UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☒                            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))
☐		Definitive Proxy Statement
☐		Definitive Additional Materials
☐		Soliciting Material Pursuant to §240.14a-12

Inovalon Holdings, Inc.

(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:   Class A Common Stock, par value $0.000005 per share   Class B Common Stock, par value $0.000005 per share
(2)		Aggregate number of securities to which transaction applies:   73,154,564 shares of Class A Common Stock; (B) 78,081,076 shares of Class B Common Stock; (C) 97,932 options to purchase shares which would convert into 79, 202 issued shares (such amount determined using a weighted average exercise price per share of $7.84); (D) 14,549 shares of Class A Common Stock issuable upon settlement of Company RSUs; and (E) 5,012,005 shares of Class A Common Stock issuable upon settlement of Company RS Awards (assuming the maximum achievement of the performance goals applicable to performance-vesting Company RS Awards, and assuming the satisfaction of all other conditions to such delivery)
(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): $41.00 per share In accordance with Exchange Act Rule 0-11(c), the filing fee of $698,240 was determined by multiplying 0.0001091 by the aggregate Merger Consideration of 6,400,000. The aggregate Merger Consideration was calculated as the sum of:   (A) 73,154,564 shares of Class A Common Stock multiplied by the Merger Consideration of $41.00 per share;   (B) 78,081,076 shares of Class B Common Stock multiplied by the Merger Consideration of $41.00 per share;   (C) 97,932 options to purchase Shares which would convert into 79, 202 issued Shares (such amount determined using a weighted average exercise price per share of $7.84 and the Merger Consideration of $41.00 per Share) multiplied by the Merger Consideration of $41.00 per share;   (D) 14,549 shares of Class A Common Stock issuable upon settlement of Company RSUs multiplied by the Merger Consideration of $41.00 per share; and   (E) 5,012,005 shares of Class A Common Stock issuable upon settlement of Company RS Awards multiplied by the Merger Consideration of $41.00 per share (assuming the maximum achievement of the performance goals applicable to performance-vesting Company RS Awards, and assuming the satisfaction of all other conditions to such delivery).
(4)		Proposed maximum aggregate value of transaction:   $6,400,000,000
(5)		Total fee paid:   $698,240
☐		Fee 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:

 

 

 

PRELIMINARY PROXY MATERIALS—SUBJECT TO COMPLETION

 

INOVALON HOLDINGS, INC.

4321 Collington Road

Bowie, MD 20716

301-809-4000

[                    ], 2021

Dear Stockholder:

You are cordially invited to attend a special meeting (such meeting, including any adjournments or postponements thereof, the “Special Meeting”) of the stockholders of Inovalon Holdings, Inc., a Delaware corporation (the “Company” or “Inovalon”), to be held virtually via live webcast on [                     ], 2021, at [     ] Eastern Time at [http://                     ]. In light of the ongoing coronavirus (COVID-19) pandemic, the Special Meeting will be held in a virtual meeting format only, via live webcast, without a physical meeting location. Please be sure to follow instructions found in the accompanying proxy statement and the accompanying notice of Special Meeting (the “Notice of Special Meeting”). Details regarding the business to be conducted at the Special Meeting are described in the accompanying proxy statement and the Notice of Special Meeting.

At the Special Meeting, you will be asked to consider and vote upon the proposal to approve and adopt the Agreement and Plan of Merger, dated as of August 19, 2021 (as amended from time to time, the “Merger Agreement”) by and among the Company, Ocala Bidco, Inc., a Delaware corporation (“Parent”), and Ocala Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are entities that are affiliated with Nordic Capital Epsilon SCA, SICAV-RAIF, a société en commandite par actions — société d’investissement à capital variable — fonds d’investissement alternatif réservé, acting through and represented by its managing general partner Nordic Capital Epsilon GP SARL for and on behalf of its compartment Nordic Capital Epsilon SCA, SICAV-RAIF — Compartment 1 (“Nordic Capital X”). Nordic Capital X is leading a consortium of private equity investors providing equity financing for the Merger.

Under the terms of the Merger Agreement, the consortium of private equity investors led by Nordic Capital X will indirectly acquire the Company in an all-cash transaction with an enterprise value of approximately $7,300,000,000. Inovalon stockholders will receive $41.00 per share in cash without interest (the “Merger Consideration”) for each share of the Class A common stock, par value $0.000005, of the Company (the “Company Class A Common Stock”) or Class B common stock, par value $0.000005, of the Company (the “Company Class B Common Stock”) (subject to certain adjustments, as described further below), upon the closing of the transaction. The Company board of directors (the “Company Board”) (other than Dr. Dunleavy, who recused himself) believes this transaction, which is the result of a robust process undertaken by the Special Committee (as defined below), maximizes value for Inovalon stockholders and is in the best interest of the Company. Dr. Dunleavy will continue to be a substantial shareholder in the Company, serve on the Company Board and continue as Inovalon’s CEO. The Merger Agreement and the transactions contemplated thereby, including the Merger, are described further in the accompanying proxy statement.

Your vote is very important. Whether or not you plan to attend the virtual Special Meeting, you are urged to vote your shares as promptly as possible to ensure your representation at the Special Meeting. Please review the instructions in the accompanying Notice of Special Meeting and proxy statement regarding voting.

If the Merger is completed, each share of Inovalon common stock that is issued and outstanding immediately prior to the effective time of the Merger will be cancelled and extinguished and automatically converted into and shall thereafter represent the right to receive the Merger Consideration, except for: (i) certain shares held by affiliates of Dr. Dunleavy and Cape Capital SCSp, SICAR — Inovalon Sub-Fund, a Luxembourg special limited partnership (“Cape Capital” and together with Dr. Dunleavy, the “Rollover Stockholders”) who, as a condition to the willingness of Nordic Capital X and Parent to enter into the Merger Agreement, agreed pursuant to the terms of certain rollover agreements, dated as of August 19, 2021, to exchange a portion of such shares of Inovalon common stock for equity interests of Ocala Topco, Inc., a Delaware corporation, which in turn will be exchanged for equity interests of Ocala Topco, LP, a Delaware limited partnership, in each case subject to the terms and conditions of the applicable rollover agreement; (ii) shares held by Parent or Merger Sub (or any of their respective subsidiaries) or in the treasury of Inovalon; and (iii) shares held by a stockholder who properly exercises and perfects appraisal of his, her or its shares under Delaware law.

The proposed transaction constitutes a “going-private transaction” under the rules of the SEC.

The Company Board formed a special committee (the “Special Committee”) consisting solely of independent and disinterested directors of the Company Board to, among other things, consider, review, evaluate and negotiate the Merger Agreement and the transactions contemplated thereby, including the Merger, and any other alternatives available to the Company, including the possibility of not entering into any transaction or entering into an alternative transaction with another third party, and to provide its recommendations to the Company Board for its approval.

The Special Committee, as more fully described in the accompanying proxy statement, evaluated the Merger, in consultation with the Company’s management and its own independent legal and financial advisors and considered various material factors. After careful consideration, the Special Committee unanimously: (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair, advisable and in the best interests of the Company and the Company’s stockholders other than the Rollover Stockholders, their respective affiliates or any executive officer or director of the Company (the “Public Stockholders”); (ii) recommended that the Company Board approve and declare advisable the Merger Agreement and the transactions contemplated thereby, including the Merger, and submit the Merger Agreement to the Inovalon stockholders for approval and adoption; and (iii) recommended that the Company Board approve the Merger Agreement, the Support Agreements and the Rollover Agreements (each as defined in the Merger Agreement) for purposes of Section 203 of the Delaware General Corporation Law (the “DGCL”).

Based in part on the unanimous recommendation of the Special Committee, the Company Board (other than Dr. Dunleavy, who recused himself): (i) determined and declared that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair, advisable and in the best interests of the Company and the Public Stockholders (defined above) and recommended the adoption of the Merger Agreement by the Inovalon stockholders, subject to certain terms and conditions in the Merger Agreement; (ii) approved the Merger Agreement, the terms and conditions thereof and the transactions contemplated thereby, including the Merger, and ratified any and all actions theretofore taken or thereafter to be taken by the members of the Special Committee, or, at the direction of the Special Committee, in connection with the consummation of the transaction; and (iii) approved the Merger Agreement, the Support Agreements and the Rollover Agreements for purposes of Section 203 of the DGCL. In evaluating the Merger, the Company Board (other than Dr. Dunleavy, who recused himself) and the Special Committee also consulted with the Company’s management, legal and other advisors and considered various material factors.

The Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) recommends that you vote “FOR” the proposal to approve and adopt the Merger Agreement and the transactions contemplated thereby, including the Merger.

Your vote is very important, regardless of the number of shares you own. The approval of the proposal to adopt the Merger Agreement requires the affirmative vote of: (i) the holders of a majority of the voting power of Inovalon’s outstanding common stock entitled to vote in accordance with the DGCL, with holders of Company Class A Common Stock and Company Class B Common Stock voting together as a single class; (ii) the holders of a majority of the outstanding shares of Company Class A Common Stock entitled to vote in accordance with the DGCL; (iii) the holders of a majority of the outstanding shares of Company Class B Common Stock entitled to vote in accordance with the DGCL; and (iv) the holders of a majority of the voting power of outstanding Inovalon common stock held by the Public Stockholders, with holders of Company Class A Common Stock and Company Class B Common Stock (excluding the Rollover Stockholders and other affiliates of the Company) voting as a single class. Each record holder of Company Class A Common Stock is entitled to one (1) vote for each share of Company Class A Common Stock owned of record on the Record Date and each record holder of Company Class B Common Stock is entitled to ten (10) votes for each share of Company Class B Common Stock owned of record on the Record Date. If you fail to vote on the proposal to adopt the Merger Agreement and the transactions contemplated thereby, including the Merger, the effect will be the same as a vote against such proposal.

Pursuant to rules of the SEC, you will also be asked to vote at the Special Meeting on (i) a non-binding, advisory proposal to approve certain compensation arrangements for the Company’s named executive officers in connection with the Merger, which requires the affirmative vote of a majority of the voting power of the shares present at the Special Meeting, attending the Special Meeting virtually or represented by proxy, and entitled to vote thereon; and (ii) a proposal to approve one or more adjournments of the Special Meeting, if necessary or appropriate, including adjournments to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to adopt the Merger Agreement, which requires the affirmative vote of a majority of the voting power of the shares present at the Special Meeting, attending the Special Meeting virtually or represented by proxy, and entitled to vote thereon, whether or not a quorum is present. For each of the two foregoing proposals, the holders of Company Class A Common Stock and Company Class B Common Stock vote together as a single class. Each record holder of Company Class A Common Stock is entitled to one (1) vote for each share of Company Class A Common Stock owned of record on the record date and each record holder of Company Class B Common Stock is entitled to ten (10) votes for each share of Company Class B Common Stock owned of record on the record date.

The Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself), recommends that you vote “FOR” the advisory, non-binding, proposal regarding certain Merger-related executive compensation arrangements, and “FOR” the proposal to adjourn the Special Meeting, if necessary or appropriate.

In considering the recommendations of the Company Board (other than Dr. Dunleavy, who recused himself), Inovalon stockholders should be aware that the executive officers and directors have certain interests in the Merger that may be different from, or in addition to, the interests of Inovalon stockholders generally. Those interests are more fully described in the accompanying proxy statement. The Special Committee and the Company Board were aware of these interests and considered them, among other matters, in making their recommendations.

Dr. Dunleavy, Inovalon’s Chairman and Chief Executive Officer, who, directly and through certain entities affiliated with Dr. Dunleavy, namely, Keith R. Dunleavy Management Trust u/a dated December 22, 2008, as amended, Meritas Holdings, LLC, a Delaware limited liability company, and Meritas Group, Inc., a Delaware corporation (collectively with Dr. Dunleavy, the “Dunleavy Entities”), holds approximately 64% of the voting power of the Company’s outstanding capital stock, and André Hoffmann, an Inovalon stockholder, and Cape Capital, which collectively beneficially own approximately 23% of the voting power of the Company’s outstanding capital stock, have separately entered into voting and support agreements (the “Support Agreements”), pursuant to which they have agreed to vote their shares in favor of the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, subject to and in accordance with the terms and conditions of the applicable Support Agreement. Copies of the Support Agreements are attached as Annex B to the accompanying proxy statement. However, the adoption and approval of the Merger Agreement separately requires an affirmative vote of Public Stockholders holding a majority of the voting power of the outstanding shares of Company Common Stock held by the Public Stockholders, which excludes all shares of Company Common Stock held by Dr. Dunleavy, Mr. Hoffmann and Cape Capital.

On August 19, 2021, as a condition to the willingness of Nordic Capital X and Parent to enter into the Merger Agreement, each of the Rollover Stockholders entered into rollover agreements with Ocala Topco, LP and Ocala Topco, Inc. (the “Rollover Agreements”), pursuant to which, immediately prior to the effective time of the Merger, the Rollover Stockholders will exchange a portion of shares of Inovalon common stock for equity interests of Ocala Topco, Inc., which in turn will be exchanged for equity interests of Ocala Topco, LP, in each case subject to the terms and conditions of the applicable Rollover Agreement. Copies of the Rollover Agreements are attached as Annex C to the accompanying proxy statement.

The closing of the transactions contemplated by the Merger Agreement (including the Merger) is subject to the satisfaction or waiver (if such waiver is permissible under the Merger Agreement or under applicable law) of certain conditions set forth in the Merger Agreement.

The accompanying proxy statement provides you with more detailed information about the Special Meeting, the Merger Agreement and the transactions contemplated thereby, including the Merger. A copy of the Merger Agreement is attached as Annex A to the accompanying proxy statement. We encourage you to carefully read the entire proxy statement and its annexes, including the Merger Agreement and the documents referred to or incorporated by reference in the accompanying proxy statement in their entirety. You may also obtain additional information about the Company from other documents we have filed with the Securities and Exchange Commission (the “SEC”). In particular, you should read the “Risk Factors” section beginning on page 20 in our annual report on Form 10-K for the fiscal year ended December 31, 2020 and other risk factors detailed from time to time in the Company’s reports filed with the SEC and incorporated by reference in the accompanying proxy statement in their entirety, for risks relating to our business and for a discussion of the risks you should consider in evaluating the proposed transactions and how they may affect you.

If you have any questions or need assistance voting your shares, please contact the Company’s proxy solicitor in connection with the Special Meeting:

MacKenzie Partners, Inc.

1407 Broadway, 27th Floor

New York, New York 10018

Stockholders and brokers, banks and other nominees may call (800) 322-2885 (toll-free) or (212) 929-5500.

Thank you in advance for your cooperation and continued support.

Sincerely,

William J. Teuber, Jr.

Chairman of the Special Committee

The accompanying proxy statement is dated [                    ], 2021, and is first being mailed to the Company’s stockholders on or about [                    ], 2021.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT OR THE ACCOMPANYING PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

INOVALON HOLDINGS, INC.

4321 Collington Road

Bowie, MD 20716

301-809-4000

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

 

 

To be held virtually via the Internet on [                     ], 2021

Dear Stockholder:

You are cordially invited to attend a special meeting (such meeting, including any adjournments or postponements thereof, the “Special Meeting”) of the stockholders of Inovalon Holdings, Inc., a Delaware corporation (the “Company,” “Inovalon,” “we” or “us”), to be held virtually via live webcast on [                     ], 2021, at [    ] Eastern Time at [http://                     ]. In light of the ongoing coronavirus (COVID-19) pandemic, the Special Meeting will be held in a virtual meeting format only, via live webcast, without a physical meeting location. The Special Meeting is being held to consider and vote on the following proposals:

 

1.

a proposal to approve and adopt the Agreement and Plan of Merger, dated as of August 19, 2021 (as amended from time to time, the “Merger Agreement”) by and among the Company, Ocala Bidco, Inc., a Delaware corporation (“Parent”), and Ocala Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent, and to approve the transactions contemplated thereby, including the Merger (the “Merger Agreement Proposal”). The Merger Agreement Proposal requires the affirmative vote of: (i) the holders of a majority of the voting power of the Company’s outstanding common stock entitled to vote in accordance with the DGCL, with the holders of the outstanding shares of Class A common stock, par value $0.000005, of the Company (the “Company Class A Common Stock”) entitled to vote in accordance with the DGCL and the holders of the outstanding shares of Class B common stock, par value $0.000005, of the Company (the “Company Class B Common Stock” entitled to vote in accordance with the DGCL and, together with the Company Class A Common Stock, the “Company Common Stock”) voting together as a single class; (ii) the affirmative vote of holders of a majority of the outstanding shares of Company Class A Common Stock; (iii) the affirmative vote of holders of majority of the outstanding shares of Company Class B Common Stock; and (iv) the affirmative vote of Public Stockholders holding a majority of the voting power of the outstanding shares of Company Common Stock held by the Public Stockholders, with holders of Company Class A Common Stock and Company Class B Common Stock (excluding the Rollover Stockholders and other affiliates of the Company) voting as a single class;

 

2.

a non-binding, advisory proposal to approve certain compensation arrangements for the Company’s named executive officers in connection with the Merger (the “Golden Parachute Proposal”); and

 

3.

a proposal to approve one or more adjournments of the Special Meeting, if necessary or appropriate, including adjournments to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the Merger Agreement Proposal (the “Adjournment Proposal”).

Under the terms of the Merger Agreement, a consortium of private equity investors led by Nordic Capital Epsilon SCA, SICAV-RAIF, a société en commandite par actions — société d’investissement à capital variable — fonds d’investissement alternatif réservé, acting through and represented by its managing general partner Nordic Capital Epsilon GP SARL for and on behalf of its compartment Nordic Capital Epsilon SCA, SICAV-RAIF — Compartment 1 (“Nordic Capital X”), will indirectly acquire Inovalon in an all-cash transaction with an enterprise value of approximately $7,300,000,000. The Inovalon board of directors (the “Company Board”) (other than Dr. Dunleavy, who recused himself) has determined that this transaction, which is the result of a robust, independent process undertaken by a special committee of the Company Board consisting solely of independent and disinterested directors, is fair to and is in the best interest of the Company and its Public Stockholders.

These items of business are more fully described in the proxy statement accompanying this Notice of Special Meeting.

The record date for the Special Meeting is [                    ], 2021 (the “Record Date”). Only stockholders of record at the close of business on that date, or persons that hold a valid proxy, are entitled to notice of, and to virtually attend and vote at, the Special Meeting or any adjournment or postponement thereof. If you wish to vote the shares you own beneficially at the meeting, you must first request and obtain a “legal proxy” from your broker or other custodian. Any stockholder entitled to attend and vote at the Special Meeting is entitled to appoint a proxy to attend and act on such stockholder’s behalf. Such proxy need not be a stockholder of the Company. You may vote on the Internet, by telephone, by mail or by attending the Special Meeting virtually. Online check-in will begin fifteen (15) minutes prior to commencement of the Special Meeting and you are encouraged to allow ample time for the online check-in procedures. A list of stockholders entitled to vote at the Special Meeting will be available for inspection during ordinary business hours at the Company’s principal executive office at least ten days prior to the date of the Special Meeting and continuing through the date thereof for any purpose germane to the Special Meeting. The list will also be available at the Special Meeting for inspection by any stockholder present at the Special Meeting at [http://                     ].

This Notice of Special Meeting and the accompanying proxy statement constitute notice of the availability of appraisal rights pursuant to Section 262 of the Delaware General Corporation Law (“Section 262”), a copy of which is attached as Annex F to the accompanying proxy statement. Any holder seeking to demand appraisal of its shares, or wishing to preserve its right to do so, should review Section 262 and the accompanying proxy statement.

The Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself), has approved the Merger Agreement and the transactions contemplated thereby, including the Merger, and recommends that you vote “FOR” the Merger Agreement Proposal, “FOR” the Golden Parachute Proposal and “FOR” the Adjournment Proposal.

The proposed transaction constitutes a “going-private transaction” under the rules of the SEC. The Rollover Stockholders include Dr. Dunleavy, Inovalon’s Chairman and Chief Executive Officer, and Cape Capital.

Your vote is very important, regardless of the number of shares you own. The approval of the Merger Agreement Proposal requires the affirmative vote of: (i) the holders of a majority of the voting power of the outstanding shares of Company Common Stock entitled to vote in accordance with the DGCL; (ii) the holders of a majority of the outstanding shares of Company Class A Common Stock entitled to vote in accordance with the DGCL; (iii) the holders of a majority of the outstanding shares of Company Class B Common Stock entitled to vote in accordance with the DGCL; and (iv) the affirmative vote of Public Stockholders holding a majority of the voting power of the outstanding Company Common Stock held by the Public Stockholders, with holders of Company Class A Common Stock and Company Class B Common Stock (excluding the Rollover Stockholders and other affiliates of the Company) voting as a single class. Each record holder of Company Class A Common Stock is entitled to one (1) vote for each share of Company Class A Common Stock owned of record on the Record Date and each record holder of Company Class B Common Stock is entitled to ten (10) votes for each share of Company Class B common stock owned of record on the Record Date.

Your failure to vote on the proposal to adopt the Merger Agreement and the transactions contemplated thereby, including the Merger, will have the same effect as a vote against such proposal.

The approval of the Golden Parachute Proposal requires the affirmative vote of a majority of the voting power of the shares present at the Special meeting, attending the Special Meeting virtually or represented by proxy, and entitled to vote thereon. The approval of the Adjournment Proposal requires the affirmative vote of a majority of the voting power of the shares present at the Special Meeting, attending the Special Meeting virtually or represented by proxy at the Special Meeting, and entitled to vote thereon, whether or not a quorum is present.

Each record holder of Company Class A Common Stock is entitled to one (1) vote for each share of Company Class A Common Stock owned of record on the record date and each record holder of Company Class B Common Stock is entitled to ten (10) votes for each share of Company Class B common stock owned of record on the Record Date.

Your vote is very important. To ensure your representation at the Special Meeting, it is important that you submit a proxy for your shares promptly, whether or not you plan to attend the virtual Special Meeting. As promptly as possible, please complete, date, sign and return the enclosed proxy card in the accompanying prepaid reply envelope, or submit your proxy over the Internet or by telephone by following the instructions set forth on the enclosed proxy card. Stockholders who attend the Special Meeting may revoke their proxies and vote by attending the Special Meeting virtually.

By order of the Board of Directors,

Kamyar Daneshvar

Corporate Secretary

[                    ], 2021

TABLE OF CONTENTS

 

EXPLANATORY NOTE REGARDING THE MERGER AGREEMENT			1
SUMMARY TERM SHEET			1
Special Factors			1
The Merger Agreement			6
Parties to the Merger			9
Other Interested Parties in the Merger			9
Other Important Information Regarding the Company			11
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS AND THE SPECIAL MEETING			12
SPECIAL FACTORS			20
Background of the Merger			20
Purpose and Reasons of the Company for the Merger; Recommendation of the Company Board and the Special Committee; Fairness of the Merger			31
Certain Unaudited Prospective Financial Information			39
Opinion of the Company’s Financial Advisor			40
Opinion of the Special Committee’s Financial Advisor			45
Position of Parent Entities as to the Fairness of the Merger			52
Purpose and Reasons of the Parent Entities for the Merger			54
Position of the Rollover Stockholders as to the Fairness of the Merger			54
Purpose and Reasons of the Rollover Stockholders for the Merger			55
Plans for the Company After the Merger			56
Certain Effects of the Merger			56
Certain Effects on the Company if the Merger is Not Completed			57
Interests of Executive Officers and Directors of the Company in the Merger			58
Intent of the Directors and Executive Officers to Vote in Favor of the Merger			61
Intent of the Rollover Stockholders to Vote in Favor of the Merger			61
Material US Federal Income Tax Consequences of the Merger			62
Financing of the Merger			64
Limited Guarantee			66
Fees and Expenses			67
Provisions for Public Stockholders			67
Accounting Treatment			67
Regulatory Approvals			68
Litigation Relating to the Merger			68
Appraisal Rights			68
Support Agreement			69
Rollover Agreement			69
Effective Time of the Merger			70
Payment of Merger Consideration			70
THE MERGER AGREEMENT			72
The Merger Agreement			72
The Merger			72
The Merger Consideration			73
Impact of Stock Splits, Etc.			73
Treatment of Equity Compensation Awards			73
Exchange Procedures and Payment Procedures			74
Withholding			75
Dissenters’ Rights			75
Organizational Documents, Directors and Officers of the Surviving Corporation			76
Closing of the Merger			76
Effective Time of the Merger			76
Delisting			76
Representations and Warranties			76
Covenants Related to the Company’s Conduct of Business			78
Employee Matters			80

No Solicitation by the Company			80
Parent Financing and Company Cooperation			84
Company Stockholder Approval			85
Regulatory Approvals; Third Party Consents			86
Takeover Laws			87
Indemnification; Directors’ and Officers’ Insurance			87
Stockholder Litigation			88
Other Covenants			88
Conditions to the Completion of the Merger			88
Termination			90
Termination Fees			92
Expenses			93
Specific Performance			93
Amendment and Waiver			94
Governing Law			94
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING INFORMATION			95
PARTIES TO THE MERGER			96
The Company			96
Parent and Merger Sub			96
OTHER INTERESTED PARTIES IN THE MERGER			97
Nordic Capital X			97
Dr. Dunleavy and the Dunleavy Entities			97
Cape Capital			97
INFORMATION ABOUT THE SPECIAL MEETING			99
Date, Time and Place			99
Purpose of the Special Meeting			99
Recommendation of the Company Board			99
Record Date and Quorum			99
Vote Required			100
Voting Intentions of the Company’s Directors and Executive Officers			100
Voting			101
Abstentions			102
How to Vote			102
Proxies and Revocation			103
Adjournments and Postponements			103
Anticipated Date of Completion of the Merger			104
Appraisal Rights			104
Solicitation of Proxies; Payment of Solicitation Expenses			108
Householding of the Proxy Statement			109
Questions and Additional Information			109
THE MERGER (THE MERGER PROPOSAL — PROPOSAL 1)			110
The Proposal			110
General			110
Vote Required			110
Appraisal Rights			110
Vote Recommendation			111
MERGER RELATED EXECUTIVE COMPENSATION ARRANGEMENTS (THE GOLDEN PARACHUTE PROPOSAL — PROPOSAL 2)			112
The Proposal			112
General			112
Vote Required			112
Vote Recommendation			112
ADJOURNMENT OF THE SPECIAL MEETING (THE ADJOURNMENT PROPOSAL  — PROPOSAL 3)			113
The Proposal			113

General			113
Vote Required			113
Vote Recommendation			113
OTHER IMPORTANT INFORMATION REGARDING THE COMPANY			114
Selected Historical Consolidated Financial Data			114
Book Value per Share			114
Market Price of Shares and Dividends			114
Security Ownership of Certain Beneficial Owners and Management			115
Prior Public Offerings			117
Certain Transactions in the Shares			117
Past Contracts, Transactions, Negotiations and Agreements			117
DELISTING AND DEREGISTRATION OF COMMON STOCK			122
STOCKHOLDER PROPOSALS AND NOMINATIONS			122
Requirements for Stockholder Proposals to be Considered for Inclusion in Inovalon’s Proxy Materials			122
Requirements for Stockholder Proposals to be Brought before the Annual Meeting			122
Requirements for Stockholder Nominations for Company Board Directors			122
WHERE YOU CAN FIND MORE INFORMATION			123

EXPLANATORY NOTE REGARDING THE MERGER AGREEMENT

The summary of the material provisions of the Merger Agreement set forth below and elsewhere in this proxy statement is qualified in its entirety by reference to the Merger Agreement, a copy of which is attached to this proxy statement as Annex A and which is incorporated by reference in this proxy statement. This summary does not purport to be complete and may not contain all of the information about the Merger Agreement that is important to you. We encourage you to read the Merger Agreement carefully in its entirety.

The Merger Agreement is described in this proxy statement and included as Annex A only to provide you with information regarding its terms and conditions and not to provide any other factual information regarding the Company, Parent or Merger Sub or their respective businesses. Such information can be found elsewhere in this proxy statement or, in the case of the Company, in the public filings that the Company makes with the SEC, which are available without charge through the SEC’s website at www.sec.gov. For additional information, see the section entitled “Where You Can Find More Information.”

The representations, warranties and covenants made in the Merger Agreement by and among the Company, Parent and Merger Sub are qualified and subject to important limitations agreed to by the Company, Parent and Merger Sub in connection with negotiating the terms of the Merger Agreement. In particular, in your review of the representations and warranties contained in the Merger Agreement and described in this summary, it is important to bear in mind that the representations and warranties were made solely for the benefit of the parties to the Merger Agreement and were negotiated with the principal purposes of establishing the circumstances in which a party to the Merger Agreement may have the right not to close the Merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to the Merger Agreement. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and reports and documents filed with the Securities and Exchange Commission (the “SEC”) and in some cases were qualified by confidential disclosures that were made by the Company, which disclosures are not reflected in the Merger Agreement. The representations and warranties in the Merger Agreement will not survive completion of the Merger. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the Merger Agreement and subsequent developments or new information qualifying a representation or warranty may or may not have been included in the Company’s periodic and current reports, this proxy statement and other documents filed with the SEC. For the foregoing reasons, the representations, warranties and covenants or any descriptions of those provisions should not be read alone, but instead should be read together with the information provided elsewhere in this proxy statement and in the documents incorporated by reference in this proxy statement.

 

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QUESTIONS AND ANSWERS ABOUT THE PROPOSALS AND THE SPECIAL MEETING

The following questions and answers are intended to briefly address some commonly asked questions regarding the Special Meeting, the Merger Agreement and the transactions contemplated thereby, including the Merger. These questions and answers may not address all questions that may be important to you as a stockholder of the Company. Please refer to the “Summary Term Sheet” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement, all of which you should read carefully in their entirety. See “Where You Can Find More Information.”

 

Q.	Why am I receiving this document?

 

A.

On August 19, 2021, the Company entered into the Merger Agreement. Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company with the Company surviving the Merger as a wholly owned subsidiary of Parent. The Company, in its capacity as the corporation surviving the Merger, is sometimes referred to in this proxy statement as the “Surviving Corporation.” Parent and Merger Sub are entities that are affiliated with a consortium of private equity investors led by Nordic Capital X. If the Merger is completed, each Share issued and outstanding immediately prior to the Effective Time (but excluding any Rollover Shares, Cancelled Shares and any Dissenting Shares) will be cancelled and extinguished and automatically converted into and thereafter represent the right to receive the Merger Consideration, subject to and in accordance with the terms and conditions set forth in the Merger Agreement. A copy of the Merger Agreement is attached to this proxy statement as Annex A and is incorporated by reference in this proxy statement in its entirety.

Based in part on the unanimous recommendation of the Special Committee, the Company Board (other than Dr. Dunleavy, who recused himself): (i) determined and declared that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair, advisable and in the best interests of the Company and the Public Stockholders and recommended the adoption of the Merger Agreement by the Inovalon stockholders, subject to certain terms and conditions in the Merger Agreement; (ii) approved the Merger Agreement, the terms and conditions thereof and the transactions contemplated thereby, including the Merger; and (iii) approved the Merger Agreement, the Support Agreements and the Rollover Agreements for purposes of Section 203 of the Delaware General Corporation Law (the “DGCL”). In evaluating the Merger, the Company Board (other than Dr. Dunleavy, who recused himself) and Special Committee also consulted with the Company’s management, legal and other advisors (including, in the case of the Special Committee, Evercore) and considered various material factors.

The Company is holding the Special Meeting so that the Inovalon stockholders may vote to approve the Merger Agreement Proposal, the Golden Parachute Proposal and the Adjournment Proposal.

The Company is soliciting proxies for the Special Meeting. You are receiving this proxy statement because you own Shares. This proxy statement contains important information about the Merger and the Special Meeting, and you should read it carefully. The enclosed proxy card allows you to vote your Shares without attending the Special Meeting.

Your vote is extremely important, and we encourage you to submit your proxy as soon as possible. For more information on how to vote your Shares, please see the section of this proxy statement entitled “Information about the Special Meeting.”

 

Q.	What is the proposed transaction and what effects will it have on the Company?

 

A.	The proposed transaction is the Merger of Merger Sub with and into the Company, subject to and in accordance with the terms and conditions of the Merger Agreement.

Pursuant to the Merger Agreement, subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into the Company with the Company surviving the Merger as a wholly owned subsidiary of Parent. If the Merger is completed, each Share issued and outstanding immediately prior to the Effective Time (but excluding any Rollover Shares, Cancelled Shares and any Dissenting Shares) will be cancelled and extinguished and automatically converted into and thereafter represent the right to receive the Merger Consideration, subject to and in accordance with the terms and conditions set forth in the Merger Agreement.

In addition, following completion of the Merger, there will be no further market for the Shares and, as promptly as practicable following the Effective Time and in compliance with Applicable Law, the Company’s securities will be delisted from the Nasdaq and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), upon application to the SEC. As a result of the Merger, the Company will no longer be an independent public company, the Shares will no longer be listed on any exchange or quotation system, price quotations will no longer be available and the Company’s registration and reporting obligation under the Exchange Act will cease.

 

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Following completion of the Merger, your Shares will represent only the right to receive the Merger Consideration, subject to and in accordance with the terms and conditions of the Merger Agreement, and you will no longer have any interest in the Company’s future earnings, growth or value.

For more information about the Merger Agreement and the transactions contemplated thereby, including the Merger, see “The Merger Agreement.”

 

Q.	What happens if the Merger is not completed?

 

A.

If the Merger Agreement Proposal is not approved by the Company’s stockholders or if the Merger is not completed for any other reason, the Company’s stockholders will not receive any payment for their Shares in connection with the Merger. Instead, unless the Company is sold to a third party, the Company will remain an independent public company, and the Shares will continue to be listed and traded on the Nasdaq, so long as the Company continues to meet the applicable listing requirements. In addition, if the Merger is not completed, the Company expects that management will operate the Company’s business in a manner similar to that in which it is being operated today and that the Company’s stockholders will continue to be subject to the same risks and opportunities to which they are currently subject. There is no assurance as to the effect of these risks and opportunities on the future value of your Shares, including the risk that the market price of Shares may decline to the extent that the current market price of Shares reflects a market assumption that the Merger will be completed. For more information about what happens if the Merger is not completed, see “Special Factors — Certain Effects on the Company if the Merger is Not Completed.”

Under certain circumstances, if the Merger is not completed, the Company may be required to pay Parent the Company Termination Fee, as well as pay certain enforcement costs and, under certain circumstances, reimburse up to $10,000,000 of Parent’s out-of-pocket costs incurred in connection with the transactions contemplated by the Merger Agreement, or Parent may be required to pay the Company the Parent Termination Fee, as well as pay certain enforcement costs. For more information about termination fees, see “The Merger Agreement — Termination Fees.”

 

Q.	When and where is the Special Meeting?

 

A.

The Special Meeting of stockholders of the Company will be held virtually via live webcast on [                ], 2021, at [                ] Eastern Time at [http://                ]. Stockholders of the Company will be able to attend the Special Meeting by visiting the Special Meeting website. If you choose to attend the Special Meeting and vote your Shares via the Special Meeting website, you will need the control number included on your proxy card. For more information about the Special Meeting, see “Information about the Special Meeting.”

 

Q.	Who can vote at the Special Meeting?

 

A.

All record holders of Shares as of the close of business on [                ], 2021, the Record Date, are entitled to notice of, and to virtually attend and vote at, the Special Meeting or any adjournment or postponement thereof. You are entitled to receive notice of, and to attend and vote at, the Special Meeting if you are a record holder of Shares at the close of business on the Record Date.

Each record holder of Company Class A Common Stock is entitled to one (1) vote for each share of Company Class A Common Stock owned of record on the Record Date and each record holder of Company Class B Common Stock is entitled to ten (10) votes for each share of Company Class B Common Stock owned of record on the Record Date on each matter properly brought before the Special Meeting.

If, as of the Record Date, you are the beneficial owner of Shares held in “street name” by your broker, bank or other nominee, and you wish to vote by attending the Special Meeting virtually, you will need to provide proof of ownership, such as a recent account statement or letter from your broker, bank or other nominee, along with proper identification. Please note that if you are a beneficial owner and wish to vote by attending the Special Meeting virtually, you must have a legal proxy from your broker, bank or other nominee naming you as the proxy. You should allow yourself enough time prior to the Special Meeting to obtain this proxy from the holder of record.

For more information about who can vote at the Special Meeting, see “Information about the Special Meeting — Voting.”

 

Q.	What is the difference between being a “stockholder of record” and a “beneficial owner” of Shares held in “street name”?

 

A.	If your Shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, LLC, you are considered, with respect to those Shares, the stockholder of record or record holder. This proxy statement

 

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and proxy card have been sent directly to you by the Company. As the stockholder of record, you have the right to grant your voting proxy directly to us or to vote by attending the Special Meeting virtually.

If your Shares are held through a broker, bank or other nominee, you are considered the beneficial owner of those Shares held in “street name.” In that case, this proxy statement has been forwarded to you by your broker, bank or other nominee who is considered, with respect to those Shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker, bank or other nominee as to how to vote your Shares by following their instructions for voting. You are also invited to attend the Special Meeting virtually. However, since you are not the stockholder of record, you may not vote these Shares electronically at the virtual Special Meeting unless you provide a legal proxy from your broker, bank or other nominee.

For more information about the stockholders of record and beneficial owners of Shares held in “street name,” see “Information about the Special Meeting — Voting.”

 

Q.	What am I being asked to vote on at the Special Meeting?

 

A.	You are being asked to consider and vote on the following:

 

•

Merger Agreement Proposal: A proposal to approve and adopt the Merger Agreement, and the transactions contemplated thereby, including the Merger. A copy of the Merger Agreement is attached as Annex A to this proxy statement and is incorporated by reference in this proxy statement in its entirety.

 

•

Golden Parachute Proposal: A non-binding, advisory proposal to approve certain compensation arrangements for the Company’s named executive officers in connection with the Merger, as disclosed in the “Potential Change-in-Control Payments to Named Executive Officers” table contained in the section captioned “Special Factors — Interests of Executive Officers and Directors of the Company in the Merger — Golden Parachute Compensation.”

 

•

Adjournment Proposal: A proposal to approve one or more adjournments of the Special Meeting, if necessary or appropriate, including adjournments to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to adopt the Merger Agreement Proposal.

For more information on each of these proposals, see “The Merger (The Merger Proposal — Proposal 1),” “Merger Related Executive Compensation Arrangements (The Golden Parachute Proposal — Proposal 2)” and “Adjournment of the Special meeting (The Adjournment Proposal — Proposal 3).”

 

Q.	What is a quorum?

 

A.

The representation of the holders of a majority of the outstanding Shares of each of the Class A Common Stock and of the Class B Common Stock as of the Record Date must be present at the Special Meeting, attending the Special Meeting virtually or represented by proxy, in order to constitute a quorum, for the purposes of holding the Special Meeting and conducting business. For more information about the quorum of the Special Meeting, see “Information about the Special Meeting  — Record Date and Quorum.”

 

Q.	What votes are required for the Company’s stockholders to approve the Merger Agreement Proposal?

 

A.

The approval of the Merger Agreement Proposal requires the affirmative vote of: (i) a majority of the voting power of the outstanding shares of Company Common Stock entitled to vote in accordance with the DGCL, with holders of Company Class A Common Stock and Company Class B Common Stock voting together as a single class; (ii) holders of a majority of the outstanding shares of Company Class A Common Stock entitled to vote in accordance with the DGCL; (iii) holders of a majority of the outstanding shares of Company Class B Common Stock entitled to vote in accordance with the DGCL; and (iv) the affirmative vote of Public Stockholders holding a majority of the voting power of the outstanding shares of Company Common Stock held by the Public Stockholders, with holders of Company Class A Common Stock and Company Class B Common Stock voting as a single class. Each record holder of Company Class A Common Stock is entitled to one (1) vote for each share of Company Class A Common Stock owned of record on the Record Date and each record holder of Company Class B Common Stock is entitled to ten (10) votes for each share of Company Class B Common Stock owned of record on the Record Date.

As of the close of business on [                ], 2021, which is the Record Date, there were [                ] shares of Company Class A Common Stock and [                ] shares of Class B Common Stock outstanding.

 

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As of the date of the filing of this proxy statement, none of Parent, Merger Sub or any of their respective affiliates (as defined under Rule 405 of the Securities Act of 1933, 15 U.S.C. § 77a et seq., and the rules and regulations promulgated thereunder (the “Securities Act”)) own any Shares.

The Dunleavy Entities, who hold approximately 64% of the voting power of the Company’s outstanding capital stock, and Mr. André Hoffmann and Cape Capital, who collectively beneficially own approximately 23% of the voting power of the Company’s outstanding capital stock, have separately entered into the Support Agreements, pursuant to which they have agreed to vote their Shares in favor of the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, subject to and in accordance with the terms and conditions of the applicable Support Agreement. However, the adoption and approval of the Merger Agreement separately requires an affirmative vote of Public Stockholders holding a majority of the voting power of the outstanding shares of Company Common Stock held by the Public Stockholders, which excludes all shares of Company Common Stock held by Dr. Dunleavy, Mr. Hoffmann and Cape Capital. Copies of the Support Agreements are attached as Annex B to the accompanying proxy statement.

For more information, see “The Merger (The Merger Proposal — Proposal 1).”

 

Q.	What vote is required for the Company’s stockholders to approve the Golden Parachute Proposal?

 

A.

Approval of the non-binding, advisory proposal to approve certain compensation arrangements for the Company’s named executive officers in connection with the Merger requires the affirmative vote of a majority of the voting power of the Shares present at the Special Meeting, attending the Special Meeting virtually or represented by proxy, and entitled to vote thereon.

Each record holder of Company Class A Common Stock is entitled to one (1) vote for each share of Company Class A Common Stock owned of record on the Record Date and each record holder of Class B Common Stock is entitled to ten (10) votes for each share of Class B Common Stock owned of record on the Record Date.

For more information on each of these proposals, see “Merger Related Executive Compensation Arrangements (The Golden Parachute Proposal — Proposal 2).”

 

Q.	What vote is required for the Company’s stockholders to approve the Adjournment Proposal?

 

A.

Approval of the proposal to approve one or more adjournments of the Special Meeting, if necessary or appropriate, including adjournments to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to adopt the Merger Agreement Proposal, requires the affirmative vote of a majority of the voting power of the Shares present at the Special Meeting, attending the Special Meeting virtually or represented by proxy, and entitled to vote thereon, whether or not a quorum is present.

Each record holder of Company Class A Common Stock is entitled to one (1) vote for each share of Company Class A Common Stock owned of record on the Record Date and each record holder of Class B Common Stock is entitled to ten (10) votes for each share of Class B Common Stock owned of record on the Record Date.

For more information on each of these proposals, see “Adjournment of the Special meeting (The Adjournment Proposal — Proposal 3).”

 

Q.	How are the votes counted?

 

A.

For each of the Merger Agreement Proposal, the Golden Parachute Proposal and the Adjournment Proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” An abstention will have the same effect as an “AGAINST” vote for these proposals and will count for purposes of determining if a quorum is present at the Special Meeting. For more information, see “Information about the Special Meeting.”

 

Q.	How does the Company Board recommend that I vote?

 

A.	Based in part on the unanimous recommendation of the Special Committee, the Company Board (other than Dr. Dunleavy, who recused himself) recommends that you vote:

 

•

“FOR” the Merger Agreement Proposal;

 

•

“FOR” the Golden Parachute Proposal; and

 

•

“FOR” the Adjournment Proposal.

For more information, you should read “Special Factors — Purpose and Reasons of the Company for the Merger; Recommendation of the Company Board and the Special Committee; Fairness of the Merger” for a discussion of the factors that the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) considered in deciding to recommend the approval of the Merger Agreement. See also “Special Factors — Interests of Executive Officers and Directors of the Company in the Merger.”

 

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Q.	How will the Rollover Stockholders vote on the Merger Agreement Proposal?

 

A.

Concurrently with the execution and delivery of the Merger Agreement, the Dunleavy Entities, who hold approximately 64% of the voting power of the Company’s outstanding capital stock, and Mr. André Hoffmann and Cape Capital, who collectively beneficially own approximately 23% of the voting power of the Company’s outstanding capital stock, separately entered into Support Agreements with Parent.

Under the Support Agreements, the Rollover Stockholders agreed to vote their Shares in favor of adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, subject to and in accordance with the terms and conditions of the applicable Support Agreement. The obligations of the Rollover Stockholders under the Support Agreements will automatically terminate upon the earliest to occur of: (i) the mutual agreement of the parties thereto to terminate the applicable Support Agreement; (ii) the End Date; (iii) the Effective Time; and (iv) the valid termination of the Merger Agreement in accordance with its terms.

In the event the Company makes an Adverse Recommendation Change, in compliance with the Merger Agreement, prior to the Company’s receipt of the Required Company Stockholder Approval, the obligation of the Rollover Stockholders to vote the Shares listed in the Support Agreements as described above will be modified such that the Rollover Stockholders will each have the right to so vote (x) in favor of the Merger or (y) such proportion of Shares as votes cast by the Inovalon stockholders other than the Dunleavy Entities, Mr. André Hoffmann or Cape Capital, as applicable, with respect to the applicable matter (such proportion determined without the inclusion of the votes cast by the Dunleavy Entities, Mr. André Hoffmann or Cape Capital, as applicable).

Copies of the Support Agreements are attached as Annex B to the proxy statement and are incorporated by reference in the proxy statement in its entirety. For more information about the voting intentions of the Rollover Stockholders, see “Special Factors — Intent of the Rollover Stockholders to Vote in Favor of the Merger” and “Special Factors — Support Agreement.”

 

Q.	How do I vote?

 

A.	If you are a stockholder of record as of the Record Date, you may vote your Shares on matters presented at the Special Meeting in any of the following ways:

 

•

by attending the Special Meeting virtually and casting your vote electronically;

 

•

by proxy (stockholders of record have a choice of voting by proxy);

 

•

on the Internet, by following the Internet proxy instructions printed on the enclosed proxy card;

 

•

by telephone, using the telephone number printed on the enclosed proxy card; or

 

•

by mail, by marking the enclosed proxy card, dating and signing it, and returning it in the accompanying prepaid reply envelope.

If, as of the Record Date, you are the beneficial owner of Shares held in “street name” by your broker, bank or other nominee, you will receive instructions from your broker, bank or other nominee that you must follow in order to have your Shares voted. Those instructions will identify which of the above choices are available to you in order to have your Shares voted. Please note that if you are a beneficial owner and wish to vote electronically by attending the Special Meeting virtually, you must have a legal proxy from your broker, bank or other nominee naming you as the proxy. You should allow yourself enough time prior to the Special Meeting to obtain this proxy from the holder of record.

The control number located on your proxy card is designed to verify your identity and allow you to submit a proxy for your Shares, and to confirm that your voting instructions have been properly recorded when submitting a proxy over the Internet or by telephone in advance of the Special Meeting.

Please refer to the instructions on your proxy card or voting instruction form to determine the deadlines for submitting a proxy over the Internet or by telephone in advance of the Special Meeting. If you choose to submit your proxy by mailing a proxy card, your proxy card must be received by our Corporate Secretary by the time the Special Meeting begins.

For more information about voting, see “Information about the Special Meeting — How to Vote.”

 

Q.	What is a proxy?

 

A.

A proxy is your legal designation of another person to vote your Shares. This written document describing the matters to be considered and voted on at the Special Meeting is called a proxy statement. The document used to designate a proxy to vote your Shares is called a proxy card. For more information about voting by proxy, see “Information about the Special Meeting — How to Vote.”

 

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Q.	If I am a stockholder of record, what happens if I do not vote or submit a proxy card?

 

A.	If you do not attend the Special Meeting and fail to vote, either electronically at the virtual Special Meeting or by proxy, your Shares will not be voted at the Special Meeting and will not be counted as present for purposes of determining whether a quorum exists.

Additionally, if you do not attend the Special Meeting and fail to vote, electronically at the virtual Special Meeting or by proxy, your failure to vote will (a) have the effect of counting “AGAINST” the Merger Agreement Proposal, with respect to the approval threshold requiring the affirmative vote of holders of (i) a majority of the voting power of Inovalon’s outstanding common stock, voting as a single class; (ii) a majority of outstanding Company Class A Common Stock; (iii) a majority of outstanding Class B Common Stock; and (iv) a majority of the voting power of outstanding common stock, voting as a single class, held by the Public Stockholders; and (b) have no effect on the Golden Parachute Proposal (so long as a quorum is present) or the Adjournment Proposal (regardless of whether a quorum is present). For more information, see “Information about the Special Meeting.”

 

Q.	If my Shares are held in “street name” by my broker, bank or other nominee, will my broker, bank or other nominee vote my Shares for me?

 

A.

Your broker, bank or other nominee will only be permitted to vote your Shares if you instruct your broker, bank or other nominee as to how to vote. You should follow the instructions provided by your broker, bank or other nominee regarding the voting of your Shares. Under applicable stock exchange rules, absent your instructions, a broker, bank or other nominee does not have discretionary authority to vote on “non-routine” matters and all of the matters to be considered at the Special Meeting are, under such rules, “non-routine.” As a result, absent specific instructions from the beneficial owner of such Shares, your broker, bank or other nominee is not empowered to vote such Shares.

If you instruct your broker, bank or other nominee how to vote on at least one, but not all of the proposals to be considered at the Special Meeting, your Shares will be voted according to your instructions on those proposals for which you have provided instructions and will be counted as present for purposes of determining whether a quorum is present at the Special Meeting. In this scenario, a “broker non-vote” will occur with respect to each other proposal for which you did not provide voting instructions to your broker, bank or other nominee.

A failure to provide instructions with respect to any of the proposals or a broker non-vote will (a) have the effect of counting “AGAINST” the Merger Agreement Proposal with respect to the approval thresholds requiring the affirmative vote of holders of (i) a majority of the voting power of the outstanding Company Common Stock; (ii) a majority of outstanding Company Class A Common Stock; (iii) a majority of outstanding Company Class B Common Stock; or (iv) a majority of the voting power of outstanding Company Common Stock, voting as a single class, held by the Public Stockholders; (b) have no effect on the Golden Parachute Proposal; and (c) have no effect on the Adjournment Proposal (regardless of whether a quorum is present). For more information, see “Information about the Special Meeting — Voting.”

 

Q.	If a stockholder gives a proxy, how are the Shares voted?

 

A.

If you vote by proxy, regardless of the method you choose to submit a proxy, the individuals named on the enclosed proxy card, and each of them, with full power of substitution, will vote your Shares in the way that you indicate. When completing the Internet or telephone proxy processes or the proxy card, you may specify whether your Shares should be voted “FOR” or “AGAINST,” or to “ABSTAIN” from voting on, all, some or none of the specific items of business to come before the Special Meeting.

If you properly execute your proxy card but do not mark the boxes indicating how your Shares should be voted on a matter, the Shares represented by your properly executed proxy will be voted “FOR” the Merger Agreement Proposal, “FOR” the Golden Parachute Proposal and “FOR” the Adjournment Proposal. For more information, see “Information about the Special Meeting — How to Vote.”

 

Q.	Can I change or revoke my vote?

 

A.

Yes. You have the right to revoke a proxy, whether delivered over the Internet, by telephone or by mail, at any time before it is exercised, by (i) submitting another proxy, including a proxy card, at a later date by telephone or on the Internet or by timely delivery of a validly executed, later-dated proxy; (ii) giving written notice of revocation to our Corporate Secretary, which must be filed with our Corporate Secretary before the Special Meeting begins; or (iii) attending the Special Meeting virtually and voting electronically. If, as of the Record Date, you are the beneficial owner of Shares held in “street name” by your broker, bank or other nominee, please refer to the information forwarded by your broker, bank or other nominee for procedures on revoking your proxy.

 

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Only your last submitted proxy will be considered. Please cast your vote “FOR” each of the proposals, following the instructions set forth on your enclosed proxy card or voting instruction form provided by your broker, bank or other nominee, as promptly as possible. For more information, see “Information about the Special Meeting  — Proxies and Revocation.”

 

Q.	What do I do if I receive more than one proxy or set of voting instructions?

 

A.

If, as of the Record Date, you hold Shares as the beneficial owner of Shares held in “street name,” or through more than one broker, bank or other nominee, and also directly as the stockholder of record or otherwise, you may receive more than one proxy card or voting instruction forms relating to the Special Meeting. These should each be executed and returned separately in accordance with the instructions provided in this proxy statement in order to ensure that all of your Shares are voted.

 

Q.	Should I send in my stock certificates or other evidence of ownership now?

 

A.

No. After the Merger is completed, you will be sent a letter of transmittal with detailed written instructions for exchanging your Shares for the Merger Consideration. If, as of the Record Date, you are the beneficial owner of Shares held in “street name” by your broker, bank or other nominee, you may receive instructions from your broker, bank or other nominee as to what action, if any, you need to take to effect the surrender of your Shares in exchange for the Merger Consideration. Please do not send in your certificates now.

 

Q.	What happens if I sell my Shares before the Special Meeting?

 

A.

The Record Date for stockholders entitled to vote at the Special Meeting is prior to both the date of the Special Meeting and the consummation of the Merger. If you transfer your Shares before the Record Date, you will not be entitled to vote at the Special Meeting and will not be entitled to receive the Merger Consideration. If you transfer your Shares after the Record Date but before the Special Meeting you will, unless special arrangements are made, retain your right to vote at the Special Meeting, but will transfer the right to receive the Merger Consideration to the person to whom you transfer your Shares. Unless special arrangements are made, the person to whom you transfer your Shares after the Record Date will not have a right to vote those Shares at the Special Meeting. For more information, see “Information about the Special Meeting  — How to Vote.”

 

Q.	Who will solicit and pay the cost of soliciting proxies?

 

A.

The Company has engaged MacKenzie Partners, Inc. to assist in the solicitation of proxies for the Special Meeting. The Company has agreed to pay MacKenzie Partners, Inc. a fee of approximately $50,000 – $75,000, and to reimburse MacKenzie Partners, Inc. for certain out-of-pocket fees, charges and expenses. The Company will indemnify MacKenzie Partners, Inc. and its affiliates against certain claims, liabilities, losses, damages and expenses. The Company also will reimburse brokers, banks, other nominees, custodians and fiduciaries representing beneficial owners of the Shares for their expenses in forwarding soliciting materials to beneficial owners of our Shares and in obtaining voting instructions from those owners. Our directors, officers and employees may also solicit proxies by telephone, by facsimile, by mail, over the Internet or in person. Our directors, officers and employees will not be paid any additional amounts for soliciting proxies. For more information, see “Information about the Special Meeting — Solicitation of Proxies; Payment of Solicitation Expenses.”

 

Q.	What is householding and how does it affect me?

 

A.

The SEC rules permit companies and intermediaries such as brokers, banks and other nominees to satisfy delivery requirements with respect to two or more stockholders sharing the same address by delivering a single proxy statement. This process is commonly referred to as “householding” and can result in significant cost savings for the Company. To take advantage of this opportunity, the Company, brokers, banks and other nominees who hold your Shares may deliver only one proxy statement to multiple stockholders who share an address unless one or more of the stockholders has provided contrary instructions. The Company will deliver promptly, upon written or oral request, a separate copy of the proxy statement to a stockholder at a shared address to which a single copy of the documents was delivered. For more information, see “Information about the Special Meeting  — Householding of the Proxy Statement.”

 

Q:	What rights do I have to seek an appraisal of my Shares?

 

A.	Each holder of Shares will have the right to seek appraisal of the fair value of such holder’s Shares as determined by the Delaware Court of Chancery, but only if such holder does not vote such Shares in favor of a Merger Agreement

 

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Proposal and otherwise complies with the statutory requirements and procedures for demanding and perfecting appraisal rights set forth in Section 262 of the DGCL, which is the appraisal rights statute applicable to Delaware corporations. Failure to follow precisely any of the statutory requirements and procedures will result in the loss of appraisal rights. A copy of Section 262 of the DGCL is included as Annex F to this proxy statement and is incorporated by reference in its entirety. The requirements and procedures are also summarized in this proxy statement. For more information about appraisal rights, see “Information about the Special Meeting — Dissenters’ Rights” and Annex F to this proxy statement.

 

Q.	What are the material US federal income tax consequences of the Merger to me if I am a US Holder?

 

A.

If you are a US Holder (as defined below in “Special Factors — Material US Federal Income Tax Consequences of the Merger”), receipt of cash in exchange for Shares pursuant to the Merger generally will be a taxable transaction for US federal income tax purposes. Generally, you will recognize gain or loss equal to the difference, if any, between the amount of cash you receive and the adjusted tax basis of your Shares. However, the tax consequences of the Merger to you will depend on your particular circumstances, and you should consult your own tax advisors to determine how the Merger will affect you. For a more detailed summary of the tax consequences of the Merger, see the section below “Special Factors — Material US Federal Income Tax Consequences of the Merger.”

 

Q.	What are the material US federal income tax consequences of the Merger to me if I am a Non-US Holder?

 

A.

If you are a Non-US Holder (as defined below in “Special Factors — Material US Federal Income Tax Consequences of the Merger”), you generally will not be subject to US federal income tax on any gain recognized in connection with the Merger unless you have certain connections to the United States. However, the tax consequences of the Merger to you will depend on your particular circumstances, and you should consult your own tax advisors to determine how the Merger will affect you. For a more detailed summary of the tax consequences of the Merger, see the section below “Special Factors — Material US Federal Income Tax Consequences of the Merger.”

 

Q.	What do I need to do now?

 

A.

We urge you to read this proxy statement carefully, including its annexes and the documents referred to as incorporated by reference in this proxy statement, as well as the related Schedule 13E-3, including the exhibits thereto, filed with the SEC, and to consider how the Merger affects you. For more information, see “Where You Can Find More Information.”

Even if you plan to attend the Special Meeting virtually, after carefully reading and considering the information contained in this proxy statement, please submit your proxy promptly to ensure that your Shares are represented at the Special Meeting.

If you are a stockholder of record, please submit your proxy for your Shares:

 

•

on the Internet, by following the Internet proxy instructions printed on the enclosed proxy card;

 

•

by telephone, using the telephone number printed on the enclosed proxy card; or

 

•

by mail, by marking the enclosed proxy card, dating and signing it, and returning it in the accompanying prepaid reply envelope.

If you decide to attend the Special Meeting virtually and vote electronically, your vote at the Special Meeting will revoke any proxy previously submitted.

If, as of the Record Date, you are the beneficial owner of Shares held in “street name” by your broker, bank or other nominee, please refer to the instructions provided by your broker, bank or other nominee to see which of the above choices are available to you in order to have your Shares voted.

For more information, see “Information about the Special Meeting” and “Where You Can Find More Information.”

 

Q.	Who can help answer my other questions?

 

A.

If you have additional questions about the Special Meeting, the Merger or this proxy statement, need assistance in submitting your proxy or voting your Shares, or need additional copies of the proxy statement or the enclosed proxy card or voting instructions, please contact the Company’s proxy solicitor in connection with the Special Meeting:

MacKenzie Partners, Inc.

1407 Broadway, 27th Floor

New York, New York 10018

Stockholders and brokers, banks and other nominees may call (800) 322-2885 (toll-free) or (212) 929-5500.

 

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SPECIAL FACTORS

The following, together with the summary of the Merger Agreement set forth under the section titled “The Merger Agreement,” is a description of the material aspects of the Merger. While we believe that the following description covers the material aspects of the Merger, the description may not contain all of the information that is important to you. We encourage you to read carefully this entire document, including the Merger Agreement attached to this proxy statement as Annex A, for a more complete understanding of the Merger. The following description is subject to, and is qualified in its entirety by reference to, the Merger Agreement. You may obtain additional information without charge as described in the section titled “Where You Can Find More Information.”

We are asking our stockholders to consider and vote on the approval and adoption of the Merger Agreement and the transactions contemplated thereby, including the Merger. Pursuant to the Merger Agreement, subject to the satisfaction or waiver of certain conditions, Merger Sub will merge with and into the Company with the Company surviving the Merger as a wholly owned subsidiary of Parent. If the Merger is completed, the holders of Shares (other than the holders of Cancelled Shares and except for any Dissenting Shares and Rollover Shares) will have the right to receive an amount in cash equal to $41.00 per share of Company Common Stock in cash (the “Merger Consideration”), without interest, subject to and in accordance with the terms and conditions set forth in the Merger Agreement.

Background of the Merger

The following chronology summarizes the key meetings and events that led to the signing of the Merger Agreement. This chronology does not purport to catalogue every conversation of or among members of the Special Committee, the Company Board, the Company’s representatives, Nordic Capital X, Nordic Capital X’s representatives and advisors, and other parties. Other than as described below, there have been no material contacts between the Company and Nordic Capital X in the past two years.

The Company Board, together with the Company’s management and with the assistance of the Company’s advisors, has periodically reviewed and assessed the Company’s operations, financial performance, competitive position, and growth opportunities in the context of the Company’s long-term strategic goals and plans. The Company Board, together with the Company’s management, regularly reviews potential opportunities to enhance stockholder value and considers various strategic alternatives.

Beginning in September 2019, the Company Board, together with the Company’s management, commenced a detailed strategic review that included an assessment of the Company’s operations, financial performance, leverage profile, competitive position, new product innovation opportunities, and long-term plans and an exploration of potential opportunities to further strengthen the Company’s market position and enhance stockholder value, including various alternatives to help achieve its plans such as raising equity or convertible debt, refinancing existing debt, add-on acquisitions, joint ventures, collaborations and business combinations. In connection with this strategic review, the Company Board was briefed on contacts from various potential strategic partners and the ensuing discussions of potential future opportunities for acquisitions, joint ventures and strategic partnerships, but none of these discussions led to any specific proposals.

In connection with this strategic review and as part of the Company Board’s ongoing governance and review practices, the Nominating & Corporate Governance Committee of the Company Board sought advice from outside counsel regarding fiduciary duties of directors, appropriate approaches to identify and manage potential conflicts of interest, as well as specific considerations when a director is a large stockholder, including the circumstances in which it would be prudent to form a special committee of independent directors. The Nominating & Corporate Governance Committee requested that outside counsel prepare a memorandum summarizing its advice, which was presented and discussed extensively at the regularly-scheduled meeting of the Company Board on June 17, 2020.

On August 27, 2020, the management presented to the Company Board an overview of the Company’s capital structure, which included a discussion of potential sources of strategic capital and other methods to support organic and inorganic growth opportunities. The Company Board instructed management to continue its review of sources of strategic capital and strategies for helping the Company to further accelerate and expand the achievement of its corporate objectives and mission.

On November 11, 2020, a Managing Partner at a private equity firm (referred to as “PE Firm A”) contacted Keith R. Dunleavy, the Company’s Chairman and Chief Executive Officer, via e-mail to inquire about whether the Company would be interested in a potential transaction between PE Firm A and the Company. On December 2, 2020, Dr. Dunleavy held a videoconference with representatives of PE Firm A to discuss PE Firm A’s expression of interest. Following this telephone conference, on December 4, 2020, Dr. Dunleavy informed William L. Teuber, Jr., the current lead independent director of the

 

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Company Board, of PE Firm A’s indication of interest and informed Mr. Teuber that he would keep him and the Company Board informed of future developments with respect to PE Firm A. Following the December 2 discussion, there were no further communications between PE Firm A and the Company, its management or the Company Board until May 2021 (as described below).

On February 1, 2021, Dr. Dunleavy was introduced to an Executive Vice President of a large technology company (referred to as “Company A”) to discuss future opportunities for strategic partnerships, commercial arrangements or other transactions between Company A and the Company.

On February 11, 2021, during a regularly scheduled meeting of the Company Board, Dr. Dunleavy provided an overview of various debt and equity financings undertaken by peer group companies in the technology and healthcare industries and other strategic transactions announced by such peer group companies. The members of the Company Board discussed various strategic alternatives with management, including raising additional capital to fund acquisitions and research and development via an offering of additional equity or convertible debt or an expansion of the Company’s revolving credit facility, strategic partnerships, and additional strategies for helping the Company accelerate achievement of its corporate objectives and mission. Dr. Dunleavy also provided an overview of his engagement with PE Firm A and Company A to date (as described above). The independent members of the Company Board then met in executive session. Following this discussion and executive session, the Company Board authorized management to engage in discussions with financial advisors who could potentially assist the Company Board with an exploration of various strategic alternatives, including methods for raising strategic capital. At this time, the Company Board and management were focused on the evaluation of potential capital markets and debt transactions, but the Company Board nonetheless specifically instructed management to select a financial advisor who would be capable of advising on any and all potential strategic alternative transactions being considered.

From mid-March 2021 to mid-April 2021, Dr. Dunleavy participated in several follow-up conversations with representatives of Company A to further discuss opportunities for strategic partnerships, commercial arrangements or other transactions between the Company and Company A. On April 14, 2021, Dr. Dunleavy and five (5) additional members of the Company’s executive and senior management participated in a videoconference with representatives of Company A during which the Company and Company A discussed the Company’s data, connectivity, analytical, and broader cloud platform capabilities, as well as potential strategic opportunities for the two companies to partner in the future.

On April 20, 2021, Daniel Berglund, a Partner at one of the entities that provides advice and makes recommendations to the investment manager of Nordic Capital X (collectively, the “Nordic Capital Advisors”), arranged for an introduction via email to Dr. Dunleavy.

On May 3, 2021, at a meeting of the Company Board, J.P. Morgan presented a preliminary evaluation of the Company’s financial position and leverage profile, an assessment of market conditions generally and a preliminary comparison of the Company to other peer group companies. At the meeting J.P. Morgan discussed its views on various potential strategic alternatives, including capital markets transactions, a refinancing of the Company’s revolving credit facility, strategic partnerships, a sale of the Company and additional strategies for helping the Company accelerate and achieve its corporate objectives and mission. After extensive discussion, the Company Board concluded that the Company’s management should explore potential market interest in an acquisition of the Company before proceeding with any capital markets or debt transactions due to the potentially dilutive effect of such transactions on stockholder value. Dr. Dunleavy stated that, should the Company explore a sale, Dr. Dunleavy would only support a transaction as a stockholder in which all stockholders received the same amount and type of consideration. The independent members of the Company Board then met in executive session. Following the presentation and ensuing discussion and executive session, the Company Board authorized the engagement of J.P. Morgan in order for J.P. Morgan to pursue a multi-track exploration of: (i) a potential equity offering facilitated by one or more investment banks, (ii) a potential increase in the Company’s current credit line or revolver or both, and (iii) the initial exploration and assessment of potential strategic partnerships that could further accelerate the Company’s achievement of its corporate objectives and mission, as well as a potential sale of the Company. J.P. Morgan was selected by management and the Company Board based, in part, on J.P. Morgan’s qualifications, expertise and reputation, its knowledge of and involvement in recent transactions in the Company’s industry and its ability to manage a multi-track process that involved exploration of multiple strategic alternatives in parallel.

On May 18, 2021, the Company hosted a virtual investor day in which members of the Company’s management presented a detailed overview of the Company’s vision, growth strategy, markets, cloud-based platform capabilities, and financial information, including earnings guidance for fiscal year 2021. Members of the public were invited to attend the virtual investor day, and a replay of the event, as well as a copy of all presentation materials, were posted to the Company’s website following the event.

 

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During the period from early May 2021 through July 2021, at the direction of the Company Board and under the oversight of the Company’s management, representatives of J.P. Morgan contacted over 20 potential counterparties, including PE Firm A and Company A and other potential strategic counterparties and financial sponsors (but not including Nordic Capital X), to gauge their interest in potential transactions with the Company, including a sale of the Company. J.P. Morgan, at the direction of the Company Board and under the oversight of the Company’s management, informed each party that any proposals involving an acquisition of the Company should be structured such that all of the Company’s stockholders receive the same amount and type of consideration. The Company entered into 13 confidentiality agreements (all but one of which contained standstills) with interested parties, including PE Firm A and Company A. Representatives of J.P. Morgan, along with Dr. Dunleavy and Jonathan Boldt, Chief Financial Officer of the Company, participated in management meetings with 13 of the parties that signed confidentiality agreements to provide further information regarding the Company and its financial performance. Among the parties, three large technology companies (including Company A, with the latter two referred to as “Company B” and “Company C”) conveyed interest in an acquisition or strategic partnership with the Company.

On May 26, 2021, Dr. Dunleavy participated in a videoconference with multiple representatives of the Nordic Capital Advisors, including Mr. Berglund and Fredrik Näslund, during which they mentioned that Nordic Capital X may be interested in exploring an acquisition of the Company.

On June 4, 2021, Dr. Dunleavy received an unsolicited, non-binding indication of interest addressed to Dr. Dunleavy and the Company from a private equity firm (referred to as “PE Firm B”) containing a summary of terms under which PE Firm B would be interested in acquiring the Company. J.P. Morgan had not included PE Firm B in their initial outreach to strategic counterparties and financial sponsors, and prior to receiving PE Firm B’s indication of interest, neither J.P. Morgan nor the Company had any discussions with PE Firm B regarding strategic transactions or a potential acquisitions of the Company. PE Firm B’s letter included a valuation range of $36.00 to $39.00 per share, payable in cash. On the basis of the non-binding indication of interest, Dr. Dunleavy instructed J.P. Morgan to invite PE Firm B to execute a confidentiality agreement and commence due diligence on the Company. On June 6, 2021, PE Firm B executed a confidentiality agreement (which contained a standstill) and commenced due diligence.

On June 8, 2021, J.P. Morgan received a preliminary, non-binding indication of interest addressed to Dr. Dunleavy and the Company from PE Firm A. PE Firm A’s indication of interest outlined a potential transaction in which the Company’s stockholders would receive $35.00 per share in cash, subject to further due diligence and negotiations.

On June 9, 2021, J.P. Morgan received a preliminary, non-binding indication of interest addressed to Dr. Dunleavy and the Company from a private equity firm participating in the process based on J.P. Morgan’s original outreach to financial sponsors (referred to as “PE Firm C”). PE Firm C’s indication of interest outlined a potential transaction in which the Company’s stockholders would receive $34.00 per share, payable in cash, subject to further due diligence and negotiations.

On June 9, 2021, J.P. Morgan received an updated non-binding indication of interest addressed to Dr. Dunleavy and the Company from PE Firm B. PE Firm B’s letter included a valuation range of $38.00 to $40.00 per share, payable in cash, subject to further due diligence and negotiations, which cash consideration would be financed with a mixture of debt and equity.

On June 9, 2021, at a meeting of the Company Board, J.P. Morgan presented an update on the Company’s multi-track exploration of: (i) a potential equity offering facilitated by one or more investment banks; (ii) a potential increase in the Company’s current credit line or revolver or both; and (iii) interest in a strategic partnership with or acquisition of the Company sought via outreach to various potential acquirers of the Company, including public companies and private equity firms. J.P. Morgan also presented a preliminary summary of valuation perspectives on the Company, including historical trading data and equity value per share derived from trading multiples, transaction multiples and a discounted cash flow analysis. Representatives of J.P. Morgan also provided an update on: (i) the three preliminary, non-binding indications of interest received from PE Firm A, PE Firm B, and PE Firm C, respectively, all of which remained subject to various contingencies, including ongoing diligence of the Company and continued engagement with Company management, and (ii) continuing engagement with several large technology companies (including Company B and Company C). Representatives of J.P. Morgan also informed the Company Board that Company A had indicated that it would no longer be participating in the process. Dr. Dunleavy reiterated his commitment to support potential sale transactions as a stockholder only if all of the Company’s stockholders received the same amount and type of consideration. The independent members of the Company Board then met in executive session. Following the presentation and ensuing discussion and executive session, the Company Board authorized the engagement of Latham & Watkins LLP (referred to as “Latham & Watkins”) as legal counsel to the Company in connection with its exploration of, among other options, a potential equity offering and/or

 

22

refinancing of its revolving credit facility and a potential sale of the Company or strategic partnership with the Company. The Company Board selected Latham & Watkins based, in part, on its experience representing companies engaged in a multi-track strategic alternatives review that could involve one or more capital markets and M&A transactions.

On June 11, 2021, the Company retained Latham & Watkins as legal counsel to the Company.

On June 17, 2021, at a meeting of the Company Board, Dr. Dunleavy presented an update on the three preliminary, non-binding indications of interest received from PE Firm A, PE Firm B, and PE Firm C. Dr. Dunleavy informed the Company Board that: (i) PE Firm A had informed J.P. Morgan that it was unwilling to increase the price per share from what was included in its original indication of interest and (ii) PE Firm B was continuing its due diligence review of the Company. Additionally, Dr. Dunleavy informed the board that J.P. Morgan, at the direction of the Company’s management, and the Company’s management continued to engage with several large companies in the software and technology industries (including Company B and Company C) regarding their potential interest in an acquisition of the Company. The independent members of the Company Board then met in executive session. Following the presentation and ensuing discussion and executive session, the Company Board instructed the Company’s management to continue its exploration of potential strategic alternatives for the Company.

During the period from mid-June through mid-July 2021, the Company’s management and representatives of J.P. Morgan, at the direction of the Company’s management, continued discussions with Company B and Company C. While both companies initially expressed interest in potentially acquiring the Company, both later determined that they would instead be interested in participating in the equity financing consortium of other potential bidders.

To date, J.P. Morgan had not included Nordic Capital X in its outreach to strategic counterparties and financial sponsors. In late June 2021, based on the preliminary conversation held between Dr. Dunleavy and representatives of the Nordic Capital Advisors (as described above), Dr. Dunleavy instructed J.P. Morgan to reach out to Nordic Capital X and invite it to participate in the ongoing strategic alternatives review. On June 24, 2021, Nordic Capital X executed a confidentiality agreement (which contained a standstill) and commenced due diligence.

On July 1, 2021, PE Firm B submitted an updated non-binding indication of interest revising its proposed price to $38.00 per share in cash. At the direction of the Company’s management and based on discussions of the Company Board at the meeting held on June 17, 2021, J.P. Morgan informed PE Firm B that it would need to increase its proposed price per share in order to proceed in the process. PE Firm B responded that it would not increase its price, and that representatives of J.P. Morgan should notify it if circumstances change and there was an opportunity to move forward at PE Firm B’s proposed price.

On July 2, 2021, Dr. Dunleavy met with the CEO of a company in the healthcare industry (referred to as “Company D”) to discuss the capabilities and industry vision of the Company. Based on the initial discussion, the parties agreed to meet again on July 3, 2021. During a follow-up discussion between Dr. Dunleavy and the CEO of Company D on July 12, 2021, the CEO of Company D expressed an interest in exploring an acquisition of the Company. On July 13, 2021, Company D executed a confidentiality agreement (which contained a standstill) and commenced due diligence.

On July 5, 2021, Dr. Dunleavy met with representatives of the Nordic Capital Advisors (including Kristoffer Melinder, Mr. Naslund and Mr. Berglund) in person to discuss a potential transaction in which Nordic Capital X would acquire the Company. Detailed terms of the potential transaction (including price and structure) were not discussed, but representatives of the Nordic Capital Advisors indicated that Nordic Capital X would follow up with a written indication of interest. During the meeting, representatives of the Nordic Capital Advisors observed that, in transactions of a similar size and assuming an advanced stage of discussions, Nordic Capital X would typically request that members of management participate in a rollover of their investment. Dr. Dunleavy stated that he could not consider any rollover at this point but he understood Nordic Capital Advisors’ position, and he would only be willing to discuss the matter further if Nordic Capital X’s rollover proposal was supported by the Company Board.

On July 6, 2021, Dr. Dunleavy received an unsolicited email from an additional private equity firm (referred to as “PE Firm D”) expressing an interest submitting an indication of interest in acquiring the Company. Dr. Dunleavy forwarded the email to representatives of J.P. Morgan, who, at the direction of the Company’s management, invited PE Firm D to participate in the sale process. On July 7, 2021, PE Firm D executed a confidentiality agreement (which contained a standstill) and commenced due diligence.

 

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On July 12, 2021, J.P. Morgan received a written preliminary, non-binding indication of interest from Nordic Capital X addressed to the Company Board. Nordic Capital X’s indication of interest outlined a potential transaction in which the Company’s stockholders would receive $43.00 per share in cash, subject to further due diligence and negotiations, which cash consideration would be financed with a mixture of debt and equity. Nordic Capital X’s indication of interest expressly stated that it was not contingent on any member of management participating in a rollover of their holdings and also expressly stated that, if the contemplated equity financing for the transaction were to include any material participation by the Company’s significant stockholders, then Nordic Capital X’s indication of interest was conditioned on (1) the Company Board forming a special committee of independent directors to consider Nordic Capital X’s proposal and such special committee making a favorable recommendation to the Company Board and indicated that Nordic Capital X would not move forward with their proposal unless it is recommended by such a special committee, and (2) adoption of the Merger Agreement by a fully informed vote of a majority of shareholders who are not affiliated with such significant shareholders. The indication of interest requested that the Company enter into an exclusivity agreement with Nordic Capital X for a period of up to four weeks in order for Nordic Capital X to complete its due diligence and negotiate a definitive agreement, which request for exclusivity was not granted by the Company or the Company Board.

On July 13, 2021, the Company Board held a meeting attended by the Company’s management and representatives of J.P. Morgan and Latham & Watkins to discuss the indication of interest received from Nordic Capital X and the preliminary outreach from PE Firm D. J.P. Morgan advised the Board that PE Firm D indicated verbally that it was prepared to submit a preliminary, non-binding indication of interest in the low $40 per share, payable in cash, but that PE Firm D would require an additional six weeks to complete its due diligence review of the Company. Additionally, J.P. Morgan informed the Company Board that J.P. Morgan, at the direction of the Company’s management, and the Company’s management continued to seek out and engage with other potential buyers or strategic partners of the Company, including companies in the software and technology industries, and while no other party had submitted an indication of interest in acquiring the Company, certain potential strategic partners (including Company B and Company C) suggested that they would be interested in participating in an equity financing consortium of other potential bidders. The Company Board discussed the possibility of requesting that Nordic increase its offer price to $44.00 per share and provide further details on its sources of debt and equity financing in exchange for the Company accepting its request for a period of exclusivity. The Company Board also discussed the likelihood that Nordic Capital X may request that Dr. Dunleavy participate in a rollover of a portion of his shareholding in the Company in light of the Company Board’s understanding of typical market practices for financial sponsors and the statements made during the July 5 meeting between Dr. Dunleavy and representatives of the Nordic Capital Advisors and in Nordic Capital X’s July 12, 2021 indication of interest with regard to a rollover. After extensive discussions with J.P. Morgan and Latham & Watkins, including regarding its fiduciary duties in considering proposals for a possible acquisition or merger and appropriate approaches to identify and manage potential conflicts of interest as originally discussed by the Company Board in June 2020 after consultation with outside counsel, the Company Board decided to form a special committee of the Company Board in the event that Nordic Capital X proposed transaction terms that would include Dr. Dunleavy or any affiliate of the Company receiving different consideration than the Public Stockholders. The Company Board also authorized J.P. Morgan and the Company’s management to continue discussions with Nordic Capital X and propose a price of $44.00 per share in exchange for the Company considering entering into an exclusivity agreement. The Company Board instructed Latham & Watkins to prepare a form of exclusivity agreement that could be used in the event that the Company Board decided to accommodate Nordic Capital X’s request for exclusivity.

On July 14, 2021, Nordic Capital X submitted to J.P. Morgan an updated, written non-binding indication of interest addressed to the Company Board outlining a potential transaction in which the Company’s stockholders would receive $44.00 per share in cash, subject to further due diligence, which cash consideration would be financed with a mixture of debt and equity, including equity that Nordic Capital X expected to raise from third parties. While the updated indication of interest did not include any discussion of a potential rollover by members of the Company’s management or the Company’s significant stockholders, the indication of interest again expressly conditioned any rollover structure on (1) the Company Board forming a special committee to consider Nordic Capital X’s proposal and such special committee making a favorable recommendation to the Company Board, and (2) adoption of the Merger Agreement by a fully informed vote of a majority of shareholders who are not affiliated with such shareholders participating in such rollover (the “Approval Conditions”). The updated indication of interest reiterated Nordic Capital X’s request for a period of exclusive negotiations.

On July 14, PE Firm D informed representatives of J.P. Morgan that it would no longer be participating in the process.

On July 15, 2021, in response to Nordic Capital X’s updated indication of interest, representatives of J.P. Morgan shared a draft exclusivity agreement that was prepared by Latham & Watkins with representatives of the Nordic Capital Advisors.

On July 15, 2021, representatives of Company D participated in a management presentation with Dr. Dunleavy and Mr. Boldt to provide information regarding the Company and its financial performance.

 

24

On July 16, 2021, representatives from Latham & Watkins participated in a call with representatives of Kirkland & Ellis LLP, outside counsel for the investment manager of Nordic Capital X (referred to here as “Kirkland & Ellis”) in which the parties discussed process matters and due diligence information. During this call representatives of Latham & Watkins and Kirkland & Ellis discussed the fact that the Company Board was meeting soon to consider and approve the establishment of a special committee and also that they would each expect the special committee would need to evaluate whether the Company should enter into any exclusivity arrangement with Nordic Capital X.

On July 18, 2021, the CEO of Company D informed Dr. Dunleavy that Company D would require at least 90 days to complete its due diligence review of the Company and was therefore was not able to submit an indication of interest on a timeline that would be competitive with other potential bidders. However, the CEO of Company D noted that it would be interested in participating in the equity financing consortium of other potential bidders in an amount up to $500 million, and Company D planned to continue its due diligence review in order to potentially participate in such an investment.

On July 18, 2021, the Company Board held a meeting attended by the Company’s management and representatives of J.P. Morgan and Latham & Watkins to discuss and receive an update on discussions with Nordic Capital X and other potential acquirers and strategic partners. Based on discussions that occurred following the July 13, 2021 meeting of the Company Board, J.P. Morgan indicated that they were increasingly confident that Nordic Capital X would be able to assemble an equity financing consortium to support a $3.5 billion equity commitment and secure $3 billion of debt financing commitments that was outlined in its most recent indication of interest. Dr. Dunleavy also noted that Company D had stated it expected to participate in the equity financing consortium of other potential bidders. While the updated indication of interest did not include any discussion of a potential rollover by members of the Company’s management or the Company’s significant stockholders, the Company Board again discussed the possibility that Nordic Capital X may request that Dr. Dunleavy participate in a rollover and determined that such a request from Nordic Capital X was reasonably likely. Accordingly, representatives of Latham & Watkins reviewed with the Company Board its fiduciary duties in considering proposals for a possible acquisition or merger, appropriate approaches to identify and manage potential conflicts of interest, as well as specific considerations when a director is a large stockholder. Following extensive discussions with its legal and financial advisors and consistent with its discussions on June 17, 2020 and July 13, 2021, the independent members of the Company Board unanimously passed resolutions, effective as of July 18, 2021, to form the Special Committee, with Mr. Teuber, William D. Green and Mark A. Pulido as its members. The Company Board determined each member of the Special Committee to be unaffiliated with, and otherwise independent from, Dr. Dunleavy and to be otherwise independent and disinterested with respect to the Special Committee’s mandate. The Special Committee was delegated the full power and authority of the Company Board to review, evaluate and negotiate potential strategic alternatives, including the power to reject one or more proposals and not engage in any transaction, to retain its own advisors and to make a recommendation to the Company Board regarding any such transaction. The resolution also provided that the Company Board would not recommend any potential transaction to the Company’s stockholders without a prior favorable recommendation by the Special Committee. Dr. Dunleavy expressed his full support for the establishment of the Special Committee while abstaining from the vote itself.

On July 20, 2021, the Special Committee held a meeting attended by representatives of Latham & Watkins to discuss, among other topics, organizational matters to facilitate the Special Committee’s work, including the election of Mr. Teuber as its chairman. After discussion and deliberation, the Special Committee approved the selection of Latham & Watkins as legal counsel to the Special Committee. The Special Committee selected Latham & Watkins based, in part, on their industry knowledge and experience, experience representing special committees in circumstances similar to that of the Special Committee and the absence of conflicts of interest with the Company’s management (including Dr. Dunleavy) and Nordic Capital X. The Special Committee determined that, although Latham & Watkins had been retained in June 2021 as counsel to the Company, Latham & Watkins was not the Company’s historic counsel and was independent of Company management and Dr. Dunleavy. Additionally, the Special Committee approved the selection of Morris, Nichols, Arsht & Tunnell LLP (referred to as “Morris Nichols”) as special Delaware counsel to the Special Committee based, in part, on their experience with matters of Delaware Law and the absence of conflicts of interest with the Company’s management and potential bidders. The Special Committee also discussed the various potential financial advisors that the Special Committee would consider for engagement as independent financial advisors to the Special Committee. After discussing multiple potential financial advisors to the Special Committee, the Special Committee directed Mr. Teuber to work with Latham & Watkins to contact Evercore and another experienced financial advisor with a national reputation to present their credentials to the Special Committee. The Special Committee also discussed the Company’s efforts through J.P. Morgan to seek out and engage with potential strategic and private equity acquirers of the Company, the projections that were prepared by management of the Company and Nordic Capital X’s most recent indication of interest. The Special Committee noted Nordic Capital X’s request for a period of exclusive negotiations and the fact that a draft form of exclusivity agreement had previously been shared with Nordic Capital X. The Special Committee determined that it would not authorize the Company

 

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to enter into an exclusivity agreement until Nordic Capital X provided greater clarity on its sources of financing necessary to support the economic terms outlined in its indication of interest, including any contemplated rollover by members of management and significant stockholders. The Special Committee authorized Latham & Watkins to contact Kirkland & Ellis to inform them of the decision.

Following the Special Committee meeting, representatives of Latham & Watkins participated in a call with representatives of Kirkland & Ellis in which Latham & Watkins confirmed to Kirkland & Ellis that the Company Board had formed the Special Committee and that the Special Committee would need to authorize and approve any exclusivity agreement.

On July 21, 2021, representatives of the Nordic Capital Advisors requested (via J.P. Morgan) that Dr. Dunleavy participate in a rollover of a portion of his investment in the Company. On the same date, Dr. Dunleavy informed the Special Committee of this request and indicated that he would be willing to consider a potential rollover of some portion of investment in the Company if discussions with Nordic Capital X were to progress favorably and if the Special Committee was supportive of Nordic Capital X’s indication of interest. Dr. Dunleavy also indicated that be believed that Mr. Andre Hoffmann (a holder of Company Class A Shares and a beneficial interest in the Company Class B Shares held by Cape Capital) would be willing to consider a potential rollover of some portion of Cape Capital’s investment in the Company. Following deliberations, the Special Committee determined that it was unlikely that Nordic Capital X would proceed with the acquisition without securing a rollover commitment from Dr. Dunleavy. Accordingly, based on the Special Committee’s understanding that Nordic Capital X would not proceed with a transaction unless Dr. Dunleavy participated in a rollover, the Special Committee authorized Dr. Dunleavy to commence preliminary negotiations with Nordic Capital X regarding a potential rollover of a portion of Dr. Dunleavy’s and Cape Capital’s investment in the Company.

On July 22, 2021, the Special Committee held a meeting attended at various times by representatives of Evercore and another experienced financial advisor to further evaluate each financial advisor’s capabilities. During the portion of the meeting attended by representatives of Evercore, the Special Committee inquired about any material relationships that Evercore may have with the Company or potential counterparties that may impair its independence. Evercore confirmed that it had no material relationships with the Company and committed to delivering a written memorandum summarizing its material relationships with potential counterparties, including Nordic Capital X and Dr. Dunleavy. Following the presentations by Evercore and the other potential financial advisor, the members of the Special Committee and representatives of Latham & Watkins had further discussions about the qualifications, experience and independence (including any material relationships with the Company and potential counterparties, including Nordic Capital X and Dr. Dunleavy, disclosed by each financial advisor during the meeting) of each potential financial advisor, and the financial analyses and other actions to be performed by the Special Committee’s financial advisor. After discussion and deliberation, the Special Committee directed Mr. Teuber working with Latham & Watkins to obtain engagement proposals from each potential financial advisor.

On July 23, 2021, the Special Committee held a meeting attended by representatives of Latham & Watkins to discuss the engagement proposals and presentations of each potential financial advisor to the Special Committee. After discussion and deliberation, the Special Committee approved the selection of Evercore as independent financial advisor to the Special Committee, based in part on Evercore’s qualifications, expertise and reputation, its knowledge of and involvement in recent transactions in the Company’s industry and take-private transactions generally, its knowledge of the Company’s business and affairs. The Special Committee directed Mr. Teuber to communicate the engagement selection to Evercore that day and have them commence work. The Special Committee entered into an engagement letter with Evercore on August 10, 2021.

On July 23, 2021, the CEO of Company D called representatives of the Nordic Capital Advisors and Dr. Dunleavy to inform each of them that Company D was no longer interested in participating in the equity financing consortium of other bidders and would instead focus on other initiatives.

On July 25, 2021, at a meeting of the Special Committee attended by representatives of J.P. Morgan, Evercore and Latham & Watkins, J.P. Morgan presented a detailed preliminary summary of the bidder outreach conducted and indications of interest received to date and the criteria used to seek out these potential bidders. After J.P. Morgan left the meeting, the Special Committee discussed the presentation and its overall assessment of bidder outreach extensively with representatives of Evercore and Latham & Watkins.

In late July 2021 and August 2021, the Special Committee held a total of 23 meetings with its advisors in which they discussed updates on the sale process, the due diligence being conducted by Nordic, the Company’s management’s financial forecast, Evercore’s preliminary financial analyses of the Company, the Company’s management’s proposal regarding treatment of equity incentives for employees, and key issues in a draft Merger Agreement and ancillary documents. All

 

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meetings included discussion among the members of the Special Committee with representatives of Latham & Watkins. During these meetings, the Special Committee again discussed Nordic Capital X’s request for a period of exclusive negotiations and determined that no period of exclusivity would be granted unless Nordic Capital X provided detailed information on sources of financing. Additionally, the Special Committee and its advisors discussed the proposed terms of a Merger Agreement that would be provided to Nordic Capital X. The draft expressly stated that in addition to the stockholder vote required by Delaware law, the Special Committee would, consistent with Nordic Capital X’s prior proposals, further require that the majority of Public Stockholders also approve the transaction. The Special Committee and its advisors discussed that this so-called “majority of the minority” vote would, consistent with Nordic Capital X’s prior proposals, be a non-waivable condition for the transaction, and that such vote requirement would also be communicated to Dr. Dunleavy and Cape Capital in the event they agreed to roll over any of their shares of the Company. Additionally, the Special Committee and its advisors discussed various provisions in the Merger Agreement that were designed to maximize value and certainty for the Public Stockholders, including a “go shop” that would allow the Company to continue to solicit acquisition proposals following the signing of a definitive Merger Agreement.

During this same period, following the discussions with representatives of the Nordic Capital Advisors that were authorized by the Special Committee on July 21, 2021, Dr. Dunleavy informed the Special Committee that he had originally indicated to Nordic Capital X that, if the Special Committee was supportive of Nordic Capital X’s proposal to acquire the Company, that he would be willing to consider participating in a rollover in an amount up to $400 million, but representatives of the Nordic Capital Advisors had informed him that Nordic Capital X would not be likely to proceed with a transaction unless Dr. Dunleavy increased the proposed size of his rollover to $700 million. Dr. Dunleavy also informed the Special Committee that Mr. Hoffmann would be willing to consider coordinating a rollover by Cape Capital in an amount up to $300 million. The Special Committee authorized Dr. Dunleavy to negotiate with Nordic Capital X about the size of his and Cape Capital’s rollover and to initiate negotiations regarding agreements relating to the rollover arrangements, subject to the Special Committee’s review and approval. Members of the Special Committee also recommended that Dr. Dunleavy, Mr. Hoffmann and Cape Capital retain independent legal advisors.

On July 26, 2021, the Company Board held a meeting attended by Dr. Dunleavy and Mr. Boldt to discuss the 2021-2023 financial projections for the Company prepared by management (the “Projections”) and the assumptions underlying such Projections. Also in attendance were representatives of Latham & Watkins. Mr. Boldt provided an overview of the models, projections and assumptions included in the Projections and confirmed that such Projections were consistent with metrics used in ordinary-course quarterly presentations to the Company Board and the guidance shared with the public during the May 18 2021 virtual investor day. Mr. Boldt also confirmed that the Projections were consistent with the diligence materials shared with Nordic Capital X and all other potential bidders and strategic partners. After extensive discussion, the independent members of the Company Board approved the Projections for use in valuation analyses conducted by J.P. Morgan and Evercore. During this meeting, the members of the Special Committee and Latham & Watkins updated the independent directors of the Board who are not on the Special Committee about the analyses and activities undertaken by the Special Committee.

On July 26, 2021, the Special Committee with representatives of Evercore and Latham & Watkins in attendance, discussed the process of evaluating alternatives, Nordic Capital X’s due diligence and the projections presented by the Company’s management at the Company Board meeting earlier in the day.

On July 27, 2021, Bloomberg published an article reporting that Nordic Capital X was in discussions to acquire the Company. In light of the preliminary stage of negotiations and the absence of specific details, neither the Company nor Nordic Capital X issued a comment on the Bloomberg article.

On July 28, 2021, representatives of J.P. Morgan transmitted to the Company Board a written memorandum disclosing J.P. Morgan’s material relationships with respect to the Company and Nordic Capital X.

On July 29, 2021, representatives of Evercore transmitted to the Special Committee a written memorandum disclosing Evercore’s material relationships with respect to several potential counterparties, including Nordic Capital X and Dr. Dunleavy.

On July 30, 2021, Dr. Dunleavy informed the Special Committee that he, Mr. Hoffmann and Cape Capital had retained Morgan, Lewis & Bockius LLP (referred to as “Morgan Lewis”) as their legal counsel.

On August 1, 2021, the Company Board held a meeting attended by Dr. Dunleavy and Mr. Boldt to discuss the 2024-2025 financial extrapolations for the Company prepared by management (based on the previously-approved Projections) and the assumptions underlying such extrapolations. Also in attendance were representatives of Latham & Watkins. Mr. Boldt provided an overview of the models, projections and assumptions included in the extrapolations. After Dr. Dunleavy and

 

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Mr. Boldt left the meeting and extensive discussion among the independent directors, the independent members of the Company Board approved the extrapolations for use in valuation analyses conducted by J.P. Morgan and Evercore. During this meeting, the members of the Special Committee and Latham & Watkins updated the independent directors of the Board who are not on the Special Committee about the Special Committee’s activities, Evercore’s views regarding the outreach to potential acquirers of the Company conducted by J.P. Morgan and Nordic Capital X’s ongoing due diligence efforts and equity and debt financing activities.

On August 2, 2021, the Special Committee, with representatives of Evercore and Latham & Watkins in attendance, discussed the sale process and the projections presented by management at the Company Board meeting on August 1, 2021. At the end of the meeting, the Special Committee invited Dr. Dunleavy to join the meeting to provide his views to the Special Committee regarding the potential treatment of equity incentive compensation in connection with a potential sale transaction.

On August 4, 2021, after extensive review by the Special Committee, the Special Committee instructed Latham & Watkins to circulate to Kirkland & Ellis LLP an initial draft of the Merger Agreement relating to the proposed transaction which contained, among other terms favorable to the Company, a “go shop” provision. Acting on the Special Committee’s instructions, Latham & Watkins circulated the initial draft of the Merger Agreement to Kirkland & Ellis.

On August 5, 2021, the Special Committee, with representatives of Evercore and Latham & Watkins in attendance, reviewed the 2024-2030 financial extrapolations for the Company prepared by the Company’s management (based on the previously-approved Projections) and the assumptions underlying such extrapolations. After extensive review and discussion, the Special Committee approved the ten-year extrapolations for use in valuation analyses conducted by J.P. Morgan and Evercore.

On August 6, 2021, independent members of the Company Board with representatives of Evercore and Latham & Watkins in attendance, reviewed the 2024-2030 financial extrapolations for the Company prepared by the Company’s management (based on the previously-approved Projections) and the assumptions underlying such extrapolations. After extensive review and discussion, the independent members of the Company Board approved the ten-year extrapolations for use in valuation analyses conducted by J.P. Morgan and Evercore (such 2024-2030 financial extrapolations, as approved by the Special Committee and the independent members of the Company Board for use in valuation analyses conducted by J.P. Morgan and Evercore, the “Extrapolations”). During this meeting the Special Committee also provided an update on the proposal received from Nordic Capital X, Nordic Capital X’s due diligence and financing, and the progress of negotiations of the Merger Agreement and ancillary documents. Latham & Watkins provided an overview of the key terms of the Merger Agreement that was previously shared with Kirkland & Ellis to the independent members of the Company Board who are not on the Special Committee.

On August 10, 2021, Kirkland & Ellis circulated to Latham & Watkins a revised draft of the Merger Agreement which removed the “go shop” provision, proposed a Company Termination Fee representing 3.5% of the Company’s equity value and revised other key terms. Kirkland & Ellis also circulated to Latham & Watkins initial drafts of the Debt Commitment Letter, Equity Commitment Letter and Limited Guarantee.

On August 10, 2021, the Special Committee held a meeting attended by representatives of Evercore and Latham & Watkins in which representatives of Evercore reviewed its preliminary financial analysis.

On the evening of August 10, 2021, representatives of the Nordic Capital Advisors verbally informed J.P. Morgan that Nordic Capital X was unable to assemble an equity financing consortium at a price of $44.00 per share and accordingly Nordic Capital X would be unable to proceed with the proposed transaction on the economic terms previously outlined in its non-binding indication of interest. Representatives of the Nordic Capital Advisors stated that Nordic Capital X planned to send an updated indication of interest that would outline a potential transaction in which the Company’s stockholders would receive $40.50 per share in cash, which cash consideration would be financed with a mixture of debt and equity. Representatives of the Nordic Capital Advisors also informed J.P. Morgan that Nordic Capital X expected to request that Dr. Dunleavy increase his rollover amount to $1 billion to help provide additional equity financing necessary to fund the proposed transaction.

On August 11, 2021, the Special Committee held a meeting attended by representatives of J.P. Morgan, Evercore and Latham & Watkins to discuss the update provided by representatives of the Nordic Capital Advisors. The Special Committee instructed the representatives of J.P. Morgan and Evercore to reach out to a specified list of other potential buyers and strategic partners, in addition to those that had been contacted previously, to assess whether another party would be willing to offer a price that exceeded Nordic Capital X’s updated proposal. The Special Committee also instructed the representatives of J.P. Morgan and Evercore to re-solicit interest of the strategic and private equity bidders who had

 

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previously shown interest in exploring a transaction with the Company, including PE Firm B. The Special Committee also instructed the representatives of J.P. Morgan to inform Nordic Capital X that a price of $40.50 was inadequate and that the Special Committee would not approve any transaction in which Dr. Dunleavy rolled over more than the $700 million contemplated in connection with Nordic Capital X’s prior proposal, as the Special Committee viewed any transaction that included a lower price and an increased investment by Dr. Dunleavy as problematic. The Special Committee also instructed J.P. Morgan and Latham & Watkins to discontinue Merger Agreement negotiations with Nordic Capital X until Nordic Capital X submitted a revised indication of interest in writing with terms the Special Committee believed it could approve, including a detailed sources and uses table outlining the debt and equity financing for a transaction.

On August 11, 2021, Nordic Capital X submitted an updated non-binding written indication of interest outlining a potential transaction in which the Company’s stockholders would receive $40.25 per share in cash, subject to further due diligence and negotiations, which cash consideration would be financed with a mixture of debt and equity, including a combined rollover amount by Dr. Dunleavy and Cape Capital of $1.1 billion. Nordic Capital X’s updated indication of interest reiterated that given the rollover Nordic Capital X was requiring from Dr. Dunleavy and Mr. Hoffmann, that Nordic Capital X’s non-binding offer (and any subsequent offer) would be conditioned on the satisfaction of the Approval Conditions and that the Approval Conditions would not be waivable. Based on prior instructions from the Special Committee, J.P. Morgan informed representatives of the Nordic Capital Advisors that this proposal was unacceptable and that the Special Committee would not consider any further proposal from Nordic Capital X unless it included a higher price per share and Dr. Dunleavy’s proposed rollover would not exceed the previously contemplated $700 million.

Between August 11, 2021 and August 13, 2021, J.P. Morgan, at the direction of the Company’s management, engaged in discussions with representatives of the Nordic Capital Advisors regarding revised economic terms for a potential transaction. As instructed by the Special Committee, representatives of Evercore and J.P. Morgan also reached out to 10 potential counterparties, including PE Firm B and Company D as well as other strategic counterparties and financial sponsors, to gauge their interest in a potential acquisition of the Company at a price at or above $41.00 per share.

On August 13, 2021, Nordic Capital X submitted an updated non-binding written indication of interest outlining a potential transaction in which the Company’s stockholders would receive $41.00 per share in cash, which cash consideration would be financed with a mixture of debt and equity, including a rollover by Dr. Dunleavy of $700 million and Cape Capital of $300 million.

The Special Committee held a meeting on August 13, 2021 with representatives of J.P. Morgan, Evercore and Latham & Watkins to discuss, among other items, an update on J.P. Morgan’s discussions with representatives of the Nordic Capital Advisors and Nordic Capital X’s revised economic terms for the transaction. Representatives of J.P. Morgan and Evercore also provided an update on their outreach to other potential counterparties that may be interested in an acquisition of the Company. Representatives of J.P. Morgan and Evercore reported that certain potential counterparties declined to participate further in a sale process, other potential counterparties responded with varying degrees of interest, but no potential counterparty had expressed an interest in offering a price at or above $41.00 per share. As a result, the Special Committee authorized J.P. Morgan and Latham & Watkins to resume discussions with Nordic Capital X and Kirkland & Ellis regarding the terms of a potential transaction on the revised economic terms proposed in Nordic Capital X’s August 13 indication of interest.

On August 15, 2021, Nordic Capital X submitted an updated non-binding indication of interest that provided greater detail on its sources of debt and equity financing for the transaction, including a rollover by Dr. Dunleavy of $700 million (consistent with the amount that Nordic Capital X had previously indicated was required in order for them to proceed with the transaction and the amount that the Special Committee had previously supported) and an increased rollover by Cape Capital to $600 million (which increase was determined by the Special Committee at a subsequent meeting to be necessary in order to finance all required payments in connection with the transaction). Nordic Capital X’s updated indication of interest included the Approval Conditions.

The Special Committee held a meeting on August 16, 2021 with representatives of J.P. Morgan, Evercore and Latham & Watkins to discuss, among other items, the status of the communications with other parties who may be interested in a transaction with the Company at price at or above $41.00 per share, the ongoing negotiations with Nordic Capital X and the open issues in the draft Merger Agreement. Representatives of Latham & Watkins stated that, after extensive negotiations, the remaining material open issues in the Merger Agreement included: (i) whether a “go shop” provision allowing the Company to continue to solicit acquisition proposals following the signing of a definitive Merger Agreement would be included, (ii) the relative sizes of the Company Termination Fee and Parent Termination Fees, and (iii) the date on which the parties could terminate the Merger Agreement if the closing conditions have not been satisfied at such time (other than as a result of breach by a party). Latham & Watkins explained that Kirkland & Ellis had informed them that Nordic Capital X

 

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would be unwilling to proceed with any transaction that included a “go shop” provision in the Merger Agreement. After extensive discussions, and noting: (1) the extensive bidder outreach activity by J.P. Morgan and Evercore since May 2021 (including outreach to over 30 potential bidders, 14 of which signed confidentiality agreements and commenced due diligence), (2) the Bloomberg article published almost three weeks earlier, (3) the fact that the Company had not granted exclusivity to any potential bidder, (4) the fact that no other potential bidder had offered to acquire the Company at a price at or in excess of $41.00 per share, (5) Nordic Capital X’s willingness to reduce the size of the Company Termination Fee to an amount representing to 2.75% of the Company’s equity value, (6) the high degree of deal certainty reflected in the terms of the Merger Agreement, including the size of the Parent Termination Fee, the Equity Commitment Letter, Debt Commitment Letter and the Limited Guarantee, and (7) the fact that Nordic Capital X was unwilling to proceed with any transaction that included a “go shop” provision, the Special Committee determined that it would be reasonable to accept the removal of the “go shop” provision in exchange for Nordic Capital X agreeing to a smaller Company Termination Fee, a longer Merger Agreement termination date and other Company-favorable terms in the Merger Agreement. The Special Committee instructed Latham & Watkins to continue to negotiate the terms of the Merger Agreement and finalize all ancillary documents.

Between August 16, 2021 and August 18, 2021, the Special Committee and Nordic Capital X through their respective legal advisors continued to engage in ongoing negotiations of various definitive transaction documents, including the Merger Agreement, the Equity Commitment Letter, the Limited Guarantee, and various ancillary agreements.

The Company Board held a meeting on the afternoon of August 17, 2021, at which time it reviewed with the Company’s management, together with the Company’s and the Special Committee’s legal and financial advisors, a status update on negotiations of the definitive transaction. At the meeting, Latham & Watkins reported on the resolution of certain key economic terms of the transaction and the remaining open issues in the definitive documentation. Representatives of Latham & Watkins reviewed the terms of the Merger Agreement and other ancillary agreements. Representatives of J.P. Morgan and Evercore reviewed the terms of the transaction, the sources and uses of funds in the transaction, and their respective financial analyses of the Company. The independent members of the Company Board then met in executive session and received a briefing from the members of the Special Committee.

On August 18, 2021, representatives of Evercore transmitted to the Special Committee an update to its written memorandum disclosing Evercore’s material relationships with respect to several potential counterparties, including Nordic Capital X and Dr. Dunleavy.

The Company Board met again on the afternoon of August 18, 2021 with the Company’s management, together with the Company’s and the Special Committee’s legal and financial advisors to receive an update on the status of negotiations. The independent members of the Company Board then met in executive session and received a briefing from the members of the Special Committee.

The Special Committee met again on the evening of August 18, 2021, at which time it reviewed with representatives from Evercore and Latham & Watkins the final outcome of negotiations. Representatives of Evercore delivered to the Special Committee its opinion, subsequently confirmed by delivery of a written opinion that, based upon and subject to the assumptions, limitations, qualifications and conditions set forth in its opinion, as of August 18, 2021, the Merger Consideration of $41.00 per share to be received by the Public Stockholders in the Merger was fair, from a financial point of view, to the Public Stockholders. After discussing the final terms of the Merger Agreement, the Special Committee ultimately unanimously recommended that the Company Board approve the execution by the Company of definitive transaction documents and recommend that the Company’s stockholders vote to adopt the Merger Agreement.

The Company Board met again on the evening of August 18, 2021, at which time the Special Committee conveyed its recommendation that the Company Board approve the execution by the Company of definitive transaction documents and recommend that the Company’s stockholders vote to adopt the Merger Agreement. The Company Board then reviewed with the Company’s management, together with the Company’s legal and financial advisors, including representatives of J.P. Morgan, Evercore and Latham & Watkins, the final outcome of negotiations. Representatives of J.P. Morgan, as financial advisor to the Company rendered an oral opinion, subsequently confirmed by delivery of a written opinion, dated August 19, 2021, that, based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing its opinion, as of August 18, 2021, the Merger Consideration of $41.00 per share to be received by the Public Stockholders in the Merger was fair, from a financial point of view, to the Public Stockholders.

 

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After discussing potential reasons for and against the proposed merger described below and in the section entitled “Purpose and Reasons of the Company for the Merger,” the independent members of Company Board (consisting of all members of the Company Board other than Dr. Dunleavy, who recused himself) unanimously approved and declared advisable the Merger Agreement with affiliates of Nordic Capital X, the Merger and all of the other transactions contemplated by the Merger Agreement; declared that it is in the best interests of the Company and its stockholders that the Company enter into the Merger Agreement and consummate the Merger and all of the other transactions contemplated by the Merger Agreement; and recommended that stockholders of the Company vote in favor of the adoption of the Merger and the Merger Agreement.

At the same meeting, the members of the Audit Committee of the Company Board unanimously approved, consistent with the Company’s Audit Committee Charter and applicable NASDAQ listing rules, the Merger Agreement and the transactions contemplated thereby as a proposed transaction between the Company and a related party.

On August 19, 2021, the Company, Parent, Merger Sub and the other parties thereto executed the Merger Agreement. On the same day, before the opening of trading on NASDAQ, the Company issued a press release announcing the execution of the Merger Agreement.

Purpose and Reasons of the Company for the Merger; Recommendation of the Company Board and the Special Committee; Fairness of the Merger

As described in the section entitled “Background of the Merger,” the Company Board duly established the Special Committee and delegated to it the exclusive power and authority, among other things, to (i) review and evaluate the terms and conditions, and determine the advisability of any potential transactions with respect to the Company and any alternatives thereto, (ii) negotiate with the counterparties to any such potential transaction or any other party the Special Committee deems appropriate with respect to the terms and conditions of any such potential transaction or any alternatives thereto and, if the Special Committee deems appropriate, but subject to the limitations of applicable law, approve the execution and delivery of documents pertaining to a given transaction or any alternative transaction on behalf of the Company, (iii) determine whether such proposed transaction or any alternative thereto negotiated by the Special Committee is fair to, and in the best interests of, the Company and its stockholders (and to the extent the Rollover Stockholders were determined to have an interest in such proposed transaction different from the interests of the other shareholders, other than the Rollover Stockholders), (iv) recommend to the full Company Board what action, if any, should be taken by the Company Board with respect to such proposed transaction or any alternative thereto, and (v) retain independent legal counsel and such other consultants and agents, including, without limitation, independent investment bankers, as the Special Committee deems necessary or appropriate to perform such services and render such opinions as may be necessary or appropriate in order for the Special Committee to discharge its duties.

The Special Committee, acting with the advice and assistance of its independent legal and financial advisors, evaluated and negotiated the Merger Agreement and the transactions contemplated thereby, including the Merger, and after careful consideration, at a meeting of the Special Committee held on August 18, 2021, the Special Committee, among other things, unanimously:

 

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determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to, and in the best interests of, the Company and the Public Stockholders;

 

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recommended that the Company Board approve the Merger Agreement and the transactions contemplated thereby, including the Merger, and declare the Merger Agreement and the transactions contemplated thereby, including the Merger, advisable, fair to and in the best interests of the Company and the Company’s stockholders; and

 

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recommended that, subject to approval by the Company Board, the Company Board resolve to recommend that the holders of Company Common Stock vote to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger.

On August 18, 2021, after careful consideration, based in part on the unanimous recommendation of the Special Committee, the Company Board (other than Dr. Dunleavy, who recused himself), pursuant to resolutions adopted at a meeting of the Company Board (other than Dr. Dunleavy, who recused himself), among other things:

 

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determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to, and in the best interests of, the Company and the Company’s stockholders;

 

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adopted and approved the Merger Agreement and the transactions contemplated thereby, including the Merger;

 

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directed that the Merger Agreement be submitted to the holders of Company Common Stock for their adoption and approval; and

 

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resolved to recommend that the holders of Company Common Stock vote to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger.

Accordingly, the Company Board (other than Dr. Dunleavy, who recused himself) recommends that you vote “FOR” the Merger Agreement Proposal, to approve and adopt the Merger Agreement and the transactions contemplated thereby, including the Merger, at the Special Meeting.

In considering the recommendations of the Company Board (other than Dr. Dunleavy, who recused himself) with respect to the Merger, you should be aware that executive officers and directors have certain interests in the Merger that may be different from, or in addition to, the interests of the Company’s stockholders generally. The Special Committee, consisting entirely of independent directors, and the Company Board were aware of these interests and considered them, among other matters, in evaluating the Merger Agreement and the transactions contemplated thereby, including the Merger and in making its decision to recommend that the Company Board adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger. For more information about these interests, refer to the section entitled “Interests of Executive Officers and Directors of the Company in the Merger.” The Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) believe that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to the Public Stockholders.

The Special Committee engaged its own legal and financial advisors and received advice throughout the negotiations from such advisors. Since the members of the Special Committee are disinterested with respect to the transactions contemplated by the Merger Agreement, independent of, and not affiliated with, the Parent Entities or the Rollover Stockholders, the Special Committee believed that it could effectively represent the interests of the Public Stockholders in negotiating the terms of the Merger Agreement and the transactions contemplated thereby, including the Merger and in making its decision to recommend that the Company Board adopt and approve the Merger Agreement and the transactions contemplated thereby, including the Merger.

In evaluating the Merger Agreement and the transactions contemplated thereby, including the Merger, and making the decisions, determinations and recommendations described above, the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) considered, among other things, the following potentially positive factors, which are not intended to be exhaustive and are not presented in any relative order of importance:

 

•

the current and historical market prices of the Company Class A Shares, including as set forth in the table under “Other Important Information Regarding the Company — Market Price of Common Stock and Dividends,” taking into account the market performance of the Company Class A Shares relative to the common stock of other participants in the industry in which the Company operates and general market indices;

 

•

certain factors related to the Company’s business, financial condition and results of operations, and the Company’s prospects and plans, including:

 

•

the reviews undertaken by, and understandings of, the Special Committee and the Company Board with respect to the Company’s business, operations, assets, financial condition, earnings, ownership structure, management, strategy, competitive position, current, historical and projected financial performance, prospects and plans, as well as the associated risks involved achieving such projections, prospects and plans;

 

•

the reviews undertaken by, and understandings of, the Special Committee and the Company Board with respect to economic and market conditions and trends, as well as the challenges and uncertainty surrounding such conditions and trends, both on a historical and prospective basis, in the near term and the long term, such as:

 

•

the nature of the industry in which the Company operates, including anticipated industry trends and rapidly changing competitive and regulatory dynamics;

 

•

the risks and uncertainties relating to ongoing industry consolidation and competition, including the ability of the Company to be able to compete effectively in the markets in which the Company operates or may operate in the future without significant further investment by the Company;

 

•

the risks and uncertainties relating to potential increases in interest rates and the impact on debt and equity markets arising from inflationary pressures, changes in monetary policies and other factors affecting global economic activity;

 

32

•

the low barriers to entry in the technology industry generally, which increase the potential for challenges from new industry competitors; and

 

•

the risks and uncertainties relating to anticipated structural changes in the Company’s industry due to technological changes;

 

•

the risks and uncertainties relating to health epidemics, pandemics and similar outbreaks, such as the COVID-19 pandemic, which may have material adverse effects on the Company’s business, financial position, results of operations and/or cash flows;

 

•

the potential risks to the Company of continuing to have publicly traded common stock, including the risks of market volatility and the risks relating to the Company’s dual class stock structure, including the risk that the holding of lower voting Class A Common Stock may not be permitted by the investment policies of certain institutional investors or may be less attractive to managers of certain institutional investors;

 

•

certain compliance costs and obligations imposed on the Company as a result of having publicly traded common stock;

 

•

the risks and uncertainties relating to the Company’s concentrated stock ownership;

 

•

the management forecasts prepared by the Company’s management for, or otherwise made available to, the Special Committee and the Company Board; and

 

•

certain challenges and limitations on the Company of continuing as a standalone public company, including the execution risk associated with, and potential for business disruption and negative stock price reaction in connection with capital markets transactions or a refinancing of the company’s revolving credit facility;

 

•

the fact that the Merger Consideration consists solely of cash, providing the Company’s stockholders with certainty of value and immediate liquidity at an attractive per Share equity value without the market or execution risks associated with continued independence;

 

•

the conclusions of the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) that the Merger represents the best transaction reasonably available for Company stockholders in light of the foregoing factors as well as, among other things:

 

•

the views of the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) that the Merger Consideration to be paid to the holders of Company Common Stock in accordance with the Merger Agreement represented the highest per Share consideration that could reasonably be obtained;

 

•

the conclusion of the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) that the per Share Merger Consideration to be paid to the holders of Company Common Stock, was more favorable to such holders than the potential value that might result from other alternatives reasonably available to the Company, including the alternative of remaining an independent company and pursuing the Company’s current strategic plan, and other strategic or financial alternatives that might be undertaken as an independent company, in light of a number of factors, including the risks and uncertainties associated with those alternatives, and the administrative and compliance costs associated with operating the Company as a publicly traded company;

 

•

that the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself), with the assistance of their respective independent legal and other advisors, had considered alternatives, including continuing to operate the Company on a standalone basis, other potential value creating options or a sale to an alternative buyer, and considered the risks and uncertainties associated with such alternatives, and each respectively formed the view that no other alternatives were reasonably likely to create greater value for the Company’s stockholders than the Merger, taking into account the alternatives reasonably available to the Company and the risk of execution, as well as business, competitive, industry and market risks (as more fully described under “Special Factors — Background of the Merger”);

 

•

the conclusions of the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) that, after a thorough process, including extensive outreach to and negotiations with potential buyers, conducted at the direction of the Special Committee, with the assistance of experienced independent legal and financial advisors, the Company obtained the best terms and highest price that Parent is willing to pay for the Company and that further negotiations would have created a risk of causing Parent to abandon the Merger altogether or materially delay the entry into definitive transaction agreements with respect to the Merger;

 

33

•

the fact that since the public announcement of the Merger Agreement, none of the Company, Parent, the Special Committee, the Company Board, nor any of their respective independent legal and financial advisors, as applicable, has received any inbound inquiries from third parties related to potential alternative acquisition proposals; and

 

•

the reviews undertaken by the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) of the Merger Agreement and the structure of the transactions contemplated thereby, including, among others, the specific financial and other terms and conditions set out below;

 

•

the terms of the Merger Agreement permitting the Company to receive unsolicited Acquisition Proposals (as defined in the Merger Agreement) that do not result from any breach of the non-solicitation obligations in the Merger Agreement, and the other terms and conditions of the Merger Agreement, including:

 

•

that the Company may, in certain circumstances (i) furnish any information or access thereto to any third party making such an Acquisition Proposal and its representatives and potential financing sources and (ii) participate or engage in negotiations or discussions with such third party and its representatives and potential financing sources regarding such Acquisition Proposal, provided, in each case, the Acquisition Proposal is received prior to obtaining the requisite Company Stockholder Approval with respect to the Merger Agreement Proposal;

 

•

that the Merger Agreement may be terminated, in certain circumstances, including, among others, by the Company to accept and enter into a definitive agreement with respect to a Superior Proposal, provided that the Company pay Parent a Company Termination Fee of $176,385,000 and expense reimbursement of up to $10,000,000, which amount the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) believe to be reasonable under the circumstances and taking into account the range of such termination fees in similar transactions, and the unlikelihood that a fee of such size would be a meaningful deterrent to other acquisition proposals;

 

•

that the Company Board may, upon the recommendation of the Special Committee, in certain circumstances, make an Adverse Recommendation Change, including in response to (i) a Intervening Event, or (ii) a bona fide written Acquisition Proposal that the Company Board determines constitutes a Superior Proposal; and

in each case, subject to and in accordance with the terms and conditions of the Merger Agreement;

 

•

the likelihood of the Merger being completed, based on, among other matters:

 

•

Parent having delivered to the Company a true, complete and correct copy of the executed Equity Commitment Letter to which the Company is a third party beneficiary, pursuant to which Nordic Capital X and its equity financing sources have committed to provide, subject to and in accordance with the terms and conditions of the Equity Commitment Letter, equity financing in an aggregate amount of up to $3,175,000,000 to be used solely for the purpose of providing the financing for the transactions contemplated by the Merger Agreement at the Closing of the Merger, including the fees and expenses related thereto, noting that the aggregated amount represents the amount estimated to be required to fund the Required Amount, as defined in the Merger Agreement, at the Closing;

 

•

the absence of a financing condition in the Merger Agreement;

 

•

the Company’s ability, under circumstances specified in the Merger Agreement, to seek specific performance of Parent’s obligation to cause the Merger to occur;

 

•

the requirement that, in the event of a failure of the Merger to be consummated under certain circumstances, Parent pay the Company a Parent Termination Fee of $368,805,000 and certain enforcement expenses in cash, subject to and in accordance with the terms and conditions of the Merger Agreement (as more fully described under “The Merger Agreement — Termination Fees”);

 

•

the Limited Guaranty, provided by the Guarantors, in favor of the Company, pursuant to which the Guarantors have agreed to guarantee Parent’s obligations under the Merger Agreement, capped at $376,305,000, with respect to payment of the Parent Termination Fee and certain expense reimbursement obligations of Parent;

 

•

the requirement that Parent and Merger Sub use their respective reasonable best efforts to obtain the regulatory approvals required to consummate the Merger, subject to and in accordance with the terms and conditions of the Merger Agreement; and

 

•

the likelihood and anticipated timing of completing the proposed Merger in light of the scope of the conditions to completion, including that there were no anticipated substantive issues expected in connection with the required regulatory approvals;

 

34

•

other terms and conditions of the Merger Agreement, including:

 

•

the conclusions of the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) that the Company Termination Fee is reasonable in light of, among other matters, the benefit of the Merger to the Company’s stockholders, the size of such termination fee in similar transactions and the enterprise value of the Company;

 

•

the terms of the Merger Agreement providing the Company sufficient operating flexibility to conduct its business in the ordinary course until the earlier of the consummation of the Merger or the termination of the Merger Agreement;

 

•

the Company’s ability, under circumstances specified in the Merger Agreement, to seek specific performance to prevent certain breaches of the Merger Agreement by Parent and Merger Sub; and

 

•

the scope of the representations, warranties and covenants being made by the Company and Parent;

 

•

the opinion of Evercore, dated August 18, 2021, to the Special Committee to the effect that, as of that date and based upon and subject to the assumptions, limitations, qualifications and conditions described in Evercore’s opinion, the Merger Consideration of $41.00 per share to be received by the Public Stockholders in the Merger was fair, from a financial point of view, to the Public Stockholders (as more fully described under “Special Factors — Opinion of the Special Committee’s Financial Advisor”). The full text of the written opinion of Evercore, dated August 18, 2021, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached as Annex E to this proxy statement and is incorporated herein by reference;

 

•

the fact that J.P. Morgan rendered to the Company Board its August 18, 2021 oral opinion, which was confirmed by delivery of a written opinion, dated August 19, 2021, to the effect that as of such date, August 19, 2021, and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing its opinion, the Merger Consideration to be received by the Public Stockholders pursuant to the Merger Agreement was fair from a financial point of view to such Public Stockholders in the aggregate (as more fully described under “Special Factors — Opinion of the Company’s Financial Advisor”). The full text of the written opinion of J.P. Morgan, dated August 19, 2021, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing its opinion, is attached as Annex D to this proxy statement and is incorporated herein by reference;

 

•

the conclusions of the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) that they were fully informed about the extent to which the interests of the Rollover Stockholders in the Merger differ from those of the Company’s other stockholders;

 

•

the fact that the Rollover Stockholders, who hold approximately 87% of the voting power of the Company’s outstanding capital stock, have duly executed and entered into a Support Agreement, pursuant to which they have agreed to vote their Shares in favor of the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, subject to and in accordance with the terms and conditions of the Support Agreement;

 

•

the fact that the Support Agreement terminates in the event that the Merger Agreement is validly terminated in accordance with its terms, as more fully described in the section titled “Special Factors — Support Agreements”;

 

•

the fact that the Merger Agreement is subject to, among other approvals, approval and adoption by the affirmative vote of holders of (i) a majority of the voting power of all outstanding Shares entitled to vote, voting as a single class and (ii) a majority of the voting power of all outstanding Shares, voting as a single class, that are not owned, beneficially or of record, by the Rollover Stockholders, their respective affiliates, or any executive officer or director of the Company; and

 

•

the right of Company stockholders to exercise their statutory appraisal rights under the Section 262 of the DGCL and receive payment of the fair value of their Shares in lieu of the Merger Consideration to be paid per Share, subject to and in accordance with the terms and conditions of the Merger Agreement and the DGCL, unless and until any such Company stockholder fails to perfect or effectively withdraws or loses his, her, its or their rights to appraisal and payment under the DGCL.

In evaluating the Merger Agreement and the transactions contemplated thereby, including the Merger, and making the decisions, determinations and recommendations described above, the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) considered, among other things, a number of procedural safeguards that they believed

 

35

were and are present to ensure the fairness of the Merger Agreement and the transactions contemplated thereby, including the Merger, and to permit the Special Committee to represent effectively the interests of the Public Stockholders. These procedural safeguards include, among other things, the following, which are not intended to be exhaustive and are not presented in any relative order of importance:

 

•

that the Special Committee was formed at the outset of the Company Board’s consideration of a potential transaction that included a rollover by the Rollover Stockholders and prior to any consideration of the terms of the Merger Agreement;

 

•

that the Special Committee consists entirely of directors who are independent of, and not affiliated with, the Parent Entities or the Rollover Stockholders or any of their respective affiliates, and who are not members of the Company’s management;

 

•

that the members of the Special Committee are disinterested with respect to the transactions contemplated by the Merger Agreement, including the Merger and had no financial interest in the Merger different from, or in addition to, the Public Stockholders generally (other than as described in “Special Factors — Interests of Executive Officers and Directors of the Company in the Merger”);

 

•

that the Special Committee had exclusive authority to decide whether or not to proceed with a transaction or any alternative thereto, subject to the Company Board’s approval of the transactions;

 

•

that the Special Committee retained and was advised by its own experienced legal and financial advisors;

 

•

that the Special Committee had the exclusive power and authority, among other things, to (i) review and evaluate the terms and conditions, and determine the advisability of any potential transactions with respect to the Company and any alternative thereto, (ii) negotiate with the counterparties to any such potential transaction or any other party the Special Committee deems appropriate with respect to the terms and conditions of any such potential transaction or any alternatives thereto and, (iii) determine whether such proposed transaction or any alternative thereto negotiated by the Special Committee is fair to, and in the best interests of, the Company and all of its stockholders (and to the extent Dr. Dunleavy is determined to have an interest in such proposed transaction different from the interests of the other shareholders, other than Dr. Dunleavy) and (iv) recommend to the full Company Board what action, if any, should be taken by the Company Board with respect to such proposed transaction or any alternative thereto;

 

•

that the Company Board was not permitted to recommend any potential transaction or any alternative thereto for approval by the Company’s stockholders or otherwise approve any proposed transaction or any alternative thereto without a prior favorable recommendation of such proposed transaction or alternative thereto by the Special Committee;

 

•

that the Special Committee had no obligation to recommend any transaction, including a transaction with Parent, and that the Special Committee had the authority to reject any proposals made by Parent or any other person;

 

•

that prior to the entry into the Merger Agreement, the Special Committee was permitted to solicit, initiate, propose or introduce the making, submission or announcement of, or encourage, facilitate or assist, any proposal or offer that could constitute a potential transaction with respect to the Company from any person;

 

•

that the Special Committee, in consultation with its independent financial and legal advisors, conducted an extensive process, involving frequent and extensive deliberations and negotiations over a period of time, to consider:

 

•

potential transactions and alternatives thereto, including engaging with potential counterparties; and

 

•

the Merger Agreement and the transactions contemplated thereby, including the Merger,

 

•

and, in each case, each member of the Special Committee was actively engaged in that process on a regular basis and was provided with full access to the Company’s management and its advisors in connection with the evaluation process (as more fully described under “Special Factors — Background of the Merger”);

 

•

the consummation of the transactions contemplated by the Merger Agreement is subject to Company Stockholder Approval, which includes a “majority of the minority” voting requirement, pursuant to which the Merger Agreement must be approved and adopted by the affirmative vote of holders of a majority of the voting power of all outstanding share held by the Public Stockholders, in addition to approval and adoption by the affirmative vote of a majority of the voting power of all outstanding Shares entitled to vote, voting as a single class;

 

36

•

that, the terms of the Merger Agreement, including the Merger Consideration, were the product of extensive negotiations between the Special Committee in consultation with its legal and financial advisors, on the one hand, and Nordic Capital X and its affiliates and advisors, on the other hand, that resulted in the improvement, from the perspective of the Company, of other terms of the Merger and the Merger Agreement, including the operating covenants, treatment of employee equity incentives and the amount of the termination fees, relative to Parent’s initial proposed terms;

 

•

the various terms of the Merger Agreement that are intended to help ensure that the Company’s stockholders receive the highest price per Share reasonably available, including:

 

•

that the Merger Agreement may be terminated, in certain circumstances, including, among others, by the Company to accept and enter into a definitive agreement with respect to a Superior Proposal (as more fully described under “The Merger Agreement”), provided that the Company pay Parent the Company Termination Fee;

 

•

that the Company Board may, upon the recommendation of the Special Committee, in certain circumstances, make an Adverse Recommendation Change, including in response to (i) a Intervening Event, or (ii) a bona fide written Acquisition Proposal that the Company Board determines constitutes a Superior Proposal;

 

•

in each case, subject to and in accordance with the terms and conditions of the Merger Agreement; and

 

•

that the Special Committee made its evaluation of the Merger Agreement and the transactions contemplated thereby, including the Merger, based upon the factors discussed in this proxy statement and with the full knowledge of the interests of the Rollover Stockholders in the Merger.

In evaluating the Merger Agreement and the transactions contemplated thereby, including the Merger, and making the decisions, determinations and recommendations described above, the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) also considered, among other things, certain countervailing factors, including the following uncertainties, risks and other potentially negative factors, which are not intended to be exhaustive and are not presented in any relative order of importance:

 

•

that, following the completion of the Merger, the Company will no longer exist as an independent public company and that the consummation of the Merger and receipt of the Merger Consideration, while providing relative certainty of value, will not allow the Company’s stockholders (other than the Rollover Stockholders) to participate in potential further growth in the Company’s assets, future earnings growth, future appreciation in value of the Company Class A Shares or any future dividends after the Merger;

 

•

the risk that the transactions contemplated by the Merger Agreement, including the Merger may not be consummated in a timely manner or at all, for a variety of reasons, and the consequences thereof, including (i) the potential loss of value to the Company’s stockholders, including the reduction of the trading price of the Company Class A Shares (ii) the potential negative impact on the operations and prospects of the Company, including the risk of loss of key personnel and certain key members of senior management, and (iii) the market’s perception of the Company’s prospects could be adversely affected if such transactions were delayed or were not consummated;

 

•

the possible effects of the pendency or consummation of the transactions contemplated by the Merger Agreement, including the potential for suits, actions or proceedings in respect of the Merger Agreement or the transactions contemplated by the Merger Agreement, the risk of any loss or change in the relationship of the Company and its subsidiaries with their respective employees, agents, customers and other business relationships, and any possible effect on the Company’s ability to attract and retain key employees, including that certain key members of senior management might choose not to remain employed with the Company prior to the completion of the Merger;

 

•

the risk of incurring substantial expenses related to the Merger, including in connection with any litigation that may arise in the future;

 

•

the risks and potentially negative factors described in “Special Factors — Certain Effects of the Merger” and “Special Factors — Certain Effects on the Company if the Merger is not Completed,” respectively;

 

•

that the Company’s directors, officers and employees have expended and will expend extensive efforts attempting to complete the transactions contemplated by the Merger Agreement and such persons have experienced and will experience significant distractions from their work during the pendency of such transactions and that the Company has incurred and will incur substantial costs in connection with such transactions, even if such transactions are not consummated;

 

•

that the receipt of the Merger Consideration in exchange for shares pursuant to the Merger Agreement will be a taxable transaction for U.S. federal income tax purposes;

 

37

•

the restrictions imposed by the Merger Agreement on the Company’s solicitation of acquisition proposals from third parties, and that prospective bidders may perceive Parent’s right under the Merger Agreement to negotiate with the Company to match the terms of any Superior Proposal prior to the Company being able to terminate the Merger Agreement and accept a Superior Proposal to be a deterrent to making alternative proposals;

 

•

that the Rollover Stockholders’ existing ownership interest in the Company and obligations under the Support Agreement would likely be taken into account by third parties considering whether to make alternative proposals;

 

•

the possibility that the Company may be required to pay Parent a Company Termination Fee of $176,385,000 and expense reimbursement of up to $10,000,000 in cash under certain circumstances, including upon termination of the Merger Agreement to accept a Superior Proposal (as more fully described under “The Merger Agreement — Termination Fees”);

 

•

the possibility that the Parent Termination Fee of $368,805,000 and certain enforcement expenses in cash payable by Parent to the Company, together with other specified amounts, may be the Company’s sole and exclusive remedy in the event that the Merger Agreement is terminated by the Company due to (a) Parent’s breach of, or failure to perform its representations, warranties or obligations under the Merger Agreement or (b) Parent’s failure to consummate the Merger at such time at which all of the applicable conditions to Closing have been satisfied (subject to certain conditions);

 

•

that Parent and Merger Sub are newly formed entities with essentially no assets and the Limited Guaranty, provided by Guarantors, is capped at $376,305,000, with respect to payment of the Parent Termination Fee and certain expense reimbursement obligations of Parent;

 

•

that, if the Merger Agreement is terminated in connection with the Company’s entry into a definitive agreement with respect to a Superior Proposal, the Rollover Stockholders have not agreed to vote their Shares in favor of such Superior Proposal;

 

•

the understanding that the Rollover Stockholders, their affiliates and various executive officers and directors have certain interests in the Merger that may be different from, or in addition to, the interests of the Company’s stockholders generally (as discussed under “Special Factors — Interests of Executive Officers and Directors of the Company in the Merger”); and

 

•

the restrictions placed on the conduct of the Company’s business prior to the completion of the Merger pursuant to the terms of the Merger Agreement, which could delay or prevent the Company from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of the Company absent the pending completion of the Merger.

The Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) concluded that, overall, the potentially positive factors outweighed the uncertainties, risks and potentially negative factors relevant to the Merger Agreement and the transactions contemplated thereby, including the Merger. Accordingly, the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger are advisable, fair to, and in the best interests of, the Company and the Company’s stockholders.

Accordingly, the Company Board (other than Dr. Dunleavy, who recused himself) recommends that you vote “FOR” the Merger Agreement Proposal, to approve and adopt the Merger Agreement and the transactions contemplated thereby, including the Merger, at the Special Meeting.

The Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) are not aware of any firm offer for a merger, sale of all or a substantial part of the Company’s assets, or a purchase of a controlling amount of the Company securities having been received by the Company from anyone other than a filing person in the two (2) years preceding the signing of the Merger Agreement.

The foregoing discussion is not exhaustive, but is intended to summarize the material information and factors considered by the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) in their consideration of the Merger Agreement and the transactions contemplated thereby, including the Merger. The Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) reached the decision to approve the entry into the Merger Agreement and recommend its adoption by the Company’s stockholders in light of the factors described above and other factors that the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) believed were appropriate. In view of the variety of factors and the quality and amount of information considered, the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) did not find it

 

38

practicable to and did not quantify or otherwise assign relative weights to the specific factors considered in reaching their determinations. In addition, each of the directors of the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) may have given different weight to different factors. The Special Committee and the Company Board conducted an overall review of the factors described above, including through discussions with the Company’s management and their respective legal and financial advisors, and considered the factors overall to be favorable to, and to support, their decisions, determinations and recommendations. It should be noted that this explanation of the reasoning of the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) and certain information presented in this section is forward looking in nature and should be read in light of the factors set forth in the section entitled “Cautionary Statement Concerning Forward Looking Information.”

Certain Unaudited Prospective Financial Information

Except for annual and quarterly guidance, the Company does not, as a matter of course, publicly disclose forecasts or projections as to future performance, earnings or other results due to the inherent uncertainty, unpredictability and subjectivity of the underlying assumptions, estimates and projections. In connection with its consideration of the Company’s stand-alone prospects and potential strategic transactions available to the Company, management of the Company prepared and provided to the Special Committee, the Company Board, Evercore and J.P. Morgan the Projections and Extrapolations. The Special Committee subsequently directed Evercore, and the Company Board subsequently directed J.P. Morgan, to use the Projections and Extrapolations in connection with rendering their fairness opinions to the Special Committee and to the Company, respectively and performing their related financial analysis, as described above under the headings “— Opinion of the Special Committee’s Financial Advisor” and “— Opinion of the Company’s Financial Advisor.” The summary of the Projections and Extrapolations is included in this proxy statement solely to give the Company’s stockholders access to certain financial projections that were made available to the Special Committee, the Company Board, Evercore and J.P. Morgan. The summary of the Projections and Extrapolations may not be appropriate for other purposes and is not being included in this proxy statement to influence a Company stockholder’s decision whether to vote to adopt the Merger Agreement and approve the Merger.

The Projections and Extrapolations were prepared by our management for internal use. The Projections and Extrapolations were not prepared with a view toward public disclosure or with a view toward complying with GAAP (as detailed below), the published guidelines of the SEC regarding projections, the use of non-GAAP financial measures or the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of the Company’s management, were prepared on a reasonable basis, reflected the best available estimates and judgments at the time of preparation and presented as of the time of preparation, to the best of the Company’s management’s knowledge and belief, the reasonable projections of the future financial performance of the Company.

Neither the Company’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information. The reports of the Company’s independent registered public accounting firm incorporated by reference in this proxy statement relate to the Company’s historical financial information. None of those reports extend to any of the Projections or Extrapolations described below and should not be read to do so.

The Projections and Extrapolations, while presented with numerical specificity, necessarily were based on numerous variables and assumptions that are inherently uncertain and many of which are beyond the control of the Company’s management. Because the Projections and Extrapolations cover multiple years, by their nature, they also become subject to greater uncertainty with each successive year. A number of important factors with respect to the Company’s business and the industry in which it participates may affect actual results and result in the Projections and Extrapolations not being achieved. For a description of some of these factors, the Company’s stockholders are urged to review the Company’s most recent SEC filings as well as the discussion entitled “Cautionary Statement Concerning Forward Looking Statements” and other risk factors described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. In addition, the Projections and Extrapolations may be affected by the Company’s inability to achieve strategic goals, objectives and targets over the applicable period. Accordingly, there can be no assurance that the prospective results are indicative of the future performance of the Company or that actual results will not differ materially from those presented in the prospective financial information.

 

39

The inclusion of the Projections and Extrapolations in this proxy statement should not be regarded as an indication that the Company or any of its affiliates, advisors, officers, directors or representatives considered or considers the Projections and Extrapolations to be necessarily predictive of actual future events, and the Projections and Extrapolations should not be relied upon as such. Neither the Company nor any of its respective affiliates, advisors, officers, directors or representatives has made or makes any representation to any of the Company’s stockholders or any other person regarding the ultimate performance of the Company compared to the information contained in the Projections and Extrapolations or can give any assurance that actual results will not differ materially from the Projections and Extrapolations, and none of them undertakes any obligation to update or otherwise revise or reconcile the Projections and Extrapolations to reflect circumstances existing after the date the Projections and Extrapolations were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the Projections and Extrapolations are shown to be in error. The Company does not intend to make publicly available any update or other revision to the Projections and Extrapolations, except as otherwise required by law.

The Projections and Extrapolations include non-GAAP financial measures, such as Adjusted EBITDA, EBIT and Unlevered Free Cash Flow, which were presented because management believed they could be useful indicators of the Company’s projected future operating performance. The Company prepared the Projections and Extrapolations on a non-GAAP basis. 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 by the Company may not be comparable to similarly titled amounts used by other companies. As used herein, “GAAP” means generally accepted accounting principles.

All financial projections are forward looking statements. These and other forward looking statements are expressly qualified in their entirety by the risks and uncertainties identified above and the cautionary statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, and subsequent quarterly and current reports on Form 10-Q and Form 8-K. Please consider carefully the discussion entitled “Cautionary Statement Concerning Forward Looking Information” elsewhere in the proxy statement.

In light of the foregoing factors and the uncertainties inherent in the Projections and Extrapolations, the Company’s stockholders are cautioned not to place undue, if any, reliance on the Projections and Extrapolations.

The following is a summary of the Projections and Extrapolations (unaudited):

 

		Management forecast												Management extrapolation
		2021E				2022E				2023E				2024E				2025E				2026E				2027E				2028E				2029E				2030E
Revenue		$	775			$	902			$	1,040			$	1,200			$	1,385			$	1,573			$	1,759			$	1,935			$	2,065			$	2,137
Adjusted EBITDA(1)		$	271			$	330			$	404			$	492			$	594			$	675			$	755			$	830			$	886			$	917
EBIT(2)		$	153			$	210			$	284			$	372			$	474			$	546			$	620			$	692			$	749			$	786
Unlevered Free Cash Flow(3)		$	124			$	163			$	214			$	264			$	322			$	367			$	411			$	454			$	490			$	514

 

All numbers in millions, except for percentages.

 

(1)

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) is defined as net income or loss calculated in accordance with GAAP, adjusted for the impact of depreciation and amortization, interest income, interest expense, other expense, net, provision for income taxes, stock-based compensation, acquisition costs, restructuring expense, tax on equity exercises, and other non-comparable items.

(2)

EBIT is defined as net income or loss calculated in accordance with GAAP, adjusted for the impact of interest income, interest expense, other expense, net, provision for income taxes, stock-based compensation, acquisition costs, restructuring expense, tax on equity exercises, and other non-comparable items.

(3)	Unlevered Free Cash Flow is defined as Adjusted EBITDA excluding stock-based compensation, taxes, capital expenditures, and changes in net working capital. Net working capital is defined as the difference between current assets and current liabilities.

Opinion of the Company’s Financial Advisor

Pursuant to an engagement letter, the Company retained J.P. Morgan as its financial advisor in connection with the proposed Merger.

At the meeting of the Company Board on August 18, 2021, J.P. Morgan rendered its oral opinion to the Company Board that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing its opinion, the consideration to be paid to the Public

 

40

Stockholders in the proposed Merger was fair, from a financial point of view, to the Public Stockholders. J.P. Morgan has confirmed its August 18, 2021 oral opinion by delivering its written opinion to the Company Board, dated August 19, 2021, that, as of such date, the consideration to be paid to the Public Stockholders in the proposed Merger was fair, from a financial point of view, to the Public Stockholders.

The full text of the written opinion of J.P. Morgan dated August 19, 2021, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing its opinion, is attached as Annex D to this proxy statement and is incorporated herein by reference. The summary of the opinion of J.P. Morgan set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion. The Company’s public common stockholders are urged to read the opinion in its entirety. J.P. Morgan’s opinion was addressed to the Company Board (in its capacity as such) in connection with and for the purposes of its evaluation of the proposed Merger, was directed only to the consideration to be paid in the Merger and did not address any other aspect of the Merger. J.P. Morgan expressed no opinion as to the fairness of any consideration to be paid in connection with the proposed Merger to the holders of any other class of securities, creditors or other constituencies of the Company or as to the underlying decision by Company to engage in the proposed Merger. The issuance of J.P. Morgan’s opinion was approved by a fairness committee of J.P. Morgan. The opinion does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote with respect to the proposed Merger or any other matter.

In arriving at its opinion, J.P. Morgan, among other things:

 

•

reviewed the Merger Agreement;

 

•

reviewed certain publicly available business and financial information concerning the Company and the industries in which it operates;

 

•

compared the proposed financial terms of the Merger with the publicly available financial terms of certain transactions involving companies J.P. Morgan deemed relevant and the consideration paid for such companies;

 

•

compared the financial and operating performance of the Company with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of the Company Class A Common Stock and certain publicly traded securities of such other companies;

 

•

reviewed the Projections and Extrapolations; and

 

•

performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion.

In addition, J.P. Morgan held discussions with certain members of the management of the Company and Parent with respect to certain aspects of the Merger, and the past and current business operations of the Company, the financial condition and future prospects and operations of the Company, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

In giving its opinion, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by the Company or otherwise reviewed by or for J.P. Morgan. J.P. Morgan did not independently verify any such information or its accuracy or completeness and, pursuant to its engagement letter with the Company, J.P. Morgan did not assume any obligation to undertake any such independent verification. J.P. Morgan did not conduct or was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of the Company or Parent under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to J.P. Morgan or derived therefrom, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of the Company to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts or the assumptions on which they were based. J.P. Morgan also assumed that the Merger and the other transactions contemplated by the Merger Agreement will have the tax consequences described in discussions with, and materials furnished to J.P. Morgan by, representatives of the Company, and will be consummated as described in the Merger Agreement and pursuant to the certificate of incorporation. J.P. Morgan also assumed that the representations and warranties made by the Company and Parent in the Merger Agreement and the related agreements were and will be true and correct in all respects material to its analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to the Company with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the Merger will be obtained without any adverse effect on the Company or on the contemplated benefits of the Merger.

 

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The Projections and Extrapolations furnished to J.P. Morgan were prepared by the Company’s management, as discussed more fully under “Certain Unaudited Prospective Financial Information.” The Company does not publicly disclose internal management Projections and Extrapolations of the type provided to J.P. Morgan in connection with J.P. Morgan’s analysis of the proposed Merger, and such Projections and Extrapolations were not prepared with a view toward public disclosure. These Projections and Extrapolations were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of the Company’s management, including, without limitation, factors related to general economic and competitive conditions and prevailing interest rates. Accordingly, actual results could vary significantly from those set forth in such Projections and Extrapolations. For more information regarding the use of Projections and Extrapolations and other forward-looking statements, please refer to the section entitled “Certain Unaudited Prospective Financial Information.”

J.P. Morgan’s opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of such opinion. J.P. Morgan’s opinion noted that subsequent developments may affect J.P. Morgan’s opinion, and that J.P. Morgan does not have any obligation to update, revise or reaffirm such opinion. J.P. Morgan’s opinion is limited to the fairness, from a financial point of view, of the consideration to be paid to the Company’s public common stockholders in the proposed Merger, and J.P. Morgan has expressed no opinion as to the fairness of any consideration to be paid in connection with the proposed Merger to the holders of any other class of securities, creditors or other constituencies of the Company or as to the underlying decision by the Company to engage in the Merger. Furthermore, J.P. Morgan expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the proposed Merger, or any class of such persons relative to the consideration to be paid to the Company’s public common stockholders in the proposed Merger or with respect to the fairness of any such compensation. J.P. Morgan expressed no opinion as to the price at which the Company’s common stock will trade at any future time.

The terms of the Merger Agreement, including the consideration to be paid to the Company’s public common stockholders, were determined through arm’s length negotiations between the Company and Parent, and the decision to enter into the Merger Agreement was solely that of the Company Parent. J.P. Morgan’s opinion and financial analyses were only one of the many factors considered by the Company Board in its evaluation of the proposed Merger and should not be viewed as determinative of the views of the Company Board or management with respect to the proposed Merger or the consideration, including the consideration to be paid to the Company’s public common stockholders.

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methodologies in rendering its opinion to the Company Board on August 18, 2021 and in the financial analysis presented to the Company Board on such date in connection with the rendering of such opinion. The following is a summary of the material financial analyses utilized by J.P. Morgan in connection with rendering its opinion to the Company Board and does not purport to be a complete description of the analyses or data presented by J.P. Morgan. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by J.P. Morgan, the tables must be read together with the full text of each summary. Considering the data set forth 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 J.P. Morgan’s analyses.

Public Trading Multiples. Using publicly available information, J.P. Morgan compared selected financial data of the Company with similar data for selected publicly traded companies engaged in businesses which J.P. Morgan judged to be sufficiently analogous to those engaged by the Company. The companies selected by J.P. Morgan were as follows:

 

•

NICE LTD.

 

•

PTC Inc.

 

•

Black Knight, Inc.

 

•

GoDaddy Inc.

 

•

Datto Holding Corp.

 

•

Qualys, Inc.

 

•

Mimecast Limited

 

•

Omnicell, Inc.

 

•

R1 RCM Inc.

 

•

Health Equity, Inc.

 

42

These companies were selected, among other reasons, because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, were considered in its judgment sufficiently similar in certain respects to those of the Company based on business sector participation, operational characteristics and financial metrics. However, none of the selected companies reviewed is identical or directly comparable to the Company and certain of these companies may have characteristics that are materially different from those of the Company. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than they would affect the Company.

Using publicly available information, J.P. Morgan calculated, for each selected company, the ratio of firm value to the Wall Street research analyst consensus estimate of earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”). Based on the results of this analysis and other factors J.P. Morgan considered appropriate, J.P. Morgan selected a multiple reference range of 18.5x – 24.0x. After applying such range to the projected Adjusted EBITDA for the Company for the year ending December 31, 2022, the analysis indicated a range of implied per share equity value (rounded to the nearest $0.25) for the common stock of the Company of $34.00 to $45.75, which was compared to (i) the unaffected closing price of the Company common stock of $32.71 as of July 26, 2021, (ii) the closing price of the Company common stock of $37.22 as of August 18, 2021 and (iii) the implied per share consideration of $41.00.

Selected Transaction Multiple Analysis. Using publicly available information, J.P. Morgan examined selected transactions involving businesses which J.P. Morgan judged to be sufficiently analogous to the Company’s business (or aspects thereof) based on J.P. Morgan’s experience and familiarity with the industries in which the Company operates (the “J.P. Morgan Selected Transactions”). The following transactions were selected by J.P. Morgan as relevant to the evaluation of the proposed Merger:

 

Announcement Date		Target		Acquiror
April 23, 2021		Blue Yonder Group, Inc.		Panasonic Corporation
April 12, 2021		Nuance Communications, Inc.		Microsoft Corporation
August 22, 2019		Carbon Black, Inc.		VmWare, Inc.
June 12, 2019		Medidata Solutions, Inc.		Dassault Systèmes
June 10, 2019		Tableau Software, Inc.		Salesforce.com, Inc.
October 28, 2018		Red Hat, Inc.		International business Machines Corporation
June 19, 2018		Cotiviti Holdings, Inc.		Verscend Technologies, Inc.
January 30, 2018		Callidus Software Inc.		SAP SE
April 26, 2021		Proofpoint, Inc.		Thoma Bravo, L.P.
December 21, 2020		RealPage, Inc.		Thoma Bravo, L.P.
November 10, 2020		Planview Inc.		TA Associates
February 6, 2020		Forescout Technologies, Inc.		Advent International
October 14, 2019		Sophos Group plc		Thoma Bravo, L.P.
February 4, 2019		Ultimate Software Group Inc.		Hellman & Friedman LLC
February 12, 2019		Ellie Mae, Inc.		Thoma Bravo, LLC
November 11, 2018		Apptio, Inc.		Vista Equity Partners

None of the J.P. Morgan Selected Transactions reviewed was identical to the proposed Merger. Certain of these transactions may have characteristics that are materially different from those of the proposed Merger. However, the J.P. Morgan Selected Transactions were chosen because certain aspects of the transactions, for purposes of J.P. Morgan’s analysis, may be considered similar to the proposed Merger. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the transactions differently than they would affect the proposed Merger.

Using publicly available information, J.P. Morgan calculated, for each J.P. Morgan Selected Transaction, the multiple of the target company’s firm value implied in the relevant transaction to the target company’s revenue for the next twelve-month period following announcement (the “NTM”) of the applicable transaction (the “FV/NTM Revenue Multiple”).

Based on the above analysis, J.P. Morgan selected a FV/NTM Revenue Multiple reference range for the Company of 7.0x to 11.0x. J.P. Morgan then applied such reference range to the Company’s projected revenue for the NTM as of August 3, 2021. The analysis indicated a range of implied equity values per share (rounded to the nearest $0.25) of $32.75 to $54.50, which J.P. Morgan compared to (i) the unaffected closing price of the Company common stock of $32.71 as of July 26, 2021, (ii) the closing price of the Company common stock of $37.22 as of August 18, 2021 and (iii) the implied per share consideration of $41.00.

 

43

Discounted Cash Flow Analysis. J.P. Morgan conducted a discounted cash flow analysis for the purpose of determining an implied fully diluted equity value per share for the Company common stock. J.P. Morgan calculated the unlevered free cash flows that the Company is expected to generate during fiscal years 2021E through 2030E based upon the financial Projections and Extrapolations prepared by Company management (as set forth in the section entitled “Certain Unaudited Prospective Financial Information”, which was discussed with, and approved by, the Company Board for use by J.P. Morgan in connection with its financial analyses). J.P. Morgan also calculated a range of terminal values for the Company at the end of this period by applying perpetual growth rates ranging from 3.0% to 4.0%, based on guidance provided by the Company’s management and on J.P. Morgan’s professional judgment and experience, to estimates of the unlevered terminal free cash flows for the Company at the end of fiscal-year 2030E, as provided in the Company management Projections and Extrapolations. J.P. Morgan then discounted the unlevered free cash flow estimates and the range of terminal values to present value as of August 3, 2021 using discount rates ranging from 8.00% to 9.00% for the Company, which range was chosen by J.P. Morgan based upon an analysis of the weighted average cost of capital of the Company. The present value of the unlevered free cash flow estimates and the range of terminal values were then adjusted by subtracting net debt and other adjustments for the Company as of August 3, 2021.

Based on the foregoing, this analysis indicated a range of implied per share equity value (rounded to the nearest $0.25) for the Company common stock of $34.00 to $51.75, which was compared to (i) the unaffected closing price of the Company common stock of $32.71 as of July 26, 2021, (ii) the closing price of the Company common stock of $37.22 as of August 18, 2021 and (iii) the implied per share consideration of $41.00.

Miscellaneous. The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above were merely utilized to create points of reference for analytical purposes and should not be taken to be the view of J.P. Morgan with respect to the actual value of the Company. The order of analyses described does not represent the relative importance or weight given to those analyses by J.P. Morgan. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion.

Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be acquired or sold. None of the selected companies reviewed as described in the above summary is identical to the Company, and none of the J.P. Morgan Selected Transactions reviewed was identical to the Merger. However, the companies selected were chosen because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar to those of the Company. The transactions selected were similarly chosen because their participants, size and other factors, for purposes of J.P. Morgan’s analysis, may be considered similar to the Merger. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to the Company and the transactions compared to the Merger.

As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for corporate and other purposes. J.P. Morgan was selected to advise the Company with respect to the Merger and deliver an opinion to the Company Board with respect to the Merger on the basis of, among other things, such experience and its qualifications and reputation in connection with such matters and its familiarity with the Company and the industries in which it operates.

For financial advisory services rendered in connection with the Merger, the Company has agreed to pay J.P. Morgan an estimated fee of $42 million, $3.0 million of which became payable to J.P. Morgan at the time J.P. Morgan delivered its opinion and the remainder of which is contingent and payable upon the consummation of the Merger. In addition, the Company has agreed to reimburse J.P. Morgan for its reasonable costs and expenses incurred in connection with its services, including the reasonable fees and expenses of counsel, and will indemnify J.P. Morgan against certain liabilities arising out

 

44

of J.P. Morgan’s engagement. During the two years preceding the date of J.P. Morgan’s opinion, neither J.P. Morgan nor its affiliates have had any other material financial advisory or other material commercial or investment banking relationships with the Company, Parent, Meritas Group, Inc., which holds approximately 30% of the capital stock of the Company, GIC Pte. Ltd., Insight Venture Partners, L.P. or 22C Capital LLC. During the two years preceding the date of J.P. Morgan’s opinion, J.P. Morgan and its affiliates have had and continue to have commercial or investment banking relationships with certain affiliates of Parent, including Parent’s parent company, Nordic Capital X, as well as certain affiliates of each of GIC Pte. Ltd., Insight Venture Partners, L.P. and 22C Capital LLC, for which J.P. Morgan and such affiliates have received, or will receive, customary compensation. In addition, J.P. Morgan’s commercial banking affiliate is an agent bank and a lender under outstanding credit facilities of certain affiliates of GIC Pte. Ltd. and certain affiliates of Insight Venture Partners, L.P., for which it receives customary compensation or other financial benefits. In addition, J.P. Morgan and its affiliates hold, on a proprietary basis, less than 1% of the outstanding common stock of the Company. During the two year period preceding delivery of its opinion ending on August 18, 2021, the aggregate fees recognized by J.P. Morgan from Nordic Capital X were approximately $15.2 million. During the two year period preceding delivery of its opinion ending on August 18, 2021, J.P. Morgan did not recognize any fees from the Company or Parent. In the ordinary course of their businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities or financial instruments (including derivatives, bank loans or other obligations) of the Company for their own accounts or for the accounts of customers and, accordingly, they may at any time hold long or short positions in such securities or other financial instruments.

Opinion of the Special Committee’s Financial Advisor

The Special Committee retained Evercore to act as its financial advisor in connection with the Merger. As part of this engagement, the Special Committee requested that Evercore evaluate the fairness, from a financial point of view, of the Merger Consideration to be received by the Public Stockholders. At a meeting of the Special Committee held on August 18, 2021, Evercore rendered to the Special Committee its opinion to the effect that, as of August 18, 2021 and based upon and subject to the assumptions, limitations, qualifications and conditions described in Evercore’s opinion, the Merger Consideration of $41.00 per share to be received by the Public Stockholders in the Merger was fair, from a financial point of view, to the Public Stockholders.

The full text of the written opinion of Evercore, dated August 18, 2021, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached as Annex E to this proxy statement and is incorporated herein by reference. The Special Committee encourages you to read this opinion carefully and in its entirety. Evercore’s opinion was addressed to, and provided for the information and benefit of, the Special Committee (in its capacity as such) in connection with its evaluation of the proposed Merger. The opinion does not constitute a recommendation to the Special Committee or to any other persons in respect of the Merger, including as to how any holder of shares of Company Common Stock should vote or act in respect of the Merger. Evercore’s opinion does not address the relative merits of the Merger as compared to other business or financial strategies that might be available to the Company, nor does it address the underlying business decision of the Company to engage in the Merger.

In connection with rendering its opinion Evercore, among other things:

 

(i)

reviewed certain publicly available business and financial information relating to the Company that Evercore deemed to be relevant, including publicly available research analysts’ estimates;

 

(ii)

reviewed the Projections and Extrapolations prepared and furnished to us by management of the Company, as approved for Evercore’s use by the Special Committee;

 

(iii)

discussed with management of the Company their assessment of the past and current operations of the Company, the current financial condition and prospects of the Company, and the Projections and Extrapolations (including their views on the risks and uncertainties of achieving the Projections and Extrapolations);

 

(iv)

reviewed the reported prices and the historical trading activity of shares of the Company common stock;

 

(v)

compared the financial performance of the Company and its stock market trading multiples with those of certain other publicly traded companies that Evercore deemed relevant;

 

(vi)

compared the financial performance of the Company and the valuation multiples relating to the Merger with the financial terms, to the extent publicly available, of certain other transactions that Evercore deemed relevant;

 

(vii)

reviewed the financial terms and conditions of a draft, dated August 18, 2021, of the Merger agreement; and

 

(viii)

performed such other analyses and examinations and considered such other factors that Evercore deemed appropriate.

 

45

Set forth below is a summary of the material financial analyses reviewed by Evercore with the Special Committee on August 18, 2021 in connection with rendering its opinion. The following summary, however, does not purport to be a complete description of the analyses performed by Evercore. The order of the analyses described and the results of these analyses do not represent relative importance or weight given to these analyses by Evercore. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data that existed on or before August 13, 2021, and is not necessarily indicative of current market conditions.

For purposes of its analyses and reviews, Evercore considered general business, economic, market and financial conditions, industry sector performance, and other matters, as they existed and could be evaluated as of the date of its opinion, many of which are beyond the control of the Company. The estimates contained in Evercore’s analyses and reviews, and the ranges of valuations resulting from any particular analysis or review, are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by Evercore’s analyses and reviews. In addition, analyses and reviews relating to the value of companies, businesses or securities do not purport to be appraisals or to reflect the prices at which companies, businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Evercore’s analyses and reviews are inherently subject to substantial uncertainty.

The following summary of Evercore’s financial analyses includes information presented in tabular format. In order to fully understand the analyses, the tables should be read together with the full text of each summary. The tables are not intended to stand alone and alone do not constitute a complete description of Evercore’s financial analyses. Considering the tables below without considering the full narrative description of Evercore’s financial analyses, including the methodologies and assumptions underlying such analyses, could create a misleading or incomplete view of such analyses.

Summary of Evercore’s Financial Analyses

Discounted Cash Flow Analysis

Evercore performed a discounted cash flow analysis of the Company to calculate the estimated present value of the standalone unlevered, free cash flows, defined as Adjusted EBITDA excluding stock-based compensation, taxes, capital expenditures, and changes in net working capital. Net working capital is defined as the difference between current assets and current liabilities, that the Company was forecasted to generate during the Company’s fiscal years 2021 through 2030 based on the Projections and Extrapolations. Evercore calculated terminal values for the Company by applying perpetuity growth rates of 3.00% to 4.00%, which range was selected based on Evercore’s professional judgment and experience, to a terminal year estimate of the unlevered, after-tax free cash flows that the Company was forecasted to generate based on the Projections and Extrapolations. The cash flows and terminal values in each case were then discounted to present value as of August 3, 2021 using discount rates ranging from 8.00% to 9.00%, which were based on an estimate of the Company’s weighted average cost of capital. Based on this range of implied enterprise values, the Company’s estimated net debt (calculated as total debt (including capitalized leases) less cash and cash equivalents) as of August 3, 2021, and the number of fully diluted shares of Company common stock, in each case as provided by or based on information provided by the Company’s management, this analysis indicated a range of implied equity values per share of Company common stock of $33.83 to $51.31, compared to the Merger Consideration of $41.00 per share of Company common stock.

Selected Public Company Trading Analysis

Evercore reviewed and compared certain financial information of the Company to corresponding financial multiples and ratios for the following selected publicly traded companies in the Healthcare Payor Technology, Healthcare Provider Technology and Technology/Software industries (the “Selected Companies”):

Healthcare Payor Technology

 

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HealthEquity, Inc.

 

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SignifyHealth, Inc.

 

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Multiplan Corporation

Healthcare Provider Technology

 

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Omnicell, Inc.

 

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R1 RCM Inc.

 

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Vocera Communications, Inc.

 

•

Tabula Rasa Healthcare, Inc.

 

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Healthstream, Inc.

Technology/Software

 

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NICE Ltd.

 

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PTC Inc.

 

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Dropbox, Inc.

 

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Cerence Inc.

 

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Datto Holding Corp.

 

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Qualys, Inc.

 

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SPS Commerce, Inc.

 

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Mimecast Limited

 

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Cornerstone OnDemand, Inc. (market data as of August 5, 2021, last trading day prior to the announcement of acquisition by Clearlake Capital Group, L.P.)

 

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Mitek Systems, Inc.

For each of the selected companies, Evercore calculated enterprise value (defined as equity market capitalization plus total debt, plus preferred equity and minority interest, less cash and cash equivalents) as (i) a multiple of estimated calendar year 2021 and calendar year 2022 Adjusted EBITDA (defined as net income or loss calculated in accordance with GAAP, adjusted for the impact of depreciation and amortization, interest income, interest expense, other expense, net, provision for income taxes, stock-based compensation, acquisition costs, restructuring expense, tax on equity exercises, and other non-comparable items), in each case, based on the Projections and Extrapolations, which we refer to as “2021E Adjusted EBITDA” and “2022E Adjusted EBITDA”, respectively, based on closing share prices as of August 13, 2021 (except as otherwise noted) and (ii) a multiple of estimated revenue for the calendar year 2021 and calendar year 2022 (“Revenue”), in each case, based on the Projections and Extrapolations, which we refer to as “2021E Revenue” and “2022E Revenue”, respectively. Estimated financial data of the selected companies were based on publicly available filings with the SEC and equity research analysts’ estimates.

This analysis indicated the following:

 

Benchmark

High

Low

Median

2021E Adjusted EBITDA

Healthcare Payor Technology

37.3x

11.3x

25.2x

Healthcare Provider Technology

51.0x

18.8x

31.1x

Technology/Software

39.0x

14.8x

27.5x

Company

25.0x

Company (as of 7/26/21, the last trading day prior to the public report of rumored sale of the Company to Nordic Capital X)

22.1x

2022E Adjusted EBITDA

Healthcare Payor Technology

28.9x

10.9x

22.3x

Healthcare Provider Technology

38.7x

16.1x

25.6x

Technology/Software

32.5x

12.6x

23.7x

Company

21.7x

Company (as of 7/26/21, the last trading day prior to the public report of a rumored sale of the Company to Nordic Capital X)

19.1x

2021E Revenue

Healthcare Payor Technology

8.3x

7.9x

8.1x

Healthcare Provider Technology

7.2x

3.5x

4.4x

Technology/Software

12.8x

5.4x

8.8x

Company

8.7x

Company (as of 7/26/21, the last trading day prior to the public report of a rumored sale of the Company to Nordic Capital X)

7.7x

 

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Benchmark

High

Low

Median

2022E Revenue

Healthcare Payor Technology

7.9x

6.6x

7.5x

Healthcare Provider Technology

6.3x

3.0x

3.8x

Technology/Software

10.9x

5.0x

7.8x

Company

7.8x

Company (as of 7/26/21, the last trading day prior to the public report of a rumored sale of the Company to Nordic Capital X)

6.8x

Based on the multiples it derived for the selected companies and based on its professional judgment and experience, Evercore applied (i) an enterprise value/Adjusted EBITDA multiple reference range of 22.0x – 28.0x to the Company’s estimated Adjusted EBITDA in calendar year 2021, (ii) an enterprise value/Adjusted EBITDA multiple reference range of 19.0x – 25.0x to the Company’s estimated Adjusted EBITDA in calendar year 2022, (iii) an enterprise value/Revenue multiple reference range of 7.0x – 10.0x to the Company’s estimated Revenue in calendar year 2021 and (iv) an enterprise value/Revenue multiple reference range of 6.0x – 9.0x to the Company’s estimated Revenue in calendar year 2022, in each case, based on the Projections and Extrapolations. Based on these ranges of implied enterprise values, the Company’s estimated net debt (calculated as total debt (including capitalized leases) less cash and cash equivalents) as of August 13, 2021 (except as otherwise noted), and the number of fully diluted shares of Company common stock, in each case as provided by the Company’s management, this analysis indicated ranges of implied equity values per share of Company common stock as set forth below in more detail, compared to the Merger Consideration of $41.00 per share of Company Common Stock.

 

Benchmark		Implied Equity Values Per Share
		Low				High
2021E Adjusted EBITDA Multiple Range: 22.0x – 28.0x		$	32.76			$	43.16
2022E Adjusted EBITDA Multiple Range: 19.0 – 25.0x		$	34.71			$	47.36
2021E Revenue Multiple Range: 7.0 – 10.0x		$	29.32			$	44.19
2022E Revenue Multiple Range: 6.0 – 9.0x		$	29.24			$	46.54

Although none of the selected companies is directly comparable to the Company, Evercore selected these companies because they are publicly traded Healthcare Technology and Technology / Software companies that Evercore, in its professional judgment and experience, considered generally relevant to the Company for purposes of its financial analyses. In evaluating the selected companies, Evercore made judgments and assumptions with regard to general business, economic and market conditions affecting the selected companies and other matters, as well as differences in the selected companies’ financial, business and operating characteristics. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments regarding many factors that could affect the relative values of the selected companies and the multiples derived from the selected companies. Mathematical analysis, such as determining the mean or median, is not in itself a meaningful method of using the data of the selected companies.

Selected Transactions Analysis

Evercore reviewed, to the extent publicly available, financial information related to the following selected transactions involving target companies in the Healthcare Platform Technology and Technology industry announced since 2018 (the “selected transactions”). The selected transactions reviewed by Evercore, and the month and year each was announced, were as follows:

 

Healthcare		Platform		Technology
Month and Year Announced		Acquiror		Target
January 2021		UnitedHealth Group Incorporated		Change Healthcare Inc.
December 2020		Gainwell Technologies		HMS Holdings Corp.
June 2019		Dassault Systemes SE		Medidata Solutions, Inc.
November 2018		Veritas Capital		athenahealth, Inc.
June 2018		Verscend Technologies, Inc.		Cotiviti Holdings, Inc.

 

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Technology
Month and Year Announced		Acquiror		Target
April 2021		Thoma Bravo, L.P.		Proofpoint, Inc.
April 2021		Microsoft Corporation		Nuance Communications, Inc.
April 2021		Panasonic Corporation		Blue Yonder, Inc.
December 2020		Thoma Bravo, L.P.		RealPage, Inc.
February 2020		Advent International Corporation		Forescout Technologies, Inc.
October 2019		Thoma Bravo, LLC		Sophos Group plc
August 2019		VMware, Inc.		Carbon Black, Inc.
June 2019		salesforce.com, inc.		Tableau Software, Inc.
February 2019		Hellman & Friedman LLC		The Ultimate Software Group, Inc.
November 2018		Vista Equity Partners		Apptio, Inc.
October 2018		International Business Machines Corporation		Red Hat, Inc.
January 2018		SAP SE		Callidus Software Inc.

For each selected transaction, Evercore calculated the implied enterprise value (defined as the target company’s implied equity value based on the consideration paid in the applicable transaction plus total debt (including capitalized leases), less cash and cash equivalents) as (i) a multiple of last twelve-month Revenue for the target company at the time of the announcement of the applicable transaction, which we refer to as “LTM Revenue” and (ii) a multiple of next twelve-month estimated Revenue for the target company at the time of the announcement of the applicable transaction, which we refer to as “NTM Revenue”. Estimated financial data of the selected transactions were based on publicly available information at the time of announcement of the relevant transaction.

This analysis indicated the following:

 

Benchmark

High

Low

Median

LTM Revenue

Healthcare Platform Technology

8.8x

4.3x

5.1x

Technology

13.2x

4.6x

9.0x

NTM Revenue

Healthcare Platform Technology

7.6x

4.1x

4.4x

Technology

13.4x

3.9x

7.6x

Based on the multiples it derived from the selected transactions and based on its professional judgment and experience, Evercore selected a reference range of enterprise value to LTM Revenue multiples of 7.0x to 11.0x and a reference range of enterprise value to NTM Revenue multiples of 6.0x to 10.0x and applied these ranges of multiples to the Company’s LTM Revenue as of June 30, 2021 based on the financial results for the Company provided by the Company’s management and to the Company’s NTM Revenue as of June 30, 2021 based on the Projections and Extrapolations. Based on this range of implied enterprise values, the Company’s estimated net debt (calculated as total debt (including capitalized leases) less cash and cash equivalents) as of August 13, 2021, and the number of fully diluted shares of Company common stock, in each case as provided by the Company’s management, this analysis indicated ranges of implied equity values per share of Company common stock as set forth below in more detail, compared to the Merger Consideration of $41.00 per share of Company common stock.

 

Benchmark		Implied Equity Values Per Share
		Low				High
LTM Revenue Multiple Range: 7.0x – 11.0x		$	26.81			$	45.20
NTM Revenue Multiple Range: 6.0x – 10.0x		$	26.80			$	48.25

Although none of the target companies or businesses reviewed in the selected transactions analysis is directly comparable to the Company and none of the selected transactions is directly comparable to the Merger, Evercore selected these transactions because they involve companies or businesses that Evercore, in its professional judgment and experience, considered generally relevant to the Company for purposes of its financial analyses. In evaluating the selected transactions, Evercore made judgments and assumptions with regard to general business, economic and market conditions and other factors existing at the time of the selected transactions, and other matters, as well as differences in financial, business and operating characteristics and other factors relevant to the target companies or businesses in the selected transactions. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex

 

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considerations and judgments regarding many factors that could affect the relative values of the target companies or businesses in the selected transactions and the multiples derived from the selected transactions. Mathematical analysis, such as determining the mean or median, is not in itself a meaningful method of using the data of the selected transactions.

Other Factors

Evercore also noted certain other factors, which were not considered material to its financial analyses with respect to its opinion, but were referenced for informational purposes only, including, among other things, the following:

Last 52-Week Trading Range

Evercore reviewed historical trading prices of shares of Company common stock during the twelve month period ended July 26, 2021, the last trading day prior to the public report of a rumored sale of the Company to Nordic Capital X, noting that the low and high closing prices during such period ranged from $17.56 to $34.47 per share of Company Common Stock, respectively.

Equity Research Analyst Price Targets

Evercore reviewed selected public market trading price targets for the shares of Company Common Stock prepared and published by equity research analysts that were publicly available as of August 13, 2021. These price targets reflect analysts’ estimates of the future public market trading price of the shares of Company common stock at the time the price target was published. As of August 13, 2021, the range of selected equity research analyst price targets per share of Company Common Stock was $23.00 to $45.00. Public market trading price targets published by equity research analysts do not necessarily reflect current market trading prices for the shares of Company Common Stock and these target prices and the analysts’ earnings estimates on which they were based are subject to risk and uncertainties, including factors affecting the financial performance of the Company and future general industry and market conditions.

Premiums Paid Analysis

Using publicly available information, Evercore reviewed 21 selected transactions and announced bids for control of US public targets with an aggregate transaction value between $1 billion and $15 billion in the healthcare and technology industries since January 1, 2019. Using publicly available information, Evercore calculated the premiums paid as the percentage by which the per share consideration paid or proposed to be paid in each such transaction exceeded the unaffected market prices per share of the target companies prior to announcement of each transaction.

Based on the results of this analysis and its professional judgment and experience, Evercore applied a premium range of 20% to 35% (based on the 25^th and 75^th percentile of the premiums paid in the selected transactions) to the closing price per share of Company Common Stock of $32.71 as of July 26, 2021, the last trading day prior to the public report of a rumored sale of the Company to Nordic Capital X. This analysis indicated a range of implied equity values per share of Company Common Stock of $39.25 to $44.16, compared to the Merger Consideration of $41.00 per share of Company Common Stock.

Preliminary Presentations

In addition to the presentation and financial analyses, dated August 17, 2021, made to the Special Committee described above in connection with its opinion, dated August 18, 2021, a copy of such presentation has been attached as Exhibit (c)(ix) to the Transaction Statement on Schedule 13E-3 filed with the SEC in connection with the Merger, Evercore also delivered preliminary written and oral presentation materials to the Special Committee on August 10, 2021 and August 16, 2021 (collectively, the “Preliminary Presentation Materials”). A copy of the Preliminary Presentation Materials has been attached as Exhibits (c)(vii) and (c)(viii) to the Transaction Statement on Schedule 13E-3 filed with the SEC in connection with the Merger. Information contained in the Preliminary Presentation Materials was substantially similar to the information provided in Evercore’s presentation and financial analyses made to the Special Committee described above in connection with its written opinion. The financial analyses in the Preliminary Presentation Materials were based on market, economic and other conditions as they existed as of the date of such presentation(s) as well as other information that was available at such time. Accordingly, the results of the financial analyses differed due to changes in those conditions. Finally, Evercore continued to refine various aspects of its financial analyses with respect to the Company over time.

The Preliminary Presentation Materials were for discussion purposes only and did not present any findings or make any recommendations or constitute an opinion of Evercore with respect to the fairness of the Merger Consideration or otherwise. The financial analyses performed by Evercore in relation to its opinion dated August 18, 2021 superseded all analyses and information presented in the Preliminary Presentation Materials.

 

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Miscellaneous

The foregoing summary of Evercore’s financial analyses does not purport to be a complete description of the analyses or data presented by Evercore to the Special Committee. In connection with the review of the Merger by the Special Committee, Evercore performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary described above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Evercore’s opinion. In arriving at its fairness determination, Evercore considered the results of all the analyses and did not draw, in isolation, conclusions from or with regard to any one analysis or factor considered by it for purposes of its opinion. Rather, Evercore made its determination as to fairness on the basis of its professional judgment and experience after considering the results of all the analyses. In addition, Evercore may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above should not be taken to be the view of Evercore with respect to the actual value of the shares of Company common stock. Rounding may result in total sums set forth in this section not equaling the total of the figures shown.

Evercore prepared these analyses for the purpose of providing an opinion to the Special Committee as to the fairness, from a financial point of view, of the Merger Consideration to the Public Stockholders. These analyses do not purport to be appraisals or to necessarily reflect the prices at which the business or securities actually may be sold. Any estimates contained in these analyses are not necessarily indicative of actual future results, which may be significantly more or less favorable than those suggested by such estimates. Accordingly, estimates used in, and the results derived from, Evercore’s analyses are inherently subject to substantial uncertainty, and Evercore assumes no responsibility if future results are materially different from those forecasted in such estimates.

Evercore’s financial advisory services and its opinion were provided for the information and benefit of the Special Committee (in its capacity as such) in connection with its evaluation of the proposed Merger. The issuance of Evercore’s opinion was approved by an Opinion Committee of Evercore.

Evercore did not recommend any specific amount of consideration to the Special Committee or the Company’s management or that any specific amount of consideration constituted the only appropriate consideration in the Merger for the holders of Company Common Stock.

Pursuant to the terms of Evercore’s engagement letter with the Special Committee, the Company has agreed to pay Evercore a retainer fee for its services equal to $3 million which was payable upon execution of Evercore’s engagement letter with the Special Committee. The Company also agreed to pay Evercore an opinion fee equal to $1 million upon delivery of Evercore’s opinion which is fully creditable against the $3 million retainer fee. The Evercore engagement letter also provides for, at the conclusion of the assignment thereunder, an additional discretionary fee in an amount not to exceed $7 million, based upon, among other things, the resources expended by Evercore in the course of the assignment, the Special Committee’s satisfaction with the services rendered and the benefit to the Special Committee of the successful conclusion of the assignment, to be determined by the Special Committee in its sole and absolute discretion. In addition, the Evercore engagement letter provides for additional fees to be paid to Evercore if the Special Committee and Evercore agree to expand the scope of Evercore’s services, which fees shall be mutually agreed between the parties. The Company has also agreed to reimburse Evercore for its expenses and to indemnify Evercore against certain liabilities arising out of its engagement.

During the period January 1, 2019 to August 18, 2021, Evercore and its affiliates have not been engaged to provide financial advisory or other services to the Company and Evercore has not received any compensation from the Company during such period. During the period January 1, 2019 to August 18, 2021, Evercore and its affiliates have provided financial advisory services to Nordic Capital X and/or certain of its affiliates and received fees for the rendering of these services in the amount of approximately $9 million. During the period January 1, 2019 to August 18, 2021, Evercore and its affiliates have provided financial advisory services to GIC and certain of its affiliates and received fees for the rendering of these services in the amount of approximately $46 million. During the period January 1, 2019 to August 18, 2021, Evercore and its affiliates have provided financial advisory services to Insight and certain of its affiliates and received fees for the rendering of these services in the amount of approximately $57 million. Evercore may provide financial advisory or other services to the Company and the Acquiror and their respective affiliates, including Nordic Capital X, GIC, Insight and their respective affiliates, in the future, and in connection with any such services Evercore may receive compensation.

 

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Evercore and its affiliates engage in a wide range of activities for its and their own accounts and the accounts of customers, including corporate finance, mergers and acquisitions, equity sales, trading and research, private equity, placement agent, asset management and related activities. In connection with these businesses or otherwise, Evercore and its affiliates and/or its or their respective employees, as well as investment funds in which any of them may have a financial interest, may at any time, directly or indirectly, hold long or short positions and may trade or otherwise effect transactions for their own accounts or the accounts of customers, in debt or equity securities, senior loans and/or derivative products or other financial instruments of or relating to the Company, Parent and/or any of their respective affiliates, including Nordic Capital X, GIC, Insight and their respective affiliates, or persons that are competitors, customers or suppliers of the Company, Parent or their respective affiliates, including Nordic Capital X, GIC, Insight and their respective affiliates.

The Special Committee engaged Evercore to act as a financial advisor based on Evercore’s qualifications, experience and reputation. Evercore is an internationally recognized investment banking firm and regularly provides fairness opinions to its clients in connection with mergers and acquisitions, leveraged buyouts and valuations for corporate and other purposes.

Position of Parent Entities as to the Fairness of the Merger

Under a possible interpretation of the SEC rules governing “going-private” transactions, Nordic Capital X, Parent and Merger Sub (together, the (“Parent Entities”)) may be deemed to be affiliates of the Company and, therefore, required to express their beliefs as to the fairness of the proposed Merger to the Public Stockholders. Parent and Merger Sub are making the statements included in this section solely for purposes of complying with the requirements of Rule 13e-3 and related rules and regulations under the Exchange Act. However, the view of Parent and Merger Sub as to the fairness of the Merger should not be construed as a recommendation to any Company stockholder as to how that stockholder should vote on the proposal to adopt the Merger Agreement. Parent and Merger Sub have interests in the Merger that are different from, and in addition to, those of the other stockholders of the Company.

Parent and Merger Sub did not participate in the deliberations of the Special Committee or the Company Board (other than Dr. Dunleavy, who recused himself) regarding, nor receive advice from the respective legal or other advisors of the Special Committee or the Company Board (other than Dr. Dunleavy, who recused himself) as to, the fairness of the Merger. The Parent Entities have not performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the fairness of the Merger to the Public Stockholder. Based on, among other things, the factors considered by, and the analysis and resulting conclusions of, the Company Board (other than Mr. Dunleavy, who recused himself) and the Special Committee discussed in “Special Factors — Purpose and Reasons of the Company for the Merger; Recommendation of the Company Board and the Special Committee; Fairness of the Merger” (which analysis and resulting conclusions Parent and Merger Sub adopt), Parent and Merger Sub believe that the Merger is substantively fair to the Public Stockholders. In particular, the Parent Entities considered the following:

 

•

the fact that the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to, and in the best interests of, the Company and the Company’s stockholders;

 

•

the fact that no member of the Company’s senior management other than Dr. Dunleavy has a substantial financial interest in the Merger that is different from, or in addition to, the interests of the Public Stockholders generally, although the Merger Agreement does include customary provisions for indemnity and the continuation of liability insurance for the Company’s officers and directors;

 

•

the fact that the Merger Consideration is all cash, thus allowing the Company’s stockholders to immediately realize a certain and fair value for their Shares, which value represents a significant premium over the closing price of the Shares on July 26, 2021, the last trading day prior to the public report of a rumored sale of the Company to Nordic Capital X;

 

•

the fact that the Merger will provide liquidity for the Public Stockholders without the delays that would otherwise be necessary in order to liquidate the positions of larger holders, and without incurring brokerage and other costs typically associated with market sales; and

 

•

the fact that the Merger is not conditioned on any financing being obtained by Parent, increasing the likelihood that the Merger will be consummated and that the consideration to be paid to the Public Stockholders in the Merger will be received.

 

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The Parent Entities further believe that the Merger is procedurally fair to the Public Stockholders based upon, among other things, the following factors:

 

•

the fact that the Special Committee retained, and had the benefit of advice from, nationally recognized legal and financial advisors;

 

•

that the Special Committee had the authority to reject any proposals made by Parent or any other person;

 

•

the fact that the Merger Consideration was the result of the Special Committee’s extensive arm’s-length negotiations with Parent;

 

•

the fact that the closing of the Merger is conditioned on the Company’s receipt of the Required Company Stockholder Approval;

 

•

the Company’s ability, under certain circumstances as set out in the Merger Agreement, to provide information to, or participate in discussions or negotiations with, third parties regarding Acquisition Proposals that constitute Superior Proposals;

 

•

the Company’s ability, under certain circumstances as set out in the Merger Agreement, to terminate the Merger Agreement to enter into a definitive agreement related to a Superior Proposal, subject to paying Parent a Company Termination Fee of $176,385,000 in cash, subject to and in accordance with the terms and conditions of the Merger Agreement; and

 

•

the availability of appraisal rights to the Company’s stockholders (other than the Rollover Stockholders) who comply with all of the required procedures under Delaware law for exercising appraisal rights, which allow such holders to seek appraisal of the fair value of their Shares.

The Parent Entities also considered a variety of risks and other countervailing factors related to the substantive and procedural fairness of the proposed Merger, including:

 

•

that the stockholders of the Company (other than the Rollover Stockholders) will not participate in any future earnings, appreciation in value or growth of the Company’s business and will not benefit from any potential sale of the Company or its assets to a third party in the future;

 

•

the risk that the Merger might not be completed in a timely manner or at all;

 

•

that Parent and Merger Sub are newly formed corporations with essentially no assets other than the equity and funding commitments of the Equity Investors and Debt Commitment Parties;

 

•

the restrictions on the conduct of the Company’s business prior to the completion of the Merger set forth in the Merger Agreement, which may delay or prevent the Company from undertaking business opportunities that may arise and certain other actions it might otherwise take with respect to the operations of the Company pending completion of the Merger;

 

•

the negative effect that the pendency of the Merger, or a failure to complete the Merger, could potentially have on the Company’s business and relationships with its employees, vendors and customers;

 

•

that the Company and its subsidiaries are restricted from soliciting, initiating, or encouraging the submission of Acquisition Proposals from Third Parties or the making of any inquiry, proposal or offer that would reasonably be expected to lead to an Acquisition Proposal;

 

•

the possibility that the amounts that may be payable by the Company upon the termination of the Merger Agreement, including payment to Parent of a Company Termination Fee of $176,385,000 in cash, and the processes required to terminate the Merger Agreement, including the opportunity for Parent to make revisions to its Merger proposal, could discourage other potential acquirors from making a competing bid to acquire the Company;

 

•

the potential negative effect that the pendency of the Merger, or a failure to complete the Merger, could have on the Company’s business and relationships with its employees, vendors and customers; and

 

•

the fact that an all cash transaction would be taxable to the Company’s stockholders (other than the Rollover Stockholders with respect to the Rollover Shares) that are U.S. holders for U.S. federal income tax purposes.

The foregoing discussion of the information and factors considered and given weight by the Parent Entities in connection with the fairness of the Merger is not intended to be exhaustive but is believed to include all material factors considered by them. The Parent Entities did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their conclusion as to the fairness of the Merger. Rather, the Parent Entities reached their position as to the fairness of the Merger after considering all of the foregoing as a whole. The Parent Entities

 

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believe these factors provide a reasonable basis upon which to form their position regarding the fairness of the Merger to the Public Stockholders. This position should not, however, be construed as a recommendation to any Company stockholder to approve the Merger Agreement. The Parent Entities make no recommendation as to how stockholders of the Company should vote their Shares relating to the Merger. The Parent Entities attempted to negotiate the terms of a transaction that would be most favorable to them, and not to the stockholders of the Company, and, accordingly, did not negotiate the Merger Agreement with a goal of obtaining terms that were fair to such stockholders. None of the Parent Entities believes that it has or had any fiduciary duty to the Company or its stockholders, including with respect to the Merger and its terms.

Based on the Parent Entities’ knowledge and analysis of available information regarding the Company, the Special Committee and the Company Board, as well as discussions with members of the Company’s senior management regarding the Company and its business and the factors considered by, and findings of, the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself) and discussed in this proxy statement in the section entitled “Special Factors — Purpose and Reasons of the Company for the Merger; Recommendation of the Company Board and the Special Committee; Fairness of the Merger,” the Parent Entities believe that the Merger is fair to the Public Stockholders.

Purpose and Reasons of the Parent Entities for the Merger

Under a possible interpretation of the SEC rules governing “going-private” transactions, each of the Parent Entities may be deemed to be affiliates of the Company and, therefore, required to express their reasons for the Merger to the Company’s Unaffiliated Stockholders, as defined in Rule 13e-3 of the Exchange Act. The Parent Entities are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. For the Parent Entities, the primary purpose of the Merger is to allow Parent to own equity interests in the Company and to bear the rewards and risks of such ownership after the Merger is completed and the Shares cease to be publicly traded. The Parent Entities believe that structuring the transaction in such manner is preferable to other transaction structures because it (i) will enable Parent to acquire all of the Shares at the same time, (ii) will allow the Company to cease to be a publicly registered and reporting company, and (iii) represents an opportunity for the Public Stockholders (other than the holders of Cancelled Shares and Dissenting Shares and the Rollover Stockholders with respect to the Rollover Shares) to receive the Merger Consideration in cash, without interest and less any applicable withholding taxes, subject to and in accordance with the terms and conditions of the Merger Agreement.

Position of the Rollover Stockholders as to the Fairness of the Merger

Under the SEC rules governing “going-private” transactions, the Rollover Stockholders, including Dr. Dunleavy, through certain Dunleavy Entities, and Cape Capital may be deemed to be affiliates of the Company and, therefore, required to express their beliefs as to the fairness of the proposed Merger to the Public Stockholders. The Merger is the Rule 13e-3 transaction for which a Schedule 13E-3 Transaction Statement has been filed with the SEC. As described below, the Rollover Stockholders believe that the Merger is fair to the Public Stockholders on the basis of the factors described under “Special Factors — Purpose and Reasons of the Company for the Merger; Recommendation of the Company Board and the Special Committee; Fairness of the Merger” and “Special Factors — Position of the Parent Entities as to the Fairness of the Merger.” Dr. Dunleavy did not participate in the deliberations of the Special Committee or the Company Board regarding the Merger, and did not receive advice from the legal or other advisors of the Company or the Special Committee as to the fairness of the Merger. As disclosed under “Special Factors — Interests of Executive Officers and Directors of the Company in the Merger,” the Rollover Stockholders have interests in the Merger both the same as those of the Public Stockholders by virtue of the expected receipt of the per Share Merger Consideration for a portion of the Rollover Stockholders’ equity interests in the Company upon completion of the Merger, and not identical to those of the Public Stockholders by virtue of the Rollover Stockholders’ ability to roll over a portion of their ownership stake in the Company (such rollover being valued with the same per Share valuation of the Shares used to determine the Merger Consideration) in exchange for a continuing ownership stake in Parent.

The Public Stockholders were represented by the Special Committee, which negotiated the terms and conditions of the Merger Agreement on their behalf, with the assistance of the Special Committee’s independent legal and financial advisors. The Merger was approved by the directors of the Company Board (other than Dr. Dunleavy, who recused himself). Based on the knowledge and analysis of the Rollover Stockholders of available information regarding the Company, as well as discussions with the Company’s management regarding the Company and its business and the factors considered by, and the analysis and resulting conclusions of, the Special Committee and the Company Board (other than Dr. Dunleavy, who recused himself), the Rollover Stockholders believe that the Merger is substantively and procedurally fair to the Public Stockholders based upon substantially the same factors considered by the Parent Entities with respect to the substantive and procedural fairness of the proposed Merger to such Public Stockholders. See “Special Factors — Position of the Parent Entities as to the

 

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Fairness of the Merger” The Rollover Stockholders agree with the analyses, determinations and conclusions described under “Special Factors — Position of the Parent Entities as to the Fairness of the Merger,” and “Special Factors — Purpose and Reasons of the Company for the Merger; Recommendation of the Company Board and the Special Committee; Fairness of the Merger.”

While Dr. Dunleavy is an officer and director of the Company, because of the interests described under the section captioned “Special Factors — Interests of Executive Officers and Directors of the Company in the Merger,” he did not serve on the Special Committee or participate in the Special Committee’s evaluation of the Merger Agreement and the transactions contemplated thereby, including the Merger, and he recused himself from and did not participate in, or vote in connection with, the Company Board’s evaluation or approval of the Merger Agreement and the transactions contemplated thereby, including the Merger. For these reasons, the Rollover Stockholders do not believe that their interests in the Merger influenced the decisions or recommendations of the Special Committee or the Company Board with respect to the Merger Agreement or the Merger.

The foregoing discussion of the information and factors considered and given weight by the Rollover Stockholders in connection with the fairness of the Merger Agreement and transactions contemplated thereby, including the Merger, is not intended to be exhaustive but is believed to include all material factors considered by the Rollover Stockholders. The Rollover Stockholders did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the fairness of the Merger Agreement and transactions contemplated thereby, including the Merger. Rather, the Rollover Stockholders made the fairness determinations after considering all of the foregoing as a whole. The Rollover Stockholders believe these factors provide a reasonable basis upon which to form the belief that the Merger is fair to the Public Stockholders. This belief should not, however, be construed as a recommendation to any Company stockholder to adopt the Merger Agreement. The Rollover Stockholders do not make any recommendation as to how stockholders of the Company should vote their Shares relating to the Merger.

Purpose and Reasons of the Rollover Stockholders for the Merger

Under the SEC rules governing “going private” transactions, the Rollover Stockholders, including Dr. Dunleavy, through the Dunleavy Entities, and Cape Capital may be deemed to be affiliates of the Company, and, therefore, required to express their purposes and reasons for the Merger to the Public Stockholders. The Rollover Stockholders are making the statements in this section solely for the purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of the Rollover Stockholders do not make any recommendations as to how stockholders of the Company should vote their Shares relating to the Merger.

Dr. Dunleavy has served as the Company’s Chief Executive Officer since his organization of the company’s predecessor companies in 1998, as Chairman of the Company Board since the creation of the board in 2006, and as President from the Company’s foundation until May of 2014. The Rollover Stockholders considered favorable current market conditions, and concluded that a take-private transaction that would provide fair value to all of the Company’s stockholders, including the Public Stockholders, could be attractive.

The Rollover Stockholders believe that it is in the best interests of the Company’s stockholders to effect a liquidity transaction while market conditions remain favorable, as well as in the best interests of the Company to operate as a privately held entity. The Rollover Stockholders believe that, as a privately held entity, the Company will have greater operational flexibility to pursue alternatives than it would have as a public company, and management of the Company will be able to concentrate on long-term growth, reducing the focus on the quarter-to-quarter performance often emphasized by the public equity market’s valuation of the Shares. Although the Rollover Stockholders believe that there may be substantial opportunities associated with their contribution to Ocala Topco, LP of the Rollover Shares, the Rollover Stockholders recognize that there may also be substantial risks (including the risks and uncertainties relating to the prospects of the Company) and that such opportunities may not ever be fully realized.

If the Merger is completed, the Company will become a wholly owned subsidiary of Parent, and the Shares will cease to be publicly traded. For the Rollover Stockholders, the purpose of the Merger is to effectuate the transactions contemplated by the Merger Agreement and the separate Rollover Agreements, which will allow the Rollover Stockholders to realize the value of a portion of their Shares by receiving $41.00 per Share in cash for a portion of their investment in the Company and own equity interests of Parent and to bear the rewards and risks of such ownership after the Merger is completed and the Shares cease to be publicly traded. The Rollover Stockholders believe that structuring the transaction in such a manner is preferable to other alternative transaction structures because (i) it will enable Parent to acquire all of the outstanding Shares of the Company at the same time; (ii) it represents an opportunity for the Public Stockholders to immediately realize the value of their investment in the Company and for the Rollover Stockholders to immediately realize the value of a significant

 

55

portion of their investment in the Company at a price of $41.00 per Share in cash, without interest, less any applicable withholding taxes, in accordance with and subject to the terms and conditions set forth in the Merger Agreement; and (iii) it allows the Rollover Stockholders to continue to own indirect equity interests in the Company after the Merger and to bear the rewards and risks of such ownership after the Merger.

Plans for the Company After the Merger

Following completion of the Merger, Merger Sub will have been merged with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of Parent. The Shares of the Company are currently listed on the Nasdaq and registered under the Exchange Act. Following completion of the Merger, there will be no further market for the Shares and, as promptly as practicable following the Effective Time and in compliance with Applicable Law, the Company’s securities will be delisted from the Nasdaq and deregistered under the Exchange Act.

The Parent Entities currently anticipate that the Company’s operations initially will be conducted following completion of the Merger substantially as they are currently being conducted (except that the Company will cease to be a public company and will instead be a wholly owned subsidiary of Parent). The Parent Entities are currently conducting a review of the Company and its business and operations with a view towards determining how to redirect the Company’s operations to improve the Company’s long-term earnings potential as a private company (including by reducing the Company’s costs and expenses following the Merger) and expect to complete such review following completion of the Merger. Further, following completion of the Merger, the Parent Entities will continue to assess the Company’s assets, corporate and capital structure, capitalization, operations, business, properties and personnel to determine what additional changes, if any, would be desirable following the Merger to enhance the business and operations of the Company. In addition, Parent may seek to buy or combine the Company with target companies that provide earnings and growth synergies; however, no definitive contracts, arrangements, plans, proposals, commitments or understanding currently exist. Although presently there are no definitive contracts, arrangements, plans, proposals, commitments or understandings regarding any such transactions, the Parent Entities and certain of their affiliates may seek, from and after the Effective Time, to acquire target companies or assets that operate in the Company’s industry.

From and after the Effective Time, the officers of the Company immediately prior to the Effective Time will be the officers of the Surviving Corporation and, unless otherwise determined by Parent prior to the Effective Time, the directors of Merger Sub immediately prior to the Effective Time will be the directors of the Surviving Corporation, in each case, to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation until their death, resignation or removal or until their respective successors are duly elected and qualified in accordance with the certificate of incorporation and bylaws of the Surviving Corporation, as the case may be.

Certain Effects of the Merger

If the Required Company Stockholder Approval is obtained and all other conditions to the Closing of the Merger are either satisfied or waived, Merger Sub will merge with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of Parent and the following will occur.

Treatment of the Shares

At the Effective Time, each Share outstanding immediately prior to the Effective Time (but excluding any Rollover Shares, Cancelled Shares and Dissenting Shares) will be cancelled and extinguished and automatically converted into the right to receive the Merger Consideration, in accordance with and subject to the terms and conditions set forth in the Merger Agreement, whereupon the holders of such Shares will cease to have any rights with respect thereto, other than the right to receive the Merger Consideration, subject to and in accordance with the terms and conditions of the Merger Agreement.

Treatment of Equity Compensation Awards

Effective as of immediately prior to the Effective Time and as a result of the Merger:

 

•

Unless otherwise agreed between Parent and the applicable holder of a Company Option in writing, each Company Option that is outstanding and unexercised immediately prior to the Effective Time will automatically be cancelled and terminated and converted into the right to receive a cash payment in an amount, without interest, equal to the product of the Merger Consideration, net of the exercise price, and the aggregate number of shares of Company Common Stock subject to such Company Option. If the exercise price per share of any Company Option is equal to or greater than the Merger Consideration, then such Company Option will automatically terminate and be cancelled without payment of any consideration to the holder thereof.

 

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•

Unless otherwise agreed between Parent and the applicable holder of a Company RSU Award in writing, each Company RSU Award that is outstanding immediately prior to the Effective Time will automatically be cancelled and terminated and converted into the right to receive a cash payment in an amount, without interest, equal to the product of the Merger Consideration and the aggregate number of Company Common Stock subject to such Company RSU Award.

 

•

Unless otherwise agreed between Parent and the applicable holder of a Cash-Out Company RS Award in writing, each Cash-Out Company RS Award that is outstanding immediately prior to the Effective Time will automatically be cancelled and terminated and converted into the right to receive a cash payment in an amount, without interest, equal to the product of the Merger Consideration and the aggregate number of shares of Company Common Stock subject to the Cash-Out Company RS Award (with any performance-based goals deemed to be achieved at the “target” level of performance).

 

•

Unless otherwise agreed between Parent and the applicable holder of a Conversion Company RS Award in writing, each Conversion Company RS Award that remains outstanding immediately prior to the Effective Time, will be converted into a cash-based retention award in an amount, without interest equal to the product of the Merger Consideration and the aggregate number of shares of Company Common Stock subject to the RS Award which cash-based retention award will remain subject to the same vesting schedule that applied immediately prior to the Effective Time (including any applicable vesting criteria and requirements).

All amounts will be paid less any applicable withholding taxes, and paid as soon as practicable following the Effective Time of the Merger (and in no case later than the next regularly scheduled payroll run of the Surviving Corporation that is at least five (5) Business Days following the Effective Time of the Merger).

Following the date of the Merger Agreement, no new offering period will commence under the ESPP, each participant’s outstanding right to purchase shares of Company Common Stock under the ESPP shall terminate on the day immediately prior to the day on which the Effective Time occurs (if not earlier terminated pursuant to the terms of the ESPP) and the ESPP will be terminated no later than immediately prior to the Effective Time.

Benefits of the Merger for the Company’s Public Stockholders

The primary benefit of the Merger to the Public Stockholders (other than the holders of any Cancelled Shares or Dissenting Shares) will be their right to receive the Merger Consideration of $41.00 per Share in cash, without interest, less any applicable withholding taxes, in accordance with and subject to the terms and conditions set forth in the Merger Agreement, representing a premium of 25.3% over the closing price of Company Class A Common Stock on July 26, 2021, the last unaffected trading day prior to media speculation regarding a potential transaction, and a premium of 24.4% over the volume-weighted average price of the Shares over the thirty (30) trading days leading up to the unaffected trading day. Additionally, such Public Stockholders will avoid the risk after the Merger of any possible decrease in the Company’s future earnings, growth or value.

Detriments of the Merger to the Company’s Public Stockholders

The primary detriments of the Merger to the Public Stockholders include the lack of an interest of such Public Stockholders in the potential future earnings, growth, or value realized by the Company after the Merger. In addition, the Public Stockholders will not benefit from any sale of the Company or its assets to a third party in the future.

Certain Effects of the Merger for the Parent Entities

Following the Merger, all the equity interests in the Company will be beneficially owned, indirectly through Parent, by the Rollover Stockholders, the Equity Investors and additional members of a consortium of private equity investors led by Nordic Capital X and their affiliates. If the Merger is completed, the Parent Entities, the Rollover Stockholders, the Equity Investors and additional members of the consortium of private equity investors led by Nordic Capital X and their affiliates will be the sole beneficiaries of the Company’s future earnings and growth, if any, and they will be the only ones entitled to vote on corporate matters affecting the Company following the Merger.

Certain Effects on the Company if the Merger is Not Completed

If the Merger Agreement Proposal is not approved by the Company’s stockholders or if the Merger is not completed for any other reason, the Company’s stockholders will not receive any payment for their Shares in connection with the Merger. Instead, unless the Company is sold to a third party, the Company will remain an independent public company, and the

 

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Shares will continue to be listed and traded on the Nasdaq, so long as the Company continues to meet the applicable listing requirements. In addition, if the Merger is not completed, the Company expects that management will operate the Company’s business in a manner similar to that in which it is being operated today, and that the Company’s stockholders will continue to be subject to the same risks and opportunities to which they are currently subject. There is no assurance as to the effect of these risks and opportunities on the future value of your Shares, including the risk that the market price of Shares may decline to the extent the current market price of Shares reflects a market assumption that the Merger will be completed.

Under certain circumstances, if the Merger is not completed, the Company may be required to pay Parent the Company Termination Fee, as well as pay certain enforcement costs and, under certain circumstances, reimburse up to $10,000,000 of Parent’s out-of-pocket costs incurred in connection with the transactions contemplated by the Merger Agreement, or Parent may be required to pay the Company the Parent Termination Fee, as well as pay certain enforcement costs. See “The Merger Agreement — Termination Fees.”

Interests of Executive Officers and Directors of the Company in the Merger

In considering the recommendations of the Company Board (other than Dr. Dunleavy, who recused himself) with respect to the Merger, the Company’s stockholders should be aware that the executive officers and directors of the Company have certain interests in the Merger that may be different from, or in addition to, the interests of the Company’s stockholders generally. The Special Committee, consisting solely of independent and disinterested directors of the Company Board, and the Company Board were aware of these interests and considered the interests described below, among other matters, in evaluating the Merger Agreement and the transactions contemplated thereby, including the Merger and in making their recommendations.

Special Committee Fees

Consistent with past practice of the Company Board and its committees, the members of the Special Committee, consisting solely of independent directors who (i) are not affiliated with Dr. Dunleavy (other than by virtue of serving as a director of the Company), (ii) otherwise do not have a material interest in the Merger (other than an interest by virtue of their ownership of capital stock of the Company) and (iii) are disinterested with respect to the Merger, will not receive additional compensation in connection with their services to the Company as members of the Special Committee with respect to the Merger.

Payments to Executive Officers in Respect of Equity Awards; Shares and Equity Awards Held by Directors and Executive Officers

The Merger Agreement provides for the treatment set forth below with respect to the Company equity awards that are outstanding at the Effective Time.

Company Options. Unless otherwise agreed between Parent and the applicable holder of a Company Option in writing, each Company Option that is outstanding and unexercised immediately prior to the Effective Time will automatically be cancelled and terminated and converted into the right to receive a cash payment in an amount, without interest, equal to the product of the Merger Consideration, net of the exercise price, and the aggregate number of shares of Company Common Stock subject to such Company Option, less any applicable withholding taxes. Amounts payable in respect of Company Options will be paid as soon as practicable following the Effective Time of the Merger (and in no case later than the next regularly scheduled payroll run of the Surviving Corporation that is at least five (5) Business Days following the Effective Time of the Merger).

 

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The following sets forth, for each Company executive officer, the aggregate number of shares of Company Common Stock subject to outstanding Company Options held by such executive officer assuming (i) the closing price of a Company Common Stock is $41.00 (the “Estimated Closing Value”), (ii) a closing date of September 8, 2021, and (iii) such executive officer remains continuously employed with the Company or a subsidiary until the Effective Time.

 

		Numbers of Shares Subject to
Name of Named Executive Officer		Vested Stock Options (#)				Unvested Stock Options (#)				Estimated Value of Vested Stock Options($)				Estimated Value of Unvested Stock Options ($)
Keith R. Dunleavy, M.D			0				0			$	0			$	0
Robert A. Wychulis			61,569				0			$	2,524,329			$	0
Eron Kelly			0				0			$	0			$	0
Jonathan R. Boldt			0				0			$	0			$	0
Jason B. Capitel			0				0			$	0			$	0
Peter De Bock			0				0			$	0			$	0

Company RSU Awards. Unless otherwise agreed between Parent and the applicable holder of a Company RSU Award in writing, each Company RSU Award that is outstanding immediately prior to the Effective Time will automatically be cancelled and terminated and converted into the right to receive a cash payment in an amount, without interest, equal to the product of the Merger Consideration and the aggregate number of shares of Inovalon common stock subject to such Company RSU Award, less any applicable withholding taxes. Amounts payable in respect of Company RSU Award will be paid as soon as practicable following the Effective Time of the Merger (and in no case later than the next regularly scheduled payroll run of the Surviving Corporation).

The following sets forth, for each Company member of the board of directors, the aggregate number of shares of Company Common Stock subject to outstanding Company RSU Awards held by such director, assuming (i) the closing price of a Company Common Stock is the Estimated Closing Value, (ii) a closing date of September 8, 2021 and (iii) such executive officer remains continuously employed with the Company or a subsidiary until the Effective Time. No executive officer holds Company RSU Awards.

 

Name of Board Member		Number of Shares Subject to Unvested Company RSU Awards (#)				Estimated Value of Unvested Company RSU Awards ($)
Keith R. Dunleavy, M.D.			0			$	0
Denise K. Fletcher			2,305			$	94,505
William D. Green			2,305			$	94,505
Isaac S. Kohane			2,305			$	94,505
Mark. A. Pulido			2,305			$	94,505
Lee D. Roberts			2,305			$	94,505
William J. Teuber, Jr.			3,024			$	123,984

Company RS Awards. Unless otherwise agreed between Parent and the applicable holder of a Cash-Out Company RS Award in writing, each Cash-Out Company RS Award that is outstanding immediately prior to the Effective Time will automatically be cancelled and terminated and converted into the right to receive a cash payment in an amount, without interest, equal to the product of the Merger Consideration and the aggregate number of shares of Company Common Stock, subject to the Cash-Out Company RS Award (with any performance-based goals deemed to be achieved at the “target” level of performance), less any applicable withholding taxes. Amounts payable in respect of Cash-Out Company RS Award will be paid as soon as practicable following the Effective Time of the Merger (and in no case later than the next regularly scheduled payroll run of the Surviving Corporation).

Unless otherwise agreed between Parent and the applicable holder of a Conversion Company RS Award in writing, each Conversion Company RS Award that remains outstanding immediately prior to the Effective Time, will be converted into a cash-based retention award in an amount, without interest equal to the product of the Merger Consideration and the aggregate number of shares of Company Common Stock subject to the RS Award, which cash-based retention award will remain subject to the same vesting schedule that applied immediately prior to the Effective Time (including any applicable performance vesting criteria and requirements).

 

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The following sets forth, for each Company executive officer, the number of shares of Cash-Out Company RS Awards and Conversion Company RS Awards, and the value of such awards, assuming (i) the closing price of a Company Common Stock is the Estimated Closing Value, (ii) a closing date of September 8, 2021 and (iii) such executive officer remains continuously employed with the Company or a subsidiary until the Effective Time.

 

Name of Named Executive Officer		Cash-Out Company RS Awards (#)				Estimated Value of Cash-Out Company RS Awards ($)				Conversion Company RS Awards (#)				Estimated Value of Conversion Company RS Awards ($)
Keith R. Dunleavy, M.D.			0			$	0				0			$	0
Robert A. Wychulis			76,986			$	3,156,426				179,609			$	7,363,969
Eron Kelly			71,345			$	2,925,145				166,470			$	6,825,270
Jonathan R. Boldt			118,309			$	4,850,669				276,007			$	11,316,287
Jason B. Capitel			162,467			$	6,661,147				379,070			$	15,541,870
Peter De Bock			38,069			$	1,560,829				88,819			$	3,641,579

Change in Control Agreements; Change in Control Policy

In accordance with the requirements of Item 402(t) of Regulation S-K, the table below sets forth the amount of payments and benefits (on a pre-tax basis) that each named executive officer would receive in connection with the Merger, assuming (i) that the Merger were consummated and each such named executive officer experienced a qualifying termination of employment on September 8, 2021 (which is the assumed date solely for purposes of this golden parachute compensation disclosure), (ii) a per Share price of $41.00 in cash, without interest and less any applicable withholding taxes, (iii) that each named executive officer’s base salary rate and annual target bonus remain unchanged from those in effect as of the date of this proxy statement and (iv) the equity awards described below are the only equity awards outstanding as of closing. The calculations in the table below do not include any amounts that the named executive officers were entitled to receive or that were vested as of the date hereof. In addition, these amounts do not attempt to forecast any additional awards, grants or forfeitures that may occur prior to the Effective Time of the Merger, or any awards that, by their terms, vest irrespective of the Merger prior to September 8, 2021. As a result of the foregoing assumptions, which may or may not actually occur or be accurate on the relevant date, including the assumptions described in the footnotes to the table, the actual amounts, if any, to be received by a named executive officer may differ materially from the amounts set forth below.

For an estimate of the value of the payments and benefits described above that would become payable under the Change in Control Policy to the named executive officers, see “Special Factors — Interests of Executive Officers and Directors of the Company in the Merger — Golden Parachute Compensation” below.

Indemnification Benefits

Each of the Company’s executive officers and directors is entitled to the indemnification benefits in favor of the Company’s directors and executive officers, as described in more detail in “The Merger Agreement — Indemnification; Directors’ and Officers’ Insurance.”

Golden Parachute Compensation

 

Name of Named Executive Officer		Cash ($)(1)				Equity ($)(2)				Perquisites/ Benefits ($)				Tax Reimbursement ($)				Other ($)				Total ($)
Keith R. Dunleavy, M.D		$	0			$	0			$	0			$	0			$	0			$	0
Robert A. Wychulis		$	0			$	3,156,426			$	0			$	0			$	0			$	3,156,426
Eron Kelly		$	0			$	2,925,145			$	0			$	0			$	0			$	2,925,145
Jonathan R. Boldt		$	0			$	4,850,095			$	0			$	0			$	0			$	4,850,095
Jason B. Capitel		$	0			$	6,660,901			$	0			$	0			$	0			$	6,660,901
Peter De Bock		$	0			$	1,560,706			$	0			$	0			$	0			$	1,560,706

 

(1)

Cash. The Company entered into an employment agreement with Robert Wychulis on December 3, 2014, Jason Capitel on January 23, 2018 and Peter De Bock on January 12, 2019, and a promotion letter with Jonathan Boldt on January 14, 2019 (such employment agreements, collectively, the “Employment Agreements”). If we terminate the employment of a named executive officer other than for “cause” (as defined in their Employment Agreements), subject to the named executive officer’s execution and non-revocation of a release of claims in favor of us, we will provide him with a lump-sum cash severance benefit equal to the greater of (i) one month’s base salary or (ii) one month’s base salary per each

 

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full year of his service with us, subject to a maximum of six months’ base salary. However, as a condition of agreeing to changes to the vesting of outstanding equity awards, including the treatment of Company RS Awards as Cash-Out Company RS Awards, each named executive officer agreed that any amounts that would have been payable under the Employment Agreements prior to the closing date will reduce the amount payable in respect of the Cash-Out Company RS Awards that are single-trigger payments as described below. If a named executive officer’s employment is terminated without “cause” on the closing date, the full amount of the Cash-Out Company RS Award would be payable and no severance would be owed.

In addition, each participant in our 2021 annual bonus program, including our named executive officers, would be entitled to his or her 2021 annual bonus if and when annual bonuses are paid under the 2021 annual bonus program and the participant is eligible and an employee as of the 2021 annual bonus payment. These amounts would represent double trigger payments, which would be payable as a result of the occurrence of both the consummation of the Merger and the relevant individual experiencing a qualifying termination of employment. The target bonus opportunities for the 2021 annual bonus program for each of our named executive officers are: Dr. Dunleavy, $0, Mr. Capitel, $900,000, Mr. De Bock, $306,425, and Mr. Boldt, $281,250.

(2)

Equity. These amounts represent single-trigger payments that will occur solely as a result of the consummation of the Merger. Based on the Merger Agreement, unless otherwise agreed between Parent and the applicable securityholder in writing (i) each Company Option that is outstanding and unexercised immediately prior to the Effective Time will automatically be cancelled and terminated and converted into the right to receive a cash payment in an amount, without interest, equal to the product of the Merger Consideration, net of the exercise price, and the aggregate number of shares of Inovalon common stock subject to such Company Option, less any applicable withholding taxes; and (ii) each Cash-Out Company RS Award that is outstanding immediately prior to the Effective Time will automatically be cancelled and terminated and converted into the right to receive a cash payment in an amount, without interest, equal to the product of the Merger Consideration and the aggregate number of shares of Inovalon common stock subject to the Cash-Out Company RS Award (with any performance-based goals deemed to be achieved at the “target” level of performance), less any applicable withholding taxes. Set forth above in the Section “Interests of Executive Officers and Directors of the Company — Payments to Executive Officers in Respect of Equity Awards” are the values of each type of unvested Company equity award held by each named executive officer as of the date of this proxy statement that would become vested upon the consummation of the Merger based on an assumed effective time of September 8, 2021.

Intent of the Directors and Executive Officers to Vote in Favor of the Merger

Our directors and executive officers have informed us that, as of the date of this proxy statement, they intend to vote all of the Shares owned directly by them in favor of the approval of the Merger Agreement Proposal and each of the other proposals. As of [            ], 2021, the Record Date for the Special Meeting, our directors and executive officers directly owned, in the aggregate, [            ] shares of Company Class A Common Stock and [            ] shares of Company Class B Common Stock entitled to vote at the Special Meeting, or collectively approximately [            ]% of the total voting power entitled to vote at the Special Meeting. For purposes of clarity, the Shares directly owned by the directors and executive officers shall be (i) included in determining whether the Merger Agreement has been approved by (x) a majority of the voting power of the outstanding shares of Company Common Stock entitled to vote in accordance with the DGCL, (y) a majority of the outstanding shares of Company Class A Common Stock entitled to vote in accordance with the DGCL and (z) a majority of the outstanding shares of Company Class B Common Stock entitled to vote in accordance with the DGCL; and (ii) excluded from determining whether the Merger Agreement has been approved by a majority of the voting power of the outstanding shares of Company Common Stock, voting as a single class, held by the Public Stockholders.

Intent of the Certain Stockholders to Vote in Favor of the Merger

The Dunleavy Entities, who hold approximately 64% of the voting power of the Company’s outstanding capital stock, and Mr. André Hoffmann and Cape Capital, who collectively beneficially own approximately 23% of the voting power of the Company’s outstanding capital stock, separately entered into Support Agreements with Parent, pursuant to which the Dunleavy Entities, Mr. André Hoffmann and Cape Capital have agreed to vote their Shares in favor of adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, subject to and in accordance with the terms and conditions of the applicable Support Agreement. Copies of the Support Agreements are attached as Annex B of this proxy statement and are incorporated by reference in this proxy statement in their entirety. See “Special Factors — Support Agreements.” However, the adoption and approval of the Merger Agreement separately requires an affirmative vote of Public Stockholders holding a majority of the voting power of the outstanding shares of Company Common Stock held by the Public Stockholders, which excludes all shares of Company Common Stock held by Dr. Dunleavy, Mr. Hoffmann and Cape Capital.

 

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In the event the Company makes an Adverse Recommendation Change, in compliance with the Merger Agreement, prior to the Company’s receipt of the Required Company Stockholder Approval, the obligation of the Rollover Stockholders to vote the Shares listed in the Support Agreements as described above will be modified such that the Rollover Stockholders will each have the right to so vote (x) in favor of the Merger or (y) such proportion of Shares as votes cast by the Inovalon stockholders other than the Dunleavy Entities, Mr. André Hoffmann or Cape Capital, as applicable, with respect to the applicable matter (such proportion determined without the inclusion of the votes cast by the Dunleavy Entities, Mr. André Hoffmann or Cape Capital, as applicable).

Material US Federal Income Tax Consequences of the Merger

The following discussion is a summary of material US federal income tax consequences of the Merger to US Holders (as defined below) of the Shares. This summary is general in nature and does not discuss all aspects of US federal income taxation that may be relevant to a holder of the Shares in light of their particular circumstances. This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury regulations promulgated under the Code, judicial authority, published administrative positions of the Internal Revenue Service, which we refer to as the IRS, and other applicable authorities, all as in effect as of the date of this proxy statement, and all of which are subject to change or differing interpretations at any time, with possible retroactive effect. We have not sought, and do not intend to seek, any ruling from the IRS with respect to the statements made and the conclusions reached in the following discussion, and no assurance can be given that the IRS will agree with the views expressed herein, or that a court will not sustain any challenge by the IRS in the event of litigation. This discussion does not describe any tax consequences arising under the laws of any state, local or non-US jurisdiction, and does not consider any aspects of US federal tax law other than income taxation, nor does it address any aspects of the unearned income Medicare contribution tax. In addition, this discussion only applies to the Shares that are held as a capital asset (generally, property held for investment) within the meaning of Section 1221 of the Code, and does not address tax considerations applicable to any holder of the Shares that may be subject to special treatment under US federal income tax law, including:

 

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a bank or other financial institution;

 

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a tax-exempt organization;

 

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a retirement plan or other tax-deferred account;

 

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an S corporation or other pass-through entity (or an investor in an S corporation or other pass-through entity);

 

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a person holding a direct or an indirect interest in Parent or Merger Sub;

 

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an insurance company;

 

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a mutual fund;

 

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a regulated investment company or real estate investment trust;

 

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a dealer or broker in commodities, stocks, securities or in currencies;

 

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a dealer or trader in securities that elects mark-to-market treatment;

 

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a controlled foreign corporation;

 

•

a passive foreign investment company;

 

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a stockholder that owns, or has owned, actually or constructively, more than 5% of the Shares;

 

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a stockholder subject to the alternative minimum tax provisions of the Code;

 

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a stockholder that received the Shares through the exercise of an employee stock option, through a tax qualified retirement plan or otherwise as compensation;

 

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a person that has a functional currency other than the US dollar;

 

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a person that is required to report income no later than when such income is reported in an “applicable financial statement”;

 

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a person that holds the Shares as part of a hedge, straddle, constructive sale, conversion or other integrated transaction;

 

•

a stockholder that is not exchanging its Shares for cash pursuant to the Merger; and

 

•

certain former US citizens or long-term residents.

 

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