Item 1.01 Entry into a Material Definitive Agreement
On February 3, 2019, Top Image Systems Ltd., a company organized under the laws of the State of Israel (“
TIS
”), entered into an Agreement and Plan of Merger (the “
Merger Agreement
”) with Kofax, Inc., a company organized under the Laws of the State of Delaware ("
Ultimate Parent
"), Kofax Holdings International Ltd., a private limited company incorporated under the Laws of England and Wales (“
Parent
”), and Tornely Ltd., a company organized under the Laws of the State of Israel and a wholly owned direct subsidiary of Parent (“
Merger Sub
”). Pursuant to the Merger Agreement, among other things, Merger Sub will be merged with and into TIS (the “
Merger
”) with TIS being the surviving corporation of the Merger.
At the effective time of the Merger (the “
Effective Time
”), each (i) TIS Ordinary Share, par value NIS 0.04 per share (other than treasury shares), shall automatically be converted into and represent the right to receive $0.86 (the “
Merger Consideration
”); (ii) TIS restricted share unit (“
TIS RSU
”) shall be canceled in exchange for the right to receive the Merger Consideration; and (iii) option to purchase Ordinary Shares of TIS (“
TIS Option
”) shall be canceled in exchange for the right to receive a lump sum cash payment equal to
the positive difference (if any) between the Merger Consideration and the exercise price of such TIS Option
. Given that the exercise price of all TIS Options is greater than the Merger Consideration, all TIS Options, whether vested or unvested, will be cancelled upon consummation of the Merger without payment of any consideration. The aggregate consideration payable for all TIS Ordinary Shares, TIS RSUs and TIS Options is $
16,028,184
.
At the closing of the Merger, Parent shall pay, or cause to be paid, the indebtedness due and owing by TIS to HCP-FVE, LLC.
The board of directors (the “
Board
”) of TIS has unanimously approved the Merger Agreement and determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, TIS and its shareholders, and has resolved to recommend that TIS’s shareholders approve the Merger Agreement.
TIS has agreed, subject to certain exceptions with respect to unsolicited proposals, not to directly or indirectly solicit competing acquisition proposals or to participate in any discussions concerning, or provide non-public information in connection with, any unsolicited acquisition proposals. However, the Board may, subject to certain conditions, change its recommendation in favor of approval of the Merger Agreement if, in connection with receipt of a superior proposal, it determines in good faith, after consultation with independent financial advisors and outside legal counsel, that the failure to take such action would be inconsistent with its fiduciary duties to TIS shareholders under applicable law.
The completion of the Merger is subject to the satisfaction or waiver of customary closing conditions, including: (i) approval of the Merger Agreement by TIS’s shareholders; (ii) receipt of regulatory approvals, including receipt of the merger certificate from the Israeli Companies Registrar and the expiration or termination of any waiting period under Israeli law; (iii) there being no statute, judgment, injunction, order or decree prohibiting consummation of the transactions contemplated under the Merger Agreement; (iv) subject to certain exceptions, filing of all reports by TIS required to be filed by it with the Securities and Exchange Commission (the “
SEC
”); (v) subject to specified materiality standards, the continuing accuracy of certain representations and warranties of each party; (vi) continued compliance by each party in all material respects with its covenants; (vii) no event having occurred that has had, or would reasonably likely to have, a Material Adverse Effect (as defined in the Merger Agreement) on TIS; and (viii) TIS having delivered to Parent a payoff letter for all indebtedness for borrowed money and factoring arrangements.
TIS has made customary representations and warranties in the Merger Agreement. The Merger Agreement also contains customary covenants and agreements, including covenants and agreements relating to the conduct of TIS business between the date of the signing of the Merger Agreement and the closing of the transactions contemplated under the Merger Agreement. None of the representations and warranties in the Merger Agreement survives the closing of the transactions contemplated by the Merger Agreement.
The Merger Agreement contains certain termination rights for both TIS and Parent including upon (i) an uncured breach by the other party which results in the failure of a closing condition, (ii) the failure to receive the approval of the Merger Agreement by TIS shareholders, and (iii) the Board changing its recommendation in favor of the Merger Agreement. The Merger Agreement further provides that, upon termination of the Merger Agreement, in connection with TIS entering into an acquisition agreement for a superior proposal, following a change in recommendation of the Merger Agreement by the Board or in where TIS's shareholders fail to approve the Merger Agreement and a known competing acquisition proposal is subsequently consummated, TIS may be required to pay Parent a termination fee of $560,986, an amount equal to 3.5% of the equity value of TIS. In addition, if the Merger Agreement is terminated by Parent due to the failure of TIS to obtain the requisite shareholder vote or due to an uncured willful breach by the Company, then TIS shall be obligated to reimburse Parent for up to $750,000 of its out-of-pocket fees and expenses. Either TIS or Parent may terminate the Merger Agreement if the closing of the Merger has not occurred on or before June 3, 2019 (one hundred twenty (120) days from the date of the Merger Agreement).
The Merger Agreement has been attached as an exhibit to this report to provide investors and security holders with information regarding its terms. It is not intended to provide any other factual information about TIS, Ultimate Parent, Parent or Merger Sub, or to modify or supplement any factual disclosures about TIS in its public reports filed with the SEC. The Merger Agreement includes representations, warranties and covenants of TIS, Parent and Merger Sub made solely for purposes of the Merger Agreement and which may be subject to important qualifications, confidential disclosures and limitations agreed to by TIS, Parent and Merger Sub in connection with the negotiated terms of the Merger Agreement. Moreover, some of those representations and warranties were made only as of specified dates, may be subject to a contractual standard of materiality different from those generally applicable to TIS’s SEC filings or may have been used for purposes of allocating risk among TIS, Parent and Merger Sub rather than establishing matters as facts.
The foregoing summary of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, which is attached to this report as Exhibit 2.1 and is incorporated herein by reference.
In addition, certain shareholders, including TIS’s chief executive officer, Brendan Reidy, Izhak Nakar, a director of TIS, and certain entities affiliated with Donald R. Dixon, chairman of the Company, have entered into a voting agreement with Parent concurrently with the entry into the execution of the Merger Agreement (the “
Voting Agreement
”). The Voting Agreement provides that such shareholders will vote their Ordinary Shares in favor of the Merger and the other transactions contemplated in the Merger Agreement, on the terms and subject to the conditions set forth in the Voting Agreement. TIS is not a party to the Voting Agreement.
The foregoing summary of the Voting Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the form of Voting Agreement, which is attached as Exhibit A to the Merger Agreement, which is attached to this report as Exhibit 2.1 and is incorporated herein by reference.