DEFM14A 1 tv500110_defm14a.htm DEFINITIVE PROXY STATEMENT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

(Amendment No.    )

 

 

Filed by the Registrant x Filed by a Party other than the Registrant ¨

 

Check the appropriate box:

¨Preliminary Proxy Statement
¨Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
xDefinitive Proxy Statement
¨Definitive Additional Materials
¨Soliciting Material under § 240.14a-12

 

Pareteum Corporation

(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

¨No fee required.
¨Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)Title of each class of securities to which transaction applies:

 

For purposes of computing the filing fee, ordinary shares of Artilium plc (“Artilium”)

 

 

(2)Aggregate number of securities to which transaction applies:

 

All of the ordinary shares of Artilium. The maximum number of Artilium ordinary shares to which this transaction applies is estimated to be 371,414,115, consisting of (i) 354,891,582 ordinary shares in issue as of June 6, 2018, minus (ii) 27,695,177 ordinary shares owned by the registrant (which will not be exchanged in the transaction), plus (iii) 44,217,710 ordinary shares expected to be issued on or after June 7, 2018 to satisfy the exercise of options, payment of share-based remuneration in lieu of cash, deferred consideration for acquisitions, loan interest payments in shares and shares to be issued to advisers as consideration for services rendered.

 

 

(3)Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

Solely for purposes of calculating the filing fee, the underlying value of the transaction was calculated in accordance with Exchange Act Rules 14a-6(i)(1) and 0-11(c) as the product of (i) 371,414,115 ordinary shares of Artilium (calculated as described above), and (ii) $0.23, representing the average of the high and low sales price of Artilium ordinary shares as quoted on the London Stock Exchange on July 2, 2018, as converted to U.S. Dollars based on an exchange rate of £1.00 = $1.3197 on June 29, 2018, such product representing the as-converted value of the Artilium ordinary share capital to be received by the registrant as the acquiring person.

 

 

(4)Proposed maximum aggregate value of transaction:

 

$88,227,937

 

 

(5)Total fee paid:
   
  $10,984.38 (based upon the product of (i) $88,227,937 and (ii) the applicable fee rate of $124.50 per million Dollars of transaction value).

 

xFee paid previously with preliminary materials.
¨Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
(1)Amount Previously Paid:

 

 

(2)Form, Schedule or Registration Statement No.:

 

 

(3)Filing Party:

 

 

(4)Date Filed:

 

 

 

 

 

 

 

Dear Pareteum Corporation Stockholder:

 

You are cordially invited to attend the annual meeting of stockholders (the “Meeting”) of Pareteum Corporation (which we refer to as “Pareteum”) to be held at 1185 Avenue of the Americas, 37th Floor, New York, NY 10036, on September 13, 2018, at 10:00 a.m. Eastern Time.

 

On June 7, 2018, Pareteum released an announcement pursuant to Rule 2.7 of the United Kingdom City Code on Takeovers and Mergers (which we refer to as the “Offer Announcement”) disclosing the terms on which Pareteum intends to make a recommended offer to acquire the entire issued and to be issued ordinary shares of Artilium plc (which we refer to as “Artilium”) in a cash and stock transaction. Under the terms of the recommended offer, Artilium shareholders will be entitled to receive, for each Artilium ordinary share held by such shareholders, 1.9 pence in cash and 0.1016 new shares of Pareteum common stock, $0.00001 par value per share. We refer to our recommended offer as the “Offer,” and to our potential acquisition of Artilium ordinary shares as the “Acquisition.”

 

The Acquisition is to be effected by means of a court-sanctioned scheme of arrangement between Artilium and Artilium shareholders under Part 26 of the UK Companies Act 2006, as amended. The Dollar-denominated value of the Acquisition consideration to be received by Artilium shareholders in connection with the Acquisition will fluctuate with the market value of Pareteum’s common stock and the Dollar-to-Pound exchange rate. For example:

 

·As of June 6, 2018, the last business day prior to the date of the Offer Announcement, each Artilium ordinary share would be valued at 19.55 pence, based on Pareteum’s closing share price of $2.33 as of that date and exchange rate of $1.3413:£1 as of that date, representing an aggregate equity value for Artilium of approximately £78.0 million, or approximately $104.7 million.

 

·As of July 27, 2018, the most recent practicable trading day prior to the date of this proxy statement, each Artilium ordinary share would be valued at 24.5pence, based on Pareteum’s closing share price on the NYSE American of $2.92on July 27, 2018 and an exchange rate of $1.3118:£1 as of July 27, 2018 (being the last practicable date for which such information was available from the Federal Reserve prior to the filing of this proxy statement), representing an aggregate equity value for Artilium of approximately £97.8or approximately $128.4million.

 

Upon completion of the Acquisition, Pareteum stockholders will own approximately 64.86% and Artilium shareholders will own approximately 35.14% of Pareteum’s fully diluted common stock, based on Pareteum’s and Artilium’s respective fully diluted common stock and ordinary shares outstanding as of June 6, 2018.

 

At the Meeting, you will be asked to consider and vote on a proposal (which we refer to as the “Share Issuance Proposal”) to approve the issuance of shares in connection with the Acquisition as well as proposals to elect four directors to our Board of Directors, to approve the 2018 Long-Term Incentive Compensation Plan, to ratify the appointment of our independent auditors, to conduct a non-binding advisory vote on the compensation paid to our named executive officers (which we refer to as the “Say-on-Pay Proposal”), to conduct a non-binding advisory vote on the frequency of future advisory votes on compensation paid to our named executive officers (which we refer to as the “Say-on-Frequency Proposal”) and to adjourn the Meeting to a later date or time, if necessary or appropriate, to solicit additional proxies in the event there are insufficient votes at the time of such adjournment to approve the Share Issuance Proposal or the other proposals.

 

After careful consideration, the Board of Directors of Pareteum has determined that the Acquisition is in the best interests of Pareteum and its shareholders and has authorized and approved the Acquisition and the issuance of Pareteum common stock in connection with the Acquisition. The Board of Directors recommends that you vote “FOR” the Share Issuance Proposal and “FOR” the other proposals set forth in the Notice of Annual Meeting of Stockholders and the Proxy Statement.

 

 

 

 

The enclosed proxy statement provides detailed information about the Meeting, the Acquisition and the proposed issuance of Pareteum common stock to Artilium shareholders in connection with the Acquisition. A copy of the Offer Announcement is attached as Annex I to the proxy statement, and a copy of that certain Co-operation Agreement, entered into in connection with the Acquisition between Pareteum and Artilium on June 7, 2018 (which we refer to as the “Co-operation Agreement”), is attached as Annex II to the proxy statement. The proxy statement also describes the determinations of the Pareteum Board of Directors in connection with its evaluation of the Acquisition and the issuance of Pareteum common stock to Artilium shareholders as partial consideration in the Acquisition. We encourage you to read the proxy statement and its annexes carefully and in their entirety. You may also obtain more information about Pareteum from documents we file with the U.S. Securities and Exchange Commission from time to time.

 

Your vote is very important, regardless of the number of shares that you own. Even if you plan to attend the Meeting, I urge you to submit your vote promptly. You may vote your shares via a toll-free telephone number, over the Internet, or by marking, signing and dating your proxy card and returning it in the envelope provided, as described in further detail herein. Voting by phone, over the Internet or by proxy card will not prevent you from voting in person, but will ensure that your vote is counted if, for whatever reason, you are unable to attend. If you hold your shares in “street name,” you should instruct your broker, bank or other nominee how to vote in accordance with the voting instruction form you will receive from your broker, bank or other nominee.

 

This proxy statement does not constitute a prospectus or prospectus equivalent document.

 

On behalf of Pareteum, I thank you for your support and appreciate your consideration of this important matter.

 

  Sincerely,
   
   
 
  Robert H. Turner
  Executive Chairman and Principal Executive Officer

 

Neither the U.S. Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the transactions described in this document, including the Acquisition and the issuance of Pareteum common stock to Artilium shareholders as partial consideration in the Acquisition, or determined if the information contained in this document is accurate or adequate. Any representation to the contrary is a criminal offense.

 

The accompanying proxy statement is dated August 3, 2018 and, together with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 and the accompanying form of proxy card, is first being mailed to stockholders of Pareteum on or about August 13, 2018.

 

 

 

 

PARETEUM CORPORATION

1185 Avenue of the Americas, 37th Floor

New York, NY 10036

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD SEPTEMBER 13, 2018

10:00 a.m. EASTERN TIME

 

TO THE STOCKHOLDERS OF PARETEUM CORPORATION:

 

The annual meeting of stockholders (the “Meeting”) of Pareteum Corporation (which we refer to as “Pareteum”) will be held at 1185 Avenue of the Americas, 37th Floor, New York, NY 10036, on September 13, 2018 at10:00 a.m., Eastern Time. At the Meeting, the stockholders of the Company’s outstanding capital stock will act on the following matters:

 

1.To approve the issuance of Pareteum common stock to shareholders of Artilium plc, a public limited company registered in England and Wales (which we refer to as “Artilium”), in connection with the proposed acquisition by Pareteum of the entire issued and to be issued ordinary shares of Artilium (which we refer to as the “Acquisition”). Pursuant to the Acquisition, Artilium shareholders will be entitled to receive, for each Artilium ordinary share held by such shareholders, 1.9 pence in cash and 0.1016 new shares of Pareteum common stock, $0.00001 par value per share (the “Offer”), resulting in the issuance of approximately 37,852,076 new shares of Pareteum common stock in connection with the Acquisition, consisting of (i) 35,339,548 shares issued to Artilium shareholders pursuant to the Offer, (ii) 1,975,257 shares issued to Bart Weijermars (through Grootzande Management BV) and Rupert Hutton, both officers of Artilium, pursuant to vesting share awards in connection with the Acquisition and (iii) 537,271 shares issued to Grootzande Management BV conditional on Pareteum acquiring not less than 90% of the issued share capital of Artilium pursuant to the Acquisition; following these transactions, Artilium shareholders will own approximately 35.14% of Pareteum’s fully diluted common stock, based on Pareteum and Artilium’s respective fully diluted common stock and ordinary shares outstanding as of June 6, 2018, the last business day prior to the date of the Offer Announcement (the “Share Issuance Proposal”);

 

2.To elect four directors to serve until the next annual meeting of stockholders and until their successors are duly elected and qualified;

 

3.To approve the 2018 Long-Term Incentive Compensation Plan, including the reservation of eight million (8,000,000) shares of common stock with a 15% annual increase to the total number of reserved shares thereunder (the “Equity Plan Proposal”);

 

4.To ratify the appointment of Squar Milner LLP as our independent registered public accounting firm for the year ending December 31, 2018;

 

5.To approve, on a non-binding advisory basis, the compensation paid to our named executive officers (the “Say-on-Pay Proposal”);

 

6.To recommend, on a non-binding advisory basis, the frequency of future advisory votes on the compensation paid to our named executive officers (the “Say-on-Frequency Proposal”); and

 

7.To adjourn the Meeting to a later date or time, if necessary or appropriate, to solicit additional proxies in the event there are insufficient votes at the time of such adjournment to approve the Share Issuance Proposal or the other proposals (the “Adjournment Proposal”).

 

These matters are more fully described in the proxy statement accompanying this notice.

 

 

 

 

 

Your vote is very important, regardless of the number of shares that you own. We cannot complete the acquisition of Artilium unless our stockholders approve the Share Issuance Proposal at the Meeting. We cannot hold the meeting unless a quorum is present. A quorum will exist at the Meeting if the holders of record of a majority of the issued and outstanding shares of the capital stock of Pareteum entitled to vote at the meeting are represented in person or by proxy.

 

Only holders of Pareteum common stock of record at the close of business on July 31, 2018, are entitled to notice of and to vote at the Meeting or any adjournment or postponement thereof. A proxy statement containing important information about the meeting and the matters being voted upon appears on the following pages. We are not asking for a proxy from Artilium shareholders, and Artilium shareholders are requested not to send us a proxy. Artilium shareholders are not entitled to vote on the matters described above. Artilium shareholders are expected to receive a separate circular and should read and respond to that document.

 

After careful consideration, the Board of Directors of Pareteum has determined that the Acquisition is in the best interests of Pareteum and its stockholders and has authorized and approved the Acquisition and the issuance of Pareteum common stock in connection with the Acquisition. The Board of Directors recommends that you vote “FOR” the Share Issuance Proposal and “FOR” the other proposals set forth in this Notice of Annual Meeting of Stockholders and the Proxy Statement.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING

 

We are pleased to take advantage of the U.S. Securities and Exchange Commission rules that allow us to deliver to you the full set of proxy materials, including this notice, the proxy statement, our Annual Report on Form 10-K for the year ended December 31, 2017, and the accompanying form of proxy. These proxy materials also are available via the Internet at www.proxyvote.com. You are encouraged to read the proxy materials carefully and in their entirety and submit your proxy as soon as possible so that your shares can be voted at the Meeting in accordance with your instructions. Even if you plan to attend the Meeting, you are encouraged to submit your vote promptly. You have a choice of submitting your proxy by Internet, by telephone or by mail, and the proxy card provides instructions (and access number) for each option.

 

If you have any questions or need assistance voting your shares of our common stock, please contact our proxy solicitor, at: The Proxy Advisory Group, LLC, 18 East 41st Street, Suite 2000, New York, NY 10017, (212) 616-2180.

 

  BY ORDER OF THE BOARD OF DIRECTORS
   
   
 
  Alexander Korff
  Secretary

 

New York, New York

August 3, 2018

 

PLEASE NOTE: The Meeting will be held to tabulate the votes cast and to report the results of voting on the items described above. No other business matters are planned for the meeting.

  

 

 

 

 

 

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS 1
   
SUMMARY 10
   
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA 18
   
HISTORICAL AND PRO FORMA PER SHARE DATA 20
   
ARTILIUM SHARE MARKET PRICE DATA 21
   
FORWARD-LOOKING STATEMENTS 22
   
CURRENCIES 25
   
EXCHANGE RATE INFORMATION 26
   
RISK FACTORS 27
   
THE MEETING 33
   
Date, Time and Place 33
Matters to be Considered 33
Record Date; Shares Outstanding and Entitled to Vote 34
Quorum 34
Vote Required 34
Recommendations of Our Board of Directors 34
Common Stock Ownership of Directors and Executive Officers 35
Common Stock Ownership of Pareteum Shares by Artilium 35
How to Vote Your Shares 35
How to Change Your Vote 35
Counting Your Vote 36
Solicitation of Proxies 36
Adjournment and Postponement 36
   
INFORMATION ABOUT THE ARTILIUM ACQUISITION 37
   
Overview of the Offer 37
The Combined Company 38
Information about Pareteum 38
Information about Artilium 39
Prior Contracts and Transactions Between the Parties 40
Background of the Acquisition 41
Reasons for the Acquisition 43
Certain Financial Projections and Estimated Potential Cost Synergies 45
Recommendation of Pareteum’s Board of Directors 46
Opinion of Our Financial Advisor 47
The Offer Announcement and the Scheme of Arrangement 56
The Co-operation Agreement 58
No Dissenters’ Rights 59
United States Federal Income Tax Considerations 59
Accounting Treatment 60
Irrevocable Undertakings 60
Regulatory Matters 60
   
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION 61
   
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF ARTILIUM 69
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ARTILIUM 71
   
PROPOSAL NO. 1 — SHARE ISSUANCE PROPOSAL 81

 

 i 

 

 

Proposal 81
Required Stockholder Vote and Recommendation of Our Board of Directors 81
Amount and Title of Securities to be Issued; Use of Proceeds 81
Registration Exemption; Listing of New Pareteum Shares 81
Co-operation Agreement 82
Interests of Pareteum’s Executive Officers and Directors in the Acquisition or Share Issuance 82
Impact of the Share Issuance on our Existing Stockholders 82
   
PROPOSAL NO. 2 — ELECTION OF DIRECTORS 83
   
Proposal 83
Nominees for Directors 83
Required Stockholder Vote and Recommendation of Our Board of Directors 83
   
PROPOSAL NO. 3 — EQUITY PLAN PROPOSAL 84
   
Proposal 84
Summary of the 2018 Plan 84
Equity Compensation Plan Information (as of December 31, 2017) 87
Required Stockholder Vote and Recommendation of Our Board of Directors 87
   
PROPOSAL NO. 4 — RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 88
   
Proposal 88
Fees 88
Required Stockholder Vote and Recommendation of Our Board of Directors 89
AUDIT COMMITTEE REPORT 90
   
PROPOSAL NO. 5 — ADVISORY VOTE ON EXECUTIVE COMPENSATION 91
   
Proposal 91
Required Stockholder Vote and Recommendation of Our Board of Directors 91
   
PROPOSAL NO. 6 — ADVISORY VOTE ON THE FREQUENCY OF  FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION 92
   
Proposal 92
Required Stockholder Vote and Recommendation of Our Board of Directors 92
   
PROPOSAL NO. 7 — ADJOURNMENT PROPOSAL 93
   
Proposal 93
Required Stockholder Vote and Recommendation of Our Board of Directors 93
   
DIRECTORS, AND OFFICERS AND KEY EMPLOYEES 94
   
CORPORATE GOVERNANCE 97
   
EXECUTIVE COMPENSATION 100
   
GRANT OF PLAN-BASED AWARDS 104
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 105
OPTION EXERCISES AND STOCK VESTED 107
   
DIRECTOR COMPENSATION 108
   
TRANSACTIONS WITH RELATED PERSONS 109
   
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PARETEUM 110
   
STOCKHOLDER PROPOSALS FOR THE 2019 ANNUAL MEETING 112
   
SOLICITATION 113
   
RESPONSIBILITY STATEMENT REQUIRED BY THE UK TAKEOVER CODE 114
   
MISCELLANEOUS 115

 

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WHERE YOU CAN FIND MORE INFORMATION 116
   
ARTILIUM FINANCIAL STATEMENTS F-1
   
ANNEX I – OFFER ANNOUNCEMENT I-1
   
ANNEX II – CO-OPERATION AGREEMENT II-1
   
ANNEX III – OPINION OF JEFFERIES LLC III-1
   
ANNEX IV – 2018 PLAN IV-1

 

 iii 

 

 

QUESTIONS AND ANSWERS

 

The following are some questions that you, as a Pareteum stockholder, may have about the Meeting, the Acquisition, the Pareteum share issuance or the other proposals being considered at the Meeting, as applicable, and brief answers to those questions. These questions and answers may not address all questions that may be important to you as a stockholder of Pareteum. We encourage you to read carefully the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement, and the documents we incorporate by reference in this proxy statement. You may obtain the documents and information incorporated by reference into this proxy statement without charge by following the instructions under “Where You Can Find More Information” beginning on page 116.

 

Q:Why am I receiving this proxy statement?

 

A:These proxy materials describe the proposals on which the Company would like you to vote and also give you information on these proposals so that you can make an informed decision. We are furnishing our proxy materials to all stockholders of record entitled to vote at the Meeting. As a stockholder, you are invited to attend the Meeting and are entitled and requested to vote on the proposals described in this proxy statement.

 

Q:When and where is the Meeting?

 

A:The Meeting will take place on September 13, 2018, starting at 10:00 a.m., Eastern Time, at 1185 Avenue of the Americas, 37th Floor, New York, NY 10036.

 

Q:Who is entitled to vote at the Meeting?

 

A:Only stockholders who our records show owned shares of our common stock as of the close of business on July 31, 2018, which is the record date for the Meeting, may vote at the Meeting. You will have one vote for each share of Pareteum common stock that you owned as of the record date. On the record date, we had [Outstanding Shares on Record Date] shares of common stock outstanding. Also, ordinary shares of Artilium are not entitled to vote on any matter at the Meeting. Artilium shareholders are expected to receive a separate circular and should read and respond to that document.

 

Q:How are votes counted?

 

A:Each share of our common stock entitles its holder to one vote per share.

 

Q:What is the purpose of the Meeting?

 

A:On June 7, 2018, we and Artilium released the Offer Announcement (as defined below) disclosing the terms on which we intend to make a recommended offer to acquire all of the issued and to be issued ordinary shares of Artilium in a cash and stock transaction. We refer to this recommended offer as the “Offer,” and to our potential acquisition of Artilium ordinary shares as the “Acquisition.” Under the terms of the Offer, Artilium shareholders would be entitled to receive, for each Artilium ordinary share held by such shareholders, 1.9 pence in cash and 0.1016 new shares of Pareteum common stock, par value $0.00001 per share (which we refer to as the “New Pareteum Shares”). The Acquisition is to be effected by means of a court-sanctioned scheme of arrangement between Artilium and Artilium shareholders under the UK Companies Act 2006, as amended.

 

Because our common stock is listed on the NYSE American LLC (which we refer to as the “NYSE American”), we are subject to the listing requirements of the NYSE American. Section 712(b) of the NYSE American LLC Company Manual requires stockholder approval prior to the issuance of common stock in any transaction if the common stock has, or will have upon issuance, voting power equal to or in excess of 20% of the voting power outstanding before the issuance of the common stock. The shares of common stock to be issued to shareholders of Artilium as partial consideration in the Acquisition will represent voting power in excess of 20% of the total voting power outstanding before the issuance. Therefore, under Section 712(b) of the NYSE American LLC Company Manual, stockholder approval of the share issuance is required. Accordingly, our stockholders will be asked to consider and vote on a proposal to approve this share issuance at the Meeting.

 

 1 

 

 

In addition, at the Meeting, our stockholders will consider and vote on proposals to elect directors, to approve the 2018 Long-Term Incentive Compensation Plan (the “2018 Plan”), to ratify the appointment of Squar Milner LLP (“Squar Milner” or “Squar Milner LLP”) as our independent registered accounting firm, to approve, on a non-binding advisory basis, the compensation paid to our named executive officers, to approve, on a non-binding basis, the future frequency of advisory votes on the compensation paid to our named executive officers and to adjourn the Meeting to a later date or time, if necessary or appropriate, to solicit additional proxies in the event there are insufficient votes at the time of such adjournment to approve the foregoing proposals.

 

Q:What am I being asked to vote on?

 

A:You will be voting on the following seven proposals.

 

·To approve the issuance of Pareteum common stock to shareholders of Artilium in connection with the Acquisition. Pursuant to the Acquisition, Artilium shareholders will be entitled to receive, for each Artilium ordinary share held by such shareholders, 1.9 pence in cash and 0.1016 new shares of Pareteum common stock, $0.00001 par value per share, resulting in the aggregate issuance of approximately 37,852,076 new shares of Pareteum common stock in connection with the Acquisition, consisting of (i) 35,339,548 shares issued to Artilium shareholders pursuant to the Offer, (ii) 1,975,257 shares issued to Bart Weijermars (through Grootzande Management BV) and Rupert Hutton, both officers of Artilium, pursuant to vesting share awards in connection with the Acquisition and (iii) 537,271 shares issued to Grootzande Management BV conditional on Pareteum acquiring not less than 90% of the issued share capital of Artilium pursuant to the Acquisition; following these transactions, Artilium shareholders will own approximately 35.14% of Pareteum’s fully diluted common stock, based on Pareteum and Artilium’s respective fully diluted common stock and ordinary shares outstanding as of June 6, 2018, the last business day prior to the date of the Offer Announcement. We refer to this proposal as the “Share Issuance Proposal.”

 

·A proposal to elect four directors to serve until the next annual meeting of stockholders and until their successors are duly elected and qualified.

 

·A proposal to approve the 2018 Plan, including the reservation of eight million (8,000,000) shares of common stock with a 15% annual increase to the total number of reserved shares thereunder. We refer to this proposal as the “Equity Plan Proposal.”

 

·

A proposal to ratify the appointment of Squar Milner LLP as our independent registered public accounting firm for the year ending December 31, 2018.

 

·A proposal to approve, on a non-binding advisory basis, the compensation paid to our named executive officers. We refer to this proposal as the “Say-on-Pay Proposal.”

 

·A proposal to recommend, on a non-binding advisory basis, the frequency of future advisory votes on the compensation paid to our named executive officers. We refer to this proposal as the “Say-on-Frequency Proposal.”

 

·A proposal to adjourn the Meeting to a later date or time, if necessary or appropriate, to solicit additional proxies in the event there are insufficient votes at the time of such adjournment to approve the Share Issuance Proposal or the other proposals being considered at the Meeting. We refer to this proposal as the “Adjournment Proposal.”

 

 2 

 

 

Q:Are proxies being solicited from Artilium shareholders?

 

A:No, only Pareteum stockholders’ proxies are being solicited. We are not soliciting any proxies or votes from Artilium shareholders through this proxy statement. If you are an Artilium shareholder and are not a Pareteum stockholder, you should not treat this proxy statement as any solicitation of your proxy, vote or support on any matter. If you are both a Pareteum stockholder and an Artilium shareholder, you should treat this proxy statement as soliciting only your proxy with respect to the shares of Pareteum common stock held by you and should not treat it as an offer or invitation to subscribe or purchase shares of Pareteum common stock or as a solicitation of your proxy, vote or support on any matter with respect to your Artilium ordinary shares.

 

Q:Is Pareteum stockholder approval required to complete the Acquisition?

 

A:Yes, Pareteum stockholder approval is a condition to the closing of the Acquisition; therefore, approval of the Share Issuance Proposal is required for us to complete the Acquisition. This will be the only opportunity for our stockholders to consider and vote upon the transactions contemplated in connection with the Acquisition.

 

Q:What will Pareteum provide the Artilium shareholders for their Artilium ordinary shares if the Acquisition is completed?

 

A:Artilium shareholders will be entitled to receive, for each Artilium ordinary share held by such shareholders, 0.1016 shares of Pareteum common stock and 1.9 pence in cash, which indicates an implied value of 19.55 pence per Artilium ordinary share based on Pareteum’s closing price of $2.33 and an exchange rate of $1.3413:£1.00, as of June 6, 2018, or an implied value of 24.5 pence per Artilium ordinary share based on Pareteum’s closing share price on the NYSE American of $2.92 on July 27, 2018 (being the last practicable date prior to the filing of this proxy statement) and an exchange rate of $1.3118:£1.00, as of July 27, 2018 (the last practicable date for which such information was available from the Federal Reserve prior to the filing of this proxy statement). We expect to issue approximately 37,852,076 new shares of Pareteum common stock in connection with the Acquisition, consisting of (i) 35,339,548 shares issued to Artilium shareholders pursuant to the Offer, (ii) 1,975,257 shares issued to Bart Weijermars (through Grootzande Management BV) and Rupert Hutton, both officers of Artilium, pursuant to vesting share awards in connection with the Acquisition and (iii) 537,271 shares issued to Grootzande Management BV conditional on Pareteum acquiring not less than 90% of the issued share capital of Artilium pursuant to the Acquisition. No change will be made to the exchange ratio of 0.1016 shares of Pareteum common stock and 1.9 pence in cash for each ordinary share of Artilium if the market price of shares of Pareteum common stock or ordinary shares of Artilium, or if the exchange rate changes before the completion of the Acquisition. As a result, the Dollar-denominated value of the share consideration will fluctuate with the market value of Pareteum’s common stock and the exchange rate. No consideration will be paid to Pareteum in respect of the ordinary shares of Artilium held by Pareteum immediately prior to the Acquisition.

 

Q:Why is Pareteum making the Offer?

 

A:We are making the Offer in order to acquire all of the issued and to be issued ordinary shares of Artilium. A number of strategic advantages are expected from the Acquisition. Combining Pareteum and Artilium is expected to create a leading provider of cloud communications software and services and a significant opportunity to realize the benefits of a scaled organization. Together, we believe that Pareteum and Artilium can offer customers a more complete enterprise and retail product offering, increasing penetration of the combined existing customer base and providing immediate path for cross-selling into the companies’ respective geographic markets, particularly within Northern Europe, Asia and the Americas, while creating a larger base from which to expand into new markets. In addition, the proposed combined company will have a greatly enhanced financial profile with which to access the capital markets. With an expanded product portfolio and customer base, a scaled and right-sized cost structure, and an enhanced financial profile with greater access to capital markets, the proposed combined company will provide a strong platform for acquisitions. In recommending that Pareteum’s stockholders vote in favor of the proposal to approve the issuance of Pareteum common stock to shareholders of Artilium in the Acquisition, our Board of Directors considered a number of factors that it believed supported its determination, as further described in the section entitled “Information About the Artilium Acquisition—Reasons for the Acquisition.”

 

Q:How does Pareteum’s Board of Directors recommend that I vote on the Share Issuance Proposal and the other proposals set forth in the Notice of Annual Meeting of Stockholders and the Proxy Statement?

 

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A:Our Board of Directors recommends that you vote “FOR” the Share Issuance Proposal and “FOR” the other proposals set forth in the Notice of Annual Meeting of Stockholders and the Proxy Statement.

 

Q:Do any executive officers or directors of Pareteum have interests in the Acquisition or the issuance of Pareteum common stock to Artilium shareholders that may be different from, or in addition to, those of other stockholders?

 

A:None of Pareteum’s directors or executive officers has any substantial financial interest, direct or indirect, in the Acquisition or the issuance of Pareteum common stock to Artilium shareholders as partial consideration in the Acquisition, other than being a director or executive officer and a stockholder of Pareteum.

 

Q:Does Artilium, or any of its executive officers or directors, own any Pareteum common stock?

 

A:Artilium holds 3,200,332 shares of Pareteum common stock, representing 5.85% of Pareteum's issued and outstanding share capital as of June 6, 2018, which will be cancelled on completion of the Acquisition.

 

Q:Do I have dissenters’ rights if I vote against the proposals?

 

A:There are no dissenters’ rights available to Pareteum stockholders with respect to any matter to be voted on at the Meeting.

 

Q:What are the conditions to completing the Acquisition?

 

A:The Offer Announcement contains conditions to consummating the Acquisition. The completion of the Acquisition will be conditioned upon, among other things:

 

·the approval of Share Issuance Proposal;

 

·the approval of the court-sanctioned scheme of arrangement between Artilium and Artilium shareholders under Part 26 of the UK Companies Act 2006, as amended (the “Scheme”) by the Artilium shareholders, excluding Bart Weijermars and Pareteum (collectively, the “Independent Artilium Shareholders”), representing at least 75% of the shares entitled to vote and present and voting, either in person or by proxy, at the meeting to be convened by order of the High Court of Justice of England and Wales under Part 26 of the UK Companies Act 2006, as amended (the “Court Meeting”) on or before the 22nd day after the expected date of the Court Meeting (the “Long Stop Date”) as set forth in the document sent to Artilium shareholders detailing the terms and conditions of the Scheme (the “Scheme Document”) in due course (or such later date as may be agreed between the Company and Artilium, and that the High Court of Justice of England and Wales may allow);

 

·the passing of the resolutions in connection with, among other things, the approval of the Scheme, the amendment of Artilium’s articles of association and such other matters as may be necessary to implement the Scheme, by the requisite majority at the general meeting of the Artilium shareholders (the “General Meeting”) to be held on or before the Long Stop Date (or such later date, if any, as the Company and Artilium may agree, and that the High Court of Justice of England and Wales may allow);

 

·the passing of the resolution to approve the management arrangement set forth in the Management Services Agreement (as defined below) between the Company and Bart Weijermars by the requisite majority of the Independent Artilium Shareholders at the General Meeting to be held on or before Long Stop Date (or such later date, if any, as the Company and Artilium may agree, and that the High Court of Justice of England and Wales may allow);

 

·the approval, by the NYSE American, of the listing of the New Pareteum Shares; and

 

 4 

 

 

·the sanction of the Scheme on or before the Long Stop Date (or such later date, if any, as may be agreed between the Company and Artilium, and that High Court of Justice of England and Wales may allow) and the delivery of an official copy of the court order to the Registrar of Companies in England and Wales.

 

Q:When do you expect the Acquisition to be completed?

 

A:We are working toward completing the Acquisition, which we currently expect to complete in the third quarter of 2018. However, the exact timing of completion of the Acquisition cannot be predicted because the Acquisition is subject to conditions, including adoption of the Share Issuance Proposal by our stockholders, the approval of a court-sanctioned scheme of arrangement by Artilium shareholders, the receipt of various regulatory approvals and the sanction by the High Court of Justice of England and Wales of the scheme of arrangement.

 

Q:What do I need to do now?

 

A:We encourage you to read this entire proxy statement, the annexes to this proxy statement and the documents we refer to in this proxy statement carefully and consider how the issuance of Pareteum common stock in the Acquisition and related matters affect you. Then complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying reply envelope or grant your proxy electronically over the Internet or by telephone, so that your shares can be voted at the Meeting. If you hold your shares in “street name,” please refer to the voting instruction forms provided by your broker, bank or other nominee to vote your shares.

 

Q:What quorum is required for the Meeting?

 

A:A quorum will exist at the Meeting if the holders of record of a majority of the issued and outstanding shares of Pareteum common stock are present in person or by proxy. Shares of Pareteum common stock that are voted to abstain are treated as shares that are represented at the Meeting for purposes of determining whether a quorum exists.

 

Q:Who will tabulate the votes?

 

A:Pareteum has designated a representative of Broadridge Financial Solutions as the Inspector of Election who will tabulate the votes.

 

Q:What vote is required in order for the proposals to be approved?

 

A:The following table sets forth the required vote for each proposal:

 

Proposal   Required Vote   Page
Number
(for more
details)
1. Approval of the Share Issuance Proposal   Majority of votes cast*   81
2. Election of four directors   More FOR votes than WITHELD votes   83
3. Approval of the Equity Plan Proposal   Majority of votes cast*   84
4. Ratification of the appointment of Squar Milner LLP as our independent registered public accounting firm for the year ending December 31, 2018   Majority of the shares present in person or by proxy   88
5. Approval, on a non-binding advisory basis, of the Say-on-Pay Proposal   Majority of the shares present in person or by proxy   91
6. Recommendation, on a non-binding advisory basis, of the Say-on-Frequency Proposal   The option (every one year, two years or three years) receiving the most votes will be viewed as the recommendation of the stockholders   92
7. Approval of the Adjournment Proposal   Majority of the shares present in person or by proxy   93
         

 

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*Pursuant to NYSE guidance, an abstention is treated as a vote “cast” and, therefore, will have the same effect as a vote “Against” the Share Issuance Proposal and the Equity Plan Proposal.
If the number of nominees exceeds the number of directors to be elected, the directors shall be elected by the vote of a plurality of the shares represented in person or by proxy.

 

Broker non-votes are not expected on the ratification of the appointment of our independent registered public accounting firm and will have no effect on the outcome of the votes on the other proposals. Failures of record holders to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or vote in person by ballot at the Meeting will also have no effect on the outcome of the votes.

 

Q:What are broker non-votes?

 

A:

Broker non-votes are shares held by brokers that do not have discretionary authority to vote on the matter and have not received voting instructions from their clients. Brokers holding shares of record for customers generally are not entitled to vote on “non-routine” matters, unless they receive voting instructions from their customers. If your broker holds your shares in its name and you do not instruct your broker how to vote, your broker will not have discretion to vote on the Share Issuance Proposal, the Equity Plan Proposal, the election of directors, the Say-on-Pay Proposal, the Say-on-Frequency Proposal or the Adjournment Proposal. The proposed ratification of the appointment of Squar Milner LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018 is considered a “routine” matter. Accordingly, brokers are entitled to vote uninstructed shares only with respect to the ratification of the appointment of Squar Milner LLP as our independent registered public accounting firm.

 

Q:How do I vote my shares if I am a record holder?

 

A:If you are a record holder of shares (that is, the shares are registered in your name and not the name of your broker or other nominee), you are urged to submit your proxy as soon as possible, so that your shares can be voted at the meeting in accordance with your instructions. Registered stockholders may vote in person at the Meeting, or by sending a personal representative to the Meeting with an appropriate proxy, or by one of the following methods:

 

·By Internet. Access the secure website registration page listed on your proxy card through the Internet, and follow the instructions.

 

·By Telephone. Call the toll-free telephone number at 1-800-690-6903 and follow the instructions;

 

·By Mail. You can complete, sign and date the proxy card as instructed on page www.proxyvote.com of this proxy statement and return it in the prepaid envelope provided;

 

Please note that the Internet and telephone voting facilities for registered stockholders will close at 11:59 p.m., Eastern Time, on September 12, 2018. For more information, please see “The Meeting—How to Vote Your Shares” below.

 

Q:How do I vote my shares if I hold my shares in “street name” through a bank, broker or other nominee?

 

A:If you hold your shares as a beneficial owner through a bank, broker or other nominee, you should have received instructions on how to vote your shares from your broker, bank or other nominee. Please follow their instructions carefully. You must provide voting instructions to your bank, broker or other nominee by the deadline provided in the materials you receive from your bank, broker or other nominee to ensure your shares are voted in the way you would like at the Meeting. Also, if you wish to vote in person at the Meeting, you must request a legal proxy from the bank, broker or other nominee that holds your shares and present that proxy and proof of identification at the Meeting.

 

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Q:If my bank, broker or other nominee holds my shares in “street name,” will such party vote my shares for me?

 

A:

For all “non-routine” matters, not without your direction. Your broker, bank or other nominee will be permitted to vote your shares on any “non-routine” proposal only if you instruct your broker, bank or other nominee on how to vote. Under applicable stock exchange rules, brokers, banks or other nominees have the discretion to vote your shares on routine matters if you fail to instruct your broker, bank or other nominee on how to vote your shares with respect to such matters. The proposals to be voted upon by our stockholders described in this proxy statement, except for the ratification of our independent registered public accounting firm, are “non-routine” matters, and brokers, banks and other nominees therefore cannot vote on these proposals without your instructions. The proposed ratification of the appointment of Squar Milner LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018 is considered a “routine” matter. Accordingly, brokers, banks and other nominees are entitled to vote uninstructed shares only with respect to the ratification of the appointment of Squar Milner LLP as our independent registered public accounting firm. Therefore, it is important that you instruct your broker, bank or nominee on how you wish to vote your shares.

 

You should follow the procedures provided by your broker, bank or other nominee regarding the voting of your shares of Pareteum common stock. Without instructions, a broker non-vote will result, and your shares will not be voted, on all “non-routine” matters.

 

Q:What is a proxy?

 

A:A proxy is your legal designation of another person, referred to as a “proxy,” to vote shares of stock. The written document describing the matters to be considered and voted on at the Meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of Pareteum common stock is called a “proxy card.” Our Board of Directors has designated Robert H. Turner and Laura Thomas, and each of them, with full power of substitution, as proxies for the Meeting.

 

Q:If a stockholder gives a proxy, how are the shares voted?

 

A:When proxies are properly dated, executed and returned, the shares represented by such proxies will be voted at the Meeting in accordance with the instructions of the stockholder. If no specific instructions are given on properly-executed returned proxies, however, the shares will be voted in accordance with the recommendations of our Board of Directors as described above. If any matters not described in this proxy statement are properly presented at the Meeting, the proxy holders will use their own judgment to determine how to vote your shares. If the Meeting is adjourned, the proxy holders can vote your shares on the new meeting date as well, unless you have revoked your proxy, as described below under “Can I revoke my proxy or change my vote”?

 

Q:What happens if I do not vote or return a proxy?

 

A:A quorum will exist at the Meeting only if the holders of record of a majority of the issued and outstanding shares of the capital stock of Pareteum entitled to vote at the Meeting are present in person or by proxy. Your failure to vote on the proposals, by failing to either submit a proxy or attend the Meeting if you are a stockholder of record, may result in the failure of a quorum to exist at the Meeting.

 

Q:What happens if I abstain?

 

A:If you abstain, whether by proxy or in person at the Meeting, or if you instruct your broker, bank or other nominee to abstain, your abstention will effectively be treated as a vote cast against the Share Issuance Proposal, the Equity Plan Proposal, the ratification of our independent registered public accounting firm, the Say-on-Pay Proposal and the Adjournment Proposal. Shares of Pareteum common stock that are voted to abstain are treated as shares that are represented at the Meeting for purposes of determining whether a quorum exists.

 

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Q:Can I revoke my proxy or change my vote?

 

A:You may change your vote at any time prior to the vote at the Meeting. To revoke your proxy instructions and change your vote if you are a holder of record, you must (i) vote again on a later date on the Internet or by telephone (only your latest Internet or telephone proxy submitted prior to the Meeting will be counted), (ii) advise our Secretary at our principal executive offices (1185 Avenue of the Americas, 37th Floor, New York, NY 10036) in writing before the proxy holders vote your shares, (iii) deliver later dated and signed proxy instructions (which must be received prior to the Meeting) or (iv) attend the Meeting and vote your shares in person. If you hold shares in “street name,” you should refer to the instructions you received from your broker, bank or other nominee. Attendance in and of itself at the Meeting will not revoke a proxy. For shares you hold beneficially but not of record, you may change your vote by submitting new voting instructions to your broker or nominee or, if you have obtained a valid proxy from your broker or nominee giving you the right to vote your shares, by attending the meeting and voting in person.

 

Q:If I want to attend the Meeting, what should I do?

 

A:If you wish to attend, you should come to 1185 Avenue of the Americas, 37th Floor, New York, NY 10036, at 10:00 a.m., Eastern Time, on September 13, 2018. Stockholders of record as of the record date for the Meeting can vote in person at the Meeting. If your shares are held in “street name,” then you must ask your broker, bank or other nominee how you can vote at the Meeting. In order to enter the Meeting, you must present a form of photo identification acceptable to us, such as a valid driver’s license or passport. Please note that since a street name stockholder is not the holder of record, you may not vote your shares in person at the Meeting unless you follow your broker’s procedures for obtaining a legal proxy. Even if you plan to attend the Meeting in person, we encourage you to complete, sign, date and return the enclosed proxy or vote electronically over the Internet or via telephone to ensure that your shares will be represented at the Meeting. If you attend the Meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. Please note that no management presentations or other matters are planned for the Meeting, except as described in this proxy statement.

 

Q:Who is paying for this proxy solicitation?

 

A:Pareteum will pay the cost of preparing, assembling, printing, mailing and distributing these proxy materials and soliciting votes. We may, on request, reimburse brokerage firms and other nominees for their expenses in forwarding proxy materials to beneficial owners. In addition to soliciting proxies by mail, we expect that our directors, officers and employees may solicit proxies in person, by telephone or facsimile or by email or other electronic means. None of these individuals will receive any additional or special compensation for doing this, although we will reimburse these individuals for their reasonable out-of-pocket expenses. The Company has engaged The Proxy Advisory Group, LLC, to assist in the solicitation of proxies and provide related advice and informational support, for a services fee, plus customary disbursements, which are not expected to exceed $25,000 in total.

 

Q:What should I do if I receive more than one set of voting materials?

 

A:You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, date, sign and return (or vote via the Internet or telephone with respect to) each proxy card and voting instruction card that you receive to ensure that all of your shares are counted.

 

 8 

 

 

Q:What is “householding”?

 

A:We have adopted a procedure approved by the U.S. Securities and Exchange Commission (the “SEC”) called “householding” for stockholders who have the same address and last name and do not participate in electronic delivery of proxy materials. In some instances, only one copy of the proxy materials is being delivered to multiple stockholders sharing an address, unless we have received instructions from one or more of the stockholders to continue to deliver multiple copies. This procedure reduces our printing costs and postage fees.

 

We will deliver promptly, upon oral or written request, a separate copy of the applicable materials to a stockholder at a shared address to which a single copy was delivered. If you wish to receive a separate copy of the proxy materials you may call us at (646) 810-2182, or send a written request to Pareteum Corporation, 1185 Avenue of the Americas, 37th Floor, New York, NY 10036, Attention: Secretary. If you have received only one copy of the proxy materials, and wish to receive a separate copy for each stockholder in the future, you may call us at the telephone number or write us at the address listed above. Alternatively, stockholders sharing an address who now receive multiple copies of the proxy materials may request delivery of a single copy, also by calling us at the telephone number or writing to us at the address listed above.

 

Q:Where can I find the voting results of the Meeting?

 

A:Pareteum intends to announce preliminary voting results at the Meeting and publish final results in a Current Report on Form 8-K that will be filed with the SEC following the Meeting. All reports Pareteum files with the SEC are publicly available when filed—see “Where You Can Find More Information” beginning on page 116 of this proxy statement.

 

Q:What if I have questions about lost stock certificates or need to change my mailing address?

 

A:You may contact our transfer agent, Continental Stock Transfer & Trust Company, LLC, at (800) 509-5586 (U.S.) or (212) 509-4000 (outside the U.S.), or by email at cstmail@continentalstock.com, if you have lost your stock certificate. You may email Continental Stock at cstmail@continentalstock.com if you need to change your mailing address.

 

Q:Who can help answer my additional questions about the proposals or the other matters discussed in this proxy statement?

 

A:If you have questions about the proposals or other matters discussed in this proxy statement, you may contact Pareteum by mail at 1185 Avenue of the Americas, 37th Floor, New York, NY 10036, Attention: Secretary, or you may contact Pareteum’s proxy solicitor at:

 

The Proxy Advisory Group, LLC
18 East 41st Street, Suite 2000
New York, NY 10017
(212) 616-2180

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SUMMARY

 

This summary highlights selected information also contained elsewhere in this proxy statement related to the matters upon which you are being asked to vote and may not contain all of the information important to you. You should read this entire document, its annexes and the other documents to which this proxy statement refers you to fully understand the matters upon which you are being asked to vote. Each item in this summary refers to the page on which that subject is hereinafter discussed in more detail. Except as otherwise noted or where context otherwise requires, references in this proxy statement to “Pareteum,” the “Company,” “we,” “us” and “our” refer to Pareteum Corporation and its subsidiaries and references to “Artilium” refer to Artilium plc and its subsidiaries.

 

The Board of Directors of Pareteum is soliciting proxies from its stockholders to be used at the Meeting to be held to be held at 11885 Avenue of the Americas, on September 13, 2018 at 10:00 a.m., Eastern Time, or any adjournment or postponement thereof. This proxy statement contains information related to the Meeting. This proxy statement and the accompanying form of proxy are first being sent to stockholders on or about August 13, 2018. These proxy materials also are available via the Internet at www.proxyvote.com.

 

* * * * *

 

Acquisition of Artilium and the Share Issuance Proposal

 

The Acquisition (see page 37)

 

The Offer Announcement and the Offer (see page 37 and page 56)

 

On June 7, 2018, pursuant to Rule 2.7 of the United Kingdom City Code on Takeovers and Mergers (which we refer to as the “Takeover Code”), we released an announcement (which we refer to as the “Offer Announcement”) setting forth the terms on which we intend to make a recommended offer to acquire the entire issued and to be issued ordinary shares of Artilium in a cash and stock transaction. We refer to our recommended offer as the “Offer,” and to our potential acquisition of Artilium ordinary shares as the “Acquisition.”

 

·Under the terms of the Offer, Artilium shareholders will be entitled to receive, for each Artilium ordinary share held by such shareholders, 1.9 pence in cash and 0.1016 new shares of Pareteum common stock. The Acquisition is to be effected by means of a court-sanctioned scheme of arrangement between Artilium and Artilium shareholders under the UK Companies Act 2006, as amended.

 

·As of June 6, 2018, based on Pareteum’s closing price of $2.33 per share and a market-closing currency exchange rate of $1.3413:£1.00 on that date, each Artilium ordinary share would be valued at 19.55 pence, representing an aggregate equity value for Artilium of approximately £78 million, or approximately $104.7 million.

 

·As of July 27, 2018, the most recent practicable trading day prior to the date of this proxy statement, each Artilium ordinary share would be valued at 24.5 pence, based on Pareteum’s closing share price on the NYSE American of $2.44 on July 2, 2018 (being the last practicable date prior to the filing of this proxy statement) and an exchange rate of $1.3118:£1 as of July 27, 2018 (being the last practicable date for which such information was available from the Federal Reserve prior to the printing of this proxy statement), representing an aggregate equity value for Artilium of approximately £97.8 million, or approximately $128.4 million.

 

·We expect to issue approximately 37,852,076 new shares of Pareteum common stock in connection with the Acquisition, consisting of (i) 35,339,548 shares issued to Artilium shareholders pursuant to the Offer, (ii) 1,975,257 shares issued to Bart Weijermars (through Grootzande Management BV) and Rupert Hutton, both officers of Artilium, pursuant to vesting share awards in connection with the Acquisition and (iii) 537,271 shares issued to Grootzande Management BV conditional on Pareteum acquiring not less than 90% of the issued share capital of Artilium pursuant to the Acquisition. Upon completion of the Acquisition, it is expected that Artilium shareholders will own approximately 35.14% of Pareteum’s fully diluted common stock, based on Pareteum and Artilium’s respective fully diluted common stock and ordinary shares outstanding as of June 6, 2018. The New Pareteum Shares will be authorized for listing on the NYSE American subject to official notice of issuance. Pareteum currently holds 27,695,177 ordinary shares of Artilium, which will be cancelled upon completion of the Acquisition.
 10 

 

The Combined Company (see page 38)

 

Following completion of the Acquisition, Artilium will become a wholly owned subsidiary of Pareteum, and Pareteum will continue to operate under the name “Pareteum Corporation” with corporate headquarters located in New York. Pareteum common stock will continue to be listed on the NYSE American under the ticker symbol TEUM. The Board of Directors of Pareteum will continue to consist of four members. It is expected that Hal Turner will continue to be the Executive Chairman of the Board of Directors and Principal Executive Officer of the Company, Vic Bozzo will continue to serve as Chief Executive Officer, and Ted O’Donnell will continue to serve as Chief Financial Officer.

 

The Company has also agreed that, effective upon completion of the Acquisition, Bart Weijermars, the Chief Executive Officer of Artilium, will be appointed Chief Executive Officer of Pareteum Europe BV, a wholly owned subsidiary of the Company. This appointment is subject to the terms and conditions of the Management Services Agreement, dated May 8, 2018 and as amended (the “Management Services Agreement”), between the Company and Bart Weijermars (through Grootzande Management BV). The Management Services Agreement is entirely conditional on the Company acquiring not less than 90% of the issued share capital of Artilium pursuant to the Acquisition and, thereafter, may be terminated without cause by either party on 12 months' notice.

 

Conditions to Closing of the Acquisition (see page 56)

 

The completion of the Acquisition will be conditioned upon, among other things:

 

·the approval of Share Issuance Proposal;

 

·the approval of the Scheme by Independent Artilium Shareholders representing at least 75% of the shares entitled to vote and present and voting, either in person or by proxy, at the Court Meeting, on or before the Long Stop Date (or such later date as may be agreed between the Company and Artilium, and that the High Court of Justice of England and Wales may allow);

 

·the passing of the resolutions in connection with, among other things, the approval of the Scheme, the amendment of Artilium’s articles of association and such other matters as may be necessary to implement the Scheme, by the requisite majority at the General Meeting to be held on or before the Long Stop Date (or such later date, if any, as the Company and Artilium may agree, and that the High Court of Justice of England and Wales may allow);

 

·the passing of the resolution to approve the management arrangement set forth in the Management Services Agreement between the Company and Bart Weijermars by the requisite majority of the Independent Artilium Shareholders at the General Meeting to be held on or before Long Stop Date (or such later date, if any, as the Company and Artilium may agree, and that the High Court of Justice of England and Wales may allow);

 

·the approval, by the NYSE American, of the listing of the New Pareteum Shares; and

 

·the sanction of the Scheme on or before the Long Stop Date (or such later date, if any, as may be agreed between the Company and Artilium, and that High Court of Justice of England and Wales may allow) and the delivery of an official copy of the court order to the Registrar of Companies in England and Wales.

 

The Co-operation Agreement (see page 58)

 

Pareteum and Artilium have entered into the Co-operation Agreement, pursuant to which Pareteum and Artilium have agreed to certain undertakings to co-operate and provide each other with reasonable information, assistance and access in relation to the filings, submissions and notifications to be made in relation to the regulatory clearances and authorisations that are required in connection with the Acquisition.

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Pursuant to the Co-operation Agreement, Pareteum has agreed to certain limited restrictions on its conduct of business pending the closing of the Acquisition.

 

The Co-operation Agreement records Pareteum's and Artilium's intention to implement the Acquisition by way of the Scheme, subject to the ability of Pareteum to proceed by way of a takeover offer which is subject to obtaining the consent of the UK Panel on Takeovers and Mergers (the “Panel”), if required.

 

The Co-operation Agreement may be terminated immediately if Pareteum and Artilium so agree in writing. In addition, the Co-operation Agreement shall be terminated, (i) upon written notice by Pareteum or Artilium if a condition to the implementation of the Scheme or the Acquisition may not be satisfied, (ii) if the Scheme is withdrawn or lapses (other than where such lapse or withdrawal is a result of the exercise of a right to switch to a takeover offer), (iii) if the Scheme does not become effective by the Long Stop Date, (iv) if the Artilium Board of Directors withdraws, adversely modifies or adversely qualifies their support of the Acquisition, or (v) the Pareteum Board of Directors withdraws, adversely modifies or adversely qualifies their recommendation of the Share Issuance Proposal.

 

No Dissenters’ Rights (see page 59)

 

None of our stockholders will be entitled to exercise dissenters’ rights or to demand payment for his, her or its shares of our common stock in connection with the Acquisition.

 

United States Federal Income Tax Considerations (see page 59)

 

Our stockholders will not realize gain or loss in connection with the Acquisition with respect to their shares of Pareteum common stock for United States federal income tax purposes. Stockholders are urged to consult their own tax advisors with respect to tax matters under United States federal law and the laws of any state, municipality or other taxing jurisdiction, including tax consequences resulting from such stockholder’s own tax characteristics and situation.

 

Regulatory Matters (see page 60)

 

Pareteum and Artilium have agreed to use reasonable endeavors regarding the regulatory approvals and other clearances necessary for the Acquisition as soon as reasonably practicable and in any event to enable completion of the Acquisition before the Long Stop Date. Artilium agreed to cooperate with Pareteum regarding such regulatory approvals and to assist Pareteum in communicating with any regulatory authority, including, without limitation, the SEC, NYSE American, the European Commission, and the U.S. Federal Trade Commission or the Antitrust Division of the U.S. Department of Justice. Artilium agreed to promptly provide Pareteum with such information and assistance as Pareteum may reasonably require for the purposes of obtaining all such approvals and clearances and making any submission, notification or filing to any regulatory authority.

 

Parties Involved in the Acquisition (see page 38)

 

Pareteum Corporation (see page 38)

 

Pareteum is a leading global provider of mobile communications technology platforms and high-value services that increase revenues and reduce costs for its customers globally with a Software-as-a-Service (“SaaS”) business model and a diverse customer base that ranges from small tech companies to some of the largest mobile networks in the world. Organizations use Pareteum to energize their growth and profitability through cloud communication services and complete turnkey solutions featuring relevant content, applications, and connectivity worldwide. Pareteum’s platform services partners (technologies integrated into Pareteum’s cloud) include: HPE, IBM, Sonus, Oracle, Microsoft, and other world class technology providers. All of the relevant customer acquired value is derived from Pareteum’s award winning software, developed and enhanced over many years. By harnessing the value of communications, Pareteum serves enterprise, retail and Internet of Things (“IoT”) customers. Pareteum currently has offices in New York, Sao Paulo, Madrid, Barcelona, Bahrain and the Netherlands.

 12 

 

Pareteum Corporation is a corporation incorporated under the laws of the state of Delaware. The address of our principal executive office is 1185 Avenue of the Americas, 37th Floor, New York, NY 10036, and our telephone number is (646) 810-2182. Our stock is listed for trading on the NYSE American under the ticker symbol TEUM.

 

Artilium plc (see page 39)

 

Artilium is an innovative software development company active in the enterprise communications and core telecommunication markets delivering software solutions which layer over disparate fixed, mobile and IP networks to enable the deployment of converged communication services and applications.

 

In broad terms, Artilium provides services to both telecom infrastructure customers (across Mobile Network Operators (“MNOs”), Mobile Virtual Network Operators (“MVNOs”), Mobile Virtual Network Enablers (“MVNEs”), Fixed and Alternative Operators, Hosting Providers, System Integrators and Managed Service Providers) such as Proximus and Telenet, as well as enterprise customers, such as Philips. Across products and businesses, Artilium provides services to more than 20 million end-users.

 

Artilium and Pareteum have since October 2017 benefitted from a strategic alliance entered into with the intention of jointly pursuing new and developed markets, accelerating growth and increasing market penetration for both Artilium and Pareteum.

 

Artilium’s core product offering is the ARTA® platform, a mobile enablement platform which allows network operators to open networks to third party developers and launch new services in a flexible manner. Artilium can provide its customers with a bespoke version of its ARTA Service Delivery Platform, suitably tailored for the needs of the user, or as a product suite from the cloud as a Platform as a Service (“PaaS”). 

 

The ARTA platform can support multiple configurations depending upon the requirements of the operator and/or managed services provider. For example:

 

·network operators can provide third-party developers with access to their network, allowing that third party to benefit from the rapid applications and services delivery models of the web in delivering a new wave of mobile services;

 

·cable companies innovating with “triple-play” offerings (being the classic offering of TV/broadband Internet/home phone bundles) and “quad-play” offerings (adding mobile to the “triple-play”) can deliver, monetize and manage new revenue-generating services such as pay-per-download, toll-free and premium number services, segmented mobile offerings and online self-care; and

 

·companies which are delivering connected devices, smart home solutions and other connected application are supported by the specific functionality designed for the IoT segment.  

 

Artilium's other significant trading businesses include:

 

·Interactive Digital Media GmbH (“IDM”), an international cloud communications provider headquartered in Lubeck, Germany which was acquired by Artilium in January 2018. IDM is focussed on providing enterprise messaging and communication, cost-efficient short message service (“SMS”) wholesale and application-to-person SMS hubbing directly to internet Over the Top (“OTT”) clients. Its customers include MNOs as well as large corporates. IDM is an Associate Member of the GSMA and a certified Open Connectivity Solution Provider;

 

·United Telecom NV, a provider and reseller of telecommunications services in Belgium and the Netherlands, headquartered in Rotselaar, Belgium. Its telecom operating services include the development and sale of carrier grade services for telecom service providers, including fixed, mobile, and Voice over IP (“VoIP”). United Telecom NV uses ARTA technology to provide managed services to MVNOs and enterprises, and has several of its own brands with which it offers its services directly to its customers; and

 

 13 

 

 

·Artilium BV (operating under the trade names Comsys and Livecom), which operates from Soesterberg, the Netherlands, and provides interactive telephony services, multi-channel call center solutions and value-added communication services such as voicemail, call routing, smart roaming as well as voice services to large telecommunication as well as enterprise customers. 

 

Artilium plc is a public limited company registered in England and Wales with company number 03904535. Artilium’s registered office is 9-13 St. Andrew Street, London EC4A 3AF, United Kingdom, its principal executive office is Vaartdijkstraat 19, 8200 Brugge, Belgium, and its telephone number is +32 23 03 00. The Artilium ordinary shares are traded on the AIM Market of the London Stock Exchange under the ticker symbol ARTA.

 

The Meeting (see page 33)

 

Date, Time and Place (see page 33)

 

The Meeting of Pareteum’s stockholders will be held on September 13, 2018, starting at 10:00 a.m., Eastern Time, at 1185 Avenue of the Americas, 37th Floor, New York, NY 10036.

 

Purpose (see page 33)

 

In addition to the other proposals described in this proxy statement, you will be asked to consider and vote upon the approval of the issuance of the shares of Pareteum common stock to Artilium shareholders as partial consideration in the Acquisition (referred to as the “Share Issuance Proposal”) and a proposal to adjourn the Meeting to a later date or time, if necessary or appropriate, to solicit additional proxies in the event there are insufficient votes at the time of such adjournment to approve the Share Issuance Proposal (referred to as the “Adjournment Proposal”).

 

Record Date (see page 34)

 

Only stockholders of record on July 31, 2018 will be entitled to vote at the Meeting.

 

Quorum (see page 34)

 

A quorum will exist at the Meeting if the holders of record of a majority of the issued and outstanding shares of the capital stock of Pareteum entitled to vote at the meeting are represented in person or by proxy.

 

Vote Required (see page 34)

 

Approval of the Share Issuance Proposal requires the affirmative vote of a majority of the votes cast at the Meeting, whether in person or by proxy, provided that a quorum is present. Approval of the Adjournment Proposal requires the affirmative vote of the majority of the shares present in person or by proxy, provided that a quorum is present. The approval of the Share Issuance Proposal is a condition to the closing of the Acquisition.

 

Voting of Proxies (see page 34)

 

If you are a record holder of shares of common stock of Pareteum, you may submit your proxy by telephone, via the Internet or by signing, dating and mailing your proxy card as instructed on page 6 of this proxy statement and on your proxy card. You may also vote by attending the meeting in person, or by sending a personal representative to the meeting with an appropriate proxy, in order to vote.

 

If you hold your shares as a beneficial owner through a bank, broker or other nominee, you must provide voting instructions to your bank, broker or other nominee by the deadline provided in the materials you receive from your bank, broker or other nominee to ensure your shares are voted in the way you would like at the meeting. Your bank, broker or other nominee will send you specific instructions in this regard to vote your shares.

 

 14 

 

Stockholders of record may revoke their proxies or change their votes in writing at any time prior to the meeting by sending written notice of revocation to Pareteum’s Secretary, by voting again by telephone or via the Internet, by voting in writing or by voting in person at the Meeting. For shares you hold beneficially but not of record, you may change your vote by submitting new voting instructions to your broker or nominee or, if you have obtained a valid proxy from your broker or nominee giving you the right to vote your shares, by attending the meeting and voting in person.

 

Common Stock Ownership of Directors and Executive Officers (see page 35)

 

As of the record date, the directors and executive officers of Pareteum held an aggregate of approximately 4.3% of the shares of our common stock entitled to vote at the Meeting. Pareteum currently expects that its directors and executive officers will vote their shares in favor of the Stock Issuance Proposal and the Adjournment Proposal, but none of Pareteum’s directors or executive officers have entered into any agreement obligating them to do so.

 

Common Stock Ownership of Pareteum Shares by Artilium (see page 35)

 

As of the record date, Artilium held approximately 5.1% of the shares of Pareteum common stock entitled to vote at the Meeting, which represents approximately 5.1% of the voting power necessary to approve the Share Issuance Proposal and the Adjournment Proposal (assuming the vote in person or by proxy of all outstanding shares of common stock). Pareteum currently expects Artilium to vote its shares in favor of the Stock Issuance Proposal and the Adjournment Proposal. The shares of Pareteum common stock held by Artilium will be cancelled on completion of the Acquisition.

 

Recommendations of Our Board of Directors (see page 34)

 

Based on the reasons for the recommendations discussed below in the section entitled “Information About the Artilium Acquisition—Reasons for the Acquisition,” the members of the Board of Directors of Pareteum determined that the Offer, the Acquisition and the other matters contemplated by the Offer Announcement and the Co-operation Agreement are advisable and in the best interests of Pareteum and its stockholders and have authorized and approved the Acquisition and the issuance of Pareteum common stock to Artilium shareholders in connection with the Offer and the Acquisition. The Board of Directors therefore recommends that you vote “FOR” the Share Issuance Proposal.

 

The Board of Directors also recommends that you vote “FOR” the other proposals set forth in the Notice of Annual Meeting of Stockholders and the Proxy Statement.

 

Reasons for the Acquisition (see page 43)

 

In evaluating the Acquisition, including the issuance of Pareteum common stock to shareholders of Artilium in connection with the Acquisition, our Board of Directors consulted with Pareteum’s senior management, outside legal counsel and financial advisor. In recommending that Pareteum’s stockholders vote in favor of the proposal to approve the issuance of Pareteum common stock to shareholders of Artilium in connection with the Acquisition, our Board of Directors also considered a number of factors that it believed supported its determination as further described in the section entitled “Information About the Artilium Acquisition—Reasons for the Acquisition.

 

Opinion of Our Financial Advisor (see page 47)

 

Pareteum has engaged Jefferies LLC (“Jefferies”) and certain of its affiliates as financial advisor to Pareteum in connection with the transaction. In connection with the transaction, Jefferies delivered a written opinion, dated June 6, 2018, to the Pareteum Board of Directors as to the fairness, from a financial point of view and as of such date, to Pareteum of the consideration to be paid in the transaction as set forth in the Offer Announcement. The full text of Jefferies’ opinion, which is attached as Annex III to this proxy statement and is incorporated herein by reference, describes the various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Jefferies. Jefferies’ opinion was provided for the use and benefit of the Pareteum Board of Directors (in its capacity as such) in its evaluation of the consideration from a financial point of view to Pareteum and did not address any other aspect of the transaction or any other matter. The opinion did not address the relative merits of the transaction or other transactions contemplated by the Offer Announcement as compared to any alternative transaction or opportunity that might be available to Pareteum, nor did it address the underlying business decision by Pareteum to engage in the transaction. Jefferies’ opinion does not constitute a recommendation as to how any securityholder should vote or act with respect to the transaction or any other matter. The summary of Jefferies’ opinion set forth below is qualified in its entirety by reference to the full text of Jefferies’ opinion.

 

 15 

 

 

Interests of Pareteum’s Executive Officers and Directors in the Acquisition (see page 82)

 

None of Pareteum’s directors or executive officers has any substantial financial interest, direct or indirect, in the Acquisition or the issuance of Pareteum common stock to Artilium shareholders as partial consideration in the Acquisition, other than being a director or executive officer and a stockholder of Pareteum.

 

Impact of the Share Issuance on our Existing Stockholders (see page 83)

 

If the Share Issuance Proposal is approved and the share issuance is implemented, the share issuance will dilute the ownership and voting interests of our existing stockholders. We expect to issue approximately 37,852,076 new shares of Pareteum common stock in connection with the Acquisition, consisting of (i) 35,339,548 shares issued to Artilium shareholders pursuant to the Offer, (ii) 1,975,257 shares issued to Bart Weijermars (through Grootzande Management BV) and Rupert Hutton, both officers of Artilium, pursuant to vesting share awards in connection with the Acquisition and (iii) 537,271 shares issued to Grootzande Management BV conditional on Pareteum acquiring not less than 90% of the issued share capital of Artilium pursuant to the Acquisition. Upon completion of the Acquisition, Pareteum stockholders will own approximately 64.86% and Artilium shareholders will own approximately 35.14% of Pareteum’s fully diluted common stock, based on Pareteum’s and Artilium’s respective fully diluted common stock and ordinary shares outstanding as of June 6, 2018. Therefore, the ownership and voting interests of our existing stockholders will be proportionately reduced.

 16 

 

 

Election of Directors

 

Four directors are to be elected at the Meeting to serve until the next annual meeting of Pareteum stockholders. Unless otherwise instructed, the persons named in the accompanying proxy intend to vote the shares represented by the proxy for the election of the nominees listed below. Although it is not contemplated that any nominee will decline or be unable to serve as a director, in such event, proxies will be voted by the proxy holder for such other persons as may be designated by the Board of Directors, unless the Board of Directors reduces the number of directors to be elected. The election of each director requires the affirmative vote of a majority of the shares present in person or by proxy, provided that a quorum is present. However, if the number of nominees exceeds the number of directors to be elected, the directors shall be elected by the vote of a plurality of the shares represented in person or by proxy. For purposes of the Meeting, this means that the number of shares voted “for” a director must exceed the number of votes “withheld” against such director.

 

Approval of 2018 Long-Term Incentive Compensation Plan

 

On July 30, 2018, the Board of Directors adopted the 2018 Pareteum Corporation 2018 Long-Term Incentive Compensation Plan (the “2018 Plan”), an omnibus equity incentive plan pursuant to which the Company may grant equity and equity-linked awards to officers, directors, consultants and others. The Board of Directors adopted the 2018 Plan as a means to offer incentives and attract, motivate and retain and reward persons eligible to participate in the 2018 Plan. Accordingly, the Board of Directors unanimously approved and adopted the 2018 Plan, including authorization of the issuance of 8,000,000 shares of the Company’s common stock with a15% annual increase to the total number of reserved shares. The approval of the Equity Plan Proposal requires the affirmative vote of a majority of the votes cast at the Meeting, whether in person or by proxy, provided that a quorum is present.

 

Ratification of Independent Registered Public Accounting Firm

 

The Board of Directors has appointed Squar Milner LLP of Los Angeles, California as our independent registered public accounting firm for the fiscal year 2018 and has further directed that the appointment of Squar Milner LLP be submitted to the stockholders at the Meeting for ratification. The ratification of the appointment of our independent registered public accounting firm requires the affirmative vote of the majority of shares present in person or by proxy, provided that a quorum is present.

 

Say-on-Pay Proposal

 

In 2011, the SEC adopted final rules requiring most public companies to provide stockholders with periodic advisory (non-binding) votes on executive compensation, also referred to as “say-on-pay” proposals. At the 2012 annual meeting of stockholders, the stockholders voted to hold such advisory vote every three years, starting in 2012. We last held a say-on-pay vote at our 2015 annual meeting of stockholders and are therefore now presenting our stockholders the opportunity to endorse or not endorse our equity compensation program for the named executive officers listed under “Executive Compensation” in this proxy statement by on the Say-on-Pay Proposal. The approval of the Say-on-Pay Proposal requires the affirmative vote of the majority of shares present in person or by proxy, provided that a quorum is present.

 

Say-on-Frequency Proposal

 

In 2011, the SEC also adopted final rules requiring most public companies to hold an advisory (non-binding) vote on the frequency of holding say-on-pay votes. Accordingly, as required by the SEC's rules, we are including a proposal to give our stockholders the opportunity to inform us as to how often they wish the Company to include a say-on-pay proposal, similar to the Say-on-Pay Proposal, in our proxy statements. The option (every one year, two years or three years) receiving the most votes will be viewed as the recommendation of the stockholders.

 

Adjournment Proposal

 

In the event there are insufficient votes to approve the Share Issuance Proposal or any of the other proposals being considered at the meeting, the Board of Directors has asked that the stockholders vote to adjourn the Meeting in order to solicit additional proxies. The approval of the Adjournment Proposal requires the affirmative vote of the majority of shares present in person or by proxy, provided that a quorum is present.

 

 17 

 

 

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

(in Dollars)

 

On June 7, 2018, pursuant to Rule 2.7 of the Takeover Code, Pareteum and Artilium released the Offer Announcement disclosing the terms on which Pareteum intends to make a recommended offer to acquire the issued and to be issued ordinary shares of Artilium in a cash and stock transaction. Under the terms of the Offer, Artilium shareholders will be entitled to receive, for each Artilium ordinary share held by such shareholders, 1.9 pence in cash and 0.1016 new shares of Pareteum common stock. The Acquisition is to be effected by means of a court-sanctioned scheme of arrangement between Artilium and Artilium shareholders under the UK Companies Act 2006, as amended.

 

The following selected unaudited pro forma condensed combined financial data gives effect to the Acquisition,4 which includes adjustments for the following:

 

·the conversion of Artilium’s historical financial statements from Euros to U.S. Dollars;

 

·the conversion of Artilium’s historical financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) to accounting principles generally accepted in the United States of America (“U.S. GAAP”);

 

·certain reclassifications to conform Artilium’s historical financial statement presentation to Pareteum’s, presentation; and

  

·

transaction costs in connection with the Acquisition.

 

The following selected unaudited pro forma condensed combined financial data are based on and should be read in conjunction with (i) the historical consolidated financial statements of Pareteum and the related notes included in Pareteum’s Annual Report on Form 10-K for the year ended December 31, 2017 which was filed with the SEC on March 30, 2018 and the historical unaudited consolidated financial statements of Pareteum and related notes included in Pareteum’s Quarterly report on Form 10-Q for the period ended March 31, 2018 which was filed with the SEC on May 11, 2018, each of which is incorporated by reference in this document, and (ii) the audited consolidated financial statements of Artilium for the years ended June 30, 2017 and 2016 and the related notes and the unaudited condensed consolidated financial statements of Artilium for each of the nine months ended March 31, 2018 and March 31, 2017, and related notes contained therein.

 

The selected unaudited pro forma condensed combined financial data combines the historical consolidated statements of income of Pareteum and Artilium, giving effect to the Acquisition as if it had been completed on January 1, 2017. The selected unaudited pro forma condensed combined balance sheet data combines the historical condensed combined statements of financial position of Pareteum and Artilium, giving effect to the Acquisition as if it had been completed on March 31, 2018.

 

The historical consolidated financial information has been adjusted in the pro forma financial data to give effect to pro forma events that are (i) directly attributable to the Acquisition, (ii) factually supportable and (iii) with respect to the unaudited pro forma condensed combined statements of income, expected to have a continuing effect on the combined results of Pareteum and Artilium.

 

 

 

 18 

 

 

The selected unaudited pro forma condensed combined financial data is being provided for illustrative purposes only and do not purport to represent what the combined company’s actual results of operations or financial position would have been had the Acquisition been completed on the dates indicated, nor are they necessarily indicative of the combined company’s future results of operations or financial position for any future period.

 

The pro forma adjustments are based upon available information and certain assumptions as described in the accompanying notes to the unaudited pro forma condensed combined financial information which management believes are reasonable under the circumstances. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information.

  

Selected Unaudited Pro Forma Condensed Combined Statement of Operations Data

(in Dollars)

 

   Unaudited Combined
Condensed Pro Forma
 
   For the three
months ended
March 31,
2018
   For the
year ended
December 31,
2017
 
Statement of Operations Data        
Revenue  $10,496,004    25,793,993 
Network fees and other costs   4,521,400    6,627,528 
Selling, general and administrative   15,404,437    36,183,682 
           
           
Loss from operations   (9,429,833)   (17,017,217)
Interest expense – net   (74,666)   (5,134,505)
Non-operating income (expense)   (250,330)   1,322,312 
           
Loss before taxes   (9,754,830)   (20,829,411)
Provision (benefit) for income taxes   (61,653)   (193,803)
           
Net Loss   (9,693,177)   (20,635,608)
Other Gains/Losses   (934,959)   1,921,499 
           
Comprehensive loss attributable to Pareteum Corporation   (10,628,136)   (18,714,109)

 

Selected Unaudited Pro Forma Condensed Combined Balance Sheet Data

(in Dollars)

 

   Unaudited
Combined
Condensed Pro
Forma
   Unaudited
Combined
Condensed
Pro Forma
 
   As of 
March 31,
2018
   As of
December 31,
2017
 
         
Cash and cash equivalents   3,257,874    1,769,540 
Total assets   128,215,464    124,064,848 
Total long-term liabilities   7,274,664    7,252,753 
Total equity   106,171,028    104,605,910 

 

 19 

 

 

HISTORICAL AND PRO FORMA PER SHARE DATA

 

The table set forth below depicts the basic and diluted earnings per share, cash dividends declared per share and book value per share for (a) Pareteum and Artilium on a historical basis, (b) the combination of Pareteum and Artilium on a pro forma combined basis and (c) Artilium’s equivalent pro forma net earnings and book value per share attributable to 0.1016 of a share of Pareteum common stock that would have been received for each Artilium ordinary share exchanged in the Acquisition, based on the average and ending exchange rates for the period. For a discussion regarding the basis of presentation, assumptions used and adjustments made in preparing the pro forma financial information presented in this proxy statement see the section entitled “Unaudited Pro Forma Condensed Combined Financial Information.”

 

Artilium’s financial statements have historically been prepared in accordance with IFRS, which differs from U.S. GAAP. See the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” for descriptions of pro forma adjustments.

 

The following table should be read in connection with the section of this proxy statement entitled “Unaudited Pro Forma Condensed Combined Financial Information” and other information included in or incorporated by reference into this proxy statement. This information is unaudited and is presented for illustrative purposes only.

 

   As of and for the
three months
ended
March 31, 2018
   As of and for the
year ended
December 31,
2017
 
Pareteum historical data          
Earnings per share from continuing operations:          
Basic   (0.04)   (0.84)
Diluted   (0.04)   (0.84)
Cash dividends declared per share   N/A    N/A 
Book value per share   0.34    0.94 
           
Artilium historical data          
Earnings per share from continuing operations (eurocents)          
Basic   (0.17)   (0.37)
Diluted   (0.17)   (0.37)
Cash dividends declared per share   N/A    N/A 
Book value per share   0.06    0.06 
           
Pro Forma data        
Earnings per share from continuing operations (dollars)          
Basic   (0.22)   (0.38)
Diluted   (0.22)   (0.38)
Cash dividends declared per share   N/A    N/A 
Book value per share   1.21    1.93 

 

 20 

 

 

ARTILIUM SHARE MARKET PRICE DATA

 

The following table sets forth, for the fiscal periods indicated, the actual historic intra-day high and low sales prices for the ordinary shares of Artilium plc as reported on the AIM Market of the London Stock Exchange. The Artilium ordinary shares are traded on the AIM Market of the London Stock Exchange under the ticker symbol ARTA.

 

   AIM Market of the
London Stock Exchange
(in pounds)
 
   High   Low 
Fiscal Year ended June 30, 2016        
First Quarter   0.0625    0.0525 
Second Quarter   0.0575    0.0438 
Third Quarter   0.0575    0.0500 
Fourth Quarter   0.0588    0.0536 
           
Fiscal year ended June 30, 2017          
First Quarter   0.0638    0.0500 
Second Quarter   0.0700    0.0638 
Third Quarter   0.0700    0.0663 
Fourth Quarter   0.0750    0.0680 
           
Fiscal year ended June 30, 2018          
First Quarter   0.0820    0.0750 
Second Quarter   0.1200    0.0785 
Third Quarter   0.1500    0.1200 

Fourth Quarter (through June 29, 2018)

   0.1875    0.1465 

 

On June 6, 2018 (the last day before the Offer Announcement), the closing price per Artilium ordinary share on the AIM Market of the London Stock Exchange was 16.5 pence. On July 27, 2018 (the last practicable date prior to the printing of this proxy statement) the closing price per Artilium ordinary share on the AIM Market of the London Stock Exchange was 20 pence.

 

 21 

 

 

FORWARD-LOOKING STATEMENTS

 

This proxy statement, including the documents incorporated by reference herein, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (which we refer to as the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events. Our actual results may differ materially from those discussed herein, or implied by, these forward-looking statements. Forward-looking statements are generally identified by words such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “plan,” “project,” “should,” “will,” “would,” “could,” “continue,” “likely” or the negative or plural of such words and other similar expressions. In addition, any statements that refer to expectations or other characterizations of future events or circumstances are forward-looking statements. The statements that contain these or similar words should be read carefully because these statements discuss our future expectations, contain projections of our future results of operations or of our financial position, business strategy, short-term and long-term business operations and objectives, financial needs and other “forward-looking” information. Pareteum Corporation believes that it is important to communicate our future expectations to our stockholders. However, there may be events in the future that we are not able to accurately predict or control. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk Factors” section of this proxy statement. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

 

Factors that could cause actual results to differ from those discussed in the forward-looking statements included in this proxy statement or our other filings with the SEC include, but are not necessarily limited to:

 

Factors Relating to the Acquisition and Share Issuance Proposal

 

·the risk that the Acquisition is not completed on a timely basis or at all;

 

·the ability to integrate Artilium into our business successfully and the amount of time and expense spent and incurred in connection with the integration;

 

·the possibility that competing offers will be made;

 

·the risk that the economic benefits and other synergies that we anticipate as a result of the Acquisition are not fully realized or take longer to realize than expected;

 

·the risk that certain risks and liabilities associated with the Acquisition have not been discovered;

 

·the risk that the approval of Artilium shareholders of the Acquisition or the approval of Pareteum stockholders of the Share Issuance Proposal may not be obtained or that other conditions of the Acquisition will not be satisfied;

 

·liabilities that might arise and limitations under the Co-operation Agreement;

 

·the impact of the issuance of our common stock as partial consideration in the Acquisition on our current holders of our common stock, including dilution of their ownership and voting interests;

 

·adverse effects on the market price of our common stock caused by the sale of such stock held by Artilium shareholders following the Acquisition;

 

·the possibility that stockholders will file lawsuits challenging the Acquisition, including actions seeking to rescind the scheme of arrangement or enjoin the consummation of the Acquisition;

 

 22 

 

 

·changes in relevant tax and other laws or regulations;

 

·the diversion of Company management time and attention to issues relating to the Acquisition and integration;

 

·operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) occurring prior to completion of the Acquisition or if the Acquisition is not completed;

 

·the difficulty retaining certain of our or Artilium’s key employees as a result of the announcement or implementation of the Acquisition;

 

·the scope, timing and outcome of any ongoing legal proceedings involving us or Artilium and the impact of any such proceedings on the Acquisition or on our financial condition, results of operations and/or cash flows;

 

·the possibility that costs, fees, expenses or charges that we incur in connection with the Acquisition are greater than expected;

 

·the possibility that fluctuations in currency exchange rates could increase the cash consideration we are required to pay in order to complete the Acquisition;

 

·changes in the economic and financial conditions of our or Artilium’s businesses;

 

·the effect of the Acquisition on our and Artilium’s relationships with our and their respective clients, customers, vendors and personnel;

 

·adverse effects on the market price of our common stock and on our operating results because of a failure to complete the Acquisition;

 

·failure to safeguard data;

 

·product demand fluctuations;

 

·competitive activity;

 

·failure to achieve productivity improvements or cost reductions;

 

·failure to retain relationships with key suppliers, sponsors and others;

 

·increased churn or changes in underlying contractual terms or economics with merchants, referral partners or independent sales organizations;

 

·potential systems interruptions or failures;

 

·potential software defects or undetected errors;

 

·changes in senior management;

 

·regulatory action or issues;

 

·political, economic and regulatory changes;

 

·Pareteum’s ability to execute its strategy, including by increasing its share of existing markets and expanding into new markets;

 

·litigation;

 

 23 

 

 

·strikes; and

 

·labor cost changes.

 

Factors Relating to our Business Generally

 

·risks and uncertainties associated with the integration of the assets and operations we may acquire in the future;

 

·our possible inability to generate additional funds that will be necessary to expand our operations;

 

·our potential lack of revenue growth;

 

·our potential inability to maintain compliance with the listing standards of the NYSE American;

 

·our potential inability to continue as a going concern;

 

·our potential inability to add new products and services that will be necessary to generate increased sales;

 

·our potential lack of cash flows;

 

·our potential loss of key personnel;

 

·the availability of qualified personnel;

 

·international, national regional and local economic political changes;

 

·general economic and market conditions;

 

·increases in operating expenses associated with the growth of our operations;

 

·the possibility of telecommunications rate changes and technological changes;

 

·the potential for increased competition; and

 

·other unanticipated factors.

 

The foregoing does not represent an exhaustive list of risks. Please see the section entitled “Risk Factors” beginning on page 9 and in our Annual Report on Form 10-K for the year ended December 31, 2017, and other reports we have filed with the SEC since December 31, 2017, which are incorporated by reference herein. See the section entitled “Where You Can Find More Information” beginning on page 116 for more information about the documents incorporated by reference into this proxy statement.

 

All of our forward-looking statements should be considered in light of these factors. There may be additional risks that neither we nor Artilium presently know or that we and Artilium currently believe are immaterial that could also cause actual results to differ from those contained in the forward-looking statements. In addition, forward-looking statements provide our and Artilium’s expectations, plans or forecasts of future events and views as of the date of this proxy statement. We and Artilium anticipate that subsequent events and developments will cause our and Artilium’s assessments to change. Any forward-looking statements in this proxy statement are not guarantees of future performance, and actual results, developments and business decisions may differ from those contemplated by those forward-looking statements, possibly materially. Accordingly, you should not place undue reliance on any such forward-looking statements.

 

All forward-looking statements included in this proxy statement are based on information available to us on the date of this proxy statement. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this proxy statement.

 

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CURRENCIES

 

In this proxy statement, unless otherwise specified or the context otherwise requires:

 

·“Euro,” “€,” or “EUR” each refer to the lawful currency of the countries within the currency union of the European Union;

 

·“Pounds Sterling,” “Pounds,” “£,” “Pence” or “p” each refer to the lawful currency of the United Kingdom; and

 

·“U.S. Dollars,” “Dollars,” “$” or “USD” each refer to the lawful currency of the United States.

 

We publish our financial statements in U.S. Dollars and Artilium publishes its financial statements in Euros and Artilium’s ordinary shares are traded on the AIM Market of the London Stock Exchange in Pence. See the section entitled “Exchange Rate Information” for additional information regarding the exchange rates.

 

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EXCHANGE RATE INFORMATION

 

U.S. Dollars per Euro

 

The following table shows, for the periods indicated, information concerning the exchange rate between U.S. Dollars and Euros. The information in the following table is expressed in U.S. Dollars per Euro and sets forth the noon buying rates in New York City for cable transfers in foreign currencies for customs purposes, as published by the “Federal Reserve Bank of New York.” The average rate means the average of the exchange rates of each day of the period.

 

On July 27, 2018 (being the last practicable date for which such information was available prior to the filing of this proxy statement), the exchange rate, based on the noon buying rate in New York City for cable transfers in foreign currencies for customs purposes by the Federal Reserve Bank of New York was $1.1660 per €1.00. The average rate for the year 2018 up to July 27, 2018 was $1.2048 per €1.00. These translations should not be construed as a representation that the U.S. Dollar amounts actually represent, or could be converted into, Euros at the rates indicated.

 

   Period-end
rate USD
   Average
rate USD
   High USD   Low USD 
Recent monthly data                    
July 2018   1.1660    1.1682    1.1744    1.1604 
June 2018   1.1677    1.1679    1.1815    1.1577 
May 2018   1.1670    1.1823    1.2000    1.1551 
April 2018   1.2074    1.2270    1.2384    1.2074 
March 2018   1.2320    1.2334    1.2440    1.2216 
February 2018   1.2211    1.2340    1.2482    1.2211 
January 2018   1.2428    1.2197    1.2488    1.1922 
December 2017   1.2022    1.1836    1.2022    1.1725 
November 2017   1.1898    1.1743    1.1936    1.1577 
October 2017   1.1648    1.1755    1.1847    1.1580 
September 2017   1.1813    1.1913    1.2041    1.1747 
August 2017   1.1894    1.1813    1.2025    1.1703 
July 2017   1.1826    1.1530    1.1826    1.1336 
June 2017   1.1411    1.1233    1.1420    1.1124 
May 2017   1.1236    1.1050    1.1236    1.0869 
                     
Annual Data (year ended December 31)                    
2017   1.2022    1.1301    1.2041    1.0416 
2016   1.0552    1.1072    1.1516    1.0375 
2015   1.0859    1.1096    1.2015    1.0524 
2014   1.2101    1.3297    1.3927    1.2101 
2013   1.3779    1.3281    1.3816    1.2774 

  

U.S. Dollars per Pound Sterling

 

The following table shows, for the periods indicated, information concerning the exchange rate between U.S. Dollars and Pound Sterling. The information in the following table is expressed in U.S. Dollars per Pound Sterling and sets forth the noon buying rates in New York City for cable transfers in foreign currencies for customs purposes, as published by the “Federal Reserve Bank of New York.” The average rate means the average of the exchange rates of each day of the period.

 

On July 27, 2018 (being the last practicable date for which such information was available prior to the printing of this proxy statement), the exchange rate, based on the noon buying rate in New York City for cable transfers in foreign currencies for customs purposes by the Federal Reserve Bank of New York was $1.3118per £1.00. The average rate for the year 2018 up to July 27, 2018 was $1.3685 per £1.00. These translations should not be construed as a representation that the U.S. Dollar amounts actually represent, or could be converted into, Pound Sterling at the rates indicated.

 

   Period-end
rate USD
   Average
rate USD
   High USD   Low USD 
Recent monthly data                    
July 2018   1.3118    1.3165    1.3266    1.2987 
June 2018 (through June 29, 2018)   1.3197    1.3294    1.3429    1.3095 
May 2018   1.3289    1.3470    1.3611    1.3258 
April 2018   1.3751    1.4079    1.4332    1.3751 
March 2018   1.4027    1.3976    1.4236    1.3755 
February 2018   1.3794    1.3961    1.4247    1.3794 
January 2018   1.4190    1.3824    1.4264    1.3513 
December 2017   1.3529    1.3404    1.3529    1.3316 
November 2017   1.3506    1.3217    1.3506    1.3067 
October 2017   1.3281    1.3202    1.3304    1.3063 
September 2017   1.3402    1.3340    1.3578    1.2972 
August 2017   1.2888    1.2952    1.3236    1.2787 
July 2017   1.3196    1.2996    1.3196    1.2851 
June 2017   1.2995    1.2810    1.2995    1.2628 
May 2017   1.2905    1.2929    1.3018    1.2795 
                     
Annual Data (year ended December 31)                    
2017   1.3529    1.2890    1.3578    1.2118 
2016   1.2337    1.3555    1.4800    1.2155 
2015   1.4746    1.5284    1.5882    1.4648 
2014   1.5578    1.6484    1.7165    1.5517 
2013   1.6574    1.5642    1.6574    1.4837 

 

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RISK FACTORS

 

In addition to the other information incorporated by reference or included in this proxy statement, including the risks identified in our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 30, 2018 and the matters addressed in the section of this proxy statement entitled “Forward-Looking Statements,” you should carefully consider the following risks before deciding how to vote on the proposals presented at the Meeting. The risks and uncertainties described below are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. The risks below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements, discussed further below in the section entitled “Forward-Looking Statements.”

 

We may fail to realize the anticipated benefits and operating synergies expected from the Acquisition, which could adversely affect our business, financial condition and operating results.

 

The success of the Acquisition will depend, in significant part, on our ability to successfully integrate the acquired business, grow the revenue of the combined company and realize the anticipated strategic benefits and synergies from the combination. We believe that the addition of Artilium will complement our strategy by providing scale and revenue diversity, accelerate our growth strategy and enable us to have a strong global footprint. Achieving these goals requires growth of the revenue of the combined company and realization of the targeted operating synergies expected from the Acquisition. This growth and the anticipated benefits of the transaction may not be realized fully or at all, or may take longer to realize than we expect. Actual operating, technological, strategic and revenue opportunities, if achieved at all, may be less significant than we expect or may take longer to achieve than anticipated. If we are not able to achieve these objectives and realize the anticipated benefits and synergies expected from the Acquisition within a reasonable time, our business, financial condition and operating results may be adversely affected.

 

The Acquisition will result in significant integration costs and any material delays or unanticipated additional expenses may harm our business, financial condition and results of operations.

 

The complexity and magnitude of the integration effort associated with the Acquisition are significant and require that we fund significant capital and operating expenses to support the integration of the combined operations. Such expenses have included significant transaction, consulting and third party service fees. We have incurred and expect to continue to incur additional operating expenses as we build up internal resources or engage third party providers while we integrate the combined company following the Acquisition. In addition to these transition costs, we have incurred and expect to continue to incur increased expenses relating to, among other things, restructuring. Any material delays, difficulties or unanticipated additional expenses associated with integration activities may harm our business, financial conditions and results of operations.

 

We may not be able to integrate Artilium into the combined company successfully or achieve the benefits of the combination originally anticipated by management.

 

Our Acquisition of Artilium involves the integration of two businesses that previously operated independently. The integration of the departments, systems, business units, operating procedures and information technologies of the two businesses will present a significant challenge to management. There can be no assurance that we will be able to integrate and manage these operations effectively. The failure to successfully integrate the two businesses in a timely manner, or at all, could have an adverse effect on our business, financial condition and results of operations. The difficulties of combining Pareteum with Artilium include:

 

·the necessity of coordinating geographically separated organizations;

 

·implementing common systems and controls;

 

·integrating personnel with diverse business backgrounds;

 

·the challenges in developing new products and services that optimize the assets and resources of the two businesses;
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·integrating the businesses’ technology and products;

 

·combining different corporate cultures;

 

·unanticipated expenses related to integration, including technical and operational integration;

 

·increased fixed costs and unanticipated liabilities that may affect operating results;

 

·retaining key employees; and

 

·retaining and maintaining relationships with existing customers, distributors and other partners.

 

Also, the process of integrating operations could cause an interruption of, or loss of momentum in, the activities of one or both of us and Artilium. The diversion of management’s attention and any delays or difficulties encountered in connection with the integration of the operations could have an adverse effect on our business, financial condition and results of operations.

 

The Acquisition may expose us to significant unanticipated liabilities that could adversely affect our business, financial condition and results of operations.

 

Our Acquisition of Artilium may expose us to significant unanticipated liabilities relating to the operation of the combined company. These liabilities could include employment or severance-related obligations under applicable law or other benefits arrangements, legal claims, warranty or similar liabilities to customers, and claims by or amounts owed to vendors. Particularly in international jurisdictions, our acquisition of Artilium, or our decision to independently enter new international markets where Artilium previously conducted business, could also expose us to tax liabilities and other amounts owed by Artilium. The incurrence of such unforeseen or unanticipated liabilities, should they be significant, could have a material adverse effect on our business, financial condition and results of operations.

 

The complexity of the integration and transition associated with the Acquisition, together with Artilium’s increased scale and global presence, may affect our internal control over financial reporting and our ability to effectively and timely report our financial results.

 

The additional scale of Artilium’s operations, together with the complexity of the integration effort, including changes to or implementation of critical information technology systems, may adversely affect our ability to report our financial results on a timely basis. In addition, we will have to train new employees and third party providers, and assume operations in jurisdictions where we have not previously had operations. We expect that the Acquisition may necessitate significant modifications to our internal control systems, processes and information systems, both on a transition basis and over the longer-term as we fully integrate the combined company. Due to the complexity of the Acquisition, we cannot be certain that changes to our internal control over financial reporting will be effective for any period, or on an ongoing basis. If we are unable to accurately report our financial results in a timely manner, or are unable to assert that our internal controls over financial reporting are effective, our business, financial condition and results of operations and the market perception thereof may be materially adversely affected.

 

Certain of Artilium’s agreements may contain change of control provisions which, if not waived, would have material adverse effects on the combined company.

 

Artilium is a party to various agreements with third parties, including certain financing agreements, service contracts, IT contracts and technology licenses that may contain change of control provisions that will be triggered upon the completion of the Acquisition. Agreements with change of control provisions typically provide for or permit the termination of the agreement upon the occurrence of a change of control of one of the parties which can be waived by the relevant counterparties. If Pareteum and Artilium determine that one or more such waivers are necessary, Artilium will make reasonable efforts to seek and obtain these waivers. Although the combined company believes the likelihood of a material consent being withheld is low, there can be no assurance that such consent will be obtained at all or on favorable terms. The inability to obtain waivers from more than one relevant counterparty could have a material adverse effect on the combined company.

 

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The pro forma financial information may not be an indication of the combined company’s financial condition or results of operations following the transaction.

 

The pro forma financial information contained in this document is intended to illustrate the effect of the proposed Acquisition. The pro forma financial statements have been derived from (i) the unaudited consolidated financial statements for the three months ended March 31, 2018 and the audited consolidated financial statements of Pareteum for the year ended December 31, 2017, which have been prepared in accordance with U.S. GAAP and are included elsewhere in this document and (ii) the unaudited condensed consolidated financial statements for the nine months ended March 31, 2018 and the audited consolidated financial statements of Artilium for the year ended June 30, 2017, which have been prepared in accordance with IFRS and included elsewhere in this document. The financial information from these Artilium consolidated financial statements has been converted to U.S. GAAP, restated using Pareteum’s accounting policies and translated into U.S. Dollars for the purposes of presentation in the unaudited pro forma financial information. Adjustments and assumptions have been made regarding the combined company after giving effect to the transaction. The information upon which these adjustments and assumptions has been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with accuracy. Moreover, the pro forma financial information does not reflect all costs that are expected to be incurred by the combined company in connection with the transaction. For these and other reasons, the actual business, financial condition and results of operations of the combined company following the transaction may not be consistent with, or evident from, this pro forma financial information.

 

The assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect the combined company’s business, financial condition or results of operations following the transaction. Any decline or potential decline in the combined company’s business, financial condition or results of operations may cause significant variations in Pareteum’s share price.

 

Stockholders in the combined company will be more exposed to currency exchange rate fluctuations as, following completion of the Acquisition, there will be an increased proportion of assets, liabilities and earnings denominated in foreign currencies.

 

As a result of the Acquisition, the financial results of the combined company will be more exposed to currency exchange rate fluctuations and an increased proportion of assets, liabilities and earnings will be denominated in non-U.S. Dollar currencies. The combined company will present its financial statements in U.S. Dollars and will have a significant proportion of net assets and income in non-U.S. Dollar currencies, primarily the Pound Sterling and the Euro. The combined company’s financial condition and results of operation will therefore be sensitive to movements in foreign exchange rates. A depreciation of non-U.S. Dollar currencies relative to the U.S. Dollar could have an adverse impact on the combined company’s financial results.

 

Brexit and political uncertainty in the United Kingdom and Europe could adversely affect revenue and results of operations of the combined company.

 

Artilium has significant operations in the United Kingdom. The June 2016 referendum supporting the exit of the United Kingdom from the European Union, or Brexit, is causing significant political uncertainty in both the United Kingdom and the European Union. The impact of Brexit and the resulting effect on the political and economic future of the United Kingdom and the European Union is uncertain, and the Artilium business may be adversely affected in ways we do not currently anticipate. Brexit may result in a significant change in the British regulatory environment, which may increase the compliance costs of the combined company. We may find it more difficult to conduct business in the United Kingdom and the European Union, as Brexit may result in increased restrictions on the movement of capital, goods and personnel. Depending on the outcome of negotiations between the United Kingdom and the European Union regarding the terms of Brexit, we may decide to alter the combined company’s European operations to respond to the new business, legal, regulatory, tax and trade environments that may result. Brexit may materially and adversely affect our relationships with customers, suppliers and employees and could result in decreased revenue, increased expenses, higher tariffs and taxes, and lower earnings and cash flow.

 

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The Takeover Code restricts Pareteum’s ability to cause Artilium to consummate the Acquisition and limits the relief Pareteum may obtain in the event Artilium’s Board of Directors withdraws its support of the Acquisition.

 

The Takeover Code limits the contractual commitments that may be obtained from Artilium to take actions in furtherance of the Acquisition, and Artilium’s Board of Directors may, if its fiduciary duties so require, withdraw its recommendation in support for the Acquisition, and withdraw the scheme of arrangement, at any time prior to the scheme of arrangement becoming effective. The Takeover Code does not permit Artilium to pay any break fee to Pareteum if the Artilium Board of Directors does so, nor can Artilium be subject to any restrictions on soliciting or negotiating other offers or transactions involving Artilium other than the restrictions that arise under the Takeover Code against undertaking actions or entering into agreements which might frustrate Pareteum’s takeover offer for Artilium.

 

The Acquisition is subject to various closing conditions, including governmental, regulatory and shareholder approvals, as well as other uncertainties, and there can be no assurances as to whether or when it may be completed. Failure to consummate the Acquisition could negatively impact our stock price and our future business and financial results.

 

The consummation of the Acquisition is subject to certain customary conditions. A number of the conditions are not within our control, and it is possible that such conditions may prevent, delay or otherwise materially adversely affect the completion of the Acquisition. As described elsewhere in this proxy statement, these conditions include, among other things: (i) the approval of the Share Issuance Proposal by a majority of votes cast by Pareteum stockholders at the Meeting by no later than the Long Stop Date; (ii) the approval of the scheme of arrangement by a majority in number representing not less than 75% in value of the Artilium shareholders entitled to vote and present and voting, either in person or by proxy, at the Court Meeting, as amended; (iii) the passing of the resolutions in connection with, among other things, the approval of the scheme of arrangement, the amendment of Artilium’s articles of association and such other matters as may be necessary to implement the scheme of arrangement, by the requisite majority at the general meeting of Artilium shareholders; (iv) the passing of the resolution to approve the management arrangement set forth in the Management Services Agreement between the Company and Bart Weijermars by the requisite majority of the Independent Artilium Shareholders at the general meeting of Artilium shareholders; (v) the approval of the listing of the New Pareteum Shares by the NYSE American by no later than the Long Stop Date; and (vi) the Court sanction of the scheme of arrangement.

 

We cannot predict with certainty whether and when any of the remaining required conditions will be satisfied or if another uncertainty may arise. If the Acquisition does not receive, or timely receive, the required approvals and clearances, or if another event occurs that delays or prevents the Acquisition, such delay or failure to complete the Acquisition and the acquisition process may cause uncertainty or other negative consequences that may materially and adversely affect our business, financial condition and results of operations and, to the extent that the current price of our shares reflects an assumption that the Acquisition will be completed, the price per share of Pareteum could be negatively impacted.

 

Even if a material adverse change to Artilium’s business or prospects were to occur prior to closing, we may not be able to invoke the offer conditions and terminate the Acquisition, which could reduce the value of our common stock.

 

Under the Takeover Code, and except for a limited number of conditions, such as the approval of the Share Issuance Proposal and the Artilium shareholder approval (or the minimum acceptance condition if the Acquisition is implemented by way of a takeover offer directly by Pareteum or indirectly through a subsidiary or nominee of Pareteum) we may invoke a condition to the Acquisition to cause the Acquisition not to proceed only if the Panel is satisfied that the circumstances giving rise to that condition not being satisfied are of material significance to Pareteum in the context of the Acquisition. Because of this Panel consent requirement, the conditions, including as to a material adverse change affecting Artilium, may provide us less protection than the customary conditions in an offer for a U.S. domestic company.

 

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Issuance of shares of our common stock in connection with the Acquisition will reduce our existing stockholders’ aggregate ownership and voting interest in Pareteum and may adversely affect the market price of our common stock.

 

In connection with the payment of the Acquisition consideration, we expect to issue approximately 37,852,076 new shares of Pareteum common stock in connection with the Acquisition, consisting of (i) 35,339,548 shares issued to Artilium shareholders pursuant to the Offer, (ii) 1,975,257 shares issued to Bart Weijermars (through Grootzande Management BV) and Rupert Hutton, both officers of Artilium, pursuant to vesting share awards in connection with the Acquisition and (iii) 537,271 shares issued to Grootzande Management BV conditional on Pareteum acquiring not less than 90% of the issued share capital of Artilium pursuant to the Acquisition. The issuance of these new shares of our common stock will reduce our existing stockholders’ ownership and voting interest in Pareteum and, as a result, our existing stockholders, individually and in the aggregate, will be able to exert less influence. The issuance of the New Pareteum Shares may also result in fluctuations in the market price of Pareteum common stock, including a stock price decrease.

 

The value of the Pareteum common stock generally may fluctuate significantly.

 

Following the completion of the Acquisition, the value of the New Pareteum Shares, as with shares of Pareteum common stock generally, may fluctuate significantly as a result of a large number of factors as well as period-to-period variations in operating results or changes in revenue or profit estimates by Pareteum, industry participants or financial analysts. The market price of Pareteum common stock could be negatively affected by sales of substantial amounts of shares in the public market or the perception or any announcement that such sales could occur. We cannot predict what effect, if any, this would have on the market price of Pareteum common stock. The value of shares of Pareteum common stock could also be affected by developments unrelated to our operating performance, such as the operating and share price performance of other companies that investors may consider comparable to Pareteum, speculation about Pareteum in the press or the investment community, strategic actions by competitors, including acquisitions or restructurings, changes in market conditions and regulatory changes in any number of countries, whether or not we derive significant revenue therefrom, and shifts in macroeconomic or geopolitical conditions generally. The occurrence of any of these events could adversely affect the market price of Pareteum common stock and investors may find it more difficult to sell their shares of Pareteum common stock at a time and price which they deem appropriate, or at all.

 

Following completion of the Acquisition, our international operations will be subject to the laws and regulations of the United States and many foreign countries. Failure to comply with these laws may affect our ability to conduct business in certain countries and may affect our financial performance.

 

We and Artilium are, and, following completion of the Acquisition, will be, subject to a variety of laws regarding our international operations, including the U.S. Foreign Corrupt Practices Act, the UK Bribery Act and regulations issued by U.S. Customs and Border Protection, the U.S. Bureau of Industry and Security, and the regulations of various foreign governmental and regulatory agencies. We cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted. In addition, actual or alleged violations of these laws could result in enforcement actions and financial penalties that could result in substantial costs. The occurrence of any of the foregoing could have a material and adverse effect on our business, financial condition and results of operations.

 

Following completion of the Acquisition, we will be subject to specific risks associated with international operations.

 

Revenues derived from international operations following completion of the Acquisition are subject to risks inherent in doing business outside the U.S. These risks include:

 

·economic or political instability;

 

·partial or total expropriation of international assets;

 

·trade protection measures, including tariffs or import-export restrictions;

 

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·restrictions on currency repatriation;

 

·significant adverse changes in taxation policies or other laws or regulations; and

 

·the disruption of operations from political disturbances, terrorist activities, insurrection or war.

 

If any of these risks were to materialize, they may have a material adverse effect on our business, financial condition and results of operations.

 

We must attract and retain skilled personnel. If the combined company is unable to hire and retain technical, technical sales and operational employees, our business could be harmed.

 

Our ability to successfully integrate with Artilium will be particularly dependent on our ability to develop and retain an effective sales force and qualified technical and managerial personnel. We need software development specialists with in-depth knowledge of a blend of IT and telecommunications or with a blend of security and telecom. The competition for qualified technical sales, technical, and managerial personnel in the communications and software industry is intense in the markets where we operate, and we may not be able to hire and retain sufficient qualified personnel. In addition, we may not be able to maintain the quality of our operations, control our costs, maintain compliance with all applicable regulations, and expand our internal management, technical, information and accounting systems in order to support our integration and desired growth, which could have an adverse impact on our operations. Volatility in the stock market and other factors could diminish our use, and the value, of our equity awards as incentives to employees, putting us at a competitive disadvantage when trying to attract and retain skilled personnel.

 

The pursuit and integration of additional acquisitions may not provide the benefits originally anticipated by management and may distract the attention of our personnel from the operation of our business and our integration with Artilium.

 

We strive to broaden our solutions offerings as well as to increase the number of subscribers hosted on our platforms, volume of voice and data that we carry over our existing global network in order to reduce transmission costs and other operating costs as a percentage of net revenue, improve margins, improve service quality and enhance our ability to introduce new products and services. From time to time, while we continue to integrate our operations with Artilium, we may seek strategic acquisitions in desired markets that play a part of our growth strategy. Acquisitions of businesses and customer lists involve the allocation of significant resources in addition to operational risks, including the possibility that an acquisition may not ultimately provide the benefits originally anticipated by management. There may be difficulty in integrating technologies and solutions, in migrating customer bases and in integrating the service offerings, distribution channels and networks gained through acquisitions with our own. Successful integration of operations and technologies requires the dedication of management and other personnel, which may distract their attention from the day-to-day business, the development or acquisition of new technologies, the pursuit of other business acquisition opportunities and our integration with Artilium.

 

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THE MEETING

 

We are furnishing this proxy statement to our stockholders as part of the solicitation of proxies by our Board of Directors for use at the Meeting of stockholders to be held on September 13, 2018, and at any adjournment, postponement or continuation thereof. This document is first being mailed to our stockholders on or about August 13, 2018.

 

Date, Time and Place

 

The Meeting of Pareteum’s stockholders will be held on September 13, 2018, starting at 10:00 a.m., Eastern Time, at 1185 Avenue of the Americas, 37th Floor, New York, NY 10036.

 

Matters to be Considered

 

The purpose of the Meeting is for Pareteum stockholders to consider and vote on the following proposals.

 

Proposal No. 1

The Share Issuance

Proposal

 

To approve the issuance of shares of Pareteum common stock to shareholders of Artilium in connection with the proposed acquisition of Artilium by Pareteum. Pursuant to the proposed acquisition, Artilium shareholders will be entitled to receive, for each Artilium ordinary share held by such shareholders, 1.9 pence in cash and 0.1016 new shares of Pareteum common stock, resulting in the issuance of approximately 37,852,076 new shares of Pareteum common stock in connection with the Acquisition, consisting of (i) 35,339,548 shares issued to Artilium shareholders pursuant to the Offer, (ii) 1,975,257 shares issued to Bart Weijermars (through Grootzande Management BV) and Rupert Hutton, both officers of Artilium, pursuant to vesting share awards in connection with the Acquisition and (iii) 537,271 shares issued to Grootzande Management BV conditional on Pareteum acquiring not less than 90% of the issued share capital of Artilium pursuant to the Acquisition. Upon completion of the Acquisition, it is expected that Artilium shareholders will own approximately 35.14% of Pareteum’s fully diluted common stock, based on Pareteum and Artilium’s respective fully diluted common stock and ordinary shares outstanding as of June 6, 2018, the last business day prior to the date of the Offer Announcement.

 

Proposal No. 2

The Election of Directors

 

  To elect four directors to serve until the next annual meeting of stockholders and until their successors are duly elected and qualified.

Proposal No. 3

The Equity Plan Proposal

 

  To approve the 2018 Long-Term Incentive Compensation Plan, including the reservation of eight million (8,000,000) shares of common stock with a 15% annual increase to the total number of reserved shares thereunder.
     

Proposal No. 4

Ratification of Independent Registered Public Accounting Firm

  To ratify the appointment of Squar Milner LLP as our independent registered public accounting firm for the year ending December 31, 2018.
     

Proposal No. 5

The Say-on-Pay Proposal

  To approve, on a non-binding advisory basis, the compensation paid to our named executive officers.
     

Proposal No. 6

The Say-on-Frequency Proposal

  To recommend, on a non-binding advisory basis, the frequency of future advisory votes on the compensation paid to our named executive officers.
     

Proposal No. 7

The Adjournment Proposal

  To adjourn the Meeting to a later date or time, if necessary or appropriate, to solicit additional proxies in the event there are insufficient votes at the time of such adjournment to approve the Share Issuance Proposal or the other proposals.

 

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Record Date; Shares Outstanding and Entitled to Vote

 

The close of business on July 31, 2018, has been fixed as the record date for determining those Pareteum stockholders entitled to notice of and to vote at the Meeting and any adjournment or postponement of the Meeting. As of the close of business on the record date for the Meeting, there were 59,021,651 shares of Pareteum common stock, held by 3,947 holders of record. Each share of Pareteum common stock entitles its holder to one vote at the Meeting on all matters properly presented at the Meeting.

 

Quorum

 

A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist at the Meeting if shares having a majority of the votes entitled to be cast are represented in person or by proxy. Shares of Pareteum common stock that are voted to abstain are treated as shares that are represented at the Meeting for purposes of determining whether a quorum exists. Broker non-votes do not count for voting purposes, but are considered “present” at the meeting for purposes of determining whether a quorum exists.

 

Vote Required

 

Approval of each of the Share Issuance Proposal and the Adjournment Proposal requires the affirmative vote of a majority of the votes cast at the Meeting, whether in person or by proxy, provided that a quorum is present. The Equity Plan Proposal, the ratification of the appointment of our independent registered public accounting firm and the Say-on-Pay Proposal each requires the affirmative vote of a majority of the shares present in person or by proxy, provided that a quorum is present. The election of each director requires more “for” votes than “withheld” votes, provided that a quorum is present. However, if the number of nominees exceeds the number of directors to be elected, the directors shall be elected by the vote of a plurality of the shares represented in person or by proxy. In the Say-on-Frequency Proposal, the option (every one year, two years or three years) receiving the most votes will be viewed as the recommendation of the stockholders.

 

An abstention is effectively treated as a vote cast against the Share Issuance Proposal, the Equity Plan Proposal, the ratification of our independent registered public accounting firm, the Say-on-Pay Proposal and the Adjournment Proposal. Abstentions will have no impact on the election of directors or the Say-on-Frequency Proposal. Failures of record holders to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote in person by ballot at the Meeting will have no effect on the outcome of the votes for such items, although such failure may contribute to a quorum not being present at such meeting. Broker non-votes will have no effect on the outcome of the votes for all proposals except for the ratification of the appointment of our independent registered public accounting firm, for which we do not expect any broker non-votes.

 

The approval of the Share Issuance Proposal is required for Pareteum to complete the Acquisition and issue shares as partial consideration in the Acquisition. If the Share Issuance Proposal is not approved, the Acquisition may not be completed.

 

Recommendations of Our Board of Directors

 

Based on the reasons for the recommendations discussed below in the section entitled “Information About the Artilium Acquisition—Reasons for the Acquisition”, the members of the Board of Directors of Pareteum determined that the Offer, the Acquisition and the other matters contemplated by the Offer Announcement and the Co-operation Agreement are advisable and in the best interests of Pareteum and its stockholders and have authorized and approved the Acquisition and the issuance of Pareteum common stock to Artilium shareholders in connection with the Offer and the Acquisition. The Board of Directors therefore recommends that you vote “FOR” the Share Issuance Proposal.

 

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The Board of Directors also recommends that you vote “FOR” the other proposals set forth in the Notice of Annual Meeting of Stockholders and the Proxy Statement.

 

Common Stock Ownership of Directors and Executive Officers

 

As of the record date, our directors and executive officers held an aggregate of approximately 4.3% of the shares of Pareteum common stock entitled to vote at the Meeting, which represents approximately 4.3% of the voting power necessary to approve the Share Issuance Proposal and the Adjournment Proposal (assuming the vote in person or by proxy of all outstanding shares of common stock). Pareteum currently expects Pareteum’s directors and executive officers to vote their shares in favor of the Stock Issuance Proposal and the Adjournment Proposal, but none of Pareteum’s directors or executive officers have entered into any agreement obligating them to do so.

 

Common Stock Ownership of Pareteum Shares by Artilium

 

As of the record date, Artilium held approximately 5.1% of the shares of Pareteum common stock entitled to vote at the Meeting, which represents approximately 5.1% of the voting power necessary to approve the Share Issuance Proposal and the Adjournment Proposal (assuming the vote in person or by proxy of all outstanding shares of common stock). Pareteum currently expects Artilium to vote its shares in favor of the Stock Issuance Proposal and the Adjournment Proposal. The shares of Pareteum common stock held by Artilium will be cancelled on completion of the Acquisition.

 

How to Vote Your Shares

 

Stockholders of record may submit a proxy via the Internet, by telephone or by mail, or they may vote by attending the Meeting and voting in person.

 

·Submitting a Proxy via the Internet: You may submit a proxy for your shares via the Internet until 11:59 p.m. Eastern Time on the day before the meeting date by accessing the website listed on your proxy card and following the instructions you will find on the website. As with telephone proxy submission, you should have the proxy card for reference when initiating the process, as you will be required to enter the unique voter control number imprinted thereon. If you submit a proxy via the Internet, you do not need to return your proxy card.

 

·Submitting a Proxy by Telephone: You may submit a proxy for your shares by telephone until 11:59 p.m. Eastern Time on the day before the meeting date by calling 1-800-690-6903 on a touch-tone telephone and following the menu instructions provided. There is no charge for this call. You should have the proxy card for reference when initiating the process, as you will be required to enter the unique voter control number imprinted thereon. If you submit a proxy by telephone, you do not need to return your proxy card.

 

·Submitting a Proxy by Mail: If you choose to submit a proxy for your shares by mail, simply mark the enclosed proxy card, date and sign it, and return it in the postage paid envelope provided.

 

·Attending the Meeting: If you are a stockholder of record, you may attend the Meeting and vote in person. In order to enter the Meeting, you must present a form of photo identification acceptable to us, such as a valid driver’s license or passport.

 

If your shares are held in the name of a broker, bank or other nominee, you will receive instructions from the stockholder of record that you must follow for your shares to be voted. Please follow their instructions carefully. Also, please note that if the stockholder of record of your shares is a broker, bank or other nominee and you wish to vote in person at the Meeting, you must request a legal proxy from the broker, bank or other nominee that holds your shares and present that proxy and proof of identification at the Meeting.

 

How to Change Your Vote

 

If you are the stockholder of record, you may revoke your proxy or change your vote prior to your shares being voted at the Meeting by:

 

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·sending a written notice of revocation or a duly executed proxy card, in either case, dated later than the prior proxy card relating to the same shares, to Pareteum Corporation, 1185 Avenue of the Americas, 37th Floor, New York, NY 10036, Attention: Secretary;

 

·submitting a proxy at a later date by telephone or via the Internet, if you have previously voted by telephone or via the Internet in connection with the Meeting; or

 

·attending the Meeting and voting in person.

 

If you are the beneficial owner of shares held in the name of a broker, bank or other nominee, you may change your vote by:

 

·submitting new voting instructions to your broker, bank or other nominee in a timely manner following the voting procedures received from your broker, bank or other nominee; or

 

·attending the Meeting and voting in person, if you have obtained a valid proxy from the broker, bank or other nominee that holds your shares giving you the right to vote the shares.

 

Attendance at the Meeting will not, in and of itself, constitute revocation of a proxy. See the section entitled “—How to Vote Your Shares” above for information regarding certain voting deadlines.

 

Counting Your Vote

 

All properly executed proxies delivered and not properly revoked will be voted at the Meeting as specified in such proxies. If you provide specific voting instructions, your shares of Pareteum common stock will be voted as instructed. If you hold shares in your name and sign and return a proxy card or submit a proxy by telephone or via the Internet without giving specific voting instructions, your shares will be voted “FOR” the Share Issuance Proposal and “FOR” the other proposals set forth in the Notice of Annual Meeting of Stockholders and the Proxy Statement.

 

Proxies solicited may be voted only at the Meeting and any adjournment or postponement of the Meeting and will not be used for any other meeting.

 

Solicitation of Proxies

 

The total expense of this solicitation will be borne by Pareteum, including reimbursement paid to brokerage firms and others for their expenses in forwarding material regarding the Meeting to beneficial owners. Solicitation of proxies may be made personally or by mail, telephone, internet, e-mail or facsimile by officers and other selected employees of Pareteum, who will receive no additional compensation for their services. The Company has engaged The Proxy Advisory Group, LLC, to assist in the solicitation of proxies and provide related advice and informational support, for a services fee, plus customary disbursements, which are not expected to exceed $25,000 in total.

 

Adjournment and Postponement

 

Although it is not currently expected, the Meeting may be adjourned or postponed for the purpose of soliciting additional proxies. Any signed proxies received by Pareteum in which no voting instructions are provided on such matter will be voted “FOR” the Adjournment Proposal. Any adjournment or postponement of the Meeting for the purpose of soliciting additional proxies will allow stockholders who have already sent in their proxies to revoke them at any time prior to their use at the Meeting as adjourned or postponed.

 

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INFORMATION ABOUT THE ARTILIUM ACQUISITION

 

The following summary describes certain material terms of, and documents and agreements related to, the Acquisition, including the Offer, the Offer Announcement and the Co-operation Agreement. This summary is not complete and it is qualified in its entirety by reference to the annexes to this proxy statement, including the Offer Announcement and the Co-operation Agreement, which are attached as Annex I and Annex II to this proxy statement, respectively, and the other documents and agreements that are incorporated herein by reference.

 

We urge you to read this entire proxy statement and the annexes to this proxy statement carefully and in their entirety, as this summary may not contain all of the information that is important to you regarding the Acquisition and related matters.

 

Overview of the Offer

 

Under the terms of the Offer, holders of ordinary shares of Artilium will be entitled to receive, for each ordinary share held, 1.9 pence in cash and 0.1016 shares of Pareteum common stock. The Offer is to be effected by means of a court-sanctioned scheme of arrangement under Part 26 of the UK Companies Act 2006, as amended. In connection with the Acquisition, Pareteum and Artilium entered into a Co-operation Agreement that governs certain obligations of the parties with respect to the Offer and the Acquisition.

 

Based on Pareteum’s closing share price on the NYSE American of $2.33, and the exchange rate of $1.3413:£1.00, in each case at 10:00 p.m. London time on June 6, 2018 (being the last practicable date prior to the Offer Announcement), the Offer:

 

·valued each Artilium ordinary share at 19.55 pence per share;

 

·valued the entire issued and to be issued ordinary share capital of Artilium at approximately £78.0 million, or approximately $104.7 million; and

 

·represented a premium of approximately 18.48% to the closing price per Artilium ordinary share on the AIM Market of the London Stock Exchange of 16.50 pence on June 6, 2018 (the day before the Offer Announcement).

 

Based on Pareteum’s closing share price on the NYSE American of $2.92 on July 27, 2018 (being the last practicable date prior to the filing of proxy statement), and the exchange rate of $1.3118:£1, on July 27, 2018 (being the last practicable date for which such information was available prior to the printing of this proxy statement), the Offer:

 

·valued each Artilium ordinary share at 24.5 pence per share;

 

·valued the entire issued and to be issued ordinary share capital of Artilium at approximately £97.8 million, or approximately $128.4 million; and

 

·represented a premium of approximately 25.4% to the closing price per Artilium ordinary share on the AIM Market of the London Stock Exchange of 16.5 pence on June 6, 2018 (the day before the Offer Announcement).

 

The closing of the Acquisition is conditioned on the receipt of certain required regulatory and other approvals. Additional conditions to the closing of the Acquisition are discussed further below in the sections entitled “—The Offer Announcement and the Scheme of Arrangement—Conditions to the Acquisition.”

 

It is expected that a document setting out the particulars required by section 897 of the UK Companies Act 2006, as amended, will be made available to Artilium shareholders at around the same time as the mailing of this proxy statement, as described more fully in the Offer Announcement. We refer to this document as the “Scheme Document.” The Acquisition is conditioned on, among other things: (i) the approval of the Share Issuance Proposal by a majority of votes cast by Pareteum stockholders at the Meeting by no later than the Long Stop Date; (ii) the approval of the scheme of arrangement by a majority in number representing not less than 75% in value of the Artilium shareholders entitled to vote and present and voting, either in person or by proxy, at the Court Meeting; (iii) the passing of the resolutions in connection with, among other things, the approval of the scheme of arrangement, the amendment of Artilium’s articles of association and such other matters as may be necessary to implement the scheme of arrangement, by the requisite majority at the general meeting of Artilium shareholders; (iv) the approval of the listing of the New Pareteum Shares by the NYSE American by no later than the Long Stop Date; and (v) the Court sanction of the scheme of arrangement.

 

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The Combined Company

 

Following completion of the Acquisition, Artilium will become a wholly owned subsidiary of Pareteum, and Pareteum will continue to operate under the name “Pareteum Corporation” with corporate headquarters located in New York. Pareteum common stock will continue to be listed on the NYSE American under the ticker symbol TEUM. The Board of Directors of Pareteum will continue to consist of four members. It is expected that Hal Turner will continue to be the Executive Chairman of the Board of Directors and Principal Executive Officer of the Company, Vic Bozzo will continue to serve as Chief Executive Officer, and Ted O’Donnell will continue to serve as Chief Financial Officer.

 

The Company has also agreed that, effective upon completion of the Acquisition, Bart Weijermars, the Chief Executive Officer of Artilium, will be appointed Chief Executive Officer of Pareteum Europe BV, a wholly owned subsidiary of the Company. This appointment is subject to the terms and conditions of the Management Services Agreement, which is entirely conditional on the Company acquiring not less than 90% of the issued share capital of Artilium pursuant to the Acquisition and, thereafter, may be terminated without cause by either party on 12 months' notice.

 

The terms of the Management Services Agreement include, among other things:

 

·a gross base rate of pay of €240,000 per annum;

 

·a discretionary bonus of 50% of the base rate of pay per annum (€120,000), of which: (i) 50% (€60,000) is related to the performance of the Company; and (ii) 50% (€60,000) is related to the performance of Artilium; with such ratios subject to review after the initial 12 months following the completion of the Acquisition; and

 

·an initial grant of stock options to be awarded under the Company’s long-term incentive compensation plan in an amount determined in accordance with the terms and conditions of the Management Services Agreement, subject to: (i) approval by the Company’s stockholders of the Pareteum long-term incentive compensation plan, from time to time; (ii) the approval of the Pareteum Board of Directors; and (iii) the general terms and conditions of the Pareteum long-term incentive compensation plan.

 

On June 7, 2018, in connection with the Offer, the Company and Bart Weijermars (acting through Grootzande Management BV) executed an amendment to the Management Services Agreement setting out the terms on which the Company will issue 537,271 shares of common stock to Grootzande Management BV conditional on the Company acquiring not less than 90% of the issued share capital of Artilium pursuant to the Acquisition, or as soon as practicable thereafter.

 

Information about Pareteum

 

Pareteum is a leading global provider of mobile communications technology platforms and high-value services that increase revenues and reduce costs for its customers globally with a SaaS business model and a diverse customer base that ranges from small tech companies to some of the largest mobile networks in the world. Organizations use Pareteum to energize their growth and profitability through cloud communication services and complete turnkey solutions featuring relevant content, applications, and connectivity worldwide. Pareteum’s platform services partners (technologies integrated into Pareteum’s cloud) include: HPE, IBM, Sonus, Oracle, Microsoft, and other world class technology providers. All of the relevant customer acquired value is derived from Pareteum’s award winning software, developed and enhanced over many years. By harnessing the value of communications, Pareteum serves enterprise, retail and IoT customers. Pareteum currently has offices in New York, Sao Paulo, Madrid, Barcelona, Bahrain and the Netherlands.

 

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Pareteum Corporation is a corporation incorporated under the laws of the state of Delaware. The address of our principal executive office is 1185 Avenue of the Americas, 37th Floor, New York, NY 10036, and our telephone number is (646) 810-2182. Our stock is listed for trading on the NYSE American under the ticker symbol TEUM.

 

Information about Artilium

 

Artilium is an innovative software development company active in the enterprise communications and core telecommunication markets delivering software solutions which layer over disparate fixed, mobile and IP networks to enable the deployment of converged communication services and applications.

 

In broad terms, Artilium provides services to both telecom infrastructure customers (across MNOs, MVNOs, MVNEs, Fixed and Alternative Operators, Hosting Providers, System Integrators and Managed Service Providers) such as Proximus and Telenet, as well as enterprise customers, such as Philips. Across products and businesses, Artilium provides services to more than 20 million end-users.

 

Artilium’s core product offering is the ARTA® platform, a mobile enablement platform which allows network operators to open networks to third party developers and launch new services in a flexible manner. Artilium can provide its customers with a bespoke version of its ARTA Service Delivery Platform, suitably tailored for the needs of the user, or as a product suite from the cloud as a PaaS. 

 

The ARTA platform can support multiple configurations depending upon the requirements of the operator and/or managed services provider. For example:

 

·network operators can provide third-party developers with access to their network, allowing that third party to benefit from the rapid applications and services delivery models of the web in delivering a new wave of mobile services;

 

·cable companies innovating with “triple-play” offerings (being the classic offering of TV/broadband Internet/home phone bundles) and “quad-play” offerings (adding mobile to the “triple-play”) can deliver, monetize and manage new revenue-generating services such as pay-per-download, toll-free and premium number services, segmented mobile offerings and online self-care; and

 

·companies which are delivering connected devices, smart home solutions and other connected application are supported by the specific functionality designed for the IoT segment.  

 

Artilium Group's other significant trading businesses include:

 

·IDM, an international cloud communications provider headquartered in Lubeck, Germany which was acquired by Artilium in January 2018. IDM is focussed on providing enterprise messaging and communication, cost-efficient SMS wholesale and application-to-person SMS hubbing directly to internet OTT clients. Its customers include MNOs as well as large corporates. IDM is an Associate Member of the GSMA and a certified Open Connectivity Solution Provider;

 

·United Telecom NV, a provider and reseller of telecommunications services in Belgium and the Netherlands, headquartered in Rotselaar, Belgium. Its telecom operating services include the development and sale of carrier grade services for telecom service providers, including fixed, mobile, and VoIP. United Telecom NV uses ARTA technology to provide managed services to MVNOs and enterprises, and has several of its own brands with which it offers its services directly to its customers; and

 

·Artilium BV (operating under the trade names Comsys and Livecom), which operates from Soesterberg, the Netherlands, and provides interactive telephony services, multi-channel call center solutions and value-added communication services such as voicemail, call routing, smart roaming as well as voice services to large telecommunication as well as enterprise customers. 

 

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Artilium plc is a public limited company registered in England and Wales with company number 03904535. Artilium’s registered office is 9-13 St. Andrew Street, London EC4A 3AF, United Kingdom, its principal executive office is Vaartdijkstraat 19, 8200 Brugge, Belgium, and its telephone number is +32 23 03 00. The Artilium ordinary shares are traded on the AIM Market of the London Stock Exchange under the ticker symbol ARTA.

 

Prior Contracts and Transactions Between the Parties

 

Artilium and Pareteum have since October 2017 benefitted from a strategic alliance entered into with the intention of jointly pursuing new and developed markets, accelerating growth and increasing market penetration for both Artilium and Pareteum.

 

On October 16, 2017, Pareteum entered into a Strategic Alliance Agreement (which we refer to as the “Strategic Alliance Agreement”) with Artilium for the mutual pursuit of joint commercial opportunities. Pursuant to the Strategic Alliance Agreement, the parties may enter into a project agreement to provide their technological solutions (which we refer to as the “Solutions”) to a customer. The project agreement shall stipulate, among other things: (i) which party will take the lead in preparing and submitting any appropriate proposal, RFP and/or tender documentation; (ii) which party will be the prime or principal contractor and which party will take a joint or sub-contracting responsibility; (iii) which party is responsible for which aspects of which of the Solutions or project (in accordance with an opportunity registration form, which is included as an appendix to the project agreement); (iv) commercial and financial provisions (in accordance with the commercial framework and the opportunity registration form, which are included as appendices to the project agreement); (v) the standard terms and conditions of supply of Solutions to the customer; as well as, if applicable (vi) a price list of Solutions and other terms and conditions governing the same.

 

Pursuant to the project agreement, the parties submit a proposal in response to a customer’s tender, which will define the parties’ respective rights and obligations during the submission of the proposal to the customer. In the months since entering into the Strategic Alliance Agreement, Pareteum and Artilium have collaborated on at least 18 opportunities, resulting in seven sales wins and an increasing pipeline of potential deals to pursue. Pareteum estimates that over $65 million has been added to its 36-month contractual revenue backlog as a direct result of the engagement. The two management teams have also worked well together and proven to be highly complementary.

 

In conjunction with the Strategic Alliance Agreement, on October 16, 2017, Pareteum entered into a share exchange agreement with Artilium. Pursuant to the exchange agreement, Artilium agreed to issue and deliver to Pareteum an aggregate of 27,695,177 of its newly issued ordinary shares in exchange for 3,200,332 restricted shares of Pareteum common stock. The exchange transactions closed on October 16, 2017. As of June 6, 2018, Pareteum owned approximately 7.800]% of the issued share capital of Artilium, and Artilium owned approximately 5.85% of the issued and outstanding shares of Pareteum common stock. On completion of the Acquisition, the shares of Pareteum common stock held by Artilium will be cancelled, and no consideration will be paid to Pareteum in respect of the ordinary shares of Artilium held by Pareteum immediately prior to the Acquisition.

 

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Background of the Acquisition

 

The Pareteum Board of Directors and management periodically, and in the ordinary course of business, review Pareteum’s results of operations, business strategy, growth plans and alternatives in the context of the current business and economic environment as well as ongoing developments in the cloud communications industry. From time to time, the Pareteum Board of Directors and management have explored and evaluated potential acquisitions, business combinations and other strategic transactions designed to, among other things, expand Pareteum’s product and service offerings, diversify its businesses, increase its scale and enhance the company’s long-term value.

 

Pareteum’s management team has held informal communications with Artilium and other companies from time to time, and Pareteum and Artilium were generally familiar with the respective businesses and operations of each other. In October 2016, members of the respective management teams met to discuss a potential strategic alliance and/or other transaction between the two companies. Throughout 2017, Pareteum’s management continued to evaluate the business and operations of Artilium as well as potential benefits of a strategic transaction, given the industry, customers and complementary territories in which the two companies operated. The respective management teams of Pareteum and Artilium also continued to engage in discussions from time to time regarding potential strategic opportunities, and regularly updated the members of their respective boards of directors on the status of these communications.

 

In October 2017, the Pareteum Board of Directors approved the entry by Pareteum into a strategic alliance and share exchange with Artilium. On that basis, on October 16, 2017, Pareteum entered into the Strategic Alliance Agreement with Artilium for the mutual pursuit of joint commercial opportunities in cloud communications services and solutions. The strategic alliance was developed to jointly pursue new and developed markets, accelerate growth and increase market penetration for both Artilium and Pareteum. In the months since the alliance was launched, the two companies collaborated on at least 18 opportunities, resulting in seven sales wins and an increasing pipeline of potential deals to pursue. Pareteum estimates that over $65 million has been added to its 36-month contractual revenue backlog as a direct result of the engagement.

 

Through these collaborations, Pareteum and Artilium have recognized the strong strategic rationale for and potential benefits that could be realized from a combination of the two companies, and their respective management teams have periodically had discussions regarding a potential transaction. The respective management teams of Pareteum and Artilium have worked well together and proven to be highly complementary in these collaborations.

 

Also in conjunction with the Strategic Alliance Agreement, on October 16, 2017, Pareteum and Artilium entered into a share exchange agreement, pursuant to which, Artilium issued and delivered to Pareteum an aggregate of 27,695,177 of its newly issued ordinary shares in exchange for 3,200,332 restricted shares of Pareteum common stock.

 

On January 31, 2018, Pareteum and Artilium executed a confidentiality agreement, and the parties and certain of their representatives began reviewing certain preliminary information regarding each other’s businesses.

 

Each of Pareteum and Artilium commenced due diligence with respect to the other and engaged in discussions regarding the business case for a combined company, including potential synergies expected to result from the combination.

 

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During March 2018, Pareteum, with the assistance of its legal advisor, Hogan Lovells International LLP (together with Hogan Lovells US LLP, “Hogan Lovells”), and financial advisor, Jefferies, began preparing a draft of the Offer Announcement. On March 27, 2018, a draft of the Offer Announcement was sent to Artilium and its legal advisor, Addleshaw Goddard LLP (“Addleshaw Goddard”). On April 11, 2018, on behalf of Pareteum, Hogan Lovells circulated a draft of the Co-operation Agreement to Artilium and Addleshaw Goddard. The parties proceeded to discuss and negotiate the terms of these documents and other related documents over the course of the next few months, participating in several conference calls and meetings. Points of negotiation with respect to the Offer Announcement included, among other things, the form and amount of the consideration to be paid by Pareteum, certain restrictions on the operation of Pareteum between the Offer Announcement and closing of the Acquisition, conditions to the closing of the Acquisition, and the cash confirmation and escrow arrangement. With respect to the Co-operation Agreement, Pareteum and Artilium discussed, among other things, the nature of Artilium’s cooperation requirements regarding regulatory matters, confirmations relating to Artilium’s employee benefit trust and the scope of certain share options of Artilium’s directors that would be triggered by the Acquisition and other transaction-related matters.

 

During this time, Pareteum, with the assistance of its legal advisor, also negotiated the terms of the irrevocable undertakings with Artilium and certain Artilium shareholders, pursuant to which such Artilium parties stated their intention to vote all of their Artilium shares in favor of the Scheme and other Artilium shareholder resolutions required to complete the Acquisition. Each of Pareteum and Artilium also continued to perform due diligence with respect to the other.

 

On May 8, 2018, Pareteum and Bart Weijermars (acting through Grootzande Management BV) entered into the Management Services Agreement, the terms of which are entirely conditional on Pareteum acquiring not less than 90% of the issued share capital of Artilium pursuant to the Acquisition.

 

On May 31, 2018, the Pareteum Board of Directors held a meeting, together with representatives of Pareteum’s management and legal and financial advisors. Among other matters, the Board of Directors reviewed substantially final drafts of, and discussed with representatives of management and Hogan Lovells the contemplated terms of, the Offer Announcement, the Co-operation Agreement, irrevocable undertakings, the responsibility statement and duties of directors, an escrow arrangement for the cash component of consideration and other matters related to the Offer. Jefferies discussed preliminary financial aspects of the Offer. Following discussion, the Board of Directors determined that the terms of the Offer would be 0.1016 of a share of Pareteum common stock and 1.9 pence in cash for every ordinary share of 5 pence each in Artilium not already owned by Pareteum, valuing each Artilium share at approximately 20 pence and the entire issued and to be issued ordinary share capital of Artilium at approximately £79.7 million based on Pareteum’s closing share price of $2.40 on May 29, 2018 and a Pound-to-Dollar exchange rate of 1.33. The Board of Directors approved the responsibility statement and the escrow arrangement, and appointed and authorized a committee of the Board of Directors (the “Transaction Committee”) to undertake the detailed supervision and implementation of the Offer and related matters consistent with the terms of the Offer discussed at this meeting.

 

On June 6, 2018, the Transaction Committee held a meeting, together with representatives of Pareteum’s management and legal and financial advisors. The near-final documentation related to the Acquisition, including the Offer Announcement and the Co-operation Agreement, was reviewed and discussed by the directors. Also at this meeting, Jefferies reviewed its financial analysis of the consideration and rendered an oral opinion, confirmed by delivery of a written opinion dated June 6, 2018, for the Pareteum Board of Directors to the effect that, as of that date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken as described in the opinion, the consideration to be paid in the transaction as set forth in the Offer Announcement was fair, from a financial point of view, to Pareteum. Following these discussions, and after consideration of the matters set forth under “Reasons for the Acquisition” and “Recommendation of Our Board of Directors,” the Transaction Committee, acting on the authorization by the Pareteum Board of Directors to implement the Offer, unanimously determined that the Offer Announcement, the Co-operation Agreement and the transactions contemplated thereby were advisable and in the best interests of Pareteum and its stockholders and approved the Offer Announcement, the Co-operation Agreement and the transactions contemplated thereby, including the Offer, the Scheme and the Acquisition, and other matters related thereto.

 

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Also on June 6, 2018, all of the independent directors of Artilium approved and adopted the Offer Announcement, the Co-operation Agreement and the transactions contemplated thereby, including the Offer, the Scheme and the Acquisition, and certain other matters related thereto.

 

Also on June 6, 2018, Pareteum received irrevocable undertakings from holders of approximately 215,433,992 ordinary shares of Artilium to accept the Acquisition.

 

Subsequently, on June 7, 2018, Pareteum and Artilium publicly announced that Pareteum intended to make the recommended Offer to acquire the entire issued and to be issued ordinary shares of Artilium under Rule 2.7 of the Takeover Code, and the parties entered into the Co-operation Agreement and exchanged other documents in connection with the transaction. Also on June 7, 2018, Pareteum and Bart Weijermars executed an amendment to the Management Services Agreement.

 

Reasons for the Acquisition

 

After careful consideration, at a meeting held on June 6, 2018, the Pareteum Board of Directors, acting through the Transaction Committee, determined that the Offer, the Acquisition and the other transactions contemplated thereby, to be in the best interests of Pareteum and its stockholders and approved the Offer, the Acquisition and the other transactions contemplated thereby.

 

In evaluating the Offer, the Acquisition and the other transactions contemplated thereby, the Pareteum Board of Directors and the Transaction Committee consulted with Pareteum’s management and legal and financial advisors and, in reaching its decision to approve the Offer, the Acquisition and the other transactions contemplated thereby and to recommend that Pareteum’s stockholders vote “FOR” the Share Issuance Proposal, the Board of Directors considered a number of factors that it believed supported its determination, including, without limitation, projections of certain financial measures of performance and certain estimates of potential cost synergies expected by the management of Pareteum to result from the Acquisition (see the section entitled “—Certain Financial Projections and Estimated Potential Cost Synergies”) and the following material factors (not necessarily in order of importance):

 

·Expansion: Together, Pareteum and Artilium can offer customers a more complete enterprise and retail product offering. With this expanded product set, the combined business will be better positioned to increase penetration of the combined existing customer base and acquire new customers, thereby diversifying revenue streams. The combination would also provide an immediate path for cross-selling into the companies’ respective geographic markets, particularly within Northern Europe, Asia and the Americas, while creating a larger base from which to expand into new markets.

 

·Scale: Combining Pareteum and Artilium will create a leading provider of cloud communications software and services and a significant opportunity to realize the benefits of a scaled organization. The combined company would have projected pro forma FY2018 revenues of $49.0 million. For example, the combined company is expected to be able to reduce carrier fees and cloud costs through greater purchasing volumes, making each sale more profitable. The combined company is expected to realize savings from reduced corporate overhead and to realize capital expenditure savings through more efficient space and hardware utilization. These savings can be reinvested to accelerate product and technology development and support revenue growth.

 

·Capital: The combined company will have a greatly enhanced financial profile with which to access the capital markets. The Board of Directors believes that, as a combined company, third party capital will be available on significantly improved terms to accelerate the growth story of the combined company. Furthermore, as a larger company with a stronger financial profile and a more diverse stockholder base, the Board of Directors believes that the combined company could have greater coverage from equity research analysts, enhancing the profile of the combined company with the investor community.

 

 43 

 

 

·Platform: With an expanded product portfolio and customer base, a scaled and right-sized cost structure, and an enhanced financial profile with greater access to capital markets, the Board of Directors believes that the combined company will provide a strong platform for acquisitions. The Board of Directors believes that the combined company will be the buyer of choice for many sellers. The Board of Directors believes that there is a strong pipeline of potential add-on M&A available to the combined company that will be value-enhancing for shareholders.

 

The Pareteum Board of Directors also considered a number of potential conflicts, risks and uncertainties associated with the Acquisition in connection with its deliberation of the proposed transaction, including, without limitation, the results of Pareteum’s due diligence review and the following:

 

·the risk that the Acquisition may not be completed on a timely basis or at all;

 

·the ability to integrate Artilium into Pareteum’s business successfully and the amount of time and expense spent and incurred in connection with the integration;

 

·the possibility that competing offers will be made;

 

·the risk that the economic benefits and other synergies that Pareteum management anticipates as a result of the Acquisition are not fully realized or take longer to realize than expected;

 

·the risk that certain risks and liabilities associated with the Acquisition have not been discovered;

 

·the risk that the approval of Artilium shareholders of the Acquisition or the approval of Pareteum stockholders of the Share Issuance Proposal may not be obtained or that other conditions of the Acquisition will not be satisfied;

 

·changes in global or local political, economic, business, competitive, market and regulatory forces;

 

·changes in exchange and interest rates;

 

·changes in tax and other laws or regulations;

 

·future business combinations or disposals;

 

·potential operating costs, customer loss and business disruption (including difficulties in maintaining relationships with employees, customers or suppliers) occurring prior to completion of the Acquisition or if the Acquisition is not completed at all;

 

·changes in the market price of shares of Pareteum or Artilium; and

 

·changes in the economic and financial conditions of the businesses of Pareteum or Artilium.

 

The foregoing discussion of the information and factors considered by the Board of Directors is not intended to be exhaustive, but includes material factors considered by the Board of Directors. In reaching its decision to approve the Acquisition, the Offer and the other transactions contemplated by the Offer Announcement and Co-operation Agreement, the Board of Directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The Board of Directors considered all these factors as a whole and overall considered the factors to be favorable to, and to support, its determination.

 

The Pareteum Board of Directors unanimously recommends that Pareteum’s stockholders vote “FOR” the Share Issuance Proposal.

 

This summary of the reasoning of the Board of Directors and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Forward-Looking Statements.”

 

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Certain Financial Projections and Estimated Potential Cost Synergies

 

In connection with Pareteum’s consideration and evaluation of the Acquisition, and in order to provide a basis for discussions, Pareteum’s management prepared projections of certain financial measures of performance of Pareteum and Artilium (adjusting for this purpose certain financial measures of performance of Artilium prepared by Artilium) and certain estimates of potential cost synergies expected by the management of Pareteum to result from the Acquisition, which Pareteum’s management provided to the Pareteum Board of Directors and to Jefferies, which was directed to use and rely on such financial projections and estimated potential cost synergies for purposes of its financial analyses and opinion. We refer to such financial projections and estimated potential cost synergies, collectively, as the “Financial Projections.”

 

The Financial Projections were not prepared with a view to public disclosure and are included in this proxy statement only because such information was made available as described above. The Financial Projections are subjective in many respects and thus subject to interpretation. While presented with numerical specificity, the Financial Projections reflect numerous estimates and assumptions with respect to industry performance and competition, general business, economic, market and financial conditions and matters specific to Pareteum’s and Artilium’s respective businesses, including the factors listed under “Risk Factors” beginning on page 27 of this proxy statement and the factors described in the Offer Announcement (including Appendix IV thereto) attached as Annex I to this proxy statement, all of which are difficult to predict and many of which are beyond Pareteum’s or Artilium’s control. Many of the assumptions reflected in the Financial Projections are subject to change and none of the Financial Projections reflect revised prospects for Pareteum’s or Artilium’s respective businesses, changes in general business or economic conditions or any other transaction or event that has occurred or that may occur and that was not anticipated at the time such financial information was prepared. Pareteum’s management has not updated, nor does Pareteum’s management intend to update or otherwise revise, the Financial Projections. There can be no assurance that the results reflected in any of the Financial Projections will be realized or that actual results will not materially vary from the Financial Projections. In addition, the Financial Projections cover multiple years and such information by its nature becomes less predictive with each successive year. Therefore, the inclusion of the Financial Projections in this proxy statement should not be relied on as necessarily predictive of actual future events nor construed as financial guidance.

 

The Financial Projections were not prepared with a view toward complying with U.S. GAAP, IFRS, the published guidelines of the SEC regarding projections and forward-looking statements, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information or Rule 28 of the Takeover Code.

 

Neither Pareteum’s nor Artilium’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the Financial Projections, nor have they expressed any opinion or any other form of assurance on the Financial Projections or the achievability of the results reflected in the Financial Projections, and they assume no responsibility for, and disclaim any association with, the Financial Projections. The reports of Pareteum’s independent registered public accounting firm incorporated by reference into this proxy statement relate to Pareteum’s historical financial information and do not extend to the Financial Projections and should not be read to do so. Certain of the Financial Projections may be considered non-GAAP financial measures. “EBITDA” is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation and amortization. “Adjusted EBITDA” is a non-GAAP measure defined as EBITDA excluding one-time, non-recurring and non-cash items and stock-based compensation expense. “Unlevered Free Cash Flow” is a non-GAAP financial measure defined as earnings before interest and taxes, less taxes, plus depreciation and amortization, less increases/(decreases) in net working capital, and less capital, and as applicable intangible, expenditures. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used in the Financial Projections may not be comparable to similarly titled amounts used by other companies or persons. For purposes of the Financial Projections, Artilium’s financials were adjusted by Pareteum’s management and calendarized to December 31 and converted to U.S. Dollars.

 

In light of the foregoing, and considering that the Meeting will be held several months after the Financial Projections were prepared, as well as the uncertainties inherent in any forecasted information, Pareteum stockholders are cautioned not to place unwarranted reliance on such information, and all Pareteum stockholders are urged to review Pareteum’s most recent SEC filings for a description of Pareteum’s reported financial results. See “Where You Can find More Information” below.

 

Pro Forma Financial Projections.

 

1. Responsibility For and Purpose of the Projections.

 

The consolidated financial projections (the “Projections”) for Pareteum and Artilium and their respective subsidiaries (collectively, the “Combined Companies”) include potential financial results of the Combined Companies. The Projections were prepared by or on behalf of the Combined Companies in good faith using assumptions believed to be reasonable. A significant number of assumptions about the operations of the combined business of the Combined Companies were based, in part, on economic, competitive, and general business conditions prevailing at the time the Projections were developed. Any future changes in these conditions, may materially impact the ability of the Combined Companies to achieve the financial results set forth in the Projections. In addition, the Projections were prepared for illustrative purposes in connection with this proxy statement, on a basis that, with respect to forward-looking financial information, in the view of the management of each of Pareteum and Artilium, were reasonable and reflected then-currently available estimates and judgments at the time of their preparation as to potential future financial performance of the Combined Companies. Except as and if required by applicable law, the Combined Companies do not intend to update, or otherwise revise, the financial projections or the specific portions presented to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even if any or all of the assumptions are shown to be in error.

 

2. Inherent Uncertainty of the Projections.

 

The Projections should be read in conjunction with the assumptions and qualifications set forth herein, the footnotes included in the Projections and the Combined Companies’ historical financial information (including the notes and schedules thereto). The Projections cover the operations of the Combined Companies through 2022. The Projections are based on numerous assumptions, including consummation of the proposed acquisition of Artilium in accordance with its terms; realization of the operating strategy of the Combined Companies; where noted, realization of estimated potential cost synergies between the Combined Companies; industry performance; no material adverse changes in applicable legislation or regulations, or the administration thereof, or generally accepted accounting principles; general business and economic conditions; competition; retention of key management and other key employees; absence of material contingent or unliquidated litigation, indemnity, or other claims; and other matters, many of which will be beyond the control of the Combined Companies, and some or all of which may not materialize.

 

Additionally, to the extent that the assumptions inherent in the Projections are based upon future business decisions and objectives, they are subject to change. Although the Projections are presented with numerical specificity and are based on expectations developed by the management of Pareteum and Artilium, the assumptions and estimates underlying the Projections are subject to significant business, economic, and competitive uncertainties and contingencies, many of which will be beyond the control of the Combined Companies. Accordingly, the Projections are only estimates and are necessarily speculative in nature. It is expected that some or all of the assumptions in the Projections will not be realized and that actual results will vary from the Projections. Such variations may be material and may increase over time. In light of the foregoing, readers are cautioned not to place undue reliance on the Projections. The projected financial information contained herein should not be regarded as a representation or warranty by any of the Combined Companies, their officers, directors or advisors, or any other person that the Projections can or will be achieved.

 

 45 

 

 

The following table presents a summary of Financial Projections with respect to Pareteum on a standalone basis:

 

   Pareteum Financial Projections
For the Years Ended December 31
 
   2018E   2019E   2020E   2021E   2022E 
   (USD in millions) 
Revenue   24.0    43.3    65.3    91.4    123.3 
Adjusted EBITDA   4.8    13.0    21.1    32.3    43.6 
Pareteum (Standalone Basis) Unlevered Free Cash Flow   (4.0) (1)   2.8    5.1    11.3    17.0 

 

(1) For the nine-month period April 2018 through December 2018.

 

The following table presents a summary of Financial Projections with respect to Artilium on a standalone basis:

 

       Artilium Financial Projections
For the Years Ended December 31
 
   PF 2017 (1)   2018E   2019E   2020E   2021E   2022E 
       (USD in millions) 
Revenue   23.6    25.0    31.6    39.4    46.2    51.9 
Adjusted EBITDA   1.3    2.3    4.2    6.9    9.8    12.3 
Artilium (Standalone Basis) Unlevered Free Cash Flow        (2.0) (2)   3.5    2.6    4.9    6.3 

 

(1) Pro forma reflecting the acquisition of Interactive Digital Media GmbH.

 

(2) For the nine-month period April 2018 through December 2018.

 

Based on the foregoing estimates for Pareteum and Artilium, Pareteum’s management estimated the pro forma FY2018 revenues of the combined company as $49.0 million, excluding the impact of purchase accounting adjustments.

 

Pareteum’s management also estimated cost synergies of approximately $4.8 million to result from the Acquisition for the one-year period from the anticipated date of closing. Cost synergies expected to result from the Acquisition include reduced SG&A expenses and headcount reductions.

 

In addition, Pareteum made a statement in connection with its first quarter 2018 results, which was disclosed as a profit forecast in the Offer Announcement. For information regarding the statement and related assumptions, see Appendix IV to the Offer Announcement, attached as Annex I to this proxy statement.

 

Supplemental Illustrative Presentation of Certain Financial Projections

 

The following table, which was prepared for illustrative purposes in connection with this proxy statement, presents a summary of Financial Projections for the period indicated below with respect to Pareteum and Artilium, each on a standalone basis, and estimated cost synergies and the sum totals of such amounts, based on certain assumptions, including that the Acquisition was completed on January 1, 2018 but without reflecting non-cash or other purchase accounting adjustments:

 

   Financial Projections
For the Year Ended December 31, 2018
 
   Pareteum   Artilium   Cost Synergies(1)   Total 
   (USD in millions) 
Revenue  $24.0   $25.0        $49.0 
Cost of Goods Sold   (6.7)   (11.1)   0.5    (17.3)
Gross Profit   17.3    13.9    0.5    31.7 
Operating Expenses   (20.2)   (13.8)   4.3    (29.7)
Non-Operating Expenses   (0.3)   (0.1)        (0.4)
Net Income  $(3.2)  $0.0   $4.8   $1.6 
Adjusted EBITDA  $4.8   $2.3   $4.8   $11.9 
Basic EPS   -    -    -   $

0.02

 
Diluted EPS   -    -    -   $

0.02

 

 

(1) Cost synergies include reduced SG&A expenses and headcount reductions.

 

The following table, which was prepared for illustrative purposes in connection with this proxy statement, presents a summary of Financial Projections for the periods indicated below with respect to Pareteum and Artilium, on a combined basis, without reflecting estimated cost synergies or non-cash or other purchase accounting adjustments:

 

   Financial Projections
For the Years Ended December 31,
 
   2019E   2020E   2021E   2022E 
   (USD in millions) 
Revenue  $74.9   $104.6   $137.5   $175.2 
Cost of Goods Sold   (26.9)   (37.0)   (47.0)   (58.0)
Gross Profit   48.0    67.6    90.5    117.2 
Operating Expenses   (41.7)   (50.5)   (61.8)   (73.0)
Non-Operating Expenses   (2.8)   (8.1)   (13.5)   (14.9)
Net Income  $3.5   $9.0   $15.3   $29.3 
Adjusted EBITDA  $17.2   $28.0   $42.1   $55.9 
Basic EPS  $

0.04

   $

0.10

   $

0.16

   $

0.30

 
Diluted EPS  $

0.03

   $

0.08

   $

0.14

   $

0.26

 

  

Reconciliation of Non-GAAP Financial Measures

 

The following table, which was prepared for illustrative purposes in connection with this proxy statement, presents a reconciliation of estimated net income for Artilium and Pareteum, on a combined basis taking into account estimated cost synergies but without reflecting non-cash or other purchase accounting adjustments, to estimated adjusted EBITDA for the period indicated below:

 

    Financial Projections
For the Year Ended
December 31,
 
    2018E  
    (USD in millions)  
Net Income   $ 1.6  
Non-operating expense     0.4  
Depreciation and amortization     5.2  
Stock-based compensation     4.1  
Restructuring and one-time expenses     0.6  
Adjusted EBITDA     11.9  

 

Recommendation of Pareteum’s Board of Directors

 

Based on the reasons for the recommendations discussed above in the section entitled “Information About the Artilium Acquisition—Reasons for the Acquisition”, the members of the Board of Directors of Pareteum determined that the Offer, the Acquisition and the other matters contemplated by the Offer Announcement and the Co-operation Agreement are advisable and in the best interests of Pareteum and its stockholders and have authorized and approved the Acquisition and the issuance of Pareteum common stock to Artilium shareholders in connection with the Offer and the Acquisition. The Board of Directors therefore recommends that you vote “FOR” the Share Issuance Proposal and “FOR” the Adjournment Proposal.

  

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Opinion of Our Financial Advisor

 

Pareteum has engaged Jefferies and certain of its affiliates as its financial advisor in connection with the transaction. In connection with this engagement, Pareteum requested that Jefferies evaluate the fairness, from a financial point of view, to Pareteum of the consideration to be paid in the transaction as set forth in the Offer Announcement. On June 6, 2018, at a meeting of the Transaction Committee held to evaluate the transaction, Jefferies rendered an oral opinion, confirmed by delivery of a written opinion dated June 6, 2018, for the Pareteum Board of Directors to the effect that, as of that date and based on and subject to the various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken as described in its opinion, the consideration to be paid in the transaction as set forth in the Offer Announcement was fair, from a financial point of view, to Pareteum.

 

The full text of Jefferies’ opinion, which describes the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Jefferies, is attached as Annex III to this proxy statement and is incorporated herein by reference. Jefferies’ opinion was provided for the use and benefit of the Pareteum Board of Directors (in its capacity as such) in its evaluation of the consideration from a financial point of view to Pareteum and did not address any other aspect of the transaction or any other matter. The opinion did not address the relative merits of the transaction or other transactions contemplated by the Offer Announcement as compared to any alternative transaction or opportunity that might be available to Pareteum, nor did it address the underlying business decision by Pareteum to engage in the transaction. Jefferies’ opinion does not constitute a recommendation as to how any securityholder should vote or act with respect to the transaction or any other matter. The following summary is qualified in its entirety by reference to the full text of Jefferies’ opinion.

 

In arriving at its opinion, Jefferies, among other things:

 

·reviewed a draft, provided to Jefferies on June 6, 2018, of the Offer Announcement;

 

·reviewed certain publicly available financial and other information regarding Artilium and Pareteum;

 

·reviewed certain information furnished to Jefferies by the respective managements of Artilium and Pareteum relating to the businesses, operations and prospects of Artilium and Pareteum, including certain financial forecasts and estimates relating to Artilium prepared or provided by the management of Artilium as adjusted and calendarized by the management of Pareteum and certain financial forecasts and estimates relating to Pareteum prepared or provided by the management of Pareteum, in each case as approved for Jefferies’ use and reliance by Pareteum;

 

·reviewed certain estimates as to potential cost savings expected by the management of Pareteum to result from the transaction;

 

·held discussions with members of the senior managements of Artilium and Pareteum regarding the businesses, operations and prospects of Artilium and Pareteum, the strategic rationale for the transaction and the other matters described in the second through the fourth bullets above;

 

·reviewed the stock trading price history and implied trading multiples for Artilium and Pareteum and compared them with those of certain publicly traded companies that Jefferies deemed relevant in evaluating Artilium and Pareteum;

 

·compared the financial terms of the transaction with publicly available financial terms of certain other transactions that Jefferies deemed relevant in evaluating the transaction;

 

·considered certain potential pro forma financial effects of the transaction on Pareteum utilizing the financial forecasts and estimates relating to Artilium and Pareteum referred to in the third bullet above and the potential cost savings referred to in the fourth bullet above; and

 

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·conducted such other financial studies, analyses and investigations as Jefferies deemed appropriate.

 

In its review and analysis and in rendering its opinion, Jefferies assumed and relied upon, but did not assume any responsibility to independently investigate or verify, the accuracy and completeness of all financial and other information that was supplied or otherwise made available by Pareteum and Artilium or that was publicly available to Jefferies (including, without limitation, the information described above) or otherwise reviewed by Jefferies. Jefferies relied on assurances of the managements and other representatives of Pareteum and Artilium that they were not aware of any facts or circumstances that would make such information incomplete, inaccurate or misleading. In its review, Jefferies did not obtain an independent evaluation or appraisal of any of the assets or liabilities (contingent, accrued, derivative, off-balance sheet or otherwise), nor did Jefferies conduct a physical inspection of any of the properties or facilities, of Artilium, Pareteum or any other entity and Jefferies was not furnished with, and assumed no responsibility to obtain, any such evaluations, appraisals or physical inspections. Jefferies’ analyses and opinion also did not consider any actual or potential arbitration, litigation, claims, investigations or other proceedings to which Artilium, Pareteum or any of their respective affiliates were or in the future may be a party or subject.

 

With respect to the financial forecasts and estimates provided to and reviewed by Jefferies, Jefferies noted that projecting future results of any company is inherently subject to uncertainty. Jefferies was advised by the managements of Artilium and Pareteum, and Jefferies assumed, that the financial forecasts and estimates relating to Artilium and Pareteum (including, without limitation, adjustments to financial forecasts and estimates of Artilium and estimates as to tax attributes of Pareteum and potential cost savings as provided by the management of Pareteum) that Jefferies was directed to utilize for purposes of its analyses and opinion were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the managements of Artilium and Pareteum, as the case may be, as to, and at Pareteum’s direction Jefferies assumed that they were an appropriate basis upon which to evaluate, the future financial performance of Artilium and Pareteum, such potential cost savings and other potential pro forma financial effects of the transaction and the other matters covered thereby. With respect to financial information utilized in Jefferies’ analyses that was reconciled from IFRS to U.S. GAAP and/or prepared in foreign currencies and converted based on certain exchange rates, Jefferies also assumed, at Pareteum’s direction, that such reconciliations or other differences between IFRS and U.S. GAAP would not be meaningful in any respect to Jefferies’ analyses or opinion and that such exchange rates were reasonable to utilize for purposes of such analyses. Jefferies expressed no view as to currency or exchange rate fluctuations and Jefferies assumed that any such fluctuations would not be meaningful in any respect to its analyses or opinion. Jefferies further assumed that there were no meaningful changes in the condition (financial or otherwise), results of operations, businesses or prospects of Artilium or Pareteum since the dates of the most recent financial statements and other information provided to Jefferies. Jefferies relied on Pareteum’s commercial assessments of the transaction (including the contemplated benefits thereof) and expressed no opinion as to any financial forecasts or estimates or the assumptions on which they were based. Jefferies assumed that the financial results reflected in such financial forecasts and estimates, including with respect to potential cost savings, would be realized in the amounts and at the times projected.

 

Jefferies relied, at Pareteum’s direction, upon the assessments of the managements of Pareteum and Artilium, as the case may be, as to, among other things, (i) matters relating to certain of Artilium’s prior acquisitions, including as to the financial and other terms involved, integration and continuing obligations (if any), (ii) the potential impact on Artilium and Pareteum of market, competitive, cyclical, seasonal and other conditions, trends and developments in and prospects for, and governmental, regulatory and legislative matters relating to or affecting, the telecommunications industry, including the software, communications-as-a-service and business-to-business communications sectors thereof, and the geographical regions in which Artilium and Pareteum operate, (iii) the validity of, and risks associated, with the products, licenses and intellectual property of Artilium and Pareteum (including, without limitation, the validity and duration of patents), (iv) existing and future licenses and relationships, agreements and arrangements with, and the ability to attract, retain and/or replace, key employees, customers and other commercial relationships of Artilium and Pareteum, and (v) the ability of Pareteum to integrate the businesses of Artilium with those of Pareteum and to realize the potential cost savings expected by the management of Pareteum to result from the transaction. At Pareteum’s direction, Jefferies assumed that there would not be any developments with respect to any such matters that would have an adverse effect on Artilium, Pareteum or the transaction (including the contemplated benefits thereof) or that otherwise would be meaningful in any respect to Jefferies’ analyses or opinion.

 

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Jefferies’ opinion was based on economic, monetary, regulatory, market and other conditions existing and which could be evaluated as of the date of Jefferies’ opinion. Jefferies expressly disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion of which Jefferies becomes aware after the date of its opinion. As the Pareteum Board of Directors was aware, the credit, financial and stock markets, the industries and sectors in which Artilium and Pareteum operate and the securities of Artilium and Pareteum, have experienced and continue to experience volatility and Jefferies’ expressed no view or opinion as to any potential effects of such volatility on Artilium or Pareteum (or their respective businesses) or the transaction (including the contemplated benefits thereof).

 

Jefferies made no independent investigation of, and expressed no view or opinion as to, any legal, regulatory, accounting or tax matters affecting Artilium, Pareteum, the transaction or otherwise and Jefferies assumed the correctness in all respects meaningful to its analyses and opinion of all legal, regulatory, accounting and tax advice given to Pareteum and/or the Pareteum Board of Directors, including, without limitation and at Pareteum’s direction, with respect to changes in, or the impact of, tax or other laws, regulations and governmental and legislative policies on Artilium, Pareteum or the transaction (including the contemplated benefits thereof) and legal, regulatory, accounting and tax consequences to Artilium and Pareteum of the terms of, and transactions contemplated by, the Offer Announcement and related documents. Jefferies assumed, at Pareteum’s direction, that the transaction would be consummated in accordance with its terms without waiver, modification or amendment of any material term, condition or agreement and in compliance with all applicable laws, documents and other requirements and that, in the course of obtaining the necessary governmental, regulatory or third-party approvals, consents, waivers and releases for the transaction, including with respect to any divestitures or other requirements, no delay, limitation, restriction or condition would be imposed or occur that would have an adverse effect on Artilium, Pareteum or the transaction (including the contemplated benefits thereof) or that otherwise would be meaningful in any respect to Jefferies’ analyses or opinion. Jefferies also assumed, at Pareteum’s direction, that the final Offer Announcement would not differ from the draft of the Offer Announcement reviewed by Jefferies in any respect meaningful to Jefferies’ analyses or opinion.

 

Jefferies’ opinion was for the use and benefit of the Pareteum Board of Directors (in its capacity as such) in its evaluation of the consideration from a financial point of view to Pareteum. Jefferies’ opinion did not address the relative merits of the transaction or other transactions contemplated by the Offer Announcement as compared to any alternative transaction or opportunity that might be available to Pareteum, nor did it address the underlying business decision by Pareteum to engage in the transaction or the terms of the Offer Announcement or the documents referred to therein, including the form or structure of the consideration or the transaction, any alternative structure for the transaction or any term, aspect or implication of any co-operation agreement, management services agreement (including any amendments thereto) or any other agreements, arrangements or understandings entered into in connection with, or contemplated by or resulting from, the transaction or otherwise. In addition, Jefferies was not asked to address, and Jefferies’ opinion did not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of any party to the transaction. Jefferies expressed no view or opinion as to the actual value of Pareteum common stock when issued in the transaction or the prices at which Artilium ordinary shares or shares of Pareteum common stock (or any other securities) may trade or otherwise be transferable at any time. Furthermore, Jefferies did not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation or other consideration payable to or to be received by any officers, directors or employees, or any class of such persons, in connection with the transaction relative to the consideration or otherwise. The issuance of Jefferies’ opinion was authorized by the Fairness Committee of Jefferies.

 

In connection with rendering its opinion to the Pareteum Board of Directors, Jefferies performed a variety of financial and comparative analyses, which are summarized below. The following summary is not a complete description of all analyses performed and factors considered by Jefferies in connection with its opinion. The preparation of a financial opinion is a complex process involving subjective judgments and is not necessarily susceptible to partial analysis or summary description. With respect to the selected public companies and selected precedent transactions analyses summarized below, no company or transaction used as a comparison was identical or directly comparable to Artilium, Pareteum or the transaction. These analyses necessarily involved complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading, acquisition or other values of the companies or transactions concerned.

 

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Jefferies believes that its analyses and the summary below must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying Jefferies’ analyses and opinion. Jefferies did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion, but rather arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole.

 

The estimates of the future performance of Artilium and Pareteum in or underlying Jefferies’ analyses are not necessarily indicative of future results or values, which may be significantly more or less favorable than those estimates. In performing its analyses, Jefferies considered industry performance, general business and economic conditions and other matters, many of which were beyond the control of Artilium and Pareteum. Estimates of the financial value of companies or businesses do not purport to be appraisals or necessarily reflect the prices at which companies, businesses or securities actually may be sold or acquired. Accordingly, the estimates used in, and the reference ranges resulting from, any particular analysis described below are inherently subject to substantial uncertainty and should not be taken as Jefferies’ view of the actual value of Artilium, Pareteum or their respective securities or businesses.

 

The consideration payable in the transaction was determined through negotiations between Artilium and Pareteum, and the decision by Pareteum to proceed with the transaction was solely that of the Pareteum Board of Directors. Jefferies’ opinion and financial analyses were only one of many factors considered by the Pareteum Board of Directors in its evaluation of the consideration and should not be viewed as determinative of the views of the Pareteum Board of Directors or management with respect to the transaction or the consideration.

 

Financial Analyses

 

The summary of the financial analyses described below under this heading “―Financial Analyses” is a summary of the material financial analyses reviewed with the Transaction Committee and performed by Jefferies in connection with its opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand Jefferies’ financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Jefferies’ financial analyses. For purposes of the financial analyses described below, the term (a) “adjusted EBITDA” means earnings before interest, taxes, depreciation and amortization, excluding one-time, non-recurring and non-cash items and stock-based compensation expense, and (b) “implied per share consideration” means £0.2008, calculated as the (i) cash consideration of 1.9 pence per share and (ii) implied per share value of the stock consideration based on the 0.1016x transaction exchange ratio and the closing price of Pareteum common stock on June 5, 2018 of $2.39 per share. Financial data utilized for Artilium and Pareteum in the financial analyses described below, to the extent based on internal financial forecasts and estimates of management, were based on certain financial forecasts and estimates relating to Artilium prepared or provided by the management of Artilium as adjusted and calendarized by the management of Pareteum and certain financial forecasts and estimates relating to Pareteum prepared or provided by the management of Pareteum, in each case as approved for Jefferies’ use and reliance by Pareteum, referred to as the Pareteum-Artilium forecasts and the Pareteum forecasts, respectively.

 

Artilium Financial Analyses

 

Selected Public Companies Analysis. Jefferies reviewed publicly available financial and stock market information of Artilium and the following 18 selected companies that Jefferies considered generally relevant as publicly traded communications technology and SAAS companies, consisting of seven selected communications technology companies, referred to as the Artilium selected communications technology companies, and 11 selected SAAS companies, referred to as the Artilium selected SAAS companies and, together with the Artilium selected communications technology companies, referred to as the Artilium selected companies:

 

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Artilium Selected Communications Technology Companies   Artilium Selected SAAS Companies
·   Amdocs Limited   ·   Alteryx, Inc.
·   Citrix Systems, Inc.   ·   Appian Corporation
·   CommScope Holding Company, Inc.   ·   Apptio, Inc.
·   Eckhoh PLC   ·   Cloudera, Inc.
·   Telefonaktiebolaget LM Ericsson   ·   LogMeIn, Inc.
·   Nokia Corporation   ·   Okta, Inc.
·   Pareteum Corporation   ·   Shopify Inc.
    ·   SPS Commerce, Inc.
    ·   Talend S.A.
    ·   Twilio Inc.
    ·   Yext, Inc.

 

Jefferies reviewed, among other information, enterprise values of the Artilium selected companies, calculated as fully diluted equity values based on closing stock prices on June 5, 2018 plus total debt, preferred equity and non-controlling interests (as applicable) less cash and cash equivalents and unconsolidated investments (as applicable), as multiples, to the extent publicly available and meaningful, of calendar years 2018 and 2019 estimated revenue and calendar years 2018 and 2019 estimated adjusted EBITDA. Financial data (pro forma, as applicable, for certain recent acquisitions) of the Artilium selected companies were based on publicly available research analysts’ estimates, public filings and other publicly available information or, in the case of Pareteum, the Pareteum forecasts. Financial data of Artilium was based on the Pareteum-Artilium forecasts.

 

The overall low to high calendar year 2018 and calendar year 2019 estimated revenue multiples observed for the Artilium selected companies were 0.9x to 19.8x (with a mean of 7.3x and a median of 6.2x) and 0.9x to 14.9x (with a mean of 5.9x and a median of 5.4x), respectively, and overall low to high calendar year 2018 and calendar year 2019 estimated adjusted EBITDA multiples observed for the Artilium selected companies were 8.4x to 27.7x (with a mean of 15.1x and a median of 12.7x) and 7.1x to 23.0x (with a mean of 11.8x and a median of 10.7x), respectively, with overall low to high calendar years 2018 and 2019 estimated revenue and calendar years 2018 and 2019 estimated adjusted EBITDA multiples observed for the Artilium selected communications technology companies and the Artilium selected SAAS companies as follows:

 

·Artilium Selected Communications Technology Companies: low to high calendar year 2018 and calendar year 2019 estimated revenue multiples of 0.9x to 5.3x (with a mean of 2.7x and a median of 2.3x) and 0.9x to 4.2x (with a mean of 2.3x and a median of 2.2x), respectively, and low to high calendar year 2018 and calendar year 2019 estimated adjusted EBITDA multiples of 8.4x to 26.4x (with a mean of 13.6x and a median of 11.5x) and 7.1x to 12.8x (with a mean of 10.0x and a median of 9.7x), respectively; and

 

·Artilium Selected SAAS Companies: low to high calendar year 2018 and calendar year 2019 estimated revenue multiples of 4.9x to 19.8x (with a mean of 10.3x and a median of 8.9x) and 4.4x to 14.9x (with a mean of 8.1x and a median of 7.2x), respectively, and low to high calendar year 2018 and calendar year 2019 estimated adjusted EBITDA multiples of 13.0x to 27.7x (with a mean of 20.3x and a median of 20.3x) and 11.6x to 23.0x (with a mean of 17.3x and a median of 17.3x), respectively.

 

Jefferies then applied selected ranges derived from the Artilium selected companies of calendar year 2018 and calendar year 2019 estimated revenue multiples of 3.0x to 5.0x and 2.0x to 4.0x, respectively, and calendar year 2018 and calendar year 2019 estimated adjusted EBITDA multiples of 12.0x to 15.0x and 10.0x to 13.0x, respectively, to corresponding data of Artilium. This analysis indicated the following approximate implied per share equity value reference ranges for Artilium, as compared to the implied per share consideration:

 

Implied Per Share Equity Value Reference Ranges Based on: 

Implied Per
Share Consideration

 

CY2018E

Revenue

 

CY2019E

Revenue

 

CY2018E

Adj. EBITDA

 

CY2019E Adj.

EBITDA

   
£0.1610 - £0.2551  £0.1390 - £0.2581  £0.0711 - £0.0844  £0.0985 - £0.1226  £0.2008 

 

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Selected Precedent Transactions Analysis. Jefferies reviewed, to the extent publicly available, financial information for the following 14 selected technology industry transactions with transaction values of $100 million to $5 billion that Jefferies considered generally relevant as transactions involving target companies that are connectivity solutions providers, multiplatform and software application providers, and communications technology providers, collectively referred to as the selected transactions:

 

Announced   Acquiror   Target
February 2018   ·   GTT Communications, Inc.   ·   Interoute Communications Limited
February 2018   ·   LogMeIn, Inc.   ·   Jive Communications
January 2018   ·   Amdocs Limited   ·   Vubiquity, Inc.
October 2017   ·   Cisco Systems, Inc.   ·   Broadsoft, Inc.
August 2017   ·   Sierra Wireless, Inc.   ·   Numerex Corp.
November 2016   ·   GTT Communications, Inc.   ·   Hibernia NGS Limited
November 2016   ·   Onvoy, LLC   ·   Inteliquent, Inc.
May 2016   ·   NICE-Systems Ltd.   ·   InContact, Inc.
November 2015   ·   Comtech Telecommunications Corp.   ·   Telecommunication Systems, Inc.
September 2015   ·   GTT Communications, Inc.   ·   One Source Networks Inc.
April 2015   ·   Amdocs Limited   ·   Xura, Inc. (formerly known as Comverse, Inc.) (Business Support Systems Business)
December 2014   ·   Thoma Bravo, LLC/Ontario Teachers’ Pension Plan   ·   Riverbed Technology, Inc.
June 2013   ·   International Business Machines Corporation   ·   SoftLayer Technologies, Inc.
February 2013   ·   Oracle Corporation   ·   Acme Packet, Inc.

 

Jefferies reviewed transaction values of the selected transactions, calculated as the enterprise values implied for the target companies based on the consideration paid or payable in the selected transactions, as a multiple of latest publicly available 12 months revenue as of the applicable announcement dates of such transactions. Financial data of the selected transactions were based on publicly available research analysts’ estimates, public filings and other publicly available information. Financial data of Artilium was based on the Pareteum-Artilium forecasts.

 

The overall low to high latest 12 months revenue multiples observed for the selected transactions were 1.1x to 6.1x (with a mean of 3.2x and a median of 2.9x). Jefferies then applied a selected range of latest 12 months revenue multiples of 3.0x to 5.0x derived from the selected transactions to Artilium’s calendar year 2017 revenue (pro forma for Artilium’s acquisition of Interactive Digital Media GmbH). This analysis indicated the following approximate implied per share equity value reference range for Artilium, as compared to the implied per share consideration:

 

Implied Per Share

Equity Value Reference Range

 

Implied Per

Share Consideration

 
£0.1530 - £0.2418  £0.2008 

 

Discounted Cash Flow Analysis. Jefferies performed a discounted cash flow analysis of Artilium by calculating the estimated present value of the standalone unlevered, after-tax free cash flows that Artilium was forecasted to generate, based on the Pareteum-Artilium forecasts, during the last nine months of the calendar year ending December 31, 2018 through the full calendar year ending December 31, 2022, both before and after taking into account the estimated net present value (as of March 31, 2018) of potential net cost savings expected by the management of Pareteum to result from the transaction. For purposes of this analysis, stock-based compensation was treated as a cash expense. Jefferies calculated terminal values for Artilium by applying to Artilium’s estimated adjusted EBITDA for the calendar year ending December 31, 2022 a selected range of adjusted EBITDA multiples of 10.0x to 13.0x. The present values (as of March 31, 2018) of the cash flows, terminal values and potential net cost savings were then calculated using a selected discount rate range of 12.0% to 14.0%. This analysis indicated the following approximate implied per share equity value reference ranges for Artilium, both before and after taking into account potential net cost savings, as compared to the implied per share consideration:

 

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Implied Per Share

Equity Value Reference Ranges

 

Implied Per
Share Consideration

 

Without

Net Cost Savings

 

With

Net Cost Savings

 

 
£0.1622 - £0.2147  Up to £0.4433  £0.2008 

 

Pareteum Financial Analyses

 

Selected Public Companies Analysis. Jefferies reviewed publicly available financial and stock market information of Pareteum and the following 16 selected companies that Jefferies considered generally relevant as publicly traded communications technology and SAAS companies, consisting of five selected communications technology companies, referred to as the Pareteum selected communications technology companies, and 11 selected SAAS companies, referred to as the Pareteum selected SAAS companies and, together with the Pareteum selected communications technology companies, referred to as the Pareteum selected companies:

 

Pareteum Selected

Communications Technology Companies

 

 

Pareteum Selected SAAS Companies

·   Amdocs Limited   ·   Alteryx, Inc.
·   Citrix Systems, Inc.   ·   Appian Corporation
·   CommScope Holding Company, Inc.   ·   Apptio, Inc.
·   Telefonaktiebolaget LM Ericsson   ·   Cloudera, Inc.
·   Nokia Corporation   ·   LogMeIn, Inc.
    ·   Okta, Inc.
    ·   Shopify Inc.
    ·   SPS Commerce, Inc.
    ·   Talend S.A.
    ·   Twilio Inc.
    ·   Yext, Inc.

 

Jefferies reviewed, among other information, enterprise values of the Pareteum selected companies, calculated as fully diluted equity values based on closing stock prices on June 5, 2018 plus total debt, preferred equity and non-controlling interests (as applicable) less cash and cash equivalents and unconsolidated investments (as applicable), as multiples, to the extent publicly available and meaningful, of calendar years 2018 and 2019 estimated revenue and calendar years 2018 and 2019 estimated adjusted EBITDA. Financial data (pro forma, as applicable, for certain recent acquisitions) of the Pareteum selected companies were based on publicly available research analysts’ estimates, public filings and other publicly available information. Financial data of Pareteum was based on the Pareteum forecasts.

 

The overall low to high calendar year 2018 and calendar year 2019 estimated revenue multiples observed for the Pareteum selected companies were 0.9x to 19.8x (with a mean of 7.7x and a median of 7.8x) and 0.9x to 14.9x (with a mean of 6.2x and a median of 6.2x), respectively, and overall low to high calendar year 2018 and calendar year 2019 estimated adjusted EBITDA multiples observed for the Pareteum selected companies were 8.4x to 27.7x (with a mean of 13.6x and a median of 11.5x) and 7.1x to 23.0x (with a mean of 12.1x and a median of 10.6x), respectively, with overall low to high calendar years 2018 and 2019 estimated revenue and calendar years 2018 and 2019 estimated adjusted EBITDA multiples observed for the Pareteum selected communications technology companies and the Pareteum selected SAAS companies as follows:

 

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·Pareteum Selected Communications Technology Companies: low to high calendar year 2018 and calendar year 2019 estimated revenue multiples of 0.9x to 4.4x (with a mean of 2.1x and a median of 2.0x) and 0.9x to 4.2x (with a mean of 2.1x and a median of 2.0x), respectively, and low to high calendar year 2018 and calendar year 2019 estimated adjusted EBITDA multiples of 8.4x to 12.7x (with a mean of 10.9x and a median of 11.4x) and 7.1x to 12.8x (with a mean of 9.5x and a median of 9.0x), respectively; and

 

·Pareteum Selected SAAS Companies: low to high calendar year 2018 and calendar year 2019 estimated revenue multiples of 4.9x to 19.8x (with a mean of 10.3x and a median of 8.9x) and 4.4x to 14.9x (with a mean of 8.1x and a median of 7.2x), respectively, and low to high calendar year 2018 and calendar year 2019 estimated adjusted EBITDA multiples of 13.0x to 27.7x (with a mean of 20.3x and a median of 20.3x) and 11.6x to 23.0x (with a mean of 17.3x and a median of 17.3x), respectively.

 

Jefferies then applied selected ranges derived from the Pareteum selected companies of calendar year 2018 and calendar year 2019 estimated revenue multiples of 3.0x to 5.0x and 2.0x to 4.0x, respectively, and calendar year 2018 and calendar year 2019 estimated adjusted EBITDA multiples of 12.0x to 15.0x and 10.0x to 13.0x, respectively, to corresponding data of Pareteum. This analysis indicated the following approximate implied per share equity value reference ranges for Pareteum, as compared to the closing price per share of Pareteum common stock on June 5, 2018:

 

 

Implied Per Share Equity Value Reference Ranges Based on:

 

Closing Price per Share on
June 5, 2018

 
CY2018E
Revenue
  CY2019E
Revenue
 

CY2018E

Adj. EBITDA

  CY2019E Adj.
EBITDA
   
$1.63 - $2.32  $1.84 - $3.08  $1.42 - $1.63  $2.46 - $3.01  $2.39 

 

Discounted Cash Flow Analysis. Jefferies performed a discounted cash flow analysis of Pareteum by calculating the estimated present value of the standalone unlevered, after-tax free cash flows that Pareteum was forecasted to generate, based on the Pareteum forecasts, during the last nine months of the calendar year ending December 31, 2018 through the full calendar year ending December 31, 2022. For purposes of this analysis, stock-based compensation was treated as a cash expense and the estimated net present value (as of March 31, 2018) of tax attributes of Pareteum estimated by the management of Pareteum for the last nine months of the calendar year ending December 31, 2018 through the full calendar year ending December 31, 2038 was taken into account. Jefferies calculated terminal values for Pareteum by applying to Pareteum’s estimated adjusted EBITDA for the calendar year ending December 31, 2022 a selected range of adjusted EBITDA multiples of 10.0x to 13.0x. The present values (as of March 31, 2018) of the cash flows, terminal values and tax attributes were then calculated using a selected discount rate range of 12.5% to 14.5%. This analysis indicated the following approximate implied per share equity value reference range for Pareteum, as compared to the closing price per share of Pareteum common stock on June 5, 2018:

 

Implied Per Share Equity Value

Reference Range

 

Closing Price per Share

On June 5, 2018

 
$4.20 - $5.55  $2.39 

 

Certain Additional Information

 

As additional information that was not considered part of its financial analyses with respect to its opinion but was noted for informational purposes, Jefferies provided an illustrative “has/gets” overview in which Jefferies compared (i) the approximate implied per share equity value reference range of Pareteum derived from Jefferies’ discounted cash flow analysis of Pareteum described above under “―Pareteum Financial AnalysesDiscounted Cash Flow Analysis” with (ii) the illustrative approximate implied per share equity value reference range of the pro forma combined company allocable to Pareteum assuming the transaction closed on January 1, 2018 and derived generally using the same methodologies as described above for Artilium and Pareteum under “―Artilium Financial AnalysesDiscounted Cash Flow Analysis” and “―Pareteum Financial AnalysesDiscounted Cash Flow Analysis” (except that the standalone unlevered, after-tax free cash flows that the combined company was forecasted to generate were based on the Pareteum-Artilium forecasts and the Pareteum forecasts and discount rates of 12.0% to 14.0% were applied). This indicated that the transaction potentially could result in incremental value to Pareteum. This overview was shown for illustrative purposes and not as an indication of actual future results or values which may vary based on various factors, including market conditions and financial performance.

 

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Jefferies also observed the following additional information that was not considered part of its financial analyses with respect to its opinion but was noted for informational purposes:

 

·the implied premiums paid in selected acquisition transactions of United Kingdom public limited companies announced from January 1, 2013 through April 1, 2018 with purchase prices ranging from £50 million to £250 million; applying a selected range of implied premiums of approximately 20.1% to 69.3% (reflecting the overall 25th and 75th quartiles of implied premiums derived from such transactions based on closing stock prices of the target companies involved in such transactions one trading day prior to public announcement of such transactions or market speculation of a potential acquisition of the target, as applicable) to Artilium’s closing stock price on June 5, 2018 indicated an approximate implied per share equity value reference range for Artilium of £0.1982 to £0.2793;

 

·historical closing prices of Pareteum common stock during the 52-week period ended June 5, 2018, which indicated low and high closing prices for Pareteum common stock of approximately $0.52 and $3.35 per share, respectively; and

 

·the illustrative pro forma financial impact of the transaction on Pareteum’s estimated earnings per share (“EPS”) for the third and fourth fiscal quarters of the calendar year ending December 31, 2018 and the full calendar year ending December 31, 2019 based on the Pareteum-Artilium forecasts and the Pareteum forecasts, taking into account, among other things, potential net cost savings expected by the management of Pareteum to result from the transaction, which indicated that the transaction would not have a meaningful impact on Pareteum’s estimated EPS in the third and fourth fiscal quarters of the calendar year ending December 31, 2018 and could be accretive to Pareteum’s estimated EPS in the full calendar year ending December 31, 2019. Actual results achieved may vary from projected results and variations may be material.

 

Miscellaneous

 

Pareteum has agreed to pay Jefferies for its financial advisory services in connection with the transaction an aggregate fee of $4.0 million, of which a portion was payable upon delivery of Jefferies’ opinion and $3.0 million is payable contingent upon consummation of the transaction. Jefferies also may be entitled to a fee upon termination of its engagement. In addition, Pareteum agreed to reimburse Jefferies for expenses, including fees and expenses of counsel, incurred in connection with Jefferies’ engagement, and to indemnify Jefferies and related parties against liabilities, including liabilities under federal securities laws, arising out of or in connection with the services rendered and to be rendered by Jefferies under its engagement.

 

As the Pareteum Board of Directors was aware, Jefferies and its affiliates currently are providing financial advisory services unrelated to the transaction to Pareteum and its affiliates, for which services Jefferies and its affiliates would expect to receive compensation, including acting as financial advisor to Pareteum in connection with certain potential merger and acquisition transactions. Although Jefferies and its affiliates did not provide financial advisory or financing services to Artilium or Pareteum during the two-year period prior to the date of Jefferies’ opinion for which Jefferies or its affiliates received compensation, Jefferies and its affiliates may provide such services to Artilium, Pareteum and their respective affiliates in the future, for which services Jefferies and its affiliates would expect to receive compensation. In addition, in the ordinary course of business, Jefferies and its affiliates may trade or hold securities of Pareteum, Artilium and/or their respective affiliates for Jefferies’ own account and for the accounts of Jefferies’ customers and, accordingly, may at any time hold long or short positions in those securities.

 

Jefferies was selected as Pareteum’s financial advisor in connection with the transaction because Jefferies is an internationally recognized investment banking firm with substantial experience in merger and acquisition transactions and familiarity with Pareteum and its business. Jefferies is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities and private placements.

 

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The Offer Announcement and the Scheme of Arrangement

 

Once the conditions to the Acquisition have been satisfied or waived, as applicable, the Acquisition will be effected by way of a court-sanctioned scheme of arrangement between Artilium and Artilium shareholders under Part 26 of the UK Companies Act 2006, as amended. The purpose of the scheme of arrangement is to provide for Pareteum to become the owner of 100% of the issued and to be issued Artilium ordinary shares.

 

Under the scheme of arrangement, the Acquisition is to be achieved by:

 

·the transfer of all issued and to be issued Artilium ordinary shares from the Artilium shareholders to Pareteum in consideration for which Artilium shareholders will receive consideration on the basis set out in the Offer Announcement; and

 

·amendments to Artilium’s articles of association to ensure that any Artilium ordinary shares issued after the record time for the scheme of arrangement (other than to Pareteum) will automatically be transferred to Pareteum on the same terms as the Acquisition (other than terms as to timing and formalities ).

 

Upon the scheme of arrangement becoming effective, it will be binding on all Artilium shareholders (irrespective of whether or not they attended or voted at the general meeting of Artilium shareholders and the meeting of Artilium shareholders convened by the High Court of Justice in England and Wales), and share certificates in respect of Artilium ordinary shares will cease to be of value and should be destroyed and entitlements to Artilium ordinary shares held within the CREST system will be cancelled.

 

The scheme of arrangement will be governed by English law. The scheme of arrangement will be subject to the applicable requirements of the Takeover Code, the Panel, the AIM Market of the London Stock Exchange and the UK Financial Conduct Authority or its successor from time to time.

 

Conditions to the Acquisition

 

Other than the conditions relating to Pareteum and Artilium shareholder approvals, and the sanction of the scheme of arrangement by the High Court of Justice in England and Wales, Pareteum may invoke a condition to the Acquisition to cause the Acquisition not to proceed only if the Panel is satisfied that the circumstances giving rise to that condition not being satisfied are of material significance to Pareteum in the context of the Acquisition. The completion of the Acquisition is conditional upon, among other things, the satisfaction or waiver of the following closing conditions:

 

·the approval of Share Issuance Proposal;

 

·the approval of the Scheme by the Independent Artilium Shareholders representing at least 75% of the shares entitled to vote and present and voting, either in person or by proxy, at the Court Meeting on or before the Long Stop Date (or such later date as may be agreed between the Company and Artilium, and that the High Court of Justice of England and Wales may allow);

 

·the passing of the resolutions in connection with, among other things, the approval of the Scheme, the amendment of Artilium’s articles of association and such other matters as may be necessary to implement the Scheme, by the requisite majority at the General Meeting to be held on or before the Long Stop Date (or such later date, if any, as the Company and Artilium may agree, and that the High Court of Justice of England and Wales may allow);

 

·the passing of the resolution to approve the management arrangement set forth in the Management Services Agreement between the Company and Bart Weijermars by the requisite majority of the Independent Artilium Shareholders at the General Meeting to be held on or before Long Stop Date (or such later date, if any, as the Company and Artilium may agree, and that the High Court of Justice of England and Wales may allow);

 

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·the approval, by the NYSE American, of the listing of the New Pareteum Shares; and

 

·the sanction of the Scheme on or before the Long Stop Date (or such later date, if any, as may be agreed between the Company and Artilium, and that High Court of Justice of England and Wales may allow) and the delivery of an official copy of the court order to the Registrar of Companies in England and Wales.

 

Effect of Approval of Scheme of Arrangement

 

Upon the scheme of arrangement becoming effective, it will be binding on all Artilium shareholders, irrespective of whether or not they attended or voted at the general meeting of Artilium shareholders and the meeting of Artilium shareholders convened by order of the High Court of Justice in England and Wales, and the consideration due under the Acquisition will be dispatched by or on behalf of Pareteum to Artilium shareholders no later than 14 days after the date the scheme of arrangement becomes effective in accordance with its terms.

 

The Scheme Document will include full details of the scheme of arrangement, together with notices of the general meeting of Artilium shareholders and the meeting of Artilium shareholders convened by order of the High Court of Justice in England and Wales and the expected timetable, and will specify the action to be taken by Artilium shareholders.

 

Change in Acquisition Structure

 

Pareteum reserves the right to elect, subject to the prior consent of the Panel, to implement the Acquisition by way of a takeover offer, directly by Pareteum or indirectly through a subsidiary or nominee of Pareteum, for the entire issued and to be issued ordinary share capital of Artilium as an alternative to the scheme of arrangement (which we refer to as the “Right to Switch”). In such an event, the takeover offer will be implemented on the same terms (subject to appropriate amendments), so far as applicable, as those which would apply to the scheme of arrangement, subject to the amendments referred to in the Offer Announcement.

 

If the Acquisition is effected by way of a takeover offer (as described above) and such takeover offer becomes or is declared unconditional in all respects and sufficient acceptances are received, Pareteum intends to:

 

·make a request to the AIM Market of the London Stock Exchange to cancel trading in Artilium ordinary shares on its market for listed securities; and

 

·exercise its rights to apply the provisions of Chapter 3 of Part 28 of the UK Companies Act 2006, as amended, to acquire compulsorily the remaining Artilium ordinary shares in respect of which the takeover offer has not been accepted.

 

Artilium Share Schemes

 

Appropriate proposals will be made in due course to participants in the Artilium share schemes. Details of the proposals will be set out in the Scheme Document and in separate letters to be sent to the participants in the Artilium share schemes.

 

Fractional Shares

 

Fractions of New Pareteum Shares will not be issued to Artilium shareholders. Instead, Artilium shareholders who otherwise would have received a fraction of a New Pareteum Share will receive an additional amount in cash, rounded down to the nearest cent, based on the amount obtained by multiplying such fraction by the average of the high and low sales prices of Pareteum common stock on the NYSE American on each of the five consecutive trading days ending on the trading day that is two trading days prior to the closing of the Acquisition.

 

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The Co-operation Agreement

 

Pareteum and Artilium have entered into the Co-operation Agreement, pursuant to which Pareteum and Artilium have agreed to certain undertakings to co-operate and provide each other with reasonable information, assistance and access in relation to the filings, submissions and notifications to be made in relation to the regulatory clearances and authorizations that are required in connection with the Acquisition.

 

Pursuant to the Co-operation Agreement, Pareteum has agreed to certain limited restrictions on its conduct of business pending the closing of the Acquisition.

 

The Co-operation Agreement records Pareteum's and Artilium's intention to implement the Acquisition by way of the Scheme, subject to the ability of Pareteum to proceed by way of a takeover offer which is subject to obtaining the consent of the Panel, if required.

 

The Co-operation Agreement will terminate in certain circumstances as described below.

 

Regulatory Undertakings

 

Under the Co-operation Agreement, the parties agreed to use reasonable endeavors regarding the regulatory approvals and other clearances necessary for the Acquisition as soon as reasonably practicable and in any event to enable completion of the Acquisition before the Long Stop Date. Each party agreed to cooperate with the other regarding such regulatory approvals and to assist the other in communicating with any regulatory authority. Each party also agreed to promptly provide the other with such information and assistance as the other may reasonably require for the purposes of obtaining all such approvals and clearances and making any submission, notification or filing to any regulatory authority.

 

Among other things, the parties agreed to:

 

·respond as promptly as reasonably practicable to requests by any regulatory authority;

 

·as promptly as reasonably practicable notify the other party of such material communications and provide such party with drafts of all filings, submissions, material written communications intended to be sent to any regulatory authority and a reasonable opportunity to comment, if practical;

 

·make representatives available for meetings and material telephone calls with any regulatory authority;

 

·keep the other party reasonably informed as to the progress of any notification submitted to a regulatory authority pursuant to this Agreement and other material developments; and

 

·not withdraw a filing, submission or notification made to any regulatory authority pursuant to the Co-operation Agreement without the prior consent of the other party, not to be unreasonably withheld.

 

Undertakings Concerning Stockholder Approval, the Proxy Statement and the Scheme Document

 

Under the Co-operation Agreement, each party agreed to promptly provide the other party with all information about itself and its directors as may reasonably be requested and required under applicable law for inclusion in this proxy statement or in the Scheme Document, as the case may be. Each party also agreed to provide other assistance of and access to itself and its advisors as may reasonably be required.

 

In addition, the parties agreed to cooperate with each other in relation to Artilium’s plans and communications with respect to participants of certain performance-linked share awards granted on July 1, 2017 to Grootzande Management BV (Bart Weijermars) and Rupert Hutton, Chief Financial Officer of Artilium. Artilium agreed to promptly provide details to Pareteum in connection with such plans and communications as Pareteum may reasonably request.

 

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Right to Switch to a Takeover Offer

 

Subject to the consent of the Panel, Pareteum may elect to implement the Acquisition by way of a takeover offer, directly by Pareteum or indirectly through a subsidiary or nominee of Pareteum, for the entire issued and to be issued ordinary share capital of Artilium as an alternative to the court-sanctioned scheme of arrangement. In accordance with the Offer Announcement, in such an event, the takeover offer will be implemented on the same terms or, if Pareteum so decides, on such other terms being no less favorable (subject to appropriate amendments), so far as applicable, as those which would apply to the scheme of arrangement and subject to the amendment referred to in Appendix I of the Offer Announcement. The Co-operation Agreement provides that, if Pareteum exercises this Right to Switch, the parties obligations under the Co-operation Agreement shall be applied in a manner consistent with implementation of the Acquisition by way of a takeover offer.

 

Termination of the Co-operation Agreement

 

The Co-operation agreement may be terminated immediately upon the mutual agreement of the parties.

 

The Co-operation Agreement will also terminate upon the occurrence of any of the following:

 

·the Offer Announcement is not released on or before 8.00 a.m. London time June 7, 2018 (unless such other time and date is agreed by the parties in accordance with the Co-operation Agreement);

 

·the Artilium recommending directors withdraw, adversely modify or adversely qualify the recommendation that the Artilium shareholders vote or procure votes in favor of the court-sanctioned scheme of arrangement at the court meeting of Artilium shareholders to be set out in the Scheme Document and the resolutions to be proposed at the general meeting of Artilium shareholders;

 

·the Pareteum directors withdraw, adversely modify or adversely qualify the recommendation that Pareteum stockholders vote in favor of the Share Issuance Proposal at the Meeting of Pareteum stockholders;

 

·the court-sanctioned scheme of arrangement (or the takeover offer as the case may be) is withdrawn or lapses (other than where such lapse or withdrawal is a result of the exercise of the Right to Switch or is otherwise to be followed soon after by a Rule 2.7 announcement made by Pareteum or a person acting in concert with Pareteum, to implement the Acquisition by a different offer or scheme on substantially the same or improved terms);

 

·the court-sanctioned scheme of arrangement has not become effective by the Long Stop Date (other than as a result of the exercise of the Right to Switch or where the Long Stop Date is to be followed soon after by a Rule 2.7 announcement made by Pareteum or a person acting in concert with Pareteum, to implement the Acquisition by a different offer or scheme on substantially the same or improved terms);

 

·upon service of written notice by or on behalf of either Party to the other Party (or the nominated advisers of the other Party), where any condition becomes incapable of satisfaction or is invoked so as to cause the Acquisition not to proceed; or

 

·written agreement of termination between the parties.

 

No Dissenters’ Rights

 

None of our stockholders will be entitled to exercise dissenters’ rights or to demand payment for his, her or its shares of Pareteum common stock in connection with the Acquisition.

 

United States Federal Income Tax Considerations

 

Our stockholders will not realize gain or loss in connection with the Acquisition with respect to their shares of Pareteum common stock for United States federal income tax purposes. Stockholders are urged to consult their own tax advisors with respect to tax matters under United States federal law and the laws of any state, municipality or other taxing jurisdiction, including tax consequences resulting from such stockholder’s own tax characteristics and situation.

 

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Accounting Treatment

 

We prepare our financial statements in accordance with U.S. GAAP. The Acquisition will be accounted for as a business combination using the acquisition method of accounting with Pareteum being treated as the acquirer. The Acquisition will result in the recognition of assets acquired and liabilities assumed at fair value. The preliminary allocation of the purchase price used in the pro forma combined financial information presented elsewhere in this proxy statement is based on preliminary estimates and currently available information. These assumptions and estimates, some of which cannot be finalized until the completion of the Acquisition, will be revised as additional information becomes available upon completion of the Acquisition and finalization of the valuation of Artilium’s assets and liabilities. The final determination of the allocation of the purchase price will be based on the fair values of the assets and liabilities of Artilium as of the closing date of the Acquisition.

 

Irrevocable Undertakings

 

Pareteum has received irrevocable undertakings to vote or procure votes in favor of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting (or, if Pareteum exercises its right to implement the Acquisition by way of takeover offer, to accept such offer) from all of the independent directors of Artilium who hold Artilium shares, amounting, in aggregate, to 71,122,994 Artilium shares (representing, in aggregate, approximately 20.24% of the issued and outstanding shares of Artilium).

 

In addition to the irrevocable undertakings from the independent directors of Artilium, Pareteum has received an irrevocable undertaking to vote or procure votes in favor of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting (or, if Pareteum exercises its right to implement the Acquisition by way of a takeover offer, to accept such offer) from Bart Weijermars (except for the resolution to approve the Management Services Agreement on which he is not allowed to vote) with respect to 2,423,633 Artilium shares (representing, in aggregate, approximately 0.68% of the issued and outstanding shares of Artilium).

 

In addition to the irrevocable undertakings from the Artilium directors, Pareteum has received irrevocable undertakings from various other shareholders to vote or procure votes in favor of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting (or, if Pareteum exercises its right to implement the Acquisition by way of a takeover offer, to accept such offer), in respect of 141,887,365 Artilium shares (representing, in aggregate, approximately 39.98% of the issued and outstanding shares of Artilium).

 

Regulatory Matters

 

Pareteum and Artilium have agreed to use reasonable endeavors regarding the regulatory approvals and other clearances necessary for the Acquisition as soon as reasonably practicable and in any event to enable completion of the Acquisition before the Long Stop Date. Artilium agreed to cooperate with Pareteum regarding such regulatory approvals and to assist Pareteum in communicating with any regulatory authority, including, without limitation, the SEC, NYSE American, the European Commission, and the U.S. Federal Trade Commission or the Antitrust Division of the U.S. Department of Justice. Artilium agreed to promptly provide Pareteum with such information and assistance as Pareteum may reasonably require for the purposes of obtaining all such approvals and clearances and making any submission, notification or filing to any regulatory authority.

 

Additional information is provided above under the heading “—The Co-operation Agreement.”

 

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UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION

(in Dollars)

 

On June 7, 2018, pursuant to Rule 2.7 of the Takeover Code, Pareteum and Artilium released the Offer Announcement disclosing the terms on which Pareteum intends to make a recommended offer to acquire the issued and to be issued ordinary shares of Artilium in a cash and stock transaction. Under the terms of the Offer, Artilium shareholders will be entitled to receive, for each Artilium ordinary share held by such shareholders, 1.9 pence in cash and 0.1016 new shares of Pareteum common stock. The Acquisition is to be effected by means of a court-sanctioned scheme of arrangement between Artilium and Artilium shareholders under the UK Companies Act 2006, as amended.

 

The following unaudited pro forma condensed combined financial information gives effect to the Acquisition, which includes adjustments for the following:

 

·the conversion of Artilium’s historical financial statements from Euros to U.S. Dollars;

 

·the conversion of Artilium’s historical financial statements prepared in accordance with IFRS to U.S. GAAP;

 

·certain reclassifications to conform Artilium’s historical financial statement presentation to Pareteum’s presentation; and

  

·transaction costs in connection with the Acquisition.

 

The following unaudited pro forma condensed combined statements and related notes are based on and should be read in conjunction with (i) the historical consolidated financial statements of Pareteum and the related notes included in Pareteum’s Annual Report on Form 10-K for the year ended December 31, 2017 which was filed with the SEC on March 30, 2018 and the historical unaudited consolidated financial statements of Pareteum and related notes included in Pareteum’s Quarterly report on Form 10-Q for the period ended March 31, 2018 which was filed with the SEC on May 11, 2018, each of which is incorporated by reference in this document, and (ii) the audited consolidated financial statements of Artilium for the years ended June 30, 2017 and 2016 and the related notes and the unaudited condensed consolidated financial statements of Artilium for each of the nine months ended March 31, 2018 and March 31, 2017 and related notes contained herein.

 

The unaudited pro forma condensed combined statements of income for the three months ended March 31, 2018 and the year ended December 31, 2017 combine the historical consolidated statements of income of Pareteum and Artilium, giving effect to the Acquisition as if it had been completed on January 1, 2017. The accompanying unaudited pro forma condensed combined statement of financial position as of March 31, 2018 combines the historical condensed combined statements of financial position of Pareteum and Artilium, giving effect to the Acquisition as if it had been completed on March 31, 2018.

 

The historical consolidated financial information has been adjusted in the pro forma financial statements to give effect to pro forma events that are (i) directly attributable to the Acquisition, (ii) factually supportable and (iii) with respect to the unaudited pro forma condensed combined statements of income, expected to have a continuing effect on the combined results of Pareteum and Artilium. The statements contained herein do not reflect the costs of any integration activities or benefits that may result from the realization of future cost savings from operating efficiencies, or any other synergies that may result from the Acquisition.

 

The statements and related notes are being provided for illustrative purposes only and do not purport to represent what the combined company’s actual results of operations or financial position would have been had the Acquisition been completed on the dates indicated, nor are they necessarily indicative of the combined company’s future results of operations or financial position for any future period.

 

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The pro forma adjustments are based upon available information and certain assumptions as described in the accompanying notes to the unaudited pro forma condensed combined financial information which management believes are reasonable under the circumstances. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information.

  

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Pareteum Corporation
Unaudited Pro Forma Condensed Combined Statement of Financial Position
As of March 31, 2018

  

       Artilium plc         
   Historical
Pareteum
   Historical U.S.
Dollars (IFRS)
   Pro Forma
Reclassification
Adjustments
(Note 1)
   Pro Forma (U.S.
GAAP)
   Pro Forma
Adjustments
(Note 2)
  

Pro Forma
Condensed

Combined

 
ASSETS                              
Current assets:                              
Cash and cash equivalents  $15,988,645   $2,736,476   $-   $2,736,476   $(15,467,248)  $3,257,873 
Accounts receivable, net   1,954,495    4,272,654    -    4,272,654         6,227,149 
Other current assets   1,153,742    99,284    -    99,284         1,253,026 
Total current assets   19,096,882    7,108,414    -    7,108,414    (15,467,248)   10,738,048 
                               
Investments   3,230,208    7,878,935    -    7,878,935    (11,109,143)   - 
                               
Fixed assets, net   4,176,199    612,112    -    612,112         4,788,311 
                               
Note receivable   601,583    -    -    -         601,583 
                               
Intangible assets   -    3,440,932    -    3,440,932         3,440,932 
                               
Other assets   93,730    -    -    -         93,730 
                               
Goodwill   -    25,407,871    153,507    25,561,378    82,991,482    108,552,860 
                               
TOTAL ASSETS  $27,198,602   $44,448,264   $153,507   $44,601,771   $56,415,091   $128,215,464 
                               
LIABILITIES AND STOCKHOLDER’S EQUITY                              
                               
Current liabilities:                              
Accounts payable   2,286,347   $3,830,530   $201,803    4,032,333        $6,318,680 
Line of credit   -    -    -    -         - 
Other current liabilities   5,157,202    616,226    -    616,226         5,773,428 
Deferred revenue - current        2,468,624    77,902    2,546,526         2,546,526 
Convertible notes   118,813    -    -    -         118,813 
Loans payable   -    12,325    -    12,325         12,325 
Total current liabilities   7,562,362    6,927,705    279,705    7,207,410    -    14,769,772 
                               
Long-term liabilities                              
Derivative liabilities   1,911,381    -    -    -         1,911,381 
Deferred tax liabilities   -    234,966    -    234,966         234,966 
Deferred revenue - long-term   -    4,151,548    (279,705)   3,871,843         3,871,843 
Other long term liabilities   738,208    518,266    -    518,266         1,256,474 
Total current and long-term liabilities   10,211,951    11,832,485    -    11,832,485    -    22,044,436 
                               
Stockholder's equity:                              
Preferred shares   -    -    -    -         - 
Common stock   324,866,254    24,418,230    -    24,418,230    71,569,347    420,853,831 
Additional paid in capital   -    66,250,916    222,667    66,473,583    (66,473,583)   - 
Treasury stock   -    (2,458,068)   -    (2,458,068)   2,458,068    - 
Accumulated other comprehensive loss   (6,202,289)   2,296,813    -    2,296,813    (2,296,813)   (6,202,289)
Accumulated deficit   (301,677,314)   (57,892,112)   (69,160)   (57,961,272)   51,158,072    (308,480,514)
Total stockholder's equity   16,986,651    32,615,779    153,507    32,769,286    56,415,091    106,171,028 
                               
TOTAL LIABILITIES AND EQUITY  $27,198,602   $44,448,264   $153,507   $44,601,771   $56,415,091   $128,215,464 

 

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Pareteum Corporation

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Three Months Ended March 31, 2018

 

       Artilium plc         
   Historical
 Pareteum
   Historical U.S.
Dollars (IFRS)
   Pro Forma
Reclassification
Adjustments
(Note 1)
   Pro Forma (U.S.
GAAP)
   Pro Forma
Adjustments
(Note 2)
   Pro Forma
Condensed
Combined
 
Revenue  $4,112,570   $6,383,434   $-   $6,383,434    -   $10,496,004 
Cost of revenue   1,194,523    3,326,877    -    3,326,877         4,521,400 
Gross profit   2,918,047    3,056,557    -    3,056,557    -    5,974,604 
Operating expenses:                              
Selling, general and administrative   4,751,585    3,825,282    24,370    3,849,652    6,803,200    15,404,437 
                               
Loss before other income / (expenses)   (1,833,538)   (768,725)   (24,370)   (793,095)   (6,803,200)   (9,429,833)
                              
Interest expense   (50,562)   (24,016)   -    (24,016)   -    (74,666)
Changes in derivative liabilities   (313,733)   -    -    -    -    (313,733)
Other income   69,545    -    -    -    -    69,545 
Amortization of deferred financing costs   (6,142)             -    -    (6,142)
                               
Net loss before income tax   (2,134,518)   (792,741)   (24,370)   (817,111)   (6,803,200)   (9,754,829)
Benefit for income taxes   (418)   (61,235)   -    (61,235)   -    (61,653)
                               
Net Loss   (2,134,100)   (731,506)   (24,370)   (755,876)   (6,803,200)   (9,693,176)
Foreign currency loss   104,402    (1,890,429)   -    (1,890,429)   -    (1,786,027)
Change in fair value of available for sale securities   -    851,068    -    851,068    -    851,068 
                               
Comprehensive Loss  $(2,029,698)  $(1,770,867)  $(24,370)  $(1,795,237)  $(6,803,200)  $(10,628,135)
                               
Net income (loss) per common share from continuing operations:                              
                               
Basic  $(0.04)  $(0.01)   -   $(0.01)  $(0.18)  $(0.12)
Diluted  $(0.04)  $(0.01)   -   $(0.01)  $(0.18)  $(0.12)
                               
Weight average common share outstanding:                              
Basic   50,062,434    353,732,000    -    353,732,000    37,852,076    87,914,510 
Diluted   50,062,434    353,732,000    -    353,732,000    37,852,076    87,914,510 

 

Pro forma adjustments

 

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:

 

Adjustments to the pro forma condensed combined balance sheet:

 

1)Note 1 reflects the conversion of the Artilium financial statements from IFRS to U.S. GAAP; and

 

2)Note 2 reflect the purchase price and preliminary estimate of goodwill, which represents the excess of the purchase price over the fair value of assets acquired of Artilium.

 

Artilium, plc is a UK public company whose audited financial statements are presented under IFRS. In connection with Pareteum’s planned acquisition of Artilium, the combined consolidated balance sheets and statements of operations of both entities, as of as of March 31, 2018 and for the quarter ended were prepared. The following entry was made to convert Artilium’s IFRS financial statements to U.S. GAAP:

 

Note 1  Goodwill   153,507     
   Accumulated deficit   44,791      
   Deferred revenues - long-term   279,705      
   Selling, general and administrative   24,370      
   Accounts payable       $201,803 
   Deferred revenues - current        77,902 
   Additional paid in capital        222,667 

 

 64 

 

 

 The above entry represents the following adjustments:

 

1)Adjustment to increase goodwill with a corresponding credit to additional paid in capital of $153,507 due to fair value adjustment on the shares to be issued as consideration in the acquisition of IDM.
2)Adjustment to record stock-based compensation expense for options granted to two officers of Artilium, plc in July 2017 in the amount of $44,791 and $24,370 for the year ended December 31, 2017 and for the quarter ended March 31, 2018 with a corresponding credit to additional paid in capital of $69,161.
3)Adjustment to correct the overstatement in deferred revenue-long-term of $279,705 and to reclass accruals of $201,803 which were erroneously classified as deferred-current to accounts payable.

 

The following adjustments represent the acquisition and consolidation of Artilium by Pareteum.

 

Note 2  Common stock   24,418,230     
   Additional paid-in capital   66,473,583      
   Treasury stock        2,458,068 
   Accumulated other comprehensive gain (loss)   2,296,813      
   Accumulated deficit        57,961,272 
   Goodwill   82,991,482      
   Professional Fees - M&A   6,803,200      
   Cash        8,864,348 
   Cash - M&A Costs        6,602,900 
   Investments        11,109,143 
   Common Stock        95,787,177 
   Common Stock - M&A Fees        200,400 

 

As a part of the acquisition Pareteum acquired Artillium in a common stock purchase and Note 2 represents the entry:

 

1)All Artilium shareholder’s equity balances are adjusted by $32,769,286 to reflect the transaction as if completed. Goodwill for the difference of net assets acquired and fair market value totals approximately $82,991,482.
2)Cash payments for the acquisition and professional fees for the transaction are approximately $8,864,348 and $6,602,900.
3)Additional professional fees are to be paid in stock in the amount of approximately $200,400. The elimination of net investment between companies is approximately $11,109,143.
4)Pareteum will issue equity of approximately $95,787,177 to complete the transaction.

 

 65 

 

 

Pareteum Corporation
Unaudited Pro Forma Condensed Combined Statement of Financial Position
For the Year Ended December 31, 2017

  

       Artilium plc         
   Historical
Pareteum
   Historical U.S.
Dollars (IFRS)
   Pro Forma
Reclassification
Adjustments
(Note 1)
   Pro Forma (U.S.
GAAP)
   Pro Forma
Adjustments
(Note 2)
   Pro Forma
Condensed
Combined
 
ASSETS                              
Current assets:                              
Cash and cash equivalents  $13,737,675   $3,499,113   $-   $3,499,113   $(15,467,248)  $1,769,540 
Accounts receivable, net   2,058,284    4,725,090    (1,081,760)   3,643,330    -    5,701,614 
Other current assets   900,369    134,312    -    134,312    -    1,034,681 
Total current assets   16,696,328    8,358,515    (1,081,760)   7,276,755    (15,467,248)   8,505,835 
                               
Investments   3,230,208    6,596,487    -    6,596,487    (9,826,695)   - 
Fixed assets, net   4,713,710    545,494    -    545,494    -    5,259,204 
Note receivable   594,520    -    -    -    -    594,520 
Intangible assets   -    3,749,141    -    3,749,141    -    3,749,141 
Other assets   91,267    -    -    -    -    91,267 
Goodwill   -    20,549,865    -    20,549,865    85,315,016    105,864,881 
                               
TOTAL ASSETS  $25,326,033   $39,799,502   $(1,081,760)  $38,717,742   $60,021,073   $124,064,848 
                               
LIABILITIES AND STOCKHOLDER’S EQUITY                              
                               
Current liabilities:                              
Accounts payable  $1,978,726   $2,749,261   $(187,743)  $2,561,518    -   $4,540,244 
Other current liabilities   5,493,116    119,986    -    119,986    -    5,613,102 
Deferred revenue - current   -    2,260,347    (285,507)   1,974,840    -    1,974,840 
Convertible notes   66,000    -    -    -    -    66,000 
Loans payable   -    11,999    -    11,999    -    11,999 
Total current liabilities   7,537,842    5,141,593    (473,250)   4,668,343    -    12,206,185 
                               
Long-term liabilities                              
Derivative liabilities   1,597,647    -    -    -    -    1,597,647 
Deferred tax liabilities   -    314,282    -    314,282    -    314,282 
Deferred revenue - long-term   -    4,344,608    (608,510)   3,736,098    -    3,736,098 
Other long term liabilities   769,011    835,715    -    835,715    -    1,604,726 
Total current and long-term liabilities   9,904,500    10,636,198    (1,081,760)   9,554,438    -    19,458,938 
                               
Stockholder's equity:                              
Preferred shares   -    -    -    -    -    - 
Common stock   321,271,437    23,484,192    -    23,484,192    72,503,385    417,259,014 
Additional paid-in capital   -    62,156,505    44,791    62,201,296    (62,201,296)   - 
Treasury stock   -    (2,458,068)   -    (2,458,068)   2,458,068    - 
Accumulated other comprehensive gain (loss)   (6,306,691)   3,141,281    -    3,141,281    (3,141,281)   (6,306,691)
Accumulated deficit   (299,543,213)   (57,160,606)   (44,791)   (57,205,397)   50,402,197    (306,346,413)
Total stockholder's equity   15,421,533    29,163,304    -    29,163,304    60,021,073    104,605,910 
                               
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY  $25,326,033   $39,799,502   $(1,081,760)  $38,717,742   $60,021,073   $124,064,848 

 

 66 

 

 

Pareteum Corporation

Unaudited Pro Forma Condensed Combined Statement of Operations

For the 12 month period ended December 31, 2017

 

 

       Artilium plc         
   Historical
Pareteum
   Historical U.S.
Dollars (IFRS)
   Pro Forma
Reclassification
Adjustments
(Note 1)
   Pro Forma (U.S.
GAAP)
   Pro Forma
Adjustments
(Note 2)
   Pro Forma
 Condensed
Combined
 
Revenue  $13,547,507   $12,246,485   $-   $12,246,485    -   $25,793,992 
Cost of revenue   3,683,609    2,943,919    -    2,943,919    -    6,627,528 
Gross profit   9,863,898    9,302,566    -    9,302,566         19,166,464 
Operating expenses:                              
Selling, general and administrative   18,651,085    10,684,607    44,791    10,729,398    6,803,200    36,183,683 
Income before other income / (expenses)   (8,787,187)   (1,382,041)   (44,791)   (1,426,832)   (6,803,200)   (17,017,219)
                               
Interest expense   (4,890,900)   (243,605)   -    (243,605)   -    (5,134,505)
Changes in derivative liabilities   794,691    -    -    -    -    794,691 
Other income   705,140    -    -    -    -    705,140 
Amortization of deferred financing costs   (177,519)   -    -    -    -    (177,519)
                               
Net income before income tax   (12,355,775)   (1,625,646)   (44,791)   (1,670,437)   (6,803,200)   (20,829,412)
Provision (benefit) for income taxes   107,205    (301,008)   -    (301,008)        (193,803)
                               
Net Loss   (12,462,980)   (1,324,638)   (44,791)   (1,369,429)   (6,803,200)   (20,635,609)
Foreign currency translation gain (loss)   (1,219,782)   810,157    -    810,157    -    (409,625)
Change in fair value of available for sale securities   -    2,331,124    -    2,331,124    -    2,331,124 
                               
Comprehensive Loss  $(13,682,762)  $1,816,643   $(44,791)  $1,771,852   $(6,803,200)  $(18,714,110)
                               
Net income (loss) per common share from continuing operations:                              
Basic  $(0.84)  $(0.01)  $-   $(0.01)  $(0.18)  $(0.35)
Diluted  $(0.84)  $(0.01)  $-   $(0.01)  $(0.18)  $(0.38)
                               
Weight average common share outstanding:                              
Basic   16,338,156    316,418,000    -    316,418,000    37,852,076    54,190,232 
Diluted   16,338,156    316,418,000    -    316,418,000    37,852,076    54,190,232 

 

Pro forma adjustments

 

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:

 

Adjustments to the pro forma condensed combined balance sheet:

 

1)Note 1 reflects the conversion of the Artilium financial statements from IFRS to U.S. GAAP; and

 

2)Note 2 reflect the purchase price and preliminary estimate of goodwill, which represents the excess of the purchase price over the fair value of assets acquired of Artilium.

 

Artilium, plc is a UK public company whose audited financial statements are presented under IFRS. In connection with Pareteum’s planned acquisition of Artilium, the combined consolidated balance sheets and statements of operations of both entities, as of December 31, 2017 and for the year then ended were prepared. The following entry was made to convert Artilium’s IFRS financial statements to U.S. GAAP:

 

Note 1  Accounts payable   187,743     
   Deferred revenues - current   285,507      
   Deferred revenues - long-term   608,510      
   Selling, general and administrative   44,791      
   Accounts receivable        1,081,760 
   Additional paid in capital        44,791 

 

 67 

 

 

The above entry represents the following adjustments:

 

1)Adjustment to accounts payable, deferred revenues-current and deferred revenues – long-term of $187,743, $285,507 and $608,510, respectively, with a corresponding credit to accounts receivable of $1,081,760 to correct the overstatement in deferred revenue for amounts billed but not collected as of December 31, 2017.
2)Adjustment to increase selling, general and administrative by $44,791 with a corresponding credit to additional paid in capital to record stock-based compensation for options granted to two officers of Artilium, plc.

 

The following adjustments represent the acquisition and consolidation of Artilium by Pareteum.

 

Note 2  Common stock   23,484,192     
   Additional paid-in capital   62,201,296      
   Treasury stock        2,458,068 
   Accumulated other comprehensive gain (loss)   3,141,281      
   Accumulated deficit        57,205,397 
   Goodwill   85,315,016      
   Professional Fees - M&A   6,803,200      
   Cash        8,864,348 
   Cash - M&A Costs        6,602,900 
   Investments        9,826,695 
   Common Stock        95,787,177 
   Common Stock - M&A Fees        200,400 
              
   To record purchase of Artillium plc          

 

As a part of the acquisition Pareteum acquired Artillium in a common stock purchase and Note 2 represents the entry:

 

1)All Artilium shareholder’s equity balances are adjusted by $32,769,286 to reflect the transaction as if completed. Goodwill for the difference of net assets acquired and fair market value totals approximately $82,991,482.
2)Cash payments for the acquisition and professional fees for the transaction are approximately $8,864,348 and $6,602,900.
3)Additional professional fees are to be paid in stock in the amount of approximately $200,400. The elimination of net investment between companies is approximately $11,109,143.
4)Pareteum will issue equity of approximately $95,787,177 to complete the transaction.

 

 68 

 

 

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF ARTILIUM

(in Euros, except per share information)

 

The following tables set forth certain selected consolidated financial data of Artilium as of and for the fiscal years ended June 30, 2017 and 2016 and certain selected consolidated financial data of Artilium as of and for the nine-month periods ended March 31, 2018 and 2017. The information for the fiscal years ended June 30, 2017 and 2016 was derived from Artilium’s consolidated financial statements which were prepared in accordance with IFRS, as adopted by the European Union and IFRS as issued by the International Accounting Standards Board (“IASB”). The information as of the nine-month periods ended March 31, 2018 and 2017 was derived from Artilium’s consolidated financial statements. These financial statements have been prepared on a basis consistent with the consolidated financial statements of Artilium. The operating results for the nine months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the full fiscal year. The information set forth below is a summary that should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Artilium” and the historical consolidated financial statements and related notes included in this proxy statement. Historical results are not necessarily indicative of the results to be expected in the future.

 

   For the Nine Months
Ended March 31
  

For the Fiscal Year

Ended June 30

 
   2018   2017   2017   2016 
Statement of Operations Data                       

 

   31 March   31 March   30 June   30 June 
   2018   2017   2017   2016 
   €’000   €’000   €’000   €’000 
Continuing Operations                    
Revenue   10,675    8,103    10,452    9,622 
Cost of sales   (3,908)   (2,025)   (2,716)   (2,599)
Gross profit   6,767    6,078    7,737    7,023 
Depreciation and amortization   (1,251)   (1,324)   (1,768)   (1,411)
Administrative expenses before redundancy costs   (6,333)   (5,859)   (7,413)   (6,835)
Redundancy costs   (131)   (287)   (227)   (294)
Operating loss   (948)   (1,392)   (1,671)   (1,517)
Finance costs   (87)   (352)   (324)   (200)
Loss before tax   (1,035)   (1,744)   (1,995)   (1,717)
Tax credit   169    170    235    191 
Loss for the period from continuing operations attributable to owners of the Company   (866)   (1,574)   (1,760)   (1,526)

 

 69 

 

 

   As of March 31 €000   As of June 30 €000 
   2018   2017   2017   2016 
Balance Sheet Data                    
Cash and cash equivalents   2,220    3,531    2,863    422 
Total assets   36,066    28,891    27,853    26,359 
Total long-term liabilities   3,980    5,842    1,255    2,064 
Total equity   26,465    17,246    17,404    18,085 

 

 70 

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF ARTILIUM

  

You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with Artilium plc’s consolidated financial statements and related notes that appear elsewhere in this proxy statement.

 

Business Overview

 

Artilium is an innovative software development company active in the enterprise communications and core telecommunication markets.

 

In broad terms, Artilium provides services to both telecommunications infrastructure customers, such as Proximus and Telenet, and enterprise customers, such as Philips. Telecommunications infrastructure customers include Mobile Network Operators (MNOs), Mobile Virtual Network Operators (MVNOs), Mobile Virtual Network Enablers (MVNEs), fixed and alternative operators, hosting providers, system integrators and managed service providers. Across products and businesses, Artilium provides services to more than 20 million end-users.

 

Artilium’s core product offering is the ARTA® platform, a mobile enablement platform which allows network operators to open networks to third party developers and launch new services in a flexible manner. Artilium can provide its customers with a customized version of its ARTA Service Delivery Platform, suitably tailored for the needs of the user, or as a product suite from the cloud, which we refer to as a Platform-as-a-Service.

 

The ARTA platform can support multiple configurations depending upon the requirements of the operator and/or managed services provider, as the following examples demonstrate:

 

·Network operators can provide third-party developers with access to their network, allowing that third party to benefit from the rapid applications and services delivery models of the web in delivering a new wave of mobile services.

 

·Cable companies innovating with “triple-play” offerings (the combined offering of TV, broadband Internet and home phone as a bundle) and “quad-play” offerings (adding mobile to the “triple-play”) can deliver, monetize and manage new revenue-generating services such as pay-per-download, toll-free and premium number services, segmented mobile offerings and online self-care.

 

·Companies that deliver connected devices, smart home solutions and other connected applications can access the specific functionality designed for the IoT (Internet of Things) segment.

 

Artilium is headquartered in Bruges, Belgium. Artilium plc, the holding company of the Artilium Group, maintains its registered office in London, the United Kingdom, and its shares are quoted on AIM, a sub-market of the London Stock Exchange.

 

The Artilium Group has three other significant trading businesses, as follows:

 

·Interactive Digital Media ("IDM"), an international cloud communications provider headquartered in Lubeck, Germany that was acquired by the Artilium Group in January 2018. IDM is focused on providing enterprise messaging and communication, cost-efficient SMS (Short Message Service) wholesale and application-to-person SMS hubbing directly to internet clients. Its customers include MNO’s as well as large corporates. IDM is an Associate Member of the GSM Association, a European trade body for mobile operators and a certified Open Connectivity Solution Provider.

 

 71 

 

 

·United Telecom, a provider and reseller of telecommunications services in Belgium and the Netherlands, headquartered in Rotselaar, Belgium. Its telecom operating services include the development and sale of carrier grade services for telecom service providers, including fixed, mobile, and VoIP (Voice over internet protocol). United Telecom uses ARTA technology to provide managed services to MVNOs and enterprises, and has several of its own brands with which it offers its services directly to its customers;

 

·Artilium BV, which operates under the trade names Comsys and Livecom and is referred to as the Comsys segment in the consolidated financial statements. Comsys operates from Soesterberg, the Netherlands, and provides interactive telephony services, multi-channel call center solutions and value-added communication services such as voicemail, call routing, smart roaming as well as voice services to large telecommunication as well as enterprise customers. We acquired Comsys in September 2015 and Livecom in July 2015.

 

Artilium is a Microsoft Gold Certified Partner and enjoys a close working relationship with the Group.

 

Key Income Statement Items

 

Revenue

 

The sources of revenue for each of the Artilium Group’s four reportable segments are described below.

 

Artilium earns revenues from the sale of licenses for proprietary software, professional services relating to project management and implementation, the resale of third party hardware and software, after-sale maintenance contracts as well as subscriber fees dependent on the number of users on the platform.

 

United Telecom earns revenues from providing telecom operating services including enterprise cloud communication solutions to telecom services providers and as a retailer of fixed and mobile telecommunications services, which it resells.

 

Comsys earns revenues from the sale of interactive telephony services, call center solutions and other telecommunications products such as voicemail services. It sells licenses for proprietary software, professional services relating to project management and implementation, after-sale maintenance contracts as well as subscriber fees dependent on the number of users on the platform.

 

IDM earns revenues from the sales of SMS and voice messaging services as well as the wholesale and resale of these services to other service providers. IDM earns revenues on each text message sent, but margins on these sales are relatively low.

 

The Artilium Group’s revenues do not have any seasonal variation.

 

Cost of sales

 

Cost of sales includes all of the Artilium Group’s costs directly related to delivering the software and services for which it recognizes revenue during a period. As software and service providers, Artilium, United Telecom and Comsys can generate higher revenues with a relatively fixed cost base, generating higher margins as the business grows. In contrast, IDM is a high volume low margin business. It incurs a cost for each text message sent, which it passes on to its customers while charging a small premium.

 

 72 

 

 

Depreciation and amortization

 

Depreciation and amortization are non-cash items related to the reduction in value over time of the Artilium Group’s tangible and intangible assets respectively.

 

The Artilium Group’s intangible assets include proprietary intellectual property, consisting of software and customer portfolios, the intellectual property the Group has acquired as a result of acquisitions and the goodwill it recognizes on its balance sheet as a result of acquisitions.

 

Goodwill, which arises from the acquisition of subsidiaries, is not amortized but tested annually for impairment.

 

The Artilium Group does not generally capitalize software development costs, other than in isolated instances when a new standalone product is developed by outsourced parties. Software development costs are principally expensed as administrative expenses in the period in which they occur unless specific criteria are met.

 

Administrative expenses

 

Administrative expenses consist primarily of salaries and related expenses, including share-based compensation, for non-employee directors, finance and accounting, legal, internal audit and human resources personnel; marketing and sales expenses; legal costs; professional fees and other corporate expenses. Many of these costs are centralized across the Artilium Group’s business units and it accounts for them on a group-wide basis.

 

Administrative expenses also include redundancy costs, which have occurred each of the periods under review as a result of the Group’s acquisitions.

 

Finance costs

 

Finance costs are comprised of the interest paid on bank loans and on other loans.

 

Tax credit

 

The tax credit represents the sum of current and deferred tax.

 

The Artilium Group calculates tax credits with respect to its operating losses based on the applicable tax rates in the jurisdictions in which it operates, together with the release of deferred tax liabilities recognised in respect of separately identifiable intangible assets on business combinations. These tax credits appear as a non-cash item on the consolidated income statement. The Artilium Group does not recognize tax assets on unutilized losses unless it is probable that taxable profits will be available in future periods.

 

Results of Operations

 

Effect of acquisitions

 

The Artilium Group has grown rapidly as a result of acquisitions. On January 16, 2018, the Group acquired Interactive Digital Media, a German cloud communication company. During the year ended June 30, 2017, the Group acquired Ello Mobile and Wbase, and during the year ended June 30, 2016, it acquired Comsys, Livecom, Speakup Belgium, Talking Sense Networks and *bliep. These acquisitions, in particular the acquisition of IDM, as a result of which the Artilium Group expects its revenues to increase by 45%, affect the comparability of the Artilium Group’s results of operations across the periods under review.

 

Comparison of the nine-month periods ended March 31, 2018 and 2017

 

The following table summarizes the results of operations for the nine-month periods ended March 31, 2018 and 2017:

 

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   Nine-month period ended March 31,    
   2018   2017   % change 
   (in thousands of euros)     
Revenue   10,675    8,103    31.7%
Cost of sales   (3,908)   (2,025)   93.0%
Gross Profit   6,767    6,078    11.3%
Depreciation and amortization   (1,251)   (1,324)   (5.5)%
Administrative expenses before redundancy costs   (6,333)   (5,859)   8.1%
Redundancy costs   (131)   (287)   (54.4)%
Administrative expenses   (6,464)   (6,146)   5.2%
Operating loss   (948)   (1,392)   (31.9)%
Finance costs   (87)   (352)   (75.3)%
Loss before tax   (1,035)   (1,744)   (40.7)%
Tax credit   169    170    (0.1)%
Loss for the year from continuing operations   (866)   (1,574)   (45.0)%

 

Revenue

 

Revenues increased by 31.7%, from 8.1 million euros in the nine-month period ended March 31, 2017 to 10.7 million euros in the nine-month period ended March 31, 2018.

 

The breakdown of revenue by segment was as follows:

 

   Nine-months ended March 31, 
   2018   2017 
   (in thousands of euros) 
Artilium   3,044    3,191 
United Telecom   3,492    3,250 
Comsys   1,555    1,662 
IDM   2,584    - 
Total   10,675    8,103 

 

Artilium’s revenues decreased by 4.6%, from 3.2 million euros to 3.0 million euros, driven by slightly lower project work, which it is expected will catch up in the next quarter.

 

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United Telecom’s revenues increased by 7.4%, from 3.3 million euros to 3.5 million euros. Revenues from mobile and fixed line call charges remained stable and the increase is due to the integration of the Digiweb customer base, with an increase in sales offsetting the effect of price reductions, while revenue from telecom operating services remained stable.

 

Comsys’s revenues decreased by 6.4%, from 1.7 million euros to 1.6 million euros, driven by the timing of projects that should be delivered in the next quarter.

 

Overall revenue growth reflected the consolidation of revenues from IDM starting from January 2018.

 

Cost of sales

 

Cost of sales increased by 93%, from 2.0 million euros in the nine-month period ended March 31, 2017 to 3.8 million in the nine-month period ended March 31, 2018. This was driven by the consolidation of IDM, which is a low margin business with high cost of sales relative to its revenues, as well as the acquisition of customers from Digiweb.

 

Depreciation and amortization

 

Depreciation and amortization decreased by 5.5%, from 1.3 million euros in the nine-month period ended March 31, 2017 to 1.25 million in the nine-month period ended March 31, 2018. At the time of the acquisitions of IDM, Wbase, Comsys, Livecom, Ello and Speakup, the Artillium Group recognized a deferred tax liability in respect of the intangible assets on business combinations, primarily representing the client portfolio and software recognized in connection with the acquisitions. As the intangible asset is amortized, the decrease in value of the corresponding tax liability has a positive non-cash effect on the income statement.

 

Administrative expenses

 

Administrative expenses increased by 5.2%, from 6.1 million euros for the nine-month period ended March 31, 2016 to 6.5 million euros for the nine-month period ended March 31, 2017

 

The change was broadly in line with the increase in revenues and driven by the expansion of the Artilium Group’s business. Administrative expenses included redundancy costs in both periods, which were the result of consolidation after acquisitions.

 

Finance costs

 

Finance costs decreased by 75.3%, from 0.35 million euros for the nine-month period ended March 31, 2016 to 87,000 euros for the nine-month period ended March 31, 2017. In July 2016, the Group borrowed 1 million euros from external investors to finance a loan to Green IT Globe in connection with a strategic alliance with Green IT Globe. In September 2017, the Artilium Group repaid the loan, leading to a reduction in interest payments.

 

Tax credit

 

The tax credit remained stable across the two periods, at 0.2 million euros, reflecting the release of deferred tax liabilities recognised on separately identifiable intangible assets on business combinations.

 

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Comparison of the years ended June 31, 2017 and 2016

 

The following table summarizes the results of operations for years ended June 30, 2017 and 2016:

 

   Year ended June 30,    
   2017   2016   % change 
   (in thousands of euros)     
Revenue   10,452    9,622    8.6%
Cost of sales   (2,715)   (2,599)   4.5%
Gross Profit   7,737    7,023    10.2%
Depreciation and amortization   (1,768)   (1,411)   25.3%
Administrative expenses before redundancy costs   (7,413)   (6,835)   8.5%
Redundancy costs   (227)   (294)   (22.8)%
Administrative expenses   (7,640)   (7,129)   7.2%
Operating loss   (1,671)   (1,517)   10.2%
Finance costs   (324)   (200)   62.0%
Loss before tax   (1,995)   (1,717)   16.2%
Tax credit   235    191    23.0%
Loss for the year from continuing operations   (1,760)   (1,526)   15.3%

 

Revenue

 

Revenues increased by 8.6%, from 9.6 million euros in the year ended June 30, 2016 to 10.5 million euros in the year ended June 30, 2017.

 

The breakdown of revenue by segment was as follows:

 

   Year ended June 30, 
   2017   2016 
   (in thousands of euros) 
Artilium   4,147    3,881 
United Telecom   4,128    4,108 
Comsys   2,177    1,633 
Total   10,452    9,622 

 

Artilium’s revenues increased by 6.9%, from 3.9 million euros to 4.1 million euros, driven by increased license and subscriber fees. Fees from professional services relating to project management and implementation were lower than in 2016, while revenues from maintenance and support contracts remained stable.

 

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United Telecom’s revenues remained broadly stable at 4.1 million euros in both periods. Revenues from mobile and fixed line call charges remained stable, with an increase in sales