Item 8.01 Other Events.
As previously disclosed, on December 6, 2020, CounterPath Corporation, which we
refer to herein as "CounterPath," the "Company," "we," "us," or "our," entered
into an agreement and plan of merger, which, as it may be amended from time to
time, we refer to as the "Merger Agreement," with Alianza, Inc., a Delaware
corporation, which we refer to as "Alianza," and CounterPath Merger Sub, Inc., a
Nevada corporation and a wholly owned subsidiary of Alianza, which we refer to
as "Merger Sub." Pursuant to the terms of the Merger Agreement, Merger Sub will
merge with and into CounterPath, which we refer to as the "Merger," with
CounterPath continuing as the surviving corporation and becoming a wholly owned
subsidiary of Alianza.
On January 22, 2021, CounterPath filed a Definitive Proxy Statement (the
"Definitive Proxy") with the Securities and Exchange Commission (the "SEC") in
anticipation of a forthcoming special meeting of CounterPath's stockholders to
determine whether the Merger should be approved.
Update on Litigation Related to the Merger
As disclosed in the Definitive Proxy, on January 7, 2021, a putative class
action complaint was filed in the Supreme Court of the State of New York, County
of New York, captioned Chakra Chamala v. CounterPath Corporation, et al., NYCSC
Index No. 650111/2021, against CounterPath and its directors. On January 21,
2021, a similar putative class action captioned Ciccotelli v. CounterPath
Corporation, et al., NYCSC Index No. 650451/2021 was filed against the same
defendants. The complaints allege that CounterPath's directors breached their
fiduciary duties by purportedly failing to engage in a sufficiently robust sales
process prior to the Merger, allegedly failing to obtain sufficient
consideration for CounterPath's stockholders in connection with the Merger, and
purportedly failing to make adequate disclosures in the Preliminary Proxy
regarding the Merger.
Following the filing of the Definitive Proxy, on February 2, 2021, two putative
class action complaints were filed in the District Court of Clark County,
Nevada, captioned Maria Golenkov v. CounterPath Corporation, et al., Case No:
A-21-828751-B and Dean Klein v. CounterPath Corporation, et al., Case No:
A-21-828719-B, against CounterPath and its directors. Both complaints make
substantially similar allegations, including that CounterPath's directors
breached their fiduciary duties by purportedly engaging in a conflicted sales
process with Alianza, purportedly failing to make adequate disclosures in the
Definitive Proxy, and allegedly failing to obtain sufficient consideration for
CounterPath's stockholders in connection with the Merger.
On February 4, 2021, a complaint was filed in the United States District Court
for the Southern District of New York, captioned Gallo v. CounterPath
Corporation, et al., Case No. 1:21-cv-01031 (S.D.N.Y.) against CounterPath and
its directors. The complaint alleges that the Definitive Proxy omits or
misrepresents material information with respect to the Merger preventing
stockholders from becoming sufficiently informed prior to voting on the Merger.
Additionally, on January 19, 2021, CounterPath received a demand letter sent on
behalf of Chakra Chamala, plaintiff in one of the actions identified above, and
on February 6, 2021, CounterPath received a demand letter sent on behalf of
Harry Haeseker. The letters demanded that CounterPath make supplemental
disclosures to investors regarding the Merger based on similar factual and legal
arguments as in the lawsuits discussed above.
CounterPath and the other named defendants deny that they have violated any laws
or breached any duties to CounterPath's stockholders and believe that these
lawsuits and demand letters are without merit and that no supplemental
disclosure is required to the Definitive Proxy under any applicable law, rule or
regulation. However, solely to eliminate the burden and expense of litigation
and to avoid any possible disruption to the Merger that could result from
further litigation, CounterPath is providing the supplemental disclosures set
forth in this Form 8-K. Nothing in this Form 8-K shall be deemed an admission of
the legal necessity or materiality under applicable laws of any of the
disclosures set forth herein.
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If you have not already submitted a proxy for use at the CounterPath special
meeting, you are urged to do so promptly. This Form 8-K does not affect the
validity of any proxy card or voting instructions that CounterPath stockholders
may have previously received or delivered. No action is required by any
CounterPath stockholder who has previously delivered a proxy or voting
instructions and who does not wish to revoke or change that proxy or voting
instructions.
Supplemental Disclosure
The following supplemental disclosures should be read in conjunction with the
Definitive Proxy, which should be read in its entirety. To the extent that
information in the supplemental disclosures differs from or updates information
contained in the Definitive Proxy, the information in the supplemental
disclosures shall supersede or supplement the information in the Definitive
Proxy. Defined terms used but not defined in the supplemental disclosures have
the meanings set forth in the Definitive Proxy. Paragraph and page references
used herein refer to the Definitive Proxy before any additions or deletions
resulting from the supplemental disclosures. The supplemental disclosures speak
only as of the date on which the information contained therein was prepared and
provided to the Board of Directors of CounterPath (the "CounterPath Board") in
connection with, and at the time of, the CounterPath Board's evaluation of the
Merger (including with respect to any forecasts, projections, or other
forward-looking statements contained in the supplemental disclosures with
respect to CounterPath), and no such information has been updated or otherwise
revised to reflect subsequent events since such date. The inclusion of financial
projections in the Definitive Proxy (the "Projections") should not be regarded
as an indication that any of CounterPath or its respective affiliates, advisors
or representatives considered such Projections to be predictive of actual future
events, and the Projections should not be relied upon as such. The Projections
constitute forward-looking statements and no assurances can be given that the
assumptions made in preparing such Projections will accurately reflect future
conditions. Accordingly, there can be no assurance that the prospective results
will be realized or that actual results will not be significantly higher or
lower than estimated. None of CounterPath or its respective affiliates,
advisors, officers, directors, partners or representatives undertake any
obligation to update or otherwise revise or reconcile these Projections to
reflect circumstances existing after the date the Projections were generated or
to reflect the occurrence of future events even in the event that any or all of
the assumptions underlying the Projections are shown to be in error, in each
case, except as may be required under applicable law. CounterPath advised the
recipients of the Projections that its internal financial forecasts upon which
the Projections were based are subjective in many respects. While presented with
numerical specificity, the Projections were based on numerous variables and
assumptions known to CounterPath at the time of their preparation. These
variables and assumptions are inherently uncertain and many are beyond the
control of CounterPath. Unless stated otherwise, the revised text in the
supplemental disclosures is underlined to highlight the supplemental information
being disclosed.
1. The disclosure beginning on page 31 of the Definitive Proxy in the section
entitled "Proposal 1: Approval of the Merger Agreement - Background of the
Merger" is amended and supplemented by deleting the fifth paragraph and
replacing it with the following (with new text in underline):
Between December 2018 and May 2019, approximately 90 companies were contacted by
AGC Partners to gauge their interest in a strategic transaction with
CounterPath. A non-confidential summary of CounterPath was sent to
approximately 32 companies, of which approximately 15 executed non-disclosure
agreements and received additional information regarding CounterPath. Of these
companies which signed non-disclosure agreements, several companies (referred to
in this proxy statement as the "interested parties") subsequently expressed an
interest in learning more about CounterPath through management presentations and
information requests. The non-disclosure agreements with three of the six
interested parties were on customary terms and did not contain a "don't ask,
don't waive" provision or any standstill provisions. The non-disclosure
agreements with the other three interested parties were on customary terms, did
contain a "don't ask, don't waive" provision and a standstill provision, and
provided that the standstill provisions would remain in force for a period of
two years (for two interested parties) and one year (for one interested party)
after the entry into of the non-disclosure agreement.
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2. The disclosure beginning on page 31 of the Definitive Proxy in the section
entitled "Proposal 1: Approval of the Merger Agreement - Background of the
Merger" is amended and supplemented by deleting the 32nd paragraph and replacing
it with the following (with new text in underline):
On July 11, 2019, CounterPath received a letter of intent from the sixth
interested party for an acquisition of CounterPath for $16.5 million on a cash
free, debt free basis. This letter of intent was the only formal proposal
submitted by a party during the sales process conducted by CounterPath beginning
in December, 2018 and up to the execution of the Merger Agreement on December 6,
2020, other than the proposals submitted by Alianza.
3. The disclosure beginning on page 41 of the Definitive Proxy in the section
entitled "Proposal 1: Approval of the Merger Agreement - Reasons for the Merger
- Board of Directors" is amended and supplemented by deleting the first
paragraph and associated bullet points and replacing it with the following (with
new text in underline):
As described in the section entitled "Proposal 1: Approval of the Merger
Agreement - Background of the Merger" beginning on page 31 of this proxy
statement, prior to and in reaching its decision at its meeting on December 6,
2020 to approve the Merger Agreement and the transactions contemplated thereby,
including the Merger, the CounterPath board of directors consulted with the
special transaction committee, CounterPath's management, CounterPath's financial
advisors and legal advisors and considered a variety of factors that it believed
supported its determinations, including, but not limited to, (i) the factors
considered by the special transaction committee which are listed in the section
entitled "Proposal 1: Approval of the Merger Agreement - Reasons for the Merger"
beginning on page 37 of this proxy statement and (ii) the following:
º the fact that in late 2018 CounterPath began a strategic process, including
the engagement of an investment banker, whereby offers to purchase or
invest in CounterPath were solicited from strategic and financial buyers
and investors, which CounterPath continued during calendar 2019 and 2020,
and the only offer (from the sixth interested party) was substantially
lower than Alianza's offer of $3.49 per share;
º the special transaction committee's determinations relating to the Merger;
and
º the unanimous recommendations of the special transaction committee,
including the recommendations that the CounterPath board of directors adopt
a resolution approving, and declaring the advisability of, the Merger
Agreement and the other transactions contemplated thereby, including the
Merger, and recommend that the Company's stockholders approve the Merger
Agreement and the transactions contemplated thereby, including the Merger.
4. The disclosure beginning on page 45 of the Definitive Proxy in the section
entitled "Proposal 1: Approval of the Merger Agreement - Opinion of
CounterPath's Financial Advisor - Analysis - Guideline Company Analysis" is
amended and supplemented by deleting the section in its entirety and replacing
it with the following (with new text in underline):
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Guideline Company Analysis
Evans & Evans assessed the reasonableness of the implied $25.1 million EV by
comparing certain of the related valuation metrics to the metrics indicated for
referenced guideline public companies (the "Guideline Public Company Method").
The identified guideline companies selected were considered reasonably
comparable to CounterPath.
In the table below Evans & Evans have summarized the EV to trailing 12-month
("TTM") revenues and EV to TTM earnings before interest, taxes, depreciation and
amortization ("EBITDA") of selected public companies.
EV to TTM Revenues Min Max Median Mean
SaaS Companies 2.83 x 58.57 x 13.73 x 4.55 x
Non-SaaS Companies 1.06 x 2.94 x 1.96 x 1.92 x
Under the Guideline Public Company Method, valuation multiples are derived from
share trading transactions that represent minority interests in publicly traded
companies or recent private transactions. As such, the resulting valuation
multiples provide an indication of value on a minority interest, publicly traded
basis.
The Guideline Public Company Method involves identifying public companies
similar to the subject company with stocks that trade freely in the public
markets on a daily basis.
The objective of the Guideline Public Company Method is to derive multiples to
apply to the fundamental financial or operational variables of the Company.
Since the indication of value is based on minority interest transactions, if one
is valuing a controlling interest, it may sometimes be necessary to consider
applying a premium for control. A discount for lack of marketability may also be
appropriate. The following tables provides details on the identified guideline
public companies.
TTM Revenue
Enterprise Value (millions of
Company Name (millions of $) $) EV/Revenue EV/EBITDA
SaaS Companies
2U Inc (NASDAQ: TWOU) 2,209 722 3.06x n/a
8x8 Inc (NYSE: EGHT) 1,787 491 3.64x n/a
Box Inc (NYSE: BOX) 2,576 737 3.50x 903.71x
LivePerson Inc (NASDAQ:
LPSN) 3,443 344 10.02x n/a
RingCentral Inc (NYSE:
RNG) 25,106 1,102 22.78x 324.56x
Zix Corp (NASDAQ: ZXI) 596 211 2.83x 17.58x
Zuora Inc (NYSE: ZUO) 1,189 20 58.57x 194.90x
eGain Corp (NASDAQ: EGAN) 408 75 5.46x 35.34x
Software Licensing
Companies
Limelight Networks Inc
(NASDAQ: LLNW) 692 235 2.94x 39.43x
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Ooma Inc (NYSE: OOMA) 311 162 1.92x n/a
Ribbon Communications Inc
(NASDAQ: RNNM) 1,260 761 1.66x n/a
Synchronoss Technologies
Inc (NASDAQ: SNCR) 332 313 1.06x 284.80x
Sangoma Technologies
Corporation (TSXV: STC) 308 138 2.23x 35.34x
Average 9.2x 229.5x
Median 3.1x 117.2x
Coefficient of Variance 1.7 1.3
Evans & Evans noted that in reviewing the SaaS companies, on average the TTM
revenues were significantly higher than those of CounterPath. Of the identified
SaaS guideline companies, only two of the identified eight companies had EVs
less than $1.0 billion. Of the identified non-SaaS companies four of the five
companies had EVs less than $1.0 billion. In the view of Evans & Evans, a
direct comparison between companies with EVs of greater than $1.0 billion and
CounterPath is not appropriate given the variances in the size and scope of
operations and differing investor bases.
The Merger pricing implies an EV / TTM revenues (to July 31, 2020) of 1.93 x
which is similar to the mean and median of the non-SaaS companies. In assessing
the reasonableness of the above, Evans & Evans considered the following:
º historically only 11% to 26% of the Company's revenues are SaaS-based and
accordingly the non-SaaS companies are more comparable to CounterPath in
the view of Evans & Evans;
º there are a limited number of directly comparable public companies, when
one considers differentiating factors such as size and market niche;
º no company considered in the analysis is identical to CounterPath;
º an analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning the differences in the financial
and operating characteristics of CounterPath, the Merger and other factors
that could affect the trading value and aggregate transaction values of the
companies to which they are being compared; and
º CounterPath is experiencing positive year-over-year revenue growth to date
in fiscal year 2021 and had growth of 12.4% in fiscal year 2020 over fiscal
year 2019. However, growth has not been consistent and revenues have
contracted in two of the last five fiscal years. Over the past five fiscal
years, the Company's revenues have been in the range of $10.5 to $13
million. There is no certainty the Company will be able to continue on its
current growth trajectory. There remains uncertainty with respect to how
anticipated vaccines to protect against COVID-19 will impact the global
workforce and the demand for the Company's services.
Given the above-noted factors and its analysis of the observed multiples of
selected public companies, Evans & Evans considered this approach with the
precedent transaction analysis and a review of investor interest in the sector
in making the final determination of the reasonableness of the consideration and
the fairness of the Merger.
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5. The disclosure beginning on page 42 of the Definitive Proxy in the section
entitled "Proposal 1: Approval of the Merger Agreement - Opinion of
CounterPath's Financial Advisor" is amended and supplemented by adding the
following paragraph after the first paragraph:
CounterPath paid Evans & Evans an aggregate of CAD $24,982.50 between May, 2020
and December, 2020 as consideration for its services in rendering the Opinion.
CounterPath had previously paid AGC Partners an aggregate of $100,000 between
November 2018 and January 2019 for its financial advisory services in connection
identifying potential strategic and financial alternatives. CounterPath
undertook the separate engagement of Evans & Evans because it believes it to be
a best practice to engage a financial advisor unrelated to, and independent of,
the transaction for a fee to be paid regardless of the success or failure of the
transaction. Neither AGC Partners nor Evans & Evans has provided CounterPath
with any services other than as described in this proxy statement. Evans &
Evans has not provided any services to Alianza in the past two years or at any
time previously.
6. The disclosure beginning on page 46 of the Definitive Proxy in the section
entitled "Proposal 1: Approval of the Merger Agreement - Opinion of
CounterPath's Financial Advisor - Analysis - Precedent Transactions Analysis" is
amended and supplemented by deleting the section in its entirety and replacing
it with the following (with new text in underline):
Evans & Evans also assessed the reasonableness of the implied $25.1 million EV
by comparing certain of the related valuation metrics to the metrics indicated
by transactions involving the acquisition of UC companies and companies offering
collaboration tools. Evans & Evans identified 14 transactions.
Evans & Evans found that EV to revenue multiples ranged from 0.4 x to 4.77 x
with an average of 1.92 x and a median of 1.63 x. The EV to revenue multiple
implied by the Merger lies between the mean and the median which is appropriate
in the view of Evans & Evans.
EV Revenues
(millions (millions
Date Acquirer Target of $) of $) EV/ Revenues
Jun-19 Extreme Networks Aerohive Networks 210.0 152.0 1.38x
Issuer Direct Visual Webcaster
Corporation Platform of Onstream
03-Jan-19 Media Corporation 27.8 3.0 9.13x
May-19 Enghouse Vidyo 40.0 60.0 0.67x
Nov-18 iPass Pareteum 21.0 48.0 0.44x
B. Riley Financial magicJack VocalTec
Nov-18 Inc. Ltd. 143.1 88.0 1.63x
Mitel Networks Searchlight Capital
Apr-18 Partners 2000.0 1,059.0 1.89x
LogMeIn, Inc. Jive Communications
Dec-17 Inc. 345.9 80.7 4.29x
Jul-17 ShoreTel Inc. Mitel Networks 430.0 357.0 1.20x
May-17 GENBAND Sonus Networks 412.0 427.0 0.96x
May-17 Jive Software Aurea 353.0 204.0 1.73x
Jan-16 ShoreTel Inc. Corvisa Services, LLC 8.7 1.8 4.77x
LM Ericsson Telefon Envivio, Inc.
Oct-15 AB 125.0 41.6 3.01x
Oct-12 Glowpoint, Inc. Affinity VideoNet Inc. 15.9 11.4 1.40x
KeyOn CommX Holdings, Inc.
Communications
Jun-11 Holdings, Inc. 4.8 2.9 1.65x
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Excluding Issuer Direct Corporation Outlier Transaction Average 1.92x
Median 1.63x
Low 0.44x
High 4.77x
Given the above-noted factors and its analysis of the observed multiples of
acquisitions, Evans & Evans considered this approach and a review of investor
interest in the sector in making the final determination of the reasonableness
of the consideration and the fairness of the Merger.
7. The following disclosure is added to the Definitive Proxy as a new section
entitled "Proposal 1: Approval of the Merger Agreement - Opinion of
CounterPath's Financial Advisor -Analysis - Discounted Cash Flow Analysis" on
page 47 of the Definitive Proxy immediately before the section entitled
"Proposal 1: Approval of the Merger Agreement - Opinion of CounterPath's
Financial Advisor - Fairness Conclusions":
In assessing the reasonableness of the implied $25.1 million EV, Evans & Evans
did not perform a discounted cash flow analysis because, in its view, a
discounted cash flow analysis was not appropriate in the circumstances.
CounterPath had experienced an increase in revenues as a result of COVID-19, and
Evans & Evans was of the view that it did not have certainty that such revenue
increase could be maintained and that revenues beyond the 2022 fiscal year could
not be substantiated with any level of certainty. Evans & Evans was also of the
view that a discounted cash flow analysis is not appropriate for entities in the
growth stage except where such growth can be reasonably substantiated. In Evans
& Evans view, CounterPath's future revenue growth could not be reasonably
substantiated given its historic volatility in revenue over the prior years,
making it difficult to project beyond the CounterPath Forecast (as defined
herein) and utilize a discounted cash flow analysis. Traditionally, where a
company has had historically stable operations, acquirers look at historical
results, not forward looking results. In Evans & Evans view, the Guideline
Public Company Method is the more appropriate analysis to reflect the market
sentiment for companies in CounterPath's sector, while factoring in the effects
of COVID-19.
8. The following disclosure is added to the Definitive Proxy as new section
entitled "Proposal 1: Approval of the Merger Agreement - Certain CounterPath
Unaudited Prospective Financial Information" on page 49 of the Definitive Proxy
immediately before the section entitled "Proposal 1: Approval of the Merger
Agreement - Delisting and Deregistration of our Common Stock":
CounterPath does not, as a matter of course, make projections as to future
performance available to the public. CounterPath avoids making public
projections given, among other things, the unpredictability of the underlying
assumptions and estimates inherent in preparing forecasts.
In connection with the Merger, however, in November 2020, CounterPath'
management used certain non-public and unaudited prospective financial
information to prepare a certain financial forecast for the years ending April
30, 2021 through April 30, 2022 (the "CounterPath Forecast"). The CounterPath
Forecast was provided to CounterPath's financial advisor, Evans & Evans, for its
use and reliance for purposes of its financial analysis and fairness opinion.
See the section entitled "Proposal 1: Approval of the Merger Agreement - Opinion
of CounterPath's Financial Advisor" beginning on page 42 of this Proxy
Statement.
The CounterPath Forecast was prepared by CounterPath's management treating
CounterPath on a stand-alone basis, without giving effect to the Merger,
including the impact of negotiating or executing the Merger Agreement, the
expenses that may be incurred in connection with consummating the Merger, the
potential synergies that may be achieved by the combined company as a result of
the Merger, the effect of any business or strategic decision or action that has
been or will be taken as a result of the Merger Agreement having been executed,
or the effect of any business or strategic decisions or actions which would
likely have been taken if the Merger Agreement had not been executed but which
were instead altered, accelerated, postponed or not taken in anticipation of the
Merger. The CounterPath Forecast was prepared based on information and market
factors known to CounterPath's management at the time prepared and are based on
numerous estimates and assumptions with respect to matters such as the impact of
COVID-19, competition, industry trends, general business, economic, market and
geopolitical conditions, and additional matters specific to CounterPath's
business, all of which are difficult to predict and many of which are beyond
CounterPath's control.
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The CounterPath Forecast summarized below was not prepared with a view toward
public disclosure or with a view toward compliance with the published guidelines
of the SEC regarding projections and forward-looking statements or the
guidelines established by the American Institute of Certified Public Accountants
for preparation or presentation of prospective financial information, but, in
the view of CounterPath' management, was prepared on a reasonable basis and in
good faith based on the information available at the time of preparation.
However, this information is not fact and should not be relied upon as
necessarily indicative of actual future results, and readers of this Proxy
Statement are cautioned not to place undue, if any, reliance on the CounterPath
Forecast. CounterPath cautions stockholders that future results could be
materially different from the CounterPath Forecast. None of CounterPath or any
of its respective advisors or other representatives has made or makes any
. . .
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