Item 1.01 Entry into a Material Definitive Agreement.
Agreement and Plan of Merger and Related Transactions
On
April 25, 2018, Mattersight Corporation, a Delaware corporation (the “Company”), NICE Systems, Inc., a Delaware corporation (“Parent”), NICE Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent
(“Acquisition Sub”), and, solely for the purposes of Section 8.16 of the Merger Agreement, NICE Ltd., a company organized under the laws of the State of Israel (the “Guarantor”), entered into an Agreement and Plan of Merger
(the “Merger Agreement”). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Acquisition Sub has agreed to commence a cash tender offer (the “Offer”) to acquire all of the shares of the
Company’s common stock (“Common Stock”) and the Company’s 7% Series B Convertible Preferred Stock (“Preferred Stock”) for a purchase price of (i) $2.70 per share of Common Stock, net to the holder thereof in cash (the
“Common Offer Price”) and (ii) $7.80 per share of Preferred Stock, plus accrued and unpaid dividends payable thereon, if any, as of immediately prior to the Effective Time (as defined in the Merger Agreement), net to the holder thereof in
cash (the “Preferred Offer Price”), each without interest.
The consummation of the Offer will be conditioned on (i) there shall have been
validly tendered and not withdrawn in accordance with the terms of the Offer and prior to the scheduled expiration date of the Offer, that number of shares of Common Stock and Preferred Stock which, together with the shares of Common Stock and
Preferred Stock then beneficially owned by Parent and Acquisition Sub (if any), represent at least a majority of the outstanding shares of Company capital stock, voting together as a single-class on an
as-if
converted to Common Stock basis, (ii) expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 in the United States, (iii) obtaining clearance of Offer and Merger (as defined
below) from the Committee on Foreign Investment in the United States, (iii) receipt by the Company of consents to the Offer and Merger from specified Company customers and (iv) other customary conditions. The Offer is not subject to a
financing condition.
Following the consummation of the Offer, subject to customary conditions, Acquisition Sub will be merged with and into the Company
(the “Merger”) and the Company will become a wholly owned subsidiary of Parent, pursuant to the procedure provided for under Section 251(h) of the Delaware General Corporation Law without any additional stockholder approvals. In the
Merger, each outstanding share of Common Stock and Preferred Stock (other than shares owned by Parent, Acquisition Sub or the Company, or any of their respective wholly owned subsidiaries, shares held by the Company in the Company’s treasury or
shares with respect to which appraisal rights are properly exercised under Delaware law) will be converted into the right to receive an amount in cash equal to the Common Offer Price or Preferred Offer Price, as applicable, without interest, less
any applicable withholding taxes.
Immediately prior to, and contingent upon the consummation of, the Closing (as defined in the Merger Agreement), each
warrant to purchase Common Stock (a “Company Warrant”) that is unexercised with a per share exercise price less than the Common Offer Price shall be cancelled and converted into the right to receive, in exchange for the cancellation of
such Company Warrant, an amount in cash, without interest and less applicable tax withholdings, equal to the Common Offer Price, less the per share exercise price of such Company Warrant (the “Warrant Merger Consideration”). The Warrant
Merger Consideration with respect to each Company Warrant will be paid as soon as reasonably practicable after the Effective Time. If the per share exercise price of any Company Warrant is equal to or greater than the Common Offer Price, such
Company Warrant will be cancelled without cash payment.
Each option to purchase Common Stock under the Company’s 1999 Stock Incentive Plan, as
amended (such plan, the “Company Stock Plan” and each such option, a “Company Option”) that is outstanding, whether or not vested, immediately prior to the Effective Time, will be cancelled and converted into the right to
receive, in exchange for the cancellation of such Company Option, an amount in cash, without interest and less applicable tax withholdings, equal to (i) the Common Offer Price, less the per share exercise price of such Company Option,
multiplied by (ii) the total number of shares of the Company’s Common Stock issuable upon exercise in full of such Company Option (the “Company Option Consideration”). If the per share exercise price of any Company Option is
equal to or greater than the Common Offer Price, such Company Option will be cancelled without cash payment. The Company Option Consideration with respect to each Company Option will be paid as soon as reasonably practicable after the Effective Time
(but in any event on or prior to the later of (1) 10 business days after the Effective Time and (2) the first regularly scheduled payroll date of the Surviving Corporation (as defined in the Merger Agreement) after the Effective Time).
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As of the Effective Time, (i) each vested Company restricted stock award outstanding and each unvested
Company restricted stock award outstanding under the Company Stock Plan (each, a “Restricted Stock Award” and collectively, the “Restricted Stock Awards”) held by a holder holding less, in the aggregate, than 2,000 shares of
Common Stock subject to such Restricted Stock Award will be cancelled and converted into a right to receive an amount in cash, without interest, equal to (x) the amount of the Common Offer Price multiplied by (y) the total number of shares
of Common Stock subject to such award and (ii) with respect to each unvested Restricted Stock Award held by a holder holding, in the aggregate, 2,000 or more shares of Common Stock subject to such unvested Restricted Stock Award (x) 2,000
shares of Common Stock subject to such unvested Restricted Stock Award shall be cancelled and converted into the right to receive cash in an amount per such share equal to the Common Offer Price and (y) the remaining shares subject to such
unvested Restricted Stock Award shall be assumed by Parent and converted into shares of restricted Guarantor ADSs (as defined in the Merger Agreement) (collectively, the “Restricted Stock Award Consideration”). All Restricted Stock Award
Consideration will be paid without interest and less any applicable tax withholdings.
The Merger Agreement contains customary representations, warranties
and covenants of the parties. In addition, under the terms of the Merger Agreement, the Company has agreed not to solicit, initiate or knowingly induce the marking of, or knowingly encourage or otherwise facilitate any alternative Acquisition
Proposals (as defined in the Merger Agreement), subject to customary exceptions that permit the Company to respond to any unsolicited Acquisition Proposal, provided that the Company’s board of directors has determined in good faith (after
consultation with its financial advisor and outside legal counsel) that such Acquisition Proposal either constitutes or could reasonably be expected to lead to a Superior Proposal (as defined in the Merger Agreement) and has determined in good faith
(after consultation with the Company’s outside legal counsel) that the failure to do so would reasonably be expected to be inconsistent with its fiduciary duties. The Company is also permitted to change its recommendation in favor of the Merger
or to terminate the Merger Agreement in order to accept an unsolicited Superior Proposal (subject to compliance with the procedures set forth in the Merger Agreement), provided that the Company’s board of directors has determined in good faith
(after consultation with the Company’s outside legal counsel) that the failure to do so would reasonably be expected to be inconsistent with its fiduciary duties. Parent has the right to match any alternative Acquisition Proposal so that such
proposal does not continue to be a Superior Proposal, which would otherwise allow the Company to terminate the Merger Agreement. If the Company is permitted to terminate the Merger Agreement and does so, under such circumstances, the Company must
pay Parent, concurrently with such termination, a termination fee of approximately $4.45 million. In addition, this termination fee is payable by the Company to Parent under other specified circumstances.
Concurrently with the execution of the Merger Agreement, each of the members of the Board and the executive officers of the Company, as well as certain
stockholders of the Company affiliated with members of the Board, each in their respective capacities as stockholders of the Company, entered into a Tender and Support Agreement with Parent and Acquisition Sub (the “Support Agreement”),
pursuant to which the signatories have agreed, among other things, to tender their respective shares of Common Stock (including those owned through the exercise or settlement of Company Options or Company Restricted Stock Awards) and Preferred Stock
(the “Subject Securities”) into the Offer and, during the period from the date of such Support Agreement through the earlier of (i) the date upon which the Merger Agreement is validly terminated and (ii) the Effective Time (the
“Support Period”), to not vote any of their Subject Securities in favor of any alternative Acquisition Proposals.
Shares held by the
signatories to the Support Agreements that are eligible to be tendered into the Offer represent, in the aggregate, approximately 24% of the Company’s capital stock outstanding on the date of the Merger Agreement (excluding Common Stock issuable
upon exercise of Company Options). Each of the Support Agreements will terminate upon the termination or expiration of the Support Period.
The foregoing
descriptions of the Merger Agreement and Support Agreement do not purport to be complete and are qualified in their entirety by reference to the Merger Agreement, which is attached as Exhibit 2.1 to this Current Report on Form
8-K,
and the Support Agreement, the form of which is attached as Exhibit 99.2 to this Current Report on Form
8-K,
and in each case is incorporated herein by reference. The
Merger Agreement has been attached to provide investors with information regarding its terms. It is not intended to provide any other factual information about the Company, Parent or Acquisition Sub. The Merger Agreement contains representations and
warranties by each of Parent, Acquisition Sub, Guarantor and the Company. These representations and warranties were made solely for the benefit of the parties to the Merger Agreement and:
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should not be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
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may have been modified, qualified or excepted in the Merger Agreement by information in confidential disclosure letter provided by the Company in connection with the signing of the Merger Agreement;
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may apply contractual standards of “materiality” that are different from “materiality” under applicable securities laws; and
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were made only as of the date of the Merger Agreement or such other date or dates as may be specified in the Merger Agreement.
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Accordingly, the representations and warranties in the Merger Agreement may not constitute the actual state of facts about the Company, Parent, Guarantor or
Acquisition Sub.
Amendment to Loan and Security Agreement
On June 29, 2017, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with The PrivateBank and Trust Company, an
entity now known as CIBC Bank USA (the “Lender”). The Loan Agreement provides for a $20,000,000 revolving line of credit maturing in 2020 (the “Credit Facility”) and is secured by a security interest in the Company’s
accounts receivable, equipment, inventory, cash, deposit accounts, securities, and all other investment property, supporting obligations, financial assets, intellectual property rights and other personal property. The Company, subject to certain
limits and restrictions, may from time to time request the issuance of letters of credit under the Loan Agreement.
On March 29, 2018, the Company
and the Lender entered into an Amendment to Loan and Security Agreement (the “Prior Amendment”), whereby certain material provisions of the Loan Agreement were amended and restated. The Prior Amendment increased the Applicable Margin (as
defined in the Loan Agreement) for loans bearing interest at LIBOR from 4.50% to 5.50% and for loans bearing interest at the base rate from 1.75% to 2.75%. The Prior Amendment also provided the Lender with the ability to impose discretionary
reserves against the borrowing base.
The Loan Agreement requires the Company to comply with EBITDA (as adjusted in accordance with the Loan Agreement)
and total revenue targets. The Prior Amendment adjusted the minimum EBITDA thresholds for the second, third, and fourth quarters of 2018 from: ($200,000) to ($500,000); $1,250,000 to $500,000; and $3,000,000 to $2,500,000; respectively. The
Prior Amendment also increased the Company’s minimum total revenue thresholds for the first and second quarter of 2018 by an average of approximately 3% each quarter and reduced the applicable total revenue thresholds for each of the third and
fourth quarters of 2018 by an average of approximately 6% each quarter.
The Prior Amendment deleted in full the default that would otherwise occur should
any of the Borrower’s customers identified as “key accounts” cancel or not renew their subscription agreements at any point during the pendency of the Loan Agreement.
On April 25, 2018, the Company and the Lender entered into a Second Amendment to Loan and Security Agreement (the “New Loan Amendment”),
whereby certain material provisions of the Loan Agreement were amended, including the following material amendments outlined below.
The New Loan
Amendment adjusts the minimum Adjusted EBITDA (as defined in the New Loan Amendment) threshold for the second quarter of 2018 from ($500,000) to ($2,500,000). The New Loan Amendment also excludes from the calculation of Adjusted EBITDA, certain
expenses incurred by the Company in connection with the Merger and adds a requirement that the Company must have liquidity as of the last day of each calendar month of at least $2,000,000.
The foregoing description of the New Loan Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the New
Loan Amendment, which is filed as Exhibit 10.3 to this Current Report on Form
8-K,
and incorporated herein by reference. Further, the descriptions of the underlying Loan Agreement and Prior Amendment contained
herein do not purport to be complete and are qualified in their entirety by reference to the full text of the Loan Agreement and Prior Amendment, which are incorporated by reference at Exhibit 10.1 and Exhibit 10.2, respectively, to this Current
Report on Form
8-K.
