PREM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934 (Amendment No.    )

 

 

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 under §240.14a-12

INNERWORKINGS, 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:

 

Common stock, par value $0.0001 per share, of InnerWorkings, Inc. (which we refer to as “Company common stock”)

  (2)  

Aggregate number of securities to which transaction applies:

 

58,890,247 shares of Company common stock, which consist of (a) 52,769,693 shares of Company common stock outstanding, net of treasury shares, as of August 4, 2020, (b) 4,712,292 shares of Company common stock with respect to outstanding awards of restricted stock units as of August 4, 2020, (c) 72,925 shares of Company common stock with respect to outstanding awards of restricted stock as of August 4, 2020 and (e) 1,335,337 shares of Company common stock subject to outstanding warrants to purchase Company common stock as of August 4, 2020.

  (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):

 

In accordance with Exchange Act Rule 0-11, the filing fee of $22,930.13 was determined by multiplying 0.0001298 by the proposed maximum aggregate value of the transaction. The proposed maximum aggregate value of the transaction was calculated as the sum of (a) 52,769,693 shares of Company common stock multiplied by the maximum per share merger consideration contemplated by the merger agreement, (b) 4,712,292 shares of Company common stock with respect to outstanding awards of restricted stock units, multiplied by $3.00, the maximum per share merger consideration contemplated by the merger agreement, (c) 72,925 shares of Company common stock with respect to outstanding awards of restricted stock, multiplied by $3.00, the maximum per share merger consideration contemplated by the merger agreement, and (d) 1,335,337 shares of Company common stock subject to outstanding warrants to purchase Company common stock, multiplied by the difference between the maximum per share merger consideration contemplated by the merger agreement and the weighted average exercise price of such warrants.

  (4)  

Proposed maximum aggregate value of transaction:

 

$176,657,387.63

  (5)  

Total fee paid:

 

$22,930.13

  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:

 

     

 

 

 


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PRELIMINARY PROXY STATEMENT, SUBJECT TO COMPLETION, DATED AUGUST 10, 2020

 

LOGO

[●], 2020

Dear Stockholder:

You are cordially invited to attend a special meeting of stockholders of InnerWorkings, Inc., a Delaware corporation (which we refer to as the “Company”), which will be held virtually via the Internet on [●], 2020 beginning at [●] Eastern Time. As part of our precautions regarding the COVID-19 (coronavirus) pandemic, we are sensitive to the public health and travel concerns that our stockholders may have, as well as any quarantines or other protocols that governments may impose. As a result, the meeting will be held in a virtual meeting format only via live webcast. There will not be a physical meeting location. You or your proxyholder will be able to attend the meeting online, examine a list of our shareholders of record and vote your shares electronically by visiting www.virtualshareholdermeeting.com/INWK2020 (which we refer to as the “special meeting website”). The purpose of the meeting is to consider and vote on proposals relating to the proposed acquisition of the Company by HH Global Group Limited, a company registered in England and Wales (which we refer to as “Parent”), for $3.00 in cash per share, without interest thereon, subject to any applicable withholding taxes. Regardless of whether you plan to attend the meeting, we encourage you to vote your shares by mail, by telephone or through the Internet by following the procedures outlined below.

On July 15, 2020, the Company, Parent, HH Global Finance Limited, a company registered in England and Wales (which we refer to as “HH Finance”), and Project Idaho Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (which we refer to as “Sub”), entered into an Agreement and Plan of Merger (as may be amended from time to time, the “merger agreement”). The merger agreement provides for, subject to the satisfaction or waiver of specified conditions, the acquisition of the Company by Parent at a price of $3.00 per share in cash, without interest thereon, subject to any applicable withholding taxes. Subject to the terms and conditions of the merger agreement, Sub will be merged with and into the Company (which we refer to as the “merger”), with the Company continuing as the surviving corporation in the merger. As a result of the merger, the Company will become a wholly-owned subsidiary of Parent. At the special meeting, the Company will ask you to adopt the merger agreement.

At the effective time of the merger (which we refer to as the “effective time”), each share of common stock, par value $0.0001 per share, of the Company (which we refer to as “Company common stock”) issued and outstanding immediately prior to the effective time will be cancelled and cease to exist and automatically converted into the right to receive $3.00 in cash, without interest thereon (which we refer to as the “merger consideration”), other than (i) shares that are held in the treasury of the Company or owned of record by any wholly-owned subsidiary of the Company (other than those held on behalf of any third party), (ii) shares owned of record by Parent, Sub or any of their respective wholly-owned subsidiaries (other than those held on behalf of any third party), and (iii) shares held by stockholders who have not voted in favor of or consented to the adoption of the merger agreement and who have properly demanded appraisal of such shares and complied in all respects with all the provisions of the Delaware General Corporation Law concerning the right of holders of shares to require appraisal.

The proxy statement accompanying this letter provides you with more specific information concerning the special meeting, the merger agreement, the merger and the other transactions contemplated by the merger agreement. We encourage you to carefully read the accompanying proxy statement and the copy of the merger agreement attached as Annex A to the proxy statement.

The board of directors of the Company (which we refer to as the “Board”) carefully reviewed and considered the terms and conditions of the merger agreement, the merger and the other transactions contemplated


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by the merger agreement. By a unanimous vote, the Board (i) determined that the transactions contemplated by the merger agreement, including the merger, are in the best interests of the Company and its stockholders, (ii) approved and declared advisable the execution, delivery and performance of the merger agreement, and, subject to receiving the Company stockholder approval, the consummation by the Company of the transactions contemplated by the merger agreement, including the merger, (iii) directed that the merger agreement be submitted to a vote of the stockholders of the Company to be adopted and (iv) resolved to recommend the adoption of the merger agreement by the stockholders of the Company. Accordingly, the Board unanimously recommends a vote “FOR” the proposal to adopt the merger agreement and the other proposals set forth in the accompanying proxy statement.

Your vote is important. Whether or not you plan to attend the special meeting and regardless of the number of shares you own, your careful consideration of, and vote on, the proposal to adopt the merger agreement is important, and we encourage you to vote promptly. The merger cannot be completed unless the merger agreement is adopted by stockholders holding at least a majority of the outstanding shares of Company common stock entitled to vote on such matter. The failure to vote will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

After reading the accompanying proxy statement, please make sure to vote your shares promptly by completing, signing and dating the accompanying proxy card and returning it in the enclosed prepaid envelope or by voting by telephone or through the Internet by following the instructions on the accompanying proxy card. Instructions regarding all three methods of voting are provided on the proxy card. If you hold shares through an account with a bank, broker, trust or other nominee, please follow the instructions you receive from it to vote your shares.

Thank you in advance for your continued support and your consideration of this matter.

Sincerely,

 

Jack M. Greenberg

  

Richard S. Stoddart

Chairman of the Board

  

Chief Executive Officer and President

Neither the United States Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

The accompanying proxy statement is dated [●], 2020 and is being mailed to Company stockholders on or about [●], 2020.


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PRELIMINARY PROXY STATEMENT, SUBJECT TO COMPLETION, DATED AUGUST 10, 2020

InnerWorkings, Inc.

203 North LaSalle Street, Suite 1800

Chicago, Illinois 60601

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

 

 

To Be Held on [●], 2020

To the Stockholders of InnerWorkings, Inc.:

A special meeting of the stockholders of InnerWorkings, Inc. (which we refer to as the “Company”) will be held virtually via the Internet on [●], 2020 beginning at [●] Eastern Time. As part of our precautions regarding the COVID-19 (coronavirus) pandemic, we are sensitive to the public health and travel concerns that our stockholders may have, as well as any quarantines or other protocols that governments may impose. As a result, the meeting will be held in a virtual meeting format only via live webcast. There will not be a physical meeting location. You or your proxyholder will be able to attend the meeting online, examine a list of our shareholders of record and vote your shares electronically by visiting www.virtualshareholdermeeting.com/INWK2020 (which we refer to as the “special meeting website”). The special meeting will be held for the following purposes:

 

1.

To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of July 15, 2020 (as may be amended from time to time, the “merger agreement”), by and among the Company, HH Global Group Limited, a company registered in England and Wales (which we refer to as “Parent”), HH Global Finance Limited, a company registered in England and Wales (which we refer to as “HH Finance”) and Project Idaho Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (which we refer to as “Sub”);

 

2.

To consider and vote on a proposal to approve, by a non-binding advisory vote, the compensation that may be paid or become payable to the Company’s named executive officers and that is based on, or otherwise relates to, the merger of Sub with and into the Company, as contemplated by the merger agreement (which we refer to as the “merger”); and

 

3.

To consider and vote on a proposal to adjourn the special meeting from time to time to a later date or time if necessary or appropriate, including to solicit additional proxies in favor of the proposal to adopt the merger agreement if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

Stockholders of record at the close of business on [●] are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements thereof.

For more information concerning the special meeting, the merger agreement, the merger and the other transactions contemplated by the merger agreement, please review the accompanying proxy statement and the copy of the merger agreement attached as Annex A to the proxy statement.

The board of directors of the Company (which we refer to as the “Board”) carefully reviewed and considered the terms and conditions of the merger agreement, the merger and the other transactions contemplated by the merger agreement. By a unanimous vote, the Board (i) determined that the transactions contemplated by the merger agreement, including the merger, are in the best interests of the Company and its stockholders, (ii) approved and declared advisable the execution, delivery and performance of the merger agreement, and, subject to receiving the Company stockholder approval, the consummation by the Company of the transactions contemplated by the merger agreement, including the merger, (iii) directed that the merger agreement be


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submitted to a vote of the stockholders of the Company to be adopted and (iv) resolved to recommend the adoption of the merger agreement by the stockholders of the Company.

The Board unanimously recommends that at the special meeting you vote “FOR” the proposal to adopt the merger agreement, “FOR” the approval, by a non-binding advisory vote, of the compensation that may be paid or become payable to the Company’s named executive officers and that is based on, or otherwise relates to, the merger and “FOR” the proposal to adjourn the special meeting from time to time if necessary or appropriate, including to solicit additional proxies.

To assure that your shares are represented at the special meeting, regardless of whether you plan to attend the special meeting via live webcast, please fill in your vote, sign and mail the enclosed proxy card as soon as possible. We have enclosed a return envelope, which requires no postage if mailed in the United States. Alternatively, you may vote by telephone or through the Internet. Instructions regarding each of the methods of voting are provided on the enclosed proxy card. If you are voting by telephone or through the Internet, then your voting instructions must be received by 11:59 p.m. Eastern Time on the day before the special meeting. You will also be able to attend the special meeting online and vote your shares electronically by visiting the special meeting website. If you plan to attend the special meeting, you will need the 16-digit control number included on your proxy card or voting instruction form that is accompanied by your proxy materials. If you attend the special meeting and vote via the special meeting website, your vote will revoke any proxy that you have previously submitted. If your shares are held in “street name” through a bank, broker, trust or other nominee, please instruct your bank, broker, trust or other nominee on how to vote your shares using the voting instructions furnished by your bank, broker, trust or other nominee as soon as possible. Your proxy is being solicited by the Board.

If you have any questions about the merger or how to submit your proxy, or if you need additional copies of the proxy statement or the enclosed proxy card or voting instructions, please call our proxy solicitor, Morrow Sodali LLC (which we refer to as “Morrow Sodali”), toll-free at (800) 662-5200 or (203) 658-9400 (call collect).

If you fail to return your proxy, vote by ballot via the special meeting website, by telephone or through the Internet, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

By order of the Board,

Oren B. Azar

Executive Vice President, General Counsel and

Corporate Secretary

Chicago, Illinois

[●], 2020

Please Vote—Your Vote is Important


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TABLE OF CONTENTS

 

     Page  

SUMMARY TERM SHEET

     1  

The Parties (see page [●])

     1  

The Merger (see page [●])

     1  

The Special Meeting (see page [●])

     2  

Stockholders Entitled to Vote; Vote Required for Approval (see page [●])

     2  

How to Vote (see page [●])

     2  

Recommendation of the Board; Reasons for Recommending the Adoption of the Merger Agreement (see page [●])

     3  

Opinion of the Company’s Financial Advisor (see page [●])

     3  

Market Price and Dividend Data (see page [●])

     4  

Certain Effects of the Merger (see page [●])

     4  

Consequences if the Merger is Not Completed (see page [●])

     4  

Treatment of Outstanding Equity Awards, Equity Plans and Warrant (see page [●])

     4  

Interests of Directors and Executive Officers in the Merger (see page [●])

     5  

Conditions to the Merger (see page [●])

     5  

Regulatory Approvals (see page [●])

     6  

Financing of the Merger (see page [●])

     7  

Restriction on Solicitation of Competing Proposals (see page [●])

     7  

Termination of the Merger Agreement (see page [●])

     9  

Termination Fees (see page [●])

     10  

Appraisal Rights (see page [●])

     11  

Material U.S.  Federal Income Tax Consequences of the Merger (see page [●])

     11  

Where You Can Find More Information (see page [●])

     11  

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

     12  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     20  

PARTIES TO THE MERGER

     22  

InnerWorkings

     22  

HH Global Group

     22  

THE SPECIAL MEETING

     23  

Date, Time and Place of the Special Meeting

     23  

Purpose of the Special Meeting

     23  

Recommendation of the Board

     23  

Record Date and Quorum

     24  

Vote Required for Approval

     24  

Effect of Abstentions and Broker Non-Votes

     25  

How to Vote

     25  

Revocation of Proxies

     26  

Adjournments and Postponements

     26  

Solicitation of Proxies

     27  

Stockholder List

     27  

Questions and Additional Information

     27  

PROPOSAL 1: ADOPTION OF THE MERGER AGREEMENT

     28  

PROPOSAL 2: NON-BINDING ADVISORY MERGER-RELATED COMPENSATION PROPOSAL

     29  

PROPOSAL 3: AUTHORITY TO ADJOURN THE SPECIAL MEETING

     30  

THE MERGER

     31  

Overview

     31  

Background of the Merger

     31  

Recommendation of the Board

     48  

Reasons for Recommending the Adoption of the Merger Agreement

     48  

 

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Opinion of the Company’s Financial Advisor

     54  

Forward-Looking Financial Information

     59  

Financial Projections

     61  

Interests of Directors and Executive Officers in the Merger

     63  

Certain Effects of the Merger

     71  

Consequences if the Merger is Not Completed

     72  

Financing of the Merger

     72  

Material U.S. Federal Income Tax Consequences of the Merger

     74  

Regulatory Approvals

     77  

THE AGREEMENT AND PLAN OF MERGER

     78  

Explanatory Note Regarding the Merger Agreement

     78  

Date of the Merger Agreement

     78  

The Merger

     78  

Closing; Effective Time of the Merger

     78  

Organizational Documents; Directors and Officers

     79  

Merger Consideration

     79  

Treatment of Outstanding Equity Awards and Equity Plans

     80  

Exchange Procedures

     81  

Representations and Warranties

     83  

Covenants Regarding Conduct of Business by the Company Prior to the Merger

     86  

Restriction on Solicitation of Competing Proposals

     89  

Obligations of the Board with Respect to Its Recommendation

     91  

Efforts to Complete the Merger

     93  

Obligations with Respect to this Proxy Statement and the Special Meeting

     95  

Access to Information

     95  

Director and Officer Indemnification and Insurance Information

     96  

Employee Benefits

     97  

Financing

     98  

Other Covenants and Agreements

     99  

Conditions to the Merger

     99  

Termination of the Merger Agreement

     101  

Effect of Termination

     102  

Expenses; Termination Fees

     103  

Miscellaneous

     104  

APPRAISAL RIGHTS

     106  

Written Demand by the Record Holder

     107  

Filing a Petition for Appraisal

     107  

Determination of Fair Value

     108  

MARKET PRICE AND DIVIDEND DATA

     111  

STOCK OWNERSHIP

     112  

OTHER MATTERS

     113  

Other Matters for Action at the Special Meeting

     113  

FUTURE STOCKHOLDER PROPOSALS

     114  

HOUSEHOLDING OF PROXY MATERIAL

     115  

WHERE YOU CAN FIND MORE INFORMATION

     116  

ANNEX A—AGREEMENT AND PLAN OF MERGER

     A-1  

ANNEX B—OPINION OF CITIGROUP GLOBAL MARKETS INC.

     B-1  

ANNEX C—SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW

     C-1  

 

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SUMMARY TERM SHEET

This summary highlights certain information in this proxy statement, but may not contain all of the information that may be important to you. You should carefully read this entire proxy statement and the attached Annexes and the other documents to which this proxy statement refers you for a more complete understanding of the matters being considered at the special meeting. In addition, this proxy statement incorporates by reference important business and financial information about InnerWorkings, Inc. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions in the section titled “Where You Can Find More Information” on page []. Unless the context otherwise indicates, we refer to InnerWorkings, Inc. as “InnerWorkings,” the “Company,” “we,” “us” or “our.”

The Parties (see page [])

InnerWorkings, Inc., a Delaware corporation, is a leading global marketing supply chain company that provides global print management and promotional solutions to corporate clients across a range of industries. The items we source generally are procured through the marketing supply chain and we refer to these items collectively as marketing materials. Through our network of more than 12,000 global suppliers, we offer a full range of fulfillment and logistics services that allow us to procure marketing materials of virtually any kind. The breadth of our product offerings and services and the depth of our supplier network enable us to fulfill the marketing materials procurement needs of our clients.

HH Global Group Limited (which we refer to as “Parent”) is a company registered in England and Wales. Parent is the top operating entity of the HH Global Group (which we refer to as “HH Global”). Founded in 1991, HH Global is a global outsourced marketing execution provider. Applying proven processes, industry-leading technology, and the deep expertise of over 1,300+ employees, HH Global develops innovative solutions that drive down the cost of its clients’ physical marketing procurement and content development, while improving quality, sustainability, and speed to market. Parent’s principal executive offices are located at Grove House, Guildford Road, Fetcham, Leatherhead, United Kingdom, KT22 9DF and its telephone number is +44 208 770 7300.

HH Global Finance Limited (which we refer to as “HH Finance”) is a company registered in England and Wales. HH Finance is the direct holding company of Parent and engages in business exclusively through Parent and Parent’s subsidiaries. HH Finance is the principal borrower under HH Global Group’s debt facilities. HH Finance’s principal executive offices are located at Grove House, Guildford Road, Fetcham, Leatherhead, United Kingdom, KT22 9DF and its telephone number is +44 208 770 7300.

Project Idaho Merger Sub, Inc., a Delaware corporation (which we refer to as “Sub”), is an indirect, wholly-owned subsidiary of Parent, formed on July 1, 2020, solely for the purpose of engaging in the transactions contemplated by the merger agreement. Sub has not carried on any activities on or prior to the date of this proxy statement, except for activities incidental to its formation and activities undertaken in connection with Parent’s proposed acquisition of the Company. Sub’s principal executive offices are located at 520 Lake Cook Road, Suite 680, Deerfield, Illinois, 60015 and its telephone number is (847) 984-2448.

The Merger (see page [])

On July 15, 2020, the Company, Parent, HH Finance and Sub entered into an Agreement and Plan of Merger (as may be amended from time to time, which we refer to as the “merger agreement”).

Under the terms of the merger agreement, subject to the satisfaction or waiver of specified conditions, Sub will merge with and into the Company (which we refer to as the “merger”), whereupon the separate existence of



 

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Sub will cease and the Company will continue as the surviving corporation (which we refer to as the “surviving corporation”) and a wholly-owned subsidiary of Parent.

At the effective time of the merger (which we refer to as the “effective time”) each share of common stock, par value $0.0001 per share, of the Company (which we refer to as “Company common stock”) issued and outstanding immediately prior to the effective time (other than (i) shares of Company common stock that are held in the treasury of the Company or owned of record by the Company or any wholly-owned subsidiary of the Company (other than those held on behalf of any third party), (ii) shares owned of record by Parent, Sub or any of their respective wholly-owned subsidiaries (other than those held on behalf of any third party), and (iii) shares of Company common stock held by stockholders who have not voted in favor of or consented to the adoption of the merger agreement and who have properly demanded appraisal of such shares and complied in all respects with all the provisions of the Delaware General Corporation Law (which we refer to as the “DGCL”) concerning the right of holders of shares to request appraisal of their shares) will be cancelled and cease to exist and will be automatically converted into the right to receive $3.00 per share in cash, without interest thereon, subject to any applicable withholding taxes. The consideration to be paid by Parent in the merger as described in this paragraph is referred to herein as the “merger consideration.”

Following the completion of the merger, the Company will cease to be a publicly traded company and will become a wholly-owned subsidiary of Parent.

The Special Meeting (see page [])

The special meeting will be held virtually via the Internet on [●], 2020 beginning at [●] Eastern Time. In light of the ongoing developments related to the COVID-19 (coronavirus) pandemic, the Company has elected to hold the special meeting solely via the Internet and not in a physical location given the public health impact of COVID-19 (coronavirus) and the Company’s desire to promote the health and safety of the Company stockholders, and the Company’s directors, officers, employees and other constituents. At the special meeting, you will be asked to, among other things, vote for the proposal to adopt the merger agreement. See the section titled “The Special Meeting,” beginning on page  [●], for additional information on the special meeting, including how to vote your shares of Company common stock.

Stockholders Entitled to Vote; Vote Required for Approval (see page [])

You may vote at the special meeting if you were a holder of record of shares of Company common stock as of the close of business on [●], 2020, which is the record date for the special meeting (which we refer to as the “record date”). You will be entitled to one vote for each share of Company common stock that you owned on the record date. As of the record date, there were [●] shares of Company common stock issued and outstanding and entitled to vote at the special meeting. The adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Company common stock entitled to vote on such matter.

How to Vote (see page [])

Stockholders of record have a choice of voting by proxy by completing a proxy card and mailing it in the prepaid envelope provided, by calling a toll-free telephone number or through the Internet. Please refer to your proxy card to see which options are available to you. The telephone and Internet voting facilities for stockholders of record will close at 11:59 p.m. Eastern Time on the day before the special meeting.

If you wish to vote by proxy and your shares are held by a bank, broker, trust or other nominee, you must follow the voting instructions provided to you by your bank, broker, trust or other nominee. Unless you give your bank, broker, trust or other nominee instructions on how to vote your shares of Company common stock, your bank, broker, trust or other nominee will not be able to vote your shares on any of the proposals.



 

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If you wish to vote at the special meeting via the special meeting website and your shares are held in the name of a bank, broker, trust or other nominee, you will need the 16-digit control number included on your proxy card or voting instruction form that is accompanied by your proxy materials.

YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATE(S) WITH YOUR PROXY CARD. A letter of transmittal with instructions for the surrender of certificates representing shares of Company common stock will be mailed to stockholders if the merger is completed.

For additional information regarding the procedure for delivering your proxy, see the sections titled “The Special Meeting—How to Vote,” beginning on page [●], and “The Special Meeting—Solicitation of Proxies,” on page [●]. If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call our proxy solicitor, Morrow Sodali, toll-free at (800) 662-5200 or (203) 658-9400 (call collect).

Recommendation of the Board; Reasons for Recommending the Adoption of the Merger Agreement (see page [])

After careful consideration, the Board unanimously declared the merger agreement and the transactions contemplated thereby, including the merger, to be advisable and in the best interests of the Company and its stockholders. Accordingly, the Board unanimously recommends that at the special meeting you vote “FOR” the proposal to adopt the merger agreement, “FOR” the approval, by a non-binding advisory vote, of compensation that may be paid or become payable to the Company’s named executive officers and that is based on, or otherwise relates to, the merger and “FOR” the proposal to adjourn the special meeting from time to time if necessary or appropriate, including to solicit additional proxies.

For a discussion of the material factors considered by the Board in reaching its conclusions, see the section titled “The Merger—Reasons for Recommending the Adoption of the Merger Agreement,” beginning on page [●]. In addition, in considering the recommendation of the Board with respect to the merger agreement, you should be aware that members of the Board and our executive officers have certain interests in the merger that may be in addition to, or different from, the interests of Company stockholders generally. See the section titled “The Merger—Interests of Directors and Executive Officers in the Merger,” beginning on page [●].

Opinion of the Company’s Financial Advisor (see page [])

The Company has engaged Citigroup Global Markets Inc. (which we refer to as “Citi”) as its financial advisor in connection with the proposed merger. In connection with this engagement, Citi delivered a written opinion, dated July 15, 2020, to the Board as to the fairness, from a financial point of view and as of the date of the opinion, of the merger consideration to be received by holders of Company common stock (other than Parent, HH Finance, Sub, Blackstone Tactical Opportunities Fund III L.P. (“BTO Fund III”) and their respective affiliates) pursuant to the merger agreement. The full text of Citi’s written opinion, dated July 15, 2020, which describes the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, is attached as Annex B to this proxy statement and is incorporated into this proxy statement by reference. The description of Citi’s opinion set forth herein is qualified in its entirety by reference to the full text of Citi’s opinion. Citi’s opinion was provided for the information of the Board (in its capacity as such) in connection with its evaluation of the merger consideration from a financial point of view and did not address any other terms, aspects or implications of the merger. Citi expressed no view as to, and its opinion did not address, the underlying business decision of the Company to effect or enter into the merger, the relative merits of the merger as compared to any alternative business strategies that might exist for the Company or the effect of any other transaction which the Company might engage in or consider. Citi’s opinion is not intended to be and does not constitute a recommendation as to how the Board or any securityholder should vote or act on any matters relating to the proposed merger or otherwise.



 

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Market Price and Dividend Data (see page [])

Company common stock is traded on the NASDAQ Global Market (which we refer to as the “NASDAQ”) under the symbol “INWK.” On July 15, 2020, the last full trading day prior to the public announcement of the entry into the merger agreement, the closing price for Company common stock was $1.32 per share. On [●], the last full trading day prior to the date of this proxy statement, the closing price for Company common stock was $[●] per share.

Certain Effects of the Merger (see page [])

Upon completion of the merger, Sub will be merged with and into the Company upon the terms set forth in the merger agreement, whereby the separate corporate existence of Sub will thereupon cease and the Company will continue as the surviving corporation of the merger. The Company will continue to exist following the merger as a wholly-owned subsidiary of Parent.

Following the completion of the merger, shares of Company common stock will no longer be traded on the NASDAQ or any other public market. In addition, the registration of shares of Company common stock under the Securities Exchange Act of 1934 (as amended, the “Exchange Act”) will be terminated.

Consequences if the Merger is Not Completed (see page [])

If the proposal to adopt the merger agreement does not receive the required approval from Company stockholders, or if the merger is not completed for any other reason, you will not receive any consideration from Parent or Sub for your shares of Company common stock. Instead, the Company will remain a public company and Company common stock will continue to be listed and traded on the NASDAQ.

In addition, if the merger agreement is terminated under certain specified circumstances, the Company is required to pay Parent a termination fee of approximately $6.2 million (which we refer to as the “Company termination fee”). Upon termination of the merger agreement under certain other specified circumstances, Parent is obligated to pay the Company a termination fee of $15.0 million (which we refer to as the “Parent termination fee”); provided, that the Company may seek damages from Parent in excess of the Parent termination fee in the event Parent, HH Finance or Sub commits a willful and material breach of the merger agreement, not to exceed $30.0 million (taking into account any payment of the Parent termination fee) and Parent may seek damages from the Company in excess of the Company termination fee in the event the Company commits a willful and material breach of the merger agreement. See the section titled “The Agreement and Plan of Merger—Expenses; Termination Fees,” beginning on page [●].

Treatment of Outstanding Equity Awards, Equity Plans and Warrant (see page [])

The merger agreement provides that, as of immediately prior to the effective time:

 

   

each outstanding Company stock option will be fully vested and cancelled, and each holder of a cancelled company stock option will receive a payment in cash, without interest, equal to the product of (i) the total number of shares subject to the cancelled Company stock option and (ii) the excess, if any, of (A) the merger consideration over (B) the exercise price per share subject to the cancelled Company stock option, less any applicable withholding taxes;

 

   

any options with an exercise price equal to or greater than the merger consideration shall be cancelled in exchange for no consideration;

 

   

each outstanding Company stock appreciation right will be fully vested and cancelled, and each holder of a cancelled Company stock appreciation right will receive a payment in cash, without interest, equal



 

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to the product of (i) the total number of shares subject to the cancelled Company stock appreciation right and (ii) the excess, if any, of (A) the merger consideration over (B) the grant price per share subject to the cancelled Company stock appreciation right, less any applicable withholding taxes;

 

   

each outstanding and unvested Company restricted stock unit award (i) will be fully vested, (ii) any performance conditions applicable to such Company restricted stock unit award (whether or not the performance period has been completed) will be deemed to be achieved at the greater of (A) actual performance achieved as of the day immediately prior to the closing date and (B) the target level of performance, and (iii) will be cancelled, and each holder of a cancelled Company restricted stock unit award will receive a payment in cash, without interest, equal to the product of (1) the merger consideration multiplied by (2) the number of shares subject to the cancelled Company restricted stock unit award or, in the case of a performance-based Company restricted stock unit award, the number of shares earned or deemed earned with respect to such Company restricted stock unit award as provided therein, less any applicable withholding taxes; and

 

   

the restrictions on any shares of Company restricted stock shall lapse and such shares shall vest and each such share shall automatically be converted into the right to receive the merger consideration.

The merger agreement provides that, as of immediately prior to the effective time, the outstanding and unexercised Company warrant (which we refer to as the “warrant”) issued to Macquarie US Trading LLC (which we refer to as the “Warrant Holder”) pursuant to that certain Warrant to Purchase Stock, dated as of July 16, 2019, by and between the Company and the Warrant Holder, unless the Company receives a notice in writing from the Warrant Holder that it elects to have the unexercised portion of the warrant expire, will be deemed to be automatically exercised and, in exchange therefor, the Warrant Holder will receive a payment in cash equal to the product of (a) the merger consideration multiplied by (b) the number of total shares of Company common stock for which the warrant is then exercisable (on a net cash settlement basis), less any applicable withholding taxes.

The merger agreement provides that, as of the closing, the Company’s 2006 Stock Incentive Plan (as amended and restated on September 6, 2018) and the Company’s 2020 Omnibus Incentive Plan shall terminate.

Interests of Directors and Executive Officers in the Merger (see page [])

Members of the Board and the Company’s executive officers have various interests in the merger described in this section that may be in addition to, or different from, the interests of the Company stockholders generally. You should keep this in mind when considering the recommendation of the Board that you vote “FOR” the proposal to adopt the merger agreement. The members of the Board were aware of these interests and considered them at the time they approved the merger agreement and in making their recommendation that the Company stockholders vote “FOR” the proposal to adopt the merger agreement. A description of these interests is included in the section titled “The Merger—Interests of Directors and Executive Officers in the Merger,” beginning on page [●].

Conditions to the Merger (see page [])

The respective obligations of the Company, Parent, HH Finance and Sub to complete the merger are subject to the satisfaction (or mutual waiver by each of Parent and the Company where permitted under applicable law) of specified closing conditions, including:

 

   

receipt of the affirmative vote of the holders of a majority of the outstanding shares of Company common stock entitled to vote thereon to adopt the merger agreement (which we refer to as the “Company stockholder approval”);

 

   

any applicable waiting period (or any extensions thereof) applicable to the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (as amended, the “HSR Act”) having expired or



 

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been terminated and any applicable approval having been obtained or any applicable waiting period having expired or been terminated under the competition, antitrust, merger control or investment laws of certain other jurisdictions as described in the section titled “The Merger—Regulatory Conditions to Completion of the Merger”; and

 

   

no court or similar governmental entity of competent jurisdiction having issued or entered any judgment that is in effect and enjoins or prohibits the consummation of the merger; provided, however, that this condition shall not be available to any party whose failure to fulfill its obligations related to the consummation of the merger results in the failure of this condition to be satisfied.

The obligations of Parent and Sub to effect the merger are also subject to the satisfaction or waiver by Parent at or prior to the effective time of the following additional conditions:

 

   

subject to materiality qualifiers in certain instances, the accuracy of the representations and warranties of the Company contained in the merger agreement;

 

   

the Company having performed or complied in all material respects with all obligations and covenants as required by the merger agreement to be performed or complied with by the Company at or prior to the effective time;

 

   

no proceeding under any law relating to bankruptcy, insolvency or reorganization will have been instituted and not dismissed against the Company;

 

   

the absence of a Company material adverse effect, as described in the section titled “The Agreement and Plan of Merger—Representations and Warranties—Representations and Warranties of the Company,” beginning on page [●]; and

 

   

Parent having received a certificate signed on behalf of the Company by an executive officer of the Company as to the satisfaction of the conditions described above.

The obligations of the Company to effect the merger are also subject to the satisfaction or waiver by the Company at or prior to the effective time of the following additional conditions:

 

   

subject to materiality qualifiers in certain instances, the accuracy of the representations and warranties of Parent, HH Finance and Sub contained in the merger agreement;

 

   

each of Parent, HH Finance and Sub having performed or complied in all material respects with all obligations and covenants as required by the merger agreement to be performed or complied with by the Parent, HH Finance or Sub at or prior to the effective time; and

 

   

the Company having received a certificate from each of Parent, HH Finance and Sub and signed by its respective chief executive officer or chief financial officer, certifying as to the satisfaction of the conditions described above.

Regulatory Approvals (see page [])

Under the merger agreement, the respective obligations of the Company, Parent, HH Finance and Sub to complete the merger are subject to, among other things, (a) any waiting period (or any extensions thereof) applicable to the merger under the HSR Act having expired or been terminated and any applicable approval having been obtained or any applicable waiting period having expired or been terminated under the competition, antitrust or merger control laws of Austria, Germany, Russia and Turkey and the foreign investment laws of Australia and New Zealand; and (b) the absence of any judgment issued or entered by a court or similar governmental entity of competent jurisdiction that is in effect and that enjoins or prohibits the consummation of the merger. For a description of the Company’s and Parent’s respective obligations under the merger agreement with respect to regulatory approvals, see the section titled “The Agreement and Plan of Merger—Efforts to Complete the Merger,” beginning on page [●].



 

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Financing of the Merger (see page [])

We anticipate that the total funds needed to complete the merger, including the funds needed to pay Company stockholders and holders of other equity-based interests the amounts due to them under the merger agreement, which would be approximately $[●] million based upon the number of shares of Company common stock (and our other equity-based interests) outstanding as of [●], 2020, will be funded through a portion of the proceeds from up to $250 million of debt financing and a portion of the proceeds from up to approximately $147.2 million of equity financing. Parent has entered into a financing commitment letter, dated as of July 15, 2020 (which we refer to as the “equity financing commitment letter”), from BTO HH Global Holdings (Cayman)—NQ L.P., Blackstone Family Tactical Opportunities Investment Partnership III (Cayman)—NQ—ESC L.P. Blackstone Tactical Opportunities Fund—FD (Cayman)—NQ L.P. (which we refer to individually as “Sponsor” and collectively as “Sponsors”), which obligates Sponsors to fund to Parent an aggregate amount up to approximately $147.2 million, subject to the terms and conditions set forth in the equity financing commitment letter, for the purpose of enabling Parent to fund a portion of the merger consideration. The Company has the right to enforce Parent’s right to cause the equity financing to be funded by the Sponsors as a third party beneficiary solely to the extent the Company is entitled to specific performance under the merger agreement to cause the equity financing to be funded (see the section titled “The Agreement and Plan of Merger — Miscellaneous — Specific Performance”). HH Finance and Sub entered into a debt commitment letter, dated as of July 15, 2020 (which we refer to as the “debt commitment letter”), with certain funds and accounts managed by subsidiaries of BlackRock, Inc., affiliates of PGIM, Inc., and investment funds and accounts managed by PGIM, Inc. and its affiliates (collectively, the “incremental debt commitment parties”) as commitment parties thereunder. Pursuant to and subject to the terms of the debt commitment letter, the incremental debt commitment parties committed to provide a $248 million incremental term loan facility to Sub under Parent’s and HH Finance’s existing credit agreement dated as of February 20, 2020 (the “HH credit agreement”) (which we refer to as the “incremental debt financing”). In addition, under the HH credit agreement, certain funds and accounts managed by subsidiaries of BlackRock, Inc. (collectively and together with the incremental debt commitment parties, the “debt commitment parties”) have committed, pursuant to and subject to the terms of the HH credit agreement, to provide a $2 million acquisition term loan facility to Sub (together with the incremental debt financing, the “debt financing”). The obligations of Parent and Sub to complete the merger under the merger agreement are not subject to any financing condition.

Restriction on Solicitation of Competing Proposals (see page [])

From and after the date of the merger agreement, the Company will, and will cause its subsidiaries and, in each case, to the extent acting at the direction of the Company, its directors, officers, investment bankers and counsel (which directors, officers, investment bankers and counsel, in each case, to the extent acting at the direction of the Company, we refer to as the “Company representatives”) to, cease any solicitations, discussions, requests or negotiations with any persons that may be ongoing with respect to any inquiry, proposal, or offer that constitutes or could reasonably be expected to lead to a competing proposal (which we refer to as an “inquiry”) and to promptly request the prompt return or destruction of all confidential information previously furnished to any such person or its representatives (other than Parent and, in each case, to the extent acting at the direction of Parent, Parent’s directors, officers, managers, investment bankers and counsel (which directors, officers, investment bankers and counsel, in each case, to the extent acting at the direction of Parent, we refer to as the “Parent representatives”) acting in such capacity as Parent’s representatives) in connection with a competing proposal made by such person. Until the earlier of the effective time or termination of the merger agreement (if any), the Company has agreed that it will not, and will cause its subsidiaries and Company representatives not to:

 

   

initiate, solicit or knowingly encourage or knowingly facilitate any inquiry or otherwise knowingly encourage or knowingly facility any effort or attempt to make a competing proposal (as described in the section titled “The Agreement and Plan of Merger—Restriction on Solicitation of Competing Proposals,” beginning on page [●]);



 

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furnish or provide any non-public information or data regarding the Company or any of its subsidiaries to any third person in connection with or in response to an inquiry or a competing proposal made by such person or any representatives of such third person;

 

   

enter into, engage in, knowingly encourage, continue or otherwise participate in any discussions or negotiations with any person or its representatives with respect to an inquiry or competing proposal made by such person;

 

   

grant any waiver, amendment, permission or release under, or modify any provision of, any standstill provision of any confidentiality or similar agreement to which the Company or any of its subsidiaries is a party (other than a limited waiver under any pre-existing confidentiality or similar agreement to the extent necessary to allow for a confidential competing proposal to be made to the Company so long as the Company promptly (and in any event with in twenty-four (24) hours thereafter) notifies Parent thereof (including the identity of any such counterparty) after granting any such limited waiver);

 

   

approve, endorse, recommend or execute or enter into, any alternative acquisition agreement (as described in the section titled “The Agreement and Plan of Merger—Restriction on Solicitation of Competing Proposals,” beginning on page [●]); or

 

   

authorize any of, or commit to or agree to do any of the foregoing.

Notwithstanding the non-solicitation provisions described above, under certain limited circumstances and prior to the receipt of the Company stockholder approval, if the Company receives a bona fide written competing proposal that did not result from a breach of the non-solicitation provisions described above (other than any breach that is immaterial and unintentional), and the Board determines in good faith, after consultation with the Company’s financial advisor and outside legal counsel, that such proposal is or could be reasonably be expected to lead to a superior proposal (as described in the section titled “The Agreement and Plan of Merger—Restriction on Solicitation of Competing Proposals,” beginning on page [●]), then the Company may (i) furnish information to the person making such competing proposal and its representatives pursuant to the terms of an acceptable confidentiality agreement (and provided that the Company has previously provided, or substantially concurrently provides (in any event no later than twenty-four (24) hours thereafter), such information to Parent), and (ii) participate in discussions or negotiations with, and only with, the person making such competing proposal and its representatives regarding such competing proposal pursuant to the terms of an acceptable confidentiality agreement (as described in the section titled “The Agreement and Plan of Merger—Restriction on Solicitation of Competing Proposals,” beginning on page [●]).

The Board is required to recommend that the Company stockholders adopt the merger agreement and not change its recommendation or recommend other transactions (which such recommendation, we refer to as the “Company recommendation”) (as described in the section titled “The Agreement and Plan of Merger—Obligations of the Board with Respect to its Recommendation,” beginning on page [●]). However, at any time prior to the receipt of the Company stockholder approval, the Board or any committee thereof may change its recommendation in favor of the merger if and only if a bona fide competing proposal that did not result from a breach of the non-solicitation provisions described above (other than any breach that is immaterial and unintentional) is made to the Company by a third person that is not withdrawn and the Board or any committee thereof determines in good faith, after consultation with the Company’s financial advisor and outside legal counsel, that such competing proposal constitutes a superior proposal and after consultation with the Company’s outside legal counsel, that failure to take such action would be inconsistent with the fiduciary duties of the Board under applicable law. The Company is required to notify Parent of such determination within 24 hours and Parent has five business days to match such superior proposal. If Parent does not match, prior to the stockholders meeting, so long as the Company complies with the relevant provisions of the merger agreement and the Board or a duly authorized committee thereof has determined in good faith, after (i) consultation with the Company’s financial advisor and outside legal counsel, that such competing proposal would nevertheless continue to



 

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constitute a superior proposal if such changes offered in writing by Parent were to be given effect and (ii) consultation with the Company’s outside legal counsel, that failure to take such action would be inconsistent with the fiduciary duties of the Board under applicable law, the Company can terminate the merger agreement to accept the superior proposal, provided that it enters into an alternative acquisition agreement simultaneously with such termination and pays Parent the Company termination fee simultaneously with such termination (as described in the section titled “The Agreement and Plan of Merger—Obligations of the Board with Respect to its Recommendation,” beginning on page [●]). Note that if the party making the competing proposal makes any amendment to any of the financial terms or any other material term to its proposal, prior to the expiration of the match period, Parent has another three business days to match the revised proposal.

The Board may also change its recommendation in response to an event, occurrence, change, effect, condition, development or state of facts or circumstances (other than related to a competing proposal or superior proposal) which materially improves the business, assets, operations or prospects of the Company and its subsidiaries, arising after the date of the merger agreement, that was neither known to, nor reasonably foreseeable by, the Board prior to the date of the merger agreement but becomes known to the Board after the date of the merger agreement (which we refer to as an “intervening event”) if it (i) determines in good faith (after consultation with the Company’s outside legal counsel) that a failure to do so would be inconsistent with its fiduciary duties under applicable law, (ii) complies with the relevant provisions of the merger agreement (including, among other things, providing Parent notice of intervening event and five business days to revise the terms and conditions of the merger agreement) and (iii), at or following the end of such five business day period, after taking into account any changes to the terms and conditions of the merger agreement proposed by Parent, the Board continues to determine in good faith (after consultation with the Company’s outside legal counsel) that the failure to do so in response to such intervening event would continue to be inconsistent with its fiduciary duties under applicable law (as described in the section titled “The Agreement and Plan of Merger—Obligations of the Board with Respect to its Recommendation,” beginning on page [●]).

Termination of the Merger Agreement (see page [])

The merger agreement may be terminated at any time prior to the effective time, whether before or after receipt of the Company stockholder approval and whether before or after adoption of the merger agreement by Parent as sole stockholder of Sub, by either the Company or Parent:

 

   

by mutual written consent of Parent and the Company;

 

   

if the effective time does not occur on or before April 15, 2021 (which we refer to as the “outside date”), provided, however, that this right to terminate the merger agreement shall not be available to any party whose material breach, inaccuracy or failure to perform or comply with any of its representations, warranties, covenants or obligations under the merger agreement resulted in, or materially contributed to, the failure to consummate the merger by the outside date;

 

   

if the special meeting of the Company stockholders, held for the purpose of voting on, among other things, the approval and adoption of the merger agreement (including any adjournments or postponements thereof) (which we refer to as the “stockholder meeting”) was held and concluded without obtaining the Company stockholder approval; or

 

   

if any court or similar governmental entity of competent jurisdiction issues or enters any judgment that permanently enjoins or prohibits the merger, and such judgment becomes final and non-appealable, provided that this right to terminate the merger agreement will not be available to any party whose breach of its obligations under the merger agreement, including the covenants related to the consummation of the merger, resulted in or was the principal cause of such judgment.



 

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The Company may also terminate the merger agreement:

 

   

if, at any time prior to the receipt of the Company stockholder approval, the Board or any committee thereof effects a change of Company recommendation (as described in “The Agreement and Plan of Merger—Obligations of the Board with Respect to its Recommendation,” beginning on page [●]) in accordance with the terms of the merger agreement (including, among other things, the good faith determination by the Board or any committee thereof, after consultation with the Company’s outside legal counsel, that failure to take such action would be inconsistent with the fiduciary duties of the Board under applicable law (including following the notice and match right period)) in order to accept a superior proposal and enter into an alternative acquisition agreement with respect thereto; but only if the Company pays Parent the Company termination fee prior to or simultaneously with such termination and enters into the alternative acquisition agreement with respect to such superior proposal substantially concurrently with such termination;

 

   

if (i) there is an inaccuracy in Parent’s, HH Finance’s or Sub’s representations contained in the merger agreement or Parent, HH Finance or Sub fails to perform its covenants, in either case that Parent’s, HH Finance’s and Sub’s conditions would not be satisfied; (ii) the Company has delivered to Parent written notice of such inaccuracy or failure to perform; and (iii) either such inaccuracy or failure to perform is not capable of cure prior to the outside date or at least thirty (30) days shall have elapsed since the date of delivery of such written notice to Parent and such inaccuracy or failure to perform shall not have been cured; provided, however, that the Company will not be permitted to terminate the merger agreement if the inaccuracy of the representations of the Company or the Company’s failure to perform its covenants is such that a condition of the Company would not be satisfied; or

 

   

if (i) all of the applicable conditions to the obligation of Parent to effect the merger described above (other than those conditions that by their nature are to be satisfied at the closing of the merger, provided, that such conditions would have been satisfied if the closing were to occur) have been satisfied or waived, (ii) the Company has irrevocably notified the Parent in writing that the Company is, and during such time stands, ready, willing and able to consummate the closing of the merger and (iii) Parent and Sub have failed to consummate the closing on the date by which the closing of the merger is required to have occurred pursuant to the terms of the merger agreement.

Parent may also terminate the merger agreement:

 

   

if, at any time prior to the Company’s receipt of the Company stockholder approval, the Board or any committee thereof effects a change of Company recommendation; or

 

   

if (i) the Company breaches or fails to perform any of its representations, warranties, covenants or agreements contained in the merger agreement, in any case such that an applicable condition to the merger described above would not be satisfied, (ii) Parent has delivered to the Company written notice of such inaccuracy or failure to perform and (iii) either such breach or failure to perform is not capable of cure prior to the outside date or at least 30 days elapse after the date of delivery of written notice to the Company without such breach or failure to perform having been cured; provided, however, that such right to terminate the merger agreement is not available if Parent or Sub breach or fail to perform any of their representations, warranties, covenants or agreements contained in the merger agreement, in any case such that an applicable condition to the merger described above would not be satisfied.

Termination Fees (see page [])

Upon termination of the merger agreement under specified circumstances, the Company will be required to pay Parent a termination fee of approximately $6.2 million. Upon termination of the merger agreement under certain specified circumstances, Parent will be obligated to pay the Company a termination fee of $15.0 million. For more information, see the section titled “The Agreement and Plan of Merger—Expenses; Termination Fees,” beginning on page [●].



 

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Appraisal Rights (see page [])

Under Delaware law, holders of shares of Company common stock are entitled to appraisal rights in connection with the merger, provided that such holders meet all of the conditions set forth in Section 262 of the DGCL. A holder of Company common stock who properly seeks appraisal and complies with the applicable requirements under Delaware law, and does not thereafter lose his, her or its right to, or properly withdraw his, her or its demand for, appraisal rights (which we refer to as “dissenting stockholders”) will forego the merger consideration and instead receive a cash payment equal to the fair value of his, her or its shares of Company common stock in connection with the merger. Fair value will be determined by the Court of Chancery of the State of Delaware (which we refer to as the “Court of Chancery”) following an appraisal proceeding. Dissenting stockholders will not know the appraised fair value at the time such holders must elect whether to seek appraisal. The ultimate amount dissenting stockholders receive in an appraisal proceeding may be more or less than, or the same as, the amount such holders would have received under the merger agreement. A detailed description of the appraisal rights available to holders of Company common stock and procedures required to exercise statutory appraisal rights is included in the section titled “Appraisal Rights,” beginning on page [●].

To seek appraisal, a Company stockholder of record must deliver a written demand for appraisal to the Company before the vote on the merger agreement at the special meeting, not vote in favor of the proposal to adopt the merger agreement, continuously hold the shares of Company common stock through the effective time and otherwise comply with the procedures set forth in Section 262 of the DGCL. Failure to follow exactly the procedures specified under Delaware law may result in the loss of appraisal rights. Pursuant to Section 262 of the DGCL, assuming that immediately prior to the merger shares of Company common stock continue to be listed on the NASDAQ, the Court of Chancery will dismiss the appraisal proceedings as to all holders of shares who are otherwise entitled to appraisal rights unless (i) the total number of shares entitled to appraisal rights exceeds 1% of the outstanding shares of Company common stock eligible for appraisal, or (ii) the value of the merger consideration provided in the merger for such total number of shares exceeds $1,000,000.

Material U.S. Federal Income Tax Consequences of the Merger (see page [])

The receipt of cash in exchange for shares of Company common stock pursuant to the merger generally will be a taxable transaction for U.S. federal income tax purposes. A U.S. holder (as described in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger,” beginning on page [●]) who receives cash in exchange for shares of Company common stock in the merger will recognize gain or loss equal to the difference, if any, between the cash received and the U.S. holder’s adjusted tax basis in the shares converted into the right to receive cash in the merger. Gain or loss will be determined separately for each block of shares of Company common stock (that is, shares acquired for the same cost in a single transaction). You should refer to the discussion in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger,” beginning on page [●], and consult your tax advisor with respect to the U.S. federal, state, local and foreign tax consequences of the merger.

Where You Can Find More Information (see page [])

You can find more information about the Company in the periodic reports and other information we file with the U.S. Securities and Exchange Commission (which we refer to as the “SEC”). The information is available at the website maintained by the SEC at www.sec.gov.



 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers are intended to briefly address some commonly asked questions regarding the special meeting of stockholders and the merger. These questions and answers do not address all questions that may be important to you as a Company stockholder. Please refer to the more detailed information contained elsewhere in this proxy statement, the Annexes to this proxy statement and the documents referred to in this proxy statement.

 

Q:

Why am I receiving this proxy statement?

 

A:

On July 15, 2020, the Company, Parent, HH Finance and Sub entered into the merger agreement. You are receiving this proxy statement in connection with the solicitation of proxies by the Company in favor of the proposal to adopt the merger agreement and the other proposals described in this proxy statement.

 

Q:

As a stockholder, what will I receive in the merger?

 

A:

At the effective time, except as described below, each share of Company common stock issued and outstanding immediately prior to the effective time will be cancelled and automatically converted into the right to receive $3.00 in cash, without interest thereon, other than (i) shares that are held in the treasury of the Company or owned of record by any wholly-owned subsidiary of the Company (other than those held on behalf of any third party), (ii) shares owned of record by Parent, Sub or any of their respective wholly-owned subsidiaries (other than those held on behalf of any third party), and (iii) shares held by stockholders who have not voted in favor of or consented to the adoption of the merger agreement and who have properly demanded appraisal of such shares and complied in all respects with all the provisions of the DGCL concerning the right of holders of shares to require appraisal.

The receipt of cash in exchange for shares of Company common stock pursuant to the merger generally will be a taxable transaction for U.S. federal income tax purposes. Please see the discussion in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger,” beginning on page [●], for a more detailed description of the U.S. federal income tax consequences of the merger. You should consult your own tax advisor for a full understanding of how the merger will affect your U.S. federal, state, local and foreign taxes.

 

Q:

What will happen to outstanding Company equity awards and the Company’s equity plans in the merger?

 

A:

Your outstanding Company equity awards will be automatically exchanged for the applicable merger consideration, provided that if the exercise price (in the case of a Company stock option) or grant price (in the case of a Company stock appreciation right) of your outstanding Company equity award exceeds the merger consideration, then your outstanding Company equity award will be cancelled without consideration. For information regarding the treatment of outstanding Company equity awards and the Company’s equity plans, see the section titled “The Agreement and Plan of Merger—Treatment of Outstanding Equity Awards and Equity Plans,” beginning on page [●].

 

Q:

Where and when will the special meeting of stockholders be held?

 

A:

The special meeting will be held virtually via the Internet on [●], 2020 beginning at [●] Eastern Time. As part of our precautions regarding the COVID-19 (coronavirus) pandemic, we are sensitive to the public health and travel concerns that our stockholders may have, as well as any quarantines or other protocols that governments may impose. As a result, the special meeting will be held in a virtual meeting format only, via live webcast. There will not be a physical meeting location. You will be able to attend the special meeting online and vote your shares electronically by visiting www.virtualshareholdermeeting.com/INWK2020

 

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  (which we refer to as the “special meeting website”). If you plan to attend the special meeting, you will need the 16-digit control number included on your proxy card or voting instruction form that is accompanied by your proxy materials.

To ensure that you will be represented, we encourage you to promptly vote by submitting the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the Internet or by telephone. In certain circumstances, the special meeting could be adjourned to another time or place. All references in our proxy materials to special meeting include any adjournment or postponement of the special meeting.

 

Q:

How do I attend the Special Meeting?

 

A:

You will be able to attend the special meeting online and vote your shares electronically by visiting the special meeting website. If you plan to attend the special meeting, you will need the 16-digit control number included on your proxy card or voting instruction form that is accompanied by your proxy materials. During the special meeting, the Company stockholders will be able to vote their shares. Shares previously voted at the special meeting do not need to be voted again unless you intend to change or revoke your prior vote.

If you are a beneficial owner of shares held in street name and wish to vote via the special meeting website, you should contact your bank, broker, trust or other nominee to obtain your specific control number and further instructions. If you are not a holder of record as of the close of business on the record date, you will be permitted to vote at the special meeting via the special meeting website only if you have the 16-digit control number included on your proxy card or voting instruction form that is accompanied by your proxy materials.

 

Q:

Who is entitled to vote at the special meeting?

 

A:

Only holders of record of Company common stock as of the close of business on [●], 2020, the record date for the special meeting, are entitled to vote at the special meeting. You will be entitled to one vote on each of the proposals presented in this proxy statement for each share of Company common stock that you held on the record date.

 

Q:

What proposals will be considered at the special meeting?

At the special meeting, you will be asked to consider and vote on:

 

   

a proposal to adopt the merger agreement;

 

   

a proposal to approve, by a non-binding advisory vote, the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the merger, as discussed in the section titled “The Merger—Interests of Directors and Executive Officers in the Merger,” beginning on page [●]; and

 

   

a proposal to adjourn the special meeting from time to time to a later date or time if necessary or appropriate, including to solicit additional proxies in favor of the proposal to adopt the merger agreement if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

 

Q:

What vote is required to approve each of the proposals?

 

A:

The proposal to adopt the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Company common stock entitled to vote on such matter. Abstentions and failures to vote will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

The approval of the non-binding compensation advisory proposal requires the affirmative vote of a majority of the shares having voting power present via the special meeting website or represented by proxy at the

 

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special meeting. Although the Board intends to consider the vote resulting from this proposal, the vote is advisory only and, therefore, is not binding on the Company or Parent or any of their respective subsidiaries, and, if the merger agreement is adopted by Company stockholders and the merger is completed, the compensation that is based on or otherwise relates to the merger will be payable to our named executive officers even if this proposal is not approved. The abstention from voting will have the same effect as a vote “AGAINST” the proposal.

The approval of the proposal to adjourn the special meeting from time to time if necessary or appropriate requires the affirmative vote of a majority of the shares having voting power present via the special meeting website or represented by proxy at the special meeting. In addition, even if a quorum is not present at the special meeting, either the chairman of the Board or the affirmative vote of a majority of the shares having voting power present or represented by proxy at the special meeting may adjourn the meeting to another place, date or time. In each case, the abstention from voting will have the same effect as a vote “AGAINST” the proposal.

 

Q:

How does the Board recommend that I vote on the proposals?

 

A:

Upon careful consideration, the Board has unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are in the best interests of the Company and its stockholders, and unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement, “FOR” the non-binding advisory merger-related compensation proposal and “FOR” the proposal to adjourn the special meeting from time to time if necessary or appropriate.

For a discussion of the factors the Board considered in determining to recommend the adoption of the merger agreement, please see the section titled “The Merger—Reasons for Recommending the Adoption of the Merger Agreement,” beginning on page [●]. In addition, in considering the recommendation of the Board with respect to the merger agreement, you should be aware that members of the Board and our executive officers have various interests in the merger that may be in addition to, or different from, the interests of Company stockholders generally. See the section titled “The Merger—Interests of Directors and Executive Officers in the Merger,” beginning on page [●].

 

Q:

Are there any requirements if I plan on attending the special meeting?

 

A:

If you wish to attend the special meeting, you will need the 16-digit control number included on your proxy card or voting instruction form that is accompanied by your proxy materials. Please note that if your shares of Company common stock are held in the name of a bank, broker, trust or other nominee, you are considered the “beneficial holder” of such shares held for you in what we refer to as “street name.” If you hold your shares in “street name,” you should contact your bank, broker, trust or other nominee to obtain your specific control number and further instructions. To ensure that you will be represented, even if you plan to attend the special meeting via the special meeting website, we encourage you to promptly vote by submitting the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the Internet or by telephone. If you attend the special meeting and vote by ballot via the special meeting website, your vote will revoke any proxy that you have previously submitted. Please contact your bank, broker, trust or other nominee for instructions regarding obtaining your specific control number and further instructions.

 

Q:

How many shares need to be represented at the special meeting?

 

A:

The presence at the special meeting, via the special meeting website or by proxy, of the holders of a majority of the shares of Company common stock issued and outstanding and entitled to vote at the special meeting constitutes a quorum for the purpose of considering the proposals. As of the close of business on the record date, there were [●] shares of Company common stock outstanding. If you are a Company stockholder of record (i.e., your shares of Company common stock are registered in your name with the

 

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  Company’s transfer agent) as of the close of business on the record date and you vote by mail, by telephone, through the Internet or via the special meeting website, you will be considered part of the quorum. If you are a “street name” holder of shares of Company common stock (i.e., you hold your shares in the name of a bank, broker, trust or other nominee and these proxy materials are being forwarded to you by that entity) and you provide your bank, broker, trust or other nominee with voting instructions, then your shares will be counted in determining the presence of a quorum. If you are a “street name” holder of shares and you do not provide your bank, broker, trust or other nominee with voting instructions, then your shares will not be counted as present in determining the presence of a quorum.

All shares of Company common stock held by stockholders that are present via the special meeting website, or represented by proxy, and entitled to vote at the special meeting, regardless of how such shares are voted or whether such stockholders have indicated on their proxy that they are abstaining from voting, will be counted in determining the presence of a quorum. In the absence of a quorum, the special meeting may be adjourned.

 

Q:

Why am I being asked to consider and cast a non-binding advisory vote to approve the compensation that may be paid or become payable to the Company’s named executive officers and that is based on, or otherwise relates to, the merger?

 

A:

In 2010, the SEC adopted rules that require companies to seek a non-binding advisory vote to approve certain compensation that may be paid or become payable to their named executive officers that is based on or otherwise relates to corporate transactions, such as the merger. In accordance with the rules promulgated under Section 14A of the Exchange Act, the Company is providing its stockholders with the opportunity to cast a non-binding advisory vote on compensation that may be paid or become payable to the Company’s named executive officers in connection with the merger. For additional information, see the section titled “Proposal 2: Non-Binding Advisory Merger-Related Compensation Proposal,” on page [●].

 

Q:

What will happen if Company stockholders do not approve the non-binding advisory merger-related compensation proposal?

 

A:

The vote to approve the non-binding advisory merger-related compensation proposal is a vote separate and apart from the vote to adopt the merger agreement. Approval of the non-binding advisory merger-related compensation proposal is not a condition to completion of the merger, and it is advisory in nature only, meaning that it will not be binding on the Company or Parent or any of their respective subsidiaries. Accordingly, if the merger agreement is adopted by the Company stockholders and the merger is completed, the compensation subject to the non-binding merger-related compensation proposal will be paid to our named executive officers even if the proposal is not approved.

 

Q:

What do I need to do now?

 

A:

After carefully reading and considering the information contained in this proxy statement and the Annexes attached to this proxy statement, please vote your shares of Company common stock in one of the ways described below as soon as possible. You will be entitled to one vote for each share of Company common stock that you owned on the record date.

 

Q:

How do I vote if I am a stockholder of record?

 

A:

You may vote by:

 

   

submitting your proxy by completing, signing and dating each proxy card you receive and returning it by mail in the enclosed prepaid envelope;

 

   

submitting your proxy by using the telephone number printed on each proxy card you receive;

 

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submitting your proxy through the Internet voting instructions printed on each proxy card you receive; or

 

   

via the special meeting website.

If you are submitting your proxy by telephone or through the Internet, your voting instructions must be received by 11:59 p.m. Eastern Time on the day before the special meeting.

Submitting your proxy by mail, by telephone or through the Internet will not prevent you from voting via the special meeting website at the special meeting. You are encouraged to submit a proxy by mail, by telephone or through the Internet even if you plan to attend the special meeting via the special meeting website to ensure that your shares of Company common stock are represented at the special meeting. If you vote at the special meeting via the special meeting website, such vote will automatically revoke any proxy you previously submitted.

If you return your signed and dated proxy card, but do not mark the boxes showing how you wish to vote, your shares of Company common stock will be voted “FOR” the proposal to adopt the merger agreement, “FOR” the approval of the non-binding compensation advisory proposal and “FOR” the approval of the proposal to adjourn the special meeting from time to time if necessary or appropriate.

 

Q:

What if my shares of Company common stock are held for me in “street name” by a bank, broker, trust or other nominee; will my bank, broker, trust or other nominee vote those shares for me with respect to the proposals without my direction?

 

A:

No. If your shares of Company common stock are held in “street name,” you are not the “stockholder of record” of such shares. If this is the case, this proxy statement has been forwarded to you by your bank, broker, trust or other nominee. You, as the beneficial holder, generally have the right to direct your bank, broker, trust or other nominee as to how to vote your shares of Company common stock. Your bank, broker, trust or other nominee will NOT have the power to vote your shares of Company common stock at the special meeting unless you provide instructions to your bank, broker, trust or other nominee on how to vote. You should instruct your bank, broker, trust or other nominee on how to vote your shares with respect to the proposals, using the instructions provided by your bank, broker, trust or other nominee. You may be able to vote by telephone or through the Internet if your bank, broker, trust or other nominee offers these options.

 

Q:

What if I fail to instruct my bank, broker, trust or other nominee how to vote?

 

A:

Your bank, broker, trust or other nominee will NOT be able to vote your shares of Company common stock unless you have properly instructed your bank, broker, trust or other nominee on how to vote. Under applicable stock exchange rules, banks, brokers, trusts and other nominees have the discretion to vote your shares of Company common stock on routine matters if you fail to instruct your bank, broker, trust or other nominee on how to vote your shares of Company common stock with respect to such matters. The proposals in this proxy statement are non-routine matters, and banks, brokers, trusts and other nominees therefore cannot vote on these proposals without your instructions. It is important that you instruct your bank, broker, trust or other nominee on how to vote your shares with respect to the proposals, using the instructions provided by your bank, broker, trust or other nominee. You may be able to vote by telephone or through the Internet if your bank, broker, trust or other nominee offers these options. You are invited to attend the special meeting even if you are not a stockholder of record; however, if you are not a stockholder of record, you may not vote your shares at the special meeting via the special meeting website unless you have the 16-digit control number included on your proxy card or voting instruction form that is accompanied by your proxy materials.

 

Q:

May I change my vote after I have mailed my proxy card or after I have submitted my proxy by telephone or through the Internet?

 

A:

Yes. You may revoke your proxy or change your vote at any time before it is voted at the special meeting. If you are a stockholder of record, you may revoke your proxy by delivering a signed written notice of

 

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  revocation stating that the proxy is revoked and bearing a date later than the date of the proxy to our Corporate Secretary at InnerWorkings, Inc., 203 North LaSalle Street, Suite 1800, Chicago, Illinois 60601. You may also revoke your proxy or change your vote by submitting another proxy by telephone or through the Internet in accordance with the instructions on the enclosed proxy card. You may also submit a later- dated proxy card relating to the same shares of Company common stock. If you voted by completing, signing, dating and returning the enclosed proxy card, you should retain a copy of the voter control number found on the proxy card in the event that you later decide to revoke your proxy or change your vote by telephone, the Internet or through the special meeting website. Alternatively, your proxy may be revoked or changed by attending the special meeting and voting via the special meeting website. However, simply attending the special meeting without voting will not revoke or change your proxy.

“Street name” holders of shares of Company common stock should contact their bank, broker, trust or other nominee to obtain instructions as to how to revoke or change their proxies. If you have instructed a bank, broker, trust or other nominee to vote your shares, you must follow the instructions received from your bank, broker, trust or other nominee to change your vote.

All properly submitted proxies received by us before the special meeting that are not revoked or changed prior to being exercised at the special meeting will be voted at the special meeting in accordance with the instructions indicated on the proxies or, if no instructions were provided, “FOR” each of the proposals set forth in this proxy statement.

 

Q:

What does it mean if I receive more than one proxy card?

 

A:

If you receive more than one proxy card, it means that you hold shares of Company common stock that are registered in more than one account. For example, if you own your shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and you will need to sign and return, a separate proxy card for those shares because they are held in a different form of record ownership. Therefore, to ensure that all of your shares of Company common stock are voted, you will need to submit your proxies by properly completing and mailing each proxy card you receive or by telephone or through the Internet by using the different voter control numbers on each proxy card.

 

Q:

What happens if I sell or otherwise transfer my shares of Company common stock after the record date but before the special meeting? What happens if I sell or otherwise transfer my shares of Company common stock after the special meeting but before the effective time?

 

A:

The record date for the special meeting is earlier than the date of the special meeting and earlier than the expected date of the merger. If you own shares of Company common stock as of the close of business on the record date, but transfer your shares prior to the special meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you sell or transfer your shares, you will retain your right to vote at the special meeting, but the right to receive the merger consideration will pass to the person who holds your shares as of immediately prior to the effective time. If you sell or transfer your shares of Company common stock after the special meeting but before the effective time, the right to receive the merger consideration will pass to the person who holds your shares as of immediately prior to the effective time. In order to receive the merger consideration, you must hold your shares of Company common stock through the completion of the merger.

Even if you sell or otherwise transfer your shares of Company common stock after the record date, we encourage you to sign, date and return the enclosed proxy or submit your proxy to vote via the Internet or by telephone, or, if your shares are held in “street name” through a bank, broker, trust or other nominee, instruct your bank, broker, trust or other nominee on how to vote your shares using the instructions provided by your bank, broker, trust or other nominee.

 

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Q:

May I exercise dissenters’ rights or rights of appraisal in connection with the merger?

 

A:

Yes. In order to exercise your appraisal rights, you must follow the requirements set forth in Section 262 of the DGCL. Under Delaware law, holders of record of Company common stock who do not vote in favor of adopting the merger agreement will have the right to seek appraisal of the fair value of their shares as determined by the Court of Chancery if the merger is completed. Appraisal rights will only be available to holders of shares of Company common stock who properly deliver, and do not properly withdraw, a written demand for an appraisal to the Company prior to the vote on the proposal to adopt the merger agreement at the special meeting and who comply with the procedures and requirements set forth in Section 262 of the DGCL, which are summarized in this proxy statement. The appraisal amount could be more than, the same as or less than the amount a stockholder would be entitled to receive under the terms of the merger agreement. A copy of Section 262 of the DGCL is included as Annex C to this proxy statement. For additional information, see the section titled “Appraisal Rights,” beginning on page [●].

 

Q:

If I hold my shares in certificated form, should I send in my stock certificates now?

 

A:

No. Shortly after the merger is completed, stockholders holding certificated shares of Company common stock will be sent a letter of transmittal that includes detailed written instructions on how to return such stock certificates. You must return your stock certificates in accordance with such instructions in order to receive the merger consideration. PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATE(S) NOW.

 

Q:

Should I do anything with respect to my Company equity awards now?

 

A:

No. There is no need for you to do anything with respect to your Company equity awards at this time. For additional information, see the section titled “The Agreement and Plan of Merger—Treatment of Outstanding Equity Awards and Equity Plans,” beginning on page [●].

 

Q:

When is the merger expected to be completed?

 

A:

We and Parent are working toward completing the merger as quickly as possible. We currently anticipate that the merger will be completed during the fourth quarter of 2020, subject to the receipt of required regulatory approvals and the satisfaction of other closing conditions, but we cannot be certain when or if the conditions to the merger will be satisfied or, to the extent permitted, waived. The merger cannot be completed until the conditions to closing are satisfied (or, to the extent permitted, waived), including the adoption of the merger agreement by Company stockholders and the receipt of certain regulatory approvals. For additional information, see the section titled “The Agreement and Plan of Merger—Conditions to the Merger,” beginning on page [●].

 

Q:

What happens if the merger is not completed?

 

A:

If the proposal to adopt the merger agreement is not approved by the holders of a majority of the outstanding shares of Company common stock entitled to vote on the matter or if the merger is not completed for any other reason, you will not receive any consideration from Parent or Sub for your shares of Company common stock. Instead, in that situation the Company would remain a public company, and Company common stock will continue to be registered under the Exchange Act and listed and traded on the NASDAQ. We expect that holders of shares of Company common stock would continue to be subject to the same risks to which they are currently subject with respect to their ownership of Company common stock. Under certain circumstances, if the merger is not completed, we may be obligated to pay Parent the Company termination fee. For additional information, see the section titled “The Merger—Consequences if the Merger is Not Completed,” on page [●].

 

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Q:

Who will count the votes?

 

A:

The votes will be counted by the inspector of elections appointed for the special meeting.

 

Q:

Where can I find the voting results of the special meeting?

 

A:

The Company intends to announce preliminary results at the special meeting and publish final results in a Current Report on Form 8-K that will be filed with the SEC following the special meeting. All reports that the Company files with the SEC are publicly available when filed. See “Where You Can Find More Information,” on page [●].

 

Q:

Where can I find more information about the Company?

 

A:

The Company files periodic reports, proxy statements and other information with the SEC. Our SEC filings are available to the public at the SEC’s website at www.sec.gov. For a more detailed description of the information available, see the section titled “Where You Can Find More Information,” on page [●].

 

Q:

Who can help answer my questions?

 

A:

For additional questions about the merger, assistance in submitting proxies or voting shares of Company common stock, or additional copies of the proxy statement or the enclosed proxy card(s), please contact our proxy solicitor:

 

 

LOGO

509 Madison Avenue

Suite 1608

New York, NY 10022

Stockholders call toll free: (800) 662-5200

Banks and Brokerage Firms, please call: (203) 658-9400

Email: INWK@investor.morrowsodali.com

If your shares of Company common stock are held for you by a bank, broker, trust or other nominee, you should also call your bank, broker, trust or other nominee for additional information.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Statements included in this proxy statement which are not historical in nature are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may generally be identified by words such as “anticipate,” “believe,” “may,” “should,” “could,” “intend,” “estimate,” “expect,” “likely,” “continue,” “plan,” “projects,” “positioned,” “outlook” and similar expressions. These statements are based upon management’s current expectations and speak only as of the date of this proxy statement. The Company cautions readers that there may be events in the future that the Company is not able to accurately predict or control and the information contained in the forward-looking statements is inherently uncertain and subject to a number of risks that could cause actual results to differ materially from those contained in or implied by the forward-looking statements including, without limitation:

 

   

the satisfaction of the conditions precedent to the consummation of the proposed merger, including, without limitation, the receipt of stockholder and regulatory approvals;

 

   

unanticipated difficulties or expenditures relating to the proposed merger;

 

   

legal proceedings, judgments or settlements, including those that may be instituted against the Company, the Company’s board of directors, executive officers and others following the announcement of the proposed merger;

 

   

disruptions of current plans and operations caused by the announcement and pendency of the proposed merger;

 

   

potential difficulties in employee retention due to the announcement and pendency of the proposed merger;

 

   

the response of customers, distributors, suppliers, business partners and regulators to the announcement of the proposed merger;

 

   

a significant or prolonged economic downturn or a decline in the demand for marketing materials;

 

   

results could be negatively impacted by a global or regional epidemic or similar event;

 

   

the length and severity of the recent COVID-19 novel (coronavirus) pandemic, including the scope and duration of actions taken by governmental authorities to contain the spread of the virus, may impact our demand, operations and our global supply chains;

 

   

competition could substantially impair the Company’s business and the Company’s operating results;

 

   

the Company’s services do not achieve widespread commercial acceptance;

 

   

the Company’s suppliers do not meet the Company’s needs or expectations or those of the Company’s clients;

 

   

any loss or decrease in sales to the Company’s limited number of large clients;

 

   

operating profitably in countries in which we have limited operating experience;

 

   

changes in the United Kingdom’s economic and other relationships with the European Union;

 

   

changes in U.S. administrative policy, including changes to existing trade agreements and any resulting changes in international relations;

 

   

taxation related risks in multiple jurisdictions;

 

   

inability to retain and expand the number of our sales executives or if a significant number of the Company’s sales executives leave the Company;

 

   

most of the Company’s clients terminate their relationships with the Company on short notice with no or limited penalties;

 

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inability to develop or implement new systems, procedures and controls that are required to support the continued growth in the Company’s operations;

 

   

business and stock price adversely affected if the Company’s internal controls over financial reporting are not effective;

 

   

the global integration of the Company’s technology platform;

 

   

security and privacy breaches;

 

   

decrease in levels of excess capacity in the commercial print industry;

 

   

inability to protect intellectual property rights;

 

   

key members of the Company’s management team do not remain with the Company in the future;

 

   

seasonal sales fluctuations, which could result in volatility or have an adverse effect on the market price of the Company’s common stock;

 

   

price fluctuations in raw materials;

 

   

ability to obtain financing or raise capital in the future may be limited;

 

   

if LIBOR ceases to exist after 2021, it may result in higher interest rates, which could result in higher interest expense;

 

   

we may not be able to successfully implement initiatives, including our restructuring activities, that reduce our cost structure while driving returns for clients and stockholders;

 

   

the trading price of our common stock has been and may continue to be volatile;

 

   

our quarterly results are difficult to predict and may vary from quarter to quarter, which may result in our failure to meet the expectations of investors and increased volatility of our stock price; and

 

   

other factors described in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the SEC on March 17, 2020, the Company’s quarterly reports on Form 10-Q for the quarterly period ended March 31, 2020, which was filed with the SEC on June 16, 2020, and for the quarterly period ended June 30, 2020, which was filed with the SEC on August 6, 2020 and Current Reports on Form 8-K filed with the SEC (see the section titled “Where You Can Find More Information,” on page [●]).

The Company can give no assurance that the expectations expressed or implied in the forward-looking statements contained herein will be attained. The forward-looking statements are made as of the date of this proxy statement, and the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this proxy statement.

 

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PARTIES TO THE MERGER

InnerWorkings

InnerWorkings, Inc., a Delaware corporation, is a leading global marketing supply chain company that provides global print management and promotional solutions to corporate clients across a range of industries. The items we source generally are procured through the marketing supply chain and we refer to these items collectively as marketing materials. Through our network of more than 12,000 global suppliers, we offer a full range of fulfillment and logistics services that allow us to procure marketing materials of virtually any kind. The breadth of our product offerings and services and the depth of our supplier network enable us to fulfill the marketing materials procurement needs of our clients.

The Company became a publicly traded company in 2006. Shares of the Company common stock are listed on the NASDAQ and trade under the symbol “INWK.”

The Company’s executive offices are located at 203 North LaSalle Street, Suite 1800, Chicago, Illinois 60601, and our telephone number is (312) 642-3700. Our website address is www.inwk.com. The information provided on our website is not part of this proxy statement and is not incorporated by reference in this proxy statement by this or any other reference to our website in this proxy statement.

Additional information about the Company is contained in our public filings, which are incorporated by reference in this proxy statement. See the section titled “Where You Can Find More Information,” on page [●], for more information.

HH Global Group

HH Global Group Limited (which we refer to as “Parent”) is a company registered in England and Wales. Parent is the top operating entity of the HH Global Group (which we refer to as “HH Global”). Founded in 1991, HH Global is a global outsourced marketing execution provider. Applying proven processes, industry-leading technology, and the deep expertise of over 1,300+ employees, HH Global develops innovative solutions that drive down the cost of its clients’ physical marketing procurement and content development, while improving quality, sustainability, and speed to market. Parent’s principal executive offices are located at Grove House, Guildford Road, Fetcham, Leatherhead, United Kingdom, KT22 9DF and its telephone number is +44 208 770 7300. HH Global Finance Limited

HH Global Finance Limited (which we refer to as “HH Finance”) is a company registered in England and Wales. HH Finance is the direct holding company of Parent and engages in business exclusively through Parent and Parent’s subsidiaries. HH Finance is the principal borrower under HH Global Group’s debt facilities. HH Finance’s principal executive offices are located at Grove House, Guildford Road, Fetcham, Leatherhead, United Kingdom, KT22 9DF and its telephone number is +44 208 770 7300. Project Idaho Merger Sub, Inc.

Project Idaho Merger Sub, Inc., a Delaware corporation, is a wholly-owned subsidiary of Parent, formed on July 15, 2020, solely for the purpose of engaging in the transactions contemplated by the merger agreement. Sub has not carried on any activities on or prior to the date of this proxy statement, except for activities incidental to its formation and activities undertaken in connection with Parent’s proposed acquisition of the Company. Upon completion of the merger, Sub will have been merged with and into the Company, and Sub will cease to exist. Sub’s principal executive offices are located at 520 Lake Cook Road, Suite 680, Deerfield, Illinois, 60015. Its telephone number is (847) 984-2448.

 

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THE SPECIAL MEETING

We are furnishing this proxy statement as part of the solicitation of proxies by the Company for use at the special meeting of the Company stockholders, any postponement thereof, and at any properly reconvened meeting following an adjournment of the special meeting.

Date, Time and Place of the Special Meeting

The special meeting will be held virtually via the Internet on [●], 2020 at [●] beginning at [●] Eastern Time or at any adjournment or postponement thereof. The Company has chosen to hold the special meeting solely by means of remote location (via the Internet) and not in a physical location given the current public health impacts of COVID-19 (coronavirus) and our desire to promote the health and safety of the Company stockholders, as well as the Company directors, officers, employees and other constituents.

Company stockholders who wish to attend the special meeting will need the 16-digit control number included on their proxy card or voting instruction form that is accompanied by their proxy materials. Please note that, if you hold your shares of Company common stock in “street name,” you should contact your bank, broker, trust or other nominee to obtain your specific control number and further instructions. To ensure that you will be represented, even if you plan to attend the special meeting via the special meeting website, we encourage you to promptly vote by submitting the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the Internet or by telephone. If you attend the special meeting and vote by ballot via the special meeting website, your vote will revoke any proxy that you have previously submitted. Please contact your bank, broker, trust or other nominee for instructions regarding obtaining your specific control number and further instructions.

Purpose of the Special Meeting

At the special meeting, Company stockholders of record will be asked to consider and vote on:

 

   

a proposal to adopt the merger agreement, pursuant to which, subject to the satisfaction or waiver of certain specified conditions, Sub will merge with and into the Company, with the Company continuing as the surviving corporation;

 

   

a proposal to approve, by a non-binding advisory vote, the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the merger, as discussed in the section titled “The Merger—Interests of Directors and Executive Officers in the Merger,” beginning on page [●]; and

 

   

a proposal to adjourn the special meeting from time to time to a later date or time if necessary or appropriate, including to solicit additional proxies in favor of the proposal to adopt the merger agreement if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

Recommendation of the Board

The Board carefully reviewed and considered the terms and conditions of the merger agreement, the merger and the other transactions contemplated by the merger agreement. By a unanimous vote, the Board (i) determined that the transactions contemplated by the merger agreement, including the merger, are in the best interests of the Company and its stockholders, (ii) approved and declared advisable the execution, delivery and performance of the merger agreement, and, subject to receiving the Company stockholder approval, the consummation by the Company of the transactions contemplated by the merger agreement, including the merger, (iii) directed that the merger agreement be submitted to a vote of the stockholders of the Company to be adopted and (iv) resolved to recommend the adoption of the merger agreement by the stockholders of the Company. Accordingly, the Board unanimously recommends a vote “FOR” the proposal to adopt the merger agreement.

 

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The Board also unanimously recommends a vote “FOR” the non-binding advisory merger-related compensation proposal and “FOR” the approval of the proposal to adjourn the special meeting from time to time, if necessary or appropriate, to solicit additional proxies in favor of the proposal to adopt the merger agreement if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

Record Date and Quorum

Each holder of record of shares of Company common stock as of the close of business on August 19, 2020, which is the record date for the special meeting, is entitled to receive notice of, and to vote at, the special meeting. You will be entitled to one vote for each share of Company common stock that you owned on the record date. If you sell or transfer your shares of Company common stock after the record date but before the special meeting, you will transfer the right to receive merger consideration, if the merger is completed, to the person to whom you sell or transfer your shares of Company common stock, but you will retain your right to vote those shares at the special meeting. As of the record date, there were [●] shares of Company common stock issued and outstanding and entitled to vote at the special meeting. The presence at the special meeting, via the special meeting website or by proxy, of the holders of [●] shares of Company common stock (a majority of the shares of Company common stock issued and outstanding and entitled to vote at the special meeting) constitutes a quorum for the special meeting.

If you are a Company stockholder of record and you vote by mail, by telephone or through the Internet or at the special meeting via the special meeting website, then your shares of Company common stock will be counted as part of the quorum. If you are a “street name” holder of shares of Company common stock and you provide your bank, broker, trust or other nominee with voting instructions, then your shares will be counted in determining the presence of a quorum. If you are a “street name” holder of shares and you do not provide your bank, broker, trust or other nominee with voting instructions, then your shares will not be counted as present in determining the presence of a quorum.

All shares of Company common stock held by stockholders of record that are present via the special meeting website or represented by proxy and entitled to vote at the special meeting, regardless of how such shares are voted or whether such stockholders abstain from voting, will be counted in determining the presence of a quorum. In the absence of a quorum, the special meeting may be adjourned.

Vote Required for Approval

The proposal to adopt the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Company common stock entitled to vote on such matter.

The approval of the non-binding compensation advisory proposal requires the affirmative vote of a majority of the shares having voting power present via the special meeting website or represented by proxy at the special meeting. The vote is advisory only and, therefore, is not binding on the Company or Parent or any of their respective subsidiaries, and, if the merger agreement is adopted by Company stockholders and the merger is completed, the compensation that is based on or otherwise relates to the merger will be payable to our named executive officers even if this proposal is not approved.

The approval of the proposal to adjourn the special meeting from time to time if necessary or appropriate requires the affirmative vote of a majority of the shares having voting power present via the special meeting website or represented by proxy at the special meeting. In addition, even if a quorum is not present at the special meeting, either the chairman of the Board or the affirmative vote of a majority of the shares having voting power present via the special meeting website or represented by proxy at the special meeting may adjourn the meeting to another place, date or time.

 

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Effect of Abstentions and Broker Non-Votes

The proposal to adopt the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Company common stock entitled to vote on such matter. Therefore, the failure to vote or the abstention from voting will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

The approval of the non-binding compensation advisory proposal requires the affirmative vote of a majority of the shares having voting power present via the special meeting website or represented by proxy at the special meeting. Consequently, the abstention from voting will have the same effect as a vote “AGAINST” the proposal.

The proposal to adjourn the special meeting from time to time if necessary or appropriate requires the affirmative vote of a majority of the shares having voting power present via the special meeting website or represented by proxy at the special meeting. Consequently, the abstention from voting will have the same effect as a vote “AGAINST” the proposal. In addition, even if a quorum is not present at the special meeting, either the chairman of the Board or the affirmative vote of a majority of the shares having voting power present via the special meeting website or represented by proxy at the special meeting may adjourn the meeting to another place, date or time. In each case, the abstention from voting will have the same effect as a vote “AGAINST” the proposal.

Under applicable stock exchange rules, all of the proposals in this proxy statement are non-routine matters, so there can be no broker non-votes at the special meeting. A broker non-vote occurs when shares held by a bank, broker, trust or other nominee are represented at a meeting, but the bank, broker, trust or other nominee has not received voting instructions from the beneficial owner and does not have the discretion to direct the voting of the shares on a particular proposal, but has discretionary voting power on other proposals at such meeting. Accordingly, if your shares are held in “street name,” your bank, broker, trust or other nominee will NOT be able to vote your shares of Company common stock on any of the proposals, and your shares will not be counted as present in determining the presence of a quorum, unless you have properly instructed your bank, broker, trust or other nominee on how to vote. Because the proposal to adopt the merger agreement requires the affirmative vote of a majority of the outstanding shares of Company common stock, the failure to provide your bank, broker, trust or other nominee with voting instructions will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement. Because the approval of each of (i) the non-binding compensation advisory proposal and (ii) the proposal to adjourn the special meeting from time to time if necessary or appropriate requires the affirmative vote of a majority of the shares having voting power present via the special meeting website or represented by proxy at the special meeting, and because your bank, broker, trust or other nominee does not have discretionary authority to vote on either proposal, the failure to provide your bank, broker, trust or other nominee with voting instructions will have no effect on approval of each such proposal.

How to Vote

Stockholders of record have a choice of voting by proxy by completing a proxy card and mailing it in the prepaid envelope provided, by calling a toll-free telephone number or through the Internet. Please refer to your proxy card to see which options are available to you. The telephone and Internet voting facilities for stockholders of record will close at 11:59 p.m. Eastern Time on the day before the special meeting. If your shares are held in “street name,” please refer to the information forwarded by your bank, broker, trust or other nominee to see which voting options are available to you.

If you submit your proxy by mail, by telephone or through the Internet voting procedures, but do not include “FOR,” “AGAINST” or “ABSTAIN” on a proposal to be voted, your shares of Company common stock will be voted in favor of that proposal if it is described in this proxy statement and otherwise in the discretion of the proxy holders. If you indicate “ABSTAIN” on a proposal to be voted, it will have the same effect as a vote “AGAINST” that proposal. If you wish to vote by proxy and your shares are held by a bank, broker, trust

 

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or other nominee, you must follow the voting instructions provided to you by your bank, broker, trust or other nominee. Unless you give your bank, broker, trust or other nominee instructions on how to vote your shares of Company common stock, your bank, broker, trust or other nominee will NOT be able to vote your shares on any of the proposals.

If you wish to vote at the special meeting via the special meeting website and your shares are held in the name of a bank, broker, trust or other nominee, you will need the 16-digit control number included on your proxy card or voting instruction form that is accompanied by your proxy materials. Stockholders of record who have registered in advance to attend the special meeting will be able to vote at the special meeting via the special meeting website.

If you do not submit a proxy or otherwise vote your shares of Company common stock in any of the ways described above, it will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement, but will have no effect on approval of the non-binding compensation advisory proposal or the approval of the proposal to adjourn the special meeting from time to time if necessary or appropriate.

If you have any questions about how to vote or direct a vote in respect of your shares of Company common stock, you may contact our proxy solicitor, Morrow Sodali, toll-free at (800) 662-5200 or (203) 658-9400.

YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATE(S) WITH YOUR PROXY CARD. A letter of transmittal with instructions for the surrender of certificates representing shares of Company common stock will be mailed to those stockholders who hold certificated shares if the merger is completed.

Revocation of Proxies

Any proxy given by a Company stockholder of record may be revoked at any time before it is voted at the special meeting by doing any of the following:

 

   

by submitting another proxy by telephone or through the Internet, in accordance with the instructions on the proxy card;

 

   

by delivering a signed written notice of revocation bearing a date later than the date of the proxy to the Company’s Corporate Secretary at InnerWorkings, Inc., 203 North LaSalle, Suite 1800, Chicago, Illinois 60601, stating that the proxy is revoked;

 

   

by submitting a later-dated proxy card relating to the same shares of Company common stock; or

 

   

by attending the special meeting and voting via the special meeting website (your attendance at the special meeting will not, by itself, revoke your proxy; you must vote via the special meeting website at the special meeting).

“Street name” holders of shares of Company common stock should contact their bank, broker, trust or other nominee to obtain instructions as to how to revoke or change their proxies.

Adjournments and Postponements

Although it is not currently expected, the special meeting may be adjourned or postponed from time to time to a later day or time if necessary or appropriate, including to solicit additional proxies in favor of the proposal to adopt the merger agreement. Your shares will be voted on any adjournment proposal submitted to stockholders in accordance with the instructions indicated in your proxy or, if no instructions were provided, “FOR” the proposal.

If a quorum is present at the special meeting, the special meeting may be adjourned if there is an affirmative vote of shares representing a majority of the voting power of the shares present via the special meeting website or

 

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represented by proxy at the special meeting entitled to vote on such matter. In addition, even if a quorum is not present at the special meeting, either the chairman of the Board or the affirmative vote of shares representing a majority of the voting power of the shares present via the special meeting website or represented by proxy at the special meeting entitled to vote on such matter may adjourn the meeting to another place, date or time. In either case, the adjourned meeting may take place without further notice other than by an announcement made at the special meeting, unless the adjournment is for more than 30 days or if, after the adjournment, a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the special meeting. If a quorum is not present at the special meeting, or if a quorum is present at the special meeting but there are insufficient votes at the time of the special meeting to adopt the merger agreement, then the Company may seek to adjourn the special meeting from time to time. In addition, the Board or the chairman of the special meeting may postpone the special meeting under certain circumstances.

Solicitation of Proxies

The Company is soliciting the enclosed proxy card on behalf of the Board, and the Company will bear the expenses in connection with the solicitation of proxies. In addition to solicitation by mail, the Company and its directors, officers and employees may solicit proxies in person, by telephone or by electronic means. These persons will not be specifically compensated for doing this.

The Company has retained Morrow Sodali to assist in the solicitation process. The Company will pay Morrow Sodali a fee of approximately $25,000 plus reimbursement of certain specified out-of-pocket expenses. The Company also has agreed to indemnify Morrow Sodali against various liabilities and expenses that relate to, or arise out of, its solicitation of proxies (subject to certain exceptions).

The Company will ask banks, brokers, trusts and other nominees to forward the Company’s proxy solicitation materials to the beneficial owners of shares of Company common stock held of record by such banks, brokers, trusts or other nominees. The Company will reimburse these banks, brokers, trusts or other nominees for their customary clerical and mailing expenses incurred in forwarding the proxy solicitation materials to the beneficial owners.

Stockholder List

A list of Company stockholders entitled to vote at the special meeting will be available for examination by any Company stockholder online during the special meeting. At least ten days prior to the date of the special meeting, this stockholder list will be available for inspection by Company stockholders, subject to compliance with applicable provisions of Delaware law, in accordance with Delaware law and the Company’s amended and restated bylaws.

Questions and Additional Information

If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call our proxy solicitor, Morrow Sodali, toll-free at (800) 662-5200 or (203) 658-9400 (call collect).

 

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PROPOSAL 1: ADOPTION OF THE MERGER AGREEMENT

As discussed elsewhere in this proxy statement, Company stockholders will consider and vote on a proposal to adopt the merger agreement. You should carefully read this proxy statement in its entirety for more detailed information concerning the merger agreement and the merger. In particular, you should read in its entirety the merger agreement, which is attached as Annex A to this proxy statement. In addition, see the sections titled “The Merger,” beginning on page [●], and “The Agreement and Plan of Merger,” beginning on page [●].

The Board unanimously recommends that Company stockholders vote “FOR” the proposal to adopt the merger agreement.

If you return a properly executed proxy card, but do not indicate instructions on your proxy card, your shares of Company common stock represented by such proxy card will be voted “FOR” the proposal to adopt the merger agreement.

The approval of the proposal to adopt the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Company common stock entitled to vote on such proposal.

 

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PROPOSAL 2: NON-BINDING ADVISORY MERGER-RELATED COMPENSATION PROPOSAL

Under Section 14A of the Exchange Act, which was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, we are required to provide stockholders the opportunity to vote to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the merger, as disclosed in the section titled “The Merger—Interests of Directors and Executive Officers in the Merger—Golden Parachute Compensation,” beginning on page [●], including the table titled “Golden Parachute Compensation” and accompanying footnotes. Accordingly, Company stockholders are being provided with the opportunity to cast a non-binding advisory vote on such payments.

As an advisory vote, this proposal is not binding upon the Company, the Board or Parent or any of the Company’s or Parent’s subsidiaries and approval of this proposal is not a condition to completion of the merger and the merger-related named executive officer compensation subject to this non-binding advisory vote will not be affected by the outcome of this non-binding advisory vote. However, the Company seeks your support and believes that your support is appropriate because the Company has a comprehensive executive compensation program designed to link the compensation of the Company’s executive officers with the Company’s performance and the interests of Company stockholders. Accordingly, we ask that you vote on the following resolution:

“RESOLVED, that the stockholders of InnerWorkings, Inc. approve, on an advisory, non-binding basis, the compensation that may be paid or become payable to the named executive officers of InnerWorkings, Inc. that is based on or otherwise relates to the merger, as disclosed pursuant to Item 402(t) of Regulation S-K under the heading “The Merger—Interests of Directors and Executive Officers in the Merger—Golden Parachute Compensation,” beginning on page [●] of its proxy statement (which disclosure includes the Golden Parachute Compensation Table required pursuant to Item 402(t) of Regulation S-K).”

The Board unanimously recommends that Company stockholders vote “FOR” the non-binding advisory merger-related compensation proposal.

If you return a properly executed proxy card, but do not indicate instructions on your proxy card, your shares of Company common stock represented by such proxy card will be voted “FOR” the non-binding advisory merger-related compensation proposal.

The approval of the non-binding advisory merger-related compensation proposal requires the affirmative vote of a majority of the shares having voting power present via the special meeting website or represented by proxy at the special meeting. The approval of the non-binding advisory merger-related compensation proposal is a vote separate and apart from the vote to approve the proposal to adopt the merger agreement, and does not affect whether the proposal to adopt the merger agreement is approved. The vote is advisory only and, therefore, is not binding on the Company or Parent or any of their respective subsidiaries, and, if the merger agreement is adopted by Company stockholders and the merger is completed, the compensation subject to this non-binding advisory vote will be payable, subject to the terms of the underlying agreements and plans, to the Company’s named executive officers even if this proposal is not approved.

 

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PROPOSAL 3: AUTHORITY TO ADJOURN THE SPECIAL MEETING

The Company may seek to adjourn the special meeting from time to time to a later date or time if necessary or appropriate, including to solicit additional proxies in favor of the proposal to adopt the merger agreement if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

The Board unanimously recommends that stockholders vote “FOR” the proposal to adjourn the special meeting from time to time to a later date or time if necessary or appropriate, including to solicit additional proxies in favor of the proposal to adopt the merger agreement if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

If you return a properly executed proxy card, but do not indicate instructions on your proxy card, your shares of Company common stock represented by such proxy card will be voted “FOR” the proposal to adjourn the special meeting from time to time to a later date or time if necessary or appropriate.

The approval of the proposal to adjourn the special meeting from time to time if necessary or appropriate requires the affirmative vote of a majority of the shares having voting power present via the special meeting website or represented by proxy at the special meeting. In addition, even if a quorum is not present at the special meeting, either the chairman of the Board or the affirmative vote of a majority of the shares having voting power present via the special meeting website or represented by proxy at the special meeting may adjourn the meeting to another place, date or time.

 

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THE MERGER

Overview

The Company is seeking the adoption by Company stockholders of the Agreement and Plan of Merger (as may be amended from time to time, the “merger agreement”), by and among the Company, Parent, HH Finance and Sub entered into by the Company on July 15, 2020. Under the terms of the merger agreement, subject to the satisfaction or waiver of specified conditions, Sub will be merged with and into the Company (which we refer to as the “merger”). The Company will continue as the surviving corporation (which we refer to as the “surviving corporation”) and will succeed to and assume all the rights and obligations of Sub and the Company in accordance with the Delaware General Corporation Law (which we refer to as the “DGCL”), and will continue in existence as a wholly-owned subsidiary of Parent. The Board has unanimously approved the merger agreement and unanimously recommends that Company stockholders vote “FOR” the proposal to adopt the merger agreement.

At the effective time of the merger (which we refer to as the “effective time”), each share of Company common stock issued and outstanding immediately prior to the effective time will be cancelled and cease to exist and will be automatically converted into the right to receive $3.00 in cash, without interest thereon (which we refer to as the “merger consideration”), subject to any applicable withholding taxes, other than (i) shares of Company common stock that are held in the treasury of the Company or owned of record by the Company or any wholly-owned subsidiary of the Company (other than those held on behalf of any third party), (ii) shares owned of record by Parent, Sub or any of their respective wholly-owned subsidiaries (other than those held on behalf of any third party), and (iii) shares of Company common stock held by stockholders who have not voted in favor of or consented to the adoption of the merger agreement and who have properly demanded appraisal of such shares and complied in all respects with all the provisions of the DGCL concerning the right of holders of shares to require appraisal of their shares.

Following the completion of the merger, the Company will cease to be a publicly traded company.

Background of the Merger

The Board frequently reviews potential financial and strategic alternatives to enhance stockholder value. Over the years, the Board has considered a range of strategic transactions, including potential acquisitions, recapitalizations, dispositions, business combinations and the sale of the Company. During 2017 and 2018, the Board evaluated various business combinations and the potential sale of the Company, and the Company engaged in discussions with a number of potentially interested parties. During that period, the Company contacted over 30 potentially interested parties regarding their interest in engaging in a strategic transaction with the Company. One of those parties included an industry participant, which we refer to as “Party A”, with which the Company explored a potential strategic transaction from time to time during 2017 and 2018. The Company executed a confidentiality agreement with Party A on May 10, 2017 to facilitate the exchange of due diligence information and amended the confidentiality agreement on September 12, 2018. The standstill provision in the confidentiality agreement expired in 2019. The pace of the discussions between Party A and the Company slowed in May 2018 when the Company announced that, given errors in its historical financial statements, the Company would be restating its financial statements for the years ended December 31, 2017, 2016, and 2015, and all interim periods within those years. The Company filed its restated financial statements in July 2018. In September 2018, Party A proposed a business combination with the Company at a preliminary valuation of $11.00 per share of Company common stock, payable in the form of 60% cash and 40% Party A common stock. After further discussions and due diligence, in October 2018 Party A provided the Company with a revised proposal for a stock-for-stock business combination between the Company and Party A at a proposed price of $9.00 per share. Party A indicated its proposal was conditioned on, among other things, the upcoming earnings announcements in November 2018 of quarterly results of the Company and Party A. The Board expressed disappointment in Party A’s October 2018 proposal relative to its September 2018 proposal and considered

 

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Party A’s October 2018 proposal relative to the Company’s stand-alone plans, including the Company’s transformation plan announced earlier that year to reduce costs and improve its operational structure and systems. The Board determined it would evaluate the proposed transaction further after each party’s earnings announcement in November 2018. Following the public release of the Company’s earnings announcement, the trading price of the Company’s common stock declined from a closing price of $7.04 per share on November 8, 2018 to a closing price of $4.24 per share on November 9, 2018. Subsequently, Party A’s financial advisors informed representatives of Citigroup Global Markets Inc. (which we refer to as “Citi”), the Company’s financial advisor, that Party A did not have continuing interest in exploring a business combination. The Board subsequently determined that management should continue to focus fully on the Company’s previously announced transformation plan to reduce costs and optimize its operations.

In April 2019, Mr. Jack Greenberg, Chairman of the Board, received an unsolicited inquiry from a private equity sponsor, referred to as “Party B,” as to the Company’s interest in exploring a potential strategic transaction. Following discussions with management and members of the Board, Mr. Greenberg informed Party B that more structural detail would be necessary for the Board to consider the Company’s potential interest. Party B subsequently delivered a letter to Mr. Greenberg describing its interest in evaluating a potential acquisition of the Company and providing a list of due diligence information required in order to provide a preliminary valuation range.

On May 2, 2019, the Board held a meeting, at which members of management and representatives of Citi also were present, the Board discussed Party B’s letter. The Board concluded that while the Board believed it was in the best interest of the Company for management to focus on executing the Company’s stand-alone plans, if Party B was able to provide an attractive valuation range for the Company based on publicly available information, the Board would consider allowing Party B to proceed with due diligence. The Board authorized Mr. Greenberg to communicate that message to Party B, which he did.

On May 10, 2019, Party B delivered to Mr. Greenberg a letter reiterating Party B’s interest in exploring an acquisition of the Company and indicating a preliminary proposed purchase price range for the Company of $6.00 to $7.00 per share.

On May 13, 2019, the Board held a meeting, at which members of management were also present. The Board discussed Party B’s May 10th letter and determined that the Company should continue discussions with Party B and authorized Mr. Greenberg to continue such discussions.

Based on the prior instructions of the Board, the Company executed a confidentiality agreement with Party B to facilitate the exchange of due diligence information. The confidentiality agreement contained a standstill provision which provided that if the Company entered into a definitive agreement for a change of control transaction, Party B could thereafter make private proposals to the Board.

Following the execution of the confidentiality agreement, the Company provided Party B with non-public due diligence information.

On June 17, 2019, the Board held a meeting at which members of management and representatives of Sidley Austin LLP (which we refer to as “Sidley”), counsel to the Company, were also present. Sidley discussed with the Board the fiduciary duties of the directors in considering a transaction of the type proposed by Party B. The Board also discussed potential next steps with respect to Party B’s indication of interest, including other parties the Board might consider contacting in the event that Party B made a proposal.

On July 16, 2019, the Company announced that it had refinanced its existing indebtedness and entered into a $100 million term loan facility (the “Term Loan Facility”) and a $105 million asset-backed loan credit facility (the “ABL Facility”), which included a revolving facility with capacity determined based on the amount of predetermined assets of the Company. The Term Loan Facility also required the Company to grant the lenders

 

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thereunder a warrant to purchase 1,335,337 shares of common stock of the Company at an initial exercise price of $0.01 per share and potentially required the Company to grant lenders thereunder an additional 2.49% of the Company’s common stock calculated on a fully-diluted basis (taking into account the 1,335,337 shares of common stock initially issuable pursuant to the warrant for purposes of such calculation) if the Company’s total leverage ratio as of the end of the first fiscal quarter of 2020 exceeded 4.25 to 1.00. The Company’s total leverage ratio remained below the threshold total leverage ratio, so the warrant did not become exercisable by the lenders for additional shares of common stock. Following the Company’s announcement of the new facilities, Party B requested the Company’s permission to contact financing sources to better understand the type of financing that may be available to finance a potential acquisition of the Company, including the potential costs and terms of such financing. Following discussions with Mr. Greenberg, the Company granted Party B permission to engage in discussions with a small group of pre-approved potential lenders regarding financing an acquisition of the Company.

On September 5, 2019, the Board held a meeting, at which members of management and representatives of Sidley and Citi also were present. Management and Citi updated the Board on the status of the discussions with Party B. At this meeting, a potential strategy and process alternatives were discussed with respect to Party B. Sidley reviewed with the Board its fiduciary duties in considering a transaction of the type proposed by Party B. The Board, management and the Company’s advisors also discussed other parties that might potentially have interest in engaging in a transaction with the Company.

On September 9, 2019, Party B informed Citi that, based on Party B’s discussions with potential lenders, Party B believed it would not be able to finance an acquisition of the Company on terms that would enable Party B to provide a proposal higher than or within the range previously communicated in its May 2019 letter. Party B noted certain concerns regarding the Company’s leverage and business prospects in a recession, which Party B believed was a possibility in the near term. Party B, however, noted that it was interested in exploring ways to partner with the Company and willing to explore a non-control equity-linked investment in the Company, the proceeds of which could be used to repay a portion of the Company’s outstanding indebtedness.

On September 13, 2019, a representative of Party B contacted Mr. Greenberg to request a meeting to discuss a possible strategic investment by Party B in the Company.

On September 25, 2019, a representative of Party B met with Mr. Greenberg and informed Mr. Greenberg of its desire to make an equity investment in the Company in the form of convertible preferred stock.

On September 28, 2019, the Board held a meeting, at which members of management and representatives of Sidley and Citi also were present. Mr. Richard Stoddart, the Company’s Chief Executive Officer, and Citi updated the Board on the discussions with Party B, including that Party B had expressed concerns regarding the Company’s leverage and business prospects in a recession and that Party B also indicated that, while it would not be able to provide a proposal higher than or within the range previously communicated in its May 10th letter, it might have interest in exploring a non-controlling equity investment in the Company. The Board discussed potential benefits and other considerations regarding an equity investment from Party B. Sidley and Citi discussed with the Board the potential terms for a convertible preferred equity investment, including the amount, interest rate, conversion ratio and certain related matters. The Board authorized management and the Company’s advisors to deliver to Party B a draft term sheet on terms as discussed.

In early October 2019, the Company and Party B discussed the indicative terms of a potential equity investment of $75 to $100 million. At $100 million, the potential investment would have represented approximately 26% of the common stock of the Company on a fully diluted basis at that time.

On October 4, 2019, the Board held a meeting, at which members of management and representatives of Sidley and Citi also were present. To assist in the evaluation of an equity investment by Party B on the terms proposed, management reviewed with the Board a “recession” case scenario, which reflected adjusted estimates

 

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under the Company’s then five-year plan in the event of a severe recession, illustratively comparing the Company’s liquidity position and likelihood of compliance with financial covenants under the Company’s ABL Facility and Term Loan Facility both with and without such equity investment. The recession case was modeled on the recession of 2008-2009. Management also discussed its views on the Company’s financial position, the state of the business and achievability of the Company’s five-year plan. The Board instructed management to prepare another scenario reflecting a more moderate recession.

On October 14, 2019, the Board held a meeting, at which members of management and representatives of Sidley and Citi also were present. Sidley and Citi discussed the status of negotiations with Party B. Management reviewed (a) a severe recession scenario modeled on the 2008-2009 recession as discussed at the October 4, 2019 meeting, and (b) a moderate recession scenario, reflecting the Company’s liquidity position and likelihood of compliance with financial covenants under the Company’s ABL Facility and Term Loan Facility both with and without Party B’s potential equity investment. The Board discussed the potential dilutive impact on Company common stock of the terms proposed and potential modifications to such terms. The Board also discussed various other considerations regarding an investment by Party B, including the ability of the Company under the Company’s five-year plan to operate in a moderate recession scenario with adequate liquidity and in compliance with the financial covenants under its debt facilities, the likelihood of a recession in the near term and potential for a recession to be severe (in which case the Company would need additional liquidity) in addition to possible options otherwise available to the Company to enhance liquidity. Following discussion, the Board provided guidance to management and the Company’s advisors regarding terms to propose to Party B, including an equity investment in the range of $50 million rather than $75 to $100 million.

Over the next several weeks, Party B and the Company and their respective representatives negotiated the potential terms of Party B’s equity investment. Party B subsequently informed the Company that the investment size proposed by the Company was not sufficiently attractive for Party B to proceed.

On November 1, 2019, the Board met, with members of management and representatives of Sidley and Citi also present for portions of the meeting. Management and Citi informed the Board of Party B’s response to the investment terms proposed by the Company. Management reviewed the Company’s current financial position and expected performance under the Company’s five-year plan and also discussed potential variables that could affect whether the Company performed consistent with its five-year plan. The Board discussed the Company’s financial performance in the near and medium term, and determined that it was not in the best interest of the Company to continue to negotiate the terms of a potential equity investment with Party B. The Board also considered whether to solicit indications of interest from parties that potentially might be interested in a business combination or acquisition of the Company or other strategic opportunities with the Company. The Board reviewed the results of the Company’s prior discussions with potentially interested parties during 2017 and 2018 and views as to the level of interest and ability of those parties to engage in a transaction with the Company at an attractive valuation. The Board considered the Company’s expected financial performance over the near and medium term, the likelihood (and severity) of a recession and the Company’s ability to manage through, and to address the Company’s liquidity in the event of, a recession, the feedback from Party B with respect to its inability to obtain debt financing for an acquisition of the Company and the potential distraction to senior management that would be caused by beginning a strategic transaction process at the time. The Board determined not to conduct a formal strategic transaction process at that time but rather to continue from time to time, with Citi’s assistance, to gauge potential interest of third parties in a strategic transaction with the Company.

In December 2019, the Company entered into a confidentiality agreement with an industry participant, referred to as “Party C,” to discuss potential opportunities to partner with the Company. These discussions began after an advisor of Party C contacted the Company in the spring of 2019 to inquire whether the Company was interested in exploring potential commercial opportunities. After the Company and Party C entered into the confidentiality agreement, the Company and Party C continued to have discussions regarding potential commercial opportunities from time to time through early July 2020.

 

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On March 16, 2020, the Company announced financial results for 2019 and the fourth quarter thereof. The Company’s announced gross revenue in 2019 was 3% higher, and the Company’s net loss per diluted share was $1.28 higher, than the prior year. The Company indicated that it was making progress on its multi-year transformation plan and also provided guidance for the year, although noted that such guidance excluded any potential impact of COVID-19 since its impact was rapidly evolving and difficult to predict at the time. During March 2020, the trading price of the Company common stock declined from an opening price of $3.15 per share on the first trading day of March 2020 to a closing price of $1.17 per share on the last trading day of March 2020.

Over the next several weeks, the Board and Company management observed that the impact of COVID-19 in the United States and globally continued to rapidly accelerate with a number of states and regions issuing orders for their citizens to shelter in place and a number of businesses temporarily closing or materially modifying their operations, including businesses in key verticals for the Company such as retail stores and hospitality-focused businesses.

On March 27, 2020, the Board met, with members of management also present. Management discussed the impact of COVID-19 on the U.S. and global economy, including the liquidity of companies generally and actions taken by companies in response to liquidity concerns. Management also discussed how significant the impact would need to be on the Company before the Company experienced a liquidity shortage or breaches of its financial covenants. The Board and management discussed steps to better understand the potential impact assuming different scenarios for the length of the pandemic, its impact on the economy and the pace of recovery of the economy and the Company’s revenue.

On April 10, 2020, the Board met, with members of management also present. Management discussed the Company’s financial results in the first quarter of 2020 and invoice data through the first week of April 2020, in each case relative to the Company’s operating plan for 2020 (which the Board had approved in February 2020 (and which we refer to as the “2020 Operating Plan”)). Management noted that the Company expected to close its books for the Company’s first quarter during the fourth week of April 2020 and that, while the Company’s reporting systems had been improved over the last 15 months to provide better visibility into the financial results of the Company on a weekly or monthly basis, it was still difficult to obtain meaningful real-time results. Management noted, however, that invoiced revenue through the first week of April 2020 was 35% lower than budgeted in the 2020 Operating Plan. Management discussed actions by customers and other companies that could impact the Company’s business and the potential impact of those actions. Management also reviewed a number of different scenarios for the first half of 2020 and for the second half of 2020 through 2021 (a “quick rebound” scenario, which assumed a sequential increase in revenue in the third quarter of 2020 and a quicker return to normal in the first half of 2021; an “extended trough” scenario, which assumed no sequential revenue growth in the second half of 2020 and a slow return to normal in the second half of 2021; and a “further decline” scenario, which assumed a further revenue decline in the third and fourth quarters of 2020 with a slow return to normal in the second half of 2021). Since COVID-19 and the response measures were in their early stages, there was significant uncertainty. Accordingly, the scenarios developed by management were not “bottoms-up” estimates but rather illustrative scenarios based on assumptions regarding the turn-around time from revenue decline to revenue growth. Management noted that under all of the scenarios, additional liquidity would likely be necessary in late 2020 or early 2021. Management reviewed planned cost reductions and other actions the Company could take to address the potential decrease in revenue. Management also discussed potential options to increase liquidity, including seeking relief under the Company’s existing Term Loan Facility and ABL Facility, seeking additional credit commitments from the Company’s existing lenders, utilizing the Main Street Lending Program established by the Federal government under the CARES Act to facilitate loans to companies with liquidity needs meeting certain eligibility criteria and seeking financing from new sources, either in the form of an incremental mezzanine financing or a complete refinancing of the Company’s existing Term Loan Facility. Management noted that it had discussed with Party B whether Party B would be interested in providing financing to the Company and that Party B had responded that it might be willing to explore refinancing the Company’s Term Loan Facility by way of an equity investment but only if there were no other avenues available to the Company. Party B also indicated that any investment would need to be meaningful in amount. The Board and

 

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management discussed financing possibilities and potential next steps, including seeking input from the Company’s outside advisors, Sidley and Citi.

Management, with the assistance of the Company’s advisors, worked to develop potential financing possibilities to discuss with the Board as well as other alternatives that the Board might consider, including a potential business combination with a party that could provide balance sheet and financial stability for the Company or a sale of the Company. Management continued to implement cost reduction measures and other actions to address the impacts of COVID-19. Management also discussed with the Company’s existing lenders potential modifications to the Company’s existing debt facilities that could reduce the Company’s liquidity concerns.

On April 17, 2020, the Board met, with members of management and representatives of Sidley and Citi also present. Management reviewed the state of the Company’s business and the actions taken by the Company in response to COVID-19 and associated liquidity concerns. Management also reviewed refined financial and liquidity scenarios, which included the near-term costs savings of potential tax and amortization deferrals. The Board and management discussed potential risks to the Company’s cash flow and ABL availability over the next 12 to 18 months. Management noted that the Company’s daily outstanding debt and ABL Facility availability historically varied by up to approximately $10 million relative to the quarterly close. Management indicated that, based on the facts as of that date, management believed the Company would need an additional $25 to $50 million of liquidity for the desired level of confidence that it could comply with the Company’s liquidity and financial covenants over the next two years, noting that the Company’s peak working capital needs historically were in the third quarter of the fiscal year. Management discussed the conversations with its lenders to date, noting that the lenders indicated they might be willing to provide amendments that would provide some covenant and liquidity relief to the Company but would require updated financial projections of the Company. The Board discussed potential financial strategies for the Company, including (a) modifications to the Company’s existing debt facilities, the Company obtaining additional credit commitments from its existing lenders and the Company seeking funds under the Main Street Lending Program as well as other banks (referred to as “traditional financings” and the potential financing sources as “traditional financing sources”) and (b) other sources of potential capital such as incremental debt facilities, mezzanine financing, refinancing the Company’s existing debt with new debt facilities or potential equity infusions from sources such as structured debt or equity funds, private equity, strategic investors or existing investors (referred to as “alternative financings” and “alternative financing sources”). The Board also discussed potential strategic transactions, including a business combination that would result in a combined company with a stronger balance sheet or a sale of the Company. Citi reviewed potential parties that might have interest in such potential transactions, including those that the Company had contacted or held discussions with during the last three years and those that the Company considered contacting during the Company’s discussions with Party B and other parties perceived as likely to be interested in and capable of executing a strategic transaction with the Company but which had not been directly approached in the past given competitive concerns. The Board also discussed certain considerations in pursuing a potential strategic transaction at that time, including, among other things, the decline in the Company’s stock price, potential financial and liquidity issues for the Company if its financial results did not improve in the near term and the potential that some of the alternatives the Board was considering may not be available in the future if the Company’s financial performance continued to decline, one or more of the potential counterparties experienced adverse financial performance or there was a continued decline in the economy generally. Given these concerns, Citi suggested that a parallel process of pursuing potential financings and exploring potential strategic transactions would be prudent. The Board discussed the need for management to be able to sufficiently focus on the business, particularly given the impact of COVID-19 on the business and related liquidity concerns for the Company, the need for confidentiality, and the fact that the Company’s past sale processes (in which over 30 parties were contacted) over the last several years provided insight into which parties might be meaningfully interested. As a result, the Board concluded that the Company should contact those of the potential parties that were viewed as likely to be interested in and capable of timely executing a strategic transaction with the Company. The Board authorized management and the Company’s advisors to contact potential financing sources and nine strategic transaction candidates as discussed with the Board, including Party A, several other industry

 

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participants that the Company previously had not solicited given competitive concerns and certain private equity firms that had previously expressed an interest in the Company.

In accordance with the Board’s directives:

 

   

Citi began contacting potential alternative financing sources regarding their interest in providing financing to the Company. During the months of April and May 2020, a total of 35 parties were contacted regarding potential financing, six of which executed confidentiality agreements with the Company, two of which expressed initial interest but ultimately did not enter into confidentiality agreements with the Company and 27 of which indicated they were not interested in such a financing transaction.

 

   

Citi and Mr. Stoddart contacted the nine parties that had been discussed with the Board regarding a potential strategic transaction with the Company, which nine parties included Parent, Party A and Party C.

 

   

Management continued to pursue traditional financing sources.

Management also began preparing a data room with due diligence information on the Company for potential financing sources and potential strategic transaction parties to review.

On April 20, 2020, Mr. Stoddart held a discussion with a representative of Party A, which was one of the nine strategic transaction candidates contacted. The Party A representative indicated that Party A had other transaction activity under consideration but would give this opportunity further thought.

Over the course of the next several weeks, the Company signed confidentiality agreements with four potentially interested strategic transaction parties of the nine parties contacted (and subsequently amended a confidentiality agreement with another, Party C, to more specifically address the exploration of a potential business combination). The confidentiality agreements for potential strategic transactions included, in addition to Parent, an industry participant referred to as “Party D” (which later entered into an amendment to its confidentiality agreement with the Company in May 2020), a private equity firm referred to as “Party E”, and a private equity firm referred to as “Party F”. All of the confidentiality agreements contained standstill provisions that prohibited the counterparty from making unsolicited proposals to acquire the Company, among other things. However, each confidentiality agreement permitted the counterparty to make unsolicited private proposals to the Board from and after the time the Company entered into a definitive agreement to engage in a change of control transaction. Four potential strategic transaction parties that had been contacted declined to sign a confidentiality agreement or pursue a strategic transaction with the Company.

On April 24, 2020, the Board met, with members of management and representatives of Sidley and Citi also present. Management and Citi reviewed the discussions to date with potential financing sources and potential strategic transaction parties. Citi relayed an unsolicited conversation that one of the Company’s current stockholders and potential alternative financing source (which we refer to as “Party G”) had with it in which Party G indicated that (a) it was important that the Company obtain additional liquidity, (b) Party G believed that the market environment was difficult for a business in the Company’s industry and the Company should explore a sale of the Company, particularly if the only other alternative was a convertible equity financing that would significantly dilute existing investors, and (c) while Party G was not interested in acquiring the Company, Party G might be willing to provide equity financing to the Company in the absence of other options for the Company or in the event the Company were to considered a dilutive equity financing from another party. The Board instructed management to continue to expeditiously seek amendments from the Company’s existing lenders and financing from other potential financing sources, as well as to continue to pursue the potential strategic transactions discussed with the Board.

On April 28, 2020, Parent and the Company executed a confidentiality agreement to facilitate due diligence.

 

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Over the next several weeks, the Company provided management presentations to potential strategic transaction parties that had executed confidentiality agreements, including Parent, Party C, Party D, Party E and Party F.

On May 5, 2020, the Board met, with members of management and representatives of Sidley and Citi also present for portions of the meeting. Management and the Company’s advisors updated the Board on the progress to date with respect to modifications to the Company’s existing debt facilities, securing additional financing and pursuing strategic transaction alternatives. Management noted that it continued to work on potential debt restructuring and refinancing alternatives, including amendments to the Company’s existing debt facilities, with traditional financing sources and, with the assistance of the Company’s advisors, potential alternative financing. Management also noted that it had held discussions with the Company’s existing lenders to provide them with an overview of the illustrative financial and liquidity scenarios that the Company had reviewed with the Board and the potential amendments and additional credit commitments that the Company was seeking.

During May through mid-June 2020, in accordance with the Board’s directives, each of the six potential alternative financing sources that signed a confidentiality agreement with the Company received from Citi, on behalf of the Company, materials regarding the Company and its business to assist the potential alternative financing source in determining whether to explore a potential financing of the Company and held discussions with representatives of Citi regarding such materials.

On May 11, 2020, the Company filed with the Securities and Exchange Commission a Current Report on Form 8-K in which the Company disclosed, among other things, that it was evaluating the possibility of securing additional financing.

Also on May 11, 2020, a member of Party A’s management indicated to Mr. Stoddart that Party A would likely be interested in restarting discussions with the Company at some point in the future but had other strategic priorities at that time and that Party A was not interested in participating in an auction process.

On May 13, 2020, the Company announced financial results for the first quarter of 2020 and, as a result of the uncertainty regarding the duration of the COVID-19 pandemic and its impact on the Company’s business, withdrew its 2020 guidance.

On May 15, 2020, the Board held a meeting at which members of management and representatives of Sidley and Citi also were present. Management discussed the state of the Company’s business, noting that while the Company’s financial results for April 2020 had not yet been finalized, based on preliminary estimates, it appeared that the month of April 2020 would be approximately 10% lower than April 2019. Management summarized for the Board the discussions with the Company’s existing lenders, including the existing lenders’ request for updated projections. Management discussed the difficulty with providing updated projections until management had a better sense of the Company’s financial results for the first half of 2020 given, among other things, uncertainty and volatility caused by COVID-19. Management stated that while it had provided the existing lenders with an overview of the illustrative financial and liquidity scenarios previously reviewed with the Board, providing the existing lenders with the underlying models of such scenarios could be helpful in accelerating the lenders’ review. Management also updated the Board on the Company’s efforts to seek funds under the Main Street Lending Program. Citi and management provided an update on the solicitation process for alternative financing sources and potential strategic transaction parties. The Board discussed a timetable for the financing alternatives and strategic transaction processes, noting a desire to advance the traditional financing process as quickly as possible, in particular the Main Street Lending Program, if possible, and to keep each alternative in sync from a timing perspective so that the Board would be in a position consider such alternatives concurrently. Following discussion, the Board directed Citi and management to inform the alternative financing sources and strategic transaction parties that preliminary term sheets or indications of interest would be due on June 2, 2020.

 

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Following the Board meeting, the June 2, 2020 preliminary term sheet/indication of interest deadline was communicated to the relevant parties as instructed by the Board.

On May 17, 2020, Parent, Party E and Party F were granted access to Phase I of the electronic data room containing due diligence information about the Company. On May 18, 2020, Party D was granted access to Phase I of the electronic data room containing due diligence information about the Company . On May 20, 2020, Party C was granted access to Phase I of the electronic data room containing due diligence information about the Company

On May 20, 2020, the Board held a meeting to review the illustrative financial and liquidity scenarios that management had updated based on the Company’s financial results since the scenarios were last prepared and to discuss the amount of potential financing to seek. Management stated that the scenarios were not projections but rather illustrative planning tools based on different assumptions regarding potential recovery scenarios. The Board discussed whether the amount of additional credit commitments sought was adequate and whether the downside scenario was sufficiently severe under the circumstances. Management reviewed potential modifications to the Company’s existing debt facilities which, coupled with additional financing commitments, might provide the Company with sufficient liquidity. Following discussion, the Board authorized management to share the scenarios with the Company’s lenders.

During the week of May 25, 2020, management engaged in discussions with the Company’s existing lenders regarding potential amendments to the Company’s credit facilities and new credit commitments to provide additional liquidity, and shared with the lenders the illustrative financial and liquidity scenarios previously reviewed with the Board. Management also continued to pursue the Main Street Lending Program and to contact other banks regarding potential financings from such banks. Management and the Company also continued to engage in discussions with potential alternative financing sources.

On May 28, 2020, a representative of the financial advisor for Party D discussed with representatives of Citi that while Party D believed that a transaction with the Company made strategic sense, Party D was concerned about the financial impact of COVID-19 on the Company and believed that the Company’s annual EBITDA run-rate over the next 18 months could be in the range of $20 to $25 million. Accordingly, if Party D were to submit an indication of interest, it would value the Company below the Company’s then current stock price of $1.30. The representative informed Citi that, given the expectations that the Company ultimately would not be interested in a business combination at that valuation, Party D had decided not to pursue further discussions with the Company regarding a potential strategic transaction.

On May 29, 2020, the Board held a meeting, at which members of management and representatives of Sidley and Citi also were present. Management updated the Board on the Company’s financial performance, noting that April 2020 revenue had declined approximately 28% relative to April 2019 revenue and relative to the 10% revenue decline that management previously had estimated a few weeks earlier. Management also reviewed certain developments with clients, including the bankruptcy filing by one client and indications by another client that it was reducing its workload for the Company. Management and the Company’s advisors updated the Board on discussions with respect to potential financing sources and strategic transaction parties. Management informed the Board that based on updated FAQs under the Main Street Lending Program, management was relatively confident that the Company would meet the eligibility criteria but was uncertain regarding the likelihood that any banks would be willing to lend to the Company under the Program. Management reviewed its recent discussions with several banks, noting that initial feedback generally had been positive but that the discussions were preliminary and management would have a better sense of whether the banks would be willing to lend to the Company under the Main Street Lending Program after further discussions. Management also reviewed its discussions with the Company’s existing lenders, noting that while such lenders indicated a willingness to consider amendments to the Company’s existing facilities, if needed, they were less willing to extend additional credit to the Company in the form of increased credit commitments. Citi discussed some of the alternative financing sources and strategic transaction parties that had withdrawn from the process and their stated rationale, including providing a summary of the conversations Citi had with Party D, and Mr. Stoddart had with Party A.

 

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On June 2, 2020, the Board held a meeting, at which members of management and representatives of Sidley and Citi also were present. The Board discussed the process for management’s preparation of updated projections and that the Company’s financial results and economic conditions seemed to be settling, providing the Company with better insight into the remainder of 2020 and making it more feasible to prepare projections. Citi summarized for the Board certain financial information regarding the Company. Management and the Company’s advisors discussed potential next steps, including the upcoming June 5th meeting to review term sheets and indications of interest, the next phase of the process and related timing.

During the end of May 2020 through June 2, 2020, the Company received (a) term sheets from two alternative financing sources, referred to as “Financing Party A” and “Financing Party B,” and (b) indications of interest from each of Parent, Party C and Party E with respect to a potential acquisition of the Company. None of the other six potential alternative financing sources that signed confidentiality agreements with the Company prior to June 2, 2020 submitted a term sheet.

The term sheet from Financing Party A contemplated a $25 million “last out” senior secured term loan credit facility. The term sheet from Financing Party A included interest rates, an original issue discount and other financial terms estimated to result in an “all-in cost” of approximately 11.25%. In addition, the term sheet contemplated penny warrants for approximately 2.5% of the Company’s outstanding common stock on a fully-diluted basis. The structure of the financing required the consent of the Company’s existing lenders. The term sheet from Financing Party B contemplated a $100 million first lien term loan not to exceed 3.0x third-party confirmed 2020 estimated EBITDA, the proceeds of which would be used in part to refinance the Company’s existing Term Loan Facility. The $100 million facility contemplated by Financing Party B would not, however, be sufficient to provide the Company with additional liquidity after repayment of the Company’s existing Term Loan facility. The term sheet from Financing Party B included interest rates, amortization and other economic terms estimated to result in an “all-in cost” of approximately 13.25%.

Parent’s indication of interest contemplated a purchase price of $2.30 to $2.90 per share and indicated that committed financing would be in place at signing of the transaction agreement. Party C’s indication of interest did not include a specific price but indicated a valuation that would be based on 6.5x to 8.5x normalized 2020 estimated EBITDA. Party E’s indication of interest contemplated a per share proposal of $1.50 to $2.50 per share and contemplated committed financing at the time of signing.

Following receipt of the term sheets from Financing Parties A and B and indications of interest from Parent and Parties C and E, Citi held clarifying discussions with each party as instructed by the Board.

On June 5, 2020, the Board met to discuss the term sheets from Financing Parties A and B and indications of interest from Parent and Parties C and E received by the Company, with members of management and representatives of Sidley and Citi also present. Sidley reviewed with the Board its fiduciary duties in connection with considering financings and transactions of the type reviewed. Management reviewed the Company’s financial results for April 2020 and updated views on the remainder of 2020, noting that revenue was forecast for 2020 to be approximately 24% less than originally planned for 2020 in the 2020 Operating Plan. Management discussed the latest developments on the Main Street Lending Program, noting less optimism that banks would be willing to lend to the Company under the Program. Citi then updated the Board regarding the alternative financing sources term sheets and strategic transaction indications of interest received, noting that two of the alternative financing sources contacted (Financing Party A and Financing Party B) submitted term sheets and three of the nine potential strategic transaction parties (Parent, Party C and Party E) submitted indications of interest. Citi summarized certain terms of the term sheets and indications of interest, noting for the Board potential timing considerations, outstanding items to be completed (including in the case of financing parties, approval from the Company’s existing lenders) and matters relating to such parties’ due diligence processes. Management stated that, in light of the uncertainty surrounding the Main Street Lending Program and other traditional financing alternatives, management recommended proceeding with each of the two alternative financing sources and with Parent, Party C and Party E. Following discussion, the Board authorized management and the Company’s advisors to proceed as recommended.

 

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In accordance with the Board’s directives, Citi informed Financing Parties A and B, Parent, Party C and Party E that the Company was interested in continuing discussions with each of them, subject to improvement in their proposed terms, and assisted management in providing additional information to such parties to enable them to finalize and improve their proposals.

On June 9, 2020, Parent, Party C and Party E were granted access to Phase II of the electronic data room containing additional due diligence information about the Company

During mid to late June 2020, in accordance with the Board’s directives, management and Citi expanded the list of potential alternative financing sources for the Company and contacted an additional six potential alternative financing sources regarding their interest in providing financing to the Company. Four of the six potential alternative financing sources signed confidentiality agreements.

On June 12, 2020, Financing Party B informed Citi that given its typical investment size, it was not willing to upsize the contemplated $100 million first lien term loan proposal and therefore would not be in a position to provide the Company with additional liquidity. Financing Party B confirmed that it had decided not to pursue further discussions with the Company regarding a potential financing alternative.

Also on June 12, 2020, the Board met, with members of management and representatives of Sidley and Citi also present. Management and the Company’s advisors updated the Board on the status of the various alternatives under consideration. Citi indicated that Financing Party B had withdrawn from the process and that only Financing Party A remained. The Board discussed the process for receiving definitive bids from the remaining parties, including timing and messaging. Sidley reviewed with the Board a draft auction merger agreement which could be used with Parent and Parties C and E. The draft agreement contemplated (a) a tender offer structure, (b) limited closing conditions, including a material adverse effect definition that excluded effects caused by or relating to COVID-19 or measures to address it, (c) the ability of the Board to terminate the merger agreement to accept a superior proposal subject to paying a termination fee equal to 2% of the equity value of the transaction, (d) the ability of the Board to change its recommendation and terminate the merger agreement in circumstances other than responding to a superior proposal if the Board determined that failure to do so would be reasonably likely to be inconsistent with its fiduciary duties, in which case the Company would not pay a termination fee unless, within 12 months thereafter, the Company signed a definitive agreement for a change of control transaction and subsequently consummated such transaction, (e) a termination fee payable by the buyer of 10% of the equity value of the transaction if it failed to close when required as well as the ability of the Company to seek damages in excess of such amount for a willful and material breach by the buyer, (f) the ability of the Company to obtain specific performance if the buyer did not close when required, and (g) working capital support from the buyer if the transaction had not closed within 120 days after signing. The Board discussed the process to instruct bidders in the strategic transaction process to submit final bids, including the contemplated July 7th deadline for submitting final bids. The Board discussed with management and the Company’s advisors whether July 7th would be sufficient time to allow for (i) greater clarity to be obtained regarding whether the Main Street Lending Program would be available and lenders would be willing to lend funds to the Company under such Program and completion of related documentation, and (ii) completion of documentation with respect to alternative financing sources. The Board determined to continue with the July 7th timeline, noting that it was unclear at that point whether any of the financing alternatives would be available irrespective of the amount of time provided and that, if any of the financing options began to show more promise as the process progressed, the Board could at that point slow down the pace of the strategic transaction process if necessary to allow any promising financing options to be more fully developed. The Board authorized management and the Company’s advisors to provide a draft merger agreement to Parent and Parties C and E and to inform such parties of the July 7th deadline for submission of final proposals.

In accordance with the Board’s directives, following the Board meeting, Citi contacted Financing Party A, Parent, and Parties C and E to inform them of the Company’s July 7th submission deadline and delivered to Parent, Party C and Party E a draft of the merger agreement. The Company continued to engage in discussions

 

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with both its existing lenders and other banks regarding the potential for borrowings under the Main Street Lending Program and discussions with its existing lenders regarding amendments to the existing facilities. During these discussions, the Company was informed that the lenders were not willing to agree to amendments to permit the financing proposed by Financing Party A but would be willing to engage in more detailed discussions with the Company regarding amendments to the Company’s existing debt facilities given the Company’s potential need.

Over the next several weeks, the Company conducted due diligence calls with each of Parent, Party C and Party E.

On June 16, 2020, Sidley engaged in a conference call with representatives of Kirkland & Ellis LLP (“Kirkland”), counsel to Parent, regarding certain terms of the merger agreement, including the structure as a tender offer, the financing recourse provisions and the working capital support arrangement.

Also on June 16, 2020, the Company signed a confidentiality agreement with “Financing Party C,” one of six alternative financing sources contacted during the month of June 2020.

On June 19, 2020, the compensation committee of the Board (the “Compensation Committee”) held a meeting to discuss potential severance and retention arrangements to ensure that key members of management remained with the Company through the course of any transaction. Also present for the meeting were representatives of the Compensation Committee’s compensation consulting firm (which we refer to as the “Committee compensation consultant”) and Sidley. With the permission of Ms. Julie Howard, the Chairwoman of the Compensation Committee, Mr. Stoddart had contacted the Committee compensation consultant to obtain its advice. Mr. Stoddart noted that some key members of senior management were relatively new to the Company and had retention and severance packages that may not be adequate to incentivize them to remain with the Company until the conclusion of a transaction. Mr. Stoddart also noted that the Committee compensation consultant indicated that all of the Company’s senior management (CEO and executive vice presidents) had severance agreement terms that were below market and recommended modifying all of them. In particular, the following changes were recommended in respect of a qualifying termination of the applicable executive’s employment following a change in control of the Company: (a) an increase in the severance multiplier (from 2 times base salary and target bonus to 2.5 times for the CEO and from 1 times to 1.5 times for five other executives), (b) a change in the calculation of the payout of the annual bonus from pro-rata for the portion of year completed as of termination based on actual performance to pro-rata based on target opportunity, (c) a change in the timing of the severance payments from monthly installments to a lump-sum payment, (d) the continuation of medical benefits for a period following termination of employment and (e) an allocation of a portion of the severance payments to the post-termination non-compete in each executive’s employment agreement. The costs of the modifications were estimated by the Committee compensation consultant to be approximately $3.1 million. The Compensation Committee noted that all of the modifications discussed had been considered by the Compensation Committee in the fall of 2019 and at that time the Compensation Committee was positively inclined towards, but had not yet had the opportunity to implement, such modifications. Sidley discussed with the Compensation Committee members their fiduciary duties in considering the potential changes. The Compensation Committee, together with the Committee compensation consultant and Sidley, engaged in a discussion with respect to the potential impact of such arrangements in the context of a sale process, the likelihood that key members of management would leave the Company without such arrangements, and other actions the Company could take to retain key members of management.

Also on June 19, 2020, the Board held a meeting at which members of management and representatives of Sidley and Citi also were present. Management reviewed the Company’s financial results. Management and Citi reviewed the status of the potential financings and the strategic transaction alternatives. Management noted that banks continued to express concern regarding financing under the Main Street Lending Program. Management also informed the Board that Financing Party A’s structure was rejected by the Company’s existing lenders and therefore Financing Party A was no longer in the process. Citi updated the Board regarding its discussions with

 

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additional potential financing sources, including Financing Party C. Citi noted that Financing Party C had indicated that it was considering a proposal to provide debt financing sufficient to refinance the Company’s Term Loan Facility and provide the Company with additional capital in excess thereof. The Board discussed whether Citi and management should contact Party B and Party G regarding their willingness to provide the Company with financing. The Board also requested that management prepare a summary of additional cost savings and other measures the Company could take in the event the Company did not find a suitable financing or strategic transaction alternative. Management discussed with the Board the estimated date by which the Company would breach certain financial covenants in its debt facilities absent additional liquidity or covenant relief. In response to questions from the Board, management noted that, based on prior experience, lenders may waive financial covenant breaches on a few occasions but would not permit financial covenant breaches over an extended period. The Board then went into executive session with Sidley remaining present. Sidley and the Board discussed certain information provided by Citi regarding Citi’s material investment banking relationships with the Company and certain bidders during the prior two-year period. Following discussion, it was the consensus of the Board that based on such information, Citi did not have any material relationships that would prevent Citi from providing independent advice to the Company. The Committee compensation consultant then joined the meeting and the Board discussed the potential modifications to the severance and retention arrangements of key executives of the Company. Following discussion, the Board requested more information from the Committee compensation consultant to further review and understand the proposals.

On June 23, 2020, Party C informed Citi that it had determined not to continue in the process and indicated concerns regarding the greater uncertainty in a COVID-19 environment and that it considered the potential acquisition of the Company too sizeable an investment.

Also on June 23, 2020, the Company signed a confidentiality agreement with “Financing Party D,” one of six alternative financing sources contacted during the month of June 2020.

On June 24, 2020, the Board met, with members of management and representatives of Sidley and Citi also present. Citi informed the Board that Party C had withdrawn from the process. Management informed the Board that while the Company’s existing lenders were willing to consider amendments to the terms of the existing credit facilities to provide some liquidity relief, they were not willing to increase the size of their financing commitments to the Company. Citi also informed the Board that a potential financing source, referred to as “Financing Party D,” which was in early stages of discussions, had indicated that it was considering a $25 to $50 million investment in the Company with an interest rate of approximately 15%. Management discussed a draft five-year plan and the methodology used by management in preparing the plan and the Board provided input to management. The Board then turned to the topic of the changes in executive severance agreements that had been discussed on June 19. The Board discussed with the Company’s advisors the potential impact that the severance agreement changes under discussion could have on the Company’s strategic transaction negotiations, including any potential impact on purchase price. Citi indicated that, assuming the proposed changes as discussed by the Compensation Committee with the Committee compensation consultant reflected customary market terms and based on the tone of the discussions to date with Parent, Citi did not anticipate a decrease in the purchase price proposed by Parent as a result of the proposed changes. The Board determined that it would take the discussion under further consideration.

On June 26, 2020, the Company signed a confidentiality agreement with “Financing Party E,” one of six alternative financing sources contacted during the month of June 2020.

Also on June 26, 2020, the Board held a meeting to consider the draft five-year plan, with members of management and representatives of Sidley and Citi also present. The Board discussed the fact that the Company did not typically prepare five-year plans and had not achieved the level of financial performance contemplated by recent five-year plans previously prepared. Management reviewed the draft plan, including the modifications discussed with the Board. Following discussion, the Board accepted the five-year plan and authorized management to share it with Citi for purposes of its financial analysis and with the remaining potential financing

 

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sources and remaining strategic transaction parties. Management described the current state of discussions with the Company’s existing lenders, noting that management expected the discussions to progress more rapidly now that the lenders would be provided the Company’s five-year plan. Management also noted for the Board those banks that had declined lending to the Company under the Main Street Lending Program. The Board instructed management, in order to expedite the lenders’ review process, to provide such lenders with a draft term sheet detailing the relief management sought. Citi updated the Board on the status of discussions with Financing Party C and Financing Party D and noted that Financing Party E had indicated that it was considering providing a term sheet. The Board then discussed whether to contact one or more of the potential equity financing sources that the Board previously had considered, including Party B and Party G. The Board, management and the Company’s advisors discussed various considerations, including that (i) bringing any potential equity financing source into the process at this stage that was not already familiar with the Company could cause significant delay (management noted due diligence could be six weeks or more) and there was no guaranty any of them would be willing to provide financing on terms acceptable to the Company or at all, (ii) one of the parties that was familiar with the Company, Party G, had indicated it would only consider an investment if the Company did not have other alternatives and otherwise would engage in a dilutive offering and (iii) based on the terms previously provided by Party B, it was likely any financing it would be willing to provide would be expensive and highly dilutive to the Company’s stockholders. Based on the foregoing, management recommended that the Company focus on the discussions with Financing Parties C, D and E. Following discussion, the Board determined to follow management’s recommendation.

On June 29, 2020, the Board held a meeting to further discuss potential modifications to the executive severance agreements. Ms. Howard discussed an alternative package that the Committee compensation consultant estimated to cost between $1.1 million and $1.3 million. The principal differences from the modifications discussed at the June 19, 2020 Compensation Committee and Board meetings were (a) no increase in severance multipliers and (b) adjustments to the allocation of severance benefits to the non-compete provisions in the employment agreements. Following discussion, it was the consensus of the Board to proceed with the alternative package developed by the Compensation Committee. The Board also considered severance and retention packages for key employees of the Company below the executive level, which packages were designed to ensure the retention of those employees through the closing of any potential merger. The packages discussed for the key non-executive employees had an aggregate cost of less than $750,000 assuming all such employees were terminated following completion of the potential merger. Following discussion, it was the consensus of the Board to proceed with the severance and retention package for executive officers and other key employees.

On June 30, 2020, Kirkland submitted a draft of the merger agreement on behalf of Parent that contemplated (a) a termination fee payable by the Company of 3.5% of the equity value of the transaction if the Company terminated the agreement to accept a superior proposal, (b) a broader material adverse effect closing condition that permitted Parent to take into account (i) adverse developments from customers and others arising from the transaction and (ii) COVID-19 impacts to the extent they had a material and disproportionate impact on the Company relative to others in the industry, (c) a new closing condition that no proceeding was pending seeking to adjudicate the Company bankrupt, (d) that absent a superior proposal, the Board could only change its recommendation in response to an “intervening event” that occurred after signing which was neither known or reasonably foreseeable to the Board prior to signing and caused the Board to conclude that failure to change its recommendation would be inconsistent with its fiduciary duties, in which case Parent (but not the Company) could terminate the merger agreement and the Company would be required to pay a termination fee to Parent equal to 3.5% of the equity value of the transaction, (e) expense reimbursement payable by the Company up to an amount to be specified in the event that the Company’s shareholders did not approve the transaction, (f) a termination fee payable by Parent equal to 6.0% of the equity value of the transaction if it failed to close when required but eliminated the Company’s right to seek any damages in excess of such amount for a willful and material breach by Parent, and (g) limited ability of the Company to seek specific performance to cause the consummation of the merger to those situations in which Parent’s debt financing was funded or would fund if Parent’s equity commitments funded. The draft also indicated that Parent would prefer a one-step merger to a tender offer structure and reserved on the matter of providing working capital support to the Company.

 

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On July 1, 2020, the Company provided management presentations to Financing Parties C, D and E. Each party was informed that it should submit a term sheet no later than July 7, 2020 for its financing proposal to be considered by the Company.

On July 2, 2020, the Board met, with members of management and representatives of Sidley and Citi also present. Mr. Stoddart summarized a conversation he had with Parent’s Chief Executive Officer, Mr. Robert MacMillan. Mr. MacMillan had inquired whether Mr. Stoddart believed the senior management team would remain with the combined company following the closing of a potential transaction. Mr. Stoddart indicated that he responded that while the management team believed in the Company and the plan, he would not engage in those discussions at that time. Citi reviewed preliminary financial perspectives on the Company based on management’s five-year plan. The Board discussed that, while economic conditions seemed to be stabilizing, there remained some risk that in the event conditions did not stabilize and the Company faced an extended economic downturn without sufficient liquidity it could be required to file for bankruptcy. The Board considered various sensitivities to the five-year plan. Sidley then reviewed the draft merger agreement from Parent, noting the changes described above. The Board discussed potential responses to Parent’s draft, with particular focus on the following provisions, to address the timing and certainty of closing: (a) Parent’s expansion of the material adverse effect definition to allow it to take into account adverse effects arising from the transaction and COVID-19 impacts to the extent they materially and disproportionately affected the Company, (b) the transaction structure of a one-step merger versus a two-step tender offer structure, (c) financing recourse provisions and (d) the expense reimbursement payable by the Company up to an amount to be specified in the event that the Company’s stockholders did not approve the transaction. As requested by the Board, management reviewed with the Board the potential additional cost saving and other measures the Company could take if no alternative financing or strategic transaction occurred and the Company experienced severe liquidity difficulties.

Later on July 2, 2020, the Company sent to the Company’s existing lenders revised term sheets contemplating the amendments that the Company had requested to the existing facilities to provide additional liquidity, as well as additional term loans in an aggregate principal amount equal to $25 to $50 million. Over the next week, the Company and the Company’s existing lenders negotiated the term sheet with the goal of the lenders providing an updated term sheet on July 7, 2020.

On July 3, 2020, in accordance with the Board’s directives, Citi contacted Parent’s financial advisor to discuss Parent’s draft of the merger agreement, informing Parent’s financial advisor that the Board had requested that Parent improve its position by (a) modifying the definition of material adverse effect so that it could not take into account adverse effects arising from the transaction or any COVID-19 impacts, (b) providing for a financing recourse package along the lines initially proposed by the Company, and (c) eliminating the provision requiring that the Company reimburse Parent’s expenses in the event that the Company’s stockholders did not approve the transaction.

Also on July 3, 2020, Mr. Greenberg discussed with Mr. Stoddart the potential for indicating to Parent a willingness on the part of senior management to remain with the combined Company post-closing of a transaction. Mr. Greenberg noted the rationale for informing Parent of management’s willingness was to attempt to increase the likelihood that Parent would increase its proposed purchase price by eliminating some doubt that Parent might have regarding the post-closing management team. Mr. Stoddart informed the other members of the Board that, in an effort to increase Parent’s proposed purchase price, Mr. Stoddart was planning to inform Parent that senior members of management would consider remaining with the combined company post-closing of a transaction but that Parent was not to have any discussions with senior management on the topic. Mr. Stoddart subsequently called Mr. MacMillan to convey that message.

On July 6, 2020, Financing Party E notified Citi that, after investigating the opportunity in more detail, Financing Party E had decided not to pursue further discussions with the Company regarding a potential financing alternative.

 

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Also on July 6, 2020, in accordance with the Board’s directives, Mr. Stoddard relayed to Mr. MacMillan and Citi relayed to Parent’s financial advisor that Parent should put its best foot forward on price.

On July 7, 2020, the Company received:

 

   

A revised term sheet from the Company’s Term Loan Facility lender specifying the amendments it would be willing to agree to but noting it would not provide additional term loan commitments. The term sheet also contemplated additional penny warrants for 2.50% of the fully diluted common stock of the Company if the Company’s leverage ratio was above 4x at any time as reported in any quarterly covenant compliance period prior to the second quarter of 2021.

 

   

A term sheet from Financing Party C providing for a $135 million senior secured term loan with proceeds used to refinance the existing Term Loan Facility and providing for additional liquidity, with “all-in costs” estimated to be approximately 13.1%. The term sheet also contemplated warrants equal to 4% of the outstanding common stock with a strike price set at a 20% premium to the seven-day volume weighted average trading price of the Company’s common stock. The term sheet contemplated that Financing Party C could complete due diligence and target closing by August 21, 2020.

 

   

A final proposal from Parent at a purchase price of $2.80 per share. The bid included proposed equity and debt financing commitments and an indication that Parent was willing to agree to the Company’s position with respect to the definition of material adverse effect in a limited way as it related to effects arising from the transactions, to remove expense reimbursement for a termination of the transaction resulting from the Company’s stockholders failing to approve the deal and to increase the termination fee payable by Parent to 6.5% of the equity value of the transaction if Parent failed to close when required but was not willing to agree to the Company’s position on the other points relayed. The proposal indicated that Parent expected to be prepared to sign within three days of the Company’s acceptance of the proposal and that the proposal would expire at 5:00 pm EST on July 12, 2020.

Party E did not submit a final proposal and Financing Party D and Financing Party E and the other alternative financing source that signed a confidentiality agreement with the Company during the month of June 2020 did not submit term sheets or other proposals.

On July 9, 2020, the Board met to consider the financing term sheets received and Parent’s final proposal, with members of management and representatives of Sidley and Citi also present. Citi informed the Board that Party E had indicated that it would need additional time for due diligence and likely would be willing to propose a purchase price only at or below the bottom of its initial proposed range of $1.50 to $2.50 per share. Citi also informed the Board that neither Financing Party D nor Financing Party E had submitted a proposal. Management and the Company’s advisors reviewed the financing term sheets and the Parent’s final proposal. Citi provided the Board with a preliminary financial analysis of the Company. Sidley reviewed the modifications that Parent had proposed to the terms of the merger agreement as well as the terms of the financing papers. Management discussed the impact of the financing proposals in terms of additional liquidity that would be provided and the incremental costs. Management reviewed how the Company would fare under each term sheet in a base case scenario and a stress case scenario. Management noted that the Term Loan Facility amendments alone would be sufficient if the Company performed in accordance with its forecast but, in the downside scenario, the Company would face liquidity and financial covenant compliance issues. With respect to Financing Party C, management noted that the proposed financing was expensive and there was greater uncertainty because Financing Party C had not conducted detailed due diligence. It was noted that Financing Party C’s proposal would result in significant dilution to the stockholders of the Company. The Board then further discussed the proposals and potential responses. Citi provided its views on the state of the M&A market. The Board, management and the Company’s advisors discussed their views on the potential timing impact of attempting to negotiate further the financing proposals and the potential reaction from Parent and Blackstone if the Company attempted to delay the pace of negotiations with Parent and Blackstone. Citi informed the Board that in its discussions with Parent’s financial advisor, Citi had relayed that Parent should put its best foot forward on price. The Board, management

 

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and the Company’s advisors considered, in light of that message, the amount by which Parent might be willing to increase its offer price, if any. Mr. Stoddart and the Board discussed the risks in the financing proposals, both in terms of whether they would provide adequate liquidity and whether the parties would complete due diligence and successfully negotiate definitive financing agreements. The Board took note of the costs of each of the financings and the concern that such financings would be dilutive to stockholders. Management also noted that, based on discussions with numerous banks, management was not confident that any lending under the Main Street Lending Program would be available to the Company. Turning to Parent’s proposal, Mr. Stoddart stated that Parent’s proposed purchase price of $2.80 per share was at the high end of Parent’s previously indicated purchase price range of $2.30 to $2.90 per share and he believed there might be a modest price increase potential, if any. Mr. Stoddart also discussed the Company’s development since he became the Company’s Chief Executive Officer and the review of financing and strategic transaction alternatives the Company began in April 2020. He noted that 41 potential alternative financing sources and five traditional financing sources had been contacted since the beginning of April 2020, but that ultimately the Company had received only one term sheet from a traditional financing source and one term sheet from an alternative financing source in connection with the July 7th bid date. He also noted that the Company had contacted all nine of the parties that the Board considered most likely to be interested in pursuing a strategic transaction with the Company, and had received only one final proposal. Mr. Stoddart noted that, while the Company had made progress on its transformation plan, there was still meaningful work to be done and that the COVID-19 pandemic had made that work more difficult. He also discussed the challenges the business still faced. Based on the foregoing, Mr. Stoddart stated that management recommended that the Company pursue Parent’s proposal and attempt to improve such proposal in terms of price and conditionality. Based on, among other things, (a) the uncertainty with respect to the financing proposals (both in terms of the amount of liquidity provided and likelihood that the parties would complete due diligence and finalize definitive financing agreements), (b) the significant costs of the proposed financing terms, (c) the lack of success in obtaining other financing for the Company either under the Main Street Lending Program or from alternative financing sources, (d) the adverse impact that the Company’s significant indebtedness was expected to have on the Company’s financial flexibility and its ability to invest in new business or projects, (e) the execution risk and uncertainty in the Company’s five-year plan and (f) the certainty of value provided by an all-cash merger proposed by Parent, the Board agreed with management’s recommendation and instructed the Company and its advisors to further negotiate with Parent, with the objective of improving Parent’s proposal both from the perspective of price and certainty of closing.

On July 10, 2020, advisors for the Company and Parent held a conference call on which the Company’s advisors relayed the Board’s message that the Board was willing to move forward with Parent if Parent increased its proposed purchase price and made meaningful progress on deal certainty, including (a) the material adverse effect definition that would carve out adverse effects arising from the transaction and COVID-19 impacts, (b) a financing recourse package that would include (i) a $15 million termination fee payable by Parent and (ii) the ability of the Company to seek an additional $15 million for a willful and material breach, (c) the elimination of the no bankruptcy proceeding closing condition, and (d) a tender offer structure for the transaction.

Shortly after the call, Sidley sent Parent a markup of the material adverse effect definition.

Later on July 10, 2020, Parent responded indicating (a) it would increase its proposed purchase price to $3.00 per share, (b) it would accept the Company’s terms on the material adverse effect definition, (c) it would accept the Company’s financing recourse proposal, (d) it believed, given the changes to the material adverse effect definition, that the Company should be willing to accept Parent’s no bankruptcy proceeding closing condition, and (e) it believed that a one-step merger structure was appropriate.

On July 11, 2020, the Board met to consider Parent’s revised proposal, with members of management and representatives of Sidley and Citi also present. Management updated the Board on recent customer developments. Sidley and Citi reviewed the changes to Parent’s proposal. The Board discussed potential negotiating positions and responses and authorized management and the Company’s advisors to proceed with negotiations along the lines discussed. The Board went into executive session without management (other than

 

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Mr. Stoddart). Mr. Stoddart discussed with the Board ongoing concerns regarding the ability to retain certain key officers during the pendency of the transaction. The Board discussed a proposal to provide each of the executive officers (other than Mr. Stoddart) an additional severance payment if such officer were terminated without cause within 12 months after the closing of a merger. The total costs of such proposal was approximately $525,000. The Board discussed the importance of each of the officers to the Company and took note of the fact that the parties had agreed to a purchase price for the potential merger. Following discussion, it was the sense of the Board that the additional severance benefits should be provided to the officers in an effort to retain them.

Over the next several days, the Company and Parent and their respective advisors negotiated the terms of the merger agreement, the Company disclosure letter and financing commitments.

On July 15, 2020, the Board met to consider the approval of the final version of the merger agreement, with members of management and representatives of Sidley and Citi also present. As a follow-up to the Board’s discussion with Sidley on June 19, 2020, Sidley reviewed with the Board updated information provided by Citi regarding Citi’s material investment banking relationships with the Company, Parent and Blackstone during the prior two-year period and the Board confirmed that there was no change in the Board’s views regarding Citi’s ability to provide independent advice to the Company. Mr. Stoddart informed the Board that he had not had any discussions regarding post-closing employment with Parent other than as conveyed in his July 3, 2020 communication with the Board. Sidley reviewed with the Board its fiduciary duties in considering a transaction of the nature proposed by Parent as well as the final proposed terms of the transaction. At the request of the Board, Citi reviewed with the Board its financial analysis of the merger consideration and rendered an oral opinion, confirmed by delivery of a written opinion dated July 15, 2020, to the Board to the effect that, as of such date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, the merger consideration to be received by holders of Company common stock (other than Parent, HH Finance, Sub, BTO Fund III and their respective affiliates) pursuant to the merger agreement was fair, from a financial point of view, to such holders. At the request of the Board, management confirmed that it was management’s recommendation that the Board approve the merger agreement. After further discussion, the Board unanimously approved the entry into the merger agreement.

On the morning of July 16, 2020, Parent and the Company issued a press release announcing the execution of the merger agreement.

Recommendation of the Board

At the special meeting of the Board on July 15, 2020, after careful consideration, the Board unanimously:

 

   

approved, adopted and declared advisable the execution, delivery and performance of the merger agreement, and, subject to receiving the affirmative vote of the holders of a majority of the outstanding shares of Company common stock entitled to vote thereon to adopt the merger agreement (which we refer to as the “Company stockholder approval”), the consummation by the Company of the transactions contemplated by the merger agreement, including the merger;

 

   

determined the transactions contemplated by the merger agreement, including the merger, are in the best interests of the Company and its stockholders;

 

   

directed that a proposal to adopt the merger agreement be submitted to a vote at a meeting of the Company’s stockholders; and

 

   

recommended that the Company stockholders vote “FOR” the adoption of the merger agreement.

Reasons for Recommending the Adoption of the Merger Agreement

In evaluating the merger agreement and the transactions, the Board consulted with the Company’s senior management team and outside legal and financial advisors. The Board also considered and evaluated various

 

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factors over the eighteen (18) meetings of the Board since the Board began its consideration of potential strategic alternatives in April 2020, including the following factors (not necessarily in order of relative importance), each of which the Board believed supported its unanimous determination and recommendation that the Company’s stockholders vote in favor of the merger:

Challenges the Company Faces as an Independent Company; Comprehensive Transaction Process

 

   

The Board considered the possibility of continuing to operate the Company as an independent public company, including the related risks and uncertainties and the prospects for the Company going forward as an independent entity. In doing so, the Board considered the following:

 

   

the landscape of the global marketing industry and the uncertainty surrounding projected macroeconomic conditions in the near term and long term, particularly in light of the COVID-19 pandemic, and the possibility that a significant or prolonged economic downturn or a decline in the demand for marketing materials could materially adversely affect the Company and the likelihood that the combined company would be better positioned to meet these challenges;

 

   

the current and historical financial condition, results of operations and business of the Company, with which we have had difficulty maintaining consistency, and the Company’s financial plan and prospects if it were to remain an independent company, the risks associated with achieving and executing upon the Company’s financial plan and the other risks disclosed under “Risk Factors” in the Company’s most recent annual report on Form 10-K and the Company’s most recent Quarterly Report on Form 10-Q;

 

   

the financial projections prepared by senior management of the Company, including the challenges associated with forecasting the Company’s future performance and the risks associated with the ability to meet such projections if it were to continue to operate as an independent company, taking into account the fact that management’s stand-alone plan does not anticipate a prolonged economic downturn or the loss of material customers and also considering the recent instances in which the Company has not met management’s financial projections;

 

   

the impact the Company’s significant level of indebtedness had and was expected to continue to have on the Company’s financial flexibility and its ability to invest in new businesses or projects and to return capital to its stockholders, and the related impact the requirements of working capital under our existing credit facilities had and was expected to continue to have on the Company’s cash flow; the limited availability under the Company’s asset-based lending facility under certain scenarios; the fact that, without a sale transaction, there was increased risk of future covenant violations under its term loan and asset-based lending facility; and the prospect that if the Company faced an extended economic downturn and were to cease to have liquidity before coming to an acceptable arrangement with its lenders, it could be required to file for bankruptcy;

 

   

the uncertainties associated with pursuing the Company’s strategic business plan and transformation plan; and

 

   

historical trading multiples of Company common stock and theoretical trading ranges of Company common stock based on these multiples.

 

   

The Board considered the results of the strategic and financing review process conducted by the Board with the assistance of the Company’s management and legal and financial advisors, which included, in addition to a possible sale of the Company, the following:

 

   

a review of other potential strategic alternatives, including the possibility of continuing to operate the Company as an independent public company;

 

   

a review of proposals received by the Company from potential new financing sources either to refinance its existing term loan or to provide additional mezzanine financing;

 

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a review of a proposal from its existing lenders to modify terms of its existing lending arrangements to provide additional liquidity;

 

   

a review of possible financing options under CARES Act programs;

 

   

the fact that the Company publicly announced on May 11, 2020 that it was considering financing alternatives, thereby affording any potentially interested party the opportunity to make a proposal to provide additional financing; and the fact that over 41 potential alternative financing sources and five traditional financing sources were contacted regarding a possible financing transaction involving the Company;

 

   

the fact that only two potential financing parties submitted term sheets on July 7, 2020, the uncertainty associated with each of the financing proposals (both in terms of whether the proposal would provide adequate liquidity and whether the financing party would complete its due diligence and finalize definitive financing agreements), the costs of each of the financing proposals and the potential dilutive effect on the Company’s stockholders;

 

   

the fact that nine parties were contacted regarding their potential interest in a sale transaction involving the Company, which parties the Board believed were most likely to be potentially interested in, and to have the capability to execute, a potential strategic transaction with the Company. These parties were identified based in part on the Company having surveyed the market through prior strategic alternative processes. Five parties entered into confidentiality agreements with the Company. None of these contacts resulted in proposals that the Board believed were reasonably likely to create greater value for the Company’s stockholders than the merger;

 

   

the course of negotiations with Parent, including that Parent increased its price from its “final bid,” and the Board’s belief that the terms of the merger were the best reasonably available;

 

   

that the merger agreement contemplated that Parent would pay off at closing the substantial indebtedness under the Company’s term loan and asset-based lending facility;

 

   

the Board’s belief that the immediate and certain value of the cash consideration offered to stockholders in the merger was more favorable to stockholders than the potential value of remaining an independent public company, particularly in light of the Board’s assessment that the stand-alone Company was not reasonably likely to create greater value for the Company’s stockholders after taking into account risk and timing of execution of its stand-alone plan as well as business, competitive, industry and market risk, particularly in light of the pandemic and the other factors discussed above; and

 

   

other items potentially enhancing and diminishing the value of the Company and management’s discussion of those items, individually and in the aggregate.

Merger Consideration; Certainty of Value; Liquidity; Parent

The Board considered the following with respect to the merger consideration:

 

   

the fact that the merger consideration represents an approximately 140% premium over the closing price of the shares of Company common stock on July 14, 2020 (the last trading day prior to the date on which the Board approved the merger agreement) and a 104% premium to the Company’s 90-day VWAP;

 

   

the fact that the merger consideration represents an implied enterprise value of $303 million, which represents a multiple of 7.6x 2020 Adj. EBITDA, compared to the Company’s current trading multiple of 5.0x;

 

   

the fact that the Company engaged in a competitive process in connection with which a total of nine potentially interested parties (including financial sponsors and strategic parties) were contacted and the fact that, after such process, Parent’s proposal was the most attractive;

 

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the Board’s belief, based on the process described above, that it was unlikely that any other financial sponsors or strategic buyers would be willing to acquire the Company at a price in excess of $3.00 per share;

 

   

the opinion, dated July 15, 2020, of Citi to the Board as to the fairness, from a financial point of view and as of the date of the opinion, of the merger consideration to be received by holders of Company common stock (other than Parent, HH Finance, Sub, BTO Fund III and their respective affiliates) pursuant to the merger agreement, which opinion was based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken as more fully described below under “—Opinion of the Company’s Financial Advisor;”

 

   

the fact that the form of consideration to be paid to shareholders in the merger is all cash, providing the Company’s stockholders with certainty of value and liquidity upon payment of such cash consideration;

 

   

the historical trading ranges of Company common stock and potential trading range of Company common stock and recent target prices for Company common stock issued by research analysts following Company common stock; and

 

   

the identity of Parent and Parent’s status as a strategic buyer having familiarity with the Company’s business and supported by a large private equity firm with a history of successfully completing M&A transactions.

Merger Agreement

 

   

General Terms. The Board considered the general terms and conditions of the merger agreement, including the parties’ representations, warranties and covenants, the conditions to their respective obligations, as well as the likelihood of the consummation of the merger, the proposed transaction structure, the termination provisions of the merger agreement and the Board’s evaluation of the likely time period necessary to effect the merger.

 

   

Ability to Consider Competing Proposals and to Terminate the Merger Agreement to Accept a Superior Proposal. The Board considered that, prior to the stockholder vote, the Company would be permitted to furnish information and participate in discussions and negotiations with a third party that provided to the Company an unsolicited proposal that is not withdrawn and that the Board determines in good faith (after consultation with the Company’s financial advisor and outside legal counsel) constitutes, or could reasonably be expected to lead to, a superior proposal (as defined in the merger agreement). The Board considered that it retained the ability to withdraw, change, qualify, withhold or modify or amend its recommendation to stockholders of the Company if, after compliance with the relevant provisions of the merger agreement, it determines in good faith (after consultation with the Company’s financial advisor and outside legal counsel) that such proposal constitutes a superior proposal and that (after consultation with the Company’s outside legal counsel) a failure to do so would be inconsistent with its fiduciary duties under applicable law. The Board also considered that, prior to the stockholder vote, it would be able to cause the Company to terminate the merger agreement to enter into an acquisition agreement to effect a superior proposal, subject to the payment to Parent of a termination fee of approximately $6.2 million in connection with the termination of the merger agreement.

 

   

Ability to Change Recommendation to Stockholders due to an Intervening Event. The Board considered that it retained the ability to withdraw, change, qualify, withhold or modify or amend its recommendation to stockholders of the Company in response to an intervening event (as defined in the merger agreement) if it complies with the relevant provisions of the merger agreement and determines in good faith (after consultation with the Company’s outside legal counsel) that a failure to do so would be inconsistent with its fiduciary duties under applicable law. The Board also noted that the exercise of this right would give Parent the right to terminate the merger agreement, which would result in the payment to Parent of a termination fee of approximately $6.2 million in connection with the termination of the merger agreement.

 

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Termination Fee. The Board considered the fact that the Board believed that the termination fee of approximately $6.2 million payable to Parent under the merger agreement in certain circumstances, approximately 3.5% of the aggregate equity value of the transaction, is reasonable and would not preclude other offers.

 

   

Likelihood of Consummation. 

 

   

No Financing Condition. The Board considered that Parent has executed commitment letters for the equity and debt financing and that the transactions are not subject to a financing condition. The Board considered the fact that Parent is required to pay a termination fee of $15.0 million if it does not close when required and that the merger agreement provides that the Company can recover an additional $15.0 million in the event of a willful and material breach of the merger agreement.

 

   

Limited Closing Conditions. The Board considered that, other than the expiration or early termination of the waiting period under the HSR Act and certain non-US antitrust and foreign investment approvals, the merger agreement contains limited closing conditions. The Board considered prospects for receiving such approvals are good. The Board also considered that the outside date for completion of the merger is nine months from the date of the merger agreement. The Board considered that, taken together, these provisions could provide assurance to the Company’s employees, counterparties and customers that the prospects for closing are good.

 

   

Specific Performance Right. The Board considered the fact that if Parent fails to satisfy its obligations under the merger agreement, the Company is entitled to specifically enforce the merger agreement, in addition to any other remedies to which the Company may be entitled, and has the ability to seek specific performance to cause the closing to occur if the debt financing is available.

 

   

Stockholder Approval; Dissenters’ Rights. The Board considered the fact that the merger agreement must be approved by the Company’s stockholders and that stockholders of the Company will have the right to exercise appraisal rights rather than accept the merger consideration.

Negative Factors

The Board also considered certain risks and other potentially negative factors related to entering into the merger agreement, including:

 

   

Merger Consideration. The Board considered the fact that the merger consideration represents a discount of approximately 48.4% to the 52-week high of Company common stock;

 

   

Risk of Non-Consummation. The Board considered the risk that the merger might not be consummated and the effect of the resulting public announcement of termination of the merger agreement on:

 

   

the market price of Company common stock, which the Board noted could be affected by many factors, including (i) the reason or reasons for which the merger agreement was terminated and whether such termination resulted from factors adversely affecting the Company, (ii) the possibility that, as a result of the termination of the merger agreement, the marketplace would consider the Company to be an unattractive acquisition candidate, and (iii) the possible sale of Company common stock by investors following an announcement of termination of the merger agreement;

 

   

the Company’s operating results, particularly in light of the costs incurred in connection with the merger and related transactions;

 

   

the potential diversion of management and employee attention and the potential effect on business and customer, supplier and other business partner relationships;

 

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the Company’s ability to attract and retain key personnel and maintain its existing relationships with customers, suppliers and other business partners; and

 

   

Parent’s payment of a $15.0 million termination fee as being the Company’s sole and exclusive monetary remedy for Parent’s failure to close if Parent has not committed a willful and material breach.

 

   

Termination Fee. The Board considered the possibility that the Company’s obligation to pay Parent a termination fee of approximately $6.2 million if the merger agreement is terminated under certain circumstances and Parent’s matching rights could discourage other potential acquirers from making an alternative proposal to acquire the Company. The Board, however, believed that the termination fee and matching rights are reasonable and would not preclude other offers.

 

   

Regulatory Risk. The Board considered the fact that the merger might not be consummated in a timely manner or at all due to a failure by the Company and Parent to obtain the required regulatory approvals, in which case the Company would have incurred significant transaction and opportunity costs without the possibility of a specified reverse termination fee. The Board, however, believes that the prospects for receiving such regulatory approvals are good.

 

   

Possible Disruption of Business. The Board considered the possible disruption to the Company’s business that may result from the announcement of the transactions and the resulting distraction of the attention of the Company’s management and employees. The Board also considered the fact that the merger agreement contains limitations regarding the operation of the Company during the period between the signing of the merger agreement and the consummation of the proposed merger, which may delay or prevent the Company from undertaking certain business opportunities that may arise or any other action that it might make with respect to its operations.

 

   

Future Growth. The Board considered the fact that if the proposed transactions are consummated, the Company would no longer exist as an independent company, and the Company’s stockholders would no longer participate in the potential future growth and profits of the Company. The Board concluded that providing the Company’s stockholders the opportunity to sell their shares of Company common stock for cash currently was preferable to remaining as an independent public company in which the holders of such shares of Company common stock would have an uncertain potential for future gain and have possible loss in value.

 

   

Merger Consideration Taxable. The Board considered that, for U.S. federal income tax purposes, the cash consideration to be received by the Company’s stockholders in the transactions generally would be taxable to the stockholders. The Board believed that this was mitigated by the fact that the entire consideration payable in the transactions would be cash, providing adequate cash for the payment of any taxes due.

Other Factors

 

   

The Board considered the interests of certain members of senior management and the members of the Board in the transactions, which interests may be different from, or in addition to, those of the Company’s stockholders, as described in the section titled “The Merger—Interests of Directors and Executive Officers in the Merger” on page [●].

The foregoing discussion of the information and factors considered by the Board is not intended to be exhaustive, but includes the material factors considered by the Board. In view of the wide variety of factors considered in connection with its evaluation of the transactions and the complexity of these matters, the Board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The Board did not undertake to make any specific determination as to whether, or to what extent, any factor, or any particular aspect of any factor, supported or did not support its

 

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ultimate determination. The Board based its recommendation on the totality of the information presented, including the factors described above.

Opinion of the Company’s Financial Advisor

The Company has engaged Citi as its financial advisor in connection with the proposed merger. In connection with Citi’s engagement, the Board requested that Citi evaluate the fairness, from a financial point of view, of the merger consideration to be received by holders of Company common stock (other than Parent, HH Finance, Sub, BTO Fund III and their respective affiliates) pursuant to the merger agreement. On July 15, 2020, at a meeting of the Board held to evaluate the proposed merger, Citi rendered an oral opinion, confirmed by delivery of a written opinion dated July 15, 2020, to the Board to the effect that, as of that date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, the merger consideration to be received by holders of Company common stock (other than Parent, HH Finance, Sub, BTO Fund III and their respective affiliates) pursuant to the merger agreement was fair, from a financial point of view, to such holders.

The full text of Citi’s written opinion, dated July 15, 2020, which describes the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, is attached as Annex B to this proxy statement and is incorporated into this proxy statement by reference. The description of Citi’s opinion set forth below is qualified in its entirety by reference to the full text of Citi’s opinion. Citi’s opinion was provided for the information of the Board (in its capacity as such) in connection with its evaluation of the merger consideration from a financial point of view and did not address any other terms, aspects or implications of the merger. Citi expressed no view as to, and its opinion did not address, the underlying business decision of the Company to effect or enter into the merger, the relative merits of the merger as compared to any alternative business strategies that might exist for the Company or the effect of any other transaction which the Company might engage in or consider. Citi’s opinion is not intended to be and does not constitute a recommendation as to how the Board or any securityholder should vote or act on any matters relating to the proposed merger or otherwise.

In arriving at its opinion, Citi:

 

   

reviewed an execution version, provided to Citi on July 15, 2020, of the merger agreement;

 

   

held discussions with certain senior officers, directors and other representatives and advisors of the Company concerning the businesses, operations and prospects of the Company;

 

   

reviewed certain publicly available and other business and financial information relating to the Company provided to or discussed with Citi by the management of the Company, including certain financial forecasts and other information and data relating to the Company prepared by the management of the Company;

 

   

reviewed the financial terms of the merger as set forth in the merger agreement in relation to, among other things, current and historical market prices of Company common stock, the financial condition and certain historical and projected financial and operating data of the Company, and the liquidity needs and capitalization of the Company;

 

   

analyzed, to the extent publicly available, financial terms of certain other transactions which Citi considered relevant in evaluating the merger and, for informational purposes, also reviewed certain financial, stock market and other publicly available information relating to the businesses of certain other companies relative to those of the Company; and

 

   

conducted such other analyses and examinations and considered such other information and financial, economic and market criteria as Citi deemed appropriate in arriving at its opinion.

In rendering its opinion, Citi assumed and relied, without independent verification, upon the accuracy and completeness of all financial and other information and data publicly available or provided to or otherwise

 

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reviewed by or discussed with Citi and upon the assurances of the management and other representatives of the Company that they were not aware of any relevant information that was omitted or that remained undisclosed to Citi. With respect to the financial forecasts and other information and data that Citi was directed to utilize in its analyses, Citi was advised, and assumed, with the Company’s consent, that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company as to, and were a reasonable basis upon which to evaluate, the future financial performance of the Company and the other matters covered thereby. Citi expressed no view or opinion as to any financial forecasts and other information or data (or underlying assumptions on which any such financial forecasts and other information or data were based) provided to or otherwise reviewed by or discussed with Citi.

Citi relied, at the Company’s direction, upon the assessments of the management of the Company as to, among other things, (i) the potential impact on the Company of macroeconomic, geopolitical, market, competitive, cyclical and other conditions, trends and developments in and prospects for, and governmental, regulatory and legislative matters relating to or otherwise affecting, the industries and geographic regions in which the Company and its customers and suppliers operate, and (ii) implications for the Company of the global COVID-19 pandemic. Citi assumed, with the Company’s consent, that there would be no developments with respect to any such matters that would be meaningful in any respect to Citi’s analyses or opinion.

Citi did not make and was not provided with an independent evaluation or appraisal of the assets or liabilities (contingent, accrued, derivative, off-balance sheet or otherwise) of the Company or any other entity nor did Citi make any physical inspection of the properties or assets of the Company or any other entity. Citi did not evaluate the solvency or fair value of the Company or any other entity under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. Citi expressed no view or opinion as to the potential impact on the Company or any other entity of any actual or potential litigation, claims or governmental, regulatory or other proceedings, enforcement actions, consent decrees or other orders, audits or investigations. Citi assumed, with the Company’s consent, that the merger will be consummated in accordance with its terms and in compliance with all applicable laws, documents and other requirements, without waiver, modification or amendment of any term, condition or agreement in a manner that would be meaningful in any respect to Citi’s analyses or opinion, and that, in the course of obtaining the necessary governmental, regulatory or third party approvals, consents, releases, waivers and agreements for the merger or otherwise, no delay, limitation, restriction, condition or other action, including any divestiture or other requirements, amendments or modifications, would be imposed or occur that would be meaningful in any respect to Citi’s analyses or opinion. Citi did not express any view or opinion as to the prices at which Company common stock or any other securities of the Company would trade or otherwise be transferable at any time, including following the announcement or consummation of the merger. Representatives of the Company advised Citi, and Citi also assumed, that the final terms of the merger agreement would not vary materially from those set forth in the execution version reviewed by Citi. Citi did not express any view or opinion with respect to accounting, tax, regulatory, legal or similar matters, including, without limitation, as to tax or other consequences of the merger or otherwise or changes in, or the impact of, accounting standards or tax and other laws, regulations and governmental and legislative policies affecting the Company or the merger, and Citi relied, with the Company’s consent, upon the assessments of representatives of the Company as to such matters.

Citi’s opinion addressed only the fairness, from a financial point of view and as of the date of such opinion, of the merger consideration (to the extent expressly specified therein), without regard to individual circumstances of specific holders (whether by virtue of control, voting, liquidity, contractual arrangements or otherwise) which may distinguish such holders or the securities of the Company held by such holders, and Citi’s opinion did not in any way address proportionate allocation or relative fairness. Citi’s opinion did not address any terms (other than the merger consideration to the extent expressly specified therein), aspects or implications of the merger, including, without limitation, the form or structure of the merger or any terms, aspects or implications of any agreement, arrangement or understanding to be entered into in connection with or contemplated by the merger or otherwise. Citi expressed no view as to, and its opinion did not address, the underlying business decision of the Company to effect or enter into the merger, the relative merits of the merger as compared to any

 

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alternative business strategies that might exist for the Company or the effect of any other transaction which the Company might engage in or consider. Citi expressed no view as to, and its opinion did not address, the fairness (financial or otherwise) of the amount or nature or any other aspect of any compensation to any officers, directors or employees of any parties to the merger, or any class of such persons, relative to the merger consideration or otherwise. Citi’s opinion was necessarily based upon information available, and financial, stock market and other conditions and circumstances existing and disclosed, to Citi as of the date of its opinion. Although subsequent developments may affect its opinion, Citi has no obligation to update, revise or reaffirm its opinion. As the Board was aware, the credit, financial and stock markets, the industries in which the Company operates, and the securities of the Company have experienced and may continue to experience volatility and Citi expressed no view or opinion as to any potential effects of such volatility on the Company or the merger. The issuance of Citi’s opinion was authorized by Citi’s fairness opinion committee.

In preparing its opinion, Citi performed a variety of financial and comparative analyses, including those described below. The summary of the analyses below is not a complete description of Citi’s opinion or the analyses underlying, and factors considered in connection with, Citi’s opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. Citi arrived at its ultimate opinion based on the results of all analyses and factors assessed as a whole, and it did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis. Accordingly, Citi believes that the analyses must be considered as a whole and in context and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying such analyses and its opinion.

In its analyses or other methodologies undertaken, Citi considered general business, economic, market and financial conditions and other matters existing as of the date of its opinion, many of which are beyond the control of the Company. No transaction, company or business reviewed is identical or directly comparable to the merger or the Company and an evaluation of these analyses or methodologies is not entirely mathematical; rather, such analyses and methodologies involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the transactions, companies or businesses reviewed or the results from any particular analysis or methodology.

The estimates contained in Citi’s analyses or other methodologies undertaken and the ranges resulting from any particular analysis or methodology 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 such analyses or methodologies. In addition, analyses or other methodologies relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold or acquired. Accordingly, the estimates used in, and the results derived from, Citi’s analyses or other methodologies are inherently subject to substantial uncertainty.

Citi was not requested to, and it did not, recommend or determine the specific consideration payable in the merger. The type and amount of consideration payable in the merger were determined through negotiations between or on behalf of the Company and Parent and the decision on behalf of the Company to enter into the merger agreement was solely that of the Board. Citi’s opinion was only one of many factors considered by the Board in its evaluation of the merger consideration and should not be viewed as determinative of the views of the Board or the Company’s management with respect to the merger or the merger consideration.

Financial Analyses

The summary of the financial analyses described below under this heading “—Financial Analyses” is a summary of the material financial analyses reviewed with the Board and performed by Citi in connection with

 

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Citi’s opinion, dated July 15, 2020. The summary set forth below does not purport to be a complete description of the financial analyses performed by, and underlying the opinion of, Citi, nor does the order of the financial analyses described represent the relative importance or weight given to those financial analyses by Citi. Certain financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary as the tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the financial analyses, could create a misleading or incomplete view of such financial analyses. Future results may be different from those described and such differences may be material. Approximate implied per share equity value reference ranges referenced below were rounded to the nearest $0.05. For purposes of the financial analyses described below, (i) the term “EBITDA” generally refers to earnings before interest, taxes, depreciation, depletion and amortization, and (ii) the term “adjusted EBITDA” refers to EBITDA adjusted for, as applicable, certain non-recurring, non-cash and other items. Except as otherwise noted, financial data utilized for the Company in the financial analyses described below was based on certain financial forecasts and other information and data relating to the Company prepared by the management of the Company, referred to as Company management forecasts.

Discounted Cash Flow Analysis. Citi performed a discounted cash flow analysis of the Company by calculating the estimated present value (as of June 30, 2020) of the stand-alone unlevered, after-tax free cash flows that the Company was forecasted to generate during the second half of the calendar year ending December 31, 2020 through the full calendar year ending December 31, 2024 based on Company management forecasts. For purposes of this analysis, stock-based compensation was treated as a cash expense. Citi calculated implied terminal values for the Company by applying to the Company’s terminal year unlevered, after-tax free cash flow a selected range of perpetuity growth rates of 3.0% to 4.0%. The present values (as of June 30, 2020) of the cash flows and terminal values were then calculated using both a selected range of discount rates of 13.0% to 15.2% and, as a sensitivity reflective of the potential for a higher cost of capital for the Company given the Company’s lower market capitalization (as of July 14, 2020) post-global COVID-19 pandemic, a selected range of discount rates of 15.7% to 18.8%. This analysis indicated the following approximate implied per share equity value reference ranges for the Company, as compared to the merger consideration:

 

Implied Per Share Equity Value Reference Ranges:

       Merger Consideration    

At Discount Rate Range of 13.0% - 15.2%

  

At Sensitivity
Discount Rate Range of 15.7% - 18.8%

    
$2.05 – $3.55    $1.05 – $2.15    $3.00

Selected Precedent Transactions Analysis. Using publicly available information, Citi reviewed financial data relating to the following two selected transactions that Citi considered relevant for purposes of analysis as transactions involving target companies with operations in the print and business process outsourcing industry, collectively referred to as the selected precedent transactions:

 

                Announced

  

Acquiror

  

Target

        October 2018   

•  Quad/Graphics, Inc.

  

•  LSC Communications, Inc.

        July 2013   

•  Funds affiliated with Apollo Global Management, LLC

  

•  Pitney Bowes Inc. - management services business

Citi reviewed transaction values, based on the consideration paid or payable in the selected precedent transactions as a multiple of the target company’s last 12 months adjusted EBITDA, referred to as LTM adjusted EBITDA, as of the announcement date of the relevant transaction. Financial data of the selected precedent transactions were based on publicly available Wall Street research analysts’ estimates and public filings. Financial data of the Company was based on Company management forecasts.

The low and high LTM adjusted EBITDA multiples observed for the selected precedent transactions were 4.6x and 5.4x. Citi applied the range of LTM adjusted EBITDA multiples derived from the selected precedent

 

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transactions of 4.6x to 5.4x both to the Company’s LTM estimated adjusted EBITDA (as of June 30, 2020) and, as a sensitivity, to the Company’s next 12 months estimated adjusted EBITDA (for the period ending June 30, 2021). This analysis indicated the following approximate implied per share equity value reference range for the Company, as compared to the merger consideration:

 

Implied Per Share Equity Value Reference Ranges Based on:

       Merger Consideration    

LTM Adjusted EBITDA

  

At Sensitivity
NTM Adjusted EBITDA

    
$2.00 – $2.70    $1.50 – $2.05    $3.00

Certain Additional Information

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

 

   

historical closing prices of Company common stock during the 52-week period ended February 19, 2020 (pre-global COVID-19 pandemic), which indicated low and high closing prices of Company common stock of $2.58 per share and $5.81 per share, respectively, and during the period from February 19, 2020 through July 14, 2020, which indicated low and high closing prices of Company common stock of $0.87 per share and $3.99 per share, respectively, as well as 30-day and 90-day volume-weighted average prices (as of July 14, 2020) of Company common stock of $1.54 per share and $1.47 per share, respectively;

 

   

publicly available Wall Street research analysts’ stock price targets for Company common stock, which indicated an overall low to high target stock price range for Company common stock of $3.00 to $4.00 per share (on an undiscounted basis) and approximately $2.55 to $3.40 per share (discounted to present value); and

 

   

enterprise values as a multiple of calendar year 2021 estimated adjusted EBITDA, and closing stock prices (as of July 14, 2020) as a multiple of calendar year 2021 estimated earnings as adjusted for certain non-recurring items, as applicable (referred to as adjusted earnings), of selected companies in the print and business process outsourcing industry (referred to as the selected print/BPO companies) and in the marketing services industry (referred to as the selected marketing services companies), based on publicly available research analysts’ estimates; applying a selected range of calendar year 2021 estimated adjusted EBITDA multiples derived from the selected print/BPO companies and selected marketing services companies of 4.7x to 11.8x and 4.4x to 7.5x, respectively, to corresponding data of the Company based on Company management forecasts indicated approximate implied equity value reference ranges for the Company of $3.05 to $10.05 per share and $2.75 to $5.90 per share, respectively, and applying a selected range of calendar year 2021 estimated adjusted earnings multiples derived from the selected print/BPO companies and selected marketing services companies of 4.4x to 17.6x and 6.3x to 10.5x, respectively, to corresponding data of the Company based on Company management forecasts indicated approximate implied equity value reference ranges for the Company of $0.70 to $2.80 per share and $1.00 to $1.70 per share, respectively.

Miscellaneous

The Company has agreed to pay Citi for its services in connection with the proposed merger an aggregate fee currently estimated to be approximately $4.7 million, of which a portion was payable upon delivery of Citi’s opinion and approximately $3.2 million is payable contingent upon consummation of the merger. In addition, the Company agreed to reimburse Citi for Citi’s expenses, including fees and expenses of counsel, and to indemnify Citi and related parties against certain liabilities, including liabilities under federal securities laws, arising from Citi’s engagement.

As the Board was aware, Citi and its affiliates in the past have provided and in the future may provide investment banking, commercial banking and other similar financial services to the Company unrelated to the

 

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proposed merger, including, during the approximately two-year period prior to the date of Citi’s opinion, having provided financial advisory services in respect of certain potential transactions that were not consummated. As the Board also was aware, although Citi and its affiliates did not provide investment banking, commercial banking or other similar financial services to Parent during the approximately two-year period prior to the date of Citi’s opinion for which Citi and its affiliates received compensation, Citi and its affiliates in the future may provide such services to Parent and/or its affiliates, for which services Citi and its affiliates would expect to receive compensation. As the Board further was aware, Citi and its affiliates in the past have provided, currently are providing and in the future may provide investment banking, commercial banking and other similar financial services to The Blackstone Group, Inc. (“Blackstone”), which Citi was informed is an indirect equity investor in Parent through certain entities affiliated with BTO Fund III, which entities committed to provide equity financing for the merger, and/or their respective affiliates and portfolio companies, as the case may be, for which services Citi and its affiliates received and expect to receive compensation, including, during the approximately two-year period prior to the date of Citi’s opinion, having acted or acting as (i) financial advisor in connection with certain merger and acquisition transactions, (ii) lead or joint lead arranger, joint bookrunner, co-structuring agent and/or administrative agent for certain debt and equity offerings, and (iii) a lender under certain credit facilities, for which services described in clauses (i) through (iii) above, Citi and its affiliates received during such approximately two-year period aggregate fees of approximately $60 million. In the ordinary course of business, Citi and its affiliates and employees may actively trade or hold the securities or financial instruments (including loans and other obligations) of the Company, Parent, Blackstone, BTO Fund III and/or their respective affiliates and portfolio companies, as the case may be, for their own account or for the account of customers and, accordingly, may at any time hold a long or short position or otherwise effect transactions in such securities or financial instruments. In addition, Citi and its affiliates (including Citigroup Inc. and its affiliates) may maintain relationships with the Company, Parent, Blackstone, BTO Fund III and/or their respective affiliates and portfolio companies, as the case may be.

The Company selected Citi to act as its financial advisor in connection with the proposed merger based on Citi’s reputation, experience and familiarity with the Company and its businesses. Citi is an internationally recognized investment banking firm that regularly engages in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes.

Forward-Looking Financial Information

Given the unpredictability of the underlying assumptions and estimates inherent in preparing financial projections, the Company does not as a matter of general practice publicly disclose detailed projections as to its anticipated financial position or results of operations, other than providing, from time to time, estimated ranges for the then-current fiscal year of certain expected financial results in its regularly-scheduled earnings releases and other investor materials.

In June 2020, in connection with the Company’s evaluation of potential financing alternatives and strategic alternatives and following the end of the first quarter, the Company’s management prepared forward-looking financial information with respect to fiscal years 2020 through 2024 (which we refer to as the “financial projections”) (a) by estimating the Company’s results for the remainder of 2020 taking into account the Company’s results through May of 2020 and the cost savings and other COVID-19 related measures implemented by the Company (as well as the impact of such measures) and (b) assuming the decline in the Company’s revenues reached its lowest point during the second quarter of fiscal year 2020 and the Company’s revenue for existing clients returned to that contemplated in the Company’s original pre-COVID-19 2020 annual operating plan (we refer to the Company’s pre-COVID-19 2020 annual operating plan as the “Original AOP”) for the fourth quarter of 2020 by the fourth quarter of 2022. The financial projections were provided to the Board, to potential bidders that were in the process at that time, including Parent, and to the Company’s financial advisor, Citi, for its use and reliance in connection with its financial analyses and opinion as described in the section titled “The Merger—Opinion of the Company’s Financial Advisor,” beginning on page [●].

 

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The financial projections were prepared assuming the Company’s continued operation on a stand-alone basis.

None of the financial projections were intended for public disclosure. A summary of the financial projections is included in this proxy statement only because such financial projections or certain portions thereof were made available to the Board, the Company’s financial advisor and/or Parent, as applicable. The inclusion of the financial projections in this proxy statement does not constitute an admission or representation of the Company that the financial projections or the information contained therein is material.

The financial projections are unaudited and were not prepared with a view toward public disclosure or compliance with the guidelines established by the Public Company Accounting Oversight Board (United States) for preparation and presentation of prospective financial information or generally accepted accounting principles as applied in the U.S. (which we refer to as “GAAP”) or the published guidelines of the U.S. Securities and Exchange Commission (which we refer to as the “SEC”) regarding projections and the use of non-GAAP financial measures. Neither the Company’s independent registered public accounting firm nor any other independent accountant has compiled, examined or performed any procedures with respect to the financial projections or expressed any opinion or any other form of assurance on the financial projections or their achievability. The Company’s independent registered public accounting firm assumes no responsibility for, and disclaims any association with, the financial projections.

In the view of the Company’s management, the financial projections were prepared on a reasonable basis reflecting management’s best available estimates and judgments regarding the Company’s future financial performance at the time of their preparation. The financial projections are not facts and should not be relied upon as necessarily predictive of actual future results. You are cautioned not to place undue reliance upon the financial projections. Some or all of the assumptions made in connection with the preparation of the financial projections may change from the date on which the financial projections were prepared. None of the Company, Parent or any of their respective affiliates, advisors or other representatives makes any representation to any Company stockholder regarding the ultimate performance of the Company relative to the financial projections. These considerations should be taken into account if evaluating the financial projections, which were prepared as of an earlier date.

The financial projections do not reflect changes in general business or economic conditions since the time they were prepared, changes in the Company’s businesses or their prospects or any other transactions or events that have occurred or that may occur and that were not anticipated at the time the financial projections were prepared, and the financial projections are not necessarily indicative of current values or necessarily predictive of actual future performance, which may be significantly more favorable or less favorable than as set forth therein and should not be regarded as a representation that the financial forecasts, projected results or other estimates and assumptions therein will be achieved.

Given that the financial projections reflect subjective judgment in many respects, they are susceptible to multiple interpretations and frequent revisions based on actual experience and business developments. The financial projections also cover multiple fiscal years, and such information by its nature becomes less predictive with each succeeding fiscal year. The financial projections constitute forward-looking information and are subject to a wide variety of significant risks and uncertainties that could cause the actual results to differ materially from the projected results, including, without limitation, the factors described in the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the SEC on March 17, 2020, the Company’s Quarterly Report on Form 10-Q for the first quarter ended March 31, 2020, which was filed with the SEC on June 16, 2020, and in the Company’s other public filings with the SEC. For additional information on factors that may cause the Company’s future financial results to materially vary from the projected results summarized below, see the section titled “Cautionary Statement Regarding Forward-Looking Statements.” Accordingly, there can be no assurance that the projected results summarized below will be realized or that actual results will not differ materially from the projected

 

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results summarized below, and the financial projections cannot be considered a guarantee of future operating results and should not be relied upon as such. No representation is made by the Company or any of its affiliates, advisors or other representatives or any other person to any Company stockholder or any other person regarding the actual performance of the Company compared to the results included in the financial projections or otherwise.

The financial projections should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding the Company contained in the Company’s public filings with the SEC. For a more detailed description of the information available, see the section titled “Where You Can Find More Information,” on page [●]. The financial projections do not take into account any circumstances or events occurring after the date they were prepared, including the effect of the merger and related matters. Further, the financial projections do not take into account the effect of any failure of the merger to be consummated and should not be viewed in any manner in that context.

The financial projections reflect various estimates, assumptions and methodologies of the Company, all of which are difficult to predict and many of which are beyond the Company’s control, including, among others, assumptions with respect to general business, economic, regulatory, litigation, market and financial conditions and matters specific to the Company’s businesses.

In addition, certain of the financial projections are non-GAAP financial measures. 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 financial measures used by other companies. Furthermore, pursuant to the published guidelines of the SEC, the non-GAAP metrics are not reconciled to GAAP metrics.

Financial Projections

The following table summarizes the financial projections:

Financial Projections Summary(1)

 

     For 12-Month Period Ending December 31,  
($ in 000s)    2020E     2021P     2022P     2023P     2024P  

Revenue

   $ 921,010     $ 1,115,312     $ 1,197,212     $ 1,245,100     $ 1,294,904  

Gross Profit

     222,240       271,556       294,564       306,347       318,601  

Selling, General and Administrative Expenses

     (182,378     (212,056     (222,938     (231,906     (240,194

Adjusted EBITDA(2)

   $ 39,862     $ 59,500     $ 71,626     $ 74,441     $ 78,407  

 

(1)

Following the Board’s initial approval of the financial projections on June 26, 2020, management discovered that there were a few immaterial adjustments required relating to one customer in the customer pipeline that resulted in immaterial changes, including a reduction in projected revenue (in 000s) of $0 in fiscal year 2020, $4,896 in fiscal year 2021, $7,200 in fiscal year 2022, $7,488 in fiscal year 2023 and $7,787 in fiscal year 2024, an increase in projected EBITDA (in 000s) of $44 in fiscal year 2020 and a reduction in projected EBITDA (in 000s) of $488 in fiscal year 2021, $1,051 in fiscal year 2022, $1,089 in fiscal year 2023 and $1,128 in fiscal year 2024. Management updated such calculations, which were then shared with the Board, provided to potential bidders that were in the process at that time, including Parent, and provided to Citi for its use and reliance in connection with its financial analyses and opinion as described in the section titled “The Merger—Opinion of the Company’s Financial Advisor”, and which are reflected in the above financial projections summary.

 

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(2)

Adjusted EBITDA represents earnings (losses) from operations with the addition of depreciation and amortization, stock-based compensation expense, goodwill and long-lived asset impairment charges, restructuring charges, various one-time professional fees, interest income, interest expense, change in fair value of warrant, foreign exchange loss, certain other income, income tax benefit and income tax expense. From Adjusted EBITDA, unlevered free cash flow for the Company was derived as follows:

 

     For 12-Month Period Ending December 31,  
($ in 000s)    H2 2020E     2021P     2022P     2023P     2024P  

Adjusted EBITDA

   $ 20,902     $ 59,500     $ 71,626     $ 74,441     $ 78,407  

Less: Stock-based Compensation(A)

     (4,093     (8,000     (8,000     (8,000     (8,000

Less: Restructuring(B)

     (6,500     (12,000     —         —         —    

Less: Depreciation and Amortization(C)

     (6,000     (12,500     (13,000     (13,000     (12,500

Operating Income

   $ 4,309     $ 27,000     $ 50,626     $ 53,441     $ 57,907  

Less: Cash Taxes(D)

     (1,206     (7,560     (14,175     (14,963     (16,214

Net Operating Profit After Taxes

   $ 3,102     $ 19,440     $ 36,451     $ 38,477     $ 41,693  

Plus: Depreciation and Amortization

     6,000       12,500       13,000       13,000       12,500  

Less: (Increase)/Decrease in Net Working Capital

     (10,642     (28,547     (6,372     3,345       (6,135

Less: Capital Expenditures

     (6,880     (15,000     (13,000     (13,000     (13,500

Unlevered Free Cash Flow

   $ (8,419   $ (11,607   $ 30,079     $ 41,822     $ 34,558  

 

  (A)

The Company accounts for stock-based compensation awards in accordance with ASC 718, Compensation-Stock Compensation. Compensation expense is measured by determining the fair value of each award using the Black-Scholes option valuation model for stock options and stock appreciation rights (“SARs”) and the closing share price on the grant date for restricted shares and restricted share units. The fair value is then recognized over the requisite service period of the awards, which is generally the vesting period, on a straight-line basis for the entire award. As the SARs are liability classified, the fair value is remeasured at the end of each month and the expense is adjusted accordingly.

 

  (B)

Restructuring charges consist of employee severance and related benefits, lease and contract termination costs, compensation realignment and other employee retention costs, certain legal and consulting professional fees and other restructuring-related activities.

 

  (C)

Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are depreciated using the straight-line method over the shorter of their estimated useful lives or the terms of the related leases.

 

  (D)

Represents unlevered cash taxes at an assumed cash tax rate of 28%. Projected levered cash taxes were as follows: $(5,036) in fiscal year 2020, $(5,000) in fiscal year 2021, $(6,500) in fiscal year 2022, $(8,000) in fiscal year 2023 and $(9,000) in fiscal year 2024.

To prepare the financial projections, the Company’s management (a) began by estimating the Company’s results for the remainder of 2020, taking into account the Company’s results through May of 2020 and the costs savings and other COVID-19 related measures implemented by the Company (as well as the impact of such measures) and (b) assumed that the decline in the Company’s revenue reached its lowest point during the second quarter of fiscal year 2020 and the Company’s quarterly revenue for existing clients returned to that contemplated in the Original AOP for the fourth quarter of 2020 by the fourth quarter of 2022. Utilizing the bottoms-up analysis from the Original AOP, management factored in a number of assumptions and adjustments. In particular, the financial projections assume:

 

   

the decline in the Company’s revenue reached its lowest point during the second quarter of fiscal year 2020 and the Company’s quarterly revenue for existing clients returns to that contemplated for the fourth quarter of 2020 in the Original AOP by the fourth quarter of 2022;

 

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approximately $40 million and $35 million of ongoing adverse COVID-19 related impact on revenue for existing clients in 2021 and 2022, respectively;

 

   

customer pipeline that takes into account estimated timing of revenue relative to signing and includes risk-adjusted estimates and related incremental costs for the remainder of the projection period for potential new customers;

 

   

incremental costs associated with newly-signed customers;

 

   

potential loss of revenue resulting from gradual reduction on print business and attrition for customers that reduce spend over time or do not renew;

 

   

steady working capital performance for 2020-2022 with the Company able to utilize supply chain financing and other working capital tools to avoid significant working capital investments, and modest working capital improvements in years 2023-2024 resulting from improved client billing and collecting processes;

 

   

capital expenditure deferrals of approximately $2 million in 2020, resulting in increased capital expenditures in 2021, with capital expenditures in 2023 to 2024 settling at approximately 1% of revenue;

 

   

annual costs savings of approximately $5 million realized beginning in late 2020 as a result of cost saving measures implemented in connection with the Company’s transformation plan related to its international and retail operations;

 

   

throughout the projection period, Selling, General and Administrative Expenses are adjusted to support revenue growth, including the impact of the Company’s new commission plan, with Selling, General and Administrative Expenses normalizing around 18.5% of revenue in 2023-2024; and

 

   

a bonus/retention accrual of 33% in 2020, 80% for 2021 and 100% for the remainder of the projection period.

EXCEPT AS REQUIRED BY APPLICABLE LAW, NEITHER THE COMPANY NOR ANY OF ITS AFFILIATES INTENDS TO, AND EACH OF THEM DISCLAIMS ANY OBLIGATION TO, UPDATE, CORRECT OR OTHERWISE REVISE THE FINANCIAL PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING OR EVENTS OCCURRING AFTER THE RESPECTIVE DATES WHEN THE FINANCIAL PROJECTIONS WERE PREPARED OR TO REFLECT THE EXISTENCE OF FUTURE CIRCUMSTANCES OR THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE FINANCIAL PROJECTIONS ARE OR BECOME NO LONGER APPROPRIATE (EVEN IN THE SHORT TERM).

Interests of Directors and Executive Officers in the Merger

Members of the Board and the Company’s executive officers have various interests in the merger described in this section that may be in addition to, or different from, the interests of the Company stockholders generally. You should keep this in mind when considering the recommendation of the Board “FOR” the adoption of the merger agreement. The members of the Board were aware of these interests and considered them at the time they approved the merger agreement and in making their recommendation that Company stockholders adopt the merger agreement. These interests are described below.

 

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Certain Assumptions

Except as otherwise specifically noted, for purposes of quantifying the potential payments and benefits described in this section, the following assumptions, as well as those described in the footnotes to the table in the section titled “—Golden Parachute Compensation” below were used:

 

   

the relevant price per share of Company common stock is $3.00 per share (which we refer to as the “merger consideration”), which is the fixed price per share to be received by our stockholders in respect of their shares of Company common stock in connection with the merger;

 

   

the effective time of the merger (which we refer to as the “effective time”) is August 5, 2020, which is the assumed date of the effective time of the merger solely for purposes of the disclosure in this section (the “assumed effective time”); and

 

   

the employment of each executive officer of the Company is terminated without “cause” (as such term is defined in the applicable plan and/or agreement), in each case, immediately following the assumed effective time.

Treatment of Outstanding Equity Awards

The merger agreement provides that, with respect to all outstanding equity awards under the Company’s equity plans and held by the Company’s executive officers and directors, as a result of the merger:

 

   

each outstanding Company stock option will be fully vested and cancelled, and each holder of a cancelled company stock option will receive a payment in cash, without interest, equal to the product of (i) the total number of shares subject to the cancelled Company stock option and (ii) the excess, if any, of (A) the merger consideration over (B) the exercise price per share subject to the cancelled Company stock option, less any applicable withholding taxes;

 

   

each outstanding Company stock appreciation right will be fully vested and cancelled, and each holder of a cancelled Company stock appreciation right will receive a payment in cash, without interest, equal to the product of (i) the total number of shares subject to the cancelled Company stock appreciation right and (ii) the excess, if any, of (A) the merger consideration over (B) the grant price per share subject to the cancelled Company stock appreciation right, less any applicable withholding taxes;

 

   

each outstanding and unvested Company restricted stock unit award (i) will be fully vested, (ii) any performance conditions applicable to such Company restricted stock unit award (whether or not the performance period has been completed) will be deemed to be achieved at the greater of (A) actual performance achieved as of the day immediately prior to the closing date and (B) the target level of performance, and (iii) will be cancelled, and each holder of a cancelled Company restricted stock unit award will receive a payment in cash, without interest, equal to the product of (1) the merger consideration multiplied by (2) the number of shares subject to the cancelled Company restricted stock unit award or, in the case of a performance-based Company restricted stock unit award, the number of shares earned or deemed earned with respect to such Company restricted stock unit award as provided therein, less any applicable withholding taxes; and

 

   

the restrictions on any shares of Company restricted stock shall lapse and such shares shall vest. Each share of Company restricted stock will automatically be converted at the effective time into the right to receive the merger consideration.

Treatment of Outstanding Equity Awards—Summary Tables

Non-Employee Directors

The following table sets forth the outstanding restricted stock unit awards and stock option awards held by each of the Company’s non-employee directors as of the assumed effective time and the estimated value of such awards. Depending on when the actual effective time occurs, certain of these restricted stock unit awards and

 

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stock option awards may vest prior to the actual effective time in accordance with their terms and independent of the occurrence of the merger. All share numbers have been rounded to the nearest whole number.

 

Non-Employee Director Equity Award Summary Table

 

Non-Employee
Directors

   Number of Restricted
Stock Units (#)(1)
     Value of
Restricted Stock
Units ($)(1)
     Number of Stock
Options (#)(2)
     Value of Stock
Options ($)(2)
 

Charles K. Bobrinskoy

     38,344        115,032        11,160        0  

Lindsay Y. Corby

     38,344        115,032        —          —    

David Fisher

     38,344        115,032        1,499        0  

Jack M. Greenberg

     53,681        161,043        11,160        0  

Adam Gutstein

     38,344        115,032        —          —    

Julie M. Howard

     38,344        115,032        —          —    

Kirt P. Karros

     69,057        207,171        —          —    

Mark Zenner

     69,057        207,171        —          —    

 

(1)

Under the merger agreement, each outstanding Company restricted stock unit award will be fully vested and cancelled, and each holder of a cancelled Company restricted stock unit award will receive a payment in cash, without interest, equal to the product of (i) the merger consideration and (ii) the total number of shares subject to the cancelled Company restricted stock unit award. The amount reported represents the number of Company restricted stock units subject to the cancelled restricted stock unit award (calculated at target performance, in the case of performance-vesting awards) multiplied by the merger consideration of $3.00 per share.

 

(2)

Under the merger agreement, each outstanding Company stock option will be fully vested and cancelled, and each holder of a cancelled Company stock option will receive a payment in cash, without interest, equal to the product of (i) the total number of shares subject to the cancelled Company stock option and (ii) the excess, if any, of (A) the merger consideration over (B) the exercise price per share subject to the cancelled Company stock option. The amount reported reflects that each outstanding Company stock option held by a non-employee director of the Company will be cancelled without consideration because the exercise price for each such outstanding Company stock option exceeds the merger consideration.

Executive Officers

The following table sets forth the unvested restricted stock units and shares of Company restricted stock held by each executive officer of the Company as of the assumed effective time and the estimated value of such awards. Depending on when the effective time occurs, certain of these awards may vest prior to the actual effective time in accordance with their terms and independent of the occurrence of the merger. All share numbers have been rounded to the nearest whole number.

 

Executive Officer Unvested Restricted Stock Unit and Restricted Share Awards Summary Table

 

Executive Officers

   Restricted
Stock Unit
Awards (#)(1)
     Value of
Restricted
Stock Units ($)(1)
     Restricted
Share
Awards (#)(2)
     Value of
Restricted
Share ($)(2)
     Estimated
Total Cash
Consideration($)
 

Richard S. Stoddart*

     1,234,406        3,703,218        39,516        118,548        3,821,766  

Donald W. Pearson

     408,874        1,226,622        —          —          1,226,622  

Ronald C. Provenzano

     323,529        970,587        3,210        9,630        980,217  

Oren B. Azar

     168,397        505,191        901        2,703        507,894  

Renae D. Chorzempa

     142,591        427,773        —          —          427,773  

Adan K. Pope

     158,898        476,694        —          —          476,694  

 

*

Also a director of the Company.

(1)

Under the merger agreement, each outstanding Company restricted stock unit award (i) will be fully vested, (ii) any performance conditions applicable to such Company restricted stock unit award (whether or not the

 

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  performance period has been completed) will be deemed to be achieved at the greater of (A) actual performance achieved as of the day immediately prior to the closing date and (B) the target level of performance, and (iii) will be cancelled, and each holder of a cancelled Company restricted stock unit award will receive a payment in cash, without interest, equal to the product of (1) the merger consideration multiplied by (2) the number of shares subject to the cancelled Company restricted stock unit award or, in the case of a performance-based Company restricted stock unit award, the number of shares earned or deemed earned with respect to such Company restricted stock unit award as provided therein. The amount reported represents the number of restricted stock units subject to the cancelled Company restricted stock unit award (calculated at target performance, in the case of performance-vesting awards) multiplied by the merger consideration of $3.00 per share.

 

(2)

Under the merger agreement, the restrictions on any shares of Company restricted stock shall lapse and such shares shall vest. The amount reported represents the number of restricted shares held by the executive officer multiplied by the merger consideration of $3.00 per share.

The following table sets forth the outstanding stock option and stock appreciation right awards held by each executive officer of the Company as of the assumed effective time and the estimated value of such stock options and stock appreciate rights. Depending on when the actual effective time occurs, certain of these outstanding stock option and stock appreciation right awards may vest prior to the actual effective time in accordance with their terms and independent of the occurrence of the merger. All share numbers have been rounded to the nearest whole number.

 

Equity Officer Stock Option and Stock Appreciation Right Awards Summary Table

 

Executive Officers

   Number of
Stock
Options (#)(1)
     Value of
Stock
Options ($)(1)
     Number of
Stock
Appreciation
Rights (#)(1)
     Value of
Stock
Appreciation
Rights ($)(1)
 

Richard S. Stoddart*

     411,287        0        823,800        0  

Donald W. Pearson

     —          —          79,764        0  

Ronald C. Provenzano

     332,657        0        88,496        0  

Oren B. Azar

     61,856        0        46,018        0  

Renae D. Chorzempa

     —          —          31,358        0  

Adan K. Pope

     —          —          38,761        0  

 

*

Also a director of the Company.

(1)

Under the merger agreement, each outstanding Company stock option will be fully vested and cancelled, and each holder of a cancelled Company stock option will receive a payment in cash, without interest, equal to the product of (i) the total number of shares subject to the cancelled Company stock option and (ii) the excess, if any, of (A) the merger consideration over (B) the exercise price per share subject to the cancelled Company stock option. The amount reported reflects that each outstanding Company stock option held by an executive officer of the Company will be cancelled without consideration because the exercise price for each such outstanding Company stock option exceeds the merger consideration.

 

(2)

Under the merger agreement, each Company stock appreciation right will be fully vested and cancelled, and each holder of a cancelled Company stock appreciation right will receive a payment in cash, without interest, equal to the product of (i) the total number of shares subject to the cancelled Company stock appreciation right and (ii) the excess, if any, of (A) the merger consideration over (B) the grant price per share subject to the cancelled Company stock appreciation right. The amount reported reflects that each outstanding Company stock appreciation right held by an executive officer of the Company will be cancelled without consideration because the grant price for each such outstanding stock appreciation right exceeds the merger consideration.

Change in Control Severance Benefits for Executive Officers

The Company is party to an employment agreement with each executive officer of the Company (each of which we refer to as an “employment agreement” and, collectively, the “employment agreements”). Among

 

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other terms and conditions of each executive officer’s employment, the employment agreements specify certain compensation and benefits payable to such executive officers in the event of a qualifying termination of employment, including certain enhanced severance benefits if a qualifying termination occurs within a specified time period before or following a change in control.

Under the employment agreements, in the event an executive officer is terminated by the Company without “cause” (as defined in the employment agreements) or if the Executive resigns for “good reason” (as defined in the employment agreements), the executive officer would be entitled to receive, following the executive officer’s execution and non-revocation of a release of claims, the following:

 

   

an amount equal to the sum of (or, for Mr. Stoddart, two (2) times the sum of) (A) the executive officer’s annual base salary in effect on the date of termination and (B) the executive officer’s target annual bonus for the fiscal year in which the date of termination occurs, generally payable in a single lump sum cash payment within (30) days following the date of termination;

 

   

an amount equal to the executive’s prorated target annual bonus for the fiscal year in which the date of termination occurs, payable in a single lump sum within thirty (30) days following the date of termination;

 

   

immediate vesting of all outstanding equity-based awards which would otherwise have vested based solely on the passage of time if the executive officer’s employment had continued for a period of twelve (12) months following the date of termination (or, for Mr. Stoddart, twenty-four (24) months following the date of termination);

 

   

immediate vesting of the pro rata portion of equity-based awards which would otherwise have vested based on performance if the executive officer had remained employed for a period of twelve (12) months following the date of termination (or, for Mr. Stoddart, twenty-four (24) months following the date of termination);

 

   

to the extent the executive officer timely elects continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the payments for the monthly cost of maintaining health benefits, less the amount of his or her portion of such monthly premiums immediately prior to termination, for him or her (and his or her spouse and dependents) under the Company’s group health plan for a period of twelve (12) months (or, for Mr. Stoddart, twenty-four (24) months) following the date of termination (or, if earlier, until he or she becomes eligible for other healthcare coverage); and

 

   

only for Ms. Chorzempa, full immediate vesting of any unvested portion of her initial equity grant.

In addition, in the event an executive officer experiences a “qualifying termination” of employment in connection with a “change in control” (each as defined in the employment agreements), the executive officer would, in addition to the benefits set forth above, be entitled to immediate vesting of all outstanding equity-based awards (including immediate vesting at the target level of performance for equity-based awards which would otherwise vest based on performance). A “qualifying termination” for these purposes means a termination of employment by the Company without “cause” or the executive officer’s resignation for “good reason,” in each case, within ninety (90) days prior to or twenty-four (24) months following the consummation of a “change in control.”

If terminated by the Company without “cause” (as defined in the employment agreements) within twelve (12) months following a “change in control” (as defined in the employment agreements), in addition to the payments and benefits described above, Mr. Pearson and Mr. Azar would receive a lump-sum cash payment equal to $150,000 within thirty (30) days following the date of termination, and Mr. Provenzano, Ms. Chorzempa and Mr. Pope would receive a lump-sum payment equal to $75,000 within thirty (30) days following the date of termination.

Each of the employment agreements provides that if the total payments to the executive officer under the employment agreement or any other Company plan or program would exceed the applicable threshold under

 

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Section 280G of the Code, then those payments will be reduced to the applicable Section 280G threshold to avoid the imposition of excise taxes under Section 4999 of the Code in the event, and only to the extent, such reduction would result in a better after-tax result for the executive officer.

Pursuant to the employment agreements, each executive officer is subject to restrictive covenants related to the non-competition and non-solicitation of our employees and customers. The term of the non-competition and non-solicitation covenants is two (2) years following a termination of employment. An executive officer’s breach of any of the restrictive covenants contained in an employment agreement entitles the Company to injunctive relief and the return of any severance payments, in addition to any other remedies to which the Company may be entitled.

For purposes of the employment agreements, “cause” is generally defined to include: (i) theft, dishonesty, or falsification of any employment or Company records by the executive officer; (ii) the determination by the Board that the executive officer has committed an act or acts constituting a felony or any act involving moral turpitude; (iii) the determination by the Board that the executive officer has engaged in willful misconduct or gross negligence that has had a material adverse effect on the Company’s reputation or business; or (iv) the continuing material breach by the executive officer of the employment agreement after receipt of written notice of such breach from the Board and a reasonable opportunity to cure such breach.

For purposes of the employment agreements, “good reason” generally occurs if the Company: (i) materially reduces the executive officer’s duties or authority, or assigns the executive officer duties that are materially inconsistent with, the duties and authority contemplated by the employment agreement; (ii) requires the executive officer to relocate his or her office more than one hundred (100) miles (or, for Ms. Chorzempa and Mr. Pope, fifty (50) miles) from the current office of the Company without his or her consent; or (iii) has breached any provision of the employment agreement, provided that in any event, the executive officer notifies the Company of the event constituting “good reason” within ninety (90) days of the initial existence of the event and gives the Company thirty (30) days to cure. For Mr. Stoddart, Mr. Provenzano and Mr. Azar, such executive officer shall be determined to have experienced a material reduction of his duties or authority giving rise to grounds for resignation for “good reason” if, within twenty-four (24) months of a “change in control” (as defined in the employment agreements), such executive officer no longer holds a substantially equivalent executive officer role at the top-most parent company resulting from the change in control.

See the section titled “—Golden Parachute Compensation” below for an estimate of the amounts that would become payable to each of the Company’s named executive officers under their respective employment agreements. Under the terms of Mr. Pope’s employment agreement, assuming Mr. Pope’s employment is terminated by the Company without “cause” as of the assumed effective time, subject to Mr. Pope’s execution and non-revocation of a general release of claims in favor of the Company and continued compliance with any restrictive covenants. Mr. Pope would be entitled to cash severance payments (not including the value of equity awards or the COBRA subsidy) in an aggregate amount of $789,443.

Golden Parachute Compensation

The information set forth in the table below is intended to comply with Item 402(t) of Regulation S-K, which requires disclosure of compensation that each named executive officer could receive that is based on or otherwise relates to the merger. This compensation is referred to as “golden parachute” compensation by the applicable SEC disclosure rules, and in this section we use such term to describe the merger-related compensation payable to the Company’s named executive officers. For additional details regarding the terms of the payments and benefits described below, see the discussion above. This merger-related compensation is subject to a non-binding advisory vote of the Company stockholders, as set forth in Proposal 2 to this proxy statement. For additional information, see the section titled “Proposal 2: Non-Binding Advisory Merger-Related Compensation Proposal” on page [●].

 

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The amounts set forth below are estimates of amounts that would be payable to the named executive officers using the assumptions described above under “—Certain Assumptions.” These estimates are based on multiple assumptions that may or may not actually occur, including assumptions described in this proxy statement. Some of the assumptions are based on information not currently available, and as a result the actual amounts, if any, to be received by a named executive officer may differ in material respects from the amounts set forth below. All dollar amounts set forth below have been rounded to the nearest whole number.

 

Golden Parachute Payments

 

Name

  Cash ($)(1)     Equity
($)(2)
    Pension/
NQDC(3)
    Perquisites/
Benefits ($)(4)
    Tax
Reimbursement(5)
    Other     Total ($)  

Richard S. Stoddart

    3,884,153       3,821,766       —         33,578       —         —         7,739,497  

Donald W. Pearson

    1,138,525       1,226,622       —         10,119       —         —         2,375,266  

Ronald C. Provenzano

    995,869       980,217       —         2,416       —         —         1,978,502  

Oren B. Azar

    835,082       507,894       —         24,042       —         —         1,367,018  

Renae D. Chorzempa

    711,148       427,773       —         16,311       —         —         1,155,232  

 

(1)

The cash amounts reflect cash severance payments under the employment agreements that would be payable in a single lump sum, assuming the named executive officer’s employment is terminated by the Company without “cause” or the named executive officer resigns for “good reason,” in each case, subject to the named executive officer’s execution and non-revocation of a general release of claims in favor of Company and continued compliance with any restrictive covenants, as follows: (a) an amount equal to the sum of (or, for Mr. Stoddart, two (2) times the sum of) (A) the executive officer’s annual base salary in effect on the date of termination and (B) the executive officer’s target annual bonus for the fiscal year in which the date of termination occurs; and (b) an amount equal to the executive’s prorated target annual bonus for the fiscal year in which the date of termination occurs. The foregoing cash severance payments (i) are considered double-trigger payments because they will only be paid in connection with a qualifying termination of employment and (ii) are not enhanced by the transaction and are payable on a qualifying termination of employment without regard to the transaction.

The cash amounts for each named executive officer (excluding Mr. Stoddart) also include certain cash severance payments under the employment agreements that would be payable in a single lump sum ($150,000 for Mr. Pearson and Mr. Azar and $75,000 for Mr. Provenzano and Ms. Chorzempa), assuming the named executive officer’s employment is terminated by the Company without cause within twelve (12) months following the transaction. These cash severance payments (i) are considered double-trigger payments because they will only be paid in connection with a qualifying termination of employment and (ii) are payable only in connection with a termination occurring within twelve (12) months following a change in control (including the transaction).

Details of the cash amounts are shown in the following supplementary table:

 

Name

   Annual
Base
Salary ($)
     Target
Annual
Bonus ($)
     Pro-rata Target
Annual Bonus
(Year of
Termination)
     Change-in-
Control
Supplemental
Bonus
     Total ($)  

Richard S. Stoddart

     1,600,000        1,760,000        524,153        —          3,884,153  

Donald W. Pearson

     450,000        337,500        201,025        150,000        1,138,525  

Ronald C. Provenzano

     435,000        304,500        181,369        75,000        995,869  

Oren B. Azar

     350,000        210,000        125,082        150,000        835,082  

Renae D. Chorzempa

     325,000        195,000        116,148        75,000        711,148  

 

(2)

The equity amounts consist of, in each case as described in more detail above in the section titled “Treatment of Outstanding Equity Awards”:

 

  (a)

The cash consideration to be received by each named executive officer in connection with the acceleration of vesting and lapse of any restrictions on the shares of Company restricted stock, which acceleration of vesting will occur upon completion of the merger; and

 

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  (b)

The cash consideration to be received by each named executive officer in connection with outstanding and unvested Company restricted stock unit awards, which acceleration of vesting and cancellation and termination of such awards will occur upon completion of the merger. In the case of performance-based Company restricted stock unit awards, we have assumed that performance conditions applicable to such awards will be deemed to be achieved at the target level of performance.

The amounts attributable to shares of Company restricted stock and Company restricted stock unit awards are attributable to a single-trigger arrangement (i.e., the accelerated payment will occur upon completion of the merger and with respect to which payment is not conditioned upon the named executive officer’s qualifying termination of employment) and reflect the treatment that will apply to all similar outstanding equity awards (including awards held by individuals who are not named executive officers) pursuant to the terms of the merger agreement. The equity amounts do not include any amounts attributable to outstanding Company stock option or stock appreciation right awards (whether vested or unvested) because the strike or exercise price for all such awards, respectively, exceeds the merger consideration.

 

(3)

As of the assumed effective time, none of the Company’s named executive officers participate in or have account balances in a qualified or non-qualified defined benefit plan or a non-qualified deferred compensation plan sponsored or maintained by the Company.

 

(4)

Amounts reflect payments, as provided for under the employment agreements, in respect of the monthly cost of maintaining health benefits under COBRA for the named executive officer (and his or her spouse and dependents) under the Company’s group health plan, based on the insurance premiums in effect as of the assumed effective time, for a period of 12 months (or, in the case of Mr. Stoddart, 24 months) following termination of employment.

 

(5)

None of the named executive officers are eligible to receive a tax reimbursement based on or otherwise related to the merger. The employment agreements provide that the change in control benefits payable to the named executive officers are subject to reduction to avoid the imposition of excise taxes under Section 4999 of the Code in the event such reduction would result in a better after-tax result for the named executive officer. The amounts above do not reflect any possible reductions under that provision.

Director and Officer Indemnification and Insurance Information

Pursuant to the merger agreement, from and after the effective time, Parent is obligated to cause the surviving corporation to, to the fullest extent permitted by applicable law, indemnify, defend and hold harmless each current or former director, officer or employee of the Company or any of the Company’s subsidiaries and each fiduciary under benefit plans of the Company or any of its subsidiaries and each person who performed services at the request of the Company or any of its subsidiaries (we refer to each as an “indemnified party”), against (i) all losses, expenses (including reasonable attorneys’ fees and expenses), judgments, fines, claims, damages or liabilities or, subject to the proviso of the next sentence, amounts paid in settlement, arising out of actions or omissions occurring at or prior to the effective time (and whether asserted or claimed prior to, at or after the effective time) to the extent that they are based on or arise out of the fact that such person is or was a director, officer, employee or fiduciary under benefit plans prior to the effective time (which we refer to as “indemnified liabilities”), and (ii) all indemnified liabilities to the extent they are based on or arise out of or pertain to the transactions contemplated by the merger agreement, whether asserted or claimed prior to, at or after the effective time, and including any expenses incurred in enforcing such person’s rights. In the event of any indemnified liability (whether or not asserted before the effective time), the surviving corporation will promptly pay the reasonable fees and expenses of counsel selected by the indemnified parties promptly after statements therefor are received and otherwise advance to such indemnified party upon request, reimbursement of documented expenses reasonably incurred (provided that the person to whom expenses are advanced provides an undertaking to repay such advance if it is determined by a final and non-appealable judgment of a court of competent jurisdiction that such person is not legally entitled to indemnification under the applicable law).

Also, the Company will be permitted to, prior to the effective time (and, if the Company fails to do so, Parent will cause the surviving corporation to), obtain and fully pay the premium for a “tail” insurance and

 

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indemnification policy that provides coverage for a period of six years from and after the effective time for events occurring prior to the effective time (which we refer to as the “D&O insurance”) that is substantially equivalent to and in any event not less favorable in the aggregate to the intended beneficiaries thereof than the Company’s existing directors’ and officers’ liability insurance policy. If the Company and the surviving corporation for any reason fail to obtain such “tail” insurance policy as of the effective time, the surviving corporation will, and Parent will cause the surviving corporation to, continue to maintain in effect for a period of at least six years from and after the effective time the D&O insurance in place as of the date of the merger agreement with terms, conditions, retentions and limits of liability that are at least as favorable as provided in the Company’s existing policies as of the date of the merger agreement, or the surviving corporation will, and Parent will cause the surviving corporation to, purchase comparable D&O insurance for such six year period (and for so long thereafter as any claims brought before the end of such six year period thereunder are being adjudicated) with terms, conditions, retentions and limits of liability that are at least as favorable as provided in the Company’s existing policies as of the date of the merger agreement.

In addition, for not less than six years following the effective time, Parent and the surviving corporation must maintain provisions in the organizational documents of the surviving corporation and its subsidiaries with respect to exculpation, indemnification and advancement of expenses that are no less favorable than the analogous provisions contained in the organizational documents of the Company and its subsidiaries in effect immediately prior to the effective time. The contractual indemnification rights of the directors and officers of the Company will be assumed by the surviving corporation by virtue of the merger and will continue in full force and effect in accordance with their terms following the effective time.

For additional information, see the section titled “The Agreement and Plan of Merger—Director and Officer Indemnification and Insurance Information,” beginning on page [●].

Certain Effects of the Merger

If the proposal to adopt the merger agreement is approved by the holders of shares of Company common stock representing a majority of the outstanding shares of Company common stock entitled to vote on such matter and the other conditions to the closing of the merger are either satisfied or (to the extent permitted by applicable law) waived, Sub will be merged with and into the Company upon the terms set forth in the merger agreement. As the surviving corporation in the merger, the Company will continue to exist following the merger as a wholly-owned subsidiary of Parent.

Following the completion of the merger, all of the Company’s equity interests will be beneficially owned by Parent, and, by virtue of the merger, none of the Company’s current stockholders will have any ownership interest in, or be a stockholder of, the Company, the surviving corporation or Parent. As a result, the Company’s current stockholders will no longer benefit from any increase in the value, nor will they bear the risk of any decrease in the value, of Company common stock. Following the merger, Parent will benefit from any increase in the Company’s value and also will bear the risk of any decrease in the Company’s value.

At the effective time, except as described below, each share of Company common stock issued and outstanding immediately prior to the effective time will be cancelled and automatically converted into the right to receive $3.00 in cash, without interest thereon, other than (i) shares that are held in the treasury of the Company or owned of record by any wholly-owned subsidiary of the Company (other than those held on behalf of any third party), (ii) shares owned of record by Parent, Sub or any of their respective wholly-owned subsidiaries (other than those held on behalf of any third party), and (iii) shares held by stockholders who have not voted in favor of or consented to the adoption of the merger agreement and who have properly demanded appraisal of such shares and complied in all respects with all the provisions of the DGCL concerning the right of holders of shares to require appraisal.

For information regarding the effects of the merger on the Company’s outstanding equity awards and the Company’s equity plans, please see the section titled “The Merger—Interests of Directors and Executive Officers

 

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in the Merger,” beginning on page [●], and the section titled “The Agreement and Plan of Merger—Treatment of Outstanding Equity Awards and Equity Plans,” beginning on page [●].

Company common stock is currently registered under the Securities Exchange Act of 1934 (as amended, the “Exchange Act”) and trades on the NASDAQ Global Market (which we refer to as the “NASDAQ”) under the symbol “INWK.” Following the completion of the merger, shares of Company common stock will no longer be traded on the NASDAQ or any other public market. In addition, the registration of shares of Company common stock under the Exchange Act will be terminated, and the Company will no longer be required to file periodic and other reports with the SEC with respect to Company common stock. Termination of registration of Company common stock under the Exchange Act will reduce the information required to be furnished by the Company to the Company stockholders and the SEC, and would make certain provisions of the Exchange Act, such as the requirement to file annual and quarterly reports pursuant to Section 13(a) or 15(d) of the Exchange Act, the short-swing trading provisions of Section 16(b) of the Exchange Act and the requirement to furnish a proxy statement in connection with stockholders’ meetings pursuant to Section 14(a) of the Exchange Act, no longer applicable to the Company, to the extent that such provisions apply solely as a result of the registration of Company common stock under the Exchange Act.

Consequences if the Merger is Not Completed

If the proposal to adopt the merger agreement is not approved by the holders of shares representing a majority of the outstanding shares of Company common stock entitled to vote on such matter or if the merger is not completed for any other reason, holders of shares of Company common stock will not receive any consideration from Parent or Sub for such holder’s shares of Company common stock. Instead, the Company will remain a public company, and Company common stock will continue to be listed and traded on the NASDAQ. We expect that holders of shares of Company common stock would continue to be subject to the same risks to which they are currently subject with respect to their ownership of Company common stock. If the merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of Company common stock, including the risk that the market price of Company common stock may decline to the extent that the current market price of Company common stock reflects a market assumption that the merger will be completed. If the proposal to adopt the merger agreement is not approved by the holders of shares representing a majority of the outstanding shares of Company common stock entitled to vote on such matter, or if the merger is not completed for any other reason, there can be no assurance that any other transaction acceptable to us will be offered or that the Company’s business, prospects or results of operations will not be adversely impacted.

In addition, if the merger agreement is terminated under specified circumstances, the Company is required to pay Parent a termination fee of approximately $6.2 million. Upon termination of the merger agreement under certain circumstances, Parent will be obligated to pay the Company a termination fee of $15.0 million; provided, that the Company may seek damages from Parent in excess of the Parent termination fee in the event Parent, HH Finance or Sub commits a willful and material breach of the merger agreement, not to exceed $30.0 million (taking into account any payment of the Parent termination fee). See the section titled “The Agreement and Plan of Merger—Expenses; Termination Fees,” beginning on page [●].

Financing of the Merger

The Company anticipates that the total funds needed to complete the merger, including the funds needed to pay Company stockholders and holders of other equity-based interests the amounts due to them under the merger agreement, which would be approximately $[●] million based upon the number of shares of Company common stock (and the Company’s other equity-based interests) outstanding as of [●], 2020, will be funded through a combination of up to $250 million of debt financing and up to approximately $147.2 million of equity financing.

 

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Equity Financing

HH Finance and Sub have entered into an equity financing commitment letter, dated as of July 15, 2020 (which we refer to as the “equity financing commitment letter”), by and between BTO HH Global Holdings (Cayman) NQ L.P., Blackstone Family Tactical Opportunities Investment Partnership III (Cayman)—NQ—ESC L.P. and Blackstone Tactical Opportunities Fund—FD (Cayman)—NQ L.P. (each a “Sponsor” and collectively “Sponsors”) and Parent, which obligates Sponsors to fund to Parent an aggregate amount up to approximately $147.2 million, subject to the terms and conditions set forth in the equity financing commitment letter, for the purpose of enabling Parent to fund a portion of the merger consideration. The Company shall be entitled to injunctive relief, specific performance or other equitable relief to cause the equity financing to be consummated under the merger agreement (in accordance with the terms thereof), to enforce Parent’s right under the equity financing commitment letter to cause the equity financing to be funded (in accordance with the terms thereof) and to cause Parent and Sub to consummate the merger and to effect the closing (including to deposit with the paying agent the funds contemplated under the merger agreement), in each case if and only if (i) all conditions precedent to the obligations of Parent and Sub to effect the merger have been satisfied as of the date on which the closing would otherwise be required to occur or have been waived, (ii) Parent and Sub are required to consummate the closing under the merger agreement and fail to do so, (iii) the debt financing (including any alternative financing) has been or will be funded at the effective time if the equity financing is consummated and (iv) the Company has irrevocably confirmed in writing to Parent that if specific performance is granted and the financing (including any alternative financing) is funded, then the Company will, subject to certain closing conditions, cause the closing to occur in accordance with the merger agreement. However, while the Company may concurrently seek specific performance and payment of the Parent termination fee, the Company will not be permitted or entitled to receive both an injunction, grant of specific performance or other equitable relief providing for the consummation of the equity financing or the merger and the payment of the Parent termination fee or any monetary damages.

Debt Financing

HH Finance and Sub have entered into a debt commitment letter, dated as of July 15, 2020 (which we refer to as the “debt commitment letter”), with certain funds and accounts managed by subsidiaries of BlackRock, Inc., affiliates of PGIM, Inc., and investment funds and accounts managed by PGIM, Inc. and its affiliates (collectively, the “incremental debt commitment parties”) as commitment parties thereunder. Pursuant to and subject to the terms of the debt commitment letter, the debt commitment parties committed to provide a $248 million incremental term loan facility to Sub under Parent’s and HH Finance’s existing credit agreement dated as of 20 February 2020 (the “HH credit agreement”) (which we refer to as the “incremental debt financing”). In addition, under the HH credit agreement, certain funds and accounts managed by subsidiaries of BlackRock, Inc. (collectively and together with the incremental debt commitment parties, the “debt commitment parties”) have committed, pursuant to and subject to the terms of the HH credit agreement, to provide a $2 million acquisition term loan facility to Sub (together with the incremental debt financing, the “debt financing”). The debt financing is available to, among other things, (i) pay the merger consideration payable under the merger agreement, (ii) refinance certain existing indebtedness for borrowed money and (iii) pay any and all fees and expenses in connection with the merger or the financing thereof. The commitments in respect of the debt financing terminate automatically on the earliest to occur of (A) 11:59 p.m., Eastern time, April 22, 2021, (B) the closing date of the merger (or, if later, the first date on which the debt financing is utilized provided that certain circumstances are met) and (C) the date of the valid termination of the merger agreement and notice is provided by HH Finance of such termination.

To the knowledge of the Company, as of the date of this proxy statement, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing described in this proxy statement is not available.

The completion of the merger is not conditioned upon Parent’s or Sub’s receipt of financing.

 

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Material U.S. Federal Income Tax Consequences of the Merger

The following is a summary of material U.S. federal income tax consequences of the merger to beneficial owners of Company common stock who receive cash for their shares of Company common stock in the merger. This summary is general in nature and does not discuss all aspects of U.S. federal income taxation that might be relevant to a beneficial owner of shares in light of such beneficial owner’s particular circumstances. In addition, this summary does not describe any tax consequences arising under the laws of any state, local or foreign jurisdiction and does not consider any aspects of U.S. federal tax law other than income taxation. This summary only addresses shares of Company common stock held as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). This summary does not address the U.S. federal income tax consequences to holders of shares who demand appraisal rights under Section 262 of the DGCL. This summary does not address all U.S. federal income tax consequences relevant to a holder’s particular circumstances, including the impact of the Medicare contribution tax on net investment income. This summary also does not address tax considerations applicable to any holder of shares that may be subject to special treatment under the U.S. federal income tax laws, including:

 

   

a bank, insurance company or other financial institution;

 

   

a tax-exempt organization or governmental organization;

 

   

a retirement plan or other tax-deferred account;

 

   

a partnership, an S corporation or other entity treated as a pass-through entity for U.S. federal income tax purposes (or an investor in such an entity);

 

   

a mutual fund;

 

   

a real estate investment trust or regulated investment company;

 

   

a personal holding company;

 

   

a dealer or broker in stocks and securities or currencies;

 

   

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

 

   

a holder of shares subject to the alternative minimum tax provisions of the Code;

 

   

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

 

   

a U.S. holder (as described below) that has a functional currency other than the U.S. dollar;

 

   

a “controlled foreign corporation,” “passive foreign investment company” or corporation that accumulates earnings to avoid U.S. federal income tax;

 

   

a holder that holds shares as part of a hedge, straddle, constructive sale, conversion or other risk reduction strategy or integrated transaction; or

 

   

a U.S. expatriate or a former citizen or long-time resident of the United States.

This summary is based on the Code, the Treasury regulations promulgated under the Code and rulings and judicial decisions, 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. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a holder of the shares. We have not sought, and do not intend to seek, any ruling from the U.S. Internal Revenue Service (which we refer to as the “IRS”) with respect to the statements made and the conclusions reached in the following summary. No assurance can be given that the IRS will agree with the views expressed in this summary, or that a court will not sustain any challenge by the IRS in the event of litigation.

THIS DISCUSSION IS INTENDED ONLY AS A GENERAL SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO A HOLDER OF SHARES OF COMPANY

 

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COMMON STOCK. WE URGE BENEFICIAL OWNERS OF SHARES TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, INCLUDING FEDERAL ESTATE, GIFT AND OTHER NON-INCOME TAX CONSEQUENCES, AND TAX CONSEQUENCES UNDER STATE, LOCAL OR FOREIGN TAX LAWS, OR UNDER ANY APPLICABLE INCOME TAX TREATY, INCLUDING POSSIBLE CHANGES IN SUCH LAWS OR TREATIES.

For purposes of this discussion, we use the term “U.S. holder” to mean a beneficial owner of shares of Company common stock that is, for U.S. federal income tax purposes:

 

   

an individual citizen or resident of the United States;

 

   

a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia;

 

   

a trust that (i) is subject to the supervision of a court within the United States and the control of one or more U.S. persons (within the meaning of Section 7701(a)(30) of the Code) or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or

 

   

an estate that is subject to U.S. federal income tax on its income regardless of its source.

We use the term “non-U.S. holder” to mean a beneficial owner of Company common stock (other than a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) that is not a U.S. holder.

If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) beneficially owns shares of Company common stock, the tax treatment of the partnership and its partners generally will depend on the status of the partners and the activities of the partnership. A partner in a partnership holding shares of Company common stock should consult such partner’s tax advisor.

U.S. Holders

General. A U.S. holder’s receipt of cash in exchange for shares of Company common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes, and a U.S. holder who receives cash in exchange for shares of Company common stock in the merger will recognize gain or loss equal to the difference, if any, between the amount of cash received and the U.S. holder’s adjusted tax basis in the shares. A U.S. holder’s adjusted tax basis in a share generally will be equal to the amount the U.S. holder paid for the share. Gain or loss will be determined separately for each block of shares of Company common stock (that is, shares acquired at the same cost in a single transaction). Such gain or loss will be capital gain or loss, and will be long-term capital gain or loss if the U.S. holder’s holding period for the shares is more than one year at the effective time. Long-term capital gain recognized by individuals and other non-corporate persons that are U.S. holders generally is subject to tax at a reduced rate of U.S. federal income tax. There are limitations on the deductibility of capital losses.

Information Reporting and Backup Withholding. A U.S. holder may be subject to information reporting. In addition, all payments to which a U.S. holder would be entitled pursuant to the merger will be subject to backup withholding at the statutory rate unless such holder (i) is a corporation or other exempt recipient (and, when required, demonstrates this fact), or (ii) provides a taxpayer identification number (which we refer to as a “TIN”) and certifies, under penalty of perjury, that the U.S. holder is not subject to backup withholding, and otherwise complies with applicable requirements of the backup withholding rules. A U.S. holder that does not otherwise establish exemption should complete and sign the IRS Form W-9 in order to provide the information and certification necessary to avoid backup withholding and possible penalties. If a U.S. holder does not provide a correct TIN, such U.S. holder may be subject to backup withholding and penalties imposed by the IRS.

 

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Any amount paid as backup withholding does not constitute an additional tax and will be creditable against a U.S. holder’s U.S. federal income tax liability, provided the required information is given to the IRS in a timely manner. If backup withholding results in an overpayment of tax, a U.S. holder may obtain a refund by filing a U.S. federal income tax return in a timely manner. U.S. holders are urged to consult their tax advisors as to qualifications for exemption from backup withholding and the procedure for obtaining the exemption.

Non-U.S. Holders

General. A non-U.S. holder’s receipt of cash for shares of Company common stock pursuant to the merger generally will not be subject to U.S. federal income tax unless:

 

   

the non-U.S. holder is an individual who was present in the United States for 183 days or more during the taxable year of the merger and certain other conditions are met;

 

   

the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States and, if required by an applicable tax treaty, attributable to a permanent establishment maintained by the non-U.S. holder in the United States; or

 

   

we are or have been a United States real property holding corporation, or “USRPHC,” for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of the merger or the period that the non-U.S. holder held our shares and the non-U.S. holder held (actually or constructively) more than five percent of our shares at any time during the five-year period ending on the date of the merger.

Gain described in the first bullet point above generally will be subject to tax at a flat rate of 30% (or such lower rate as may be specified under an applicable income tax treaty), net of applicable U.S.-source losses from sales or exchanges of other capital assets recognized by such non-U.S. holder during the taxable year even though the individual is not considered a resident of the United States, provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses. Unless a tax treaty provides otherwise, gain described in the second bullet point above will be subject to U.S. federal income tax on a net income basis in the same manner as if the non-U.S. holder were a U.S. holder. A non-U.S. holder that is a foreign corporation also may be subject to a 30% branch profits tax (or applicable lower treaty rate). Non-U.S. holders are urged to consult their tax advisors as to any applicable tax treaties that might provide for different rules.

With respect to the third bullet point above, the determination whether we are a USRPHC depends on the fair market value of our United States real property interests relative to the fair market value of our other trade or business assets and our United States and foreign real property interests. We believe that we have not been a USRPHC for U.S. federal income tax purposes at any time during the five-year period ending on the date of the merger.

Information Reporting and Backup Withholding. Information reporting and backup withholding will generally apply to payments made pursuant to the merger to a non-U.S. holder effected by or through the U.S. office of any broker, U.S. or foreign, unless the holder certifies its status as a non-U.S. holder and satisfies certain other requirements, or otherwise establishes an exemption. Dispositions effected through a non-U.S. office of a U.S. broker or a non-U.S. broker with substantial U.S. ownership or operations generally will be treated in a manner similar to dispositions effected through a U.S. office of a broker. A non-U.S. holder must generally submit an IRS Form W-8BEN or W-8BEN-E (or other applicable IRS Form W-8) attesting to its exempt foreign status in order to qualify as an exempt recipient. Any amount paid as backup withholding does not constitute an additional tax and will be creditable against a non-U.S. holder’s U.S. federal income tax liability, provided the required information is given to the IRS in a timely manner. If backup withholding results in an overpayment of tax, a non-U.S. holder may obtain a refund by filing a U.S. federal income tax return in a timely manner. Non-U.S. holders are urged to consult their tax advisors as to qualifications for exemption from backup withholding and the procedure for obtaining the exemption. Copies of information returns that are filed

 

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with the IRS may also be made available under an applicable tax treaty or information exchange agreement to the tax authorities of the country in which the non-U.S. holder resides or is established.

THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO PARTICULAR HOLDERS OF SHARES OF COMPANY COMMON STOCK. HOLDERS OF SHARES ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE RECEIPT OF CASH FOR THEIR SHARES PURSUANT TO THE MERGER UNDER ANY U.S. FEDERAL, STATE, FOREIGN, LOCAL OR OTHER TAX LAWS, OR UNDER ANY APPLICABLE INCOME TAX TREATY.

Regulatory Approvals

Hart-Scott-Rodino Antitrust Improvements Act of 1976

On July 29, 2020, the Company and Parent filed their respective notification and report forms under the HSR Act with the Antitrust Division of the Department of Justice (which we refer to as the “DOJ”) and the United States Federal Trade Commission (which we refer to as the “FTC”), which triggered the start of the HSR Act waiting period.

Regulatory Conditions to Completion of the Merger

At any time before or after the effective time, the DOJ, the FTC, antitrust authorities outside of the United States or U.S. state attorneys general could take action under applicable antitrust laws, including seeking to enjoin the completion of the merger, conditionally approving the merger upon the divestiture of the Company’s or Parent’s assets, subjecting the completion of the merger to regulatory conditions or seeking other remedies. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

Under the merger agreement, the respective obligations of the Company, Parent, HH Finance and Sub to complete the merger are subject to, among other things, (i) any waiting period (or any extensions thereof) applicable to the merger under the HSR Act having expired or been terminated and any applicable approval having been obtained or any applicable waiting period having expired or been terminated under the competition, antitrust or merger control laws of Austria, Germany, Russia and Turkey and the foreign investment laws of Australia and New Zealand; and (ii) the absence of any judgment issued or entered by a court or similar governmental entity of competent jurisdiction that is in effect and that enjoins or prohibits the consummation of the merger.

On August 2, 2020, Parent filed its notification and report forms under the foreign investment laws of Australia.

We currently expect to complete the transaction during the fourth quarter of 2020 assuming all antitrust and other regulatory approvals that are required for the completion of the merger have been obtained, however, we cannot guarantee when any such approvals will be obtained or that they will be obtained at all.

 

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THE AGREEMENT AND PLAN OF MERGER

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, 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, HH Finance or 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. See the section titled “Where You Can Find More Information,” on page [●].

The representations, warranties and covenants made in the merger agreement by the Company, Parent, HH Finance and Sub are qualified and subject to important limitations agreed to by the Company, Parent, HH Finance and 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 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 SEC, and in some cases were qualified by the Company disclosure letter, which such disclosures are not reflected in the text of the merger agreement. 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 this proxy statement.

Date of the Merger Agreement

The merger agreement was executed by the Company, Parent, HH Finance and Sub on July 15, 2020 (the “date of the merger agreement”).

The Merger

The merger agreement provides that, upon the terms and subject to the conditions set forth in the merger agreement and the applicable provisions of the DGCL, at the effective time, Sub will be merged with and into the Company, the separate corporate existence of Sub will thereupon cease and the Company will continue as the surviving corporation of the merger. As a result of the merger, the Company, as the surviving corporation, will succeed to and assume all of the rights and obligations of Sub and the Company in accordance with the DGCL, as a wholly-owned subsidiary of Parent.

Closing; Effective Time of the Merger

The closing of the merger will take place on the fifth business day after each of the conditions set forth in the merger agreement are satisfied, or to the extent permitted by law, waived by the party entitled to waive such condition (other than those conditions that, by their nature, are to be satisfied on the closing date, but subject to the satisfaction or, if permissible, waiver of such conditions by the party entitled to waive such conditions) or

 

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another date or place agreed to in writing by the parties to the merger agreement (we refer to the date on which the closing occurs as the “closing date”).

Concurrently with the closing, the Company will cause a certificate of merger with respect to the merger to be executed, acknowledged and filed with the Secretary of State of the State of Delaware as provided in the DGCL. The merger shall become effective on the date and at the time when the certificate of merger has been duly filed with the Secretary of State of the State of Delaware or at such later time as may be agreed upon by the parties to the merger agreement in writing and set forth in the certificate of merger in accordance with the DGCL.

Organizational Documents; Directors and Officers

The merger agreement provides that, at the effective time, (i) the second amended and restated certificate of incorporation of the surviving corporation, as in effect immediately prior to the effective time, will be amended and restated in the form attached to the merger agreement until thereafter amended in accordance with applicable law and the applicable provisions of the amended and restated certificate of incorporation and the amended and restated bylaws of the surviving corporation, and (ii) the second amended and restated bylaws of the surviving corporation shall be amended and restated in their entirety to read as the bylaws of Sub, as in effect immediately prior to the effective time, and as so amended and restated, shall be the bylaws of the surviving corporation (except that references to the name of Sub will be replaced by references to the name of the surviving corporation) in each case until thereafter amended in accordance with applicable law and the applicable provisions of the amended and restated certificate of incorporation and the amended and restated bylaws of the surviving corporation.

Additionally, the merger agreement provides that the board of directors of the surviving corporation effective as of, and immediately following, the effective time will consist of the members of the board of directors of Sub immediately prior to the effective time. At the closing, the Company will deliver the resignations of each director of the Company in office as of immediately prior to the effective time, effective upon the effective time. Furthermore, from and after the effective time, the officers of the Company at the effective time will be the officers of the surviving corporation. Each such director will hold office until his or her successor is duly elected or appointed and qualified or until his or her earlier death, resignation or removal in accordance with the amended and restated certificate of incorporation and the bylaws of the surviving corporation and each such officer will hold office in accordance with the amended and restated certificate of incorporation and the amended and restated bylaws of the surviving corporation.

Merger Consideration

Outstanding Company Common Stock

At the effective time, except as described below, each share of Company common stock issued and outstanding immediately prior to the effective time (other than (i) shares of Company common stock that are held in the treasury of the Company or owned of record by the Company or any wholly-owned subsidiary of the Company (other than those held on behalf of any third party), (ii) all shares owned of record by Parent, Sub or any of their respective wholly-owned subsidiaries, in each case immediately prior to the effective time and (iii) shares of Company common stock held by stockholders who have not voted in favor of, or consented to the adoption of, the merger agreement and who have properly demanded appraisal of such shares and complied in all respects with all the provisions of the DGCL concerning the right of holders of shares to request appraisal of their shares) will be cancelled and cease to exist and will be automatically converted into the right to receive $3.00 in cash, without interest thereon, subject to any applicable withholding taxes and the following paragraph.

Company-Owned and Parent-Owned Company Common Stock

At the effective time, all shares of Company common stock that are held in the treasury of the Company or owned of record by any of the Company or any Company subsidiaries and all shares of Company common stock

 

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owned of record by Parent, Sub or any of their respective subsidiaries (in each case, other than those held on behalf of any third party) will be cancelled and will cease to exist, with no payment being made with respect thereto.

Sub Capital Stock

At the effective time, each issued and outstanding share of capital stock of Sub will be automatically converted into and become one validly issued, fully paid and nonassessable share of common stock, par value $0.001 per share, of the surviving corporation.

Dissenting Shares

All Company common stock that is issued and outstanding immediately prior to the effective time and held by a person who did not vote in favor of or consent to the adoption of the merger agreement and who is entitled to appraisal of such shares and complied in all respects with all the applicable provisions of the DGCL (which we refer to as “dissenting shares”) will not be converted into the right to receive the merger consideration, but will be converted into the right to receive fair value of such shares as determined pursuant to the procedures set forth in Section 262 of the DGCL. We refer to a holder of dissenting shares as a “dissenting stockholder.” If such dissenting stockholder withdraws its demand for appraisal or fails to perfect or otherwise loses its right of appraisal, in any case pursuant to the DGCL, its shares will be deemed to be converted as of the effective time into the right to receive the merger consideration, without interest.

The merger agreement provides that the Company will give Parent prompt written notice of any demands for appraisal of dissenting shares received by the Company, withdrawals or attempted withdrawals of such demands and any other instruments, notices or demands served on the Company pursuant to Section 262 of the DGCL and Parent shall have the right to participate in all negotiations and proceedings with respect to such demands. The Company shall not, without the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands, waive any failure to timely deliver a written demand for appraisal under the DGCL, approve any withdrawal of any such demands or propose or agree to do or commit to do any of the foregoing.

Treatment of Outstanding Equity Awards and Equity Plans

Company Stock Options

The merger agreement provides that, as of immediately prior to the effective time and upon the terms and subject to the conditions set forth therein, each outstanding Company stock option will be fully vested and cancelled by virtue of the merger and without any action on the part of the holder thereof, and each holder of a cancelled Company stock option will receive, in exchange for the cancellation of such Company stock option, a payment in cash, without interest, equal to the product of (i) the total number of shares subject to the cancelled Company stock option and (ii) the excess, if any, of (A) the merger consideration over (B) the exercise price per share subject to the cancelled Company stock option; provided, however, that (i) any such Company stock option with respect to which the exercise price per share subject thereto is equal to or greater than the merger consideration will be cancelled in exchange for no consideration and (ii) such payments will be reduced by the amount of any required tax withholdings as contemplated by the merger agreement.

Stock Appreciation Rights

The merger agreement provides that, as of immediately prior to the effective time and upon the terms and subject to the conditions set forth therein, each outstanding Company stock appreciation right will be fully vested and cancelled by virtue of the merger and without any action on the part of the holder thereof, and each holder of a cancelled Company stock appreciation right will receive, in exchange for the cancellation of such Company

 

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stock appreciation right, a payment in cash, without interest, equal to the product of (i) the total number of shares subject to the cancelled Company stock appreciation right and (ii) the excess, if any, of (A) the merger consideration over (B) the grant price per share subject to the cancelled Company stock appreciation right; provided, however, that (i) any such Company stock appreciation right with respect to which the grant price per share subject thereto is equal to or greater than the merger consideration will be cancelled in exchange for no consideration and (ii) such payments will be reduced by the amount of any required tax withholdings as contemplated by the merger agreement.

Restricted Stock Unit Awards

The merger agreement provides that, as of immediately prior to the effective time and upon the terms and subject to the conditions set forth therein, each outstanding and unvested Company restricted stock unit award (i) will be fully vested, (ii) any performance conditions applicable to such Company restricted stock unit award (whether or not the performance period has been completed) will be deemed to be achieved at the greater of (A) actual performance achieved as of the day immediately prior to the closing date and (B) the target level of performance, and (iii) will be cancelled by virtue of the merger and without any action on the part of the holder thereof, and each holder of a cancelled Company restricted stock unit award will receive, in exchange for the cancellation of such Company restricted stock unit award, a payment in cash, without interest, equal to the product of (y) the merger consideration multiplied by (z) the number of shares subject to the cancelled Company restricted stock unit award or, in the case of a performance-based Company restricted stock unit award, the number of shares earned or deemed earned with respect to such Company restricted stock unit award as provided therein; provided, however, that such payments will be reduced by the amount of any required tax withholdings as contemplated by the merger agreement.

Restricted Stock

The merger agreement provides that, as of immediately prior to the effective time and upon the terms and subject to the conditions set forth therein, any restrictions on any shares of Company restricted stock shall lapse and such shares of Company restricted stock shall vest. Each share of Company restricted stock will automatically be converted at the effective time into the right to receive the merger consideration.

Company Stock Plans

The merger agreement provides that, as of the closing, the Company’s 2006 Stock Incentive Plan (as amended and restated on September 6, 2018) and the Company’s 2020 Omnibus Incentive Plan will be terminated, and no further Company options, Company stock appreciation rights, Company restricted stock unit award, Company restricted stock or other rights with respect to shares of Company common stock will be granted thereunder.

Treatment of Warrant

The merger agreement provides that, immediately prior to the effective time, the outstanding and unexercised Company warrant issued to Warrant Holder pursuant to that certain Warrant to Purchase Stock, dated as of July 16, 2019, by and between the Company and the Warrant Holder, unless the Company receives a notice in writing from the Warrant Holder that it elects to have the unexercised portion of the warrant expire, will be deemed to be automatically exercised and, in exchange therefor, the Warrant Holder will receive a payment in cash equal to the product of (y) the merger consideration multiplied by (z) the number of total shares of Company common stock for which the warrant is then exercisable (on a net cash settlement basis), less any applicable withholding taxes.

Exchange Procedures

The merger agreement provides that prior to the effective time, Parent will designate a U.S.-based nationally recognized financial institution reasonably acceptable to the Company to act as agent (which we refer to as the

 

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paying agent”) for the holders of shares of Company common stock (other than shares of restricted stock) to receive the funds to which such holders will become entitled pursuant to the merger agreement (which we refer to as the “exchange fund”). The exchange fund shall be held in trust by the paying agent for the benefit of the holders of shares of Company common stock (other than shares of restricted stock) that are entitled to receive the merger consideration. In the event the exchange fund shall be insufficient to make the payments contemplated of the merger consideration, Parent will promptly deposit, or cause to be deposited, additional funds with the paying agent in an amount sufficient to make such payments. The exchange fund shall not be used for any purpose other than to fund payments of the merger consideration, except as expressly provided for in the merger agreement.

As promptly as practicable after the effective time and in any event not later than the second business day following the effective time, Parent is required to cause the paying agent to mail to each holder of record of a certificate representing a share of Company common stock (which we refer to as a “certificate”) whose shares of Company common stock were converted into the right to receive the merger consideration pursuant to the merger agreement: (i) a letter of transmittal in customary form, which shall specify that delivery shall be effected, and risk of loss and title to the certificates shall pass, only upon delivery of the certificates (or affidavits of loss in lieu thereof) to the paying agent, and will otherwise be in such form and have such other provisions as Parent may reasonably specify, subject to the reasonable consent of the Company; and (ii) instructions for effecting the surrender of the certificates in exchange for payment of the merger consideration. Upon surrender of any certificates (or affidavits of loss in lieu thereof) for cancellation to the paying agent, and upon delivery of a letter of transmittal, duly executed and in proper form, with respect to such certificates and such other documents as may be customarily required by the paying agent, the holder of such certificates shall be entitled to receive in exchange therefor the portion of the merger consideration into which the shares formerly represented by such certificates were converted, and the certificates so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of shares that is not registered in the transfer records of the Company, payment may be made and merger consideration may be issued to a person other than the person in whose name the certificate so surrendered is registered, if such certificate is properly endorsed or is otherwise in proper form for transfer and the person requesting such payment either pays to the paying agent any transfer and other similar taxes required by reason of the payment of the merger consideration to a person other than the registered holder of the certificate so surrendered or establishes to the reasonable satisfaction of the paying agent that such taxes either have been paid or are not required to be paid.

Each registered holder of a book-entry share shall automatically upon the effective time be entitled to receive the merger consideration, and Parent shall cause payment of the merger consideration with respect to book-entry shares (less any required tax withholdings) to be made to the person in whose name such book-entry shares are registered promptly following the effective time (but in no event more than two (2) business days thereafter) without any action on the part of the person in whose name such book-entry shares are registered.

No interest shall be paid or accrue on any portion of the merger consideration payable upon surrender of any certificate (or affidavit of loss in lieu thereof in accordance with Section 2.02(e)) or in respect of any book-entry share.

YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATE(S) WITH YOUR PROXY CARD. A LETTER OF TRANSMITTAL WITH INSTRUCTIONS FOR THE SURRENDER OF CERTIFICATES REPRESENTING SHARES OF COMPANY COMMON STOCK WILL BE MAILED TO STOCKHOLDERS HOLDING CERTIFICATED SHARES OF COMPANY COMMON STOCK IF THE MERGER IS COMPLETED.

Lost, Stolen and Destroyed Certificates

If any certificate will have been lost, stolen or destroyed, upon the making of an affidavit (in form and substance reasonably acceptable to Parent) of that fact by the person claiming such certificate to be lost, stolen or destroyed, the paying agent or the surviving corporation, as applicable, will issue in exchange for such lost,

 

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stolen or destroyed certificate the portion of the aggregate merger consideration into which the shares formerly represented by such certificate were converted pursuant to the merger agreement. However, the owner of such lost, stolen or destroyed certificate may be required, as a condition precedent to the payment of such merger consideration, to provide a bond in a customary amount if so required by Parent, as indemnity against any claim that may be made against Parent, the paying agent or the surviving corporation.

Representations and Warranties

The Company, on the one hand, and Parent, HH Finance and Sub, on the other hand, have each made representations and warranties to each other in the merger agreement. The representations and warranties referenced below and included in the merger agreement were made only for purposes of the merger agreement and as of specific dates, were solely for the benefit of the parties to the merger agreement, may be subject to a contractual standard of materiality different from what might be viewed as material to Company stockholders and may be subject to limitations agreed upon by the parties, including being qualified by disclosures filed with or furnished to the SEC and confidential disclosures made by the Company to Parent, HH Finance and Sub in the disclosure letter delivered by the Company in connection with the merger agreement (which we refer to as the “Company disclosure letter”). The representations and warranties contained in the merger agreement should not be relied upon as characterizations of the actual state of facts or conditions of the Company, Parent, HH Finance, Sub or any of their respective subsidiaries, affiliates or businesses. The representations and warranties of each of the parties to the merger agreement will expire at the effective time.

Representations and Warranties of the Company

The Company has made customary representations and warranties to Parent, HH Finance and Sub in the merger agreement regarding aspects of the Company’s business and various other matters pertinent to the merger. The topics covered by the Company’s representations and warranties include the following:

 

   

the organization, qualification to do business and good standing of the Company;

 

   

the Company’s subsidiaries, including, among other things, the organization, qualification to do business, good standing, capital structure and absence of restrictions with respect to the capital stock of such subsidiaries;

 

   

the capital structure, and the absence of restrictions with respect to the capital stock and other securities, of the Company;

 

   

the Company’s authority to enter into, and, subject to receipt of the Company stockholder approval, consummate the transactions contemplated by the merger agreement;

 

   

the absence of conflicts with, or violations of, laws, organizational documents or contracts, in each case as a result of the Company’s execution or delivery of the merger agreement or the performance by the Company of its covenants under, or the consummation by the Company of the transactions contemplated by, the merger agreement;

 

   

the governmental and regulatory approvals required to complete the merger;

 

   

the Company’s and its subsidiaries’ governmental permits and compliance with law;

 

   

the Company’s SEC filings since January 1, 2018, the financial statements contained in such filings and off-balance sheet arrangements;

 

   

the information contained in this proxy statement;

 

   

the Company’s and its subsidiaries’ systems of internal control over financial reporting and disclosure controls and procedures;

 

   

the absence of any Company material adverse effect since December 31, 2019 and the absence of certain other changes or events since December 31, 2019;

 

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the absence of undisclosed liabilities;

 

   

the absence of pending or threatened litigation, actions or proceedings or outstanding judgments;

 

   

employee benefits matters related to the Company and its subsidiaries;

 

   

labor matters related to the Company and its subsidiaries;

 

   

tax matters related to the Company and its subsidiaries;

 

   

the Company’s and its subsidiaries’ leased real property;

 

   

environmental matters related to the Company and its subsidiaries;

 

   

the Company’s and its subsidiaries’ intellectual property;

 

   

contracts that would be required to be filed by the Company pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act of 1933, as amended, and other contracts related to the Company and its subsidiaries that are described in the material contracts representation and warranty in the merger agreement (which we refer to as “material contracts”);

 

   

compliance with anti-corruption and sanctions laws;

 

   

insurance coverage related to the Company and its subsidiaries;

 

   

the opinion of the Company’s financial advisor;

 

   

the inapplicability of takeover statutes to the merger;

 

   

the absence of financial advisor’s, broker’s, finder’s or investment banker’s fees, other than those payable to the Company’s financial advisor, in connection with the transactions contemplated by the merger agreement; and

 

   

the Company’s relationship with its largest customers and largest vendors.

Some of the Company’s representations and warranties are qualified by the concept of a “Company material adverse effect.” Under the terms of the merger agreement, a Company material adverse effect means any condition, fact, occurrence, development, change, circumstance, event or effect (each of which, we refer to as an “effect”) that has had or would reasonably be expected to have, individually or in the aggregate together with all other effects a material adverse effect on the business, assets, financial condition or results of operations of the Company and the subsidiaries of the Company, taken as a whole. However, none of the following and no effect arising out of or resulting from the following will constitute or be taken into account in determining whether there has been a Company material adverse effect:

 

   

the entry into or the announcement or pendency of the merger agreement or the transactions contemplated by the merger agreement, the performance by the Company of the merger agreement or the consummation of the transactions contemplated by the merger agreement (other than for purposes of the representations and warranties regarding conflicts and consents), in each case, including (i) by reason of the identity of, or any facts or circumstances relating to, Parent, Sub or any of their respective affiliates, (ii) by reason of any communication by Parent or any of its affiliates regarding the plans or intentions of Parent with respect to the conduct of the business of the Company and the Company’s subsidiaries following the effective time and (iii) the impact of any of the foregoing on any of the Company’s or any of the Company’s subsidiaries’ relationships (contractual or otherwise) with its respective customers, suppliers, vendors, business partners or employees;

 

   

any effect affecting the economy or the financial, credit or securities markets in the United States or elsewhere in the world (including interest rates and exchange rates or any changes therein) or any effect affecting any business or industries in which the Company or any of the Company and its subsidiaries operates;

 

   

the suspension of trading in securities generally on the NASDAQ;

 

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any development or change in applicable law, GAAP or accounting standards or the interpretation of any of the foregoing;

 

   

any action taken by the Company or any of the Company’s subsidiaries that is expressly required by the merger agreement or with Parent’s written consent or at Parent’s written request (other than compliance with the Company’s interim operating covenants under the merger agreement);

 

   

the commencement, occurrence, continuation or escalation of any armed hostilities, sabotage, or acts of war (whether or not declared) or terrorism, or any escalation or worsening of acts of terrorism, armed hostilities or war;

 

   

any actions or claims made or brought by any of the current or former stockholders of the Company (or on their behalf or on behalf of the Company, but in any event only in their capacities as current or former stockholders) arising out of the merger agreement or any of the transactions contemplated by the merger agreement;

 

   

the existence, occurrence, continuation or escalation of any acts of God, force majeure events, any earthquakes, floods, hurricanes, tropical storms, fires or other natural disasters or weather-related events or any national, international or regional calamity or any civil unrest or any disease outbreak, pandemic or epidemic;

 

   

any comments or other communications by Parent or Sub of its intentions with respect to the Company or any of the Company’s subsidiaries, including any communications to any employees of the Company or any of the Company’s subsidiaries;

 

   

any changes in the market price or trading volume of the Company common stock, any changes in the ratings or the ratings outlook for the Company or any of its subsidiaries by any applicable rating agency, any changes in any analyst’s recommendations or ratings with respect to the Company or any of its subsidiaries;

 

   

any failure of the Company or any of its subsidiaries to meet any internal or external projections, budgets, guidance, forecasts or estimates of revenues, earnings or other financial results or metrics for any period ending on or after the date of the merger agreement (it being understood that the exceptions in this bullet, the second bullet and the immediately preceding bullet will not prevent or otherwise affect the underlying cause of any such change or failure referred to therein (to the extent not otherwise falling within any of the exceptions provided by the other clauses) from being taken into account in determining whether a material adverse effect has occurred), provided, that this bullet will not be construed as implying that the Company is making any representation or warranty with respect to any internal or external projections, budgets, guidance, forecasts or estimates of revenues, earnings or other financial results or metrics for any period; or

 

   

certain specified matters, COVID-19 or any COVID-19 measures. We refer to as “COVID-19 measures” any reasonable action or inaction by the Company or any Company subsidiary taken (or not taken) to the extent reasonably necessary to address COVID-19 or address or comply with any workforce reduction, quarantine, “shelter in place,” “stay at home,” social distancing, shut down, closure, sequester, safety or similar law, directive, guidelines or recommendations promulgated by any industry group or any governmental entity, including the Centers for Disease Control and Prevention and the World Health Organization, in each case in connection with or in response to COVID-19, including the CARES Act and Families First Act.

However, with respect to the exceptions described in the second, third, fourth, sixth and eighth bullets above, such effects will not be prohibited from being taken into account to the extent they materially and disproportionately adversely affect the Company and its subsidiaries, taken as a whole, compared to other companies operating primarily in the same industries in which the Company and its subsidiaries operate.

 

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Representations and Warranties of Parent and Sub

Parent, HH Finance and Sub made customary representations and warranties to the Company in the merger agreement, in each case, subject to customary qualifications and limitations, including representations and warranties relating to the following:

 

   

the organization and good standing of Parent, HH Finance and Sub;

 

   

each of Parent’s, HH Finance’s and Sub’s authority to enter into and consummate the transactions contemplated by the merger agreement;

 

   

the absence of conflicts with, or violations of, laws, organizational documents or certain material contracts and instruments to which Parent, HH Finance or Sub is a party, in each case as a result of Parent’s, HH Finance’s and Sub’s execution or delivery of the merger agreement or the performance by Parent, HH Finance and Sub of their respective covenants under, or the consummation by Parent, HH Finance and Sub of the transactions contemplated by, the merger agreement;

 

   

the governmental and regulatory approvals required to complete the merger;

 

   

the information contained in this proxy statement;

 

   

the absence of pending or threatened litigation and outstanding orders which would reasonably be expected to prevent or materially delay the merger;

 

   

the ownership of Sub by Parent;

 

   

Sub’s lack of operating activities;

 

   

the equity financing commitment letter and the equity financing;

 

   

the debt commitment letter and the debt financing;

 

   

the absence of broker’s, finder’s or investment banker’s fees in connection with the transactions contemplated by the merger agreement;

 

   

the absence of certain contracts or commitments to enter into a contract between Parent, HH Finance, Sub or any of their respective affiliates, on the one hand, and any director, officer, employee or stockholder of the Company, on the other hand;

 

   

Parent’s investment intention in acquiring shares of the surviving corporation;

 

   

the audited financial statements of Parent for the year ended March 31, 2019 and the unaudited financial statements of Parent for the year ended March 31, 2020; and

 

   

the solvency of Parent, the surviving corporation and each subsidiary of the surviving corporation at and immediately following the effective time.

Covenants Regarding Conduct of Business by the Company Prior to the Merger

Under the merger agreement, the Company agreed that, until the earlier of the effective time or the termination of the merger agreement in accordance with its terms, except (i) as specifically permitted as set forth in the Company disclosure letter as an exception to the corresponding interim operating restrictions, (ii) as expressly required or expressly permitted by any other provision of the merger agreement, (iii) as required by applicable law or (iv) any COVID-19 measures, unless Parent will otherwise agree in writing (which agreement will not be unreasonably withheld, delayed or conditioned), the Company will, and will cause each of its subsidiaries to, use commercially reasonable efforts to conduct its operations and business in all material respects in the ordinary course of business and to use commercially reasonable efforts to maintain and preserve its assets and business organization, keep available the services of key employees and maintain its relationships with governmental entities, partners, customers, suppliers, licensors and others having significant business dealings with the Company and the Company’s subsidiaries.

 

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Furthermore, the Company agreed that, until the earlier of the effective time or the termination of the merger agreement in accordance with its terms, except as set forth in the Company disclosure letter, as expressly required or expressly permitted by any other provision of the merger agreement or as required by applicable law, as Parent may agree in writing (which agreement may not be unreasonably withheld, delayed or conditioned), the Company will not, and will not permit its subsidiaries to:

 

   

amend the amended and restated certificate of incorporation or amended and restated bylaws of the Company or amend any organizational documents of any subsidiary of the Company in any manner adverse to Parent;

 

   

issue, sell, grant, pledge or otherwise encumber or authorize the issuance, sale, grant, pledge or other encumbrance of any equity securities in the Company or any subsidiary of the Company, or securities convertible into, or exchangeable or exercisable for, any such equity securities, or any rights of any kind to acquire any such equity securities or securities convertible or exchangeable into such equity securities, other than (i) grants of awards under the Company stock plan as set forth in the disclosure letter and (ii) the issuance of shares of Company common stock upon the exercise or vesting of Company options and RSU awards outstanding as of the date of the merger agreement;

 

   

sell, license, lease, rent, assign, abandon, encumber (except with respect to certain permitted liens) or otherwise dispose of any tangible properties or assets (x) with a value in excess of $2.5 million in the aggregate, except (i) sales, licenses, rents, assignments, leases, abandonments, encumbrances or other dispositions made in connection with any transaction between or among the Company and any subsidiary of the Company or between or among the Company’s subsidiaries; (ii) sales or dispositions of inventory made in the ordinary course of business or (iii) pursuant to existing contracts which had been made available to Parent prior to the date of the merger agreement or (y) on non-arm’s length terms;

 

   

declare, set aside, make or pay any dividend or other distribution with respect to the capital stock of the Company or any subsidiary of the Company (other than to the extent payable to the Company or another subsidiary of the Company), whether payable in cash, stock, property or a combination thereof;

 

   

other than (i) in the case of the Company’s subsidiaries or (ii) in connection with tax withholdings on the exercise, vesting or payment of Company options, restricted stock, RSUs or the warrant, in each case, outstanding on the date of the merger agreement, reclassify, combine, split, subdivide or amend the terms of, or redeem, purchase or otherwise acquire, directly or indirectly, any equity securities of the Company or any options, warrants, securities or other rights exercisable for or convertible into any such equity securities of the Company;

 

   

merge or consolidate the Company or any of its subsidiaries with any person or adopt a plan of complete or partial liquidation or resolutions providing for a complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of the Company;

 

   

enter into any agreement to make, make, or make any offer to make any acquisition or divestiture of a business or material portion of stock, equity or assets of any person (including by merger, consolidation or acquisition of stock, equity or assets);

 

   

incur, create, redeem, repurchase, prepay, cancel, restructure, refinance or otherwise modify the terms of any indebtedness for borrowed money or issue or sell any debt securities or calls, options, warrants or other rights to acquire any debt securities, or assume or guarantee the obligations of any person (other than a wholly-owned Company subsidiary) for borrowed money (subject to certain exceptions);

 

   

make any loans, advances or capital contributions to, or investments in (through the acquisition of stock, contributions to capital, property transfer or purchase of property or assets or otherwise), any other person (other than the Company and any of the Company’s subsidiaries) other than loans and advances made to employees in the ordinary course of business not to exceed $100,000 in the aggregate;

 

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except to the extent required by law or the terms of any Company benefit plan in effect as of the date of the merger agreement or as specifically contemplated by the merger agreement: (i) other than changes with respect to the annual renewals in the ordinary course of business of any Company benefit plans that provide group health or welfare benefits, increase the compensation or benefits payable or to become payable to any current or former employees, officers or directors or individual independent contractors; (ii) other than (A) in connection with the hiring of new employees or a promotion as permitted in the disclosure letter, in each case, to replace an employee who was party to such an agreement, or (B) under the Company’s generally applicable severance policy, grant any rights to severance or termination pay or other termination benefit, or enter into any employment or severance agreement; (iii) other than as permitted pursuant to clause (ii) above, establish, adopt, enter into, materially amend or terminate any Company benefit plan (or plan, policy, program, contract, arrangement or agreement that would be a Company benefit plan if in effect as of the date of the merger agreement) or collective bargaining or other contract with any labor union, works council or other labor organization; (iv) take any action to amend or waive any performance or vesting criteria or accelerate vesting, exercisability or funding under any Company benefit plan; or (v) hire any employee, independent contractor, or service provider to a position with an annual base salary that exceeds $200,000, or terminate the employment of an employee from such a position other than for “cause”;

 

   

make any material change in accounting policies, methods, principles, or procedures, other than as required by GAAP, applicable law or any governmental entity with competent jurisdiction, each as concurred with by the Company’s independent registered public accountants;

 

   

make any capital expenditures in excess of the budget made available by the Company to Parent prior to the date of the merger agreement;

 

   

except with respect to litigation of the type contemplated by the merger agreement, settle or compromise any proceeding or series of proceedings other than settlements or compromises of proceedings that do not involve the payment of more than $250,000 individually or $1,000,000 in the aggregate (net of any amount covered by insurance or indemnification) and do not involve any non-monetary relief;

 

   

(A) enter into any material contract, other than material contracts with customers, vendors and suppliers in the ordinary course of business or contracts expressly permitted by the merger agreement or (B) materially amend or terminate or waive any material right, remedy or default under any material contract (other than (1) amendments or waivers with respect to any material contract with customers, vendors and suppliers, in each case, in the ordinary course of business, (2) terminations in connection with the enforcement of rights as a result of breach of such contract by the counterparty, termination for cause or similar provision and (3) as otherwise expressly permitted as an exception to the restrictions set forth in the interim operating covenants contained in merger agreement);

 

   

amend, modify, extend, renew or voluntarily terminate any material lease or enter into any new lease, sublease, license or other agreement for the use or occupancy of any real property, in a manner which would (A) be adverse in any material respect to the Company and the Company’s subsidiaries, taken as a whole, or (B) result in an increase in the aggregate liability of the Company and the Company’s subsidiaries with respect to all such leases or agreements for the use or occupancy of real property;

 

   

make, change or revoke any material tax election, change any annual tax accounting period, change any material method of tax accounting, enter into any material closing agreement with respect to taxes or settle or surrender any material tax claim, audit or assessment;

 

   

sell, transfer, assign, dispose of, subject to any lien (other than any permitted lien), disclose (other than subject to customary non-disclosure agreements), abandon, or permit to lapse or expire (except pursuant to any maximum statutory expiration) any material Company owned intellectual property;

 

   

except as required by law, recognize any labor union, works council, or other labor organization as the representative of any Company employees;

 

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implement any “plant closing” or “mass layoff” as defined in the WARN Act;

 

   

knowingly waive, release or limit in any material respect any restrictive covenant obligation of any individual whose employment or engagement with the Company or any affiliate ended within the twelve-month period immediately preceding the date of the merger agreement or between the date of the merger agreement and the earlier to occur of the termination of the merger agreement and closing; or

 

   

enter into any contract, or otherwise agree or authorize any intention, to do any of the foregoing.

Restriction on Solicitation of Competing Proposals

The Company has agreed that it will, and will cause its subsidiaries and its directors, officers, investment bankers and counsel acting at the direction of the Company (which directors, officers, investment bankers and counsel, in each case, to the extent acting at the direction of the Company, we refer to as the “Company representatives”) to, cease any solicitations, discussions, requests or negotiations with any persons that may be ongoing with respect to any inquiry, proposal, or offer that constitutes or could reasonably be expected to lead to a competing proposal (as described below) (which we refer to as an “inquiry”) and promptly request the prompt return or destruction of all confidential information previously furnished to any such person or its representatives (other than Parent and, in each case, to the extent acting at the direction of Parent, Parent’s directors, officers, managers, investment bankers and counsel (which directors, officers, managers, investment bankers and counsel, in each case, to the extent acting at the direction of Parent, we refer to as the “Parent representatives”) acting in such capacity as Parent’s representatives) in connection with a competing proposal made by such person. In addition, until the earlier of the effective time or termination of the merger agreement (if any), the Company has agreed that it will not, and will cause its subsidiaries and the Company representatives not to, directly or indirectly:

 

   

initiate, solicit or knowingly encourage or knowingly facilitate any inquiries or otherwise knowingly encourage or knowingly facilitate any effort or attempt to make a competing proposal (as described below);

 

   

furnish or provide any non-public information or data regarding the Company or any subsidiary of the Company to any third person in connection with or in response to an inquiry or competing proposal made by such person or any representatives of such third person;

 

   

enter into, engage in, knowingly encourage, continue or otherwise participate in any discussions or negotiations with any person or its representatives with respect to an inquiry or competing proposal made by such person;

 

   

grant any waiver, amendment, permission or release under, or modify any provision of, any standstill provision of any confidentiality or similar agreement to which the Company or any Company subsidiary is a party (other than a limited waiver under any pre-existing confidentiality or similar agreement to the extent necessary to allow for a confidential competing proposal to be made to the Company so long as the Company promptly notifies Parent thereof (including the identity of any such counterparty) after granting any such limited waiver);

 

   

approve, endorse, recommend, or execute or enter into, any letter of intent, agreement in principle, term sheet, memorandum of understanding, merger agreement, acquisition agreement, share purchase agreement or other contract relating to a competing proposal with such person or any of its representative (other than an acceptable confidentiality agreement as contemplated by the merger agreement) (an “alternative acquisition agreement”); or

 

   

authorize any of, or commit to or agree to do any of the foregoing.

Notwithstanding anything to the contrary in the preceding bullet points, if the Company receives any inquiry or competing proposal from any third party, the Company may (1) contact any person or group of persons that

 

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has made any inquiry or competing proposal after the date of the merger agreement that did not result from a breach of the non-solicit provisions contained in the merger agreement (other than a breach that is immaterial and unintentional) solely to request in writing the clarification of the terms and conditions thereof so as to determine whether such inquiry or competing proposal constitutes or could reasonably be expected to lead to a superior proposal (as long as the Company promptly (and in any event within twenty-four (24) hours following receipt thereof or the making of such request) provides Parent a copy of such request and the response of such person to such request) and (2) inform such third party that the Company is contractually prohibited from engaging in discussions with, or otherwise responding to, such third party in response thereto.

A “competing proposal” is defined in the merger agreement to mean any proposal or offer (whether or not in writing) from any person (other than Parent, Sub or any of their respective affiliates) relating to:

 

   

the acquisition (whether by merger, consolidation, exchange, equity investment, joint venture, recapitalization (including a leveraged recapitalization or extraordinary dividend), reorganization, other business combination or otherwise) by any person of more than twenty percent (20%) of the consolidated assets (based on fair market value or book value) or revenues of the Company and the Company’s subsidiaries, taken as a whole;

 

   

the issuance, sale or other disposition, directly or indirectly, to any person (or the stockholders of any person) or “group” of persons (as defined in Section 13(d)(3) of the Exchange Act) of securities (or options, rights, or warrants to purchase, or securities convertible into or exchangeable for, such securities) representing twenty percent (20%) or more of the voting power of the Company;

 

   

a transaction in which any person (or the stockholders of any person) shall acquire, directly or indirectly, beneficial ownership, or the right to acquire beneficial ownership, or formation of any “group” which beneficially owns or has the right to acquire beneficial ownership of, securities (or options, rights or warrants to purchase, or securities convertible into or exchangeable for, such securities) representing 20% or more of the voting power of the Company; or

 

   

any merger, combination, share exchange or similar transaction as a result of which the holders of shares of Company common stock issued and outstanding immediately prior to such transaction would own less than eighty percent (80%) of the outstanding voting power of the parent entity resulting from such transaction.

Notwithstanding the non-solicitation provisions described above, if, at any time following the date of the merger agreement and prior to obtaining the receipt of the Company stockholder approval, (i) the Company receives a bona fide written competing proposal from a person that did not result from a breach of the non-solicitation provisions described above (other than a breach that is immaterial and unintentional), and (ii) the Board determines in good faith, after consultation with the Company’s financial advisor and outside legal counsel, that such competing proposal constitutes or could reasonably be expected to lead to a superior proposal (as described below), then the Company may (A) furnish information including with respect to the Company and its subsidiaries to the person making such competing proposal and its representatives pursuant to the terms of an acceptable confidentiality agreement (and provided that the Company has previously provided, or substantially concurrently provides (in any event no later than twenty-four (24) hours thereafter), such information to Parent) and (B) participate in discussions or negotiations with, and only with, the person making such competing proposal and its representatives regarding such competing proposal pursuant to the terms of an acceptable confidentiality agreement; provided, however, the Company will not, and will not permit its subsidiaries or authorize the Company representatives to, disclose any material non-public information regarding the Company to such person or any of its representatives or participate in any such discussions or negotiations without first entering into an acceptable confidentiality agreement with such person (or such person being bound by an acceptable confidentiality agreement).

The Company has agreed that it will reasonably promptly (but in no event more than 24 hours) following the Company’s receipt of any inquiry, competing proposal or request for non-public information in connection

 

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with a competing proposal (or that could reasonably be expected to result in a competing proposal), from and after the execution of the merger agreement, the Company shall notify Parent in writing of the receipt of such inquiry, competing proposal or request, and the terms and conditions of such inquiry, competing proposal or request (including, in each case, the identity of the person making any such competing proposal, inquiry or request), and the Company shall provide to Parent together with such notification: (i) a copy of such inquiry, competing proposal or request, if in writing (including copies of any written requests, offers, or proposals); or (ii) a written summary of the material terms of such inquiry, competing proposal or request, if oral (or not otherwise made in writing), and in each case copies (in writing) or summaries (if not in writing) of any responses thereto with respect to the terms and conditions of such inquiry or competing proposal.

A “superior proposal” is defined in the merger agreement to mean a bona fide written competing proposal (with all percentages in the definition of competing proposal changed to fifty percent (50%)) on terms that the Board determines in good faith, after consultation with the Company’s financial advisor and outside legal counsel, and considering all the terms and conditions of such proposal and the merger agreement (including, among other things, if appropriate, the conditionality and the timing and likelihood of consummation, financing contingencies, regulatory approvals, stockholder litigation, identity of person making the competing proposal (including whether stockholder approval of such person is required), breakup fee and expense reimbursement provisions and other events or circumstances beyond the control of the Company of such proposal), to be reasonably likely to be consummated in accordance with its terms and more favorable to the stockholders of the Company (in their capacities as such) from a financial point of view than the transactions contemplated by the merger agreement (including any changes to the terms of the merger agreements committed to by Parent to the Company in writing in response to such competing proposal).

Obligations of the Board with Respect to Its Recommendation

The merger agreement provides that, subject to certain exceptions described below, the Board will recommend to the stockholders of the Company that the merger agreement be adopted (which, such recommendation, we refer to as the “Company recommendation”) and neither the Board nor any committee thereof will, directly or indirectly: (i) adopt, authorize, approve, accept, declare advisable, submit to vote of its stockholders or recommend, or resolve to or publicly propose or publicly announce an intention to, approve or recommend, to its stockholders any competing proposal or proposal that could lead to a competing proposal; (ii) withhold, withdraw, modify, qualify or amend (or publicly propose to withhold, withdraw, modify, qualify or amend), in a manner adverse to Parent, the Company recommendation; (iii) allow, authorize or cause the Company or any of the Company subsidiaries to enter into, or announce the authorization or intention to enter into, any alternative acquisition agreement or letter of intent, term sheet, agreement in principle or other contract in respect of a competing proposal that requires or causes the Company to abandon, terminate or fail to consummate the transactions contemplated by the merger agreement; (iv) following the public announcement by a third party of a bona fide competing proposal by such third party, fail to reaffirm publicly the Company recommendation by the earlier to occur of at least five (5) business days prior to the date of the Company stockholders meeting (as such date may have been adjourned or postponed) and five (5) business days following a request therefor by Parent (or such shorter period as may exist between the date of the competing proposal and the date of the Company stockholders meeting), (v) make any recommendation or public statement in connection with a tender offer or exchange offer relating to securities of the Company which does not reaffirm the Company recommendation, other than a recommendation against such offer or a “stop, look and listen” communication by the Board or any committee thereof, (vi) within ten (10) business days of a tender or exchange offer relating to securities of the Company having been commenced, fail to publicly recommend against such tender or exchange offer or fail to publicly reaffirm the Company recommendation or (vii) formally resolve to effect, publicly announce an intention or resolution to, or agree to take any of the foregoing actions (any action in this paragraph being referred to as an “change of Company recommendation”).

Notwithstanding anything to the contrary contained in the merger agreement, at any time prior to the prior to (but not after) obtaining the Company stockholder approval, the Board (or a committee thereof) may, if (A) a

 

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bona fide competing proposal (that did not result from a breach of the merger agreement) (other than any breach that is immaterial and unintentional) is made to the Company by a third person that is not withdrawn and (B) the Board (or a duly authorized committee thereof) determines in good faith, after consultation with the Company’s financial advisor and outside legal counsel, that such competing proposal constitutes a superior proposal, make a change of Company recommendation and if it so chooses, cause the Company to terminate the merger to enter into an alternative acquisition agreement with respect to a competing proposal that constitutes a superior proposal simultaneously with the termination of the merger agreement so long as it pays Parent the Company termination fee simultaneously with such termination, in each case only if:

 

  (i)

the Board (or a duly authorized committee thereof) determines in good faith, after consultation with the Company’s outside legal counsel, that the failure to take such action would be inconsistent with the directors’ exercise of their fiduciary duties under applicable law;

 

  (ii)

the Company has provided Parent prior written notice of the Company’s intention to make a change of Company recommendation (a “notice of superior proposal change of recommendation”), which notice of superior proposal change of recommendation shall (A) advise Parent that the Company has received a competing proposal and that the Board has concluded in good faith (after consultation with the Company’s financial and outside legal counsel) that such competing proposal constitutes a superior proposal, and absent any revision to the terms and conditions of the merger agreement, the Company intends to make a change of Company recommendation or terminate the merger agreement, (B) specify the terms and conditions of such superior proposal (including copies of all relevant documents that provide for the terms and conditions of such competing proposal and the proposed commitments or agreements to finance such competing proposal) and (C) identify the person making such superior proposal (the merger agreement provides that neither the delivery of the notice of superior proposal change of recommendation by the Company to Parent nor the public announcement that the Company has delivered such notice of superior proposal change of recommendation (but for the avoidance of doubt, not the entry into an alternative acquisition agreement) shall in and of itself constitute a change of Company recommendation unless within two (2) business days after the end of the period contemplated by clause (iii) the Board (or a duly authorized committee thereof) fails to reaffirm the Company recommendation;

 

  (iii)

the Company and its representatives have negotiated in good faith with Parent, to the extent Parent requests to negotiate, with respect to any changes to the terms of the merger agreement proposed by Parent for at least five (5) business days following receipt by Parent of such notice of superior proposal change of recommendation (the merger agreement provides that any amendment to any of the financial terms (including the form, amount and timing of payment of consideration) or any other material term of such superior proposal shall require a new notice of superior proposal change of recommendation and the Company and its representatives shall be required to comply with the merger agreement with respect to such notice of superior proposal change of recommendation except that the five (5) business day period referred to above shall instead be an additional three (3) business day period from the date of such notice); and

 

  (iv)

following the period(s) referred to in clause (iii) (including any subsequent period following the delivery of a subsequent notice of superior proposal change of recommendation), giving due consideration to any changes to the terms of the merger agreement proposed by Parent to the Company, the Board (or a duly authorized committee thereof) has determined in good faith, after (A) consultation with the Company’s financial advisor and outside legal counsel, that such competing proposal would nevertheless continue to constitute a superior proposal if such changes offered in writing by Parent were to be given effect and (B) consultation with the Company’s outside legal counsel, that failure to take such action would be inconsistent with the Board’s exercise of its fiduciary duties under applicable law.

At any time prior to the prior to (but not after) obtaining the Company stockholder approval and other than with respect to a superior proposal, the Board (or a duly authorized committee thereof) may make a change of

 

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Company Recommendation in response to an intervening event, only if the Board (or a duly authorized committee thereof) has (i) determined in good faith (after consultation with the Company’s outside legal counsel) that the failure to take such action would be inconsistent with the Board’s fiduciary duties under applicable law and (ii) at or following the end of at least five (5) business days with respect to the relevant notice of intervening event as set out in the remainder of this paragraph, and after taking into account (after consultation with the Company’s outside legal counsel and financial advisor) any changes to the terms and conditions of the merger agreement timely proposed by Parent in response to a notice of intervening event, the Board (or a duly authorized committee thereof) shall have determined in good faith (after consultation with the Company’s outside legal counsel) that the failure to make an change of Company recommendation in response to such intervening event would continue to be inconsistent with the Board’s fiduciary duties under applicable law; provided, however, that no change of Company recommendation may be made until the conclusion of the five (5) business days following Parent’s receipt of a written notice from the Company (which we refer to as the “notice of change of recommendation”) advising Parent that absent any revision to the terms and conditions of the merger agreement, the Board (or a duly constituted committee thereof) intends to make change of Company recommendation due to an intervening event and specifying in reasonable detail the intervening event and the reasons for such change of Company recommendation. During such five (5) business day period, the Company shall, and shall cause its representatives to negotiate with Parent and its representatives in good faith (to the extent Parent requests to negotiate) to make such adjustments in the terms and conditions of the merger agreement so that the Board (or a duly authorized committee thereof) no longer determines (after consultation with its outside legal counsel) that the failure to make a change of Company recommendation in response to such intervening event would be inconsistent with the Board’s exercise of their fiduciary duties under applicable law. In determining whether the failure to make a change of Company recommendation in response to an intervening event would be inconsistent with the Board’s exercise of its fiduciary duties under applicable law, the Board (or a duly authorized committee thereof) shall take into account any changes to the terms and conditions of the merger agreement timely proposed by Parent in response to such notice of change of recommendation with respect to such intervening event.

An “intervening event” is defined in the merger agreement to mean an event, occurrence, change, effect, condition, development or state of facts or circumstances (other than related to a competing proposal or superior proposal) which materially improves the business, assets, operations or prospects of the Company and its subsidiaries, arising after the date of the merger agreement, that was neither known to, nor reasonably foreseeable by, the Board prior to the date of the merger agreement but becomes known to the Board after the date of the merger agreement.

Efforts to Complete the Merger

The merger agreement provides that (i) subject to the ability of Board to change its recommendation, each of Parent, HH Finance, Sub and the Company will use its reasonable best efforts to consummate the transactions contemplated by the merger agreement and to cause the conditions to the closing in the merger agreement to be satisfied. More specifically, Parent, Sub and the Company shall (and Parent, HH Finance and Sub shall cause their subsidiaries to) use their respective reasonable best efforts to (A) promptly obtain all actions or nonactions, consents, permits (including environmental permits), waivers, approvals, authorizations and orders from governmental entities or other persons necessary or advisable in connection with the consummation of the transactions contemplated by the merger agreement, (B) as promptly as practicable, and in any event within 10 business days after the date of the merger agreement make and not withdraw (without the Company’s consent) all registrations and filings with the FTC and the DOJ in connection with the consummation of the transactions contemplated by the merger agreement, including the filings required of their ultimate parent entities, (C) as promptly as practicable, and in any event within 20 business days after the date of the merger agreement, make (and cause their relevant affiliates required to make in accordance with applicable antitrust law) and not withdraw (without the Company’s consent) all registrations and filings (including in draft form where applicable) with any foreign governmental entities under any other antitrust law, and promptly make any further filings pursuant thereto that may be necessary or advisable (D) defend all lawsuits or other legal, regulatory, administrative or other proceedings to which it or any of its affiliates is a party challenging or affecting the

 

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merger agreement or the consummation of the transactions contemplated by the merger agreement, in each case until the issuance of a final, non-appealable order with respect to each such lawsuit or other proceeding; (E) seek to have lifted or rescinded any injunction or restraining order which may adversely affect the ability of the parties to consummate the transactions contemplated by the merger agreement, in each case until the issuance of a final, non-appealable order with respect thereto; (F) seek to resolve any objection or assertion by any governmental entity challenging the merger agreement or the transactions; and (G) execute and deliver any additional instruments necessary or advisable to consummate the merger; provided, that in the event the FTC, DOJ or any foreign governmental entities under any other antitrust law is closed or not accepting filings as required under the foregoing clauses (B) and (C), then the periods provided under clauses (B) and (C) will be extended day-for-day, for each business day such governmental closure is in effect.

The merger agreement provides that (i) Parent and Sub will promptly take, and will cause each of its subsidiaries to take, any and all actions necessary or advisable in order to avoid or eliminate each impediment to the consummation of the transactions contemplated in the merger agreement and to obtain all approvals and consents (including those under any antitrust laws and that may be required by any governmental entity with competent jurisdiction) so as to enable the consummation of the transactions contemplated under the merger agreement as promptly as practicable, including accepting operational restrictions or limitations on, and committing to or effecting, by consent decree, hold separate orders, trust or otherwise, the sale, license, disposition or holding separate of, such assets or businesses of Parent, Sub, the Company, the surviving corporation or any of their respective controlled affiliates (and the entry into agreements with, and submission to decrees, judgments, injunctions or orders of the relevant governmental entity) as may be required or advisable to obtain such approvals or consents of such governmental entities or to avoid the entry of, or to effect the dissolution of or vacate or lift, any decrees, judgments, injunctions or orders that would otherwise have the effect of preventing or materially delaying the consummation of the transactions contemplated by the merger agreement and (ii) the Company may make, subject to the condition that the transactions contemplated by the merger agreement actually occur, any undertakings (including undertakings to accept operational restrictions or limitations or to make sales or other dispositions, provided that such restrictions, limitations, sales or other dispositions are conditioned upon the consummation of the transactions contemplated by the merger agreement) as are required to obtain such approvals or consents of such governmental entities or to avoid the entry of, or to effect the dissolution of or vacate or lift, any decrees, judgments, injunctions or orders that would otherwise have the effect of preventing or materially delaying the consummation of the transactions contemplated by the merger agreement (we refer to the matters described in this sentence, individually or collectively, “remedy actions”); provided, that, in no event will Parent or its affiliates or subsidiaries be required to take, or propose or agree to take, any such remedy actions that, individually or in the aggregate, would, or would be reasonably expected to, have a material adverse effect on the business, results of operations, assets or financial condition of the Parent and its subsidiaries (including the Company and its subsidiaries) after taking effect of the merger (but for this purpose measuring the business, results of operations, assets and financial condition of Parent and its subsidiaries (including the Company and its subsidiaries) as though they were the same size and amounts as those of just the Company and the Company subsidiaries, taken as a whole); provided, further, that the Company shall not take, or agree to take, any such remedy actions, without the prior written consent of Parent. The merger agreement also provides that neither Parent nor Sub, directly or indirectly, through one or more of their respective controlled affiliates, will take any action, including acquiring or making any investment in any person or any division or assets thereof, that would reasonably be expected to prevent the satisfaction of the conditions to the closing in the merger agreement or the consummation of the merger.

Without limiting the generality of the obligations described above, each party agreed that it will:

 

   

give the other parties prompt notice of the making or commencement of any request, inquiry, investigation, action or legal proceeding by or before any governmental entity with respect to the merger;

 

   

keep the other parties informed as to the status of any such request, inquiry, investigation, action or legal proceeding; and

 

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promptly inform the other parties of any substantive communication to or from the FTC, the DOJ Antitrust Division or any other governmental entity regarding the merger.

Each party agreed that it will consult and cooperate with the other parties and will consider in good faith the views of the other parties in connection with any filing, analysis, appearance, presentation, memorandum, brief, argument, opinion or proposal made or submitted to any governmental entity in connection with the transactions contemplated by the merger agreement, provided that the parties will not be required to provide the other with copies of their notification and report form under the HSR Act.

Obligations with Respect to this Proxy Statement and the Special Meeting

The Company agreed to, as promptly as practicable following the date of the merger agreement, prepare and cause to be filed with the SEC a preliminary proxy statement containing the Company recommendation, unless the Board has made a change of Company recommendation, to be sent to the Company stockholders in connection with the special meeting of the Company stockholders, held for the purpose of voting on, among other things, the approval and adoption of the merger agreement (including any adjournments or postponements thereof) (which we refer to as the “stockholder meeting”). Parent, Sub and the Company are required to cooperate with each other in the preparation of such proxy statement, among other things. The Company is required to promptly notify Parent upon the receipt of any comments from the SEC or any request from the SEC for amendments or supplements to the preliminary proxy statement and is required to provide Parent with copies of all non-routine correspondences between the Company and the SEC that are related to the preliminary proxy statement. The Company is required to use its reasonable best efforts to respond as promptly as practicable to, and resolve, any comments from the SEC with respect to the proxy statement, and Parent must cooperate in connection therewith.

The Company is further required to, as promptly as reasonably practicable after the proxy statement is cleared by the SEC for mailing to Company stockholders, establish a record date for, duly call, give notice of, convene and hold a meeting of its stockholders for the purpose of voting on, among other things, the approval and adoption of the merger agreement. Pursuant to the terms of the merger agreement, the Company agreed that the Board would recommend that Company stockholders adopt the merger agreement, and the Company is required to use its reasonable best efforts to solicit from Company stockholders proxies in favor of the adoption of the merger agreement.

Access to Information

From the date of the merger agreement to the effective time, pursuant to the terms of the merger agreement, the Company agreed that it will, and will cause each of its subsidiaries to: (i) provide to Parent and Sub and their respective Representatives reasonable access during normal business hours in such a manner as not to unreasonably interfere with the operation of any business conducted by the Company or any Company subsidiary, upon prior written notice to the Company, to the officers, employees, properties, offices and other facilities of the Company and the Company subsidiaries and to the books and records and (ii) furnish promptly such information concerning the business, properties, contracts, assets and liabilities of the Company and Company subsidiaries as Parent or its Representatives may reasonably request. However, the Company will not be required to (or to cause any of its subsidiaries to) afford such access or furnish such information to the extent the Company believes in good faith that doing so would: (A) result in the loss of attorney-client privilege; (B) violate any confidentiality obligations of the Company or any Company subsidiary to any third person or otherwise breach, contravene or violate any then effective contract to which the Company or any Company subsidiary is party (provided that the Company shall use its reasonable efforts to obtain the required consent of such third party to such access or disclosure and implement appropriate procedures to enable the disclosure of such information) or otherwise result in the Company taking any action inconsistent with the merger agreement; (C) result in a competitor of the Company or any of its subsidiaries receiving information that is competitively sensitive; (D) breach, contravene or violate any applicable law (including the HSR Act or any other competition

 

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or antitrust law) or (E) jeopardize the health and safety of any employee of the Company or the Company subsidiaries, in light of COVID-19 or any COVID-19 Measures; provided that the Company will use its reasonable best efforts to allow for such access or disclosure in a manner that does not result in a loss of attorney-client privilege, violate confidentiality obligations, reveal information to a competitor or breach, contravene, violate such applicable contract or law or jeopardize such health and safety.

Director and Officer Indemnification and Insurance Information

Pursuant to the merger agreement, from and after the effective time, Parent is obligated to cause the surviving corporation to, to the fullest extent permitted by applicable law, indemnify, defend and hold harmless each current or former director, officer or employee of the Company or any of the subsidiaries of the Company and each fiduciary under benefit plans of the Company or any of its subsidiaries and each such person who performed services at the request of the Company or any of its subsidiaries (we refer to each as an “indemnified party”), against (i) all losses, expenses (including reasonable attorneys’ fees and expenses), judgments, fines, claims, damages or liabilities or, subject to the proviso of the next succeeding sentence, amounts paid in settlement, arising out of actions or omissions occurring at or prior to the effective time (and whether asserted or claimed prior to, at or after the effective time) to the extent that they are based on or arise out of the fact that such person is or was a director, officer, employee or fiduciary under benefit plans or performed services at the request of the Company or any of its subsidiaries (which we refer to as “indemnified liabilities”), and (ii) all indemnified liabilities to the extent they are based on or arise out of or pertain to the transactions contemplated by the merger agreement, whether asserted or claimed prior to, at or after the effective time, and including any reasonable and documented expenses incurred in enforcing such person’s rights. In the event of any such loss, expense, claim, damage or liability (whether or not asserted before the effective time), the surviving corporation shall pay the reasonable fees and expenses of counsel selected by the indemnified parties promptly after statements therefor are received and otherwise advance to such indemnified party upon request, reimbursement of documented expenses reasonably incurred in each case to the extent provided in the organizational documents and any indemnification or other similar agreements of the Company as in effect on the date of the merger agreement (provided that the person to whom expenses are advanced provides an undertaking to repay such advance if it is determined by a final and non-appealable judgment of a court of competent jurisdiction that such person is not legally entitled to indemnification under law).

Also, the Company will be permitted to, prior to the effective time (and if the Company fails to do so, Parent will cause the surviving corporation to), obtain and fully pay the premium for D&O insurance that is substantially equivalent to and in any event not less favorable in the aggregate to the intended beneficiaries thereof than the Company’s existing directors’ and officers’ liability insurance policy, provided that in no event shall the premium of the D&O insurance exceed 300% of the then current aggregate annual premium of the Company’s existing policy in place at the time of closing. If the Company and the surviving corporation for any reason fail to obtain such “tail” insurance policy as of the effective time, the surviving corporation will, and Parent will cause the surviving corporation to, continue to maintain in effect for a period of at least six years from and after the effective time (and for so long thereafter as any claims brought before the end of such six-year period thereunder are being adjudicated) the D&O insurance in place as of the date of the merger agreement with terms, conditions, retentions and limits of liability that are at least as favorable as provided in the Company’s existing policies as of the date of the merger agreement, or the surviving corporation will, and Parent will cause the surviving corporation to, purchase comparable D&O insurance for such six year period (and for so long thereafter as any claims brought before the end of such six-year period thereunder are being adjudicated) with terms, conditions, retentions and limits of liability that are at least as favorable as provided in the Company’s existing policies as of the date of the merger agreement.

In addition, for not less than six (6) years from and after the effective time, the certificate of incorporation and bylaws (or other similar documents) of the surviving corporation shall contain provisions no less favorable with respect to exculpation, indemnification and advancement of expenses for periods at or prior to the effective time than are currently set forth in the Company’s second amended and restated certificate of incorporation and

 

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second amended and restated bylaws. The contractual indemnification rights, if any, in existence on the date of the merger agreement with any of the directors, officers or employees of the Company that have been made available to Parent prior to the date hereof shall be assumed by the surviving corporation, without any further action, and shall continue in full force and effect in accordance with their terms following the effective time.

Employee Benefits

Under the merger agreement, for a period beginning on the effective time and for the nine (9) month period following the effective time, Parent has agreed to provide, or cause its subsidiaries (including the surviving corporation) to provide, each employee of the Company and its subsidiaries immediately prior to the closing and who continues to be employed by the company following the effective time (each, a “company employee”) with (i) base salary or base wages and target annual cash bonus opportunities that are no less favorable, in the aggregate, than those provided to such company employee immediately prior to the effective time, (ii) severance benefits that are no less favorable than the severance benefits provided under the Company’s generally applicable severance policy, and (iii) other compensation and benefits (including paid-time off, but excluding defined benefit pension, nonqualified deferred compensation, equity or equity-based and post-termination or retiree health or retiree welfare benefits) to the company employees in each jurisdiction as a group that are substantially comparable, in the aggregate, to those provided to such group of company employees immediately prior to the effective time.

In addition, from and after the effective time, Parent has agreed to assume, honor and continue, or to cause its subsidiaries (including the surviving corporation) to assume, honor and continue all of the Company’s employment, severance, retention, cash incentive compensation and termination plans, policies, programs, agreements and arrangements (including any change in control or severance agreement) in accordance with their terms as in effect immediately prior to the effective time, including with respect to any payments, benefits or rights arising as a result of the transaction.

For purposes of determining eligibility to participate and vesting, and solely for determining the level of paid time off and severance benefits (but excluding benefit accruals under any defined benefit pension plan or any retiree or post-retirement welfare benefits or for any purposes under any equity or equity-based plan or arrangement) under any employee benefit plan, program, policy or arrangement maintained by Parent or any of its subsidiaries (including the surviving corporation) subsidiaries (including surviving corporation), Parent has agreed to credit each company employee’s service with or otherwise credited by the Company or any of its subsidiaries as employees will be treated as service with Parent and its subsidiaries (including surviving corporation) to the same extent and for the same purposes as recognized under the terms of any analogous Company employee benefit plan; provided, however, that such service need not be recognized to the extent that such recognition would result in any duplication of benefits or compensation for the same period of service. Parent has further agreed to, or to cause its subsidiaries (including the surviving corporation) to use commercially reasonable efforts to (i) waive any pre-existing condition limitations, exclusions, actively-at-work requirements and waiting periods under any group health benefit plan maintained by Parent or any of its subsidiaries (including the surviving corporation) in which company employees (and their eligible dependents) will be eligible to participate from and after the effective time (except to the extent that such limitations, exclusions, requirements or waiting periods would not have been satisfied or waived under the comparable Company benefit plan immediately prior to the effective time), and (ii) recognize any co-payments, deductibles and similar expenses incurred by each company employee (and his or her eligible, covered dependents) during the calendar year in which the effective time occurs for purposes of satisfying such year’s deductible and co-payment limitations under the relevant group health benefit plans in which such company employee (and dependents) will be eligible to participate from and after the effective time.

Parent has further agreed to, or to cause its subsidiaries (including the surviving corporation) to, provide (i) each company employee who participates in the Company’s annual cash incentive program for the 2019 calendar year a payment (if unpaid prior to the effective time) no less than that due with respect to such company

 

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employee’s annual bonus under such program (subject to an aggregate limit of $11,280,163), and (ii) each company employee who participates in the Company’s annual cash incentive program for the 2020 calendar year a payment in accordance with the terms of such program as implemented by the Company (which such program is subject to certain parameters under the terms of the Company Disclosure Letter, including a minimum bonus pool amount of $3,000,000 and a maximum total bonus pool amount of $15,000,000).

To the extent requested in writing by Parent, the Company shall, at least one (1) day prior to the closing date, cease contributions to, and adopt written resolutions to terminate, each Company benefit plan that includes a qualified cash or deferred arrangement within the meaning of Section 401(k) of the Code (the “Company 401(k) plan”) and to provide for 100% vesting of all participants under the Company 401(k) plan (in each case, effective no later than the date preceding the closing date). If Parent requests that the Company 401(k) plan be terminated, Parent or the Company, as applicable, have agreed to take all actions as may be required to (i) make, prior to the termination of the Company 401(k) plan, discretionary company matching contributions (A) for the 2019 plan year equal to the amount accrued by the Company in its financial statements (as of the date of the merger agreement) and (B) for the 2020 plan year, equal to 50% of the first 5% of eligible compensation deferred by each company employee (subject to a cap of $6,000), (ii) provide that company employees will be eligible to participate in the Parent’s applicable 401(k) plan, effective as soon as reasonably practicable following the effective time, and (iii) permit company employees who are then actively employed to make rollover contributions of “eligible rollover distributions” (within the meaning of Section 402(c)(4) of the Code) in the form of cash, including notes (in the case of loans) from the Company 401(k) plan to the Parent’s applicable 401(k) plan.

Financing

The consummation of the merger is not conditioned upon Parent’s or Sub’s receipt of financing. However, under the merger agreement, Parent, HH Finance and Sub, as applicable, are obligated to use their reasonable best efforts to arrange and do all things necessary or advisable to obtain the financing as soon as reasonably practicable, and, in any event, not later than the date and time of the closing is required to occur under the merger agreement, on the terms and conditions described in the debt commitment letter, HH credit agreement and equity financing commitment letter. Parent, HH Finance and Sub are permitted to terminate the commitments in respect of the debt financing (or other definitive financing documents) so long as Parent, HH Finance and Sub have arranged and obtained prior to or simultaneously with such termination substitute financing commitments in respect of other financing from the same and/or alternative bona fide third party financing sources (which alternative providers shall be reasonably acceptable to the Company as to financial ability to provide the commitments), which substitute financing shall be in an amount sufficient to fund, when taken together with the equity financing to discharge and pay the full amount needed amounts due and owing under the merger agreement and so long as such substitution (and any substituted financing) would not have, or would be reasonably expected to have, a funds certainty effect (under and as defined in the merger agreement). If any portion of the debt financing expires or is terminated or any portion becomes unavailable on the terms and conditions contemplated in the debt commitment letter and/or the HH credit agreement (or the definitive documentation related thereto) with the result that the aggregate financing available at closing is or is reasonably expected to be insufficient to fund the amounts due and owing under the merger agreement, Parent, HH Finance and Sub are obligated to use their reasonable best efforts to arrange for and obtain financing from the same sources or alternative sources in an amount that together with any remaining debt or equity financing is sufficient to fund the amounts due and owing under the merger agreement on terms and conditions such that such alternative financing would not have a funds certainty effect (under and as defined in the merger agreement) as promptly as practicable following the occurrence of such event, but no later than the fifth (5th) business day immediately preceding the outside date. With certain exceptions and so long as there is no funds certainty effect (under and as defined in the merger agreement), Parent, HH Finance and Sub will not permit any amendment or modification to be made to, or any waiver of any provision or remedy under, the debt commitment letter and/or the HH credit agreement (or the definitive documentation related thereto) or equity financing commitment letter without the prior written consent of the Company to the extent such amendments, modifications or waivers

 

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would have, or be reasonably be expected to have, funds certainty effect (under and as defined in the merger agreement).

Subject to certain exceptions, on or prior to the closing, the Company is obligated to, and must cause the subsidiaries of the Company to and instruct the Company representatives to, in each case, use reasonable best efforts to provide to Parent, HH Finance and Sub all customary cooperation reasonably requested by Parent or HH Finance in connection with the arrangement of the debt financing, at Parent’s sole expense. Parent has agreed to reimburse the Company for all reasonable and documented out-of-pocket costs and expenses incurred by the Company or any of its subsidiaries in connection with such cooperation, and to indemnify the Company, its subsidiaries and their respective representatives against losses incurred in connection with the debt financing and any information used in connection therewith (other than historical information provided in writing by the Company, its subsidiaries and their respective representatives specifically for use in connection therewith).

Other Covenants and Agreements

Under the merger agreement, the Company and Parent have made certain other covenants to, and agreements with, each other regarding various other matters, including:

 

   

preparation of this proxy statement;

 

   

public statements and disclosure concerning the merger agreement and the transactions contemplated by the merger agreement;

 

   

state anti-takeover or other similar laws;

 

   

the Company’s ability to take all actions as may be reasonably necessary or advisable to ensure that the dispositions of equity securities of the Company (including derivative securities) by any officer or director of the Company who is subject to Section 16 of the Exchange Act pursuant to the merger are exempt under Rule 16b-3 under the Exchange Act;

 

   

participate in the defense of litigation brought by Company stockholders and any other third party litigation against the Company or its directors or officers arising out of or relating to the merger;

 

   

director resignations; and

 

   

stock exchange de-listing and de-registration matters.

Conditions to the Merger

Conditions to Each Party’s Obligations

The Company’s, Parent’s, HH Finance’s and Sub’s respective obligations to effect the merger are subject to the satisfaction (or, to the extent permitted by applicable law, mutual waiver by the Company and Parent) of the following conditions:

 

   

the Company having received the Company stockholder approval;

 

   

no court or similar governmental entity of competent jurisdiction having issued or entered any judgment that is in effect and enjoins or prohibits the consummation of the merger; provided, however, that this condition shall not be available to any party whose failure to fulfill its obligations related to the consummation of the merger results in the failure of this condition to be satisfied; and

 

   

any applicable waiting period (or any extensions thereof) applicable to the merger under the HSR Act having expired or been terminated and any applicable approval having been obtained or any applicable waiting period having expired or been terminated under the competition, antitrust, merger control or investment laws of certain other jurisdictions.

 

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Conditions to Parent’s and Sub’s Obligations

The obligations of Parent and Sub to effect the merger are also subject to the satisfaction or waiver by Parent at or prior to the effective time of the following additional conditions:

 

   

each of the Company’s representations and warranties contained in the merger agreement (other than those representations and warranties with respect to (i) the organization, qualification to do business and good standing of the Company, to the extent addressed below; (ii) the capital structure, to the extent addressed below; (iii) the Company’s authority to enter into, and, subject to Company stockholder approval, consummate the transactions contemplated by the merger agreement; (iv) the absence of certain governmental approvals, (v) the absence of a Company material adverse effect on the Company; and (vi) the absence of financial advisor’s, broker’s, finder’s or investment banker’s fees, other than those payable to the Company’s financial advisor, in connection with the transactions contemplated by the merger agreement), without regard to materiality or Company material adverse effect qualifiers contained within such representations and warranties, being true and correct except for any failure of such representations and warranties to be true and correct that would not, individually or in the aggregate, reasonably be expected to have a Company material adverse effect as of the closing date as though made on and as of the closing date (except to the extent expressly made as of a specific date, in which case as of such specific date);

 

   

each of the Company’s representations and warranties contained in the merger agreement with respect to (i) the organization, qualification to do business and good standing of the Company in the state of Delaware; (ii) the Company’s authority to enter into, and, subject to Company stockholder approval, consummate the transactions contemplated by the merger agreement; (iii) the governmental approvals requirement, and (iv) the absence of financial advisor’s, broker’s, finder’s or investment banker’s fees, other than those payable to the Company’s financial advisor in connection with the transactions contemplated by the merger agreement (the “fundamental representations”) qualified by materiality or Company material adverse effect being true and correct in all respects, and each of the other fundamental representations being true and correct in all material respects as of the closing date as though made on and as of the closing date (except to the extent expressly made as of a specific date, in which case as of such specific date);

 

   

the Company’s representations and warranties contained in the merger agreement related to the absence of a Company material adverse effect on the Company being true and correct in all respects as of the closing date as though made on and as of the closing date (except to the extent expressly made as of a specific date, in which case as of such specific date);

 

   

the Company’s representation and warranty contained in the merger agreement with respect to the outstanding capital stock and equity awards of the Company being true and correct in all respects as of the closing date as though made on and as of the closing date (except to the extent expressly made as of a specific date, in which case as of such specific date) (other than inaccuracies that are de minimis in amount);

 

   

the Company having performed or complied in all material respects with all agreements and covenants as required to be performed or complied with by the Company under the merger agreement at or prior to the effective time;

 

   

no proceeding under any law relating to bankruptcy, insolvency or reorganization will have been instituted and not dismissed against the Company;

 

   

the absence of a Company material adverse effect; and

 

   

the delivery by the Company to Parent of a certificate signed on behalf of the Company by the chief executive officer or chief financial officer of the Company as to the satisfaction of the conditions described above.

 

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Conditions to the Company’s Obligations

The obligations of the Company to effect the merger are also subject to the satisfaction or waiver by the Company at or prior to the effective time of the following additional conditions:

 

   

each of the representations and warranties of Parent, HH Finance and Sub contained in the merger agreement related to Parent’s, HH Finance’s and Sub’s authority to enter into and consummate the transactions contemplated by the merger agreement is true and correct in all material respects as of the closing date as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such earlier date);

 

   

each of the representations and warranties of Parent, HH Finance and Sub contained in the merger agreement being true and correct (without giving effect to any limitation as to “materiality” set forth therein) as of the closing date as though made on and as of such time (except to the extent expressly made as of an earlier date, in which case as of such earlier date) other than failures to be true and correct that, individually or in the aggregate, would not reasonably be expected to prevent or materially delay the ability of Parent, HH Finance and Sub to consummate the transactions contemplated by the merger agreement;

 

   

each of Parent, HH Finance and Sub having performed or complied in all material respects with all agreements and covenants required to be performed or complied with by Parent, HH Finance or Sub under the merger agreement at or prior to the effective time; and

 

   

each of Parent, HH Finance and Sub having delivered to the Company a certificate from each of Parent, HH Finance and Sub and signed by its respective chief executive officer or chief financial officer, certifying as to the satisfaction of the conditions described above.

Termination of the Merger Agreement

Termination Rights Exercisable by the Company and Parent

The merger agreement may be terminated at any time prior to the effective time, whether before or after receipt of the Company stockholder approval and whether before or after adoption of the merger agreement by Parent as sole stockholder of Sub, by either the Company or Parent:

 

   

by mutual written consent of Parent and the Company;

 

   

if the merger is not consummated on or before the outside date; provided, however, that Parent or the Company, as the case may be, is not permitted to terminate the merger agreement for failure to consummate the merger by the outside date if the material breach, inaccuracy or failure to perform or comply by such person of any of its respective representations, warranties, covenants or obligations contained in the merger agreement resulted in, or materially contributed to, the failure to consummate the merger by the outside date;

 

   

if the Company did not obtain the Company stockholder approval upon a vote taken at the stockholder meeting, including any adjournments or postponements thereof; or

 

   

if any court or governmental entity of competent jurisdiction issues or enters any judgment permanently enjoining or otherwise prohibiting the consummation of the merger and such judgment becomes final and non-appealable, provided that this right to terminate the merger agreement will not be available to any party who has failed in any material respect to comply with those provisions of the merger agreement described under “The Agreement and Plan of Merger—Efforts to Complete the Merger” before asserting such right to terminate and such failure resulted in, or was the principal cause of, any such judgment.

 

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Termination Rights Exercisable by the Company

The Company may also terminate the merger agreement:

 

   

if, at any time prior to the receipt of the Company stockholder approval, the Board or a duly authorized committee thereof has authorized the entry into an alternative acquisition agreement providing for a superior proposal in accordance with the applicable change of recommendation and match right provisions of the merger agreement; but only if the Company and pays Parent a termination fee of approximately $6.2 million (which we refer to as the “Company termination fee”) prior to or simultaneously with such termination and enters into such alternative acquisition agreement substantially concurrently with such termination;

 

   

if (i) there is an inaccuracy in Parent’s, HH Finance’s or Sub’s representations contained in the merger agreement or Parent, HH Finance or Sub fails to perform its covenants, in either case that Parent’s, HH Finance’s and Sub’s conditions would not be satisfied; (ii) the Company has delivered to Parent written notice of such inaccuracy or failure to perform; and (iii) either such inaccuracy or failure to perform is not capable of cure prior to the outside date or at least thirty (30) days shall have elapsed since the date of delivery of such written notice to Parent and such inaccuracy or failure to perform shall not have been cured; provided, however, that the Company will not be permitted to terminate the merger agreement if the inaccuracy of the representations of the Company or the Company’s failure to perform its covenants is such that a condition of the Company would not be satisfied; or

 

   

if (i) all of the conditions in the obligations of Parent to consummate the merger (other than those conditions that by their nature are to be satisfied at the closing or that have failed to be satisfied as a result of the material inaccuracy of any of Parent’s, HH Finance’s or Sub’s representations or warranties or Parent’s, HH Finance’s or Sub’s material failure to perform any of its covenants or agreements) have been and continue to be satisfied or waived at the time the closing was to occur, (ii) the Company has irrevocably notified Parent in writing that the Company is, and during such time stands, ready, willing and able to consummate the closing, and (iii) Parent and Sub have failed to consummate the closing on the date by which the closing is required to have occurred.

Termination Rights Exercisable by Parent

Parent may also terminate the merger agreement:

 

   

if, at any time prior to the Company’s receipt of the Company stockholder approval, the Board effects a change of Company recommendation; or

 

   

if (i) there is an inaccuracy in the Company’s representations contained or the Company has failed to perform its covenants, in either case such that the conditions of the Company would not be satisfied; (ii) Parent shall have delivered to the Company written notice of such inaccuracy or failure to perform; and (iii) either such inaccuracy or failure to perform is not capable of cure prior to the outside date or at least thirty (30) days shall have elapsed since the date of delivery of such written notice to the Company and such inaccuracy or failure to perform shall not have been cured; provided, however, that Parent shall not be permitted to terminate the merger agreement if the inaccuracy of the representations of Parent or Sub or Parent’s or Sub’s failure to perform its covenants is such that a condition of Parent or Sub satisfied.

Effect of Termination

If the merger agreement is terminated by the Company or Parent, the merger agreement will become void and there will be no liability or obligations on the part of Parent, Sub or the Company or their respective subsidiaries, officers or directors, except that the following obligations would survive such termination:

 

   

the obligations under the confidentiality agreement;

 

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the parties’ agreement regarding costs and expenses incurred in connection with the merger agreement and the merger;

 

   

Parent’s agreement to indemnify and hold harmless the Company, its subsidiaries and the Company representatives from and against any and all liabilities, losses, claims, costs, expenses, interest, awards, judgment and penalties suffered or incurred by them in connection with the financing;

 

   

Parent and HH Finance’s agreement not to sell, encumber or otherwise dispose of any properties or assets, in each case, the principal purpose of which would be to avoid their respective obligations under the merger agreement;

 

   

the respective obligations of Company and Parent to pay a termination fee (as applicable); and

 

   

except as otherwise provided in the merger agreement in the event of a payment of certain termination fees, any liabilities or damages incurred or suffered by Parent as a result of the willful and material breach by the Company that materially contributed to the failure of the closing to occur.

Expenses; Termination Fees

Except as otherwise provided in the merger agreement, all costs and expenses incurred in connection with the merger agreement and the merger and the other transactions contemplated by the merger agreement, shall be paid by the party incurring such expense.

The Company has agreed to pay Parent the Company termination fee if:

 

   

Parent validly terminates the merger agreement as described in the first bullet in the section titled “The Agreement and Plan of Merger—Termination of the Merger Agreement—Termination Rights Exercisable by Parent,” above;

 

   

the Company validly terminates the merger agreement as described in the first bullet in the section titled “The Agreement and Plan of Merger—Termination of the Merger Agreement—Termination Rights Exercisable by the Company,” above; or

 

   

(i) (A) Parent validly terminates the merger agreement as described in the second bullet in the section titled “The Agreement and Plan of Merger—Termination of the Merger Agreement—Termination Rights Exercisable by Parent,” above (as a result of a breach by the Company of any of its covenants in the merger agreement), or (B) Parent or the Company validly terminates the merger agreement as described in the second (if the Company stockholder approval has not been obtained) or third bullet in the section titled “The Agreement and Plan of Merger—Termination of the Merger Agreement—Termination Rights Exercisable by the Company and Parent,” above, (ii) following the execution of the merger agreement and prior to the termination of the merger agreement, a competing proposal shall have been made to the Board (in the case of a termination pursuant to the second bullet in the section titled “The Agreement and Plan of Merger—Termination of the Merger Agreement—Termination Rights Exercisable by Parent,” above (as a result of a breach by the Company of any of its covenants in the merger agreement), or Parent or the Company validly terminates the merger agreement as described in the second bullet in the section titled “The Agreement and Plan of Merger—Termination of the Merger Agreement—Termination Rights Exercisable by the Company and Parent,” above) (if the Company stockholder approval has not been obtained) or publicly made or disclosed or any competing proposal became publicly known (and any such competing proposal was not withdrawn at least five (5) business days prior to the event giving rise to the termination of the merger agreement), and (iii) within twelve (12) months after the termination of the merger agreement, the Company shall have (x) entered into an alternative acquisition agreement to effect any competing proposal (and such competing proposal is later consummated) or (y) consummated any competing proposal, then the Company shall pay to Parent or its designee, on the date of the consummation of such competing proposal, the Company termination fee; provided, that for purposes of this bullet, all percentages in the

 

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definition “competing proposal” above will be changed to “50%”; provided, further, that to the extent Parent validly terminates the merger agreement as described in the second bullet in the section titled “The Agreement and Plan of Merger—Termination of the Merger Agreement—Termination Rights Exercisable by Parent,” above (as a result of a breach by the Company of any of its covenants in the merger agreement) in respect of a willful and material breach of the covenants described in the section titled “The Agreement and Plan of Merger—Restriction on Solicitation of Competing Proposals” and “The Agreement and Plan of Merger—Obligations of the Board with Respect to Its Recommendation” above, clause (ii) shall not be required in order to trigger the payment of the Company termination fee (as long as the conditions set forth in clause (iii) are satisfied).

Parent has agreed to pay the Company the Parent termination fee if the Company validly terminates the merger agreement as described in the second or third bullets in the section titled “The Agreement and Plan of Merger—Termination of the Merger Agreement—Termination Rights Exercisable by the Company,” above or if Parent validly terminates the merger agreement as described in the second bullet in the section titled “The Agreement and Plan of Merger—Termination of the Merger Agreement—Termination Rights Exercisable by the Company and Parent.”

While the Company termination fee and the Parent termination fee are generally the parties’ sole and exclusive remedies under the merger agreement in the event of termination of the merger agreement (subject to each party’s right to seek specific performance as described in the section titled “The Agreement and Plan of Merger—Miscellaneous—Specific Performance,” below), the Company may seek damages from Parent in excess of the Parent termination fee in the event Parent, HH Finance or Sub commits a willful and material breach of the merger agreement, not to exceed $30.0 million (taking into account any payment of the Parent termination fee), and Parent may seek damages from the Company in excess of the Company termination fee in the event the Company commits a willful and material breach of the merger agreement.

Miscellaneous

Specific Performance

The parties are entitled to an injunction, specific performance or other equitable relief to prevent breaches or threatened breaches of the merger agreement and enforce specifically the terms and provisions of the merger agreement, in addition to any other remedy to which they are entitled under the merger agreement. The Company will be entitled to injunctive relief, specific performance or other equitable relief to cause the equity financing to be consummated (whether under the merger agreement or the equity financing commitment letter, but in each case in accordance with the terms thereof) and to cause Parent and Sub to consummate the merger and to effect the closing (including to deposit with the paying agent funds equal to the merger consideration. However, the Company is only entitled to specific performance of Parent’s obligations to cause the equity financing to be funded and to consummate the merger in the event that each of the following conditions has been satisfied: (i) all of the applicable conditions to the merger (other than those conditions that by their terms are to be satisfied at the closing of the merger, provided, that such conditions would have been satisfied if the closing were to occur) have been satisfied or waived; (ii) Parent and Sub are required to consummate the closing and fail to complete the closing by the date the closing would otherwise be required to have occurred under the merger agreement; (iii) the debt financing has been or will be funded at the effective time if the equity financing is consummated and (iv) the Company has irrevocably confirmed in writing to Parent that if specific performance is granted and the debt financing is funded, then the Company will, subject to certain closing conditions, cause the closing to occur in accordance with the merger agreement. However, while the Company may concurrently seek specific performance and payment of the Parent termination fee, the Company will not be permitted or entitled to receive both an injunction, grant of specific performance or other equitable relief providing for the consummation of the equity financing or the merger and the payment of the Parent termination fee or any monetary damages.

 

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Amendment of the Merger Agreement

Except in certain circumstances with respect to certain provisions to which the debt commitment parties are third party beneficiaries, the merger agreement may be amended by the parties at any time before or after receipt of the Company stockholder approval (but prior to the consummation of the merger) by an instrument in writing signed on behalf of each of the parties. However, after receipt of the Company stockholder approval, there may not be any amendment of the merger agreement that requires further approvable by the stockholders of the Company without the further approval of such stockholders.

Governing Law; Consent to Jurisdiction; Waiver of Trial by Jury

The merger agreement is governed by Delaware law. Each of the parties has irrevocably agreed that any legal action or proceeding arising out of or relating to the merger agreement brought by any other party or its successors or assigns will be brought and determined in the Court of Chancery of the State of Delaware (which we refer to as the “Court of Chancery”) and any state appellate court therefrom within the State of Delaware (unless such court will decline to accept jurisdiction over a particular matter, in which case, in any Delaware state or federal court within the State of Delaware). Notwithstanding the foregoing, all claims or causes of action (whether at law, in equity, in contract, in tort or otherwise) against any of the debt commitment parties in any way relating to the merger agreement or any transactions contemplated thereby, debt financing or the performance thereof or the financings contemplated thereby, must generally be brought exclusively in English courts and, except as specifically set forth in the debt commitment letter, will be exclusively governed by, and construed in accordance with, English law, without regard to the conflicts of law rules of such jurisdiction that would result in the application of the laws of any other jurisdiction. In addition, each of the parties to the merger agreement has irrevocably and unconditionally waived any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to the merger agreement or the merger.

 

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APPRAISAL RIGHTS

Under Delaware law, holders of shares of Company common stock are entitled to appraisal rights in connection with the merger, provided that such holders meet all of the conditions set forth in Section 262 of the DGCL. If the merger is completed, holders of record of shares of Company common stock who continuously hold shares through the effective time who did not vote in favor of the merger and who otherwise complied with the applicable statutory procedures under Section 262 of the DGCL will be entitled to appraisal rights in connection with the merger under Section 262 of the DGCL.

The following discussion is not a complete statement of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262 of the DGCL, which is attached to this proxy statement as Annex C. All references in Section 262 of the DGCL and in this summary to a “stockholder” are to the record holder of shares of Company common stock as to which appraisal rights are asserted. A person having a beneficial interest in shares held of record in the name of another person, such as a broker or nominee, must act promptly to cause the record holder to follow the steps summarized below properly and in a timely manner to demand and perfect appraisal rights. Stockholders should carefully review the full text of Section 262 of the DGCL as well as the information discussed below.

Under the DGCL, if the merger is effected, holders of shares of Company common stock who (i) did not cast their vote in favor of the merger, (ii) follow the procedures set forth in Section 262 of the DGCL and (iii) do not thereafter properly withdraw their demand for appraisal of such shares or otherwise lose their appraisal rights, in each case, in accordance with the DGCL, will be entitled to have such shares appraised by the Court of Chancery and to receive payment of the “fair value” of such shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, as determined by such court, together with interest, if any, to be paid upon the amount determined to be the fair value. The “fair value” could be greater than, less than or the same as the merger consideration of $3.00 per share.

Under Section 262 of the DGCL, the Company is required not less than 20 days before the special meeting to vote on the merger to notify each of the holders of Company common stock who are entitled to appraisal rights that appraisal rights are available for any or all of such shares, and is required to include in such notice a copy of Section 262 of the DGCL. This proxy statement constitutes a formal notice of appraisal rights under Section 262 of the DGCL. Any holder of shares of Company common stock who wishes to exercise such appraisal rights, or who wishes to preserve such holder’s right to do so, should review the following discussion and Annex C carefully because failure to timely and properly comply with the procedures specified may result in the loss of appraisal rights under the DGCL.

Any stockholder wishing to exercise appraisal rights should consider consulting legal counsel before attempting to exercise such rights.

If you wish to exercise your appraisal rights, you should carefully review the text of Section 262 of the DGCL set forth in Annex C to this proxy statement and consider consulting your legal advisor. If you fail to timely and properly comply with the requirements of Section 262 of the DGCL, your appraisal rights may be lost. To exercise appraisal rights with respect to your shares of Company common stock, you must:

 

   

NOT vote your shares of Company common stock in favor of the merger;

 

   

deliver to the Company a written demand for appraisal of your shares before the taking of the vote on the proposal to adopt the merger agreement at the special meeting, as described further below under “—Written Demand by the Record Holder”;

 

   

continuously hold your shares of Company common stock through the effective time; and

 

   

otherwise comply with the procedures set forth in Section 262 of the DGCL.

 

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Written Demand by the Record Holder

All written demands for appraisal should be addressed to InnerWorkings, Inc., 203 North LaSalle Street, Suite 1800, Chicago, Illinois 60601, Attention: Corporate Secretary. Such demand will be sufficient if it reasonably informs the Company of the identity of the stockholder and that the stockholder intends thereby to demand appraisal of such stockholder’s shares. Under Section 262 of the DGCL, a proxy or vote against the merger does not constitute such a demand.

The written demand for appraisal must be executed by or for the record holder of shares, fully and correctly, as such holder’s name appears on the stock records of the Company. If the shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand must be made in that capacity, and if the shares are owned of record by more than one person, such as in a joint tenancy or a tenancy in common, the demand must be executed by or for all joint owners. An authorized agent, including one of two or more joint owners, may execute the demand for appraisal for a stockholder of record. However, the agent must identify the record owner(s) and expressly disclose the fact that, in executing the demand, the agent is acting as agent for the record owner(s).

A beneficial owner of shares of Company common stock held in “street name” who wishes to exercise appraisal rights should take such actions as may be necessary to ensure that a timely and proper demand for appraisal is made by the record holder of the shares. If the shares are held through a brokerage firm, bank or other nominee who in turn holds the shares through a central securities depository nominee, such as Cede & Co., a demand for appraisal of such shares must be made by or on behalf of the depository nominee and must identify the depository nominee as the record stockholder. Any beneficial owner who wishes to exercise appraisal rights and holds shares through a nominee holder is responsible for ensuring that the demand for appraisal is timely made by the record stockholder. The beneficial holder of the shares should instruct the nominee holder that the demand for appraisal should be made by the record holder of the shares, which may be a central securities depository nominee if the shares have been so deposited.

Filing a Petition for Appraisal

Within 120 days after the effective time, but not thereafter, the surviving corporation (which, in this case, will be the Company), or any holder of shares of Company common stock who has complied with Section 262 of the DGCL and is entitled to appraisal rights under Section 262, may commence an appraisal proceeding by filing a petition in the Court of Chancery, with a copy served on the Company in the case of a petition filed by a stockholder, demanding a determination of the fair value of the shares held by all holders who did not adopt the merger and properly demanded appraisal of such shares. If no such petition is filed within that 120-day period, appraisal rights will be lost for all dissenting stockholders. The Company is under no obligation to, and has no present intention to, file a petition, and holders should not assume that the Company will file a petition or that it will initiate any negotiations with respect to the fair value of shares of Company common stock. Accordingly, it is the obligation of the holders of shares of Company common stock to initiate all necessary action to perfect their appraisal rights in respect of the shares within the period prescribed in Section 262 of the DGCL.

Within 120 days after the effective time, any holder of shares of Company common stock who has complied with the requirements for exercise of appraisal rights will be entitled, upon written request, to receive from the surviving corporation a statement setting forth the aggregate number of shares not voted in favor of the merger and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such statement must be mailed within ten days after a written request therefor has been received by the surviving corporation or within ten days after the expiration of the period for delivery of demands for appraisal, whichever is later. Notwithstanding the requirement that a demand for appraisal must be made by or on behalf of the record owner of shares, a person who is the beneficial owner of shares held either in a voting trust or by a nominee on behalf of such person, and as to which demand has been properly made and not effectively withdrawn, may, in such person’s own name, file a petition for appraisal or request from the surviving corporation the statement described in this paragraph.

 

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Upon the filing of such petition by any such holder of shares, service of a copy thereof must be made upon the surviving corporation, which will then be obligated within 20 days after such service to file with the Register in Chancery of the Court of Chancery (which we refer to as the “Delaware Register in Chancery”) a duly verified list (which we refer to as the “verified list”) containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached. Upon the filing of any such petition, the Court of Chancery may order the Delaware Register in Chancery to provide notice of the time and place fixed for the hearing on the petition be mailed to the surviving corporation and all of the stockholders shown on the verified list. Such notice will also be published at least one week before the day of the hearing in a newspaper of general circulation published in the City of Wilmington, Delaware or in another publication determined by the Court of Chancery. The costs of these notices are borne by the surviving corporation.

After notice to the stockholders as required by the Court of Chancery, the Court of Chancery is empowered to conduct a hearing on the petition to determine those stockholders who have complied with Section 262 of the DGCL and who have become entitled to appraisal rights thereunder. The Court of Chancery may require the stockholders who demanded appraisal for their shares of Company common stock and who hold shares represented by certificates to submit their stock certificates to the Delaware Register in Chancery for notation thereon of the pendency of the appraisal proceeding, and, if any such stockholder fails to comply with the direction, the Court of Chancery may dismiss the proceedings as to that stockholder. Pursuant to Section 262 of the DGCL, assuming that immediately prior to the merger shares of Company common stock continue to be listed on the NASDAQ, the Court of Chancery will dismiss the appraisal proceedings as to all holders of shares who are otherwise entitled to appraisal rights unless (i) the total number of shares entitled to appraisal rights exceeds 1% of the outstanding shares of Company common stock eligible for appraisal, or (ii) the value of the merger consideration provided in the merger for such total number of shares exceeds $1,000,000.

Determination of Fair Value

After the Court of Chancery determines which stockholders are entitled to appraisal, the appraisal proceeding will be conducted in accordance with the rules of the Court of Chancery, including any rules specifically governing appraisal proceedings. Through the appraisal proceeding, the Court of Chancery will determine the fair value of the shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any, to be paid upon the amount determined to be the fair value. Unless the Court of Chancery in its discretion determines otherwise for good cause shown, and except as otherwise provided in Section 262 of the DGCL, interest from the effective time through the date of payment of the judgment will be compounded quarterly and will accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective time and the date of payment of the judgment. At any time before the entry of judgment in the proceedings, the surviving corporation may pay to each stockholder entitled to appraisal an amount in cash, in which case interest shall accrue thereafter as provided in Section 262 of the DGCL only upon the sum of (i) the difference, if any, between the amount so paid and the fair value of the shares as determined by the Court of Chancery, and (ii) interest theretofore accrued, unless paid at that time.

In determining fair value, the Court of Chancery will take into account all relevant factors. In Weinberger v. UOP, Inc., the Supreme Court of Delaware discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court stated that, in making this determination of fair value, the Court of Chancery must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the merger that throw any light on future prospects of the merged corporation. Section 262 of the DGCL provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger[.]” In Cede & Co. v. Technicolor, Inc., the Delaware

 

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Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Supreme Court of Delaware also stated that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

Stockholders considering appraisal should be aware that the fair value of their shares of Company common stock as so determined could be more than, the same as or less than the merger consideration of $3.00 per share and that an investment banking opinion as to the fairness, from a financial point of view, of the consideration payable in a sale transaction, such as the merger, is not an opinion as to, and does not otherwise address, “fair value” under Section 262 of the DGCL. Although the Company believes that the merger consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Court of Chancery. Neither Parent nor the Company anticipates offering more than the merger consideration to any stockholder exercising appraisal rights, and Parent and the Company reserve the right to assert, in any appraisal proceeding, that for purposes of Section 262 of the DGCL, the fair value of a share of Company common stock is less than the merger consideration.

Upon application by the surviving corporation or by any holder of shares of Company common stock entitled to participate in the appraisal proceeding, the Court of Chancery may, in its discretion, proceed to trial upon the appraisal prior to the final determination of the stockholders entitled to an appraisal. Any holder of shares of Company common stock whose name appears on the verified list and, if such shares are represented by certificates and if so required, who has submitted such stockholder’s certificates of stock to the Delaware Register in Chancery, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights. The Court of Chancery will direct the payment of the fair value of the shares of Company common stock, together with interest, if any, by the surviving corporation to the stockholders entitled thereto. Payment will be so made to each such stockholder, in the case of holders of uncertificated stock, forthwith, and, in the case of holders of shares represented by certificates, upon the surrender to the surviving corporation of such stockholder’s certificates. The Court of Chancery’s decree may be enforced as other decrees in such Court may be enforced.

The costs of the action (which do not include attorneys’ fees or the fees and expenses of experts) may be determined by the Court of Chancery and taxed upon the parties as the Court of Chancery deems equitable. Upon application of a stockholder, the Court of Chancery may order all or a portion of the expenses incurred by a stockholder in connection with an appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts utilized in the appraisal proceeding, to be charged pro rata against the value of all the shares of Company common stock entitled to appraisal. In the absence of an order, each party bears its own expenses.

Any stockholder who has duly demanded appraisal rights for shares of Company common stock in compliance with Section 262 of the DGCL will not, after the effective time, be entitled to vote such shares for any purpose or be entitled to the payment of dividends or other distributions thereon, except dividends or other distributions payable to holders of record of shares of Company common stock as of a date or time prior to the effective time.

At any time within 60 days after the effective time, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party will have the right to withdraw such stockholder’s demand for appraisal and to accept the terms offered in the merger; after this period, the stockholder may withdraw such stockholder’s demand for appraisal only with the consent of the Company. If no petition for appraisal is filed with the Court of Chancery within 120 days after the effective time, stockholders’ rights to appraisal shall cease, and all holders of shares of Company common stock will be entitled to receive the merger consideration. Inasmuch as the Company has no obligation to file such a petition and has no present intention to do so, any holder of shares of Company common stock who desires such a petition to be filed is advised to file it on a timely

 

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basis. Any stockholder may withdraw such stockholder’s demand for appraisal by delivering to the Company a written withdrawal of its demand for appraisal and acceptance of the merger consideration, except that (i) any such attempt to withdraw made more than 60 days after the effective time will require written approval of the Company and (ii) no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court of Chancery, and such approval may be conditioned upon such terms as the Court of Chancery deems just. Notwithstanding the foregoing, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party may withdraw such stockholder’s demand for appraisal and accept the terms offered upon the merger within 60 days after the effective time.

If you wish to exercise your appraisal rights, you must not vote your shares of Company common stock in favor of the merger, and you must comply with the procedures set forth in Section 262 of the DGCL. If you fail to take any required step in connection with the exercise of appraisal rights, it will result in the termination or waiver of your appraisal rights.

The foregoing summary of the rights of Company stockholders to seek appraisal rights under Delaware law does not purport to be a complete statement of the procedures to be followed by Company stockholders desiring to exercise any appraisal rights available thereunder and is qualified in its entirety by reference to Section 262 of the DGCL. The proper exercise of appraisal rights requires adherence to the applicable provisions of the DGCL. A copy of Section 262 of the DGCL is included as Annex C to this proxy statement.

 

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MARKET PRICE AND DIVIDEND DATA

Company common stock is traded on the NASDAQ under the symbol “INWK.” As of the close of business on [●], 2020, the latest practicable trading day prior to the date of this proxy statement, there were [●] shares of Company common stock outstanding and entitled to vote, held by approximately [●] holders of record of Company common stock. The following table presents the high and low sale prices of Company common stock for the period indicated in published financial sources:

 

     High      Low  

Fiscal 2018

     

First quarter ended March 31, 2018

   $ 10.34      $ 8.80  

Second quarter ended June 30, 2018

   $ 10.25      $ 8.60  

Third quarter ended September 30, 2018

   $ 9.00      $ 6.02  

Fourth quarter ended December 31, 2018

   $ 7.95      $ 3.22  

Fiscal 2019

     

First quarter ended March 31, 2019

   $ 5.42      $ 3.59  

Second quarter ended June 30, 2019

   $ 4.22      $ 3.29  

Third quarter ended September 30, 2019

   $ 4.70      $ 2.84  

Fourth quarter ended December 31, 2019

   $ 5.58      $ 4.31  

Fiscal 2020

     

First quarter ended March 31, 2020

   $ 5.79      $ 0.97  

Second quarter ended June 30, 2020

   $ 2.12      $ 0.96  

Third quarter through [●], 2020

   $ [●]      $ [●]  

The following table presents the closing per share sales price of Company common stock, as reported on the NASDAQ on July 15, 2020, the last full trading day prior to the public announcement of the merger agreement, and on [●], 2020, the last full trading day prior to the date of this proxy statement:

 

Date

  

Closing per Share Price

July 15, 2020    $1.32
[●], 2020    $[●]

You are encouraged to obtain current market prices of Company common stock in connection with voting your shares. Following the merger, there will be no further market for Company common stock, and Company common stock will be delisted from the NASDAQ and deregistered under the Exchange Act.

The Company does not pay dividends and the merger agreement prohibits us from declaring or paying any dividend or other distribution with respect to Company common stock.

 

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STOCK OWNERSHIP

We have listed below, as of August 19, 2020 (except as otherwise indicated), the beneficial ownership of Company common stock by (i) each of our directors, (ii) each of our “named executive officers,” (iii) all of our directors and executive officers as a group and (iv) each person known by us to be the beneficial owner of more than five percent of the number of outstanding shares of Company common stock. The table is based on information we received from the directors and executive officers and filings made with the SEC. We are not aware of any other beneficial owner of more than five percent of the number of outstanding shares of Company common stock as of [●], 2020. Unless otherwise indicated, each of our directors and “named executive officers” has the same business address as the Company. All share numbers have been rounded to the nearest whole number.

We have determined beneficial ownership in accordance with the rules of the SEC. Except as otherwise indicated in the footnotes to the table below, we believe that the beneficial owners of Company common stock listed below, based on the information furnished by such owners, have sole voting power and investment power with respect to such shares, subject to applicable community property laws. We have based our calculation of the percentage of beneficial ownership on [●] shares of Company common stock issued and outstanding as of [●], 2020. In computing the number of shares of Company common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding any shares of Company common stock as to which the person has the right to acquire beneficial ownership within 60 days of [●], 2020, through the exercise of any option, conversion rights, or other rights. We did not deem these shares outstanding for purposes of computing the percentage ownership of any other person.

 

Name

   Amount and Nature of
Beneficial Ownership of
Company

Common Stock
    Percent of
Class
 

5% Shareholders:

    

ArrowMark Colorado Holdings LLC

     [ ●]      [ ●] 

Richard A. Heise, Jr.

     [ ●]      [ ●] 

Dimensional Fund Advisors LP

     [ ●]      [ ●] 

American Century Capital Portfolios, Inc.

     [ ●]      [ ●] 

Aristotle Capital Boston, LLC

     [ ●]      [ ●] 

Directors and Named Executive Officers

    

Richard S. Stoddart

     [ ●]      [ ●] 

Ronald C. Provenzano

     [ ●]      [ ●] 

Jack M. Greenberg

     [ ●]      [ ●] 

Charles K. Bobrinskoy

     [ ●]      [ ●] 

David Fisher

     [ ●]      [ ●] 

Oren B. Azar

     [ ●]      [ ●] 

Julie M. Howard

     [ ●]      [ ●] 

Donald W. Pearson

     [ ●]      [ ●] 

Marc Zenner

     [ ●]      [ ●] 

Lindsay Y. Corby

     [ ●]      [ ●] 

Adam J. Gutstein

     [ ●]      [ ●] 

Renae D. Chorzempa

     [ ●]      [ ●] 

Charles D. Hodgkins III

     [ ●]      [ ●] 

Kirt P. Karros

     [ ●]      [ ●] 

All directors and executive officers as a group (14 persons)(19)

     [ ●]      [ ●] 

 

* 

Less than 1%.

 

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OTHER MATTERS

Other Matters for Action at the Special Meeting

As of the date of this proxy statement, the Board knows of no matters that will be presented for consideration at the special meeting other than as described in this proxy statement.

 

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FUTURE STOCKHOLDER PROPOSALS

If the merger is consummated, the Company will not have public stockholders and there will be no public participation in any future meeting of stockholders. However, if the merger is not completed, the Company would hold an annual meeting of stockholders in 2021.

To be submitted for inclusion in the proxy statement for any 2021 annual meeting of stockholders, stockholder proposals must have satisfied all applicable requirements of Rule 14a-8 and must have been received by the Corporate Secretary of the Company no later than December 29, 2020. Nothing in this paragraph shall be deemed to require the Company to include in its proxy statement and proxy relating to the 2021 annual meeting any stockholder proposal that may be omitted from the proxy materials of the Company under applicable regulations of the Exchange Act in effect at the time such proposal is received.

Our second amended and restated bylaws provide that for a proposal to be properly brought by a stockholder before the annual meeting of stockholders to be held during calendar year 2021, notice of such proposal must generally be delivered to, or mailed and received at, the principal executive offices of the Company not less than 60 days nor more than 90 days prior to the first anniversary of the 2020 annual meeting of stockholders. As a result, notice of any stockholder proposal with respect to the 2021 annual meeting of stockholders submitted pursuant to these provisions of our bylaws, and containing the information required by our bylaws, must have been delivered to the Corporate Secretary of the Company no earlier than March 11, 2021 and no later than April 9, 2021.

Stockholder proposals and nominations should be sent to:

Corporate Secretary

InnerWorkings, Inc.

203 North LaSalle, Suite 1800

Chicago, Illinois 60601

 

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HOUSEHOLDING OF PROXY MATERIAL

If you and other residents at your mailing address own shares of Company common stock in “street name,” your bank, broker, trust or other nominee may have sent you a notice that your household will receive only one annual report and proxy statement or notice of Internet availability of proxy for each company in which you hold stock through that broker or bank. This practice, known as “householding,” is designed to reduce our printing and postage costs. If you did not respond that you did not want to participate in householding, the bank, broker, trust or other nominee will assume that you have consented and will send only one copy of our annual report and proxy statement or notice of Internet availability of proxy to your address. If you desire to revoke your consent to householding, please contact your bank, broker, trust, or other nominee. In any event, if you did not receive an individual copy of this proxy statement or if you wish to receive individual copies of our proxy statements, annual reports or notices of Internet availability of proxy, as applicable, for future meetings, we will send a copy to you if you write our Corporate Secretary at InnerWorkings, Inc., 203 North LaSalle Street, Suite 1800, Chicago, Illinois 60601 or call (312) 642-3700.

If you and other residents at your mailing address are registered stockholders and you received more than one copy of this proxy statement, but you wish to receive only one copy of our annual report and proxy statement or notice of Internet availability of proxy, you may request, in writing, that the Company eliminate these duplicate mailings. To request the elimination of duplicate copies, please write to our Corporate Secretary at InnerWorkings, Inc., 203 North LaSalle Street, Suite 1800, Chicago, Illinois 60601.

 

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WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are also available to the public at the SEC’s website at www.sec.gov.

Statements contained in this proxy statement, or in any document incorporated in this proxy statement by reference, regarding the contents of any contract or other document, are not necessarily complete, and each such statement is qualified in its entirety by reference to that contract or other document filed as an exhibit with the SEC. The SEC allows us to “incorporate by reference” into this proxy statement documents we file with the SEC. This means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this proxy statement. This proxy statement and the information that we later file with the SEC may update and supersede the information incorporated by reference. Similarly, the information that we later file with the SEC may update and supersede the information in this proxy statement. We also incorporate by reference the documents listed below and any documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy statement and before the date of the special meeting (provided that we are not incorporating by reference any information furnished to, but not filed with, the SEC):

 

   

the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the SEC on March 17, 2020;

 

   

the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, which was filed with the SEC on June 16, 2020;

 

   

the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, which was filed with the SEC on August 6, 2020;

 

   

the Company’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on April 28, 2020; and

 

   

the Company’s Current Reports on Form 8-K filed with the SEC on February 25, 2020, May 11, 2020, June 9, 2020, July 16, 2020 and July 17, 2020.

Copies of any of the documents we file with the SEC may be obtained free of charge either on our website, by contacting our Corporate Secretary at InnerWorkings, Inc., 203 North LaSalle Street, Suite 1800, Chicago, Illinois 60601, Attention: Corporate Secretary or by calling (312) 642-3700.

If you would like to request documents from us, please do so at least five business days before the date of the special meeting in order to receive timely delivery of those documents prior to the special meeting.

THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO VOTE YOUR SHARES AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED [●]. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS SHALL NOT CREATE ANY IMPLICATION TO THE CONTRARY.

 

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Table of Contents

Execution Version

ANNEX A — AGREEMENT AND PLAN OF MERGER

 

AGREEMENT AND PLAN OF MERGER

among

HH GLOBAL GROUP LIMITED,

HH GLOBAL FINANCE LIMITED,

PROJECT IDAHO MERGER SUB, INC.

and

INNERWORKINGS, INC.

Dated as of July 15, 2020

 

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  

ARTICLE I THE MERGER

     A-2  

Section 1.01

  The Merger      A-2  

Section 1.02

  Closing      A-2  

Section 1.03

  Effective Time      A-2  

Section 1.04

  Organizational Documents, Directors and Officers of the Surviving Corporation      A-2  

ARTICLE II EFFECT OF THE MERGER ON CAPITAL STOCK

     A-3  

Section 2.01

  Conversion of Securities      A-3  

Section 2.02

  Exchange of Certificates; Payment for Shares      A-3  

Section 2.03

  Treatment of Company Options, Company SARs, RSUs, Restricted Stock, Company Stock Plans and Warrant      A-5  

Section 2.04

  Dissenting Shares      A-7  

Section 2.05

  Withholding Rights      A-7  

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     A-7  

Section 3.01

  Organization and Qualification; Subsidiaries      A-8  

Section 3.02

  Capitalization      A-8  

Section 3.03

  Company Subsidiaries      A-9  

Section 3.04

  Authority      A-10  

Section 3.05

  No Conflict; Required Filings and Consents      A-10  

Section 3.06

  Permits; Compliance with Laws      A-11  

Section 3.07

  Company SEC Documents; Financial Statements      A-12  

Section 3.08

  Information Supplied      A-12  

Section 3.09

  Internal Controls and Disclosure Controls      A-13  

Section 3.10

  Absence of Certain Changes      A-13  

Section 3.11

  Undisclosed Liabilities      A-13  

Section 3.12

  Litigation      A-14  

Section 3.13

  Employee Benefits      A-14  

Section 3.14

  Labor      A-16  

Section 3.15

  Tax Matters      A-16  

Section 3.16

  Properties      A-17  

Section 3.17

  Environmental Matters      A-18  

Section 3.18

  Intellectual Property      A-18  

Section 3.19

  Material Contracts      A-20  

Section 3.20

  Compliance with Anti-Corruption & Sanctions Laws      A-22  

Section 3.21

  Insurance      A-22  

Section 3.22

  Opinion of the Company’s Financial Advisor      A-22  

Section 3.23

  Takeover Statutes      A-22  

Section 3.24

  Brokers      A-22  

Section 3.25

  Customers      A-23  

Section 3.26

  Acknowledgement of No Other Representations or Warranties      A-23  

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB

     A-23  

Section 4.01

  Organization      A-23  

Section 4.02

  Authority      A-23  

Section 4.03

  No Conflict; Required Filings and Consents      A-23  

Section 4.04

  Information Supplied      A-24  

Section 4.05

  Litigation      A-24  

Section 4.06

  Capitalization and Operations of Sub; No Ownership of Company Common Stock      A-25  

Section 4.07

  Financing      A-25  

 

i


Table of Contents
         Page  

Section 4.08

  Brokers      A-27  

Section 4.09

  Absence of Certain Arrangements      A-27  

Section 4.10

  Investment Intention      A-27  

Section 4.11

  Financial Information      A-27  

Section 4.12

  Solvency      A-28