent persons is detrimental to the best interests of the Company’s shareholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future, (ii) and it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law.
|
WHEREAS,
|
the Company acknowledges that Indemnitee is relying on the obligations of the Company set forth in this Agreement in agreeing to serve the Company, which obligations are therefore irrevocable;
|
WHEREAS,
|
in recognition of Indemnitee’s need for substantial protection against loss arising from the Indemnitee's liability, including costs and expenses incurred by the Indemnitee due to his position as Office Holder, in order to assure Indemnitee’s continued service to the Company in an effective manner and, in part, in order to provide Indemnitee with specific contractual assurance that the indemnification, insurance and exculpation afforded by the Articles of Association will be available to Indemnitee, the Company wishes to undertake in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent permitted by applicable law and as set forth in this Agreement and provide for insurance and exculpation of Indemnitee as set forth in this Agreement.
|
1.
|
INDEMNIFICATION AND INSURANCE.
|
|
1.1.
|
The Company hereby undertakes to indemnify Indemnitee to the fullest extent permitted by applicable law and the Company's Articles of Association, as each may be amended from time to time, for any liability and expense specified in Sections
1.1.1 through
1.1.4 below, imposed on Indemnitee due to or in connection with an act performed by such Indemnitee, either prior to or after the date hereof, in Indemnitee’s capacity as an Office Holder, including, without limitation, as a director, officer, employee, agent or fiduciary of the Company, any subsidiary thereof or any other corporation, collaboration, partnership, joint venture, trust or other enterprise, in which Indemnitee serves at any time at the request of the Company (the “
Corporate Capacity
”) it being understood that as of the date hereof, the Company's Articles of Association do not authorize the indemnification specified in Section 1.1.4 below. The term “act performed in Indemnitee’s capacity as an Office Holder” shall include, without limitation, any act, omission and failure to act and any other circumstances relating to or arising from Indemnitee’s service in a Corporate Capacity. Notwithstanding the foregoing, in the event that the Office Holder is the beneficiary of an indemnification undertaking provided by a subsidiary of the Company or any other entity (other than a Secondary Indemnitor (as defined below), if applicable, with respect to his Corporate Capacity with such subsidiary or entity, then the indemnification obligations of the Company hereunder with respect to such Corporate Capacity shall only apply to the extent that the indemnification by such subsidiary or other entity does not actually fully cover the indemnifiable liabilities and expenses relating thereto. The following shall be hereinafter referred to as “
Indemnifiable Events
”:
|
|
1.1.1.
|
Financial liability imposed on Indemnitee in favor of any person pursuant to a judgment, including a judgment rendered in the context of a settlement or an arbitrator’s award approved by a court. For purposes of Section
1 of this Agreement, the term
“person
” shall include, without limitation, a natural person, firm, partnership, joint venture, trust, company, corporation, limited liability entity, unincorporated organization, estate, government, municipality, or any political, governmental, regulatory or similar agency or body;
|
|
1.1.2.
|
Reasonable Expenses (as defined below) incurred by or charged to Indemnitee as a result of an investigation or any proceeding instituted against him by an authority that is authorized to conduct an investigation or proceeding to the full extent permitted by the applicable law.
|
|
1.1.3.
|
Reasonable Expenses incurred by or charged to Indemnitee by a court, in a proceeding instituted against him by the Company or on its behalf or by another person, or in a criminal charge from which he was acquitted or in which he was convicted of an offence that does not require proof of
mens rea
;
|
|
1.1.4.
|
A financial obligation imposed upon Indemnitee and reasonable Expenses expended Indemnitee as a result of an administrative proceeding instituted against Indemnitee. Without derogating from the generality of the foregoing, such obligation or Expense will include a payment which Indemnitee is obligated to make to an injured party as set forth in Section 52(54)(a)(1)(a) of the Israeli Securities Law, 1968 – 5728 (the "Securities Law") and Expenses that Indemnitee incurred in connection with a proceeding under Chapters H'3, H'4 or I'1 of the Securities Law; and
|
|
1.1.5.
|
Any other event, occurrence or circumstances in respect of which the Company may lawfully indemnify an Office Holder of the Company.
|
|
1.2.
|
Notwithstanding anything herein to the contrary, the Company shall indemnify the Indemnitee under Section
1.1.1 only with respect to events described in
Exhibit A
hereto. The Board of Directors of the Company (the “
Board
”) has determined that the events listed in Exhibit A foreseeable in light of the operations of the Company. The maximum amount of indemnification payable by the Company under Section
1.1.1 of this Agreement for each event described in Exhibit A shall be the higher of (i) the applicable amount set forth in Exhibit A
and (ii) 25% of the Company's shareholders' equity set forth on the Company's most recent consolidated balance sheet at the time that the obligation to indemnify hereunder is incurred (the “
Limit Amount
”). The Limit Amount payable by the Company for each event described in Exhibit A
is deemed by the Company to be reasonable in
light of the circumstances
. The indemnification provided under
Section
1.1.1
herein shall not be subject to the limitations imposed by this Section
1.2
and Exhibit A if and to the extent such limits are no longer required by the Companies Law
.
|
|
1.3.
|
If so requested by Indemnitee, and subject to the Company’s repayment and reimbursements rights set forth in Sections
3 and
5 below, the Company shall pay amounts to cover Indemnitee’s Expenses with respect to which Indemnitee is entitled to be indemnified under Section
1.1 above, as and when incurred. The payments of such amounts shall be made by the Company directly to the Indemnitee’s legal and other advisors, as soon as practicable, but in any event no later than fifteen (15) days after written demand by such Indemnitee therefor to the Company, and any such payment shall be deemed to constitute indemnification hereunder. All amounts paid as indemnification hereunder shall be grossed-up to cover any tax payment that Indemnitee may be required to make if the indemnification payments are taxable, subject to the Limit Amount if required by applicable law. As part of the aforementioned undertaking, the Company will make available to Indemnitee any security or guarantee that Indemnitee may be required to post in accordance with an interim decision given by a court, governmental or administrative body, or an arbitrator, including for the purpose of substituting liens imposed on Indemnitee’s assets.
|
|
1.4.
|
The Company’s obligation to indemnify Indemnitee and advance Expenses in accordance with this Agreement shall apply to any actual, possible or threatened claim, action, suit, demand or proceeding or any inquiry or investigation, whether civil, criminal or investigative, arising out of the Indemnitee’s service in the Corporate Capacity as described in Section
1.1 above, whether or not Indemnitee is still serving in such position.
|
|
1.5.
|
The Company undertakes that, subject to the mandatory limitations under applicable law, as long as the Indemnitee is exposed to any actual or potential claim, action, suit, demand, proceeding or any inquiry or investigation, due to the Indemnitee's position as an Office Holder, the Company will purchase and maintain in effect directors and officers liability insurance, which will include coverage for the benefit of the Indemnitee, providing coverage in amounts as determined by the Board. The Company hereby undertakes to notify the Indemnitee 30 days prior to the expiration or termination of the directors and officers’ liability insurance.
|
|
1.6.
|
The Company undertakes to give prompt written notice of the commencement of any claim hereunder to the insurers in accordance with the procedures set forth in each of the policies. The Company shall thereafter diligently take all actions reasonably necessary under the circumstances to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies. The above shall not derogate from Company’s authority to freely negotiate or reach any compromise with the insurer which is reasonable at the Company’s sole discretion provided that the Company shall act in good faith and in a diligent manner.
|
|
1.7.
|
In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has requested it, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption. In the event that the Company denies Indemnitee's request for indemnification in whole or in part, upon Indemnitee's written request, a determination with respect to Indemnitee's entitlement thereto shall be made in the specific case by an Independent Counsel agreed upon by the Company and the Indemnitee, and in the absence of such agreement - appointed by the head of the Israeli Bar Association.
|
2.
|
SPECIFIC LIMITATIONS ON INDEMNIFICATION
.
|
3.
|
REPAYMENT OF EXPENSES
.
|
|
3.1.
|
In the event that the Company provides or is required to provide indemnification with respect to Expenses hereunder and at any time thereafter the Company determines, based on advice from its legal counsel, that the Indemnitee was not entitled to such payments, the amounts so indemnified by the Company will be promptly repaid by Indemnitee, unless the Indemnitee disputes the Company’s determination, in which case the Indemnitee’s obligation to repay to the Company shall be postponed until such dispute is resolved by a court of competent jurisdiction in a final and non-appealable order.
|
|
3.2.
|
Indemnitee’s obligation to repay to the Company for any Expenses or other sums paid hereunder shall be deemed as a loan given to Indemnitee by the Company subject to the minimum interest rate prescribed by Section 3(9) of the Income Tax Ordinance [New Version], 1961, or any other legislation replacing it, which is not considered a taxable benefit.
|
4.
|
SUBROGATION
.
|
|
4.1.
|
Except as set forth in Section
4.2 below (to the extent applicable), in the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.
|
|
4.2.
|
The Company hereby acknowledges that Indemnitee may have certain rights to indemnification, advancement of Expenses and/or insurance provided by shareholder(s) of the Company and certain of their affiliates (collectively, the “
Secondary Indemnitors
”). In such event, the Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Secondary Indemnitors to advance Expenses or to provide indemnification for the same Expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of Expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Articles of Association of the Company (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Secondary Indemnitors, and, (iii)that it irrevocably waives, relinquishes and releases the Secondary Indemnitors from any and all claims against the Secondary Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Secondary Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Secondary Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Secondary Indemnitors are express third party beneficiaries of the terms of this Section
4.2.
|
5.
|
REIMBURSEMENT
.
|
6.
|
EFFECTIVENESS
.
|
7.
|
NOTIFICATION AND DEFENSE OF CLAIM
.
|
|
7.1.
|
The Indemnitee will have the right to select a defense counsel unless the Company has notified him, within 10 days after it receives the Indemnitee's notice as mentioned above, of its decision to assume the Indemnitee's defense, subject to Section 7.2.
|
|
7.2.
|
Except as otherwise provided below, the Company, alone or jointly with any other indemnifying party similarly notified, will be entitled to assume the defense thereof, with counsel selected by the Company which counsel is reasonably reputable with experience in the relevant field. In such case, the fees and expenses of such counsel shall be paid by the Company. Indemnitee shall have the right to employ his or her own counsel in such action, suit or proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of Indemnitee, unless: (i) the employment of counsel by Indemnitee has been authorized in writing by the Company; (ii) Indemnitee shall have, in good faith, reasonably concluded that there may be a conflict of interest under the law and rules of attorney professional conduct applicable to such claim between the Company and Indemnitee in the conduct of the defense of such action; or (iii) the Company has not in fact employed counsel to assume the defense of (or perform any other act that requires prompt action in connection with) such action, in which case the reasonable fees and expenses of counsel shall be at the expense of the Company. The Company shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Company or as to which Indemnitee shall have reached the conclusion specified in (ii) above.
|
|
7.3.
|
The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts or expenses paid in connection with a settlement of any action, claim or otherwise, effected without the Company’s prior written consent.
|
|
7.4.
|
Subject to the provisions of Section 7.2, the Company shall have the right to conduct the defense as it sees fit in its sole discretion (provided that the Company shall conduct the defense in good faith and in a diligent manner), including the right to settle or compromise any claim or to consent to the entry of any judgment against Indemnitee without the consent of the Indemnitee, provided that, the amount of such settlement, compromise or judgment does not exceed the Limit Amount (if applicable) and is fully indemnifiable pursuant to this Agreement (subject to Section
1.2 of this Agreement) and/or applicable law, and any such settlement, compromise or judgment does not impose any penalty or limitation on Indemnitee without the Indemnitee’s prior written consent.
The Indemnitee’s consent shall not be required if the settlement includes a complete release of Indemnitee, does not contain any admission of wrong-doing by Indemnitee, and includes monetary sanctions only
as provided above. In the case of criminal proceedings the Company and/or its legal counsel will not have the right to plead guilty or agree to a plea-bargain in the Indemnitee’s name without the Indemnitee’s prior written consent. Neither the Company nor Indemnitee will unreasonably withhold or delay their consent to any proposed settlement.
|
|
7.5.
|
Indemnitee shall fully cooperate with the Company and shall give the Company all information and access to documents, files and to his advisors and representatives as shall be within Indemnitee’s power, in every reasonable way as may be required by the Company with respect to any claim which is the subject matter of this Agreement and in the defense of other claims asserted against the Company (other than claims asserted by Indemnitee), except to the extent Indemnitee has a conflict of interest with the Company in respect thereto, provided that the Company shall cover all expenses, costs and fees incidental thereto such that the Indemnitee will not be required to pay or bear such expenses, costs and fees.
|
8.
|
EXCULPATION
.
|
9.
|
NON-EXCLUSIVITY
.
|
10.
|
PARTIAL INDEMNIFICATION
.
|
11.
|
BINDING EFFECT
.
|
12.
|
SEVERABILITY
.
|
13.
|
NOTICE
.
|
14.
|
GOVERNING LAW; JURISDICTION
.
|
15.
|
ENTIRE AGREEMENT AND TERMINATION
.
|
16.
|
NO MODIFICATION AND NO WAIVER
.
|
17.
|
ASSIGNMENTS;
NO THIRD PARTY RIGHTS
|
18.
|
INTERPRETATION
.
|
19.
|
COUNTERPARTS
|
PERION NETWORK LTD.
|
||
By:
|
||
Name and title:
|
||
By:
|
||
Name and title:
|
||
INDEMNITEE:
|
||
Name:
|
||
Signature:
|
TYPE OF EVENT
|
LIMIT AMOUNT
|
|||
1.
|
Claims in connection with employment relationships with employees of the Company, and in connection with business relations between the Company and its employees, independent contractors, customers, suppliers and various service providers.
|
US$50,000,000
|
||
2.
|
Negotiations, execution, delivery and performance of agreements of any kind or nature, anti-competitive acts, acts of commercial wrongdoing, approval of corporate actions including the approval of the acts of the Company’s management, their guidance and their supervision, actions concerning the approval of transactions with Office Holders or shareholders, including controlling persons and claims of failure to exercise business judgment and a reasonable level of proficiency, expertise and care with respect to the Company’s business.
|
US$50,000,000
|
||
3.
|
Violation, infringement and other misuse of copyrights, patents, designs, trade secrets and any other intellectual property rights, breach of confidentiality obligations, acts in regard of invasion of privacy including with respect to databases or personal information, acts in connection with slander and defamation, and claims in connection with publishing or providing any information, including any filings with any governmental authorities, whether or not required under any applicable laws.
|
US$50,000,000
|
||
4.
|
Violations of securities laws of any jurisdiction, including without limitation, fraudulent disclosure claims, failure to comply with any securities authority or any stock exchange disclosure or other rules and any other claims relating to relationships with investors, debt holders, shareholders and the investment community and any claims related to the Sarbanes-Oxley Act of 2002, as amended from time to time; claims relating to or arising out of financing arrangements, any breach of financial covenants or other obligations towards lenders or debt holders of the Company, class actions, violations of laws requiring the Company to obtain regulatory and governmental licenses, permits and authorizations in any jurisdiction; actions taken in connection with the issuance of any type of securities of Company, including, without limitation, the grant of options to purchase any of the same.
|
US$50,000,000
|
12.
|
Any administrative, regulatory or judicial actions, orders, decrees, suits, demands, demand letters, directives, claims, liens, investigations, proceedings or notices of noncompliance or violation by any governmental entity or other person alleging the failure to comply with any statute, law, ordinance, rule, regulation, order or decree of any governmental entity applicable to the Company or any of its businesses, assets or operations, or the terms and conditions of any operating certificate or licensing agreement.
|
US$20,000,000
|
||
13.
|
Participation and/or non-participation at the Company’s Board meetings, bona fide expression of opinion and/or voting and/or abstention from voting at the Company’s Board meetings.
|
US$20,000,000
|
||
14.
|
Review and approval of the Company’s financial statements, including any action, consent or approval related to or arising from the foregoing, including, without limitations, execution of certificates for the benefit of third parties related to the financial statements.
|
US$20,000,000
|
||
15.
|
All actions, consents and approvals relating to a distribution of dividends, in cash or otherwise.
|
US$20,000,000
|
||
16.
|
Liabilities arising out of advertising, including misrepresentations regarding the Company's products and unlawful distribution of emails.
|
US$20,000,000
|
||
*
|
Any reference in this Exhibit A to the Company shall include the Company and any entity in which the Indemnitee serves in a Corporate Capacity.
|
Privileged & Proprietary
|
1.
|
Objectives & Content
|
2.
|
General
|
|
2.1.
|
Compensation Policy Purposes:
|
|
·
|
Officers' interests are aligned as closely as possible with the interests of Perion's shareholders;
|
|
·
|
The correlation between performance and payment will be enhanced;
|
1
|
Where appropriate for any Officer that is employed by a subsidiary or affiliate of Perion, the terms Company or Perion shall include such subsidiary or affiliate.
|
Privileged & Proprietary
|
|
·
|
Perion will be able to recruit and retain top level executives capable of leading the Company to further business success, facing the challenges ahead;
|
|
·
|
Officers will be motivated to achieve a high level of business performance without taking unreasonable risks;
|
|
·
|
An appropriate balance will be established between different compensation elements – fixed vs. variable, short term vs. long term and cash payments vs. equity based compensation.
|
|
2.2.
|
Business environment and its impact on Company Officers' compensation:
|
3.
|
Compensation of Directors and Officers in view of the Company's Values and Strategy
|
|
3.1.
|
The connection between the Company's results and Officers' compensation:
|
3.2
|
The ratio between the compensation of Officers and the other employees of the Company:
The Compensation Committee and the Board of Directors (“
BOD
”) will review, from time to time,
the ratio between the total cost of employment of each of Officers and the average and median total costs of employment of the rest of the employees (including contractors as defined in the Companies Law, if applicable), and discuss its possible impact on labor relations within the Company.
S
uch ratios were reviewed when composing the Compensation Policy and it was determined by the Compensation Committee and the BOD that they are reasonable and will not harm the working relationship in the Company.
2
|
4.
|
Basic Concepts of the Company's Compensation Policy
|
|
·
|
Fixed Base Salary, and Management Service Fee
– Compensates Officers for the time they devote to performing their roles with the Company and for the daily performance of their tasks. The fixed base salary correlates to the Officer's skills (such as: experience, position, knowledge, expertise, education, professional qualifications, etc.), on the one hand, and to the requirements of the position as well as the authority and responsibilities the position caries, on the other hand.
|
|
·
|
Social and Fringe Benefits
– Several of the social benefits are mandatory according to different local legislation (such as: pension and long term savings, severance pay, vacation, sick leave, etc.), others are provided according to market specific conventions and enable the Company to compete in the working environment (such as education funds and company cars in Israel) and the remainder are meant to complement the Fixed Base Salary and compensate the Officers for expenses incurred in connection with the requirements of their position (such as: travel expenses or allowances).
|
Privileged & Proprietary
|
|
·
|
Variable, Performance Based Cash Rewards (Annual Bonus and Commissions)
– Reward Officers for their contributions to the Company’s success and achievement of business goals during a predefined timeframe.
|
|
·
|
Equity Based Compensation
– Designed to strengthen the link between long term shareholders’ returns and the Officers’ and Directors' rewards. This type of reward creates a stronger link between Directors’ and Officers’ motivation and interests and the interests of the Company’s shareholders. Another significant effect of Equity Based compensation is its contribution to retention, due to its inherent long term characteristics.
|
5.
|
Compensation Elements
|
|
·
|
Business software and internet information companies;
|
|
·
|
Public companies traded on the Tel-Aviv Stock Exchange, NASDAQ or NYSE markets with market cap and/or revenues that are similar to that of Perion
;
|
|
·
|
Companies competing with Perion for managerial talent and for potential Officers in particular
;
|
|
·
|
Customary Fixed Base Salary range for similar roles (including data distribution);
|
|
·
|
Customary range for annual bonus (as a nominal amount and in terms of percentage of annual salary);
|
|
·
|
Customary range for Equity Based Compensation as reported in the companies' Financial Reports / SEC filings (as a nominal amount and in terms of percentage of annual salary);
|
|
·
|
The value of customary fringe and other benefits
.
|
|
·
|
The ratio between the Officer's compensation and the compensation of other Officers, particularly at the same level
;
|
|
·
|
The ratio between the Officer's cost of employment and the cost of employment of all other Company employees (including contractors as defined in the Companies Law, as applicable), as detailed in Section 3.2 above.
|
Privileged & Proprietary
|
5.1
|
Fixed Base Salary:
|
5.1.1
|
Determining the Fixed Base Salary of the Company’s Officers
|
5.1.3
|
Upon recruitment of a new Officer the relevant organs of the Company may approve asigning bonus to such Officer upon recruitment, in their sole discretion taking intoconsideration the above principles.
|
5.2
|
Variable compensation:
|
|
·
|
Linking part of the Officers' compensation to the achievement of business goals and targets which will, in the long term, maximize shareholders’ return and create a joint interest between Officers and shareholders;
|
|
·
|
Increasing Officers' motivation to achieve long term Company goals; and
|
|
·
|
Correlating part of the Company's pay expenses with its business performance, thus, increasing financial and operational flexibility.
|
Privileged & Proprietary
|
5.2.1
|
Ratio between elements of the compensation package
|
CEO
|
Other Officers
|
Directors
|
|
Annual base salary
|
100%
|
100%
|
100%
|
All other (fixed) social and fringe benefits
|
30-40%
|
30-40%
|
|
Annual bonus
|
Up to 200%
|
Up to 100%
|
|
Equity (Per vesting annum)
|
Up to 400%
|
Up to 260%
|
US$200,000
|
5.2.2
|
Annual Bonus Principles
|
5.2.2.1
|
The Company's Officers will be entitled to participate in an annual bonus plan (the “
Annual
Bonus Plan
”). The Annual Bonus Plan will be approved in accordance with the approvals
required under the Companies Law and will include the following provisions:
|
·
|
The target bonus will be paid when Company’s performance and individual performance objectives are met.
|
·
|
The bonus will be calculated as a product of the Company performance, the individual performance and the target bonus.
|
5.2.2.2
|
The measures based on which the annual bonus will be calculated:
|
·
|
Company Performance Measures: Such as - Revenues, EBITDA, Net Income, etc. measuredagainst the targets of the annual budget and work plan of the Company for the relevant year. The weight of Company performance will constitute at least 75%-80% of the total bonus;
|
·
|
Individual Performance Measures: The performance measures may also include individual performance measures. Evaluation of each Officer's performance and contribution to the Company’s short and long term success. Performance evaluation may be based on quantitative measures, qualitative measures and/or discretion. The weight of individual performance will constitute up to 20%-25% of the total bonus.
|
5.2.2.3
|
Bonus Payment and Threshold:
|
·
|
A threshold for the payment of the annual bonus will be set based on achievement of a certain percentage of one or more of the Company performance measures;
|
Privileged & Proprietary
|
·
|
The maximum annual bonus payable for the Company's CEO will be equivalent to 200% of the annual base salary (24 monthly salaries); the maximum annual bonus payable for other
Officers will be equivalent to 100% of the Officer's annual base salary (12 monthly salaries).
|
5.2.2.4
|
Reviewing and reducing bonuses
|
5.2.2.5
|
Claw Back Mechanism
|
5.2.3
|
Equity Based Compensation
|
5.2.3.1
|
Equity Based Compensation Grants
:
|
5.2.3.2
|
Equity Compensation Terms
|
·
|
The value of the equity based compensation (at the date of grant) per vesting annum (on a linear basis), for each Officer, shall not exceed for the CEO 4 annual salaries, and for the other Officers 2.6 annual salaries of the Officer in question. However, the Compensation Committee and the BOD (subject to any additional required approvals) may determine in their sole discretion to deviate from the above mentioned caps in the following circumstances: (i) for the purpose of a one-time grant of equity based compensation in connection with the recruitment of a new Officer, the value of the equity based compensation (at the date of grant) per vesting annum (on a linear basis), for such new Officer shall not exceed 3.6 annual salaries of the Officer in question; or
|
Privileged & Proprietary
|
·
|
Equity based compensation granted to Officers shall vest over at least 3 years. The Compensation Committee and the BOD may determine acceleration provisions for specific circumstances.
|
·
|
In addition to time-based vesting, the exercise or settlement of part or all of the equity
based compensation of certain Officers may also be subject to the achievement of
predetermined performance goals. Terms of equity based compensation will also include
terms in connection with the Officer's termination or cessation of service (due to dismissal, resignation, death or disability) and changes in Company ownership. This may include provisions for extending the period for exercise of equity based compensation upon such termination, enabling acceleration of vesting of unvested equity based compensation, etc.
|
5.3
|
Additional terms and fringe benefits
|
6.
|
Retirement and Termination Arrangements
|
6.1
|
Advance Notice
|
Position
|
Advance Notice Period
|
CEO, COO, CFO and other Senior Officers.
|
Up to 12 months
|
Other Officers
|
Up to 6 months
|
Privileged & Proprietary
|
6.2
|
Termination Cash Payments
|
6.3
|
Treatment of Equity Awards upon Termination
|
7.
|
Indemnification, Exemption and Insurance of Directors and Officers
|
8.
|
Directors’ Compensation
|
8.1
|
Cash Compensation
|
Privileged & Proprietary
|
8.2
|
Equity based compensation
|
I-3
|
||
I-3
|
||
I-7
|
||
I-8
|
||
I-8
|
||
I-10
|
||
I-10 | ||
I-10
|
||
I-12
|
||
I-14
|
||
I-15
|
||
I-16
|
||
I-16
|
||
I-16
|
||
I-18
|
||
I-18
|
||
I-19
|
||
I-18
|
||
I-19
|
||
I-19
|
||
I-19
|
||
I-19
|
||
I-20
|
||
I-20
|
2.
|
2.1
|
“
Affiliate
” means any “employing company” within the meaning of Section 102(a) of the Ordinance.
|
2.2
|
“
Approved 102 Stock Award
” means a Stock Award granted pursuant to Section 102(b) of the Ordinance and held in trust by a Trustee for the benefit of the Stock Award Holder.
|
2.3
|
“Board”
means the Board of Directors of the Company.
|
2.4
|
“
Capital Gain Stock Award
” as defined in Section 5.3 below.
|
2.5
|
“
Cause”
means, (i) conviction of any felony involving moral turpitude or affecting the Company; (ii) any refusal to carry out a reasonable directive of the chief executive officer, the Board or the Stock Award Holder’s direct supervisor, which involves the business of the Company or its Affiliates and was capable of being lawfully performed; (iii) embezzlement of funds of the Company or its Affiliates; (iv) any breach of the Stock Award Holder’s fiduciary duties or duties of care of the Company; including without limitation disclosure of confidential information of the Company; and (v) any conduct (other than conduct in good faith) reasonably determined by the Board to be materially detrimental to the Company.
|
2.6
|
“
Change of Control
” means an event following which the persons and/or entities that control the Company, directly or indirectly, at the time of adoption of this Plan, shall cease to have the right to appoint, directly or indirectly, independently, or together with another person or entity (as a result of an agreement with such person or entity, or otherwise), 50% or more of the members of the Board.
|
2.7
|
“Chairman”
means the chairman of the Committee.
|
2.8
|
“Committee”
means the compensation committee appointed by the Board, which shall consist of no fewer than two members of the Board.
|
2.9
|
“Company”
means Perion Network Ltd., an Israeli company.
|
2.10
|
“Companies Law”
means the Israeli Companies Law 5759-1999.
|
2.11
|
“
Controlling Shareholder
” shall have the meaning ascribed to it in Section 32(9) of the Ordinance.
|
2.12
|
“Date of Grant”
means, the date of grant of a Stock Award, as determined by the Board and set forth in the Stock Award Agreement.
|
2.13
|
“Employee”
means a person who is employed by the Company or its Affiliates, including an individual who is serving as a director or an office holder, but excluding Controlling Shareholder.
|
2.14
|
“Expiration date”
means the date upon which the Stock Award shall expire, as set forth in Section 10.2 of the Plan.
|
2.15
|
“Fair Market Value”
means as of any date, the value of a Share determined as follows:
|
2.16
|
“IPO”
means the initial public offering of the Company’s shares.
|
2.17
|
“Plan”
means this Equity Incentive Plan.
|
2.18
|
“
ITA”
means the Israeli Tax Authorities.
|
2.19
|
“Non-Employee”
means a consultant, adviser, service provider, Controlling Shareholder or any other person who is not an Employee.
|
2.20
|
“
Ordinary Income Stock Award”
” as defined in Section 5.3 below.
|
2.21
|
“Option”
means an option to purchase one or more Shares of the Company pursuant to the Plan.
|
2.22
|
“102 Stock Award”
means any Stock Award granted to Employees pursuant to Section 102 of the Ordinance.
|
2.23
|
“3(i) Stock Award”
means a Stock Award granted pursuant to Section 3(i) of the Ordinance to any person who is Non- Employee.
|
2.24
|
“
Ordinance”
means the 1961 Israeli Income Tax Ordinance [New Version] 1961 as now in effect or as hereafter amended.
|
2.25
|
“Purchase Price”
means the price for each Share subject to a Stock Award.
|
2.26
|
“
RSU
” means Restricted Stock Unit, as defined in Section 13 below.
|
2.27
|
“
Restricted Stock
” means a Share issued under the Plan to a Stock Award Holder for such consideration, if any, and subject to such restrictions as established by the Company, as detailed in Section 14 below.
|
2.28
|
“
Sale
” means the sale of all or substantially all of the issued and outstanding share capital of the Company. For purposes of a Sale, whether “all or substantially all of the issued and outstanding share capital of the Company is to be sold”, shall be finally and conclusively determined by the Board in its absolute discretion.
|
2.29
|
“Section 102”
means section 102 of the Ordinance as now in effect or as hereafter amended.
|
2.30
|
“Share”
means the ordinary shares, NIS 0.01 par value each, of the Company.
|
2.31
|
“
Stock Award(s)
” means all kinds of stock based awards, including, but not limited to, Options, Restricted Stock and Restricted Stock Unit.
|
2.32
|
“
Stock Award Agreement
”
means the Stock Award agreement between the Company and a Stock Award Holder that sets out the terms and conditions of a Stock Award.
|
2.33
|
“
Stock Award Holder
” means a person who receives or holds a Stock Award under the Plan.
|
2.34
|
“Successor Company”
means any entity the Company is merged to or is acquired by, in which the Company is not the surviving entity.
|
2.35
|
“
Transaction
” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:
|
2.36
|
“Trustee”
means any individual appointed by the Company to serve as a trustee and approved by the ITA, all in accordance with the provisions of Section 102(a) of the Ordinance.
|
2.37
|
“
Unapproved 102 Stock Award
” means a Stock Award granted pursuant to Section 102(c) of the Ordinance and not held in trust by a Trustee.
|
2.38
|
“Vested Stock Award”
means any Stock Award, which has already been vested according to the Vesting Dates.
|
2.39
|
“Vesting Dates”
means, as determined by the Board or by the Committee, the date as of which the Stock Award Holder shall be entitled to exercise or sell the Stock Award, or receive Shares represented by a Stock Award, as applicable or part thereof, , as set forth in section 11 of the Plan.
|
3.1
|
The Board shall have the power to administer the Plan either directly or upon the recommendation of the Committee, all as provided by applicable law and in the Company’s Articles of Association. Notwithstanding the above, the Board shall automatically have residual authority if no Committee shall be constituted or if such Committee shall cease to operate for any reason.
|
3.2
|
The Committee shall select one of its members as its Chairman and shall hold its meetings at such times and places as the Chairman shall determine. The Committee shall keep records of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.
|
3.3
|
The Committee shall have the power to recommend to the Board and the Board shall have the full power and authority to: (i) designate participants; (ii) determine the terms and provisions of the respective Stock Awards Agreements, including, but not limited to, the number of Stock Awards to be granted to each Stock Award Holder, the number of Shares to be covered by each Stock Award, provisions concerning the time and the extent to which the Stock Awards may be exercised and the nature and duration of restrictions as to the transferability or restrictions constituting substantial risk of forfeiture and to cancel or suspend awards, as necessary; (iii) determine the Fair Market Value of the Shares covered by each Stock Award; (iv) make an election as to the type of 102 Approved Stock Award ; and (v) designate the type of Stock Award.
|
3.4
|
The Board shall have the authority to grant, at its discretion, to the holder of an outstanding Stock Award, in exchange for the surrender and cancellation of such Stock Award, a new Stock Award having a purchase price equal to, lower than or higher than the Purchase Price of the original Stock Award so surrendered and canceled and containing such other terms and conditions as the Committee may prescribe in accordance with the provisions of the Plan.
|
3.5
|
Subject to the Company’s Articles of Association, all decisions and selections made by the Board or the Committee pursuant to the provisions of the Plan shall be made by a majority of its members except that no member of the Board or the Committee shall vote on, or be counted for quorum purposes, with respect to any proposed action of the Board or the Committee relating to any Stock Award to be granted to that member. Any decision reduced to writing shall be executed in accordance with the provisions of the Company’s Articles of Association, as the same may be in effect from time to time.
|
3.7
|
The interpretation and construction by the Committee of any provision of the Plan or of any Stock Award Agreement thereunder shall be final and conclusive unless otherwise determined by the Board.
|
3.8
|
Subject to the Company’s Articles of Association and the Company’s decision, and to all approvals legally required, including, but not limited to the provisions of the Companies Law, each member of the Board or the Committee shall be indemnified and held harmless by the Company against any cost or expense (including counsel fees) reasonably incurred by him, or any liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with the Plan unless arising out of such member's own fraud or bad faith, to the extent permitted by applicable law. Such indemnification shall be in addition to any rights of indemnification the member may have as a director or otherwise under the Company's Articles of Association, any agreement, any vote of shareholders or disinterested directors, insurance policy or otherwise.
|
4.1
|
The persons eligible for participation in the Plan as Stock Holders shall include any Employees and/or Non-Employees of the Company or of any Affiliate; provided, however, that (i) Employees who are Israeli residents for tax purposes may only be granted 102 Stock Awards; (ii) Non-Employees who are Israeli residents for tax purposes may only be granted 3(i) Stock Awards; (iii) Controlling Shareholders who are Israeli residents for tax purposes may only be granted 3(i) Stock Awards; and (iv) U.S. Persons may only be granted Stock Awards s in accordance with the Addendum.
|
4.2
|
The grant of a Stock Award hereunder shall neither entitle the Stock Award Holder to participate nor disqualify the Stock Award Holder from participating in, any other grant of Stock Award pursuant to the Plan or any other option, stock award or share plan of the Company or any of its Affiliates.
|
4.3
|
Anything in the Plan to the contrary notwithstanding, all grants of Stock Awards to directors and office holders shall be authorized and implemented in accordance with the provisions of the Companies Law or any successor act or regulation, as in effect from time to time.
|
5.1
|
The Company may designate Stock Awards granted to Employees pursuant to Section 102 as Unapproved 102 Stock Awards or Approved 102 Stock Award.
|
5.2
|
The grant of Approved 102 Stock Award shall be made under this Plan adopted by the Board as described in Section 17 below, and shall be conditioned upon the approval of this Plan by the ITA.
|
5.3
|
Approved 102 Stock Award may either be classified as Capital Gain Stock Award (“
CGSW
”) or Ordinary Income Stock Award (“
OISA
”).
|
5.4
|
Approved 102 Stock Award elected and designated by the Company to qualify under the capital gain tax treatment in accordance with the provisions of Section 102(b)(2) shall be referred to herein as
CGSW
.
|
5.5
|
Approved 102 Stock Award elected and designated by the Company to qualify under the ordinary income tax treatment in accordance with the provisions of Section 102(b)(1) shall be referred to herein as
OISW
.
|
5.6
|
The Company’s election of the type of Approved 102 Stock Awards as CGSW or OISA granted to Employees (the “
Election
”), shall be appropriately filed with the ITA in the framework of the request for the approval of this Plan, which shall be submitted to ITA at least 30 days prior to the Date of Grant of an Approved 102 Stock Award. Such Election shall become effective beginning the first Date of Grant of an Approved 102 Stock Awards under this Plan and shall remain in effect until the end of the year following the year during which the Company first granted Approved 102 Stock Awards. The Election shall obligate the Company to grant
only
the type of Approved 102 Stock Awards it has elected, and shall apply to all Stock Awards Holders who were granted Approved 102 Stock Awards during the period indicated herein, all in accordance with the provisions of Section 102(g) of the Ordinance. For the avoidance of doubt, such Election shall not prevent the Company from granting Unapproved 102 Stock Awards simultaneously.
|
5.7
|
All Approved 102 Stock Awards must be held in trust by a Trustee, as described in Section 6 below
.
|
5.8
|
For the avoidance of doubt, the designation of Unapproved 102 Stock Awards and Approved 102 Stock Awards shall be subject to the terms and conditions set forth in Section 102 of the Ordinance and the regulations promulgated thereunder.
|
5.9
|
The provisions of the Plan and/or the Stock Awards Agreement shall be subject to the provisions of Section 102 and the Tax Assessing Officer’s permit, and the said provisions and permit shall be deemed an integral part of the Plan and of the Stock Awards Agreement. Any provision of Section 102 and/or the said permit which is necessary in order to receive and/or to keep any tax benefit pursuant to Section 102, which is not expressly specified in the Plan or the
Stock Awards Agreement, shall be considered binding upon the Company and the Stock Awards Holder
|
6.
|
6.1
|
Approved 102 Stock Awards which shall be granted under the Plan and/or any Shares allocated or issued upon exercise of such Approved 102
Stock Awards and/or other shares received subsequently following any realization of rights and/or any rights granted to the Stock Awards Holder by virtue of the Approved 102 Stock Awards (including bonus shares), shall be allocated or issued to the Trustee and held for the benefit of the Stock Awards Holder for such period of time as required by Section 102 or any regulations, rules or orders or procedures promulgated thereunder, and in accordance with the Election made by the Company according to section 5.5 above.
|
6.2
|
Notwithstanding anything to the contrary, the Trustee shall not release any Shares allocated or issued upon exercise of Approved 102 Stock Awards prior to the full payment of the
Stock Awards Holder’s tax liabilities arising from Approved 102 Stock Awards which were granted to him and/or any Shares allocated or issued upon exercise of Stock Awards.
|
6.3
|
Upon receipt of an Approved 102
Stock Awards, the Stock Awards Holder will sign an undertaking to release the Trustee from any liability in respect of any action or decision duly taken and bona fide executed in relation with the Plan, or any Approved 102
Stock
Awards or Share granted to him thereunder.
|
7.1
|
The Company has reserved 4,368,000 (four million three hundred and sixty eight thousand) authorized but unissued Shares, for the purposes of the Plan, subject to adjustment as set forth in Section 9 below. Any Shares which remain unissued and which are not subject to the outstanding Stock Awards at the termination of the Plan shall cease to be reserved for the purpose of the Plan. Should any
Stock
Award for any reason expire or be canceled prior to its exercise or relinquishment in full, the Shares subject to the Stock Award may again be subjected to a Stock Award under the Plan or under the Company’s other stock awards plans.
|
7.2
|
Each Stock Award grant pursuant to the Plan shall be evidenced by a written Stock Award Agreement between the Company and the
Stock Award Holder, in such form as the Board or the Committee shall from time to time approve. Each Stock Award Agreement shall state, among other matters, the number of Shares to which the Stock Awards relates, the type of Stock Award granted thereunder (whether a CGSW, OISW, Unapproved 102 Stock Award or a 3(i) Stock Award), the Vesting Dates, the Purchase Price per share, the Expiration Date and such other terms and conditions as the Committee or the Board in its discretion may prescribe, provided that they are consistent with this Plan.
|
8.1
|
The Purchase Price of each Share subject to a Stock Award shall be determined by the Board or by the Committee in accordance with applicable law, subject to guidelines determined by the Board from time to time. Each Stock Award Agreement will contain the Purchase Price determined for each
Stock Award Holder.
|
8.2
|
The Purchase Price shall be payable upon the exercise of the Stock Award in a form satisfactory to the Committee, including without limitation, by cash or check. Notwithstanding the forms of exercise of Stock Award specified herein, the Company may (at its full and exclusive discretion), effectuate the exercise of the Options in a cash-less exercise or net-exercise, if and when, the Stock Award Holder instructs to exercise his Options for an immediate sale. The Board or the Committee, as applicable, shall have the authority to postpone the date of payment on such terms as it may determine.
|
8.3
|
The Purchase Price shall be denominated in the currency of the primary economic environment of, either the Company or the Stock Award Holder (that is the functional currency of the Company or the currency in which the Stock Award Holder is paid) as determined by the Company.
|
8.4
|
Pursuant to Section
8.2 above, the Committee may decide in its own discretion that a
Stock Award Holder
may exercise his/her
Stock
Awards in such a manner that the number of exercised Shares, due to the exercise of such
Stock
Awards, will reflect the premium component generated to such
Stock Award Holder
due to the exercise ("
Cashless Exercise
"). The premium component shall be calculated according to the difference between the share price on the date of exercise to the Purchase Price of the
Stock
Award (the "
premium component
").
|
|
= Number of exercised Shares;
|
|
A = Share Price on the date of exercise;
|
|
B = Purchase Price;
|
|
C = Number of exercised Stock Awards.
|
|
D= the par value of a Company's Share
|
9.
|
9.1
|
In the event of a Transaction, immediately prior to the effective date of such Transaction, each Stock Award may, among other things, at the sole and absolute discretion of the Board, either:
|
(i)
|
Be substituted for a Successor Company's award such that the Stock Award Holder may exercise the Successor Company's award, for such number and class of securities of the Successor Company which would have been issuable to the Stock Award Holder in consummation of such Transaction, had the Stock Award been exercised, immediately prior to the effective date of such Transaction, given the exchange ratio or consideration paid in the Transaction, the Vesting Dates and performance conditions (if any) of the Stock Awards and such other terms and factors that the Board determines to be relevant for purposes of calculating the number of Successor Company's awards granted to each Participant; or
|
(ii)
|
Be assumed by any Successor Company such that the Stock Award Holder may exercise the Stock Award, for such number and class of securities of the Successor Company which would have been issuable to the Stock Award Holder in consummation of such Transaction, had the Stock Award been exercised immediately prior to the effective date of such Transaction, given the exchange ratio or consideration paid in the Transaction, the Vesting Dates and performance conditions (if any) of the Stock Awards and such other terms and factors that the Board determines to be relevant for this purpose.
|
(iii)
|
Determine that the Stock Awards shall be cashed out for a consideration equal to the difference between the price received by the shareholders of the Company in the Transaction and the Purchase Price of such Stock Award.
|
9.2
|
Immediately following the consummation of the Transaction, all outstanding Stock Awards shall terminate and cease to be outstanding, except to the extent assumed by a Successor Company.
|
9.3
|
Notwithstanding the foregoing, and without derogating from the power of the Board pursuant to the provisions of the Plan, the Board shall have full authority and sole discretion to determine that any of the provisions of Sections 9.1 (i) or 9.1 (ii) above shall apply in the event of a Transaction in which the consideration received by the shareholders of the Company is not solely comprised of securities of a Successor Company, or in which such consideration is solely cash or assets other than securities of a Successor Company.
|
9.4
|
If the Company is voluntarily liquidated or dissolved while unexercised Stock Award remain outstanding under the Plan, the Company shall immediately notify all unexercised Stock Award holders of such liquidation, and the Stock Award holders shall then have ten (10) days to exercise any unexercised Vested Stock Award held by them at that time, in accordance with the exercise procedure set forth herein. Upon the expiration of such ten-days period, all remaining outstanding Stock Awards will terminate immediately.
|
9.5
|
If the outstanding shares of the Company shall at any time be changed or exchanged by declaration of a share dividend (bonus shares), share split, combination or exchange of shares, recapitalization, or any other like event by or of the Company, and as often as the same shall occur, then the number, class and kind of the Shares subject to the Plan or subject to any Stock Award therefore granted, and the Purchase Prices, shall be appropriately and equitably adjusted so as to maintain the proportionate number of Shares without changing the aggregate Purchase Price, provided, however, that no adjustment shall be made by reason of the distribution of subscription rights (rights offering) on outstanding shares. Upon happening of any of the foregoing, the class and aggregate number of Shares issuable pursuant to the Plan (as set forth in Section 7 hereof), in respect of which Stock Award have not yet been exercised, shall be appropriately adjusted, all as will be determined by the Board whose determination shall be final
.
|
9.6
|
Anything herein to the contrary notwithstanding, in case of a Transaction, all or substantially all of the shares of the Company are to be exchanged for securities of another Company, then each Stock Award Holder shall be obliged to sell or exchange, as the case may be, any Shares such
Stock Award Holder purchased under the Plan, in accordance with the instructions issued by the Board in connection with the Transaction, whose determination shall be final.
|
9.7
|
The Stock Award Holder acknowledges that in the event that the Company’s shares shall be registered for trading in any public market, Stock Award Holder’s rights to sell the Shares may be subject to certain limitations (including a lock-up period), as will be requested by the Company or its underwriters, and the
Stock Award Holder unconditionally agrees and accepts any such limitations.
|
9.8
|
Without derogating from the provisions of section 22 below, it is hereby clarified that any tax consequences arising from the exercise of the provisions of this section 9, shall be borne solely by the
Stock Award Holder.
|
9.9
|
Sale
. Subject to any provision in the Articles of Association of the Company and to the Board’s sole and absolute discretion, in the event of a Sale, each Stock Award Holder shall be obligated to participate in the Sale and sell his or her Shares and/or Stock Awards in the Company, provided, however, that each such Share or Stock Award shall be sold at a price equal to that of any other Share sold under the Sale (and, unless determined otherwise by the Board, less the applicable Purchase Price), while accounting for changes in such price due to the respective terms of any such Stock Award, and subject to the absolute discretion of the Board.
|
10.1
|
Options shall be exercised by the
Stock Award Holder by giving written notice to the Company and/or to any third party designated by the Company (the “
Representative
”), in such form and method as may be determined by the Company and when applicable, by the Trustee in accordance with the requirements of Section 102, which exercise shall be effective upon receipt of such notice by the Company and/or the Representative and the payment of the Purchase Price at the Company’s or the Representative’s principal office. The notice shall specify the number of Shares with respect to which the Stock Award is being exercised.
|
|
10.2
|
Stock Awards, to the extent not previously exercised, shall terminate forthwith upon the earlier of: (i) the date set forth in the Stock Award Agreement; and (ii) the expiration of any extended period in any of the events set forth in section 10.5 below.
|
|
10.3
|
(a) The Options may be exercised by the Stock Award Holder in whole at any time or in part from time to time, to the extent that the Options become vested and exercisable, prior to the Expiration Date, and provided that, subject to the provisions of section 10.5 below, the
Stock Award Holder is employed by or providing services to the Company or any of its Affiliates, at all times during the period beginning with the granting of the Option and ending upon the date of exercise.
|
(b) Notwithstanding anything to the contrary hereinabove, Stock Awards shall not be exercised on the determining date with respect to the distribution of bonus shares, offer by way of rights issue, distribution of dividends, consolidation of share capital, consolidation of shares, reduction or split in share capital or company split (each hereinafter referred to as a "
Corporate Event
"). In addition, if the Ex Date with respect to a Corporate Event occurs before the determining date relating to such Corporate Event, then the exercise of Stock Award shall not occur on such Ex Date.
|
10.4
|
In the event of termination of employment or service, the unvested portion of the Stock Award Holder’s shall not vest and shall not become exercisable. The effective date of termination of employer-employee relations or cessation of service shall constitute the termination date. In the event of termination of employment or service Vested Options granted to such Stock Award Holder shall expire unless extended pursuant to the provisions of section 10.5 below.
|
10.5
|
Notwithstanding anything to the contrary hereinabove and unless otherwise determined in the Stock Award Agreement, an Option may be exercised after the date of termination of
Stock Award Holder’s employment or service with the Company or any Affiliates during an additional period of time beyond the date of such termination, but only with respect to the number of Vested Options at the time of such termination according to the Vesting Dates, if
:
|
|
|
(ii) termination is the result of death or disability of the
Stock Award Holder, in which event any Vested Option still in force and unexpired may be exercised within a period of twelve (12) months after the date of such termination; or -
|
|
(iii) at any time, the Committee shall authorize an extension of the terms of all or part of the Vested Options beyond the date of such termination for a period not to exceed the period during which the Options by their terms would otherwise have been exercisable.
|
10.6
|
Notwithstanding the foregoing provisions of Section 10.3 to 10.5, unless determined otherwise by the Committee, and for the avoidance of doubt, the transfer of a Stock Award Holder from the employ or service of the Company to the employ or service of an Affiliate, or from the employ or service of an Affiliate to the employ or service of the Company or another Affiliate, shall not be deemed a termination of employment or service for purposes hereof.
|
10.7
|
In the event of termination of employment or service of a
Stock Award Holder of Unapproved 102 Stock Award, then such
Stock Award Holder shall be required, as a condition to his right to exercise the Stock Award granted to him, to secure the due, timely and complete payment of any tax duty imposed upon him (including in accordance with section 22 below), by the submission to the Company of any security or guaranty approved, in advance, by the Board or the Committee.
|
10.8
|
The Stock Award Holders shall not have any of the rights or privileges of shareholders of the Company in respect of any Shares purchasable upon the exercise of any Stock Award, nor shall they be deemed to be a class of shareholders or creditors of the Company for purpose of the operation of sections 350 and 351 of the Companies Law or any successor to such section, until registration of the
Stock Award Holder as holder of such Shares in the Company’s register of shareholders upon exercise of the Stock Award in accordance with the provisions of the Plan, but in case of Stock Awards and Shares held by the Trustee, subject to the provisions of Section 6 of the Plan.
|
10.9
|
Any form of Stock Award Agreement authorized by the Plan may contain such other provisions as the Committee may, from time to time, deem advisable.
|
11.1
|
Subject to the provisions of the Plan, each Stock Award shall vest following the Vesting Dates and for the number of Shares as shall be provided in the Stock Award Holder Agreement. However, no Stock Award shall be exercisable after the Expiration Date.
|
11.2
|
A
Stock Award may be subject to such other terms and conditions on the time or times when it may be exercised, as the Committee may deem appropriate. The vesting provisions of individual Stock Awards may vary.
|
12.1
|
Notwithstanding anything to the contrary in the Articles of Association of the Company, none of the
Stock Award Holders shall have a right of first refusal in relation with any sale of shares in the Company.
|
|
12.2
|
Any sale of Shares issued under the Plan by the
Stock Award Holder that is not made in accordance with the Plan or the Stock Award Agreement shall be null and void.
|
13.1
|
Subject to the sole and absolute discretion and determination of the Board, the Board may decide to grant under the Plan, Restricted Stock Unit(s) (“
RSU(s)
”). A RSU is a right to receive a Share of the Company, under certain terms and conditions, for a consideration of no more than the underlying Share’s nominal value. Upon the lapse of the Vesting Dates of a RSU, such RSU shall automatically vest into an exercised Share of the Company (subject to adjustments under Section 9 herein) and the Stock Award Holder shall pay to the Company its nominal value. The Board, in its sole discretion, shall determine procedures from time to time for payment of such nominal value by the Stock Award Holder or for collection of such amount from the Stock Award Holder by the Company. However, the Company shall have the full authority in its discretion to determine at any time that said nominal value shall not be paid and that the Company shall capitalize applicable profits or take any other action to ensure that it meets any requirement of applicable laws regarding issuance of Shares for consideration that is lower than the nominal value of such Shares.
|
13.2
|
Unless determined otherwise by the Board, in the event of a termination of employment or service, all RSUs granted to such Stock Award Holder that are not vested on the date of termination of employment or service, shall terminate immediately and have no legal effect.
|
13.3
|
All other terms and conditions of the Plan applicable to Options, shall apply to RSUs, mutatis mutandis. It is clarified, that without deviating from the foregoing in Sub-Section 13.2, the provisions of Sections 10.4 and 10.6 herein, shall, mutatis mutandis, apply to RSUs.
|
14.
|
14.1
|
Restricted Stock may be granted upon such terms and conditions, as the Board shall determine.
|
14.2
|
Purchase Price. No monetary payment (other than payments made for applicable Taxes) shall be required as a condition of receiving Shares pursuant to a grant of Restricted Stock. Notwithstanding the foregoing, the Stock Award Holder shall furnish consideration in the form of cash having a value not less than the nominal value of the Shares subject to an award of Restricted Stock. The Board, in its sole discretion, shall determine procedures from time to time for payment of such nominal value by the Stock Award Holder or for collection of such amount from the Stock Award Holder by the Company. However, the Company shall have the full authority in its discretion to determine at any time that said nominal value shall not be paid and that the Company shall capitalize applicable profits or take any other action to ensure that it meets any requirement of applicable laws regarding issuance of Shares for consideration that is lower than the nominal value of such Shares.
|
14.3
|
Vesting and Restrictions on Transfer. Shares issued pursuant to any Restricted Stock may (but need not) be made subject to Vesting Dates as described herein, as shall be established by the Board and set forth in the applicable Stock Award Agreement evidencing such Stock Award. During any restriction period in which Shares acquired pursuant to an award of Restricted Stock remain subject to Vesting Dates, such Shares may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of unless otherwise provided in the Plan. Upon request by the Company, each Stock Award Holder shall execute any agreement evidencing such transfer restrictions prior to the receipt of Shares hereunder and the Company may place appropriate legends evidencing any such transfer restrictions on the relevant share certificates.
|
14.4
|
Voting Rights; Dividends and Distributions. Except as provided in this section and in any Stock Award Agreement, during any restriction period applicable to Shares subject to an award of Restricted Stocks the Stock Award Holder shall have all of the rights of a shareholder of the Company holding Shares, including the right to receive all dividends and other distributions paid with respect to such Shares. However, in the event of a dividend or distribution paid in Shares or other property or any other adjustment made upon a change in the capital structure of the Company as described in Section 9, any and all new, substituted or additional securities or other property (other than normal cash dividends) to which the Stock Award Holder is entitled by reason of the Stock Award Holder’s award of Restricted Stocks shall be immediately subject to the same Vesting Dates as the Shares subject to the award of Restricted Stocks with respect to which such dividends or distributions were paid or adjustments were made.
|
14.5
|
Termination of Employment or Service. Unless otherwise provided by the Board, in the event of termination of employment or service of a Stock Award Holder, for any reason, whether voluntary or involuntary (including the Stock Award Holder’s death or disability), then the Stock Award Holder shall forfeit to the Company any Shares acquired by the Stock Award Holder pursuant to an award of Restricted Stocks which remain subject to Vesting Dates as of the date of termination of employment or service.
|
14.6
|
All other terms and conditions of the Plan applicable to Options, shall apply to Restricted Stocks, mutatis mutandis. It is clarified, that without deviating from the foregoing in Sub-Section 14.5, the provisions of Section 10.4 and 10.6 herein, shall, mutatis mutandis, apply to Restricted Stocks.
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15.
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15.1
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With respect to all Shares (but excluding, for avoidance of any doubt, any unexercised Stock Award) allocated or issued upon the exercise of Stock Awards purchased by the
Stock Award Holder and held by the
Stock Award Holder or by the Trustee, as the case may be, the
Stock Award Holder shall be entitled to receive dividends in accordance with the quantity of such Shares, subject to the provisions of the Company’s Articles of Association (and all amendments thereto) and subject to any applicable taxation on distribution of dividends.
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15.2
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During the period in which Shares are held by the Trustee on behalf of the
Stock Award Holder, the cash dividends paid with respect thereto shall be paid directly to the
Stock Award Holder, after deduction of any tax imposed on such cash dividends.
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16.1
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No Stock Award or any right with respect thereto, purchasable hereunder, whether fully paid or not, shall be assignable, transferable or given as collateral or any right with respect to it given to any third party whatsoever, except as specifically allowed under the Plan, and during the lifetime of the
Stock Award each and all of such
Stock Award Holder’s rights to purchase Shares hereunder shall be exercisable only by the
Stock Award Holder.
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Any such action made directly or indirectly, for an immediate validation or for a future one, shall be void.
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16.2
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As long as the Stock Awards and/or Shares are held by the Trustee on behalf of the
Stock Award Holder, all rights of the
Stock Award Holder over the Shares are personal, cannot be transferred, assigned, pledged or mortgaged, other than by will or pursuant to the laws of descent and distribution.
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22.
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22.1
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Any tax consequences arising from the grant or exercise of any Stock Award, from the payment for Shares covered thereby or from any other event or act (of the Company and/or its Affiliates, the Trustee or the
Stock Award Holder), hereunder, shall be borne solely by the
Stock Award Holder. The Company and/or its Affiliates and/or the Trustee shall withhold taxes according to the requirements under the applicable laws, rules, and regulations, including withholding taxes at source. Furthermore, the
Stock Award Holder shall agree to indemnify the Company and/or its Affiliates and/or the Trustee and hold them harmless against and from any and all liability for any such tax or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax from any payment made to the
Stock Award Holder.
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22.2
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The Company and/or, when applicable, the Trustee shall not be required to release any Share certificate to a Stock Award Holder until all required payments have been fully made.
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22.3
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To the extent provided by the terms of a Stock Award Agreement, the
Stock Award Holder may satisfy any tax withholding obligation relating to the exercise or acquisition of Shares under a
Stock Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the
Stock Award Holder by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) subject to the Committee’s approval on the payment date, authorizing the Company to withhold Shares from the Shares otherwise issuable to the Stock Award Holder as a result of the exercise or acquisition of Shares under the Stock Award in an amount not to exceed the minimum amount of tax required to be withheld by law; or (iii) subject to Committee approval on the payment date, delivering to the Company owned and unencumbered Shares; provided that Shares acquired on exercise of Stock Awards have been held for at least 6 months from the date of exercise.
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1.
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Purpose of the Addendum
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2.
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Provisions of the Addendum
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3.
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Eligibility
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4.
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Aggregate Maximum Number of Shares Eligible for Stock Awards
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5.
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Terms and Conditions of Options
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6.
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R
equirements of Law
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7.
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Tax Withholding and Reporting
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for
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against
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abstain
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for
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against
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abstain
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for
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o
against
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o
abstain
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for
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o
against
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o
abstain
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o
for
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against
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o
abstain
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for
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against
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o
abstain
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